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Matt Stump
The era of "free" marketing in telecommunications is upon us.
A company called FreePC will ship 20,000 PCs free to selected consumers in exchange for demographic information and targeted advertising opportunities.
Search engine AltaVista and ISP Net-Zero are offering free Internet access service. Both rely on the demographic information/always-on advertising model to subsidize free service.
NetZero reportedly has one million subscribers, while AltaVista just launched its service.
Microsoft has floated the trial balloon that it would offer free Internet access. Even though nearly two million consumers pay $20 a month for the Microsoft Network, Microsoft would appear to be sacrificing that business, under this scenario, in order to directly attack AOL's 17 million subscriber base.
(Remember, AOL has emerged as Microsoft's new arch-rival. AOL's Netscape is at the center of government's antitrust suit against Microsoft and the two companies are sparring over instant messaging.)
Qwest announced an Internet access plan and long-distance telephone service for $24.95. Qwest officials made clear that Internet access was the "free" portion of the offer.
This "free" phenomenom is something cable operators will have to grapple with when they launch bundled voice, video and data services. Consumers will come to expect free offers from broadband providers.
Despite this activity, AOL and other ISPs that charge roughly $20 a month for service report no slowing down of subscription rates or increases in churn. Many of those signing up for free service are either terribly thrifty consumers or those looking for a second Internet access line into the home. Analysts agree AOL hasn't been hurt, but they openly wonder whether secondary ISPs can make it in a low-cost or free market.
Still, there are many who believe prices in the PC and the Internet access markets will inevitably trend downward. The souped-up $3,000 Gateway PC I bought nearly three years ago probably costs $1,000 today.
By the time cable modems and telephony are being marketed to half the U.S., free PCs will be a given. And many of cable's competitors may be offering low-cost or free Internet access.
The smart cable marketers are already anticipating this trend, and preparing packages accordingly.
Start with a $25 a month cable subscription and add a digital/premium package on top to get to $50. Add in local telephone for $10 to $15 and long-distance at either a flat rate or 10 cents a minute. Total telephony bill: $50. Add in cable modem access for $25. That $125 total package may be discounted to $100 a month by cable marketers.
The consumer can then decide to pick what's "free." Basic cable, or high-speed Internet access or local telephone? It won't matter to the operator.
MSO marketers also will come up with phone/data packages only, or video/data packages only or video/ phone packages only. Even in these twofers, there will be discounts, perhaps bordering on "free" service.
Cable's biggest dilemma will be wrestling with the word "free." The industry has never liked to use that word in marketing. "Free" was never really "free," because it consisted of cross-subsidies or marketing gimmicks. Worse, if you gave away HBO for free for three months to a new subscriber, he'd never see the value of paying $10 a month for the service. Free offers devalued the service they were trying to push.
But this time, it's a different story. Operators, for instance, may have to provide free modems to jumpstart the $25 a month subscription packages they want for high-speed Internet access. And "free" may not be so bad if cable's competitors are offering free access or free PCs or free modems. The marketplace may give cable operators no choice but to add "free" to their marketing lexicon.
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