Millions of free e-mailers soon may pay fees

March 31, 2002

SAN FRANCISCO — Free e-mail could become an endangered species at major Internet portals.

Yahoo and Microsoft, which have hundreds of millions of free e-mail users, are launching premium e-mail services that cost $20 to $30 a year for heavy users. Portal giant Terra Lycos also is considering charging.

Their reasoning: Customers may grumble about paying for online content. But they will grudgingly do so for e-mail, the most popular online activity.

The new fees follow a major push by online companies last year to generate revenue with subscription services after advertising revenue dried up. Users may be willing to pay for e-mail, surveys show, but charging won't be easy: Free e-mail has an almost birthright quality for Internet users.

Internet portals seeking e-mail fees:

Yahoo. The No. 2 portal on April 24 begins charging Yahoo Mail users to check messages from outside services. The mail-forwarding service costs $29.99 annually — $19.99 before April 24. Before, it was free to Yahoo's millions of e-mail users. Yahoo says the fee is meant to improve e-mail service quality and reduce spam messages.

The company has repeatedly vowed to charge for costly services such as e-mail data storage to make up for dwindling ad revenue.

Microsoft. The software giant's popular MSN Hotmail service, with 110 million accounts, recently began charging $19.95 a year for additional e-mail storage space. Customers still have the option of a free e-mail account with limited space on the No. 3 portal. Hotmail users say they are being sent messages urging them to upgrade or risk losing e-mail.
Terra Lycos. The No. 4 portal is weighing charges for spam filters and extra storage space for its 72 million e-mail users. If just a fraction of customers pay, says Steve Killeen, president of U.S. operations, "We will create a million-dollar business."

Still, it will take several years for fee-based e-mail to catch on, analysts say. Since several Internet companies began charging for basic service a year ago, only 31% of Web surfers say they'll pay, according to researcher Jupiter Media Metrix. Just 12% said they would pay for Web-based e-mail.

E-mail users on the EmailDiscussions.com message board say they expect fee-based e-mail, and are willing to pay. "It's certainly the dawn of the end of robust and reliable free e-mail," says Pat Salzer of Ronkonkoma, N.Y.

"Online's future is beginning to look a lot like cable TV," says analyst David Card of Jupiter Media Metrix. "In the beginning, most folks were content with basic service. But they gradually felt more comfortable subscribing to premium services."

Portals face steep odds because consumers often use Web-based e-mail as backups to their ISP service, Card says.