Free ISPs Causing Subscriptions to Stall in UK

The advent of subscription-free ISPs such as Freeserve has helped slash the growth rate of subscription-based ISPs in Europe from more than 80 percent to less than 1 percent, according to a report by Durlacher.

Durlacher’s Q2 Internet Report found there are more than 95 subscription-free ISPs in the region,and that number will rise to as many as 200 by the end of 1999. The widespread adoption of the free ISP model has forced paid ISPs to re-price, differentiate their service, and add value to the offerings.

However, Durlacher’s Nick Gibson believes that many subscription-free ISPs could also face a bleak future.

“Most subscription-free ISPs, including Freeserve, offer little to differentiate themselves and provide little or no barriers to exit for subscribers,” Gibson said. “As long as users can switch accounts so easily, free ISPs leave themselves vulnerable to churn.”

The UK Dial-Up ISP Market
Subscription-free market Subscription-based market
ISP Subscribers Market Share ISP Subscribers Market Share
Freeserve 1,250,000 32% AOL 600,000 29%
X-Stream 270,000 7% CompuServe 400,000 20%
Currant Bun 250,000 6% Demon 175,000 9%
breathenet 225,000 6% BT Internet 115,000 6%
Line One 200,000 5% Global Internet 100,000 5%
Other 1,735,000 44% Other 644,000 31%
Total 3,930,000 Total 2,034,000
Source: Durlacher

Durlacher’s report also looked at Internet use by small and medium-sized enterprises (SMEs) in the UK. The Internet use by SMEs in the UK ramped up 36.6 percent over the past year to reach 76.6 percent, according to Durlacher. Free ISPs played a role with SMEs also.

“This growth spurt was supported by the uptake of subscription-free services by 15.7 percent of SMEs, the majority of which were first-time users,” said Durlacher’s Sarah Skinner.

Nearly half of the Internet-enabled SMEs in the UK still use a modem as their primary connection to the Internet. According to Durlacher, this manifests itself in low in-company Internet penetration (38.7 percent of employees) and low uptake of high-end Internet and e-commerce services (less than 10 percent).

More than half (57 percent) of the Internet-enabled retailers in Durlacher’s sample cite direct selling as the primary aim of their Web site whereas only 39 percent of wholesale/distributors and 28 percent of manufacturers cite selling as the primary concern of their Web site. According to Durlacher, the retail sector currently owns the customer relationship and is experiencing more success than its manufacturing counterparts, who focus more on back-end systems and processes.

On the other hand, Durlacher found that in the UK, retailers have a lower Internet presence (61 percent) than the rest of the supply chain. Nearly two-thirds of (66 percent) of distributors/wholesalers have an Internet presence, and 67 percent of manufacturers, Durlacher found.

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