SAN FRANCISCO (CNN/Money) -
Not long ago, if you wanted Internet Access, you'd sign on with a big service provider like Earthlink or AOL and fork over about $20 a month. But these days, that price point is experiencing widespread customer migration on both flanks.
On one side is the high end -- broadband -- where monthly rates typically run about $50 and companies such as Comcast (CMCSK: Research, Estimates), SBC (SBC: Research, Estimates), AOL Time Warner (AOL: Research, Estimates), and Yahoo (YHOO: Research, Estimates) roam. (AOL is the parent company of CNN/Money.)
On the low end stands a company called United Online.
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If you haven't heard of United Online, chances are you've heard of its products: Juno, NetZero, and Bluelight Internet Service (recently acquired from Kmart). Since September 2001, when most tech stocks began deep slides after 9/11, United's stock has gone up -- get ready for this -- 700 percent, and currently trades near its 52-week high. While several companies duke it out for the high-revenue broadband market, United is the only major player in the "value" end of the ISP category.
Last year the company saw a 48 percent increase in its subscriber base, bringing the total number of paying customers to 1.85 million (including the users of its free services brings the total to 4.8 million).
Obviously, that's far less than the 35 million customers at AOL, but take a look at the trend: In its most recent quarterly filing, AOL announced a net loss of 170,000 customers -- the first time that has ever occurred. MSN just spent $300 million on a pricey awareness-raising ad campaign, only to see its subscriber rate stay flat. And Earthlink, the third-biggest ISP, also has seen recent departures.
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What we're starting to witness -- and what I think will continue for some time -- is the clear bifurcation of the access market. "The middle is getting squeezed out," says Ned Zachar, an analyst with Thomas Weisel & Partners. "People are moving up or down."
The strongest hold the middle players have on consumers is the e-mail address -- people don't want to leave and have to change their addresses. But how big a barrier is that, really? And the claims to "exclusive content" such as music and movie highlights don't hold much sway for anyone who has downloaded Kazaa or any other file-sharing service.
Most of the departing customers have been heading north into broadband. IDC, a research firm based in Framingham, Mass., reports that there were 15.6 million broadband households -- 27.6 percent of all online households -- in the United States at the end of 2002, an 8 percent jump from 2001.
But while several major players battle for the high-end user, United Online is content to collect those traveling south. As dial-up Internet adoption slows, United can continue to pull from the existing dial-up base of people who can't afford or have no reason to migrate to broadband.
And it's doing a fine job of it. The company currently has no debt, it's kept its staffing level minimal (420 employees), and its acquisition cost per customer ($37 in its last quarterly filing) is lower than those of AOL and Earthlink.
Keeping those costs low -- as more people flee the middle-range offerings -- will be key to United Online's continued success. But thus far the number is trending down, encouraging analysts like Zachar, who believes that in today's economic environment, "people will look for the better price."
Eric Hellweg is a contributing writer at Business 2.0.
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