ISPs searching for new revenue streams

Being an ISP no longer means simply providing access and connectivity, according to a recent study conducted by NBI/Michael Sone Associates.

Titled the Canadian Internet Service Provider Market Report, 2001 Edition, author and industry analyst Brian Platts examined all aspects of the ISP market including forecasts for dial-up and high-speed dedicated service, technology drivers and future directions of the industry.

According to the report, access and connectivity services now make up less than 80 per cent of ISP revenues, causing ISPs to delve into other areas of service.

"(ISPs) are actually going out to companies now and asking to be a total service provider," Platts said. "They are saying 'we'll design your systems so that they integrate with your Web sites and we'll tailor the access to meet your needs.'"

Platts said that ISPs are turning toward Web hosting and consulting in order to bring in revenues.

Jay Thomson, president of the Canadian Association of Internet Providers (CAIP), a national trade association representing all sectors of the ISP industry, agreed. He said that as the access business slows and as competition in high-speed increases, the typical ISPs are moving into different areas of the business.

"It is rare to find a pure ISP in terms of connectivity," Thomson said. "With this industry, there is no common model. I guess one could say that the industry is exploring different areas of business generally, but each ISP goes about it differently. Some could very well provide end-to-end solutions; some could provide tailored or partial solutions. (The industry) is going in many different directions."

Platts also reported a trend with smaller ISPs, including regional and local ones, developing courtships with larger ISPs. He said that the market does not seem to be consolidating by having the Goliaths of the industry swallowing up the Davids. On the contrary, he said that the smaller ISP generally comes to a point where it cannot expand further.

"The successful (ISP) will not get eaten up, (but) rather will merge or court some kind of takeover because they have become as successful as they can be," Platts said.

CAIP's Thomson said that one of the fundamentals of the industry is to have an exit plan in mind.

"The market is becoming much more competitive and it is much harder to achieve revenue growth for the smaller ISPs," Thomson said.

Some of the highlights of Platts' report showed that ISP revenues will grow by a compounded annual rate of over 20 per cent between 2000 and 2004, and that the number of subscribers will grow by more than 25 per cent annually over the same period. The report also showed that the deployment of DSL has been slow due to logistical problems, and Platt said he is unsure of how quickly ISPs will move with it this year and next year.

For more information on the study, visit www.nbi.com. The Canadian Association of Internet Providers can be found at www.caip.ca.