ISP Profile: 1stUp.com

CMGI's free ISP is a frugal master of affinity marketing, the prince of tech utilitarianism. For example, everyone knows that ads are key to the free ISP business model. 1stup.com has software that allows advertisers to deliver TV ads through flash over the Web.

by Patricia Fusco
of internetnews.com

This week 1stUp.com made its flash-based Web commercials a working reality. While several free dial-up providers ceased operations this month, and NetZero altered its business plan, 1stUp.com is thriving as a fee-free Internet service facilitator.

CMGI
Can the CMGI-supported interactive service buck the trend of folding free providers? Charles Katz, 1stUp.com chief executive officer says yes, its revenue streams are diverse and 1stUp.com focuses on making the most of new technology, not marketing its free dial-up services.

"Our business model is different than ad-based free Internet service providers," Kats said. "While we compete on some levels of free dial-up access, we do not incur marketing costs. We rely on our partners to market their free dial-up services, so we provide the technology behind the service."

It doesn't hurt to have CMGI, Inc. as a partner. With 70 companies in its online realm, CMGI is 1stUp.com's link to Web marketing companies like AdForce, Engage, and YesMail.com.

The amalgamation of alliances between big Web brands made 1stUp.com a premier service partner, providing free-dial up services to companies like Lycos and Alta Vista (which were owned by CMGI) as well as IBM and Ameritrade, among others.

This is not just an exercise in name dropping. The fact is that 1stUp.com has lured top companies to utilize its services. Katz said it's a credit to the firm's success.

"Our partners are not going to risk their brand names on anything less than superior service," Katz said. "Private label access clients are more likely to go with an access provider that offers quality content pertinent to them."

Advertising still key to free ISP model
"The key to our success is being able to reduce costs and increase revenues," Katz said. "Banner ads are much maligned by the ad industry, but they'll be around for a long time. Some advertisers are already transitioning to our new Web commercials. 1stUp.com will continue to thrive and survive."

Indeed, 1stUp.com's Web commercials are an alluring medium for advertisers. It's not just a matter of reaching 1stUp.com's 4 million-plus users. Advertisers can take ads made for television and readily translate moving pictures into 1stUp.com's flash delivery process to produce Web commercials. This cost-cutting feature has peaked the interest of Warner Bros., Sprint Corp., Cisco Systems, Inc., and other advertising intense online entities.

Katz said advertisers are quick to embrace news methods of ad delivery and sponsors are lining up to embrace its new delivery method.

"Advertisers are used to buying into new ad technologies," Katz said. "Pioneering new mediums like our Web commercials can generate big revenue, in addition to our high degree of ad targeting, we can flush out advertising deals because we can target different ads to different people."

1stUp.com leverages current flash technology to fuel the Web commercials. The programming permits 1stUp.com to do a lot with a small amount of data, so big bandwidth is not required.

In exchange for users giving up screen real estate for branded free Internet access, 1stUp.com has managed to build a network of alliances that supports more local dial-up numbers in North America than America Online.

IstUp.com utilizes CMGI-owned NaviPath (also a CMGI company formerly named NaviNet: see the ISP Planet profile here), Level 3, Cable & Wireless, and a dozen other providers to offer a grand scale of local access. 1stUp.com can provide Internet access to 95 percent of the U.S. and Canada from more than 4,500 local dial up numbers.

The company is big for a two-year-old
October 1998 was the official birth date of 1stUp.com. In less than 2 years, the company has earned 4 million users through affinity programs with more than 130 distribution partners. Alta Vista was the first to sign-up with 1stUp.com in 1999, which remains a building year for the firm. Most of its new clients have been added this year.

The company has not spent much to market the free dial-up services, but it partners have.

Beansprout.net is one of 1stUp.com's newest partners. The online community that connects parents with their pediatricians and child care providers is obliged to distribute 500,000 CD's every month for one year. Outlets include doctor's offices and hospitals. Imagine, a proud new Father embracing his newborn with a 1stUp.com start kit in his hands. The deal has the potential to reach 6 million new users in the cradle.

Katz said it is one of the first large free service providers to really embrace this efficient method of distribution.

"There is a big difference in our product offering, because we don't spend our money to market our services," Katz said. "We realized early on that we could effectively distribute our services though other companies. That allows us to focus on the system and technology used to deliver high-quality Internet access."

What its partners pay for Net services varies because 1stUp.com has a flexible payment structure. Some of the deals pay an up-front fee, others go with ongoing monthly payments, and the price depends on the level of marketing commitment the different companies are will to make.

Statistics are not provided
1stUp.com does not release usage statistics to the public, so, of its 4 million subscribers actual usage data remains illusive. Katz said its average use runs consistent with the free service segment, at about 40 to 50 percent each month.

The company does track advertising click-through rates. Katz said 1stUp.com's click through rates average 2 to 8 percent, substantially higher than the industry average of .5 percent. Its new Web commercials post click-throughs at the higher end of the scale.

Katz said that developing new advertising mediums would help fuel other services to expand 1stUp.com portfolio of online solutions.

"As we get better and better at providing top-notch Internet services, and add new ad technologies and new advertisers, we will be able to expand our services to include other product offerings," Katz said.

What's next
No, 1stUp.com won't be offering free digital subscriber line services anytime in the near future, but it is working to expand its wireless service portfolio, and quietly added a very interesting new fee-based dial-up service.

Katz said the fee-based program was added to its service line-up at its partner's requests.

"One thing we do is free dial-up services, but 1stUp.com is a complete Internet solutions provider for companies," Katz said. "We quietly rolled out paid for dial-up services because our customers wanted it as an option. We will rollout broadband for clients to resell as well, and intend to offer wireless services."

Katz said that 1stUp.com users first accessed dial-up services as an alternative to fee-based providers, but that the pattern of free ISPs being second to fee-based ISPs has changed.

"We're finding that customers originally used us as a 2nd source for connectivity, at fist," Katz said. "Now people are more comfortable with our service. What we're seeing is offering consumers a full range ISP services, some for free, works well for our diverse subscriber base. It's what they want, just like TV is free, but you can upgrade to premium programming if you like."

The television connection
The first free ISPs appeared in 1996, born on the theory that the Internet could operate much like commercial television, with ad sales generating enough revenue to cover costs and turn a profit.

But high bandwidth costs and weak ad sales forced pioneers like Hypernet and Freeride out of business, and more recently Frewwweb and SpyNet. NetZero and several other ad-based firms remain standing and keep adding boatloads of new users every day. But the free ISPs can not stand still, they have to move on, diversify services, and not rely on ad revenues as a single stream toward eventual profits.

NetZero may have landed several deals and investments totaling more than $200 million this year, but the "defender of the free universe" still has to thwart attacks on its market share by Spinway and its Kmart alliance, as well as hundreds of other free ISP start-ups.

As a result of market pressures piling up, NetZero has quietly begun partnering with companies that want to create their own free ISP, just like 1stUp.com. NetZero remains committed to its free dial-up services, but it's looking for ways to take a drink from the revenue stream that 1stUp.com dominates.

The major difference is that NetZero is assuming the costs of its marketing program, and prime time ads on the NBA finals aren't cheap, while 1stUp.com allows its partners to bring a branded, free service to market.

According to Jupiter Communications, companies like 1stUp.com that create sponsored private label services are forecasted to take care of as much as 70 percent of the free ISP market by 2003. Currently the same branded free services own about 30 percent of the market, while less than 10 percent of U.S. Internet users log on through an ad-based ISP.

In the meantime, 1stUp.com stands as the frugal master of affinity marketing and the tech-savvy prince of Net utilitarianism.

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