ISPs Expand Services in Fight for Customers

Faced with increasing competition for subscribers and a need to diversify and increase revenue, ISPs have developed into a full-fledged sales channel for high-tech products, according to a study by Reality Research & Consulting.

The study found that ISPs are selling a full range of software and hardware to their business customers, and that the top products sold by ISPs are Internet and network-centric, as ISPs expand on their business models of providing Internet access and connectivity services.

The Reality Research study estimates that more than half of the estimated 10,000 ISP organizations in North America sell Internet-related software such as Web server, browser, email or groupware. Networking hardware products frequently sold by ISPs include routers, hubs or switches. Business customers of these ISPs tend to be in the services sector. ISPs are actively selling to retail, Internet/Web site development and financial investment services sectors. More than two-thirds of the estimated 10,000 ISPs sell to each of these sectors.

“The service focus of ISPs reflects the importance of Internet access and connectivity to service businesses,” said Elizabeth Gallagher Caginalp, director of research operations at Reality Research. “Their product sets are consistent with the business focus on Web services.”

The findings should come as no surprise given the state of the ISP market. With the number of Internet users close to topping out in many of the world’s most developed Internet markets, ISPs must extend and diversify their offerings in order to increase revenue.

According to the report, “The ISP Market: Challenges and Strategies for the Future” from the CyberAtlas Research Series, 84 percent of the ISP respondents to its survey said they generate revenue from services other than Internet access, including Web hosting, e-commerce and co-location or communications infrastructure services.

Web site services, such as Web hosting, co-location and e-commerce services are the most popular add-on services offered by the respondents. These services also provide good profit margins for ISPs. Nearly three-quarters of the respondents to the CyberAtlas Research survey offer communications services, such as email and messaging.


Planned Value-Added Service
Deployments by ISPs
Online gaming 15%
Streaming media 39%
Web site services
(e.g., hosting, co-location, e-commerce)
80%
Business services
(finance, HR, ERP, etc.)
36%
Communication services
(IP telephony, messaging, email)
72%
Infrastructure services
(application infrastructure, managed security)
31%
Other 3%
Source: CyberAtlas Research Series

While it is popular for ISPs to offer value-added services, half of the respondents from the CyberAtlas Research Series study reported that less than 25 percent of their total revenue is derived from services other than Internet access. Overall, more than 80 percent of the respondents said add-on services account for less than half of their annual revenue.

One of the biggest problems faced by ISPs trying to increase revenue from value-added services is that, unlike business customers, residential customers are not likely to pay for services in addition to their access. This problem may become more evident as service providers compete for broadband customers, according to research by Parks Associates.

As new broadband access technologies begin to enter the market currently dominated by cable and DSL, and consumers are offered a greater choice among providers, Parks Associates expects the battle for the broadband consumer to become increasingly intense. This has left service providers shopping for new services to entice residential customers and make their offering stand out.

Parks’ research also found that service providers will have difficulty determining which value-added services residential customers will embrace. According to the research, 60 percent of respondents expressed a general interest from 13 value-added services. When a $5 to $10 monthly fee was added, interest fell to 25 percent. Interest with additional hardware/software lease/purchase dropped to 16 percent.

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