It's On the House ... Sort of

Posted: 12/1999

It’s On the House … Sort of
By Liz Montalbano

Though a free lunch still may be hard to come by, a host of companies are making free
communications services accessible to anyone who knows where to find them. Services
ranging from long distance calling to Internet access to Internet messaging now are
offered free of charge from various service providers, who subsidize the cost of the
services and derive revenue either from advertising sponsors or from bundling a free
service with other for-fee services.

"We are seeing the beginning of a new wave of marketing voice and data
services," says Jeffrey Kagan, an Atlanta-based telecom industry analyst, of the
latter penchant for supporting free services. "Like in the retail environment,
communications companies will start giving away low-cost services as loss leaders to get
customers to sign up for a profitable package of services."

This is certainly the strategy of Qwest Communications International Inc., which in
August introduced free unlimited dial-up Internet service when a customer purchases
domestic long distance calling. But though the Denver-based carrier may be a pioneer in
offering a free service bundled with other for-fee communications services, it certainly
wasn’t a trailblazer when it came to offering free Internet access.

Other U.S. companies, including NetZero Inc., Westlake Village, Calif.; Freei Networks
Inc., Federal Way, Wash.; and AltaVista Co., Palo Alto, Calif., offer Internet access free
as well, using the sponsorship model to subsidize the cost of the service. Overseas, some
European service providers act on a revenue-sharing model, in which an Internet service
provider (ISP) and a telco share revenues on the local connection rather than having an
end user pay two charges–one to the telco and one to the ISP for access–to offer free
Internet access, according to Casey Freymuth, president of Group IV Inc., a consulting
firm based in Phoenix.

According to Freymuth, U.K.-based company Freeserve Ltd., an online venture between
electronics retailer Dixons Group plc and Energis, was the first company to provide free
Internet access this way in Europe, blazing the path for others, such as Freecall-UK and
Freedom-i, which both also offer free Internet access in the United Kingdom, to follow.

Taking the Long Distance Freeway

Stateside, Internet access isn’t the only thing that a customer can get without
spending a dime. If customers are willing to give up some of their "free" time
listening to advertisements over the phone, they can reap the benefits of free long
distance calling anywhere in the United States with BroadPoint Communications Inc.’s
FreeWay service.

At press time, about 10 months since the service was launched nationwide in January,
Perry Kamel, president and CEO of the Landover, Md.-based company, reports that Freeway
has about 300,000 subscribers without the company ever advertising the service. "It’s
all been word of mouth," he says.

Once a customer signs up for the service, which can be done by visiting
www.broadpoint.com, he or she is e-mailed a PIN and instructions for calling, which are
later sent through standard mail on a FreeWay calling card. Free long distance calls then
can be made by dialing a toll-free number, the customer PIN and the number a customer
wishes to call.

How much free calling a customer receives is contingent to how many commercial messages
he or she wishes to listen to once the connection to the toll-free number is made, but
subscribers can earn up to two minutes of free long distance time per message, which
typically run about 20 to 30 seconds. Kamel says that not only is the service thriving
subscriber-wise, but sponsors have been generating satisfying response rates as well,
giving BroadPoint about 100 advertiser sponsors.

To benefit service sponsors with patronage, there are two types of interactivity with
advertisers a subscriber can use after listening to a commercial, according to Kamel.
"You can press a button and talk with an advertiser if you want to buy
something," he says, "and then the other option is you press a button and you
get an e-mail [sent to your address], and you can click on an embedded link that sends you
to a designated website."

Kamel reports that response rates in which customers actually talk to sponsors have
been about 3 percent, and e-mail request rates have been in the range of 10 percent to 15
percent, with some as high as 20 percent or 25 percent. He adds that BroadPoint provides
its sponsors with detailed reporting about the demographics of subscribers who respond to
their commercial messages.

"What we have found in a few cases is an advertiser might tell us that their
target [demographic] is people from 18 to 24 years old who are in school," Kamel
says. "We come back and we look at all that data and we’ll say, ‘Gee, you had a
disproportionately high response among people who had some education, but didn’t graduate
and were working class,’ and so they’re able to then draw insights from that and they can
feed that information back into other advertising campaigns."

