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If there ever was a stupid business model, it’s the Free ISP. Now, that being said.. the Free ISP model is rather successful in the UK, but only because of reciprocal revenues paid by BT and the Local telcos to the ISPs. Even then, the pay-per-minute model for dialup in the UK seems to be on the way out, since it is a big inhibitor to ‘net growth there. So…

http://www.thestandard.com/article/display/0,1151,20244,00.html

November 15, 2000

1stUp.com’s Future Is up in the Air The free-ISP provider loses its funding and warns its staff that they will soon be out of a job. But some think one less player in the market might be good.

By Jason Krause

The ad-supported free-ISP model took another hit this week with the impending demise of 1stUp.com, a company that provides free Internet access through portal sites including Excite and AltaVista .

For a time, 1stUp was the biggest name in free Internet access – even though most people probably have never heard of the name, mostly because the company hides behind its partners. 1stUp’s service lets Web sites and portals give away Internet access and is supported through advertising, which appears in a small window at the bottom of a subscriber’s browser. All of the top four portal sites except Yahoo use 1stUp to provide free Internet access. In all, 1stUp is the provider behind 70 free Internet services.

1stUp’s office in downtown San Francisco was a scene of confusion Tuesday. It was nearly vacant, save for a row of empty desks and a couple of workers putting things into boxes while standing around chatting.

“People are working,” says Jennifer Giles, media relations for 1stUp. “Of course, not everyone needs to be around, like business development.”

Internet incubator CMGI confirmed that it has decided to discontinue funding for 1stUp after a 60-day period. As mandated by federal law, 1stUp has warned its staff that they will be unemployed at the end of that period, barring a last-minute rescue by an outside buyer or investor. 1stUp has roughly 90 employees.

According to industry sources, 1stUp has been on the block for at least a month and no deal has been struck to salvage the company. The obvious buyers would be NetZero or Spinway, the two biggest free ISPs still in operation. NetZero already has been buying subscribers from failed free ISPs, but it has been looking to acquire them at cut-rate prices. For example, it paid roughly $5 million for subscribers to a bankrupt free-Internet access provider, whose business model was identical to NetZero’s, making consolidation easy. A consolidation with Spinway also would make sense, but the companies have not been able to agree to terms.

In the end, the end of 1stUp could prove to be good for the health of the free ISP industry. Mark Goldston, CEO of NetZero, has complained that a glut of struggling competitors has made it difficult to attract ad dollars. One fewer player could alleviate that situation.

“A lot of people are offering cut-rate ad rates that sometimes make it hard to make money,” Goldston says.

1stUp claims 2 million active users who will have to give up the service if a buyer doesn’t emerge. One 1stUp partner, Excite, says it fully expects 1stUp’s service to continue, though how that could happen remains unclear. 1stUp says it’s too early to speculate, but a number of options exist: Excite could pick up the cost of running the service, or another partner could be found.

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