With mobs of new users logging onto the Net, the future was looking bright for ISPs in early 1996. Until they had the rug pulled out from under them.
For the past few years the ISP business has boomed and 1996 was in fact no exception. According to Boardwatch Magazine the number of ISPs doubled this year to about 3,100. Next year, however, analysts expect that trend to die down and probably reverse itself, primarily because of two big shifts in 1996.
First, mighty AT&T entered the market in March with its WorldNet service, a move followed quickly by its principal long distance competitors MCI and Sprint. It was widely speculated that the entrance of the telephone carriers spelled disaster for small, regional ISPs and big trouble even for the large national ISPs such as Netcom.
But if ISPs thought it couldn't have got worse, they were wrong.
When the year started, ISPs had one clear advantage over online giants like America Online and CompuServe: price. Online services could say they provided much more than simple Net access providers. But ISPs could say, and it was true, that anyone who wanted to spend more than five to ten hours a month online would save money with an ISP.
All that changed in October when Microsoft Network announced to a surprised Internet community that it would be adopting the $19.95 unlimited access price that had become the standard for ISPs. AOL quickly followed.
And there went ISPs price advantage.
ISPs have responded--and continue to respond--on several fronts. While some complain they can't make a profit if prices go any lower, others continue to lower their prices. Others still are concentrating on adding Web services, such as Web site hosting, or are trying to lure customers with promises of better service and access with less down-time.
Netcom and PSINet are in effect abandoning the consumer market to the online services and telcos to cater to niche markets, such as small businesses, where users generally are willing to pay more for better service.
Needless to say, those who watch this industry expect a shakeout in the ISP business in 1997.
Predictions for 1997
"Many ISPs will fall by the wayside. The ones who survive will be the ones who differentiate in any way shape or form?We'll see some sort of a shakeout for sure. It's the sign of a very vibrant rapidly changing marketplace. Price will continue to be a very high-profile area for all the ISPs."
-- Kate Delhagen, analyst with Forrester Research
"Access will become more and more of a commodity while content will become more and more relevant. It's going to be more and more difficult for the smallest shop ISPs to compete on unlimited pricing access. There are a number of factors which are going to continue to be at stake here starting with pricing."
--Mark Mooradian, analyst at Jupiter Communications
"MSN and or AT&T and other telcos will offer promotional rates
such as $14.95 in 6 to 12 months and guaranteed 10 percent off for life no matter what the prevailing rate, perhaps (though not necessarily) tied to such a switch from competing software product or voice telecom provider."
-- David Simons, managing director of Digital Video Investments
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