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AltaVista offers free Net
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August 12, 1999: 1:54 p.m. ET
Web search firm provides advertising supported dial-up service
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NEW YORK (CNNfn) - Web search firm AltaVista Co. Thursday began offering free, dial-up Internet access, a move that is almost certain to spark a new battle among Internet service providers.
The AltaVista FreeAccess service will be completely subsidized by advertising. A small window with rotating advertisements remains open while the user accesses the service.
AltaVista is offering the service with the AltaVista MicroPortal, which provides customized access to news, financial information and local content. The company is counting on the MicroPortal to allow advertisers to target a closely specified audience.
"This is clearly an e-commerce strategy," said Brownlee Thomas, an analyst at Giga Information Group. "What AltaVista and other portals want to do is attract users to their portal, and the purpose of that is to drive e-commerce."
Free Internet access already has caught on in the United Kingdom, and consumers in the United States have been able to get free Internet service through special deals from computer makers. But AltaVista's move marks the first major U.S. Internet firm to offer free service.
Thomas said it's only a matter of time before traditional businesses, such as banks, offer free Internet access in an attempt to attract more consumers to their e-commerce offerings.
Right now, however, the challenge AltaVista faces is whether its advertising-supported model will be a success with consumers.
"They'll need a really strong advertiser base," Thomas said. "There are people who will pay [a monthly fee] not to be bombarded with advertising."
Next move for ISPs
AltaVista's move is almost certain to spark movement among other Internet service providers (ISPs), who already are struggling to turn profits while charging a standard fee of $19.95 a month for unlimited access.
Company's like EarthLink (ELNK) and Mindspring (MSPG) may find themselves tightening their belts if they are forced to cut their subscription rates.
"The end result is that prices will have to come down," said Mark Cavallone, Internet analyst at S&P Equity Group. "EarthLink and Mindspring have pretty healthy margins, so there's room for them to lower prices and make other deals. But will they have to cut marketing and expenses for subscriber growth in order to remain profitable?"
Thomas said other ISPs won't necessarily follow suit with free access, but they will have to begin offering consumers more for their money.
"Everyone is going to have to start bundling and offering different services," she said. "There's still room for the $19.95-a-month services, it's just a matter of what ISPs can do to make it more worthwhile."
Thomas said other ISPs will likely strike alliances with telecom firms to offer a combination of long-distance and Internet service, similar to the move Qwest Communications (QWST) made earlier this week, offering unlimited Internet access and 250 minutes of long-distance calling for $24.95 a month.
AltaVista is owned by Compaq Computer Corp. (CPQ), which has agreed to sell 83 percent of the Internet company to venture capital firm CMGI (CMGI).
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