The American dream

The three big Yankee ISPs are now over here and they want Vars to takethem to their leaders. Bobby Pickering looks at what they have to offer andfinds out if they are flying sorcerers of the Internet.

If you'd been looking for an Internet service provider (ISP) to hook your company (or your customers) onto the Internet a year ago, then all the big choices would have been home-grown suppliers. Top of the bill were the ISPs with their own backbone - a nice bit of jargon that separates those who have their own links into the global Internet infrastructure from the "spineless" ISPs who resell the bigger boys' backbone. A year ago the big boys with their own backbone were Demon Internet, Unipalm Pipex, EUNet and BTNet.

Today, things are a little different. The 'Big Three' ISPs in the US have arrived in the UK and started to carve the market up. UUNET Technologies was the first to arrive, with its November 1995 buyout of Unipalm Pipex.

Then Performance Systems International (PsiNet) showed up, buying up EUNet GB (an ISP established by former Kent University staff) and setting up the PsiNet headquarters just down the road from UUNET Pipex in Cambridge - a decision that helped revitalise the local penchant for describing the area as Silicon Fen.

Finally, on 1 May 1996, Netcom opened for business in Bracknell. Unlike the other two, it has focused its attention on building up a single-user dial-up base and has made little effort to openly court corporate customers, a strategy that has sparked off rumours that it is looking to buy up a local ISP with corporate market share. Netcom's growth in the UK has so far been centred on an aggressive direct marketing campaign that it claims has bagged 10,000 subscribers in just five months.

There are three main ways in which all the big ISPs aim to sell access to the Internet: through retail and direct sales to the dial-up single-user market-place; through direct sales to the big corporates which have their own internal IT departments; and through indirect sales to smaller corporates and medium-sized businesses. On the whole, the latter channel is owned by the Var community, and so these companies are now making a pitch for you.

Setting the pace in the race to win over the hearts and minds of the reseller community is UUNET Pipex. In October it announced a formalised reseller channel programme, called Team UUNET Pipex. The programme is based on a referral payment scheme, whereby Vars are paid significant sums of cash by UUNET Pipex for simply putting the business their way (see box).

The scheme is not just aimed at Internet-aware Vars. The company also wants to team up with those who have little experience of the Internet but who wish to learn more.

Membership brings tangible benefits to 'Net newbies', including staff training and special low-price deals for Team U/P members to hook themselves onto the Internet.

There's also an online club on the UUNET Pipex web site where, once you have a member's password, you can get all the latest information.

UUNET Pipex's channel group manager Martin Temple told Var World that the scheme has already attracted more than 80 resellers - one of whom had made u50,000 alone from referral fees in two months - and it was the high level of take-up of the scheme that prompted the company to formalise the programme and offer it more widely to the Var community.

"Many Vars who have not been traditionally involved with the Internet are discovering there's a dramatic shift in the corporate market taking place," he said. "They're finding that their clients are now asking to be hooked into the Internet, and are realising that they need a solid dependable partner to put that connection in place."

Temple says his company is conscious that many Vars have little Internet experience.

"They need solutions right now, and they want to be rewarded for choosing to work with us, hence the referral fee scheme. But they also want to get more involved in the Internet themselves, to understand the issues that their clients experience by setting up their own connection, so we're offering them considerable discounts with the Members Own Connection." The set-up charge and annual fee for a basic ISDN connection, for instance, is reduced by a modest u350 to u4,150 for members. More significant savings are made on the higher spec leased lines (see box).

Having laid out its stall, UUNET Pipex has sparked off retaliatory responses from other ISPs touting for reseller business. Everyone talks about offering the highest quality products, the best support and the most attractively priced offerings on the market.

Demon Internet's marketing manager, James Gardiner, was quick to suggest that resellers considering signing up with the US Big Three should ask themselves a simple question: "Why do so many ISPs put such a high price on their offerings to corporates?"

