ISPs seek survival tactics
Internet Service Providers claimed last week that they are bucking the trend of consolidation within the IT industry, maintaining that the Net is not a commodity item.
Delegates at the ISPcon conference highlighted a strong but changing market. In last week's opening session, speakers encouraged ISPs to become telephone companies, e-commerce hosting providers and outsourcers.
ISPcon founder Jack Rickard challenged the notion that the internet is becoming a commodity, to be dominated by a handful of big players. 'This notion of consolidation is comical,' he said. 'The whole problem with the "big fish eat little fish" theory is, how come after four billion years there are all these little fish around?'
Rickard said economies of scale will not work in the ISP sector. 'You can't have a commodity when the technology is changing this fast. The economies of scale are brutal if you're installing 10 million modems and they are outmoded four months later. There's still a huge backlog of demand of people that really want the internet, but can't have it,' Rickard claimed.
He said small businesses still find the internet daunting and this creates plenty of opportunities for entrepreneurism from small, localised ISPs.
John Sidge, UUNet president and chief executive, told the audience that while generalised, medium-sized ISPs would probably be consolidated, there was tremendous opportunity for ISPs that specialise.
Marc Andreessen, Netscape co-founder, called on ISPs to become e-commerce hosting companies - and to do it fast, before their competitors move in on them.
'ISPs are increasingly moving up the food chain,' he said.
But some ISPs were also looking for a buyer. About 100 crowded in for a special panel discussion on ISP consolidation, which featured some notable ISP aggregators, such as Verio and Intermedia. But the speakers on the panel all appeared to agree that the pace of acquisitions is about to slow down, not speed up.
Ted Milstein, chief information officer of Verio - which, by its own count, has acquired 38 companies in less than two years - said his company was looking at fewer but more strategic deals.
Roger Pilc, chief executive of Winstar, which has also acquired a number of ISPs, said the company was now mainly looking at good return on investment when evaluating an acquisition.
The panellists also agreed that valuations are going down. More ISPs are prepared to sell, while potential buyers are becoming more discriminating.
Meanwhile, the weakness of the stock market makes it more difficult to conclude stock deals.