Free Service Providers

Scarcely a week passes without a new ISP (internet service provider) announcing its plans to set up business. The government's policy of throwing open the Internet to all comers has certainly paid dividends for the consumer, as competition between ISPs drives down Internet access fees lower and lower. One Calcutta based operator has in fact offered access for free. Others are offering unlimited access for as little as Rs 299 a month. Providing Internet access is fast becoming a commodity business. This accelerating race to the bottom will culminate in the free access model, which has become practically ubiquitous on the Net.

 

The world over, ISPs wanting to challenge established players have offered their services free, the prime example being Freeserve in the UK. Strictly speaking, access charges in the UK and India, even from so-called free access companies, are not zero. The telephone charges continue to be incurred. But even here there are companies experimenting with buying telephone bandwidth and providing it free to customers, in exchange for consumers agreeing to certain conditions such as accessing certain sites and making a minimum amount of purchases. In the US, where telephone charges are flat, some ISPs actually do offer a totally free service. Nor is the package restricted to free access. There have been schemes in the US where firms have offered free computers with an Internet access package. The permutations and combinations of using free access as a loss-leader are infinite.

How has the free model affected the established players? The recent results of America Online are a pointer. AOL's revenues from Internet access have continued to grow, albeit not at the same pace as before. That scotches the predictions that free access would spell the death of the fee-paying business model. And although the rate of growth in fees has slackened, this has been more than made up by increased advertising revenues from its portal. Several morals are being drawn from this trend. One of them is that an Internet business needs more than one revenue model. The second is that the quality of the service provided is very important. If an ISP claims to provide free access but neglects to improve its server capacity, and as a result is unable to ensure connectivity, then all that will happen is that it will lose credibility. This is also true of packages offering free computers.

Yet another conclusion is that the first mover advantage, when it is backed up and sustained by established brand equity, can be a potent force in ensuring the stickiness of eyeballs. That brand equity in a niche area can ensure subscribers is proved by the Wall Street Journal, perhaps the only publication to make a success of a subscriber-based Internet model. Another conclusion is that while surfers will take the free connection, they will also keep their earlier subscriber connections till they are convinced they have no need for them. In the final analysis, the success of any venture depends on the value bundle which is being provided to the customer. This can be done by combining any number of features designed to attract the viewer. Free service can be one way of doing that. But it need not necessarily be the only way. In the virtual world, as in the real, quality counts.