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ISPs fight for their lives

A war is being waged around online services, but it isn't a fight among the four leading private networks, but one between content titans and the rest of the world.

A war is being waged around online services, but it isn't a fight to the death among the four leading private networks. This is a war between content titans and the rest of the world.

"This is a battle between online services and ISPs," said Brian Oakes, an analyst with investment house Lehman Brothers. "And ISPs are probably going to lose out."

As Oakes sees it, the end drew a lot closer last week when Microsoft Network announced that it was moving its service to the Web while offering unlimited Internet access for $19.95 a month, the standard price most ISPs offer for the basic dial-up service and where they make their money. Yesterday, Prodigy announced that it would do the same thing. The two largest services, America Online and CompuServe, are expected to follow soon.

All that spells trouble for ISPs, which don't come close to the breadth of content offered by the AOLs of the world and whose major advantages over the proprietary giants had been low pricing and easy Internet access. Now that the proprietary services have managed take those advantages way, some say bare-bones ISPs may soon become a thing of the past.

Some say Internet access companies will simply disappear. Others insist that at least some ISPs can survive.

But all acknowledge that they'll have to make some changes in this new market. This could include offering specialty services to niche markets such as local communities and adding unique content. They also could stress providing superior connectivity and service, something many ISPs do already. Most likely, they'll have to do all of the above.

ISPs are facing "a tricky challenge," said Kate Delhagen, an analyst with Forrester Research. "This is one more nail in the coffin. Survival of the fittest will be the name of the game here. Some of those marginal players will get squeezed out."

Oakes put it more bluntly: "The days of the small ISP are probably over."

Andreas Glocker couldn't disagree more. President and CEO of Sirius Connections, an 8,000-customer network, Glocker says he welcomes the competition.

"I believe strongly it will help strong ISPs like us to become better and offer more services," he said. "We are concerned, of course," he acknowledged. But, he added, "The good ISPs will survive."

Glocker said Sirius already offers better dial-up access than the big four, as well as some specialized services of its own, such as mail sorting.

Some analysts say he may be right: specialization could be the key to survival.

The competition from the online services "potentially gives ISPs a possible lease on life," Delhagen said. "There's an opportunity to bundle some content with their offering."

ISPs may survive by turning to the business market, where customers are willing to pay more for better and more specialized services. And many, such as UUNet Technologies and PSINet, already are doing that.

But the start-up costs for a business market can be prohibitively high, said Alan Taffel, vice president of sales and marketing for UUNet. And analysts say others can offer better service, extra content, or go after a niche market.

Bill Hartwell, Internet services manager at Scinet, said he chose to go there because he had seen the future--and it didn't look good for the basic ISP.

"I've seen it coming down the pike," he said. "I picked this place because they were focused, or were going to focus, on a niche market with value-added services," he said.

Ultimately, Oakes said, the war is about attention--and who can draw the most of it. "Whoever has the most eyeballs," he said, "is going to win out."