Freeserve: The Pioneer in Free ISPs in Europe
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Case Code: BSTR092 Case Length: 11 Pages Period: 1998 - 2001 Pub Date: 2004 Teaching Note: Available |
Price: Rs.300 Organization: Freeserve, Wanadoo Industry: Internet,Telecommunication Countries : Europe Themes: Differentiation |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background
Freeserve was launched amidst great hype in September 1998, by the consumer electronics chain, Dixons, and a long-distance operator, Energis Communications (Energis). The reason behind the hype was the fact that Freeserve was the first ISP in Europe that claimed to offer its customers "free Internet access". Freeserve soon became immensely popular, with the ISP registering one million users in the first five months of its operation. Freeserve's portal also earned a reputation for being the 'most popular home page' in Britain, with more than 20 percent of its hits made by non-Freeserve subscribers. Commenting on this, Nicolas Backhouse, Freeserve's Financial Officer, said "We are the most recognized Internet brand." On August 2, 1999, ten months after it was launched, Freeserve was listed on the London Stock Exchange and NASDAQ. (Freeserve was the first pure Internet company to float on Europe's stock markets.) The company's initial public offer was oversubscribed by about 30 times. Each share was sold at £1.50, raising £135 million.
Half the amount was given to Freeserve for further investment and the other half went to Dixons. Dixons continued to own about 80% of Freeserve. The share price, very soon, jumped to £2.50. Analysts claimed that Freeserve's value climbing steeply on its first day of trading was expected. According to Khuram Chaudhry, an Equity Strategist at Meryill Lynch, the listing of Freeserve at a high price was because of its novelty. In its flotation prospectus, Freeserve stated that its mission was "to become the UK's preferred Internet portal by delivering both free Internet access and an integrated offering of UK focussed content, e-commerce and community." In its share prospectus, the company devoted six pages to inform the public about the risks involved in buying its stock. A few of these statements were that Freeserve's networks "may not be able to accommodate its growth", "Freeserve's business strategy is unproven," and, "The market for Internet advertising is uncertain"...
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