Future of the ISP Industry:
Insights From Fall Internet World's ISP Executive Roundtable

This intense, hour-long discussion was moderated by Christopher Knight and included Charles Ardai, President of Juno; Paul Gudonis, President of GTE Internetworking; and Bill Opet, President of PSINet's Corporate Network Services

by Christopher M. Knight [October 12, 1999]

The ISP Executive Roundtable has become established as a regular event at Internet World tradeshows. Here, in quick bullet-point style are the ideas I brought away from the Fall '99 edition, held last week in New York's Jacob Javits Center:

• Top-tier ISPs will begin to shift their focus in the direction of becoming Application Service Providers (ASPs).

• Someday, instead of buying a license for an application, such as Microsoft Excel, you may be able to rent it from an ASP who will stream you what you need and you can pay by the minute or some other predetermined metered rate.

• Corporate America will begin outsourcing more IT-related duties that in the past would be done in-house. New businesses will benefit the most from outsourcing because as they'll save the cost and effort of building an IT tech staff. ISPs will be in a great position to be the folks that corporations turn to for their outsourced network needs.

• The result of the above trend, will be that you, as ISPs, can crank up the billable service hours as another strong revenue stream. Many ISPs will see for the first time, their billable service revenue exceeds their Internet access revenue.

• DSL is coming on fast. By spring 2000, a substantial portion of the USA will have inexpensive DSL access. Expect incumbent LECs to fight this hard, as they stand to lose a major revenue stream in the form of customers who are currently paying them high rates for circuits that will be available in DSL form for under $50 to $200 per month.

• Internet access via Cable seems to be diminishing in importance to top ISPs, compared to DSL.

• Voice calls over the Internet are very close to becoming a reality on a mass scale. Telecom executives are lobbying heavily against this (to protect their revenue streams), while others are lobbying for moving voice calls over their data networks. Regardless of the in-fighting , it's only a matter of time before the bulk of calls are transmitted via IP or over the Internet instead of expensive voice data circuits.

• No one knows how the new voice calls will be billed, other than possibly by the packet (a conceptual stretch for consumers). Whatever the billing solution, long distance costs are bound to plummet when calls are carried digitally via the Internet instead of over the 100-year-old telephone network.

• Network-aware appliances, such as the Sony Microwave and the refrigerator with a built in browser, will create added consumer demand for home Internet access—thus ensuring an ongoing market for ISPs' traditional product: Internet access.

• Internet-on-demand (aka always-on service) is high on the consumer desire checklist, right next to speed.

• Residential consumers of ISP services are increasingly demanding routers (to support multiple systems in the home). This will create a new market for ISPs to sell DSL router combos along with the service to install it for the consumer, SOHO, and business clients.

ISP Industry Perspective
The industry now distinguishes four tiers or types of ISPs:

• Tier One:
    The infrastructure folks (WorldCom, GTE, AT&T, etc)
• Tier Two:
    Top ISPs by dialup subscriber base (AOL, EarthLink, AT&T WorldNet, MSN, etc)
• Tier Three:
    Every ISP under 100,000 paying subscribers.
• Tier Four:
     The Free ISP model.

Each tier has a fundamentally different mind-set and economic structure, almost unrelated to the other tiers. For example, smaller ISPs are very busy just surviving or focusing every bit of energy on growth. They have little time to think about becoming an ASP (unless they plan on specializing on a specific ASP segment while defocusing on dialup access products). By contrast, the very large ISPs are in a race to secure their next big revenue centers as older ones disappear (such as AOL Europe being forced to go free and shifting their revenue stream).

To Your ISP Success!
Christopher Knight,
Founder & Managing Editor of The ISP-Lists.

—End

P.S. Stop and see me at ISPcon, where I'll be leading three seminars on ISP Marketing related issues.