1996 UK Internet Services Provider Survey

Frank Wales, October 1996

We were invited to give a talk at October's Networld+Interop 1996 in London. The title we were given was Internet Services Providers: Who are they and what are their business strategies?

This page contains the slide and selected graphs and slide notes from the presentation given by Frank Wales. The complete paper with more graphs is available in PDF format.

Introduction

• Review of growth and development of UK Internet services companies
• Includes access providers (often called ISPs) and collateral services providers such as web design companies
• Includes results of first survey of Internet company aims and strategies

Background

• Growth information derived from the UK Internet Lists (InetUK) maintained by Paola Kathuria
• Strategy information derived from survey conducted by ArcGlade during September & October 1996

The information that forms the basis of this paper is that which has been collected over the last three years or so by Paola Kathuria as part of the maintenance of the UK Internet Lists, or InetUK for short. These lists make up the most complete, and most timely, publicly available listing of Internet access providers, consultants, web design companies, and publications.

They are maintained at no cost to the companies on the list, and are freely available on the world-wide web, via FTP and via e-mail. InetUK is a Usenet FAQ that became too big for Usenet. ArcGlade continues to maintain and develop InetUK as a free resource for the benefit of the net community.

In addition, we prepared a survey of Internet company aims and opinions, and invited the many hundreds of Internet-related companies to participate. At the time of writing, one hundred companies, from across the whole range of access providers and consultants, have contributed their beliefs and opinions, and much of this paper is derived from that material. The actual questions asked, and summary information on the responses, is included.

UK Internet growth (1)

• InetUK started recording information on access providers in 1992 (all 12 of them)
• in 1994, consultants (including designers) and training companies added
• now, consultants and web designers substantially out-number access providers

InetUK started recording information on Internet access providers in 1992 . At that time, the list only contained access providers, and there were 12 on the list. In 1994, we added consultants and training companies, reasoning that people who had Internet access might want expert advice in using it effectively.

UK Internet Growth (2)

Figure 1: The size of the InetUK directory of Internet companies in UK and Ireland

Figure 1 shows the growth in access and services providers since then, to the 243 who currently offer access provision today. Note that the figures from the InetUK listings reflect all the companies we know about, but every now any then, we find out about more.

The most obvious example of this was during the summer of 1996, when we discovered a large number of web design companies on search engines such as Yahoo! This explains the huge leap in total numbers shown in the graph during that period, although the number of access providers didn't increase by much, indicating that our figures for those are more accurate.

UK Internet Growth (3)

• figures represent lower bound
• access provider figures likely to be accurate, because access providers must advertise more than consultants and designers
• figures include Ireland

These figures really represent a lower bound on the actual numbers, but we believe that at least the access provider numbers are pretty accurate, since it's more in the interest of access providers to advertise their presence, so it's harder for us to miss one.

UK Internet Growth (4)

Figure 2: When Internet companies in Uk and Ireland were created

Figure 2 shows the tallies for those companies who actually maintain an entry in the InetUK database. These number are smaller than for the total companies on the list, because many companies never respond to our requests for more detailed information about themselves.

Who are they, anyway? (1)

• relatively few large access providers, mostly formed pre-1994
• many smaller companies (most frequent size of company is 5 staff)
• relatively low capital cost encouraged many to offer access in last two years

Providing a comprehensive listing of companies here would be an interesting exercise in wasting paper, much like many of the original Internet books that came out as mildly-formatted reprints of the big on-line listings.

As will become apparent when reviewing the summary results presented later, most of the companies offering Internet access or services are recent start-ups (within the last three years for access providers, within the last year for web design companies). Those in the field the longest are also among the biggest: for example, EUNET (now part of PSINet) and Pipex are relatively mature businesses by Internet standards, each being several years old; Demon Internet, the largest dedicated ISP in the UK, was formed in mid-1992.

By 1994, most of today's larger, relatively stable Internet access companies were in business. Around this time, many of the smaller providers started springing up, often spurred on by an entrepreneurial rush to grab a piece of the action in an apparently rapidly-growing market.

