AltaVista Jumps Onto ‘Free’ Web Access Bandwagon
Joining a crowded market of companies offering “free” computer products or services, Internet search engine AltaVista on Thursday became the largest U.S. company yet to offer Net access to consumers willing to look at targeted ads.
A recent flurry of offers for free Internet service, capped by AltaVista’s announcement, follows a wave of “free” computer offers that generally involve subsidies in exchange for contracted Internet access for as long as three years.
While several smaller companies have tried such deals, the move by Palo Alto-based AltaVista poses the greatest challenge to NetZero, a Westlake Village company that launched its free-access venture a year ago. Analysts say Microsoft Corp. is considering a free or inexpensive Internet service provider to take aim at America Online, which is by far the biggest access provider.
NetZero quickly became a major Internet service provider by using the same ad-supported formula to garner more than a million registered users by June. NetZero’s losses have thinned as additional advertising money has rolled in to grab the captive audience.
“It certainly changes the dynamic of the entire industry,” Gary Arlen, president of Bethesda, Md.-based research firm Arlen Communications, said of AltaVista’s plan. “ ‘Free’ is the best word in marketing.”
NetZero officials declined to comment, citing the company’s impending initial public offering.
Like other offers for free computers or services, AltaVista’s plan requires consumers to provide demographic information and complete a brief survey about their e-commerce interests. Users can fill out the survey and download the service at AltaVista’s Web site.
AltaVista, which is owned by Compaq Computer, ranks far below No. 1 Yahoo and other search sites in popularity. The company is being sold to Internet investor CMGI.
While AltaVista executives said the step had been in the works before Andover, Mass.-based CMGI agreed to buy the company, the free-ISP pitch fits CMGI Chief Executive David Wetherell’s aggressive style.
Even if the plan loses money--and it could easily cost tens of millions of dollars annually--it could rapidly assemble an audience for AltaVista that could presage a profitable public stock sale, analysts said.
“I question the economics. But Wetherell doesn’t need economics for Wall Street,” said Banc of America Securities analyst Alan Braverman. “No one is playing for the long term.”
While advertising revenue is going up and the cost of access is falling, a free model couldn’t even make money at AOL yet, he said.
AltaVista wouldn’t say when or if it expects to make money from the arrangement.
But company Vice President Charles Rashall said, “AltaVista would not enter into any business that wouldn’t have long-term economic viability for the company.”
Some of that viability, however, could come from driving new visitors to AltaVista’s search site and its Shopping.com retail operation.
“I see it as potentially a loss leader to attract a consumer,” said Jupiter Communications analyst Patrick Keane.
The test will be how quickly the company can build an audience big enough to warrant advertising fees that make the proposition profitable, or nearly so, he said.
“The pressure on Internet access prices is overwhelmingly downward here, and there’s always going to be a value sector,” Keane said.
The advantage of a free ISP, instead of a quasi-free PC, is that it allows the consumer to jump elsewhere when a better offer comes along, as it surely will, Arlen said.
“The serious users will figure out what they want to pay for and what they want to get for free,” he said.
