Monday, August 30, 1999


By Shailaja Neelakantan
(This article appeared in Forbes in August 1996).

DESPITE ALL THE HYPE about the World Wide Web and interactive gaming, E- mail remains the one thing people really want from an on-line service. So why not offer it neat, with no frills, at no charge, and get your revenue from advertising? That's the strategy of two new companies, and it looks like a winner.

Freemark Communications and Juno Online Services started offering their dial-in services in April, and so far they have grabbed about 200,000 subscribers and 50 advertisers-all for a combined initial investment of only $22 million.

"With all the exotic Internet uses, the humble E-mail is what people

always come back to," says Charles Ardai, 26, president of Juno Online. The Yankee Group, technology consultants, reports that 64% of America's 12 million on-line subscribers say E-mail is important to them; 28% say E-mail is the only thing that's important to them.

You don't need fancy equipment to send or get E-mail. If you have an ibm-compatible machine with at least a 386 chip and a modem that can handle 2,400 bits per second, Freemark and Juno will send you free software you can use to compose mail off-line. When your message is finished, you dial a local number to send it off. While you do, you get bombarded with advertising for such products as Lands' End clothing and Nabisco's LifeSavers. Freemark and Juno each hope to have from 3 million to 5 million subscribers by the end of 1997.

Cambridge, Mass.-based Freemark's founder and president, Robert Young, 33, used to be vice president of business development at Delphi Internet Services and was one of the people responsible for repositioning the company as one of the first nationwide Internet services. He realized then that advertising revenue is the model for on- line services.

Ardai, who has managed a content area for Quantum Computer Services, left in 1992 to join D.E. Shaw & Co., a technology-oriented investment bank in New York City. There he participated in the company's various Internet-related ventures.

Juno is backed by D.E. Shaw. Freemark got its venture money from cmg Information Services, Ameritech Development, Transnational Services Group and Winstar Communications. Of course, both companies could very well go public one of these days.

The companies have different marketing strategies. Freemark has back- scratching arrangements with Citibank, whose San Francisco branches distribute the software, along with the bank's own on-line product, to their clients. Juno advertises its service in magazines and newspapers and on billboards.

Some advertisers prefer E-mail over Web sites. Why? Broader coverage. If you post an ad on the Web, you reach only those browsers who hit the site, but if you post an ad on an E-mail service, every subscriber sees every ad. That's why Columbia House, a direct marketer of home entertainment products, which has its own Web site, has chosen to advertise on Juno.

There's every reason to expect these two startups to snap up many of the big on-line services' customers, who are famously fickle. America Online and CompuServe have churn rates as high as 50%, and many subscribers who leave do so to save a buck. They won't leave a free service; there are no bills for them not to pay. "It's conceivable that these companies could be near break-even in about 18 months," says Paul Merenbloom, vice president of technology research at brokerage house Piper Jaffray.

To be sure, there is nothing to stop a long distance company from horning in on this business, but, says David Shaw, chief executive of D.E. Shaw, "Being first, we are capturing digital shelf space."