Searching for Value ISPs Struggle to be All Things to All Customers
If you live or work on Maryland's eastern
shore, you can get your Internet access from
Friendly Internet, part of Friendly Computer
Services Inc. But that's not all you can get,
and therein lies the future of Internet service
providers (ISPs), big and small.
Friendly Computer Services, located near the
Chesapeake Bay Bridge on Kent Island,
provides dial-up access, dedicated access,
personal computer repair, network design and Chinese cuisine.
"It's the best Chinese cuisine in Maryland," says Rattana Chhay, Friendly's
senior engineer. "People come all the way from Annapolis just for our
Chinese food."
There's also a "computer lab" on the premises, which allows people who
don't have access to the Internet from their homes or businesses to surf
for a few hours for a modest fee.
All this comes under the heading of "value-added" services, which is
where analysts and ISP executives say the future lies for ISPs. They say
the mere provision of access is no longer enough, and ISPs who survive
the next few years will be those who provide dedicated access, quality
guarantees, virtual private networks (VPNs), IP telephony, or--on Kent
Island, anyway--a really distinctive egg drop soup.
None of this surprises Hilary Mine, who follows Internet business for
Probe Research Inc. "They're not dying," Mine says of small ISPs.
"They're getting into dedicated services, and away from just doing dial-up.
These geeky little mom-and-pop shops don't need to make six figures to
be happy. And their advantage is customer touch."
And Chhay and his colleagues on Kent Island would find a congenial
spirit in Jack Danahy, director of strategic marketing at GTE
Internetworking, GTE Corp.'s ISP business.
"If I were a small ISP, I'd be thinking about the fact that the services I
traditionally offer are going to be less and less nifty to my customers,"
Danahy says. "The market used to be, 'Who can I get this service from at
all?' Now, I believe that ISPs who survive will be those who realize that
this is no longer sufficient."
Danahy believes that even small ISPs will move to web hosting,
e-commerce and other value-added services. He suggests that even small
and medium-sized businesses will want to engage in some form of
e-commerce, but will lack the expertise; here, he says, lies an opportunity
for small ISPs.
Souping It Up
The trend away from mere access, or the mere wholesaling of access,
seems to apply across size spectrum of ISPs. Revenues will continue to
climb from access, but customers will stay with companies who provide
the extras, analysts say.
The report "Sizing Internet Services 1998" issued in January by Forrester
Research Inc. suggests that Internet consumer access revenues will
increase from $5 billion to $22 billion by 2002, and that business access
revenues will increase from less than $1 billion in 1997 to $16 billion.
Consumers, Forrester says, will opt for speed wherever they can, which
bodes well for cable companies and cable modem makers who take
advantage of the demand. Businesses, the report says, are just about over
their fear of the Internet and will move to connect every employee to
e-mail to take advantage of e-commerce opportunities and host internal
websites.
PSINet Inc., a leading backbone provider, has organized business
divisions to take advantage of the new demands. Its Corporate Network
Services division, which a spokesman says accounts for 65 percent of its
revenues, sells everything from 56 kilobits per second (kbps) dial-up
services to multiple T1 lines. However, PSINet has begun to bundle
services: Internet protocol (IP) faxing and IP telephony, intranets and
VPN services. The company's applications and web services unit
provides web hosting, but also offers on-demand, real-time audio and
video streaming, audio-visual production services and web-based TV.
The TV application has been used to narrowcast events as diverse as
Hillary Rodham Clinton's commencement address at Fordham University
and Gloria Estefan's appearance at the opening of a cafe in Orlando, Fla.
Finally, PSINet provides wholesale services to other ISPs. "We see all
ISPs branching into commercial sales, which we think is a wise move, to
spread their base of users across different times of day and different
products," says John Kraft, vice president and general manager of carrier
and ISP services.
Kraft says PSINet will sell anything from 56kbps dial-up services to T3
dedicated access, and also will resell its web services.
"It's a classic wholesale business model," he says. "We succeed if they
succeed."
Even among wholesalers, however, the pressure to offer more to one's
customers is heavy.
