The ISP Generations

Emerging industries are shaped by technical expertise and market demand. As they mature, other business forces come into play. Has the Internet service business reached a turning point?

by Jason Zigmont HowToSell.net [March 3, 2000]

To envision the future you must first look to the past. This is what we'll do today. Next week I will use this concept of the evolving generations of ISPs as a basis for discussing the impact of market and regulatory conditions on ISPs in the ISP Future.

The good old days
ISPs have come a long way since we were all running BBSs out of our basements. That first generation of sysops-turned-ISPs were often highly technically savvy, and played a huge role in the development of the Internet, propelling the ISP business into the booming industry it now is.

A second generation followed quickly after that first, technically oriented, generation of ISPs. The second generation of ISPs was attracted by the new 'fad' of the Internet and saw that there was money to be made in this new space. Quite often, the second generation was more business savvy and less technical, and therefore they in many cases became, to one degree or another, virtual ISPs.

Synethsis and growth
With the first and second generation ISPs now intermingling, forming companies with both technical and business prowess, the ISP market began to grow at an exponential rate -- the number of ISPs in the US and internationally skyrocketed. The proliferation of thousands of ISPs with 5,000 subscribers or less spawned a third generation of ISPs: the acquirers. These companies are in the business of consolidating smaller ISPs -- to cut costs and reap the benefits of a large user base in the public market.

Mutation?
As I start to look into the future, I see a newly emerging fourth generation of ISPs. For fourth generation ISPs, providing Internet service, per se, is not always the primary focus or revenue source. Net connections are becoming, for some, a means to an end rather than an end in itself. A good example is free ISPs. They provide connections, sure, but these are simply a vehicle for advertising. Many virtual ISPs use the connectivity as a marketing or customer retention tool. As such, fourth-generation ISPs can be a threat to the preceding three generations.

While your ISP may not directly fit into the molds I've sketched out here, most retail ISPs embody at least some characteristics of the early generations. Each generation has its own ups and downs and, next week I will discuss some key issues affecting the industry and what effect they will have on each generation.

—End