Editorial: State of the ISP Industry

ISPs are examing all options as they try to raise Average Revenue Per User (ARPU), a fundamental metric of ISP success.

by Alex Goldman ISP-Planet Managing Editor [October 12, 2007]

This is the year of applications, and this ISPCON is the ISPCON of applications too. It's time to put the "S" back in ISP. With services, make your customers think you're Superman.

Well, okay, services won't solve all your problems. ISPs are adding services because of the fundamental struggle of the industry: to get customers to pay more money each month when market prices for every service are declining. The solution many are adopting: add more services.

It's not a path to easy street—it's a survival tactic.

But it doesn't always make sense to build them yourself from scratch. Many companies allow you to partner with them as a reseller or referrer.

Bulking up by buying the best
Larger service providers, and the companies that sell services to ISPs, have been buying up smaller companies with valuable service offerings. In 2005, for example, Tucows bought Critical Path because e-mail is the most important service of all.

Elliot Noss, CEO and president of Tucows, told us at the time, "e-mail, the application, has been becoming more complex over the years. Now you have to provide anti-spam and storage (in addition to webmail and IMAP and anti-virus). Looking forward 12 to 24 months, you want to deliver e-mail to mobile devices."

Two months ago, Aplus.net acquired online marketing firm WebImage. In the press release, Gabriel Murphy, Aplus.net CEO and president, said that small business customers are looking for more from their service provider. "We firmly believe that the remaining 40 percent of small businesses that have yet to establish an Internet presence are unlikely to rely on do-it-yourself web design solutions," he said. "Instead, they will demand a complete Internet solution with web design, hosting, and marketing services fully integrated into one package."

Integrating all of those services is a good plan for a service provider, if you have the resources to do it right.

Aplus.net is not your regular service provider. Its parent company, Abacus America, has been providing internet services since 1992 and also owns billing provider Rodopi.

Tucows is also not your average service provider. The company dates back to a website built in 1993 to help librarians connect to the internet (the parent company of this website dates back to a publication built to help librarians understand the internet). The current iteration of Tucows was incorporated in Pennsylvania in 2001.

Conclusion
The largest companies, like Aplus.net and Tucows, are buying up best of breed services to provide a package that will increase per-subscriber revenues. Even the best companies know that getting revenue from existing subscribers is a better survival strategy than relying on subscriber growth, although the best companies manage to do both.

Smaller ISPs need to decide what services they are best at providing in house and which should be acquired through a reseller deal.

The smallest ISPs should carefully consider referral programs, making sure that they recommend the best services to their customers. Other ISPs avoid referral programs because they expose your customers to offers from other vendors, but for the smallest ISPs, that's a risk worth taking in return for a small recurring payment when a subscriber purchases, for example, anti-phishing software.

— End