The Internet, unplugged, Marketing Computers, Februrary 1996.
The Internet, last year's wonder medium, is about to experience a very ugly and expensive shakeout. ISPs? content providers and advertisers alike will be casualties. Here's what you need to know to avoid getting caught in the cross fire.
Nineteen ninety-five may go down in history as the Net's golden year--or the binge before the hangover, depending on who you talk to. In 1995, the net attracted more users, more money and many, many more lines of news coverage than it did in 1994. In 1995, the Internet became the destination point for everyone who's anyone, not only in terms of cultural "mind share" but in real dollar terms as well. Corporations invested an estimated 1. I billion to build 40,000 new web sites last year--remarkable when one considers that Mosaic, the browser that popularized the web, was released only in the fall of 1993.
Can this pace of development continue? Or will parts of the web turn into ghost sites, abandoned pages frozen in time, marking the failed ambitions of the many prospectors who entered the net gold rush of 95? The catalyst that sent millions on-line in '95 was the web, luring users with a mixture of mystery and familiarity--the whole world only a mouse click away. This naive view of the net soon came up against reality; that's when many investors realized that in the universe of the Internet, there is no up or down. Traditional markers don't make much sense on this so-called frontier, nor do traditional business plans or expectations, a situation that leaves many corporations flustered and confused about how and whether to continue spending money on excellent web adventures.
Companies entering this new world did so with high expectations, and they came away burned-by the end of the year only 12 percent of corporations that built web sites could justify the expense, according to a study done by the Yankee Group, a Boston-based market-research firm. Word spread and the number of new commercial web sites started to slow for the first time in the fourth quarter of 1995; the rate of growth dropped by 63 percent.
1996 will be the year of reckoning for the Internet, the year where sound business practices and realism seep into cyberspace. The common theme can be encapsulated in one word: consolidation. The vast constellation of sites will focus towards a smaller selection, the metaphorical village giving way to the rise of cities.
The ISP Massacre.
After all is said and done, one of the most predictable revenue streams in cyberspace is when a subscriber pays a service provider for Internet service. Subscription fees are still the largest revenue generating business on the net, and probably will remain so for the rest of 1996.
However, as with any small pie, competition gets fierce when there are too many people over for dinner--and the Internet service provider (ISP) business is apparently saturated. With approximately 1,400 ISPS nationwide fighting for a meager $ 400 million in Internet access revenue, this business looks ripe for consolidation. While Internet service revenue is expected to increase to $ 750 million in 1996, according to the Yankee Group, they expect the number of ISPS to shrink to 700 or so. The first to go, according to Stephen Franco, an analyst with the Yankee Group, will be the smaller ISPs--those with 100 or fewer