At the moment, while Demon Internet is at the top end of the current market with 300 staff, and is capable of attracting substantial capital investment to sustain its customer base growth, it would seem that the commonest size of these companies is just five people.

Even in the last twelve months, I have seen articles in magazines written for small business people and entrepreneurs encouraging them to get into the Internet service business, citing the relatively low capital costs (a leased line, some modems and a PC). It's my own opinion that the window of opportunity was already closing on this market two years ago, with the larger providers settling in and the big boys starting to get their act together.

Who are they, anyway? (2)

• web design companies and consultancies still burgeoning
• most frequent size is five people
• some are individuals and small groups exploiting the transient market for HTML and perl programming skills

The second wave of activity has been among the companies that have grown up to serve the needs of businesses and organisations who are (still) waking up to the possibilities that the Internet offers to them, with the growth of web design companies and Internet consultancies. Many of these companies stem from existing design and software companies stepping onto the web bandwagon; again, the commonest size seems to be five people, although the largest dedicated web companies that we know of have around 50 full-time staff.

There are also a significant number of single individuals offering specific technical or design services aimed at the web; some of these are people who have realised that HTML preparation of documents from other media is relatively straightforward. Unfortunately, it's sufficiently straightforward that tools are becoming available that will make the HTML-only business a short-lived one.

Size isn't everything

• UUNET/Pipex: "world's largest"
• Netcom: "world's largest ISP"
• Compuserve: UK's largest ISP?
• Demon Internet: "UK's largest ISP"
• AOL: "most popular IOSP"
• IBM Global Network: world's biggest?

It's sometimes interesting to see what businesses claim about themselves in their attempts to be regarded as the biggest at something. What's nice about the net is that there are so many statistics to choose from, that almost everyone can be a winner:

• UUNet/Pipex claim in their advertising to be part of the world's largest Internet access provider (UUNET), although they don't seem justify the claim with actual figures;
• Netcom claim to be the world's largest ISP, on the grounds that they claim to have over half-a-million paying customers using their Internet access services;
• Compuserve offers on-line services through which one can access the Internet, and also offers direct TCP/IP access, effectively making it an ISP too, one with millions of customers, although the actual number who regularly use direct Internet access versus the on-line service access isn't available;
• Demon Internet claims to be the biggest ISP in the UK, and certainly their 75,000 or so dial-up customers can be used to justify that; it may even be true if fewer than 20% of Compuserve's reported 400,000 users use them as an ISP instead of an on-line service;
• AOL claims to be "the world's most popular Internet on-line service provider" (whatever that means), and "the world's first billion-dollar interactive services company;"
• IBM Global Network could also be in with a shot at being the biggest Internet access provider for businesses only, since they claim to have more points of presence than UUNET, and 28,000 corporate customers world-wide -- they could easily claim to be the world's biggest ISP (based on sheer size), in much the same way that they could claim to be the world's biggest software company, but we haven't seen them officially do that.

Despite the surprisingly large number of companies offering to connect people to the Internet in the UK (243), based on the results of our survey, as mentioned earlier the commonest size of a company is just five people. However, the average size is over twenty, but this indicates the significant influence of those few companies that employ many more than the average, such as Demon Internet.

The number of companies that are of a large enough size to survive any serious price competition remains to be seen. For those who are interested in knowing the relative customer bases of the UK providers (something they're mostly coy about), Robert Hoare has prepared an approximate ordering by using the major e-mail directory Four11 to count usernames registered in each ISP's domain.

Signs of Maturity

• The Yanks are coming
• So are the committees
• So is serious money

One feature of the maturing nature of the UK access provision market, and one that some people see as heralding the a shake-out in the market, is the arrival of U.S.-based access providers into the U.K.. This has happened in two ways: companies arriving on their own (such as Netcom and AOL), and companies merging or taking over existing U.K. companies to obtain instant market share.

