ISP Year In Mini-Review: 1999

Contrary to dire predictions, 1999 was a good, not a bad year for independent ISPs as they extended their mastery of niche markets. Free Internet service gained a firm toehold, but is far from displacing paid service.

by Christopher M. Knight [January 11, 2000]

Other opinions notwithstanding, I believe from personal research that there are now at least 12,000 ISPs on the planet—and the number is growing, not shrinking worldwide. The doomsayers of total ISP aggregation and buyouts/mergers were wrong in 1999, and they'll be wrong in 2000. The folks who are making this kind of prediction have forgotten that the marketplace has asked for better service, and that the small ISPs with their niches that are splitting daily, have found ways to satisfy many consumer and business hungers that were otherwise left unfulfilled.

The fact is 1999 was an incredible year for ISPs, with many ISP owners building sizeable fortunes (as well as quite a few going bankrupt). As you probably know, AOL (NYSE: AOL) has over 20 million paying members, and is continuing to grow and be the market giant, while MindSpring (NASDAQ: MSPG) and EarthLink (NASDAQ: ELNK) have merged to form the number two ISP, under the EarthLink name (despite another ISP backbone's claim to being number two).

The Year Of The Free ISP?
At the time of this writing, it appears that commercial, fee-based ISPs have main street's respect, but Wall Street has sent many mixed signals over the past year. The largest confusion is that free ISPs and free ISP wannabe's have had their stock price climb, with the most recent story being Juno.com's (NASDAQ: JWEB) announcement of going free, with a pop that got them over a billion dollar market capitalization.

The message from Wall Street was: "If you give it away, we will drive up the value of your company." But, it's not that simple: Factors like subscriber base sizes, number of users who are actually using the free ISPs per month, and, eventually, profitability must become part of the stock valuation equation. Juno.com shot up 130 percent after announcing they would provide free internet access two weeks ago, but they have leveled off at 36 today (from over 80), which indicates the market has gotten a grip on itself . . . at least for the moment.

It should also be noted with EarthLink's lawsuit for their free PC/Internet deal that fell apart, that free PC model is still in serious question. While many continue to go into and out of business with the various free Internet/PC concepts, there doesn't appear to be any line that is short of folks who are willing to lose a lot of money on a gamble to make the ad supported model work.

One note of congratulations should go out to NetZero, Inc. (NASDAQ: NZRO), which now boasts a market capitalization of over two billion dollars and over a million active subscribers. They have helped to prove that the free-based ISP model can attract millions of subscribers and that free dial up access lends itself well to brand name credibility. AltaVista and Freei.Net each have more than 500,000+ active users. Jupiter Communications has predicted that about 13 percent of Internet access users will use a free service by 2003, and they believe that the number of active free ISP users will number 10 million by that time.

Value of a Subscriber
Per-subscriber valuations for publicly traded ISPs have shrunk a bit this year, while valuations of privately held ISPs have continued to climb. One possible explanation for the growth in the value of a subscriber for privately held ISPs, is the dwindling number of large independent ISPs that are still un-acquired. Lower supply, higher demand, makes their value climb.

For the most recent analysis by the pros at ISP-Planet, check out their Subscriber Values page.

Year of No-Mercy Marketing
It seems like there isn't a quarter that goes by, that EarthLink doesn't come up with a creative way to slam-dunk AOL through their highly aggressive and highly public marketing messages/offers. Most recently, they lured AOL users who were disgruntled over privacy issues by giving away a free month of service plus a donation to an electronic privacy advocacy group to customers who dump AOL and move to EarthLink.

Smaller ISPs, too, have declared mini private wars on each other this year by forgetting all 'normal' codes of Internet conduct. It's not uncommon for local and regional ISPs to have dedicated full-time staff who do nothing but gather intelligence on their competitors' customers and their every move, and counter-plot marketing campaigns to give themselves any hint of a market advantage.

Tip: A bit of advice, for those who are feeling the aggressive desire to return the favor to local ISP competitors who have been keeping your ISP under surveillance: Don't send e-mail first to the customers of your competitors. Always contact them by telephone or snail mail first, before sending an email. Otherwise, you're a spammer.

Next week, I will give my in depth review of personal ISP predictions for the year 2000

To Your ISP Year 2000 Success!

Christopher ("Sparky") Knight
Founder & Managing Editor of the ISP-Lists Discussion Community

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