December 16, 2022

State of the Internet Service Provider Market – Challenges and Opportunities

A lot has changed in the Internet service provision sector since November 1989, when the first paying customer accessed the Internet via The World, the first commercial ISP on the planet to provide a direct connection to the Internet. The most notable change is with access to the Internet itself. At the time, the Brookline, Massachusetts-based company offered dial-up Internet access, which became standard among all telcos and other ISPs that quickly followed. Thirty-three years later, The World still offers dial-up access to a thousand or so customers, but few other ISPs provide dial-up access. Overall, dial-up access is only used by an estimated 0.3% of U.S. Internet users as of 2018.

With a maximum data transfer speed of 56 Kb/s and other limitations such as “noise” and tying up phone lines, dial-up Internet service was likely doomed from the get-go. But it proved instrumental in ushering in the Internet age and gave innovative companies time to develop more efficient and faster access technologies, such as DSL (digital subscriber line) and assorted forms of broadband. Dial-up’s 56 Kb/s speed certainly seems quaint today compared to blistering fast broadband speeds reaching up to 10,000 Mb/s (10 Gb/s).

There have been plenty of other changes in the ISP market over the past three decades, but rather than focusing on the past, there is more value in examining the present to discern what this might mean for the future. That is, what is the current state of the ISP market, and what challenges and opportunities lie ahead?

Overall, The Future Looks Bright

If market forecasts are reliable, the future looks bright, according to assorted market analyses. An October 13th report “Global Internet Service Industry Research Report, Growth Trends and Competitive Analysis 2022-2028” estimates that the global Internet service market will experience a 4.4% compound annual growth rate (CAGR) between now and 2028. The report estimates that the current US $498.6 billion market will increase to US $644.8 billion by 2028. A report from Grand View Research is even more optimistic, predicting a 9.6% CAGR between now and 2030, and estimates the global market will hit US $875.1 billion by 2030.

Thus, if you’re responsible for helping navigate the success of your telco or other ISP, you can pretty much sit back and watch the cash flow into the company coffers, right?

Beware the Competition?

Well, not exactly. Your ISP company’s potential share of that forecasted market growth will likely face challenges from at least one other ISP.  If you’re in America, almost 2,900 broadband ISPs are vying for those Internet user dollars, not to mention a few remaining dial-up providers. According to a recent report from ACA Connects, “fixed broadband competition is thriving in the United States and will become only more intense in the near future.” Using FCC (Federal Communications Commission) data, the ISP-centric association forecasts that by the end of 2025, 95% of U.S. households will have access to at least one broadband ISP offering a minimum 25 Mb/s speed and at least one additional provider offering 100 Mb/s. Additionally, the group predicts that 74% of households will have access to at least two ISPs offering a minimum 100 Mb/s service and almost 25% to three providers offering the 100 Mb/s minimum.

The ability to deliver speed and bandwidth has driven ISP success for decades. A successful ISP of any size must be able to secure, market, and provide a range of speed and bandwidth options that meet all their customers’ needs. All indications suggest that customer demand for greater speed and bandwidth will continue. However, this will likely be a far bigger competitive battle going forward with wireless broadband rather than fixed.

Lower Margins Drive Alternate Revenue Streams

Speed isn’t the only factor that will remain important going forward. Many who helped establish the early ISPs recognised the potential for securing revenues beyond Internet access provision. The telecom and cable companies quickly realised they could earn money from selling their access and bandwidth to smaller ISPs. As the Internet expanded, and its technical capabilities evolved, ISPs started offering website hosting services, domain name registration, email services, and colocation. Some early providers tried to become a one-stop shop for everything on the Internet, with AOL serving as a prime example.

Today’s competition will likely lead to continued pressure on margins for Internet connection, which means that ISPs need to further seek out supplemental revenue streams. Additionally, communications and Internet technology continue to evolve rapidly. Failure to keep up with this evolution could threaten your ISP and any auxiliary services it supplies with eventual obsolescence.