"You can't just sell somebody a T1 and say, 'See ya later,'" says Mike
Kallet, senior vice president of engineering at ICG Netcom Inc. Jim
Geiger, senior vice president and chief marketing officer for Intermedia
Communications Corp., which purchased ISP Digex Inc. earlier this year,
explains the company now sells fiber access, frame relay, collocation,
primary rate integrated services digital network (ISDN) connections and
managed services.
"We are a very strong proponent of wholesale channels," he says. "One of
the reasons we liked Digex when we went looking for an ISP was that,
along with a fabulous brand in IP connectivity, we got a lot of innovation
in products," Geiger says. "We have our own internally managed security
service, a fax over IP service to be released in the fourth quarter, and then
voice over Internet protocol (VoIP) in the first quarter of 1999."
Intermedia also picked up a core of specialists in website hosting, and
Geiger says the company is making the most of those specialists. "Our
business always has been enterprise data," he says "We don't do dial.
What we want to do is hosted solutions, e-commerce solutions, IP on the
front end. The website organization really is creating a functionality for our
customers, not just a naked service offering."
Different Paths
Competitive local exchange carriers (CLECs) have taken different
approaches to ISPs and to the Internet in general. Some, such as
Intermedia, have bought ISPs and some have sought ISPs as customers.
Among the latter, some, like Intermedia, have formed special sales forces
whose job it is to concentrate on ISPs. Others, such as Focal
Communica-tions Corp., view ISPs as a subset of heavy
telecommunications users.
"ISPs are an important part of the future, but our focus is on large,
telecom-intensive corporate customers," says Bob Taylor, president and
CEO of Focal. "We divide them into three groups: information providers,
big corporations and value-added resellers."
ISPs fall into the first category, Taylor says, but he sees them moving over
into the third category, as their original business of providing access
becomes a commodity. In any case, Taylor thinks ISPs, big and small,
will be around for a long time. He points to the telecommunications
industry for a parallel: There are nearly 1,000 long distance companies in
the United States and more than 1,000 LECs, "most of which we've
never heard of," providing service and inventing products and "morphing"
from one niche to the next.
And then there are companies--CLECs, of course, but at least one
ISP--which have passed through a paradigmatic warp and become
integrated communications providers (ICPs).
Consider Kallet's company, ICG Netcom. Kallet comes from the
Netcom side of the merger, and says that his company has 500,000
dial-up access customers and offers every kind of connection from
56kbps to ISDN to T3. The company recently announced a wholesale
effort directed at ISPs. ICG Netcom has rolled out a national IP
telephony service in 31 cities, and will be in 166 cities by the end of the
year, Kallet says. He points out that ICG Netcom was able to roll out the
service within three months of the merger.
"We had plans for things like IP telephony, and we were able to
accelerate that [after the merger] because we had expertise in data and
switched-circuit expertise," he says.
Kallet says ICG Netcom will be a pipe to wholesale customers, but also
will offer virtual private networks, website hosting and the other
value-added services. He also sees a time, not far away, when companies
will outsource their information technology (IT) functions to companies
such as his. When that happens, Kallet believes, companies like his not on
will host websites, but e-mail servers, collaborative applications--all the
things that corporate IT departments typically do today. "Put a CLEC
together with an ISP and what have you got?" Kallet asks. "An ICP
(Internet communications pro- vider). And that's what we intend to
become."
Douglas Hanson, president and CEO of Rocky Mountain Internet Inc.
(RMI), has led his company to a similar synthesis, but from the other
direction. His company began as an ISP in Denver, has evolved to offer
IP telephony services in Colorado and has plans to offer such services in
the rest of the country. In June, RMI acquired Infohiway, a website
designer and search engine, and now offers the expertise Infohiway
brought to the company as a product line.
Hanson, who positively bristles at the idea of labeling his company either a
CLEC or an ISP, waxes philosophical on the convergence of the two.
"Why do CLECs exist?" Hanson asks. "Because ILECs exist. And when
ILECs can offer long distance service, they're no longer really ILECs, are
they? And if there are no ILECs, there are no CLECs, either. If you get
rid of one, you get rid of the other. So when that happens, what you have
left are companies that can provide end-to-end service. You have ICPs."
Copyright © 1998 by Virgo Publishing, Inc. |
