Free ISPs grab marketing partners

As their battle for market share intensifies, Canada's free Internet service providers are hoping to get by with a little help from their friends....

As their battle for market share intensifies, Canada’s free Internet service providers are hoping to get by with a little help from their friends.

Increasingly, the players in this crowded category are relying on marketing partnerships as a means of attracting users and generating much-needed revenues.

The past year has witnessed the birth of a number of such partnership arrangements. HMV Canada, for example, signed a co-branding and distribution deal this spring with the 3Web service. Similar agreements now exist between HomeFreeWeb and Molson Breweries, Funcow and EMI Music Canada, and 1stUp.com and Loblaws.

Deals like these allow an HMV or a Molson to offer free, branded Internet service to its customer base. And they create benefits for the free ISPs as well.

‘One of the challenges that free ISPs have is creating a sound distribution strategy in order to get their products to as many consumers as they possibly can,’ says Jim Westcott, Internet analyst with Toronto-based International Data Corp. (Canada). ‘That’s the impetus behind signing all of these deals.’

Instead of charging consumers for access to the Net, free ISPs give it away in exchange for the opportunity to collect valuable customer information. Ultimately, the hope is that e-commerce and online advertising revenues will be sufficient to cover the cost of providing free access.

According to a recent study by The Convergence Consulting Group of Toronto, more than 16% of Canadian households connected to the Internet will be using free dial-up accounts by early 2003. By the end of this year, there will be approximately 879,000 free accounts in total.

One of the most notable recent partnership deals in this category was unveiled in October, when Canada Post teamed with Calgary-based Cybersurf, which markets the 3Web service, to deliver branded Web access to consumers.

The initiative is part of an effort by Canada Post to appeal to a younger audience, says John Caines, manager of national media relations for the Crown corporation.

‘[Young people] are into the electronic mode of communication,’ he says. ‘This is the future, and we want to be part of that. So this is a great way to reach them.’

Any opportunity to create additional brand profile in the online realm is enormously desirable, Caines adds.

‘It gives us access to a lot of people who are surfing,’ he says. ‘Every time a user accesses their home page, they’ll be exposed to Canada Post and its electronic products and services. It’s great exposure for us.’

Cybersurf’s 3Web service boasts 470,000 Canadian subscribers, mainly between the ages of 19 and 39, with average household incomes of $50,000-plus. Cybersurf president and CEO Paul Mercia says the company expects to supplement its deals with HMV and Canada Post by signing on another major retailer within the next few weeks.

These partnership agreements work well for both parties, Mercia says. Essentially, Cybersurf handles all the nitty-gritty, in exchange for free distribution and a share of revenue from sales of the $9.95 installation CD. The company’s co-branding partners are also expected to shell out a monthly fee per distinct user, and pay for an advertising spend.

‘We’re both incentivized to grow the [subscriber] base,’ he says. ‘We make money, and they get to sell product and services through our gateway.’

For its part, Toronto-based Funcow has deals in place with EMI, Corby Distilleries and CampusWorld.com.

‘These partnerships are a key strategy for us,’ says John McDonald, marketing and public relations administrator for Funcow. ‘We can leverage the distribution channels of our partners while gaining loyal consumers.’

In seeking out potential partners, he says, Funcow focuses on large online advertisers such as financial, retail and packaged goods companies

This kind of co-branded Web offering is expected to make up 70% of the free Internet access market by 2003, McDonald notes.

Funcow currently has a user base of approximately 100,000, with a male skew and an average household income of $35,000. (In addition to its co-branded offerings, the company also markets its free access service independently. A print campaign has been running in major Canadian dailies since March.)

Chris Potter, research associate with The Convergence Consulting Group in Toronto, says free ISPs should be looking for partners with strong brands that they can leverage, and signing deals with a significant e-commerce component.

Not everyone, however, views the partnership model as the way to go.

NetZero, the newest player in Canada’s free ISP category, does not enter into any co-branding agreements, choosing instead to market its service independently.

As the largest of the free ISPs in the U.S. market, Potter says, NetZero already has a strong brand, and is fully capable of attracting subscribers. ‘It doesn’t need someone else’s brand to bring them in.’

David Hughes, vice-president of business development for NetZero and managing director of NetZero Canada, says his company prefers to do what it calls custom branding – offering partners premium space on the main NetZero gateway.

‘We don’t do a lot of customer brand work, but where we do, we are careful to select a company that has a very large user base,’ he says. ‘Right now, we want to build our own brand – a brand that people recognize.’

Currently, NetZero has more than 5.7 million registered users in North America. The company entered the Canadian market quietly back in August, and plans to launch officially in December, with a TV and print campaign.

NetZero’s current demographic in the U.S. is users aged 31 to 33, with an average household income of $50,000 a year.