?Most prices are not displayed on our Web site because, in a number of cases, we offer the most expensive service around. We want people to ring us up so we can explain why? Henry Ritzen, UUNet Pipex
This is the age of the ?one-stop shop?, where ?end-to-end enterprise solution providers? don?t just want part of your IT budget ? they want the lot. Although these are terms we normally associate with high-end computer vendors like HP and IBM, Internet service providers are no different. As UK companies consider upping the ante and their spend on the Internet, ISPs lurk like drug pushers outside the school playground, flogging packages that will force customers to come back for more.
And it?s an ideal time to prey upon the paranoia of businesses. With Microsoft calling on the Government to urge UK companies to invest more in Internet technologies in a bid to gain ground lost to US competition, IT and telecoms managers have been caught in a two-pronged pincer movement. On one side they have the Board demanding a heftier Web presence without really knowing why; while on the other they have the hype whipped up by vendors and analysts, claiming absurdly high growth rates for global Internet and intranet markets (see page 18 of the July/August issue of Business Computer World).
While most sizable UK companies have some form of Internet connection (research company Durlacher recently estimated that about 90 per cent of firms with a turnover of more than #100m are connected), the investment has so far been paltry. Indeed, the same report revealed that three-quarters of UK corporates have so far spent less than #10,000 on their sites.
Having made the initial investment, these companies are faced with the decision of whether to host, maintain and update the site in-house or hand it over to a third party. They must also consider whether it?s time to move beyond HTML-only servers, and from static information to fully-furnished interactive sites. And, of the nine out of ten companies that have a connection, three-quarters haven?t yet made the decision to upgrade to a permanent leased line. In short, the business opportunities for vendors are enormous.
Surfeit of services and suppliers Indeed, the intensity of competition is such that vendors are now offering additional services in an attempt to lure subscribers. Internet wannabe British Telecom will even petition your company?s Board on your behalf. Working alongside Coopers & Lybrand, BT can business process re-engineer your entire company around BT Internet products and services. Alternatively, if you want business market leader, UUnet Pipex, to integrate an Internet and intranet site with corporate legacy systems, it can do it. Home market-cum-business player, Demon Internet, will provide consultancy services starting at #500 a day. All three companies can offer permanent leased lines capable of firing data at up to 2Mbits/sec. Then there?s training, firewalling, design, hosting, maintenance, updating, monitoring, backup, intranets and SET (secure economic transactions). It can all be done. For a price.
Not only is the range of services bewildering, but so is the number of suppliers. There are 230 ISPs in the UK alone and many of these will not be here in two years? time. What?s more, conflicts are arising between carriers and smaller ISPs which cluster around UUnet Pipex, as access providers start to compete for the same business. Once the carriers finish laying down their network plumbing, their main focus will shift to developing more specialised services. In short, it could be risky to hand over important business systems to small, third-party service providers which may face extinction. The options for the smaller service providers are straightforward. Either group together and pool resources (as has happened in the US), find a rich uncle, or give up.
The variation in pricing structures also creates confusion. A number of disreputable companies offering cheap Web hosting services will often house your server in non-secure third-party locations. They may also rent out Web space at apparently very low prices, but may not have the backbone to handle real audio or video data.
Price pitfalls Prices are sometimes deliberately hidden. Henry Ritzen, a communications executive at UUNet Pipex, explains: ?Most of our corporate prices are not displayed on our Web site because, in a number of cases, we offer the most expensive service around. We want people to ring us up so we can explain why we charge the prices we do.? This ?top-of-the-range? business-only approach has typified the company?s way of working since it started offering permanent leased access in the UK five years ago. ?You can only justify being slightly dearer if you?re significantly better,? says PR manager Richard Woods.
BT further muddies the pricing waters by neglecting to include the cost of installing and renting the pipe. A cursory glance at the company?s Web site, for example, gives the impression that the telephone giant?s charges for a 64Kbits/sec leased line is several thousand pounds cheaper than its competitors. But add on the hidden extras (#2,900) and you come up with a figure much closer to that quoted by UUnet Pipex (see table on page 94). And, for the largest lines, the installation charges are even more dramatic, adding an extra #13,690 to annual charges for a 2Mbits/sec leased line.
On a straight price comparison, Demon Internet, the number-three leased line business player with an 11 per cent market share (Durlacher) behind UUnet Pipex and BT, tends to come out top. Although the company?s main claim to fame was almost single handedly building the hobbyist?s market in the UK where it is still well ahead, Demon is experiencing strong growth in the business sector. Its marketing department is happy to concede that its services don?t necessarily come with all the bells and whistles that BT and UUnet Pipex can provide (you only have to compare the three Web sites to get the cheap and cheerful comparison).
