CAMPAIGN INTERACTIVE: BEHIND THE HYPE/DIXONS FREESERVE - Dixons provides free internet access to gain retail foothold. Why is the electrical giant offering a costly service for no financial return? Karen Yates uncovers its motives

By KAREN YATES, campaignlive.co.uk, Friday, 30 October 1998 12:00AM

What is Dixons up to with Freeserve? A chain of high street electrical shops offering what others never have - free access to the internet. Naturally, the move has given a much-needed lift to Dixons’ public image, but not without it going to much trouble and expense.

What is Dixons up to with Freeserve? A chain of high street

electrical shops offering what others never have - free access to the

internet. Naturally, the move has given a much-needed lift to Dixons’

public image, but not without it going to much trouble and expense.



Dixons claims there are no hidden agendas. For the effort of popping

into a Curry’s, Dixons, PC World or Link store and picking up a

Freeserve disk, anyone can now register for the internet free of charge.

End of story. Freeserve insists that, unlike its rivals, it will charge

no registration fees, send no monthly bills and charge no premiums on

telephone calls.



According to Freeserve’s general manager, Mark Danby, it will make money

simply by being big.



If Freeserve makes its target of 250,000 subscribers by Christmas - and

it claims to be currently well ahead of this figure - it will overtake

the largest UK-owned internet service provider, Demon, in three

months.



By being large, the mantra runs, it will attract the best advertisers to

its portal site. Advertisers mean revenue and this will fund the service

substantially.



However, even Danby admits that advertising on the internet is still a

drop in the ocean, estimated at only pounds 15 million to pounds 20

million a year.



But the figure is growing rapidly and Danby believes Freeserve is lining

itself up for a large slice of the action. He says it has received ’a

lot of interest’ - while declining to give details - and claims

Freeserve will have its first ad up and running in a matter of

weeks.



Another source of revenue will be the tiny percentage of telephone

charges that Freeserve receives from BT each time subscribers use the

service. However, Danby dismisses this as insignificant as a source of

revenue, as he does Freeserve’s expensive helpline, which bills at

pounds 1 a minute.



Instead, Freeserve enthusiasts like Danby are keen to point out how lean

the outfit is. Because there are no fees, there is no expensive billing

administration. And because of the Dixons group’s 950 ready-made retail

outlets, there’s no need for expensive mail-outs or ad campaigns.



’Some estimates put the cost of winning a new subscriber at as much as

pounds 40,’ Danby notes, ’but it only costs me pounds 2 to pounds 3 to

send out a box of 90 disks - that’s a potential 90 new customers.



Even better, he adds, are the early indications that Freeserve disks

have a very high take-up rate.



This means that a much higher than usual percentage of people who are

picking up the free offer actually end up subscribing.



All this talk is fine, but it still hasn’t touched on the real reason

why Dixons has joined Planet Online for this brave new venture: the fact

that Dixons is first, and foremost, a retailer. A retailer, moreover, of

one of the key growth areas of home-shopping on the internet -

computers.



The electrical giant could either sit back and watch this great unknown

quantity start to gobble away at future sales, or it could start

sleeping with the enemy. And that is what it has done.



E-commerce is deemed by the experts to have enormous potential. A recent

survey, conducted by BMRB International and the Henley Centre, estimates

that it already represents more than pounds 370 million a year.



True, this is less than 0.1 per cent of UK consumer expenditure, but

over the next three years it’s expected to soar more than

seven-fold.



After that, experts are at a loss as to how to quantify it - the

explosion could be big.



Publicly, Dixons says it hopes to woo a wide variety of retailers into

its new shopping mall on the internet in order to bring in much-needed

revenue. What’s unsaid, however, is the giant ringside seat which

Freeserve effectively gives the entire group as the e-commerce future

unfolds for retailing.



More immediately, free access is expected to increase internet usage as

a whole in the UK.



Brian Lee, the managing director of Grey Interactive and a veteran of

cyberspace in the UK and US, is clear on this point: ’A similar move in

the US to lower internet costs by America Online definitely contributed

to a genuine increase in usage. People are always won over when they

sense good value.’



This, too, has its benefit for Dixons. The group already sells 20 per

cent of all PCs sold for home use in the UK. Anything it can do to

encourage internet use, and therefore computer sales, is no bad thing.

Another added benefit, of course, is that the rush of people into its

stores to pick up the disks themselves is naturally increasing footfall

in Dixons’ outlets.



And finally, there’s the simple matter of money. Scottish Power bought

Demon for pounds 66 million this summer. If you take the highest

estimates for Demon’s subscribers - 250,000 - that works out at a

healthy pounds 264 a head.



So what happens if Dixons takes a peek at the future of retail on the

internet and doesn’t like it? It could always just pass the Freeserve

buck to someone else. Take the money and run.



This article was first published on campaignlive.co.uk

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