When I was growing up, my family subscribed to a service whose business model seemed to foreshadow everything that's going on in online publishing right now. It was called NetZero, and it gave you access to stuff — namely, the Internet — for free in exchange for advertisements. At its peak, NetZero stock was trading on NASDAQ for over $100 a share.
And then NetZero fell silent. Big companies like Verizon took over. Today, the scrappy startup from 1998 is barely what it was. I say "barely," because NetZero's parent company, United Online, still claims 595,000 subscribers through its paid Internet service, down from 7 million in 2001. And now it's staging a comeback. The firm just expanded its new mobile broadband service this month thanks to agreements with Sprint and Verizon.
What happened to NetZero between its heyday at the turn of the millennium and its recent venture into 3G and 4G data?
Over the last decade, the way we connected to the Internet got way better — and less expensive. NetZero was in the same business as AOL in that it primarily offered dial-up service. But as DSL and cable Internet came on the scene, the costs of providing substantially faster Internet access fell to the point where NetZero couldn't compete.
It didn't help that the advertising market crashed through the floor along with the dot-com bust. Overall spending on Web advertising fell by 11 percent in 2001, amounting to billions of dollars in losses for companies like NetZero whose entire livelihoods depended on targeted ads.
In response, NetZero pulled a move that modern-day media companies would instantly recognize: It launched a metered paywall. Once you'd spent 40 hours surfing the Web, NetZero would prompt you to pay $9.95 for continued access for the rest of the month. Unfortunately for the company, that wasn't enough. By the end of 2001, shares of United Online were trading at about 3 percent of their former value — and they have never really recovered since.
Now NetZero aims to make free Internet sexy again. Last year, the company introduced an option where Facebook users could "gift" each other up to 1 GB of data access (but you could use your free gig only if you actually signed up for a mobile broadband package). United Online's CEO, Mark Goldston, admits the 4G hotspot plan won't make any money; the idea is to get people in the door and then up-sell them to a more lucrative plan.
Goldston told GigaOM he's targeting the "Joe and Jane" who frequent coffee shops for the free WiFi, of whom he estimates there are 100 million. It's not immediately clear why anyone would give up free WiFi in exchange for iffier coverage and a data cap of about 200 MB (for the most basic plan; there are larger allowances, but they begin to cost money).
Can this business model succeed? It didn't before. But that was due to reasons mostly beyond NetZero's control. Maybe it'll be different this time.