Chat services bring in many users but little cash

Freeserve, the UK's largest ISP, has launched an online chat channel, a feature that attracts lots of users but has yet to offer a significant revenue opportunity.

While online chat is immensely popular in the US, it is mainly because local calls are free. According to latest figures from Fletcher Research, it is picking up in the UK, with 57 per cent of female Internet users under 18 years old and 44 per cent of male surfers under 18 regularly chatting online.

As a free ISP reliant on advertising revenue, Freeserve will have to find a way to turn the popularity of the service into a revenue stream, given these strongly slanted demographics.

"Chat appeals to a younger age group, for them socialising on the Net has a certain cool appeal," said David Pringle, analyst at the Yankee Group Europe. "But they are not high spending as they don't have a disposable income and this is less appealing to advertisers."

A spokesperson for Freeserve disagreed, saying there are many different chat rooms available to appeal to the full breadth of its online audience.

Pringle noted also that chat is a tricky area as it appeals to particular type of user, whether teenage or not, that has plenty of free time to spend on the Internet. Increasingly, the majority of Internet users will be those going online for non leisure reasons.

"They will go on the Net to get things done. They will not be the people spending time in online chat rooms," he said.

Announced yesterday, Freeserve Chat allows any Internet user to communicate in real time through the Freeserve portal. Later in the year Freeserve will also offer 3D chat which uses advanced graphics from Boston based software developer Worlds to turn the chat areas into virtual rooms which the visitors can wander around in, view from different angles and see other occupants.

Pringle believes Freeserve is moving in the right direction by offering 3D chat, but it may be premature as he expects multimedia chat, including video and voice, to be huge only once bandwidth increases.