A new twist on free ISPs

Will CMGI's investments threaten smaller Internet service providers in the US?
Written by Steven J.Vaughan Nichols, Contributor on

CMGI is rapidly emerging as a force to contend with. The company owns the second biggest free Internet service provider (ISP), 1stUp.com, with two million plus members; only NetZero, at three million subscribers, is larger. You may not know CMGI and 1stUp.com, but you do know their partners. They include names like AltaVista, Excite and, as of 1 March, Lycos' free Net services. For many ISPs, these heavyweights are the competition.

CMGI's "keirestu" model (an old Japanese concept of aligning a number of businesses under one umbrella, which contributed to the country's economic power in the 1970s and '80s) involves driving customers straight from their modems to CMGI-controlled Web sites. This stands in stark contrast to NetZero's pure, ad-based free ISP model, which lacks ties to e-commerce sites.

However, CMGI isn't the only keirestu to see the possibilities here. Softbank and Yahoo!, by way of Spinway.com, another free ISP, are providing free Net services to Yahoo! and Kmart's BlueLight.com. But unlike Softbank, CMGI's business plan has another revenue stream. Besides getting profits from selling advertising to vendors, CMGI marketing and advertising companies like AdForce Adsmart and Engage actually create the ads for vendors. Those ads are then place on CMGI-controlled "freenets".

Heather Doughtery, principal analyst for market researcher Jupiter Communications, says the secret to a keiretsu success is a common online infrastructure. "The company will benefit from a consistent infrastructure among its Web sites... across its individually branded online properties," she said.

Still, small ISPs aren't overly concerned about the keiretsu model. Brian Burgmeier, president of Net-World, and ISP, says that small can still work. "It's all about finding a niche and filling it," Burgmeier said. "As a small ISP, we take the time to get to know each of our members personally. We try to make the customers feel like they are partners. This helps us to create a community feeling that is difficult for the larger players to duplicate."

Jeffrey Meltzer, senior network administrator at VillageWorld.com, a national community-oriented ISP and reseller, agrees. Although he works for a company that's more than 100 times bigger than Net-World, Meltzer says bigger doesn't necessarily mean better. "Local, personal service will beat the impersonal every time," he said.

Still, CMGI's deep pockets and keirestu business model should enable it to maintain high-quality free services and avoid the fate of such early free ISP efforts like BOSnet and USFreeway.

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