Concentric wants to get your grocer online

The growing network services firm is targeting the lucrative small and mid-sized business market with offerings that aim to wire Mom-and-Pop shops and other small businesses so they can sell their products online.

Concentric is one of a handful of firms going after the small business segment. Although the niche is getting increasingly crowded with Internet service providers, Web site hosting firms, and e-commerce companies, analysts say there is still much money to be made.

Only time will tell whether small businesses will want to buy their Net access and other Web-based services from a startup like Concentric, or from their familiar and established local Baby Bell.

Concentric isn't taking any chances, and has already aligned itself with other telecommunications players to solidify its market position. Local phone giant SBC Communications invested $19.5 million in Concentric earlier this year, and upstart Williams Communications has agreed to a deal to resell Concentric services.

CNET News.com recently spoke with Concentric chief executive Henry "Hank" Nothhaft to talk about Web-based services for businesses, the future of digital subscriber lines (DSL), and market consolidation in the era of the Internet.

News.com: Do you foresee more consolidation in the telecom industry? Could Concentric Network itself be acquired?
As IP [Internet protocol] becomes less of an art form and more of a science, the type of company required to operate in that space will change. And during that same time frame I believe that the regulatory process will change in the United States and ultimately the [local phone companies] will be allowed into the long distance market. So as that occurs, we would become more and more attractive to be certainly closer affiliated with, if not ultimately owned or partially owned in a greater way, than we currently are.

As we become the premier provider of value-added services, and as the size of the company increases, only the largest of companies could aspire to be in that position. I'd have to say you're talking a sort of [Baby Bell], or largest interexchange carrier, so that'd be a pretty short list of companies.

It appears that your company, SBC Communications, and Williams Communications continue to get cozy. Where does Concentric fit into the telco world?
As the industry matures, we will become more and more specialized?We'll continue to remain a very valuable ally of [SBC and Williams] and maybe others. Whether they would ever feel the compulsion to need a closer relationship with us, only time will tell. But we're not running the company to be acquired; we're running the company to serve the needs of our customers. If we serve the needs of our customers, then we'll create value for our stakeholders and the rest of it will take care of itself. I do believe Concentric has the opportunity to become a very large, self-sustaining company.

What types of companies or technologies are you looking to buy?
We continue to look very aggressively at potential acquisitions. They're hard to come by?We'd look very hard at companies that would extend our geographic region, whether it be Canada or Europe.

Why would smaller businesses turn to your company for their Web needs?
We're trying to create products that are so easy to use and implement, that somebody with no technical knowledge other than being able to operate a PC can actually sit down and create, and customize and use. Clearly the small business does not have an IT department. Their core competency is maintaining koi ponds, or running the best conditioning gym--it's not creating online content, and hosting a Web site, and building online stores. They get big company capabilities at small business prices; that's really what we're bringing to the party.

As more companies target small to mid-sized businesses, how does Concentric intend to stand out from the competition?
It's a competitive market. But it's far from being saturated--whether it's the Web hosting market, or the DSL market. There's tremendous demand. We've basically scratched the surface. There's a tremendous market available, and will be for a couple of years before any consolidation or significant price cutting, or anything of that nature, will come into play.

There are ten to 15 million small businesses in the United States. And way less than a million, maybe 500,000, have a Web site. So there's enormous upward expansion available in the market. And if you look at those [businesses] that are really doing anything in depth, or any electronic commerce, I think that percentage is 1 percent or less.

What role does DSL play in your strategy?
We're looking at DSL as a means to an end, not the end. We think there's a market share grab that's going to take place over the next two to three years in the small to medium-sized business market. We're using DSL and data as the product to lock these customers in. Our whole goal, actually, is to sell value-added services, not just DSL.

Once we capture the customer, we gain the upper hand in selling any additional services to that client. We bill the customer. We provide Internet access to the customer. We control their IP address, their email, their domain names, et cetera. So any future add-on services, we're in the driver's seat to provide those. We also have the potential to gain additional revenue, if we're clever, [to provide] preferred content. That may be another aspect of this that people have overlooked. ? We might partner with a portal--I'm not saying that we wouldn't--but in that partnership we clearly would want to work toward unique content.

How does lowered pricing for DSL residential service by Pacific Bell and Bell Atlantic affect the market?
What I see happening with G.lite coming out maybe later this summer--you don't need a truck roll, the consumer can install it, mass production of the interfaces--the consumer prices should drop by about a third over the near-term. You will see significant movement in consumer pricing later this year.