Consumer ISPs Giving Way to Business Providers

Although consumer ISPs now generate more revenue than business counterparts, the balance of power will shift by 2000, according to a report by Cahners In-Stat Group.

By 2002, the US business ISP market will be worth more than $63 billion and will be providing higher margins than the cut-throat consumer segment, according to the Cahners’ report “Big Business: Ranking and Profiles of the Top US ISPs serving the Enterprise, 1999.”

“All of the major business Internet sevice providers areseeing revenue growth of almost 100 percent in 1999,” said Kate Von Goeler, industry analyst with Cahners In-Stat. “Although WorldCom/UUnet looks like a speeding train dominating the business Internet service market, the track will become curvy as new service offerings appear.”

According to the report, the market is currently dominated by the carriers, emerging technologies and international and small business markets are opening new opportunities for second-tier business ISPs to gain from the almost $51 billion of new revenue that businesses will spend annually on ISP services by 2002.

Other findings of the Cahners report include:

• Upstart ISPs are not being shut out of the Internet service game. Many are thriving by serving the small and medium enterprises long neglected by the major carriers.
• The growing importance of value-added services also offers upstart ISPs room to wrest power from the incumbents.
• Three emerging markets are the current battlegrounds for ISP evolution — ASPs, SOHO (small office/home office), and SMEs (small and medium size enterprises), and international markets.
• ISPs who hope to serve the ASP market will (at minimum) need to enhance their data centers and bandwidth capabilities to accomodate real-time applications that will require unprecedented scalability.

A report by The Strategis Group found the US business Internet access market will grow by nearly 70 percent to an annual rate of almost $17 billion in 2003. This explosive growth will be fueled by the demand for higher bandwidth technologies, especially DSL, the report found.

The report “Business Internet and Data” is based on interviews with more than 400 telecommunications managers in small, medium, and large businesses.

“Small and medium-sized businesses are the growth engine in the US economy,” said David Eiswert, senior analyst at The Strategis Group. “For most of these companies, new technologies that offer cost-efficient bandwidth will be the only way to leverage the Internet’s potential. Technologies like digital subscriber line have not yet reached widespread adoption, but will grow tremendously over the next two years.”

At year-end 1998, approximately 50,000 DSL lines were installed in the US residential and business markets according to International Data Corp. (IDC). Despite expected falling prices, DSL revenues will surpass $2 billion in both the residential and small business markets by as soon as 2003.

“The development of the DSL market will be closely tied with consumer and small business Internet adoption,” said Amy Harris, research analyst for IDC’s Residential and Small Business Telecommunications Services programs. “Work-at-home Internet users as well as power users are quickly becoming frustrated with slow dial-up speeds, and small business with multiple users accessing the Internet are looking to upgrade their access. However, growth of the DSL services market will also be impacted by competing technologies such as cable modems.”