During the last twelve months or so, PSI has acquired Eunet-GB, UUNET has merged with Pipex, and various rumours have buzzed past our ears concerning other U.S. telecommunications companies eyeing up U.K.-based access providers that we can't go into yet. Of course, the real meaning of this is the arrival of serious capital combined with longer Stateside experience of the Internet access business, both of which will tend to squeeze out all but the most competitive access providers, if that's the only service they sell.

Something else that has happened in the last year or so has been the gradual arrival of two other things indicating maturity: special-interest groups and the authorities. The Internet Service Providers Association (ISPA) has been developing over the last fifteen months or so, with the stated overall aim "to promote the interests of Internet Service Providers in the UK", and no fewer than ten principal aims listed on their web site.

For their trouble, the ISPA are getting mixed up in a variety of fights that are now developing around the Internet, such as the pre-election caterwauling about on-line pornography. They currently have around sixty members; although they include many (but not all) of the major providers, I wonder if those sixty are feeling a bit miffed about carrying the fight for the hundreds of others who aren't currently members.

ISPA followed a year after the formation of the other major body, the London Internet Exchange, or LINX, which represents the 28 biggest ISPs in the UK, and serves to co-ordinate network traffic between them.

Some of the biggest ISPs in the UK have received cash injections over the last year from investors who are finally deciding that the business adage of a couple of years ago, "no-one is making money from the Internet," isn't true any more. Richard Branson was interviewed some months ago by Wired magazine on Virgin's plans for an Internet service (which, as I recall, is due to launch about October 1996). Media companies are getting with the programme; after its brief stint as an Internet Service Provider a couple of years ago, the BBC is creating an on-line offering (called, strangely enough, BBC Online).

And advertising companies, potentially large and on-going buyers of Internet expertise, are starting to buy pieces of web designers such as Webmedia.

Summary Survey Results

• survey conducted on-line through web site
• 629 companies invited, 100 responded
• caveat: statistical significance not yet known
• caveat: self-selecting response group

Who responded?

Figure 3: The company positions of the survey respondents

The position of the respondents generally reflected the kind of people one would hope had information on the company's strategy and business--fully 96% of respondents were owners, board-level or relevant senior management.

In fact, given that many of the individuals that we normally correspond with in organisations are in sales or marketing, or maybe a webmaster, we were pleasantly surprised by the calibre of respondents.

Presentation of results

• Business Origins and make-up
• Aims
• Threats & Opportunities
• Other information

The following sections summarise the results gathered from the respondents according to the major category of result, and then into groups by respondent type.

The major categories are:

Business Origins and Make-up

this contains information about the background of the company, its size and structure

Aims

this section looks at the major strategies the companies are pursuing in order to get business; more interestingly, it also reveals how companies are adjusting their strategies over time

Threats & Opportunities

how the companies consider those specific developments in the short-and medium-term that are likely to have some impact on Internet related companies

Other comments

information such as how the companies feel their business is going, and excerpts from comments the respondents made

Within each of these categories, results are grouped both as a whole, and divided into groups according to the major business functions of the respondent, allowing us to separate out the opinions of web-design companies from pure Internet access providers, for example.

Core business

Figure 4: Responses to What is your company's current core business?

The chart shows that twice as many companies had web design as their core business than providing Internet access. The previous graphs indicate that, prior to 1996, most Internet companies would have been providing Internet access.

Original focus

Figure 5: Responses to Was your company created specifically to address [your current core] business area?

This shows that about two-thirds of the companies have been specially created for their Internet-related purpose, with about one third being conversions. We also asked the companies how business had been so far, bearing in mind their original expectations, and what they thought was going to happen to them over the next two years -- the results of those questions are later.

Company sizes (IAPs)

Figure 6: Total number of employees for companies mainly providing Internet access

This summarises, for Internet Access Providers, the number of employees. Most companies have less than 10 employees; with 5 employees being the most common.

Company Sizes (Web)

Figure 7: Total number of employees for companies mainly providing web design

This summarises the number of employees in companies providing web design and related services. Again, the most common number is 5, followed by 2, 12 and 20.

