Free Internet service providers, pooh-poohed a few years ago by analysts, may be poised to become formidable contenders in the access market--especially if yesterday's stock rally is any indication.
Shares of Juno Online Services Inc. more than doubled to close at $66.75, a day after the New York-based company unveiled plans to give away Internet access. NetZero Inc., which offers a similar service, soared 44 percent. Yahoo Inc. bolted 10 percent, an increase that analysts attributed to its recent alliance with Kmart stores to introduce a free service to the retail giant's bargain-conscious customers.
Meanwhile, on a day when most technology stocks jumped after the Federal Reserve's decision to keep interest rates unchanged, shares of America Online Inc., which charges $21.95 a month for such service, remained almost unchanged. EarthLink Network Inc. and MindSpring Enterprises Inc.--which also charge around $20 a month for Internet access--actually dipped a few dollars.
The parade of new free services "clearly has psychologically impacted the AOL stock price," said Ulric Weil, a senior technology analyst at Friedman, Billings, Ramsey Group Inc. in Arlington.
Analysts said the introduction of so many free services represents a turning point in the business of the Internet and moves it closer to that of network television. Free providers hope revenue from advertising that streams onto members' screens will offset the cost of keeping the services running.
In the past, companies willing to pay for such advertising were rare. Today, as Internet news and e-commerce bring more and more consumers online, advertisers are paying billions of dollars for online ads to attract "eyeballs."
Charles Ardai, president and chief executive of Juno, said the company, which now has about 500,000 paying users, will begin a prominent marketing blitz for its free plan in early 2000.
"Many people want a no-frills basic Internet experience, and that is what we can give them," he said. "I don't mean to suggest hubristically that AOL does not have plenty of marketing advantages, but now we have one they don't have."
Officials at AOL, which now claims 20 million subscribers, said the company is unconcerned about these new players. "We are a full-service service, and we continue to be very strong," spokeswoman Ann Brackbill said.
While most American Internet service providers now make almost all their revenue off subscriber fees, the free model has been proven in European countries, including Britain, where AOL recently launched a free service to match competitors.
Last week AOL, which already markets its CompuServe product as its bargain service, said it would offer a discounted service to U.S. customers through Wal-Mart stores..
Some analysts predict free services will steal a significant number of customers away from the large service providers. One market research firm, Datamonitor of London, even dramatically announced in a recent report that "all Internet service would be free" by Christmas of 2000.
But others said the market is roomy enough for both "premium" services such as AOL and free ones.
"People that go for AOL and for that type of service appreciate the value proposition . . . $21.95 is chump change for them," Weil said.
CAPTION: LIKING THE PRICING
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