The Web: Giving Away The E-Store

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Yaron Zilberman, 33, and Guy Blachman, 28, have made all the right moves. They have M.B.A.s from top business schools, $8 million in venture capital and a snazzy Trump Place apartment and office suite on Manhattan's West Side. They also have Gooey, an innovative Web application that allows visitors to any website to chat with other Gooey users at the same site. Zilberman and Blachman will tell you it's a killer app, one that will turn the whole Internet into a billion-voice AOL chat room. So how much is Hypernix, their company, charging for this product?

Nothing. Like hundreds of high-tech and Internet companies, Hypernix has embraced the business of free. You name the product, and someone out there wants you to have it gratis. There are at least five companies giving away PCs, five offering Internet access, a couple promising long-distance calls at zero cents a minute, three passing out voice-mail boxes, one seeking the privilege of doing your faxing and another that wants to give you postage. You want e-mail? Pick from a dozen companies that would love to be your no-cost provider. Once you're online with your free PC, you may want to trade stocks--American Express Brokerage will provide free trading for accounts over $100,000. Amex won't do your taxes, but H.D. Vest, another financial planner, has just volunteered. Other software needs? Linux is a free operating system, and Sun Microsystems' StarOffice is a complimentary office suite.

Why the proliferation of businesses that are literally giving away the store? "We're moving from an economy where people pay directly for services to an attention-based economy," says Joe Krause, senior vice president of content at Excite@Home. "What's valuable for businesses is not necessarily the money being directly paid but rather the consumer's attention." Most of these businesses--like Free-PC, which offers a free computer in exchange for a constant ad presence on your desktop, and NetZero, an Internet provider--are relying on advertisers and marketers to provide their income. They subscribe to the old Net mantra: Get Big Fast. Gather enough eyeballs, aggregate enough consumer-shopping habits and click-through tendencies, and sellers will pay a premium to get at your customers.

One might rightly ask: How much does all this free stuff cost? In the case of PCs, some firms, like InterSquid and PeoplePC, provide quality computers that come with multiyear contracts requiring the user to sign for dial-up Internet access at somewhat pricey rates--a deal many consumers might regret when high-speed Internet access becomes widely available. AltaVista, a free Internet service provider, runs a narrow, scrolling banner across your screen that requires you to click through--interact with the ad--every hour.

Although free everything seems like another Internet innovation, it's actually a century-old strategy. King Gillette gave away his safety razor and made a fortune selling the blades. Perhaps you remember something called broadcast television, which was preceded, in the 1920s, by broadcast radio. RCA created the NBC network to sell radios.