Employees (1)

Figure 8: Percentage of Internet employees who are freelance/part-time

By considering the related data, and plotting them on the next chart, we can see that the average company dedicates most of its employees' time to Internet work, but not all of it, and that the average company is getting by with about 40% freelance or temporary staff, a clear sign of a shortage of readily-available skilled candidates.

Aims, Then & Now (IAPs)

• In general, IAPs are accumulating aims
• Pursuing larger/business clients is commonest
• Being best local company is next
• Raising awareness of the net declining
• Pursuing smaller clients declining
• Few pursue specialist markets, develop products, or try franchising
• Many want to be a 'one-stop shop'

Aims, Then & Now (Web)

• Most now pursue larger business clients
• Few want to resell others' products
• Many want to be best local company
• Developing custom solutions is second most-pursued aim, increasing in popularity
• Few want to offer a packaged service, or address specific markets

Threats, Opportunities (IAPs) (1)

• Biggest opportunities were Java & Active/X, free local phone calls, and collaboration between media & IT industries
• Biggest threats were over-loading of Internet infrastructure and unsolicited e-mail messages

Threats, Opportunities (IAPs) (2)

• Commoditisation of Internet access and web space seen as opportunity by 37%, but as threat by 14%
• Shortage of experienced staff and informed clients, and Microsoft's current Internet strategy, seen to cut both ways
• Declining interest among investors was seen as least significant item

Threats, Opportunities (Web) (1)

• 95% saw greater bandwidth to home as opportunity
• Free local calls, Java, and media/IT collaboration came next
• Biggest threat (79%) was overloading of net
• Then impact of hype versus reality, legal disputes, unsolicited e-mail and increased competition

To a certain extent, there are few surprises, although about a third of both groups recognised the problems associated with having ill-informed clients (likely through experience), and the great majority were concerned about over-loading of the infrastructure.

A curiously large number (20%) felt that increasing competition was an opportunity for them, as did those who felt the same about Internet access and web space becoming commodity items. As a relative old-timer, it is also pleasing to note the number who believe that unsolicited e-mail is a threat.

Threats, Opportunities (Web) (2)

• WYSIWYG web-site building tools seen more as opportunity than as threat
• As with IAPs, biggest irrelevance seen as lack of investor interest in Internet companies
• Commodity web space also regarded as of little consequence

How's it going?

Figure 9: Responses to How has business been so far?

This shows the companies' subjective assessment of how business has been to date.

Where are you going?

Figure 10: Responses to How do you see your business developing over the next two years?

It's especially interesting to see 90% of respondents anticipating growth, which implies that even those who over-estimated the market aren't doing so badly (or they're still over-estimating). The employee information is also interesting, showing the relatively large number of relatively small companies.

Other comments

• Smaller companies will "consolidate or sink"
• Microsoft will dominate standards
• Java and NCs are important for something
• On-line service concept seen to be failing
• 'Who knows what will happen?'

A number of respondents offered the view that smaller ISPs and web design companies would either "consolidate or sink," as one put it. A number of people also expressed concern about the effect that Microsoft would have on the overall market, mainly in the area of setting the standards that most suited it; they seemed to see this as inevitable. Java and Network Computers were also repeatedly mentioned as important technologies for something.

The strategy of being the 'one company that provides access and content' (a.k.a. the on-line service) was seen as failing today, and the strategy of providing content-free web development services was seen as failing tomorrow. The long-term prosperity was seen in being a large company (probably U.S.-owned) providing networking and access services, or in being a content-producing company. Perhaps by their nature, a major third strategy was missed, that of developing the products that allow the customers who buy the access to look at the content.

Long-term strategies

1. Be a large (probably U.S.-owned) access company
2. Be a content-producing company
3. Develop the products that let those who use 1) get to 2)
4. Help people make the first three work together

The most plausible long-term strategies for companies to begin aligning themselves to now are seen to be the first three. Note that these align pretty well to the triumvirate of telephony, media and computer companies.

Companies doing all four: IBM, Microsoft
Companies trying to do more than one: BBC, News International, BT