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Disillusioned with his software project, Brian Atkins searched for a new business idea. What sparked his imagination was an article in Wired called "New Rules for the New Economy" by Kevin Kelly, who debunks many seemingly common-sense notions of economics. For example, isn’t it right that value derives from scarcity?

Well, not in the networked economy, where the most value comes from those things that are given away. Take the fax machine: When it was invented in 1965, it had little value. It was not until people started to purchase these machines that the value increased. Actually, there is a solid mathematical law for this: The sum of a network increases by the square of the number of its members. The increase is exponential.

Look at some of the companies that have given away things. Qualcomm gave away its Eudora e-mail program, RealNetworks gave away its audio/video players, and Netscape gave away its browsers. "What grabbed my attention," says Atkins, "was the prediction that phone calls would eventually cost next to nothing, as data traffic grew exponentially—with bandwidth and computing costs continuing to drop exponentially. I began thinking about what this would mean for some of the familiar businesses on the Net, and my mind ran across Web hosting." So began his company, Hypermart LLC, which was founded in October 1997. Basically, Atkins wants to give your business a free Website.

But isn’t this being done? Well, let’s take a look at the biggest player in the free hosting business: GeoCities. This network of Websites has more than 1.1 million members, called homesteaders. The GeoCities site -- which gets anywhere from 15 million to 20 million page views per day -- is divided into 39 different neighborhoods. Examples of neighborhoods include: Wall Street (investing, finance, and economics), Wellesley (a community for women), Sunset Strip (rock, grunge, punk, the club scene), Silicon Valley (hardware, software, programming), Colosseum (sports and recreation), Athens (education, literature, poetry, philosophy), and so on.

Basically, your free Web page is a personal page. You get 3 megabytes of server space to house your Web creation. What’s more, GeoCities provides various tools and tutorials to show how to design and upload your Web page.

Although, you can’t just post anything, because you must meet certain Page Content Guidelines. For example, you must put the GeoCities branding on your main page, as well as other main entry points to your site. There must not be nudity or pornography, bigotry, hatred, or profanity. There must not be the promotion of illegal activities or defamation. You must not use your site for commercial purposes.

If you want more space (15 MB) and the ability to do script programming (which allows you do so things such as a page counter, e-mail responder and so forth), as well as a virtual domain (www.anything.com), then you can join the GeoPlus program for $4.95 per month. But if you want to do business on the Web, then you must join the Commercial Page Program.

You will get 5 MB of space and are allowed 50 MB of traffic per day. You also get special placement on the GeoCities site. The cost is a $50 setup fee and $50 per month. (The $50 setup fee is waived if you sign up for six months in advance.)

Well, with Hypermart, you essentially get all the services of a GeoCities Commercial Program for free—as well as many other services. "I checked everywhere and found that no one was offering free hosting to businesses," Atkins says. "It still intrigues me why this is—people seem to be locked into the idea that businesses wouldn’t be interested in free hosting." When you sign up with Hypermart, you get 10 MB of space for your business. Your e-mail will be redirected to your e-mail account from your virtual domain (such as yourname@anyname.com). There is a report that shows your site’s traffic statistics on a daily basis. There is support for Microsoft Frontpage (which is a popular editor used to develop Web pages). Not only does Hypermart provide you with programming scripts, but you can also add your own programming scripts.

Despite having no advertising, Hypermart has signed up more than 1,700 users and is adding approximately 62 new users per day. So how does Hypermart pay its bills? Hypermart is based on an advertising revenue model.

That is, to get a free Website, you must put advertising banners on your site.

Let’s look deeper into the economics. First the costs:

Server: The Hypermart server has the capacity to host about 20,000 members, at a one-time cost of 15 cents per user. The server is a 300-MHz Pentium II with 196 MB of RAM—which is located in a secure, underground environment that has 24-hour video surveillance.

There is a UPS for backups, diesel generator for backups, nightly tape backups (which are stored in a fireproof vault), and a fire-suppression system.

Hard Drives: Big SCSI hard drives cost about $100 per gigabyte of drive space. Thus, assuming each user takes up all 10 MB (which is much more than what the average user consumes), each user has a one-time cost of about $1. "What is nice here is that as technology advances, this price halves about every 18 months," Atkins says.

Technical Support: This is automated as much as possible. Hypermart has two technical-support employees who are paid a total payroll of $2,800 per month. Prorating more than 20,000 Websites, the costs amount to 15 cents per user per month. (Atkins says that, because of the automation, two tech-support people can handle 20,000 sites.)

The primary sources of tech support are from news groups and e-mail.

"The news group has been great as our users help each other out with technical questions," says Atkins. "We are seeing a real virtual community evolve. So, sometimes, we don’t even have to be involved in customer support." Also, Hypermart gets about 50 e-mails per day and the tech-support staff responds within 24 hours.

Bandwidth: Hypermart uses the ISP Mindspring, which uses T3 lines.

Mindspring charges $20 per GB of traffic. The HyperMart network is now serving approximately 30,000 page impressions per GB of traffic.

"What is important to note regarding bandwidth is that we actually want our users to produce more traffic, not less, since our model is to attract advertisers" says Atkins. This is why Hypermart allows for unlimited bandwidth to its members. Revenues: When someone signs up for a free Website, he must fill out a form, in which he enters personal information, then selects what category his site fits—for example, Finance and Investing. Hypermart then sells advertising to companies, which is either based on a CPM (cost per 1,000 impressions) or click-through (the number of times an ad banner is clicked) arrangement.

Here’s how the advertising revenue model works: There are about 30,000 page impressions per GB of traffic. Assume half those impressions are carrying paid ads sold at $5 CPM, which is, by industry standards, a very conservative number. (Most are $20 CPM, and for major sites, such as Wired, the price can be $100 CPM.) So Hypermart makes about $75 per GB of traffic (15 x $5 = $75). The company can be profitable by providing low-cost advertising.

Lots Of Activity

For GeoCities, its network of sites has become an appealing piece of real estate for online commerce retailers. Amazon.com signed a deal to be an anchor on the site, as has CDNow and Auto-By-Tel. As the network grows, Hypermart says it plans on doing the same. But Atkins says his company is not a competitor to GeoCities. Hypermart is not full of personal pages, but is a network of many serious businesses. What’s more, Hypermart is not a regular Web hosting provider, but gives its members all the tools to create a high-level online business presence. (Even the SSL transactions, which are key for secure commerce, are free.)

Hypermart also said it wants to create a business community where members can learn and network with each other. For instance, besides having a tech-support newsgroup, there is also a "help-wanted" newsgroup where member businesses can post resumes and job openings. Hypermart said it is also planning to bring in news and business information content, such as "How to incorporate your business," and other articles relevant to small businesses online.

The Future

What’s the exit strategy for Hypermart? IPO? Strategic partner? Buyout?

"Right now, we are working on our entrance strategy," Atkins says. To this point, the business has been self-funded, but Hypermart is seeking strategic investment partners in early 1998. However, one favorable trend for Hypermart is the recent popularity of free e-mail. For example, Yahoo provides such a service, as do other major search engines. How long will it be until the search engines decide to offer free business hosting?