Freei Files for Bankruptcy
Friday October 6, 8:20 pm Eastern Time
TheStandard.com
By Dominic Gates
Freei Networks, also known as FreeInternet.com, a free ISP that operates nationally and is based in Federal Way, Wash., filed for Chapter 11 protection Friday and announced that NetZero will acquire its assets.
It is expected that Freei users will be referred to NetZero's service. "Our intent is to provide maximum continuity for FreeInternet.com users," NetZero CEO Mark R. Goldston said in a statement. "NetZero intends to help FreeInternet.com users transition as smoothly as possible, so they can continue to enjoy the benefits of free Internet and e-mail." NetZero is based in Westlake Village, Calif.
The move comes a week after the company laid off 90 employees because it was having trouble meeting its payroll.
At the time, Freei CEO Bob McCausland refused to confirm rumors of a buyout.
As with the earlier layoffs, Freei employees who had lost their jobs were given scant notice to pack up their things. "They gave everyone 3 minutes to get out, and those were their exact words," said one former staffer who had been laid off in a previous round.
Freei was the fifth-largest free ISP in the U.S. after 1stUp.com, NetZero, Spinway and Juno. It launched December 1998 in the Seattle metropolitan area before expanding nationwide. Since then, it has registered 3.2 million users, though only 40 percent to 45 percent of them actively use the service.
Like other free ISPs dependent on ad revenue, Freei had tried to broaden its revenue base through partnerships, affiliate programs and by offering private-label and co-branded versions of its service. Nevertheless, it burned through money. In 1999, the company lost $19 million on revenue of only $983,000.
The free ISP's demise came despite strong financial backing. It raised an initial $10 million in August 1999 from Sequoia Capital, a venture capital firm in Menlo Park, Calif. That investment also added Mark Stevens, managing director of Sequoia, to Freei's board. In November, Freei raised an additional $25 million, almost half of which came from MP3.com, where Stevens also is a director. In March, the company raised a hefty $53 million in private financing, including approximately $5 million from InfoSpace. Naveen Jain, CEO of InfoSpace, also took a seat on FreeInternet's board. Freei filed for an IPO on March 31, just before the market turned south.
The free-ISP model has proved popular with customers, but it has raised doubts among investors about a company's ability to sustain itself on advertising revenue alone.
Check out The Standard's Dot-Com Layoff Tracker for a look at which sites have cut workers or closed up shop. Also, e-mail any tips on layoffs or closures to layoffs@thestandard.com. |
