US Households Continue to Go Online

The number of US households with Internet access will nearly double to 90 million by the end of 2004, according to a report by The Strategis Group.

“With free services, broadband access, multimedia content, and access appliances, the Internet is a more powerful experience everyday,” said John Zahurancik, VP of Broadband Research for The Strategis Group. “Internet service providers (ISPs) are the gatekeepers to that experience, and will benefit from the investment in content, services, and broadband capabilities.”

The number of Internet households increased from 14.9 million in 1995 to 46.5 million today, according to the report “Internet Service Providers: Financial Benchmarks and Market Potential.” The report also predicts more than 90 million households to be on the Internet in five years. Internet penetration of businesses reached 6.3 million in 1999 and will rise to 8.3 million by 2004. The Strategis Group foresees a combined total of 171 million Internet users in 2004.

The average monthly access revenues from residential customers fell in 1999 to $17.94.

“The decline in average residential service revenues reveals the growing, but still limited, pressure of free ISPs and other low-cost providers on the market,” said David Eiswert, Director of Broadband Research for The Strategis Group. “However, total business and residential access revenues continue to rise and will grow more than 70 percent by the end of 2003. The majority of public ISPs continue to struggle toward profitability and are spending heavily to grow and service their subscriber bases. In the first three quarters of 1999, only one public residential ISP, America Online, and no public business ISPs reported positive operating income.”

Despite the lack of profits, the money will keep pouring in. The Strategis Group found that residential and business customers are expected to pay access fees totaling $30.2 billion to ISPs by 2003, compared to $17.7 billion in 1999.

“While the projected growth of households with Internet access seems extreme, it is quite comparable to the pace of adoption for other major communications/entertainment media,” Zahurancik said. “Television usage among households grew from about 9 percent to 87 percent in the 1950s. Radio jumped from 10 percent of households to about 70 percent from 1925 to 1935 in the midst of the depression. With economic prosperity, heavy investment, and the pace of Internet innovation, it is no wonder that we have seen this rate of growth.”

The report also indicates that despite massive consolidation, the access industry continues to see growth in the number of providers. At the end of 1999, the US was served by more than 7,000 ISPs, driven by a combination of heightened demand and relatively low barriers to entry. This growth in service providers comes amidst more than $1 billion in mergers and acquisitions in the ISP marketplace in 1999.

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