It is unlikely the free ISP model is sustainable in Australia as it lacks "commercial reality", according to analyst company IDC.
A free ISP, like FreeOnline or GoConnect.com, forgoes subscription revenue from its subscribers in return for revenue derived from advertising or other sources.
But IDC analyst Brooke Galloway believes subscriber revenue will continue to be the primary source of revenue for ISPs for the time being.
"The free ISPs face the problem of actual usage," Galloway said in an IDC Pulse report. "Advertisers will base their decisions about purchasing ads with a free ISP on active members, rather than all registered members. This could be a serious handicap for free ISPs."Most free ISPs have a high percentage of inactive users who register with the ISP as a backup option. Galloway believes this proportion will increase over time, because with a free service, there is no incentive to officially discontinue the service when it is no longer required.
Galloway also predicted the online advertising market will change rapidly and Web sites will rely less on "eyeballs", as technology allows the advertisers to track demographics and purchasing behaviour of Internet users.
Privacy concerns could also inhibit the growth of free ISPs, who typically sell demographic and behavioural information to advertisers, Galloway said.