Targeting Web-Savvy Consumers

While Internet access and long distance calling are services most consumers use
comfortably these days, other service providers are targeting more technology-adventurous
users by offering less conventional communications services for free.

ZeroPlus.com, a subsidiary of e-Net Inc., Germantown, Md., offers free PC-to-PC
Internet telephony to its subscribers, who can call any other ZeroPlus.com subscriber from
their PC once they’ve signed up for the service by dialing 0+ the regular 10-digit
telephone number of the person being called. The service can be initiated by downloading
software from www.zeroplus.com to a user’s PC.

"ZeroPlus.com’s mission statement is to normalize the Internet telephony
experience to that of your home telephone," says Rob Veschi, president and CEO of
e-Net. "We have a system that allows you to do everything that you’re comfortable
doing to create a telephone call [and] to hang up on a telephone call. Zero.Plus.com
emulates the telephone system that’s in existence all over the world today."

Veschi says ZeroPlus.com will roll out its PC-to-PC Internet telephony in three phases.
The first is the free phase–available now and sponsored by advertising displayed on its
graphical user interface (GUI)–which offers PC-to-PC calling among subscribers and
"off-net" calls to 800, 888 and 887 area codes, enabling business subscribers to
establish a ZeroPlus.com "click-to-call" link on their websites. The second
phase will offer members advanced feature functions, such as call forward, call waiting,
call transfer and conference calling, followed by a final phase that will feature 1+
calling in which a subscriber will be able to dial any telephone in the world when the
party being called is not online.

Only phase one of the service is free, Veschi says. The more advanced phases of
ZeroPlus.com’s rollout will offer services for a fee.

Like BroadPoint’s Kamel, Veschi says ZeroPlus.com didn’t reach subscribers through
advertising. Instead, ZeroPlus.com’s distribution strategy is to partner with portals,
such as Webfilter, IcySpicy and eLinkages, and ISPs, such as Tidalwave Internet,
Chantilly, Va., that offer the services to their members and customers.

"Rather than try to recruit people one at a time, we’ve gone out and recently
announced relationships with ISPs and portals, which equates to over 4 million of their
existing members being introduced to ZeroPlus.com," Veschi says. "We’re in the
process of a bulk marketing strategy that’s basically allowing these portals to offer a
voice-chat service."

ZeroPlus.com also features a white pages directory that allows members to find each
other, and a yellow pages directory for advertisers and distribution partners.

Another advertiser-sponsored web-based service is a free Internet voice messaging
service from RocketTalk Inc., Fullerton, Calif., which allows subscribers to send voice
messages to other subscribers or to anyone with an e-mail account. According to CEO Jeff
Weiner, voice messages sent to e-mail addresses are delivered with a player, so a receiver
does not need to download additional software to listen to the message.

A free subscription to the service is available on www.rockettalk.com. Members are sent
a password in their e-mail account, and RocketTalk software is about a 3-megabyte
download.

Since the system’s general release in May, RocketTalk has delivered more than 1.5
million messages. Currently, RocketTalk has more than 100,000 subscribers. At press time,
however, the advertiser-sponsored service did not have a single sponsor. If it did, Weiner
says, the sponsor’s banner ad would appear on an interface under a subscriber’s message
inbox.

Weiner, however, is in no hurry to sign up sponsors.

"Our objective now is just get it out there and get to our .com customers,"
Weiner says. "We believe that every Internet site that has a portal service will
offer voice messaging, just as they have free e-mail, free chat, free calendaring services
and so on, that they’ll go off community-building services to help build a community on
their websites."

Because of this, he says his company did not spend money to advertise the service and,
like ZeroPlus.com, is partnering with portals to introduce the service to a subscriber
base. Currently, Weiner adds, RocketTalk’s largest portal partner is Beyond.com Corp.,
which is publicly traded "within the top-1,000 .coms on the Internet," he says.

And this don’t-expect-too-much too-soon strategy is key to marketing a free
communications service–and good advice for any startup or company looking to provide
similar offerings, according to Weiner.

"Ultimately, our objective, of course, is to generate revenue like a real
company," he says. "But at the beginning, especially when you have a new
technology, what you have to do is expose it–get out and show the market it’s
there."

Free Communications Service Providers

Liz Montalbano is news editor for PHONE+ Magazine.