Conventional wisdom about the Internet service provider market was challenged at the ISPcon conference this week. If the ISP business is consolidating and small outfits are going out of business, how come thousands of them trooped to San Jose?
The conference highlighted a strong ? but changing ? ISP marketplace. In the opening session on Tuesday morning, various speakers encouraged ISPs to become telephone companies, ecommerce hosting providers and outsourcers.
ISPcon founder Jack Rickard opened the show with a speech that 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," argued Rickard. ?The whole problem with the ?big fish eat little fish? theory is, how come after four billion years there?s all these little fish around?"
Rickard said that economies of scale won?t work in the ISP arena, at least not yet. ?You can?t have a commodity when the technology is changing this quick. The economies of scale are brutal if you?re installing 10 million modems and they are outmoded four months later," he said.
?There?s still a huge backlog of demand of people that really want the Internet, but can?t have it," Rickard claimed. He claimed many small businesses still find the Internet daunting, and this creates plenty of opportunities for 'entrepreneurism' from small, localised ISPs.
UUnet president and CEO John Sidgmore, himself no stranger to acquisitions, concurred. Sidgmore told the audience that generalised, medium-sized ISPs would probably be consolidated, but he added that there was tremendous opportunity for ISPs who specialise.
Netscape co-founder Marc Andreessen offered his own perspective on that. He called on ISPs to become ecommerce hosting companies ? and do it fast, before their competitors move in on them. ?ISPs are increasingly moving up the food chain," he said.
It was doubtless the search for these new opportunities that attracted ISPs from around the world to ISPcon. Attendees flocked to special sessions on technologies like voice-over-IP, virtual private networking, universal messaging and DSL.
But at least some ISPs were also looking for a buyer. About 100 crowded in for a special panel discussion on ISP consolidation, which featured some of the most notable ISP 'aggregators' around, such as Verio and Intermedia.
The news was not good for those hoping to sell out. The speakers in 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 is now looking for fewer, more strategic deals.
Roger Pilc of Winstar, which has also acquired a number of ISPs, said the company is 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 stock market weakness makes it more difficult to conclude stock deals.
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