Millions sign up for free Internet access, but not all use it

Tuesday, January 18th 2000, 12:00 am

By: News On 6

NEW YORK (AP) -- Jennifer Hudson uses AltaVista's free Internet service at home in Dallas, but tapes paper across her computer screen to block out the annoying ads. Eric Martineau and his Boston co-workers use NetZero's free Web service -- along with a software program created by a hacker that zaps the ads off the screen.

Internet service providers that offer free access in return for bombarding users with advertising are rapidly signing up subscribers, turning heads at companies that charge $20 or more a month. But how many people are actually looking at all the ads is unclear, fueling doubts about whether the free services will ever make a profit.

Analysts say about half the subscribers of these free services may not have used them in the last month. Some users express aggravation with the ads, and several go out of their way to avoid them. "It was always there. It took up the screen," Martineau said of NetZero's service, recalling with pleasure how he and 15 co-workers ran hacker software to wipe out the ads.

Despite the rough spots, analysts say the free services could force fee-based Internet providers to lower their rates and mull new ways to make money. The number of active users of free Web services is expected to more than quintuple from 1.6 million U.S. households today to 8.8 million by the end of 2003, according to the Jupiter Communications research firm. That's a far faster rate of growth than the overall increase in Internet use, from 45 million Americans today to 68 million in 2003.

NetZero's latest figures, showing it has 3 million subscribers, would make it the nation's second-largest Internet access provider after America Online, an astonishing rise for a company launched in 1998 -- even if you discount half the users as inactive. Driving the growth are Internet users who have come to expect a wealth of services and goods over the Web at free or discounted prices. At least some of them don't mind minor annoyances to get freebies.

Brenda Forsythe, a public relations executive based in Austin, Texas, has used NetZero since last summer and says it's definitely worth the "distracting" ads. She's pleased that it doesn't disconnect her from the Web too much, unlike other services. "It's been very dependable," she said.

Emily Meehan, an analyst with the Yankee Group research firm, said the free Internet providers will make companies that sell access work harder to sell services that consumers perceive as worth paying for. America Online Inc., for instance, agreed last week to buy Time Warner Inc. in large part because its cable TV lines will enable AOL to sell high-speed Internet access. That said, the free-service route is a rough business -- unless the provider is able to gaining millions of users with which to lure paying advertisers.

The new market is highly fragmented, with NetZero claiming the largest number of subscribers, followed by AltaVista's service, at 1.5 million. Freewwweb, owned by Smart World Technologies, tallies250,000 users, and World Spy claims 100,000. There are others -- and none are making money. "I expect there won't be a large number of these companies" in a few years, said Joe Laszlo, an analyst with Jupiter Communications.

One hurdle for free ISPs is signing up newcomers to the Internet. Startups can't afford mass-mailings of software disks like America Online, so they instead rely on surfers to find their way to Web sites to download services. Many users, therefore, already pay for an Internet hookup, and may only use the free one as a back-up -- or not at all.

The free Internet providers are working to get around these criticisms. NetZero tries to get folks to pay more attention to its ad banner by offering an array of services, including free e-mail. It signed an advertising deal last week with General Motors that could be worth more than $100 million and give GM exclusive access to information about NetZero customers.

Other free providers are eschewing ads altogether. World Spy jumps users to a start page that doubles as a shopping destination, to tempt people to buy products on other Web sites ranging from books to electronics. World Spy gets a cut of the purchase price. "We don't have any of the floating ad bars," said World Spy chief executive Sharon Rothstein. "If you look at what consumers are saying, that's a highly intrusive element."