With Dixons' Freeserve ISP operation approaching 1.7 millionhe Net is far from cheap. How can resellers profit from this? subscribers and getting ready to float on the Stock Exchange this summer, it is clear the internet is big business. Until recently, however, dealers could have been forgiven for believing the Net had passed them by, especially now that margins on modems are thinner than a slice of salami.
But with the UK internet market reaching maturity, there are increasing signs that businesses of all sizes are embracing it with open arms. This fact is confirmed by Fletcher Research's annual internet report, a much-awaited diatribe on the Web, which was released last month. It noted that the Luddite approach UK businesses have taken towards the Net in recent years is beginning to change.
The report's bottom line is that companies in the UK are increasingly using the internet to conduct business, rather than merely as a communication tool. The report, entitled The UK Internet Survey 1999, polled the organisations behind more than 300 prominent UK commercial Websites and found that 41 per cent of sites - compared with 35 per cent in 1998 - are using the Web to raise or save money online, rather than solely as a communication channel.
Of this number, 51 per cent said advertising was the dominant business model, with 39 per cent selling goods and services online. Just 10 per cent said their main objective was to save money by offering cheaper customer service online. The report also found that most companies - 92 per cent - plan to increase their spending on the internet, with 34 per cent of UK Web managers expecting their budgets to double or more in the next 12 months.
According to Fletcher, the sites showing the greatest overall improvement in their online products tend to belong to companies that sell to the public, especially in the automotive, financial services and consumer goods sectors. In comparison, Fletcher's report found a few sectors, such as health and utilities, continue to ignore the potential of the Net and have changed little in the past year.
Although many UK companies are finally moving beyond experimental 'first-stage' Websites, the report noted that there are still many companies that are unwilling to broaden their online strategies. According to William Reeve, research director at Fletcher Research, although Websites in general have dramatically improved, it's clear that companies which have invested the most have reaped a disproportionately large benefit.
'Their sites outclass those companies that have not invested in their Web strategy. Leading UK companies seem to be moving away from having a site merely to keep up with the Jones' and are trying to capture the enormous potential offered by the Web,' he said. According to Reeve, the funding of new media departments is turning from a trickle into a flow.
For dealers, increased Web funding represents a significant opportunity and a variety of possible revenue streams. But while the internet is proving to be a godsend as far as company telecoms bills are concerned, there is also a high profit potential from the security aspects of virtual private networks (VPNs). The first is adding value by security. Almost all VPN data flowing across the internet these days is encrypted, mainly because of the fear of a company's data being intercepted by persons unknown.
One company in the field that has embraced dealers considerably over the past six months is Security Dynamics. Under the guidance of director John Botting, the UK arm of the company has started its own reseller sign-up push in earnest, kicking off by appointing Unipalm as its authorised distributor.
Unipalm is widely accepted as the company that began the internet sales ball rolling for UK dealers back in the early 1990s. Since a management buyout a few years ago, however, Unipalm has re-established itself as a distributor of business internet technologies to the channel.
While no one is saying Security Dynamics' ACE Server, SecurID and Kane Security Analyst systems are exactly shrink-wrapped products, the signing of Unipalm as its distributor does signal a profit potential for dealers involved in value-added internet sales. According to Miles Rippon, channel manager at Security Dynamics, there is some potential for dealers when it comes to bundling the firm's products with other Unipalm offerings, such as Checkpoint's Firewall 1 (PC Dealer, 24 March).
One of the biggest obstacles to persuading companies they should hook up to the Net has been BT's near-fanatical decision - until quite recently - to promote leased lines in preference to broadband internet connection.
BT's near-monopoly on business internet communications is being loosened, however, by the opening up of the broadband communications market in much the same way as the voice communications market has been prised open.
One company doing its utmost to exploit this value-added opportunity is Edge Technologies, headed by business development director Chris Miles.
Edge Technologies is one of the first companies in the UK to use ADSL (asymmetric digital subscriber line) technology as a means of accessing the internet at high speed.
ADSL is an unusual Net access technology in that it can work quite comfortably, like ISDN, across the existing copper pair wires that most corporates use for voice telecommunications. While BT is still testing this technology, the US channel is exploding with sales and profit potential from this breakthrough hardware. In the US, dealers cannot get enough of the future technology, which, because of its pricing advantage over leased lines, almost sells itself.
BT's position on ADSL is understandable when you consider its investment in leased-line sales, but Miles sees considerable potential in using third-party carriers to install ADSL lines for companies. He says the key advantage of using ADSL to hook companies up to the internet is that the technology offers connection speeds of up to 6Mbps - a speed that will cheerfully support intranet connections, as well as fast public internet link-ups.
Miles adds that Edge is using a number of companies to support the local loop connection. 'It's a relatively simple procedure for us to use a copper pair connection in our network. Users install a full-length card into the host PC and connect to our ADSL connection,' he explains. 'We have made the transition to broadband networking as simple as plugging a network interface card (NIC) into a PC and subscribing to a network service.'
Subscribers to the service can choose several different speed connections, ranging from between 1Mbps and 6Mbps downstream from the network, and up to 640,000bps for the return path. Subscription pricing depends on the bandwidth required, but Miles says monthly charges for a 1Mbps ADSL hook-up works out at about pounds 500. 'That's roughly comparable to a 64,000bps ISDN access into a national VPN connection, except that our users have access to a broadband network for the same money.'
