Commentary: ISPs must adjust to market changes

By Lydia Leong, Gartner Analyst

EarthLink could do worse for a partner than the Microsoft Network.

A combination of EarthLink and MSN might not result in a whole that is greater than the sum of its parts, though, unless Microsoft rethinks its Internet access strategy. Microsoft appears to have wanted to use MSN as an on-ramp to its content offerings, in much the same way that AOL uses dial-up access as a way to get subscribers to use its content services.

Although it has made some small moves into content, including attempts to increase its revenue through advertising and e-commerce partnerships, EarthLink remains essentially a provider of Internet access and still shows its telephone company roots.

The Internet service

	See news story: ISP industry tryst for EarthLink and MSN?

provider market in North America has matured, and it has become increasingly difficult for ISPs to gain new customers. EarthLink's growth in the past two quarters has come primarily through acquisitions of smaller ISPs and broadband subscriptions; the company has warned that it expects its base of dial-up subscribers to decline during 2001.

Gartner estimates that more than 90 percent of PC owners in North America already have Internet access. Therefore, new PC owners are the largest potential source of consumers that do not already have an Internet access subscription. Consequently, Microsoft's strong relationship with PC manufacturers might be used to strike deals to offer MSN to customers buying new PCs. Such a strategy is not any more likely to succeed with the addition of EarthLink, though, than it is with just MSN alone.

EarthLink's ability to offer broadband access via DSL (digital subscriber line) could appeal to MSN, since the most attractive prospect for ISPs is now selling broadband access to dial-up customers. Conversely, Microsoft's content offerings could help EarthLink, and its deep pockets already fund aggressive expansion into media offerings. Although the two services combined would still be far smaller than America Online's customer base, with content offerings neither as broad nor as deep (even before AOL's merger with Time Warner), the combination might stand a better chance against the AOL Time Warner juggernaut.

The combination of EarthLink and MSN would probably most threaten Excite@Home, which has followed a hybrid access-content strategy, with its @Home cable-modem-based broadband access offering and its Excite portal service. An ISP capable of offering DSL access nationwide, with a strong content offering and the funds to invest in developing broadband content, would compete for a similar customer base.

What remains to be seen is this: Would the EarthLink customer base, which has been marketed the service as one for the "AOL graduate" who doesn't need a prepackaged content offering, be receptive to MSN content? Would MSN be happy with a customer base that's interested in what EarthLink terms "the real Internet" rather than the MSN content offerings?

(For related commentary on ISP selection, see Te chRepublic.com--free registration required.)

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