The Internet service provider (ISP) market exploded recently. Two years ago an ISP was the firm that supplied your link to the backbone for a monthly fee. Today it could be your local supermarket and the service will very likely be free.
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Many players now offer different service structures. The most recognised free service provider is Freeserve, started by Dixons. It depends on Energis for telecommunications infrastructure. Many ask how free ISPs make profits. Freeserve isn't making any yet. Its first-quarter results reveal an operating loss of £14.6m - same as its turnover. Brand-repositioning also cost it $6.7m. The annual report reveals it plans to make money from e-commerce services and advertising.
Freeserve claims the Internet advertising model was small when it started. Now it is burgeoning. The free ISP has an advertising sales team to take advantage of this. This is dangerous. Click-through advertising returns minimal responses.
Last year's report from Internet economics research company Jupiter Communications revealed Internet users find online advertising as intrusive as television commercials: 49% of respondents found online commercials most intrusive.
Uncertain revenues mean the ISP community is rushing to offer unmetered access. Even with free accounts, consumers are forced by British Telecom's outmoded charging model to pay for local calls on a per-minute basis. It restricts the time surfers spend online. ISPs are eager to offer a flat-rate model where users won't be penalised for spending time online.
This has led to delays, backstabbing and finger-pointing among ISPs. Virgin Net indefinitely delayed its unmetered offering again, while resolving internal issues. AltaVista engaged in a slanging match with BT in August when it delayed entry into the unmetered access market.It blamed BT for not meeting service commitments.
Freeserve also suspended sign-up for its unmetered service in October, after end-users experienced problems.
The problem is "Friaco", the ruling that forced BT to offer rivals unmetered Internet access for call origination over exchanges. AltaVista blamed BT for delaying flat-rate circuits the ISP needed for the access programme.
It is a not coincidence BT announced plans offering unmetered voice and dial-up access for small increases in monthly line rentals during October. From 1 December, consumers can choose from four packages offering levels of access. These are free evening and weekend local calls to an hour (paying 1p per minute afterwards),to unmetered Internet calls through ISPs in BT's Surftime programme.
The challenge to ISPs is the strain unmetered access imposes on networks. If you don't pay for access based on time online, there is no reason to disconnect. People will stay online, meaning free ISPs will invest more in infrastructures. An analyst might ask, with increasing overheads, where the profit is.
While companies battle in these markets, others attempt to make money in the chargeable corporate market. Many ISPs now offer co-location services, meaning companies can place servers in the ISP's facility and let the ISP manage them. This provides companies with a service level agreement on availability of Internet sites, but also a fast connection, thanks to the servers' location.
As the market diverges, free and unmetered players must make money from e-commerce, advertising and ASP services. There is an untapped market for small businesses who offer products and services online but don't have skills. Providing services for firms to create e-commerce sites on a server could be a good revenue generator for low-cost and free ISPs.
After five years, the Internet is still a commodity. Connection ceases to be a first objective of ISPs. The revenue opportunities come from content and services to be delivered over the Net.
For a comparison of services, click here. It lists hundreds of ISPs in the UK, with charges, contact details and services.
Next week: .php, .asp - what does it all mean?
Advent of ADSL poses threat
As well as unmetered and free access, ISPs have another challenge to contend with - the development of broadband connectivity. Cable modems, already popular in the US, are taking hold in the UK. They will compete with another mechanism in the form of Advanced Digital Subscriber Loop (ADSL).
Regulatory body Oftel had been trying to force BT to unbundle its local exchanges, providing third-party service providers with the opportunity to supply their own high-speed Internet connectivity. Then in late October, the EU approved the proposed Regulation on Local Loop Unbundling. It would force BT to open all of its exchanges to third parties by the end of the year.
Freeserve is already offering its own ADSL service, Freeserve Plus, to customers.
The performance of your ISP should be a primary concern, especially if you are a business user. Zeus Technology, a Web server software supplier, regularly runs performance tests on ISPs in the UK. Its late October results identified ISPs with highest average data throughput from servers and the highest availability. Check out the latest figures
UK ISPs with highest average data availability
Source: Zeus Technology