Homestead Takes Leap of Faith in Switch to Subscription Model

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An e-mail sent June 11 by Homestead Technologies Inc. to 4 million active users of its free Web-page building and hosting services at homestead.com so far has garnered 125,000 responses.


The e-mail informs Homestead Personal users of the company's decision to turn its free service into a subscription-based model with added features. Homestead next month will e-mail the new terms based on user feedback.


"Consumers seem to realize that the Internet is no longer going to be free and they understood the rationale [behind the e-mail]," said Rich Pearson, vice president of marketing at Homestead, Menlo Park, CA.


"We've gotten a lot of great ideas," Pearson said. "In fact, we've changed a couple of our decisions based on the feedback."


In its e-mail, Homestead said it would like to charge $29 a year for existing members, offering unlimited pages up to 16 megabytes of space. The e-mail explained the rationale behind the subscription service and asked for pricing and service suggestions.


This e-mail comes two months after Homestead kicked off a subscription service for small business users of its Homestead Professional service.


"The main objective of the e-mail was really to start the education process of why we're charging and that we're charging as well as involving our existing members on whom we really built this business," Pearson said.


While many understood the economics behind the decision, not all users demurred.


"Initially, we were going to limit the number of Web sites that personal, paying members were going to have," Pearson said. "But we found very quickly that in order for them to pay they wanted unlimited number of Web sites.


"Another thing we found was that there was a large concern about the storage space that existing members will be able to have," he said. "Right now, it's 16 megabytes and you pay to get 25 megabytes. They wanted to buy more at a discounted rate."


So, Homestead will send an e-mail in the second week of July touting its new offer. For existing members it will charge $29 a year for Web pages up to 50 megabytes of space. New members who sign up to build Web pages will pay $49 for the same privileges as existing members.


In lockstep with the new pricing structure is the addition of new features. A new graphics library will allow users to choose from more than 800,000 images. Also, new site builder tools will allow greater ease in changing navigation on Web pages.


Members have 60 days to choose between the subscription service or continue for free under a drastically scaled back service - only three Web pages up to 8 megabytes.


Homestead allows consumers to build their own Web pages, using the company's bandwidth and partners' site-building tools. Users currently can create for free a three-page sub-site within homestead.com with 8 megabytes of space.


About 60 percent of the Web pages on the three-year-old Homestead are devoted to personal sites for individuals, families or fans. Another 25 percent are devoted to clubs and hobbies. Small businesses account for the rest.


Homestead users are a fairly motley crew. Half of them are between 25 and 54 years and a fifth of ages 18 to 24. Teens under 18 roughly account for the rest.


The move to a pay model - an issue that bedevils many free Internet services battling to meet financial goals - may result in seepage of the Homestead database.


"I think it will cost us users, but really not the users that are going to be our most valuable going forward," Pearson said. "There are users who are just using our bandwidth. We'll actually cut out a substantial amount of cost by getting rid of those types of users. So, I think, we'll get the best type of users."


Still, convincing online users addicted to free services to actually pay is something that Homestead recognizes. And nothing stops users from switching to other Web sites that still offer to host Web pages or sub-sites for free.


"I think we're talking roughly 200,000 [users], so that's our goal for the year," Pearson said about his estimate for subscribing customers of Homestead.


A major reason for the switch to a subscription model is the pressures involved with relying on corporate sponsors.


So, for Homestead, that meant promoting sponsor companies' site-building technology and tools to users. Sponsors pay for that privilege.


"We were really serving two masters, making sure the partners were happy and that we're promoting this technology and making sure that they were getting the traffic they wanted," Pearson said. "At the same time, we wanted to make sure that consumers are happy.


"Bottom line, as everyone knows, the sponsorship market is drying up," he said. "In order for us to continue to offer this service, we're going to have to charge for it."


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