Outlook: Internet mania

THE MERE mention of the "I" word seems to be enough these days to rejuvenate a sagging share price. Judging by the effect on dear old WH Smith yesterday, more should try it. Its more than woolly announcement about teaming up with BT and Microsoft to launch another "free" Internet service provider was sufficient to propel the share price 11.4 per cent higher. Since Dixons launched Freeserve last September, the Dixons share price has more than doubled.

Prospects for Dixons' core retailing business have improved a bit since then, but the bulk of this stellar performance is accounted for by Freeserve. Billions have been added to Dixons' market capitalisation courtesy of this new Internet service. Now WH Smith is hoping to repeat the trick. But as the stock market correctly surmised by marking the Dixons share price down by an equal and opposite amount in response to the WH Smith announcement, not everyone can win in this market.

Few people these days doubt the Internet's power to transform industry, or its vast commercial potential. But actually making money out of it is a different issue, and actually these British retailer based free Internet service providers seem rather less likely to make good profits out of the Web than most.

As Dixons has proved, retail networks provide a powerful motor for adding subscribers, but as the service is free, having more subscribers doesn't necessarily earn you more revenue. Nor does using the Net to flog your own products help the bottom line much, since the effect is merely to cannibalise existing sales.

WH Smith's Richard Handover was yesterday waxing lyrical about the importance of establishing his service as a fully fledged "portal". Certainly this offers the most likely pathway to profit, since the most successful portals ought eventually to be able to attract very considerable advertising revenue.

The trouble is that this is a fast moving industry and the competition - Yahoo!, Excite, and the like - have quite a heads start. Keeping the millions of non paying customers these new free services attract eyeballed to their own home pages is going to be a challenge most will fail to meet. As a consequence, it is hard to see how the valuations the stock market is attaching to these services can ever be justified.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore