Study: Service will be key for ISPs

Consumer online services are expected to rake in $14.9 billion by 2002, a new study shows, with smaller firms holding their own.

2 min read
Consumer online services are expected to rake in $14.9 billion by 2002, according to a new study, but veterans like America Online (AOL) won't get all the money: National and mom-and-pop Net access providers will also lure customers and dollars.

Cowles/Simba Information will release its seventh independent report tomorrow, "Web/Online Services: Consumer Market Analysis and Forecast," tracking the revenue and subscriber numbers of 29 companies. Aside from the huge earnings prediction, Cowles How users get on the Web estimates that by 2002 51.2 million people will subscribe to online services, ISPs, or real-time stock trading and ticker services.

But companies don't have to wait until the turn of the century to experience growth. For example, AOL had 7.5 million subscribers in 1996--a 66.7 percent increase from 1995. ISP Concentric Network (CNCX) had the exact same subscription growth rate for a total of 200,000 customers by the end of 1996.

"The growth is due to a proliferation of consumers coming on to the Web. ISPs are taking a big piece of the growth," said Lynn Dougherty, senior editor of the marketing practice for Cowles/Simba.

As Net users become more tech-savvy, they may demand better service, giving ISPs a way to stay competitive with the marketing dollars of AOL, Microsoft Network, and CompuServe (CSRV).

"It is more about marketing right now because the newcomers aren't even at the point of knowing who they can switch to," Dougherty added. "But as people become more educated, that will change. It will be more about customer service in the future."

Although subscriptions faltered behind revenue in terms of growth for 1996, the many services shifting to flat-rate pricing did not cause the entire disparity. Still, the report says that flat-rate pricing, usually $19.95 per month, actually weakened online services' proprietary content/metered-usage models because publishers no longer got a cut of the fees users wracked up.

Earnings for investors' online services are mostly responsible for the boom in revenue, taking in $426.9 million in 1996, up from $251.3 million in 1995, according to Dougherty. "Buying stocks and bonds online without a broker is greatly leading to the growth; that is partly why subscriptions didn't grow at the same rate as revenue."

E*Trade, PC Financial Network, Quote.com, and Charles Schwab offer a variety of online services such as allowing surfers to buy or sell stock or receive real-time stock quotes or news. Subscriptions to such services grew by 57 percent last year to 2 million users. This industry segment will continue to drive up online revenues, capturing a forecasted $2.4 billion by 2002, the report states.

"Each market, be it the individual investor, Internet service provider, or general-interest consumer is getting more competitive by the day," study author Tony Jaros said in a statement. "Consolidation in many areas is imminent, which should make for a very interesting late 1997 and 1998."