From The New York Times, Cybertimes, March 25, 1997
Netcom's New Price Model
Tailors Internet ServicesBy LAURIE J. FLYNN
Netcom On-Line Communication Services Inc., the sixth-largest Internet access provider, Monday announced a range of new, higher-priced service packages aimed at business customers. The plan would replace the one-size-fits-all pricing model Netcom began phasing out in December.
Netcom's new pricing plan starts at $19.95, though the company no longer promises unlimited use of the Internet at that figure, saying it plans to place controls on heavy users. Customers would also be able to pay more for a guarantee that they would not get a busy signal.
From there, prices go up for services like e-mail and faster customer support. The company also plans to offer higher-priced dedicated Internet connections for companies that need to be attached to the Internet throughout the day, as well as Web hosting for businesses with their own Web sites.
Netcom became one of the first access companies to offer flat-rate pricing three years ago. But as the consumer market grew crowded, the company found it was increasingly difficult to maintain market share, and shares of Netcom's stock have languished.
The stock closed at $8.5625 Monday, down 6.25 cents, on Nasdaq. It has plunged from a 52-week high of $44.50 on May 20 to a 52-week low of $8.3125 last Wednesday.
The company, based in San Jose, Calif., is hoping that aiming at business customers rather than consumers will help it compete better in a market increasingly dominated by the phone companies and industry giants like AT&T, America Online and Microsoft, which continue to offer unlimited access to the Internet for $19.95.
David Garrison, chief executive and chairman of Netcom, said there was more money to be made in the small- and medium-size business market, where customers are willing to pay more to get more and there are still millions of concerns without Internet access.
Today, less than a quarter of all small businesses are online, according to the market research company IDC.
The industry was heading in a crazy direction, Garrison said, referring to the intense competition to attract the hobbyist with low-price plans. People understand the Internet now, he said. They want customized solutions. As a result, Netcom, with more than 580,000 subscribers, is taking a more segmented approach.
Analysts contend that other access providers will follow Netcom.
Netcom is doing what every pure-play Internet access company is going to do, said Adam Schoenfeld, vice president of Jupiter Communications, a market research company in New York.
While it is apparent that $19.95 is not a profitable figure, Schoenfeld said that some companies would continue to offer low-price, flat-rate plans -- perhaps even lowering the price more. There will be a handful of large providers that will use Internet access as a loss leader for other services, he said.
Netcom plans to continue to offer the $19.95-a-month unlimited use option for those who originally signed up for the service.
For new customers, Netcom's basic service will cost $24.95 a month plus a $25 setup fee. For $5 more, users may get a package of services that feature premium support and access to online research libraries.
The company will offer corporate users a service for hundreds of dollars monthly that guarantees a connection and an automatic jump to the head of the telephone support queue.
Copyright 1997 The New York Times Company