He claims Edge's advantage is that its network uses an underlying ATM protocol, but plans are in the pipeline for the network to go to SDH (synchronous digital hierarchy) and IP (internet protocol) standards as growth dictates.
Because the underlying network is ATM, however, Miles insists the Edge network can carry most protocols, including IP connections.
'ATM offers the quality of service required to deliver multimedia applications with business-class quality. ADSL provides the transmission and encoding technology for providing low-cost access to the high-speed network over existing copper telephone lines,' he says.
Telecoms carriers have already invested heavily in the creation of high-speed ATM infrastructure, he says. 'Edge is delivering this technology at the moment,' he explains, adding that the nature of the firm's network is such that, as broadband networks evolve to be IP over SDH, rather than IP over ATM, it can migrate with it.
While dealers can capitalise on the value-added profit potential of installing new network and IP hardware around the Edge Technologies' ADSL connection, many corporates still have their doubts about the efficiency of using the internet in preference to leased-line connections. This lack of confidence is especially true of the voice over internet protocol (VoIP) technology that many US companies are increasingly using. The advantage of using VoIP in place of PSTN or PBX connections is the much-reduced cost of handling such calls, coupled with the reduced costs of PBX hardware in the case of VoIP calls across a company intranet.
Earlier this year, Motorola decided to take the bull by the horns and offer its dealers' customers the guarantee that, if the company's Internet and Networking Group (ING) could not install a VoIP system for a customer in an hour, then the hardware would be supplied free of charge. Ordinarily, such guarantees would be viewed as near suicide, but Motorola's sheer size and the fact that it is putting its money where its mouth is will come as great comfort to corporate customers - not to mention the vendor's dealers.
The guarantee is known as the Motorola Voice Vantage pledge and, according to Neil Fairbrother, product marketing manager at Motorola, it has been designed to prove that packet voice using IP or Frame Relay can be realised without comprising quality or causing undue disruption.
The pledge works on two levels, he explains: 'Firstly, to show voice and data communications departments that VoIP or voice over Frame Relay (VoFR) are viable systems for business and, secondly, to demonstrate that Motorola is more than able to stake its claim at the leading edge of multi-service network technology. Motorola pledges to install a fully-functional packet voice system using IP and/or Frame Relay for internal Lan calls within an hour. If it takes longer, Motorola allows the customer to keep the Infinity Access Vanguard 320 Voice over IP multi-service networking product, for free.
Paul Burton, general manager at Motorola, adds that when the vendor formed the ING in August 1998, it stated that the focus of its strategy was on converging technologies and an IP-based future.
'The Voice Vantage Pledge demonstrates that we have the technology, the resources and the support services to deliver on our promises,' he explains.
The package consists of two Vanguard 320 multi-service networking products, two IP licences, two voice application upgrades, two daughter cards and two telephones. If the installation is completed within one hour, the customer agrees to purchase the demonstration equipment at a cost of pounds 1,200 excluding VAT. This price point, Motorola says, represents a discount on the usual price of the package.
If nothing else, Motorola's pledge has to be the sales clincher of the year when it comes to persuading potential customers to climb aboard the internet bandwagon. Dealers may have to move quickly to capitalise on the offer, however, as there's more than a fair chance that the company's books will start to fill up as the channel cottons on to the sales potential this offer.
KEY FINDINGS OF FLETCHER RESEARCH'S UK INTERNET SURVEY
UK Web managers are overwhelmingly optimistic that their internet budgets will increase. Of those surveyed, 92 per cent expected their company's internet spending to increase over the next year - with 34 per cent expecting it to double or more.
Web managers are bullish about the amount of online advertising they will undertake. Seventy five per cent of sites surveyed have already advertised online, whether frequently or experimentally. All transaction and most advertising-funded sites surveyed plan to advertise in 1999 - most at a higher rate than in 1998. On average, 64 per cent of sites plan to start advertising or to advertise more in 1999.
Revenue and traffic are closely related to a Website's business model.
The highest revenue is on transactional, rather than advertising-funded sites. It seems unlikely that more than a handful of UK corporate sites are actually paying for themselves, and few - 27 per cent - report revenue of more than pounds 10,000 per month.
Site costs vary considerably by business model. Corporate information sites cost an average of pounds 50,000 to set up and pounds 30,000 to run. Companies seeking transaction or advertising revenue spend the most building and running sites - typically 10 times the spend of corporate information sites.
Most sites have improved and are more sophisticated than last year.
Interactivity is up and sites are updated more frequently, with 35 per cent of sites updated daily compared with 22 per cent in 1998. However, 47 per cent of Websites are still updated less often than every week, giving users little reason to return frequently. And few companies expect users to talk back - only 17 per cent of Websites encourage users to contribute to them.
The past year has seen many entrants on the UK Web. Competition between online businesses has become strong in sectors such as books, travel, news and reference and Web navigation. In many of these sectors, US companies are using the Web as a way of breaking into the UK market.
UK companies are increasingly creating standalone departments to run their Websites. Forty two per cent are run in this way, followed by marketing at 25 per cent, public relations at 11 per cent, and business development and IT both with five per cent. The report found that only eight per cent of companies share responsibility for their Websites between departments.
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