8th Biannual ISP-CEO Roundtable

More than 75 ISP CEOs converged at the twice-a-year gathering of independent ISP business leaders in Las Vegas during Fall ISPCON 2001. Knight shares his insights and observations of the session and the state of the ISP industry.

by Christopher M. Knight ISP Marketing Survival Guide Author [October 31, 2001]

One very intriguing worth noting is that each consecutive ISP CEO roundtable gets larger and larger every session. Yet 70 to 80 percent of participating ISP CEOs are always new members. Where has everyone else gone? Did they sell out? Do they only attend one event every four years? One thing is for certain—ISPs are continuing to grow and prosper as if there will be no end to the independent ISP market anytime soon.

Profit focus
One theme that was not prevalent at past ISP CEO gatherings is the idea that these Internet businesses need to be profitable or at least on the verge of being profitable. The urgent need to create a positive cash flow gripped this group, like no other bunch of executives before it. The assemblage of ISP business leaders made it clear that the market is purging itself of all non-viable ISP business operations. Although the business models vary, only the strong remain standing today. Many of the CEOs that have operated an ISP business for 5 or 6 years consider themselves to be survivors—and proud of it.

The pure play, dialup access only ISP is becoming a thing of the past - an Internet legend. It's been replaced by profit seeking business professionals that manage or own local or regional independent ISP operations. Of course, national ISPs have a different game to play. Where national ISPs deliver a consistent subscriber experience that relies on an economy of scale to attain profitability, local and regional ISPs are focusing on operating efficient systems while maintaining their close, personal touch with subscribers.

Thankfully, many ISPs produced cash positive performance during the first half of the year. But as the economy is slowing down earnings are being cut. Top end sales are down and bad debt among subscribers is up. If there is one silver lining in a down economy, at least employee labor is becoming more affordable for many ISP businesses.

One CEO mentioned that she thought this ISPCON presented few new ideas by a diminishing flock of vendors than previous gatherings. But as the ISP industry matures into a viable business model, she noted that the "get rich quick" on new technology people are disappearing, being replaced with seasoned business managers.

Tech-types to guerilla marketers
Of those Internet businesses that have survived the ISP roll-ups, acquisition frenzies, and free-ISP phenomenon, this is the first group of techies to become successful marketers. These bright, spirited, independent souls whose technical origins are strong may become the next group of guerilla marketing geniuses. More and more ISP CEOs are forming advertising cooperatives and signing marketing pacts to promote their Internet services. Co-ops and alliances allow many different ISP owners to leverage the value of presenting a single media buy with a single marketing plan that focuses on mass brand appeal. New customer acquisition is increased by all participating ISP businesses.

But many CEOs contest ad co-op results because they perceive that the majority of their new users come from word-of-mouth advertising. Some CEOs even indicated that they intend to terminate all other marketing efforts and let their old customers bring them new users. While this scheme may present short-term savings and boost the ISPs bottom line, it will only be a matter of six to 12 months before the growth curve tapers off and more aggressive ISP marketers begin to erode this ISPs market share.

Investing in disaster recovery
The September 11th WTC tragedy also forced many ISP executives to sign-off on disaster recovery expenditures and increased security measures that had once been shelved in favor of other priorities. Do you have an off-premise backup less than a week old of all of your client's critical data? If not, you may find yourself out of business if you do not put an action plan in place—and then market the heck out of it as fundamental business strength, of course.

Broadband push
High-speed access remains in high-demand. The only newfangled twist being that both residential and commercial users are willing to spend more money in order to get guaranteed access speeds to a ISPs network. This, combined with low-cost high-bandwidth deals I've seen in the making, could produce a bandwidth upgrade feeding frenzy in your local service area.

Breaking into the cable Internet access monopoly was also discussed and a select few ISP CEOs have been successful in lobbying their local city councils for a cable franchise licenses alongside incumbent cable operators. While other CEOs expressed disbelief that this was going on, at least six ISPs said they have negotiated with city or county authorities to deliver Internet access over cable systems. The key to their success appears to be the complete ignorance of open access issues or legal loopholes in cable licensing laws at a local level. Either way, a handful of independent ISPs are delivering cable modem access to subscribers.

ISP sundry
There was the usual telco slamming at this session and the best comment was spoken privately, after the group disbanded when one ISP CEO said:

"When is everyone going to learn that slamming telcos or blaming them for why you can't build a wildly profitable ISP is a waste of time. ISPs must focus on finding the best ISP opportunity with their resources and create a successful business from building blocks, one block at a time, as each opportunity is made available."

Taxation was also part of the discussion, particularly whether certain Internet services were taxable or not. If you are in doubt and operate and ISP in the U.S., write to the department of revenue in your home state and ask to get a sales and use tax determination letter as to whether your Internet services are or are not taxable. Oh, and get it in writing, of course. Failure to do this could result in big time tax penalties and fines down the road.

Overall, the fall edition of ISPCON had lower attendance than past events. But with the economy subdued and national sentiment sticking close to home, perhaps it's only fitting. While I didn't get percentage of exhibitors that canceled, there were a few noticeable large ISP vendors missing—as well as 10 to 15 percent of the speakers that canceled. I left the show feeling certain that this had more to do with the fear of flying and terrorist events than lack of interest.

"At the time, I expected that the spring venue would bring a resurgence of ISP attendees to the Baltimore showing of ISPCON. Only it's not ISPCON anymore. The event has been rolled up with other service network shows. So when I told ISP-Planet I would cover the ISP CEO gathering, but that it might be my last one, coincidentally, I wasn't joking."

Not to worry of course, ISP-Planet is already set to sponsor your next ISP CEO session at the ISP Business Expo in San Jose, California on January 22-23, 2002. So the show will go on for ISP CEOs. As for the independent ISP industry, it's just a matter of how you answer this age-old question "is the glass half empty or half full?"

While some ISPs are struggling to make payroll, right now is just about one of the best ISP buying opportunities that have ever existed for those operators that enjoy acquiring and assimilating another providers customers. Even if the glass is half empty now, you kind of get used to drinking half as much as you used to. So when the glass is half full, you never go thirsty.

Trusted market advice is to "buy low and sell high." Right now, you can buy ISP businesses at some of the lowest rates in years. My prediction, unfortunately, is that it'll get worse before it gets better. As more jobs are cut and the economy hits bottom, things are sure to toughen on independent ISPs. But, as in life and all other things, "this too shall pass."

Look at it this way; once you've built a lean, mean ISP business machine, difficult times aren't, well … so difficult. What actions you take today to face market challenges makes all of the difference in which version of the future unfolds for your ISP business tomorrow.

To Your ISP Success!
Christopher M. Knight
ISP Marketing Survival Guide Author

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