The ISPs Are Free at Last

They're good for consumers and the companies that offer them. Plus, Excite@Home's advanced-TV services, and Paul Allen's latest deal.
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Today's announcement of an alliance between

Kmart

(KM)

and

Yahoo!

(YHOO)

offering free ISP service is just the beginning. Later this week I expect to see

Excite@Home

(ATHM) - Get Report

break the news of its own free ISP offering, in cooperation with

CMGI's

(CMGI)

1stUp.com

(which also provides

AltaVista's

free ISP connections).

All these are standard dial-up links -- no one's giving away DSL or cable-modem service yet -- and they all make good sense.

Read Jim Seymour's Q&A

transcript

Message Board Index

For example, it may seem odd for Excite@Home, itself an ISP through many of the nation's cable-TV outfits, to offer a competing free service. But if you believe that, you don't understand the ISP business.

First, dial-up access speeds, topping out in the 56 kilobyte-per-second range, aren't really competitors to fast-access services. These are two distinctly different markets. The mass market and the performance market are at different stages of development, with different expectations and different demographics.

Second, giving away free dial-up access is a great way to make friends and future customers of Net newbies. Hook 'em with free, if slow, service, then start making upgrade offers to your faster service. It's classic "bump" marketing.

Third, these ISPs/portals need steady and increasing growth in customers and page views to support their stock prices. Excite@Home did a great job in hitting its projected 1 million customers by the end of 1999; now it must keep growing that customer count, and if possible, turn the growth curve to an even steeper setting. Since to a substantial extent Excite@Home's growth depends on the reach and marketing efforts of its cable-TV partners -- not, perhaps, America's savviest and most aggressive marketers! -- anything it can do on its own to crank up the subscriber count, even with free subscribers, helps the numbers.

Fourth, remember that these ISPs/portals look toward their e-commerce and banner-ad revenue for substantial income. Again, whatever Excite@Home and Yahoo! can do to grab more eyeballs helps on both counts.

Fifth and finally, partnerships with powerful entities in the world of bricks and mortar can do wonders to promote corporate growth goals (think distribution, distribution, distribution). I especially like the idea of Yahoo! being promoted in Kmart stores across the country. (So Kmart's low-rent. So what? Yahoo! wants customers, period. And are you aware that

Martha Stewart

is a big-time Kmart spokeswoman? Do you consider her low-rent? Now you get the point.)

On another front, today Excite@Home will roll out its new advanced-television, or AT, services package at the big

Western Cable Show

in Los Angeles.

In an announcement that's helping to move the stock of both companies today, Excite@Home said it's talking with

Microsoft

(MSFT) - Get Report

about working together on the AT package's technologies. Excite@Home has been pretty vague in public about just what's included in the AT services package, but it's understood to include the capability to display Web-style banner ads on TV sets.

And -- this is the hook for Microsoft, of course -- Excite@Home proposes to deliver these services, at least in part, through a new generation of those digital set-top boxes so beloved by Microsoft.

Excite@Home has also talked about providing interactive commercials, live TV-based shopping and email as part of the bundle.

More than 20 cable companies have already signed on with Excite@Home for the AT bundle -- not a difficult sell, probably, since those companies were already Excite@Home's partners in offering cable-modem access to the Web -- and today's public coming-out party for AT services at the Los Angeles show should bring in a few more.

Excite@Home investors shouldn't get all excited about AT services' potential contributions to the bottom line 'til we know more. This looks like a long build.

Finally, speaking of set-top boxes, I call your attention to a story in the

Wall Street Journal

this morning that says

Paul Allen's

Charter Communications

(CHTR) - Get Report

is about to announce a deal to buy a million new-design digital set-top boxes from

General Instrument

(GIC)

.

The deal, the

Journal

says, could be worth $300 million to General Instrument.

Allen's continuing to build a base for a wired future -- and with his wireless investments, an

un

wired future as well. With his deep connections in Redmond, Wash., the co-founder of Microsoft is in a great position to spot, and to shape, our collective digital future.

Set-top boxes, clumsy beasts though they are, are the key to unlocking digital pipes into the home. Computers aside, we're going to get

a lot

of content over our digital-TV connections, and Charter is a good bet to be the defining force in figuring out how to pump that content down the line to us.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are, or have been recently, consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.