The Price of Free E-Mail Rises

An Internet Age update to the truism "there is no such thing as a free lunch" might be that there is no (longer) such a thing as a free e-mail account.

The cost of a free e-mail account is on the rise. Two of the Internet's largest free Web e-mail providers, Yahoo and Microsoft's Hotmail, have quietly added fee services to their e-mail offerings. At the same time, both companies have also cut back the number of free Web e-mail perks. They are not alone.

Mail.com, recently bought by Net2Phone, is pushing a number of "premium services" to its 3 million users. For example, you can get POP3 access to your e-mail from a software client such as Outlook for $3.95 monthly, and e-mail forwarding for $2.95 per month. Net2Phone won't say whether its free services are losing money. Last August, free Web mail provider USA.net simply gave its 7 million free e-mail customers an ultimatum: Pay $50 a year or kiss your account goodbye.

Free Web e-mail isn't likely to disappear entirely, but increasingly services are charging for popular features such as e-mail forwarding and extra storage. The problem, says David Ferris, president of Ferris Research, is that "these services simply aren't paying for themselves." The challenge for Hotmail, Yahoo, and many others is to wean customers off free services and turn them into paying customers, Ferris says.

Potentially affected are Internet users who depend on some 150 million free Web-based e-mail accounts, as estimated by market researchers at IDC.

It's another example of the new Net economy, as dot coms seek new sources of revenue. Online advertising and targeted junk e-mail don't cover the monthly server and administrative costs. Each free Web e-mail account costs about $1 per month, says a representative of one service provider, who asked not to be identified.

"The trick is to make your e-mail product barely functional enough to use and then pile on a bunch of low-cost premium services to get [the user] to upgrade," Ferris says.

Microsoft appears to be the most aggressive marketer of premium services. If you're a Hotmail user who hasn't checked your Hotmail e-mail in the past month, you've likely lost your account. If more than 2MB of e-mail is languishing in your in-box, your account is "temporarily disabled" until you delete some messages. And until you clean house, Hotmail bounces messages sent to your address with the reply: "Requested mail action aborted: exceeded storage allocation."

Of course, Microsoft offers an option: Pay $19.95 a year for MSN Extra Storage, which includes 10MB of storage for e-mail and 27MB of Web space on MSN Communities sites, and your Hotmail address and account won't expire after 30 days of inactivity.

Yahoo recently rolled back its e-mail storage limit from 6MB down to 4MB. Then it began offering upgrades to its e-mail service starting at $9.99 a year for 10MB of storage. Last fall, Yahoo introduced a business e-mail service, with extras like storage and multiple accounts for a $9.95 monthly fee and a $25 start-up charge. It has also launched a $4.95-per-month service called Yahoo by Phone, which lets you access your e-mail over the phone. When introduced in late 2000, Yahoo by Phone was free; the charge kicked in last summer.

Yahoo still offers a host of free features, including virus checking, e-mail forwarding, and spam filters. To use services like forwarding, you must allow Yahoo to e-mail you advertisements at least once a week. But you'd better check your mail at least once every three months; after three months of inactivity, you'll have to reenter your registration information to reactivate your account.

Fees are still the exception, not the rule, among Web e-mail proprietors. Free Web e-mail accounts are far from scarce. But vendors and analysts see continuing trends of more consolidation among services, and imposition of fees for customers using anything more than a bare-bones e-mail account.

"A lot of companies are watching us closely," says Danette Lopez, a USA.net spokesperson. She won't say how many of USA.net's former free Web mail customers now pay $50 yearly. But she claims 200 people sign up each month for its for-pay e-mail service.

Many Internet companies instituted Web e-mail as a loss leader, to draw customers to the site. Companies offered free e-mail as a way to grow a base of loyal customers, and planned to make money by selling banner ads and sending customers targeted e-mail messages. But meaningful revenues from banner ads and spam have yet to materialize. Companies are being forced to cut freebies and start charging.

For cheapskates, paying for e-mail may never be an acceptable option. The good news is that free basic e-mail services are still available at no charge from the likes of AOL subsidiary Netscape and IWon's Excite.com.

Excite.com even offers free features like e-mail auto-reply and forwarding (for which Mail.com charges). The downside is that you may have little recourse if something goes wrong with the forwarding, or if your provider goes out of business.

For example, Excite.com's free e-mail service still seems to be suffering problems related to the ownership transition from Excite@Home to IWon's network. Some users complain that they cannot access their Excite.com e-mail. Worse, a test e-mail we sent to a theoretically valid Excite.com e-mail account was returned "user unknown."

Paying a small fee for a reliable e-mail service might be worthwhile if you're tired of sending your friends and colleagues a change of e-mail addresses every time you switch jobs or your ISP changes.

Consider the number of recent ISP flameouts and mergers. Millions of Excite@Home users faced an e-mail address change after their provider faltered and then was acquired by AT&T. Qwest's broadband customers in the Pacific Northwest, some of which switched earlier from a uswest.com address, are now being switched to MSN service through a deal between the companies. And in this climate of layoffs and dot-com bombs, your work e-mail may not be longstanding, either. Consider the piles of personal e-mail that Enron employees are no longer receiving at their workplace.

"No one ever wants to switch their e-mail address," says Tim Dolan, spokesperson for ReturnPath, a service that helps streamline change of e-mail addresses for businesses and consumers. But every year 32 percent of e-mail users change their e-mail address, according to a NFO Research Group study commissioned by ReturnPath. The top three reasons? A change of ISP, a new job, or a desperate attempt to reduce spam.

On that note, the good news is that e-mail spam filters at Yahoo and Hotmail are still free--for now.