James Gardiner, marketing manager at Demon, compares the three companies by alluding to the world of motoring. ?You can spend #20,000 or #100,000 on a sports car ? but with only a slight increase in performance. The extra benefits are totally out of line with the extra costs. Our pricing tails off just before the diminishing returns kick in.? Gardiner points out that the initial demand for Internet access or bandwidth improvement may come from pony-tailed marketeers who want improved Web presence and better research tools. ?But, at the end of the day, the final decision lies with the financial director. He has to be convinced that the extra cost is worth it. After all, contracts do get put out to tender.?
But even Demon might not have the staying power to compete head on with UUnet Pipex and BT. The astronomic sums needed for backbone investment has pushed Demon towards companies with much larger cheque books. Hence its flirtation with Deutsche Telecom earlier this year. ?Smaller companies [Demon] will have to risk money up front ahead of demand,? says UUnet Pipex?s Woods. He points out that UUnet Pipex invests $1m a day in its backbone.
Provider pick ?n? mix In the midst of the confusion surrounding the industry shake out, multiple vendors and haphazard pricing, we spoke to magazine publisher IPC and the Abbey National bank. We found that, far from settling on a one-off, one-provider solution, companies are mixing and matching their service providers.
The trend is confirmed by research firm Ovum. ?Telecoms managers are becoming much more educated,? explains Ovum consultant Susen Sarker. ?This has been the pattern in the US for some time. In some cases companies are going to three separate suppliers for frame relay. We came across one company recently that used BT for the basic [frame relay] service, and then Mercury and Energis for added-value features.?
Publisher takes its pick of ISPs
IPC has been mixing and matching since launching its online version of New Scientist, Planet Science, in October 1995. Since then it has been joined by two other online magazines ? NME and Uploaded. Rather than choosing a top-tier heavyweight to design the sites, IPC contracted Reading-based ISP I-Way. The company designed and now hosts and maintains the Planet Science, NME and Uploaded sites, with the in-house team retaining responsibility for updates. According to Jeremy Hughes, IPC?S IT strategy planning manager, the company?s new media department enjoys a peer-to-peer relationship with I-Way. ?If our new media graphic designers need to get in touch they just pick up the phone,? says Hughes.
Hard-core Internet access is provided by UUnet. The permanent leased line serves 300 to 400 Internet desktop users in editorial and marketing departments. But when IPC?s intranet needs were reviewed, Hughes chose BT?s Intranet Complete, handing over responsibility for the system to the telephone company. ?With the year 2000 looming we didn?t want to deflect our internal IT resource and we don?t have the range of technical skills necessary to implement an intranet itself,? says Hughes. It plans to launch its intranet in September, rolling out the service to all 2,500 IPC users by the middle of next year. Neither BT nor IPC would comment on the cost of the deal, although BT says prices for Intranet Complete range from #200 to #1,200 per user per year.
Jeremy Hughes, IT strategy planning manager, IPC magazines
A bank with in-house plans
Having off-loaded its entire Web operation to a third party, Abbey National is now keen to bring some of the work in-house. In March 1996, the company went live with its Web site, which enables users to visit mortgages and loans forums where they can work out monthly payments through online calculators. The bank chose Web design specialist The Brand Encounter to design, maintain and update the site. The two-strong design company, with just a project director and a project manager, then sub-contracted most of the labour. As Keith Moor, media planning manager at Abbey National, explains: ?I work in financial services. I can?t live, sleep and breath Internet.?
However, Moor believes some of this costly labour should now be done by Abbey National staff. ?We could handle some of the basic maintenance work ourselves,? he says. For example, the Bank of England now changes its rates the first Tuesday of every month and this requires immediate updates. Moor also thinks that maintaining the company?s Web site magazines no longer needs to be done by a third party.
Large Web sites which receive a lot of hits tend to be hosted on a dedicated server, rather than a shared one. The Abbey National site attracts a quarter of a million hits and 60,000 accesses a day, and runs off a UUnet Pipex Facilities Managed Server (Sun Solaris ? prices start at #8,500 a year). Moor describes this as a ?purely technical? relationship. ?We hardly ever hear from them, which is the way we want it,? he says.
Keith Moor, media planning manager, Abbey National
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