ISPs target mom-and-pop shops

Concentric Network today became the latest ISP to woo small businesses with easy-to-build storefronts, following a similar announcement from Verio last week. Mindspring and Earthlink are also targeting small businesses.

Commerce service providers, or CSPs, aren't new. For years, phone companies have been targeting medium-sized and larger businesses, but the push to bring small businesses into the e-commerce fold has prompted new interest in storefront hosting.

What differs today is demand from small businesses.

"I don't think there's any segment under 500 employees that's saturated. It's all wide open now," said Michael Lauricella, an analyst with The Yankee Group.

Small businesses that have used ISPs for Internet access are increasingly turning to them for more services, according to Michele Pelino, another analyst at Yankee. "Small businesses are coming to them, asking for their help," she said. "The ISPs are being drawn into the market."

Some attribute the new interest to publicity about the boom in online shopping during the holiday season, which put dollar signs in the minds of small companies eager to cash in.

Despite the relatively undeveloped state of the market, the competition is already intense. Yahoo Store hosts thousands of small stores, and today Excite and Intel outlined plans for a shopping service, although it doesn't involve hosting by Excite.

Web hosting services are gearing up to compete, as are phone companies, whose Yellow Pages directories have extensive contacts with small companies.

Even Boston-based Fleet Bank hosts storefronts. GeoCities homesteaders can turn their home pages into stores, and when Yahoo's deal to buy GeoCities closes, the Yahoo Stores technology will be moved to GeoCities.

Beyond the competition, it remains to be seen whether setting up a store on the Internet is an instant recipe for success. To give its hosted stores a better chance, for example, Verio has partnered with iMall to list them on iMall's Stuff.com "shopping portal."

Another risk for ISPs is that small businesses aren't willing to pay high prices for their services, at least until they see it begin to pay off. But ISPs must expand their e-commerce services if they are to keep small business customers.

"The money isn't out there when a customer has a simple Web page," said Yankee's Lauricella. "The money is when they do e-commerce. They're making a careful plan to be with the business from the beginning, starting out low and bringing them to higher-end services."

Simplicity is key, says Ruth Chatterton of telecommunications consulting firm TeleChoice.

"Concentric makes it very easy for a small business to move from a [non-interactive Web page] to a site where they are doing e-commerce," she said. "A lot of small businesses don't have the expertise in-house to enable them to put together the pieces they need."

For ISPs, particularly those that are publicly traded, adding small-business storefront hosting gives them a new service to increase revenues.

"There is a renewed interest throughout the ISP industry to segment the market. Now they're tailoring products to a particular segment of the market they hope they can dominate," Chatterton added.

ISPs have no choice but to make the move, according to David Eiswert, telecommunications analyst at Strategis Group, who noted that the percentage of revenues ISPs derive from pure access is falling each year.

"People are seeing basic Internet access as a commodity," said Eiswert. Hosting storefronts helps two ways: reducing turnover of access customers and generating a new revenue stream.

ISP interest in hosting Internet storefronts has already produced a server appliance targeted for hosting services. At Internet World this week, Cobalt Networks will announce an e-commerce bundle that includes its RaQ Internet server appliance, Miva storefront software, PaymentNet for processing payments, and Thawte for digital certificates. The bundle costs about $2,000.

Building their own storefronts has been difficult for small companies unless they use template-based software, which makes it hard to differentiate one storefront from another, Cooperstein added.

"It's much easier to go to a prepackaged offering," he said.

"All these little companies want to buy software that makes them look large, and the best way to do that is to leverage someone else's infrastructure," said David Cooperstein of Forrester Research.