Don't worry, you'll surely pay in the end


How the various ISPs offering free services survive in the long run will depend on capturing the right customer. In other words, they need to acquire customers who will ultimately be a source of money. That, at least, is the logic in the real world. Take all those offers of free mobile phones with free connection, for example. Once you get hooked, you'll be paying substantial bills for quite some time to come.

Some lending companies offer free financial advice when you go looking for a mortgage, in the hope that you will take out thousands of pounds worth of a loan that will take you a good 25 years to pay back - including interest.

Then there are the freebies which come free with something else you've bought. Parking at the Sydney Opera house is free, according to an article in the Sunday Times - if you drive a Lexus!

It's not just about attracting customers, it's about attracting customers who will eventually spend money, and in a way that the service provider will profit.

This real-world logic seems to be the logic cyberspace companies will also be depending on.

"This is all about who owns the customer", says Bill Whyman, an analyst with Legg Mason Wood Walker Inc, "because in the consumer Internet space, revenue and earning flow from strong customer relationships. "So all the things we are seeing . . . are ways to keep the customer coming back to your site, staying longer, sharing more data and making the site an integral part of their lives."

In the US, AOL has 21 million subscribers paying for access. Some 60 per cent of its revenue comes from access fees (local calls are free) and its huge audience means it gets big advertising and e-commerce revenues. A company like AltaVista (previously known as a search engine, and now offering free access to British users) aims its content and advertising at a different sort of user in the US - veterans who are unlikely to have much time for AOL's simplified approach.

Capturing a specific market of users to deliver to advertisers is a potential source of income - a sort of virtual direct-marketing strategy. One US company (Engage Technologies Inc, owned by CMGI, which also owns AltaVista) has created more than 30 million anonymous user profiles. It aims to increase ad rates by allowing advertisers reach a more precisely defined audience, one with known commercial and leisure interests, for example.

In fact, boosting ad rates by ensuring ads reach relevant users with particular interests is becoming an increasingly important strategy in what is a highly competitive, cut-throat market. This is especially so as users become more Net-sophisticated and either learn how to evade advertising that's of no interest to them - or simply fail to register the content of the banner ads flashing in their faces.