NetZero cuts staff, service

The Associated Press
Friday August 03, 2001

LOS ANGELES — NetZero Inc., one of the few remaining providers of free Internet access, is slashing staff, selling a subsidiary and reducing its free service to save money, company officials said Thursday. 

In another sign that its business model isn’t working, the Westlake Village-based company has eliminated 66 positions and will reduce the number of free hours available to basic service customers from 40 to 10 a month, effective Oct. 1. 

It also sold subsidiary RocketCash, an e-commerce company best known for its partnership with the Sprite soda brand. RocketCash has 27 employees and cost NetZero several million dollars a year to operate. 

The sale closed Wednesday, but neither the name of the buyer nor the terms of the deal were disclosed. 

“If we have a business tangential to our core business, and if we are spending a lot of time or effort on that, this market will not give us credit for that,” NetZero chief executive Mark Goldston said. “We can’t afford the diversion.” 

The 66 layoffs at NetZero and the sale of RocketCash resulted in a 26 percent overall reduction in staffing. 

With the news, shares of NetZero rose 5 cents to close at 65 cents a share on Thursday. 

Goldston said NetZero wanted to make the cost-cutting moves before its merger with New York-based Juno Online Services in a deal that will create the world’s second-largest Internet service provider behind AOL. NetZero hopes to close the stock deal by year end. 

Goldston declined to estimate how much the changes might save his money-losing company, saying only that it will be in the millions of dollars. 

The slashing of service hours will affect about 30 percent of the company’s free-access customers, Goldston said. The goal is to move people from free service to a “Platinum” plan that costs $9.95 a month. 

About 3.4 million people used NetZero services in June, but only about 210,000 were billable subscribers. 

Analysts described the NetZero changes as part of a larger move away from free Internet service. When the firm opened nearly four years ago, it was the first to offer free Web access to customers willing to share personal information and look at targeted advertising. 

Last month, e-tailer BlueLight.com of San Francisco said it would discontinue its free Internet service. 

Free access companies simply have not been able to make the advertising-based model pay, said David Smith, vice president of Internet strategy at Gartner Inc. in Stamford, Conn. 

“The free lunch is over,” he said. “See if those 10 free hours are there six months from now.”