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
Excerpts
Freeserve's Business Model
Much of Freeserve's success has been attributed to the fact that it was the first ISP in Europe to offer free Internet service. This was the company's USP and provided it with a competitive advantage over rival ISPs. Since 1997, most of the Internet services in the United States had been made available to individual customers for a very low flat rate, irrespective of the number of hours they surfed the net using the phone dial-up system. In Europe, however, local calls were charged by the minute. Therefore, European net surfers, who spent a lot of time online, had to pay large amounts towards subscription to the ISPs, apart from their huge telephone bills. Freeserve's business model was developed to avoid this problem. Although Freeserve provided free subscriptions, it had several sources of income. The ISP made money by sharing the revenue obtained by the telephone service provider and through other advertising and e-commerce income...
Freeserve's Decline
Freeserve couldn't remain in the top slot for long and by September 2000, the ISP was in dire need of help. The company indicated that its losses had doubled because of problems caused by unexpectedly heavy demand. The losses mounted from £1 million in the year 1999 to £18 million in the first quarter of the financial year 2000-2001. The losses were partly due to the technology bubble burst which led to the fall in the prices of Internet stocks as a whole. The main reason, however, was the unprecedented demand for Freeserve's unmetered service in September 2000, which led to congested networks. Initially, Freeserve tried to solve the problem by installing new modems but this improved the capacity of the network by only about 25%. Eventually, after a month, the company decided to lop off most of its heavy users as it felt that they were misusing the facility provided...
Exhibits
Exhibit I: A Note on Wanadoo
Exhibit II: Freeserve After Takeover
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