CLECs as ISPs – Value-Added Service Opportunities

By Joel Maloff
President, Maloff Group International

We previously have discussed Internet connectivity and hosting services that may be attractive to competitive local exchange carriers (CLECs). Now we examine some of the more innovative approaches being taken today by ISPs and CLECs in the area of value-added services.

As always, this column attempts to seed your thoughts with examples and ideas rather than trying to be comprehensive.  Also, I use the names of specific services and companies that can help as examples, but there certainly are others.

Adding Value to Your Internet Offerings
There are many ways that CLECs can add value to their ISP offerings. Today, we will briefly explore electronic commerce design and deployment, advertising and promotion models, network security, and a few opportunities for innovation in other areas.

As a place to start, we need to consider why we might wish to provide value-added offerings. In my view, it is very clear that standard offerings can easily become commodities with few distinguishing characteristics other than price. This doesn’t do very much for creating sustainable competitive advantage or barriers to entry from your competitors. Keep these two phrases in mind when building a business plan for raising funds or doing a public stock offering – they are significant!

Value-added services help your business by making customers depend on you more and thus have the potential to reduce the churn rate – the rate at which your customers defect to your competitors. Again, this is important to your business positioning.

Finally, before we explore some value-added service ideas, consider your focus. Are you seeking business-to-business customers, business-to-consumers, or directly to consumers? Different types of value-added offerings can address each of these.

Taking Advantage of Anxiety
From a business perspective, organizations of all sizes are increasingly anxious about what to do regarding electronic commerce or integrating communications and Internet strategically into their operations.

Here are two approaches that can be valuable.

NewSouth Communications offers an experienced team of Internet professionals to design and implement a total e-commerce solution tailored to the requirements of their business customers. This approach can have appeal to customers who need assistance from a one-stop shop. There are several ways that CLECs can emulate this model: create an in-house consulting group yourself, partner with an external group to deliver these services under your label, or acquire an existing group. Each of these options has their own strengths and weaknesses, and as always, should be considered in context with your environment.

Another interesting approach is to partner with an online training organization that develops programs for you to private label with your customers. An example is OnTimeTraining. In this case, you can provide a valuable resource to your customers and generate additional direct revenue without a substantial capital or personnel investment. OnTimeTraining is about to introduce a course on making sense of technology buying decisions.

Value-added services must address a perceived need in the marketplace. CLECs can act as a source of information and comfort for customers in search of solutions. Can you think of other ways to achieve this aim?

Eyeballs and Advertising Opportunities
ISPs and CLECs need to better understand the opportunities that are available to them from repeat visits to their Web sites and advertising. Every ISP or CLEC wants their customers to return to the ISP/CLEC Web site as their default home page rather than sites such as Yahoo.  There is value in them thar eyeballs! How can you achieve this goal?

Two methods involve the use of a persistent, non-intrusive add-on to the consumer’s browser and the use of directory like services.

Sourcegate Systems is a new company with a unique approach designed to serve just such needs from the ISP and CLEC communities. SourceGate provides a technology that allows for a persistent channel blended atop the user's existing browser. This bar is customized for each ISP/CLEC client, allowing your logo and branding  to remain present regardless of where the user may go. There are additional components for the generation of advertising  and e-commerce revenue and customized content/functionality that you define. These tools – when deployed properly –  will give you significant flexibility in your business model, help to reduce your customer churn rate, increase your knowledge of customer demographics and usage patterns, and offer a substantial new revenue stream.

eLEC Communications Corp. offers an interactive yellow page service called QuillPages.com. QuillPages provides business customers with a method of advertising and promoting their businesses on the Internet by linking them to the Internet. In addition, eLEC is finding an unexpected interest in QuillPages as a business-to-business (B2B) tool linking manufacturers and wholesalers with their retail distribution networks. CLECs and ISPs may wish to examine the approach taken by eLEC and possible partner with other directory-like services.

Advertising opportunities can be enormous. For a more detailed discussion, an excellent resource is “Advertising on the Internet, Second Edition” by Robbin Zeff and Brad Aronson (1999, John Wiley & Sons). Imagine adding thirty thousand to hundreds of thousands of dollars per month to your revenue streams.  This is already happening to ISPs and CLECs throughout the country.

The Value Proposition
Value-added services like those described above can help you become both more profitable and more competitive. Start thinking about what can differentiate you from the rest of the pack. Consider what you can do to compete with free ISPs or low cost commodity services.

If your organization has value-added approaches that you would like to share, please send them to me via e-mail and we will consider them for our future discussions.

Joel Maloff is founder of Maloff Group International, an Internet business consulting organization. Maloff has been an executive in local exchange and interexchange telecommunications since 1973, and has been involved in various aspects of the Internet since 1987. Maloff is the author of four books and hundreds of articles regarding Internet.