part 3
Distributed Access
Distributed access is a relatively new concept in hosting that involves pushing information out to the edges of the Internet through servers simultaneously located at multiple data centers near major traffic hubs such as Chicago, London, Los Angeles, New York and Washington, D.C. Through the use of load-balancing technology, users can transparently connect to the nearest or least-active server, saving time on the ever-congested Net.
With Genuity, GTE now has 12 such centers. Digex just completed a data center in Cupertino, Calif., and other companies such as GlobalCenter Inc. and Exodus Communications Inc. specialize in this crSme de la crSme corner of the market.
"Our bookings are six times what they were in January," says Exodus Marketing Vice President Mark Bonham.
Exodus has 200 customers who pay an average of $7,500 per month to the company to host or colocate at its six U.S. data centers. Bonham insists the business involves much more than providing air-conditioned equipment rooms and baby-sitting blinking lights: "Server colocation is not a commodity."
Jon Russo, vice president of marketing at GlobalCenter, would no doubt agree. His company pioneered the concept of digital distribution and hosts some of the world's busiest Web sites at its six U.S. and two international data centers. GlobalCenter's network handles 400 million page requests a day and delivers 1 billion page views per month from such customers as Netscape Communications Corp., Playboy magazine and Yahoo! Inc.
"We're ensuring brand performance on the Internet," Russo says. "Our customers expect a nonstop [Web] experience."
GlobalCenter appears to be delivering on that goal. A recent survey of the fastest Internet backbones by Keynote Systems ranked the company in the top 10 with an average page delivery time of 6.9 seconds.
Business Access
In an industry where everyone disagrees about nearly everything, one truth is self-evident: The business Internet access sector is far more lucrative than supplying consumer service. Trim out the $3.5 billion consumer dial-up portion of the market from Maloff's numbers and you end up with a plum worth nearly $4.9 billion this year.
ISPs such as PSINet Inc., Netcom On-Line Communication Services Inc., TCG Cerfnet UUnet Technologies Inc. and Verio Inc., compete head-to-head in this segment. Here the product is high-bandwidth access, ranging from fractional T1 (1.5 million bits per second) to T3 (45 million bits per second). Billing for single corporate accounts usually ranges in the tens of thousands per month and customer service is both demanding and more technical than for consumer dial-up.
"A two-minute hold time is great for consumer dial-up," says MindSpring President Mike McQuary. "But a two-minute corporate wait is hell."
Since the big money is in business access, consolidators are eyeing the field. Smaller backbone providers such as DataXchange Inc., GoodNet Inc., Net Access and Savvis Communications Inc. all report increased attention from potential suitors, most of which are competitive local exchange carriers eager to get a quick piece of the Internet access market. Their grand goal is to offer bundled Internet access, local and long-distance service all on one bill.
"We didn't envision we'd be ready for purchase at this point," says Robert Laughlin, president of DataXchange, but he's in negotiations with an unnamed buyer.
Meanwhile, other deals move forward. Verio has received plenty of press with its big-time roll-up of 22 smaller regional business ISPs, and Netcom was recently bought by ICG Communications Inc. for $284 million in stock. However, even with these high-profile consolidations, some industry players insist that local, mostly business-access providers will have more staying power than analysts predict because they provide superior service and know their customers personally.
"People hate voice-mail, they want to talk to people," ISPC's Howard says. "A lot of people like local service."
Many of these smaller ISPs resell Internet access from wholesalers such as MCI, PSINet, Sprint Communications Co. and UUnet. This is where the megaconsolidation plays are being made, almost on a daily basis. WorldCom Inc.'s brazen merger with MCI dominated headlines for nearly two months, but the past 18 months has seen a slew of ISP buyouts, mostly by telephone companies that own their own network facilities: Digex was bought by Intermedia Communications Inc. for $150 million in June; BBN Planet became GTE Internetworking in a deal worth $615 million and UUnet merged with MFS Communications Co. Inc. in August 1996, and the new company was quickly snapped up by WorldCom in a landmark purchase for $14 billion in December 1996. Netcom went to ICG and CompuServe Corp.; ANS Communications Inc. and Brooks Fiber Properties Inc. went to WorldCom in deals worth 1.2 billion and $2.9 billion, respectively.
"We believe that this is the time to make the moves. The next year or two is going to be the battleground," says WorldCom's Sidgmore, shortly after buying CompuServe and before the MCI merger.
And the war isn't over. Apex Global Information Services Inc. and PSINet are two pioneering wholesale access providers that have yet to find a larger telecom suitor and get hitched. PSI made a $20 million equity trade last summer with IXC Communications Inc. which will give it access to a OC-48 (2.4 billion-bit-per-second) fiber-optic network. The move could buy the ISP time as competitors fall one after the other into the arms of facilities-based telephone companies.
PSI CEO William Schrader says he isn't ready to sell out. He's choosing to do battle with the new MCI WorldCom behemoth by staying fleet of foot.
"We're watching them with three eyes," Schrader says.
The next 12 months will no doubt see more evolution in the Internet access industry as the flood of demand and enormous revenue become real. Secondary markets have already developed. New companies such as Colocation Corp. and Colomotion Inc. are offering housing for ISP equipment near network access points, and such players as Snap! and Planet Direct have jumped into a new market niche for customized local content on ISP home pages. At the same time, telecommunications equipment vendors are rolling out systems that make it easier for public network service providers to integrate remote access and modem pooling capabilities into their networks, creating a new managed service package with which to target the ISPs.
"We think a lot of ISPs would be willing to turn over the headaches of having to constantly upgrade their networks to handle capacity increase," says Glenn Falcao of Northern Telecom Inc. "That way they could focus on content, not on the constantly changing technology."
Stay tuned. Industry executives predict that there are plenty of surprises in store. |
