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ISP Rolls Out Free Service

NetZero, the latest company to take a shot at the free Internet access business, said Monday that it's tallied 21,000 members and six major advertisers since its Oct. 16 debut.

NetZero CEO Ron Burr told CBS that the free Internet service provider (ISP) is on track to exceed one million users within 12 months.

With plans to make money from ad sales and sharing surfing behavior data with clients, the company will introduce its first advertising campaign on the Web later this month to help build up its user base.

New advertisers include Bell South (BLS), Ford (F) unit Jaguar along with Sprint (FON), Nextel (NXTL) and Visa.

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Jim Nail, analyst with Forrester Research in Cambridge, Mass., said despite the quick start, he's skeptical of NetZero's business plan.

"The ISPs charging $20 a month can barely make money, so how could they?" he said.

Based on the current cost of bandwidth, Nail said NetZero would have to sell at least 1,000 ads. Meanwhile, unused ad inventory plagues the Web.

"Who wouldn't want free Web access, why the heck not?" Nail said. "With their software, they can sell to advertisers trying to reach, say 25- to 34-year-old males who like sports Web sites. It's appealing to advertisers, but I just don't know the volume of time people would have to spend online to hit the numbers and see all the ads."

NetZero is trying to succeed in the midst of the ashes from other crashed and burned, advertising-funded ISPs.

Last month, Tritium Networks "temporarily" shut down its service after attempting to launch a free ISP. @Bigger was pronounced dead about two weeks ago. Others, such as Free Ride, have also faded away after taking a stab at the business.

NetZero CEO Burr, 34, a software designer and former IBM (IBM) employee, said NetZero can succeed because it has "several million dollars" in backing and a solid business plan that calls for a profit by the second quarter of year 2000.

"The timing is right for this," he said. "The market is maturing. The infrastructure costs re down and we're properly funded. We really have some great partners who get the vision. And they see it as the model for the future."

Instead of trying to build its own network, which can cost tens of millions in the face of competition from WorldCom (WCOM) and others, NetZero leases its network from partners GTE (GTE) and Agis of Detroit. NetGravity (NETG) is providing ad-server software.

It's one of the first companies funded by Idealab! Capital Partners, the VC arm of Bill Gross's Idealab! start-up incubator, which includes, eToys, and CitySearch. Gross is Chairman of NetZero.

Thus far, NetZero users are mostly existing Web surfers looking to save money: 65 percent make more than $35,000 a year; 40 percent make more than $45,000, Burr said.

While Internet access is free, NetZero displays an ad banner that stays on the screen and changes every 30 seconds. The longer a person surfs, the more ads they'll see. Although the privacy of individual users is protected, NetZero shares some surfing information and user-interest survey results with advertisers.

Despite the rubble-strewn path of free ISPs, NetZero expects more competition, but not from existing ISPs such as EarthLink (ELNK), Concentric (CNCX) or MindSpring (MSPG).

"They have a massive investment in their current business model," Burr said. "Their lifeblood is their revenue stream from their monthly fees. They need to develop software and build up their sales force if they want to move into the free space."

Written By Steve Gelsi

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