Online search portal AltaVista on Sunday will cut off some 3 million users from its free Internet access service, the latest sign that freebies over the Web do not always pay.
The announcement comes after a host of smaller free Internet service providers shut down earlier this year and as Kmart-owned BlueLight.com said Monday it is considering dropping its free service after the holidays.
"We're seeing a very necessary shakeout among the free ISPs," said Dylan Brooks, an analyst at Jupiter Research. "The ad-supported ISP business grew far too quickly for what was healthy."
The demise of AltaVista's Web access giveaway is linked to the downfall of 1stUp.com, an Internet service provider that funneled 3 million out of its 5.5 million paying and non-paying clients through AltaVista. 1stUp, which like AltaVista is a unit of CMGI Inc, is closing down by Jan. 31.
AltaVista subscribers received an e-mail Tuesday from Ken Neibaur, Alta Vista vice president of marketing, announcing the decision.
"AltaVista thoroughly investigated finding another supplier to provide a free Internet access service. However, we were unable to find a company that was able to meet the needs of our Members," part of the e-mail read.
The company just began offering free Internet access to Mac users in June, almost one year after it started the service for PC machines. At that time the Internet portal said it was adding up 10,000 new users daily to 2.5 million already signed up for the service.
Only NetZero, Juno and BlueLight.com remain as the major free Internet service providers, with BlueLight's giveaway potentially coming to an end.
AltaVista worked out a deal with Microsoft Corp. to offer AltaVista's 3 million non-paying users three free months of access on MSN. After that, they would pay $21.95 a month among the priciest for dial-up service.
Jim Shissler, an AltaVista spokesman, said the company could not find another company to pick up the free service. AltaVista, whose online search engine will continue to operate, stopped taking new subscribers Monday and sent out notices to existing customers Monday and Tuesday.
AltaVista considers nearly 1 million of its users active they logged on at least once in the past month. Many others register for free access as a backup to a paid service or otherwise rarely use the free service.
Meanwhile, Kmart-backed BlueLight.com took over assets of its failed provider, Spinway Inc., on Monday in order to retain more than 5 million registered users through the peak shopping season.
BlueLight spokesman Dave Karraker said the company will decide the fate of the service in January. Although BlueLight will keep offering an Internet access service, Karraker said, it may carry usage restrictions or a fee.
Typically, users of free services agree to keep open an advertisemnt window, and the services get almost all of their revenue by selling ads. As more dot-coms failed, Karraker said, there were fewer advertising opportunities.
BlueLight is restructuring its access service, he said, to become a gateway to Kmart and BlueLight shopping products. So instead of depending on ad revenue, the service wants to make money from additional sales of books, toys and jewelry.
That doesn't mean the era of free access is over.
Rather, providers of such services may have to look beyond selling ads for instance, by bundling free service with a new computer or offering it as a gift for opening a brokerage account. Some telecommunications companies, including AT&T, offer Internet access for $4.95 a month as part of a package of services.
In fact, Brooks of Jupiter Research said, 13 percent of users in 2003 will primarily use some form of free access, compared with about 8 percent now.
Mark Goldston, chairman and chief executive of NetZero, said the fact that other free providers failed does not mean free access is a bad business.
Though NetZero, which has some 6 million registered users, has yet to make a profit, Goldston insisted, "This is a very good category to be in."
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