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Outlook: AOL bear-hug

IF YOU cannot beat them, join them. Even after Freeserve's subscriber base topped the one million mark and the company announced plans to float on the stock market, AOL, the big daddy of American internet service provider, continued to insist stoically that it would not be entering the "free" ISP market and that it would persist in charging for its service, selling the product on superior quality, user friendliness and high levels of technical support.

This always sounded a bit like Sainsbury's five years ago when in the face of Tesco's competitive onslaught it would repeatedly claim people would pay more for its allegedly better quality produce. It proved complete baloney then and it was no less so when AOL started voicing the same wishful thinking.

Faced not just by the challenge of Freeserve, but also a host of copy cat "free" ISPs on both sides of the channel, AOL first slashed its subscription rates and has now given in entirely and gone the Freeserve route. The internet is still too young an industry to be able to describe AOL as one of its dinosaurs, but this has none the less been a humbling experience for one of the web's most successful pioneers, as well a lesson on the pace of development in these fast moving businesses.

AOL still likes to think that its "paid for service" will remain sufficiently differentiated to avoid the obvious potential for cannabalisation. This is probably as much baloney as its original insistence that it could see off the "free" newcomers, but then it's got to keep up the pretence somehow or other. As for Freeserve, can it and others like it hope to survive now that the giant of internet service providers has joined the free surf? There's no doubting the tone of AOL's advertising campaign. The slogan, "Beware part-time internet providers. The N is nigh", is powerfully suggestive that AOL intends to trample all over them.

This doesn't necessarily mean that Freeserve is dead. But with the likely onset of free local telephony, the certain launch of digital offerings from both BT and the cable companies, and Sky's now up and running interactive services to compete with, Freeserve is going to need both luck and agility to keep riding the wave.