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September 14, 1999

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Subject:

Re: Free online service

Author: netvest1

The 'free' ISPs will take revenue from AOL if they lure current and potential AOL subscribers to their service.

In the UK and rest of Europe the so-called 'free' providers may have taken some growth away from AOL but actually what they have done is accelerate the internet user base by the attractive 'free' tag. It does not necessarily follow that these users are 'lost' users to AOL. Sure, AOL in the UK would have lost some potential customers and they were a little slow in waking up to the Freeserve competition. I don't think that AOL UK is that switched on (They are not wholly owned by AOL US).

"In the UK we now have a ridiculous situation where there are over 300 ISPs"

In the UK we now have a ridiculous situation where there are over 300 ISPs. Remember these make their money from a cut in the dial-up call charges, which highlights the crazy telecoms pricing regime we suffer where we pay around 8c per minute for a local daytime call. This pricing model will not last because finally, within 2 years, we will have have real competition to BT in the local loop. This will drive prices down and it will happen sooner than later as the telecoms regulator is keen to drive internet use forward. At the moment this pricing regime is the greatest hinderance to internet development. I believe that the business model of all these ISPs from banks, to supermarkets to newspapers, and probably Fred down the road, will not be sustainable. Also the regulator practically forced BT to start deploying ADSL services which will start commercially next year. Which ISPs will have the equipment, finance, technical support to provide this type of service? I think I know which I will choose and it won't be my local supermarket.

From what I understand in the US the proposed 'free' providers will rely on advertising, some of it quite intrusive,to earn their revenue. You lucky people can stay online all day for free anyway with no local call charges! $20 a month is peanuts compared to what I pay in call charges and I'd happily pay that for good service with good content than give 3 times that to the phone company. Will these free services attract enough advertisng revenue to make them viable ? To attract the advertisers I guess they will need some degree of stickiness of users, and what will they do ensure that?. At least AOL is making money, it's going to be very difficult to make enough revenue through advertising only to provide top service and make money.

"You lucky people can stay online all day for free anyway with no local call charges! $20 a month is peanuts compared to what I pay in call charges"

AOL is more than just an ISP/Portal. As the internet grows into a broadcasting medium it is well positioned because it has the financial muscle and huge user base to take advantage of developments, indeed drive developments, in this growing and changing medium. I think many pundits fail to look further into the future.

Finally, in this rather long post, some further comment on Freeserve in the UK. I admire them for exploiting an anachronistic situation and thereby popularising internet usage. They have also been quick to provide content, the finacial and market information is good. Prior to their stock float I saw a well informed post on a BB suggesting that AOL could in fact buy Freeserve which would have been a good way of getting in on the 'free' act. As the telecoms pricing structure changes and Freeserve finds its telecoms revenues falling away maybe AOL might just do that.

Richard