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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Tumbleweed who wrote (24586)	6/30/1999 4:24:00 PM
From: thecow	Respond to of 41369

re your link (free ISPs) cant read it, need user/password My bad, did'nt realize it was passworded....lengthy so I was linking instead of copying. Internet Service Providers, Keeping the Drive Alive; by Jeff Gore LONDONDERRY, N.H., Jun 30, 1999 (BUSINESS WIRE FEATURES via COMTEX) -- Iwould like to pose several simple questions that any business school freshman can understand. If Internet Access is going to be free how is the organization supplying the service going to pay for the $14 to $16 of costs per customer per month required to provide it? How are they going to pay for the hundreds of thousands of dollars worth of Cisco Routers, 3Com and Lucent modem equipment, and Dell servers that it takes to supply Internet connectivity to even a small region of 200,000 people. These are costs that must be born whether you're AT&T or The Acme Local Internet Company. A small but very vocal group of industry analysts are getting a large amount of attention by predicting the demise of the ISP business, siting that Internet access will soon be supplied free of charge to the consumer. I would submit that anyone that wants to comment intelligently on the ISP business should walk away from the blinding strobe of national Internet hype and talk to the people that are running grass root ISPs. The imagined free Internet juggernaut sweeping the planet is really nothing more than a compilation of unproven business models that have arisen because of the difficulty encountered by companies that are coming to the Internet access business late. Local and regional ISPs jumped into the water early, some beginning as far back as 1991 (which isn't that long ago but in Internet time its eons), filling the Internet access vacuum that the incumbent telecommunications giants didn't even know existed. Early on, the market leader position as well (as position 2 and 3) in almost every local market was occupied by a local or very limited geographic regional ISP. It's one of the 22 immutable laws of branding, the first entrant in the market is in the drivers seat. Many national companies have seen the colossal growth of Internet access, as well as AOL's stock price and belatedly decided they want a piece of the action. The late entrants are finding that entering an Internet access market with well entrenched providers, from a standing start is a veryexpensive and frustrating undertaking. Our experience as a small ISP is that 70% of our new customers have been referred by an existing customer. The Internet is new, and it is technology, these two factors combine to scare most neophytes. This fear or uncertainty leads new adopters to seek a recommendation from a friend before they choose an access provider. This gives the market leading companies a huge advantage in adding new Internet customers. Lacking the ability to gain significant market penetration through traditional means has lead late Internet Access entrants to try giving away the service for some period to gain market share or as an aid in selling another product. One note about AOL, they were the market leader in the On-Line Service market, the predecessor to the Internet. Much of their success has come from a combination of being one of the earliest suppliers of Internet Access, and successfully converting a preexisting customer base to the Internet. Several free Internet business models have evolved in an effort to penetrate the Internet access market. One example is Computer manufacturers offering 1 year of free Internet service when a computer is purchased. This model has been around for about 10 months as of this writing (again an eternity in the Internet business). We love this model, it convinces people to buy a computer and get on the net, and when they experience service problems we hear from them a month or two down the road. Far from slowing our growth this business model has contributed to our growth. Anything that has been around for ten months and hasn't slowed our growth is not much of athreat. The next group of business models involve paying for Internet Access with advertising dollars. The problem with this model is you have to generate $14 to $16 a month in advertising for every access customer just to cover the costs of access and this doesn't take into consideration the cost of maintaining and selling a web presence. Now I know AOL and Yahoo have enormous backlogs of advertising waiting to get on their web sites. But they are the exception. There are maybe fifty you might even be able to convince me a hundred national web sites that have more demand for their advertising space than supply. However the Internet as an advertising medium is still very early in its development and isn't viable at the grass roots level at all yet. An illustration of what I mean is the very close relationship our company has with the largest media outlet in our region. Thismedia outlet has a very good web site and gets millions of page hits per month, more hits than any other main stream web site in our region. My company's logo and advertising is all over this site. Yet we get very few click throughs from those advertisements. The revenue generated by this media outlet's web site doesn't even cover the cost of maintaining the site. For the most part web site advertising is given away as a bonus to businesses that purchase traditional advertising. Some day funding Internet access exclusively with advertising revenue may work but the number of sites capable of delivering for advertisers has to increase substantially first. This ability to deliver also has to reach down to the local level where a substantial percentage of this country's advertising and products are purchased. I feelthat this is a minimum of 2 years away and may never happen. If you want to test the concept of Internet access funded by advertising ask yourself this question, could America Online, the most successful Internet advertising property on the web, be profitable if its only revenue source was advertising? There is another free Internet model gaining a foothold in Europe. Under this business model the cost of supplying Internet access is covered by commissions paid by the telecommunications carriers to the ISP. This is a model that would only work in Europe and would not be viable in the United States because of thestructure of our telecommunications industry. The last of the prominent free Internet access business models pays for the cost of access by selling personal, demographic information about each of its users to the marketing list industry. It relies on the consent of its customers to do this. This is a concept that may have some promise but its hard to imagine in privacy conscience America it occupying more than a small niche. The bottom line is that none of the business models mentioned above can boast one company that is profitable or even cash flow positive using the model. It's all still theory, yet there are analyst, that have written off a 6,000 company industry with the market leading position and a local presence in almost every market in the country. It also ignores that huge numbers of Americans have chosen to buy their Internet access locally. It also ignores that this local purchasing trend has not been slowed by the big national brands getting into the access business. The Internet Service Provider segment does have challenges, consolidation, diversification of revenue sources, transitioning to faster technology and access to capital, but as an industry it is aggressively addressing each of these. The consolidation of ISPs is well under way and will yield a much healthier 3,000 to 4,000 company industry in the next 24 months. Both the private and public financial markets have discovered the ISP segment in the last 8 to 10 months and this is funneling capital to companies with market leadership, local presence andentrepreneurial energy. ISP associations are being formed and are making great progress in improving the regulatory environment at the state level and forcing the Regional Bell Operating Companies to deploy faster technology. Far from being relegated to the dust bin of history, the ISP industry will be one of the major drivers of communications progress and creators of communications wealth in the next 5 to 10 years. This biggest threat to the ISP business is not free Internet access but irresponsible analysis that can hinder ISP access to capital at a crucial time in the development of their businesses. From Comdex TheÇow