He said: "Demon has a major supply deal with BT which means we get leased lines at low-cost and can pass those savings on to our customers. A 2Mb leased line in the 0171 area is just u33,000 a year, and that compares extremely well with other prices. The cost of these services is an important issue among corporate customers."

There are also questions about ISPs getting too close to the telecommunications companies from whom they buy dial-up, leased line and ISDN connections.

Despite UUNET's merger with the big US telecoms company MFS in August, and MFS's entry into the UK market, Temple insists that UUNET Pipex is not tied to a single supplier. "Our network is built around several vendors - including BT, Mercury and MFS. We let the market decide, and we offer the best deals on the market."

In fact all of the big ISPs in the UK talk about letting the market decide and getting the best competitive offering from the telecoms companies - though some of them mention, with great reverence, the new kid on the block, Energis, alongside BT and Mercury. In UUNET Pipex's case, though, resellers will be looking for assurances that the company doesn't get tied in to promoting MFS, currently building up its infrastructure within the M25, at the expense of more cost-effective options for its customers.

Resellers will also have to decide whether they want to get into bed with a company that is offering a portfolio of further services (web design, facilities managed servers, and so on) to corporates. Is it wise to help them get their feet in the door?

But Temple insists that UUNET Pipex's web design and site management services have all been developed because clients have demanded them. "We have never gone out and actively sold these services, but have had to respond to what our customers have asked for," he says. "Our objective is to help our reseller channel understand the Internet and intranets better, to offer training and skills to them, so that they can offer more services to these customers."

Temple insists that his main concern is to be as flexible as possible with Vars who become Team partners. "It's entirely up to them how much the customer sees of us. We'll arrange to have everything put in up to the router - they can do all the LAN connection and so on from there if they want to. We are partners in this above all else."

So what should Vars be thinking about when helping to hook their customers into the Internet? "Corporates will be concerned about resilience, support and security, above all else," says Temple. "They'll want service levels of 99.5 per cent and above, and the only way to offer that is by having your own backbone. That rules out many ISPs. They'll also be especially concerned about security and firewalls. We need to familiarise Vars with these concepts, talk to them about things like packet filtering on routers, which creates a firewall between the router and the customer's network."

In the light of this, it's not surprising that the whole Team UUNET Pipex programme targets Novell Netware and Microsoft NT resellers, many of whom have just woken up to the threat (sorry, the opportunity) offered by intranets and Internet connectivity. "We're doing roadshows with Novell and working with Microsoft Solution Providers to Internetenable them.

They're the ones coming up against these issues and they're turning to us for help," says Temple.

The formalised Team UUNET Pipex campaign has naturally stung the other two Yankee wannabes into action. While neither has a formal channel strategy yet, both PsiNet and Netcom have opened their counter attack on the Team plans by throwing doubts on the referral fee scheme.

Netcom has just appointed its first UK channel manager, Nigel Pitcher, to develop a reseller programme for a New Year launch. UK sales and marketing director David Furniss told VarWorld: "We've been talking to resellers about what they want, and I think they generally prefer the commission relationship. They like to have control over the account, sell all the connectivity to their customers and close the business themselves." He thinks a referral scheme would not appeal to the majority of Vars.

The same conclusion has been reached by PsiNet, which offers dealers an upfront five to eight per cent margin on the fees paid for the connections.

Marketing manager Dorothy Briggs said: "We give a margin on what the customer pays for installation and the first year of operation, but after that we also make sliding scale payments according to how much effort the reseller puts into keeping those clients with us. The serious resellers want an ongoing relationship with their customers, and want to develop their expertise, not hand everything over to another company."

Briggs believes that backbone infrastructure will become a big issue for corporates, once they start to take a harder look at what ISPs have to offer. "We've invested a lot of money on developing high-quality infrastructure," she said. "We're spending $100 million across Europe, putting together a frame relay network which provides more efficient data management and the highest speed of service."

Unlike UUNET Pipex, PsiNet is looking for existing Internet expertise in its potential reseller partners, whether they're the top corporate resellers - Computacenter, BSG and Stream have all signed up to resell its wares - or smaller Vars.

