Selling the Internet

It’s kind of like the Bridge in Brooklyn that keeps getting sold, except in this case the product is real.  Just to be sure, when I say “selling the Internet”, it’s not the entire Internet that’s up for sale, because let’s face it … no one really can claim to own it, but rather access to the Internet that is being sold. The Internet is loosely defined as a global network of interconnected computers and servers.  Access to the Internet depends on the needs of the device, application, person, or organization.  Initially highly lucrative for telecom and cable companies, monetization of Internet access has increasingly become a challenge for these companies because of competition, technology, regulation and a host of other reasons.  The focus of this note is to identify some of those challenges and suggest strategies carriers can implement to increase revenue and margins by managing Internet access as a strategic product. 

There are both competing and complimentary forms of access – physical (such as copper, fiber, Coax, BPL) as well as wireless (Wi-Fi, 2G/3G, WiMAX, LTE, Free Space Optics, etc.).  Open source computing and software services including operating systems, browsers, email, voice, video, security/anti-virus and a host of other applications have created a viable alternative to those services that were typically bundled in or sold as a value added option with internet access.  The market for internet access is very competitive and highly price elastic; carriers need to weigh the needs of the market with the options available to customers when developing and deploying products.

The commoditization of the Internet for the residential market, as a product, started the day AOL announced unlimited dial-up internet for $19.99 a month.  Since then, even with significant changes in product as an always on, hi-speed broadband connection via DSL or Cable, the mindset associated with Internet usage has mostly been along the lines of a standard monthly recurring charge with no usage component.  The next generation of consumers (“the millennials”) are taking this mindset to the next level and assuming Internet access should be free; they have grown up in a Wi-Fi enabled household, and go with the Internet everywhere – with their phones and in wireless college and university campuses.  Branding and appropriate product tie-ins are some methods that can be used to influence purchase objections.

Market segmentation for ISP’s is key, particularly when differentiating between the residential and business market.  Carriers need to distinguish their service and emphasize the tangible benefits of their internet service over a rival’s, this can be done in the form of speed, add-on service such as anti virus, exclusive content such as a dedicated start page, and so on. 

Net neutrality is the moniker used to conjure up apple pie and motherhood imagery about the Internet, largely pushed by some of the pure play Internet companies like Google. In an effort to regulate the Internet to essentially eliminate discriminatory treatment (all content, sites etc are the same); this has become a significant restriction in terms of providing tiered service for consumers.  DPI (Deep Packet Inspection) efforts by some MSOs and restrictions by some rural Telcos on VoIP services on DSL has generated significant scrutiny by regulators, particularly the FCC.  These issues are largely in the realm of the retail environment, but increasingly the sophistication of the home user (and their usage patterns) has become both an opportunity and a threat for providers.  Companies are starting to limit internet use via bandwidth usage caps and traffic shaping policies; juggling consumer needs and regulatory demands while increasing margins from internet service needs to be carefully planned. 

Selling internet services is no longer a sole provider option.  It entails partnerships with other companies (both hardware and software), and in some cases, competitors, to address needs of the customer base.  For instance, Verizon and AT&T have relationships with Satellite TV providers to service the needs of their customers.  Increasingly, collaborations across product, industry and geography are an important component of the Internet solution; Comcast, for example, has an established relationship with Microsoft to provide communication software services for e-mail, networking, remote access etc.  Similarly, Verizon partners with Yahoo and MSN for content and email.

There is, however, one thing that overarches strategic action, and that is vision.  As surely as communication providers must define plans to achieve results, they must first start by defining (well) the business they are in – which is the business of connectivity.  Connectivity of people and connectivity of machines, the method of connectivity and communication is a product that has a life cycle and at some point ends.  Communication carriers need to first define a vision of connectivity for their business, and then, on top of that, build a compelling product set (entertainment, information and communication in the case of Comcast) to address the market opportunity that awaits.  The Internet is one of those opportunities, at the center of the bundle – it is the basic enabler of connectivity and delivers entertainment, information, and communication. 

Like the bridge in Brooklyn, internet access is about connectivity, and if providers are to be able to sell access to it, it must be a compelling experience for customers; carriers need to carefully craft marketing plans that address both the needs of their customers as well as the potential to grow product revenues by increasing the value of their service.  Strategies to do this differ significantly across residential and business customer, more on that next time.