Some analysts said the market for the leading players remains strong because of a surge of lower-income Net users, who will gravitate toward free offerings to save money and will allow them to reach critical mass. It will be easier to attract this level of income to free ISPs. Although the IDC report concluded that consumers are better off paying for an ISP, a study released today by The Strategis Group said that the market for free Internet access services would more than triple by 2005. The Strategis Group study revealed that the number of free ISP customers is expected to represent about 23 percent of all residential Internet users by 2005, growing from 12 million to 37 million people. The market appears receptive to free access offerings, and the potential for expansion is great, but free ISPs must overcome many operational and financial obstacles to achieve longevity.
Some companies appear to be growing at a healthy clip.
Juno Online Services, which offers both pay and free services, in a quarterly earnings report yesterday said its active audience jumped by 330,000 in June, reaching 3.38 million. In addition, they generate only 15 to 18 average user hours a month, compared with 30 to 40 hours logged with pay services. FAC's Sadler said free services that have broken past the 2 million subscriber mark, including NetZero, may be on the road to profitability. He notes that operating expenses are falling and predicts they will drop below 20 cents per hour, giving a comfortable profit margin including subscriber acquisition costs. Analysts said the cost of acquiring new members is significant but necessary.