With both of these thoughts in mind, ISP managers should keep close track of the following issues, which represent potential challenges as well as opportunities:

  • Internet of Things (IoT)
  • Cloud computing
  • Edge computing
  • Cybersecurity
  • Advertising
  • Wireless Internet
  • Artificial intelligence
  • Personalization
  • Regulatory initiatives

The tier-one providers undoubtedly have this all covered (we like to think anyway!). They possess the resources to surmount any emerging challenges and quickly adopt new and evolving technologies and trends to expand their revenue streams. However, the tier-one and even many tier-two ISPs are too big to maximise the potential. Their immense size makes it difficult for them to provide decent customer service. Along with regulatory factors, this allows smaller ISPs to continue to flourish despite such Goliath-sized competition.

Email Offers A Renewed Opportunity

Long offered by telcos and other ISPs as a supplemental service to Internet access, email service has changed little over the past few decades. In the early days of the Internet, telcos offered email as a free supplement to Internet service. This trend was adopted by cable companies and other ISPs, marking the height of what is known as the first wave of email. When independent web-based providers such as Yahoo and Google emerged as part of the second wave of email, they, too, essentially offered the service free but looked to capitalise on the data contained therein.

Since then, none of the ISPs ever figured out how to effectively monetise their email account holders. Even Google, with almost two billion Gmail account holders, only makes direct email income from about 1% of them, and still relies on data and advertising – very crude!

Think about it, email services offered by ISPs have long been:

  • Mostly provided for free.
  • Typically offered under a one-size fits all approach.
  • Lacking innovation in expanding customer experience.
  • Considered a cost of providing Internet service.
  • Predominantly managed on-premises.
  • Stresses loyalty and ‘stickiness’ instead of direct proftiability.

We Suggest That You Cleverly Commercialise Email

With more than 20 years of experience helping telcos and service providers manage their email platforms, we have figured out how to monetise email services effectively. We believe we’re on the cusp of the third wave of email services marked by digital transformation and more focus on trying to commercialise the service.

We already know how to commercialise the service and can help providers earn email income from four different streams:

  • Purchase integration
  • Promotion of provider services, partner services, and cross-selling
  • Personalisation
  • Security and privacy

Those Who Need Lots of Email Storage Should Pay For It

An example of Purchase integration is Storage. An easy one because the overall customer base has become used to the need to pay for storage. Currently, when a customer runs low on email storage space, many providers will tell them to delete emails rather than offer them more storage for a price. Research suggests that one out of five customers use a lot of storage compared to the average email account, while one out of 20 uses a tremendous amount. These customers should be charged for that extra storage use.  We suggest that providers set storage thresholds that trip reasonable fees when exceeded. The service should be streamlined with in-app and email notifications, integrated with one-click billing.

Promote Your Other Services on Your Platform 

You can create space on your email platform for a promotion zone that promotes all of your other services, partner promotions, and cross-selling. Going forward, customer data integration efforts can increase the potential returns from this promotion. Also, you can provide customers with the option to turn this feature off for a small fee (of course).

We can show you that you get, on average, 34 minutes a day of customers interacting with your brand through the email service – if you’re not speaking to them, then someone else is – what do you want to say?

Let Customers Personalise Their Email with Domain Names

Personalisation is becoming ever more critical on the Internet, with customers increasingly wanting to own and use their domain name for their email. According to one study, some Generation Z parents reject baby names when they find out that the name has already been claimed as a domain. Offering white-label domain name service to your email customers could generate significant revenues in the years ahead.

Offer Security and Privacy for a Small Fee

About 84% of email users say they care about privacy, but only around 11% to 38% say they are willing to pay for it depending on the location of email accounts. If you make security and privacy easy and affordable, more will undoubtedly be willing to pay for it. As a provider, you’re already responsible for reducing data loss risks and meeting regulatory compliance in managing customer data. Why not lean into the obligation and get your customers to help pay for it? You can bundle anti-malware, anti-virus, and anti-spam features in a package and provide it to your email users for a dollar or so a month.

Consult with Atmail for More Info on Clever Email Commercialisation

Initiating clever commercialisation for your ISP will face some challenges, but telecoms and other providers already have some advantages. Most have established trust with their customers and have proven their ability to provide them with effective support when needed. Billing is already in place for Internet access and perhaps some other services, but you will need to integrate these new email services onto the billing platform, which will likely be a challenge. You will also want to implement one-click billing for these email services.

We can help with some other challenges. By taking email services to the cloud, you can scale up or down as needed. Combining cloud capabilities with our multi-tenant email platform will allow you to segment and personalise services for your customers.

For more details on clever commercialisation, we invite you to review one of our recent presentations here or get in touch.

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