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Chapter 4Business Model I:

Internet Access Provider

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Definition of Internet Access Provider

An Internet Access Provider (ISP) provides consumers or businesses with connectivity to the Internet, allowing them to receive and send online information, such as web-pages,e-mails, MP3 music files, and business transaction data.

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ISPs generally focus on the provision of Internet connectivity services; they maintain local network infrastructure—banks of modems, routers, and telecommunications lines — that facilitate the transfer of information between a subscriber ‘s modem-equipped PC and other users of the public Internet.

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Opportunities and Difficulties faced by ISPs

Opportunities The market is large and growing, so the stakes are high The price for access is declining rapidly and customer

churn remain high, placing pressure on the bottom line

Difficulties Rapidly changing technologies Low barriers to entry A fickle consumer base Volatile capital market

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ISPs Hierarchy

Retail access providers directly serve end customers

Wholesale access providers sell Internet connectivity to retail ISPs

The largest wholesale access providers are called “Tier 1” ISPs, provide “backbone” connectivity from a retail ISP’s modem bank to the rest of the public Internet.

In practice, retail-wholesale hybrids are common.

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Access Technologies

Telephone-based services Cable services Wireless services

Satellite Fixed wireless Digital cellular telephoneOptical wireless

Fiber optic lines

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ISPs’ Target Market

Technology choices often define an ISP’s target segments Residential Vs business customers Urban vs rural customers “Newbies” vs experienced Internet users High-bandwidthe vs low-bandwidth users

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ISP’s Value Construction Technology and network capacity

BandwidthService reliabilityQuality of service Hosting services

Customer serviceEase of installationBilling accuracyAvailability and quality of technical support

Content bundling

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Access Provider’s Financial Model

Revenue sources Cost structure

Variable costCustomer acquisition cost

Profitability