Free ISP NetZero beefs up ad services

Free Internet service provider NetZero is acquiring technology to broaden its services.

The company today said it has agreed to buy start-up Simpli.com in a stock swap worth $23 million. Simpli's technology allows customers to monitor Web surfers' interests and preferences by analyzing keywords, click-through data and consumer choices.

NetZero offers advertising and commerce-supported Internet access, providing interactive marketing, research and measurement applications. It will use Simpli's technology to strengthen its consumer-targeting technology and research capabilities.

While free ISPs such as NetZero have been successful in attracting millions of customers, they're still far from being profitable, analysts say.

"A deal like this is the only way NetZero can add more value to their product," said Bruce Kasrel, an analyst with Forrester Research. "Something like Simpli.com gives them better targeting features for their customers. But it still doesn't help them with the bad business situation they're in. They still have to pay $5 to $7 per customer to maintain their infrastructure."

Under the terms of the agreement, NetZero also gave 2.5 million shares to the Providence, R.I.-based start-up. The purchase is expected to be completed during the third quarter of 2000, the company said in a statement.

The company has 2.96 million registered users, according to a recent report from Goldman Sachs. The investment firm expects NetZero to top 4 million registered users by year-end.

NetZero competes with free ISP Freei.net, which recently unveiled plans to go public.

Freei.net has about 1.1 million active subscribers. It offers service around the United States, and recently added a Singapore-based joint venture to its portfolio.

Free ISPs have sunk roots into the Internet culture over the past six months. Where NetZero was once an oddity online, now Yahoo, Excite@Home, AltaVista and even Kmart are giving away Net connections.

All of the companies are hoping to make money through advertisements that are kept at the top of subscribers' screens as long as the subscribers are online. The services track their movements to target these advertisements to individual interests.

NetZero earlier this year signed an advertising deal with General Motors worth more than $100 million over four years. Analysts expect the company to ink similar deals later this year.