Two More Free ISPs Bow Out

Spinway and ZipLink go out of business as the markets continue to crush the free ISPs. The free ISP theater, once filled with arias of hope, now hosts a tragedy with fewer and fewer players.

by ISP-Planet Staff [December 4, 2000]

In a turn of events that reads like a passage from Oedipus Rex, Bluelight.com bought out its Internet provider, Spinway, Inc., on Monday for an undisclosed amount.

But whether Bluelight follows the path of the doomed son who ends the life of his parent, remains to be seen as free ISPs around the country continue to face problems in the market.

The buyout comes less than one year after BlueLight.com started its marketing experiment to offer free branded Internet service to online Kmart customers. Since December, 1999, company officials said it has garnered more than 5.2 million subscribers.

Parental approval was necessary
The deal couldn't have happened without the blessing of parent company, Kmart. For now, Randy Allen, Kmart executive vice president of strategic planning and chief information officer, feels BlueLight.com is providing a valuable service to its online community of customers.

"We fully support BlueLight in its decision to acquire the assets of Spinway in order to maintain its Internet service," Allen said. "Kmart and BlueLight both feel online shopping is a luxury everyone should be able to afford, especially during the busy holiday months. We want the Kmart customer to have an enjoyable, fulfilling shopping experience, whether it be online at BlueLight.com or in one of our more than 2,100 stores nationwide."

Allen may have been looking at reports from online research companies like Cahner's In-stat, which said that 60 percent of U.S. households will access the Internet by the end of 2000, an increase netting an additional $2.2 billion in the dial up access industry.

The report also cited findings that said most Internet users name pricing as the most important factor in Internet services, with value-added services coming in a distant second. Transition planning
Officials expect a smooth transition of service and have retained key employees from Spinway to ensure that, officials said.

The new ISP is still working with other bricks-and-clicks companies (like Costco and Barnes & Noble) who were partnered with Spinway. It remains to be seen whether these other companies will accept an ISP run by the competition.

If BlueLight.com can keep its customer base, it will gain instant legitimacy as the sixth-largest ISP in the nation, with 2.8 million customers. If it doesn't, it could go the way of the dodo bird and several other free ISPs that have gone extinct.

Mark Goldstein, BlueLight.com chief executive officer, said Spinway's undisclosed price tag justified the risk it was about to take.

"The cost of acquiring the core assets of Spinway was very modest for BlueLight and will have little impact on our current march towards profitability," Goldstein said. "BlueLight's Internet service is an invaluable marketing tool for the company and we feel it is in our best interest, and in the best interest of all our subscribers during these tough times for pure-play dot com companies, to make sure it continues."

For sale by owner
Among the free ISPs that have put "For Sale" signs on their doors this year are FreeInternet.com, WorldSpy, and 1stUp.com.

The only two major free Internet players remaining are Juno Online Services, Inc., which patterns its free model on the assumption its subscribers will upgrade to paying services, and NetZero, which remains solvent because of investor faith.

NetZero has yet to post positive earnings before interest, taxes, depreciation and amortization, but retains 3.6 active members, while Juno is the third largest ISP in the nation, with 3.7 million active subscribers.

The tragedy of ZipLink
Compared to Spinway, ZipLink's story is the more tragic. The stock of ZipLink (NASDAQ:ZIPL), a failed provider of wholesale Internet access, was to be delisted from the Nasdaq National Market at the start of trading today.

Two weeks ago the company, which has posted millions of dollars in losses, said it was ceasing operations and selling its assets to pay its creditors.

ZipLink has said there will be no money left for shareholders, one factor cited by Nasdaq for dropping the shares. ZipLink said it does not intend to seek to have its stock traded on another market.

ZipLink shares, which have traded as high as 23.875, bottomed out at 40 cents before trading was halted on Nov. 17, after the company said it was ceasing operations. The company provided wholesale Internet access to provider of so-call free ISP service—a business model that's having trouble succeeding.

The closing was expected after the company last month announced a cash crisis and an inability to pay its bills. A bid to find a buyer or additional financing failed, leading to the closure and 80 layoffs.

—End