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This chapter is from the book

This chapter is from the book

Identifying Market Trends

In a relatively short time, the Internet has become a major marketplace. Service providers of every size and composition are active in the market, and both new and established companies are looking for ways to increase subscribers, services, and, ultimately, revenues.

Value Proposition

Even though the ISP market in the United States (U.S.) has matured, significant opportunities still exist, especially for international ISPs, to capitalize on niche and underdeveloped marketplaces and to add new residential and business subscribers.

As bandwidth becomes available at an increasingly affordable cost, ISPs look for new value-added services and ways to attract new subscribers. The ISPs with established infrastructures are uniquely positioned to leverage their expertise and scale. In addition, ISPs are seeking new channels for their services and opportunities to reach new subscribers.

Market Positioning

As the Internet market evolved, service providers were classified into three classes: network service provider (NSP), application service provider (ASP), and Internet service provider (ISP).

  • NSPs are companies that offer high-speed backbone Internet access. These companies are usually large telecommunication providers and network equipment providers. These companies own and operate networked, wireless, and wireline telephones, cable, and satellite. For example, some NSPs in the market today are AT&T SM , BBN®, Bell South®, Level3, Qwest®, and UUNet®.

  • ASPs are companies that offer online application hosting to businesses. ASPs provide businesses such as ISPs with applications and infrastructure for running applications over the Internet. These applications are usually provided via a wide area network (WAN) from a centralized data center. Businesses operating over the Internet most often outsource Information Technology (IT) functions to ASPs, to save time and money. For example, some ASPs in the market today are PeopleSoft®, TIBCO™, VerticalNet™, ATG®, and Oracle®.

  • ISPs provide Internet access and services to business and residential subscribers. For example, some ISPs in the market today are America Online SM (AOL SM ), AT&T Broadband Internet SM , Mindspring™, and Earthlink™.

The emergence of the Internet challenged the dominance of traditional telecommunication companies. In response to decreasing market share and new opportunities, most of them shifted business strategies and became NSPs, then integrated ASP and ISP characteristics. By having all classes under one roof, these companies provide a one-stop portal for both business and residential subscribers.

There are approximately 9,700 ISPs, and this number is steadily growing. Yet, six large ISPs dominate the market today. The largest ISP, AOL, has approximately 32.5 million subscribers world-wide. The battle for the top spots is fierce; however, the market for regional ISPs is open. Consider the following market trend:

J.D. Power and Associates[™] reports that smaller ISPs are threatening the dominance of the six largest national providers, accounting for 52% of new household subscriptions in the past year [2000]. This indicates that the regional ISP market is still growing strong.1

In the national market (U.S.) as of November 2001, the top ISPs by subscriber are as follows:2

  1. AOL (26.3 million subscribers)

  2. MSN® (7 million subscribers)

  3. United Online (6.1 million subscribers)

  4. Earthlink (4.9 million subscribers)

  5. @Home (3.7 million subscribers)

  6. Prodigy (3.5 million subscribers)

NOTE

In September 2001, United Online acquired both Juno Online® and NetZero®.

Smaller ISPs that offer high-speed Internet access via digital subscriber lines (DSL) or cable modems are more likely to grow in this competitive market. Growth patterns and customer satisfaction surveys indicate both national and regional ISPs that want to attract new customers have to offer high-speed service. In response to customer demand, local cable and regional telephone providers are gearing up to roll out more DSL and cable modem services.

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