Freeserve makes e-commerce gains

Pioneering free ISP is making more from e-commerce and advertising than telephone revenues.

Maybe there is money to be made on the Web after all. Freeserve this week announced it is, for the first time, making more cash from e-commerce and advertising than from telephone-call revenues.

The revenues are not enough to save the ISP, which floated in July, from posting first-quarter losses, but the revelation that e-commerce is rising will be one in the eye for critics claiming the free access model would never work.

Money from advertising and e-commerce made up 52 percent of Freeserve's revenue. Nick Jones, analyst with research firm Jupiter, believes the really interesting question is how much of this is generated solely through e-commerce. "Advertising revenue is soft because it is a buyers' market. To make the cream, Freeserve needs e-commerce," he said.

Freeserve is reluctant to discuss specific figures, claiming it is difficult to distinguish between advertising and e-commerce. According to finance manager John Sills, advertising revenue "is quite small, a lot less than half" of the 52 percent. Sills regards this as a vindication of the free model. "In terms of our floatation we clearly said the potential of the Net will be exploited through e-commerce and we're getting there. It is no longer about generating telephone traffic," he said.

Jones believes Freeserve is on the right track if the figures are correct. "Freeserve is obviously recognising the need to move away from advertising into e-commerce," he said. For ISPs, e-commerce revenue can be generated in two ways -- by selling directly and by taking commissions through referrals (the commission is generally around 10 percent).

In a separate report, high-street booksellers have found profits hit by online book sales, with both Waterstone's and Ottakar's reporting significant losses.

Take me to the e-commerce special.