Discussion
NetZero had relied on venture capital funds to support itself for the first few years in hopes that the revenue being generated from advertising would eventually increase to the point that the company would be working in the black.
Unfortunately, with the reduction of faith in the technology sector, advertisers were just not willing to spend a large portion of their marketing dollars on an unproven medium.
In addition, the efficacy of advertising on the web is hard to quantify. NetZero should use its CyberTarget and CyberYield technologies to develop higher quality metrics for quantifying the value of online advertising in order to convince advertisers of the value of such a marketing effort.
In that way it might be able to once again return to a free access service based on the traditional television and radio models.
In the mean time, NetZero had come to a point where decisions had to be made about a revision of their revenue model.
There are two ways for NetZero to move into profitability: cut costs or increase revenue.
The lions-share of NetZero's variable costs comes from the rental of telecommunications lines.
As NetZero gained customers, they were forced to spend more on telecommunications in order to continue offering a quality service to their users.
If they were able to further strengthen their alliances with their telecommunications partners by offering marketing services to those companies, they could potentially reduce their cost and increase the opportunity for profitability.
This would lead to an advantage for NetZero in operational effectiveness over their competition, which is a sustainable advantage that would help them survive the ISP shakeout.
The other option is to increase revenue. The "NZ Professional" and "NZ Platinum" services options increase NetZero's revenue, to be sure, and will do much to turn around their financial situation.
They priced their services at a discount to their major competitors in an effort to attract new users from other pay services.
In addition, these new services offer a wider variety of options for their users, and by adding options NetZero increases the "stickiness" of their product.
Users who are already using NetZero will be more apt to explore new options within the company's product line as opposed to going to another company with whom they have had little or no experience.
NetZero is taking positive steps, but they need to develop a sustainable competitive advantage.
They need to operate for less money than it takes their competitors, and continue to add value to their customers.