Free ISPs in Europe To Suffer
Companies should focus on three main areas, advise analysts
26 November 2001
High investment cost of Internet access and the slowdown of advertising and ecommerce revenues is taking its toll on Europe's free ISPs.
Free or unmetered ISPs are not financially viable without a cash infusion from the financial market or a financially strong parent company and are looking to new revenue streams to survive.
"In the US, some ISPs, including those with strong parent companies, have discontinued their free Internet access and re-introduced a traditional subscription-based ISP service" says Celine Clavreuil, research analyst with IDC's EMEA IP service.
"AOL is one of the most profitable consumer ISPs as it never entered the subscription-free Internet access market, securing its revenues from traditional subscription services and advertising revenues. Unlike some of its competitors, AOL stood on two pillars and was stronger during the market slowdown."
The only ISPs to continue to emphasize their growing revenues from value-added services are PTO-based ISPs, such as T-Online or Wanadoo, but unlike other ISPs, they gain a large share of their advertising revenues from their parent companies. T-Online's portal site, for example, carries advertising for Deutsche Telekom's DSL product.
Two ISP categories
Since the bursting of the Internet bubble in 2000 and the economic slowdown, consumer ISPs have fallen into two categories - targets - ISPs which did not weather the storm and were either bought up or went into administration, and the companies which targeted them, such as Tiscali and Wanadoo.
This second group acquired a pool of small national ISPs and as a result IDC believes they must focus on three main areas in order to remain competitive:
1. Building the Brand
From a consumer point of view, brand awareness is a crucial factor in making a purchasing decision. Although bought by Wanadoo in 2000, the favourably perceived Freeserve kept its name, as Wanadoo was aware that a name change would have a negative impact on the UK customer base. Tiscali, on the other hand, acquired a lot of smaller national ISPs and IDC believes it should build a uniform Tiscali product and combine all its regional products under the Tiscali umbrella.
2. Develop New Strategies
Despite the introduction of new revenue streams, such as the interconnection model - where ISPs receive a share of the telephone charges to add to their traditional advertising revenues, financing of free ISPs dried up. Falling advertising revenues, falling subscriber spending and more financial support will force ISPs to build on customer loyalty and value added services.
3. Provide Content and Portal Services
IDC believes that the introduction of broadband (especially DSL and Cable), facilitating the downloading of videos, music or other content heavy files, and the provision of interesting and targeted content will also help to increase customer loyalty and spending.
www.idc.com
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