Buy Net access from the checkout line

Long-distance callers searching for bargains are used to the idea: Pay a few bucks up front, get a cache of minutes that can be used anywhere. Credit-challenged callers who can't get a long-distance discount plan are particularly fond of them. A few start-up firms think the same logic can be applied to Internet access. But analysts say the target market - Internet wannabes without credit cards - is slim pickings.

Getting online normally requires a credit card - something 24 percent of U.S. households don't have, according to CardWeb.com. Without a credit card, consumers generally can't set up monthly billing with companies like AOL, MSN and EarthLink. No monthly billing, no Internet, no e-mail. (MSNBC is a Microsoft-NBC joint venture.)

Keith Kegley, CEO of Seattle-based Slingshot.com, says his company now plugs that gap in the digital divide. By dropping $10 in a retail store, a consumer without a credit card gets a CD-ROM that's loaded with 600 minutes of Internet access. No profile to fill out, no forms to submit, no monthly billing.

Kegley's company is one of a growing list of firms looking to apply the disposable phone card model to Internet access. California-based MaGlobe Inc. is marketing its prepaid cards to business travelers who are frustrated by hefty long-distance fees from hotel room phones. Another, Pine Creek Systems Ltd., says its largest market is overseas, where consumers are much more familiar with the prepaid model.

The benefits extend beyond getting wired without a credit card, Kegley argues. Those who only check e-mail a few times a week are overpaying for America Online or other premium services - a $10 Slingshot card, with 10 hours of service, could last a stingy Net user a few months. And customers worried about anonymity will get it, since Slingshot doesn't know anything about who drops the $10 bill at the local Staples or Radio Shack, two of Slingshot's retail distributors. There isn't even a login screen.

With a CD, you can count on being on the Internet in 90 seconds from scratch. No username, no password. That simplicity has really appealed to consumers," Kegley said.

Ready for something new
With the near-collapse of the free-ISP market--last week's Juno-NetZero merger leaves only one standing--the timing is right for a new access model, says analyst Daryl Schoolar of Cahners In-Stat.

"The market is kind of ready right now to give it a try," he said. "The free model has obviously failed. There is still a need for low-end users, and prepaid could fill that void."

But analysts are divided about how big that void is, and so is the market. One of the early movers in the space, InterpassNet Technologies, closed its doors in April. Before shutting down, InterpassNet offered cut-rate access of 35 hours for $20, just about a penny a minute.

"When I first heard about it, free ISPs were still around, so my market forecast (for prepaid) would have been zero. But with the demise of the free-ISP model, I think there is a market for this," said Steve Harris, an analyst at IDC. "The problem is, if people cannot get a credit card, they are probably not likely to have a computer."

Backup for high speed
Prepaid Net access can attract business in other under-served markets, says Schoolar. Travelers sometimes pay pricey long-distance rates to access their ISP; prepaid firms like MaGlobe specialize in having local access numbers and offer toll-free access lines. Prepaid access can also come pre-loaded on a new generation of Internet devices like handheld computers. Schoolar also thinks DSL and cable modem users can use a prepaid service as a backup, in case their high-bandwidth service goes out.

All told, Kegley thinks there are about 15 million potential customers in those combined markets. He wouldn't reveal the company's customer base but said 5,000 new accounts were added in May.

Rob Lancaster, an analyst with the Yankee Group, pegs the niche at a considerably smaller size - perhaps a few hundred thousand within five years.

"The consumer ISP market is such a hard market to get into right now," Lancaster said. "It's been around for so long, the top players are so entrenched. Trying to enter such a flushed-out market with new business model, there are many challenges to that." Lancaster also noted that many of the major ISPs already offer a cheaper, limited-hour access account - and services like AOL can arrange monthly billing without credit cards through some local telephone companies.

Even Roger Schulz, manager of Pine Creek, concedes that point. Most of his firm's revenues come from licensing the technology used to create new accounts, allowing local companies to print their own Net access cards, he said. For example, the state-run telecommunications firm in Brunei is now offering prepaid Net access cards to its citizens, and 50,000 have been sold in recent weeks, he said.

"In the U.S., people are used to $20 a month for unlimited service," Schulz said. "It's tough to get them to pay 5 or 10 cents a minute."

Criminal uses
And there's another obstacle prepaid firms must overcome--the stark anonymity they provide has already been discovered by the seedier side of the Internet. Onel de Guzman, author of the Love Bug virus, used a prepaid service called SuperNet in Manila to launch his virus. And before it went out of business, InterpassNet was publicly chastised more than once as being a haven for spammers.

But Kegley thinks his network is built to recognize troublemakers; he and a series of his colleagues left Microsoft's MSN access service to launch the venture in December. And he's convinced investors to pour in over $7 million in a downtrodden funding environment, evidence that prepaid access might be the next big thing.

"The Internet has reached about half the households in the U.S., but 97 percent say 'I expect to be on the Internet in next 18 months.' What's stopping them?" he said. "I think many of them would say, 'I wouldn't use it enough to pay $22 a month.' And for them, the pay-as-you-go model works very well."