Online Extra: Mark Goldston: A Lucrative On-Ramp

The CEO of low-price ISP United Online explains why the 40 million households without broadband access are worth targeting

When Mark Goldston merged NetZero and Juno in 2001, virtually no one believed he could turn the two unprofitable providers of free and low-price Internet access into a viable business. Two years later, he's making a solid profit and attracting Web surfers away from rivals like America Online (AOL ). He recently talked with BusinessWeek Los Angeles Correspondent Arlene Weintraub about how he pulled off the turnaround and how he's working to ensure that United Online (UNTD ) doesn't stumble. Following are edited excerpts from their conversation:

Q: The big selling point for NetZero and Juno in the early days was free Internet access. How are you doing in your quest to convince people to pay $9.95 a month to go online?


To get profitable, we had to impose a limit on the free service to 10 hours per month per user. Once they hit 10 hours, they get a screen saying they have to pay if they want to surf more. In the last year, we grew our base of paid subscribers from 1.5 million to 2.6 million. But what's really important is that 70% of new users came right to the front door of the paid service. They didn't come to us via the free service.

Q: You recently introduced a high-speed dialup service. How does it compare to broadband?


We developed software that allows people to surf the Web five times faster than they can normally with a 56K modem. It doesn't increase the speed of downloading files, but it allows for Web surfing at DSL-like speeds. It costs $14.95 a month -- 40% less than a typical DSL connection. In the first 90 days, 200,000 people signed up.

Q: After testing a broadband service with Comcast (CMCSA ), you didn't roll it out nationally. Why not?


We expected Comcast to offer [United Online] access at a lower price. It never happened. We didn't see many people signing up for our service. There is no value-priced niche in the broadband market because the buildout is too expensive. We'll wait until we feel we can make money in broadband. Until then, we'll continue to go to the 40 million households in this country that need dialup access.

Q: Why did you decide to buy from Kmart out of bankruptcy?


We'll only acquire companies that can be accretive to earnings within 90 days. Bluelight was losing a lot of money, but we figured we could punch it into our infrastructure and make it profitable. For $8.4 million we got 174,000 subscribers. And we turned it profitable in 30 days.

Q: How do you view your role as an Internet service provider?


Our role is to popularize a commodity product. Being on the cutting edge of technology is not relevant to Joe Sixpack and Jane America. They want functionality at a good price. We want our brands to stand for all of that.

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