"The Vars with specialist expertise in areas like electronic mail and groupware, web database design and firewall/intranet development are all coming to us, because they've heard about the performance advantages we have," says Briggs. "We want people who are actively selling Internet connectivity and know what they're doing. The value-adding is important to us."

The big question for PsiNet, however, will be how long it can get away with the superior backbone technology argument. The other big US contender, NETCOM, is considering buying all of its UK backbone off Energis, which already supplies its dial-up customers with local access.

Energis is one of the most interesting developments in the UK telecommunications industry in recent years. It is a subsidiary of the National Grid Group, and was granted a public telecommunications licence in May 1993. In less than 18 months, it has developed a national fibre optic infrastructure based on the National Grid's electricity transmission network. Over 4,100 kilometres of fibre optic cables were literally wrapped around the earthwire of the Grid, creating the country's first synchronous digital hierarchy (SDH) network. This infrastructure is more secure, reliable and future proof (it has national ATM and frame relay capabilities built in) than the proprietary backbones put in place by other ISPs. And Netcom likes the sound of it.

Netcom's Furniss says his company is looking seriously at the possibility of doing a deal with Energis. "In the US we built our own private network, and nothing there compares with it for speed and quality. Now we're having to consider whether we should set up something that Energis has already put in place here. At the moment we're investing heavily in the Transatlantic backbone, to make sure the connectivity into that top quality US network is there."

In the meantime, all three suppliers have been hard at work building up their dial-up customer base of home users and small business customers.

In the case of Netcom, the effort put into marketing its name in the end-user and national press has established its presence here. But there are other benefits from having dial-up accounts for sale.

PSINet's Briggs says the company had abandoned its single-user dial-up product, called Pipeline, in the US, but has now decided to go with it in the UK. "We don't want to get into the consumer market at all. But we've found that some big organisations want a dial-up product as part of what they're doing. We're working with the TUC, for instance, on TUC-Net, which involves offering members a Pipeline dial-up link in a badged format."

The attempts of all three of these ISPs to woo the reseller channel will inevitably lead to conflict around the traditional areas that Vars feel conflict with their suppliers - particularly the friction created by a supplier's direct sales team. PSINet's Briggs acknowledges that the company wants to get to a 50:50 direct/indirect split in the UK, as it has in the US. "We're looking at systems integrators and Vars who will move us into specialist areas that we're not in already," she says. "We don't expect any conflict."

A similar confidence is expressed by the Netcom team, many of whom were involved in Compaq's hugely successful channel strategy of the 1980s.

"We have a very keen understanding of resellers," says Furniss. "We've worked with them through the whole networking explosion that they experienced with their customers. And we'll be working with them over the next two or three years to expand their portfolios as the corporates get connected and establish their intranets." The Year of the Intranet will be just as profitable for a whole new breed of Vars as The Year of the LAN was in the past.

Team UUNET Pipex Ts & Cs:

Members are appointed to the Team with scope to operate in strictly defined geographical areas, and in accordance with a business plan that UUNET Pipex has approved. It will provide marketing and sales materials (brochures, technical documentation, etc) but nothing in the way of co-op marketing funds is indicated in the Ts & Cs.

Referral fee payments are made to Members who pass on a qualified lead to UUNET Pipex, which is progressed by UUNET Pipex sales staff. In some cases "general collaboration and possible joint client meetings may be appropriate". Leads are considered invalid if UUNET Pipex is already active within the department or company, and in cases of dispute, UUNET Pipex reserves the right to the final decision. If a lead does not result in a sale within three months, it is considered "dead" and "no commission shall be payable to the Member".

Financial incentives must be taken as a sales commission, which will only be paid after receipt by UUNET Pipex of the first quarter's service payment from the new customer. Payment is then made against an invoice from the Member. There are also other standard conditions relating intellectual property, confidentiality, and termination of contract.