AOL Europe yesterday marked its entry into the subscription-free net access arena with the launch of a UK free internet service provider which it hopes will topple the original, London-based Freeserve Plc from the number one slot. The company, a 50:50 joint venture between Dulles, Virginia-based America Online Inc, and Hamburg, Germany’s media conglomerate Bertelsmann AG said the Netscape Online service boasts an array of content and distribution partnerships. These include an association with Kingfisher Plc, a London, UK retail group with store chains, such as Woolworths across Europe.
AOL Europe has made no secret of the fact that it has Freeserve squarely in its sights. CEO Andreas Schmidt said last week that Netscape Online already has more revenue lined up [from advertising and e-commerce deals] than Freeserve generated in its first year. But Freeserve, with 1.32 million subscribers, has a considerable head-start over the new venture and, it seems, a potentially stronger revenue stream in terms of the percentage it takes from dialup tariffs of its telco partner, Energis. This cut is said to be around 6% of the tariff, whereas sources close to the Netscape Online venture said that the company is likely only to receive 2% of the tariffs, the rest going to first mile provider British Telecommunications Plc and AOL network provider UUNet Inc.
It is this thin slice of the dialup cake that means Netscape Online may never see continental Europe. Andreas Schmidt said the telecommunications theater in the UK is unique, shielded by government and regulators and, while additional countries could not be ruled out, a ‘wait and see’ strategy is in place. Subscription-free ISPs in France, for example, get a much worse deal from telcos than in the UK. Kingfisher already operates such a service, Libertysurf, in a 50:50 joint venture with Group Arnault. Kingfisher’s Mark Heynen, a commercial analyst responsible for the tie-up with Netscape Online, said the main reason for operating a free ISP in France is the increased footfall through the distribution partner’s outlet. In Libertysurf’s case Kingfisher’s Darty electrical chain distributes the registration CDs, and Kingfisher’s Woolworths chain will hand out free Netscape Online CDs.
So problems could be caused if AOL decides to push Netscape Online in France. Neither company ruled out some kind of tie-up, but Kingfisher is quite proud of the Libertysurf brand, claiming it’s the biggest subscription-free ISP in that country.
Despite Schmidt’s belief that advertising and e-commerce are the key revenue creators, the launch marks an admittance that the subscription-free model has become the dominant mode of access in the UK. Ever since Freeserve the set ball rolling almost a year ago, more than 100 imitators have appeared, leaving AOL to ponder on how to claw back some of its rapidly declining market share without cannibalizing its lucrative subscription-paying customer base.
Its answer, it was explained yesterday in London, is to exploit the Netscape brand and a number of relationships with ‘style’ content providers to appeal to an audience of under 35 year-old, single males, leaving AOL’s subscription service to cater for the family and novice user market.
AOL bought Netscape Communications Corp for $4bn late last year. According to figures compiled by the company, 40% of its target audience already associate Netscape with internet service provision. The alternative branding is supposed to minimize the number of paying AOL subscribers that jump ship to the free service, but it is likely that at least a minority will.
