Internet Service Providers
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Industry Overview
The US Internet services industry includes about 4,000 companies, with combined annual revenue of $30 billion. Large companies include AOL, Microsoft, EarthLink, Verizon, Comcast, and AT&T. Starting as a collection of small companies, the industry is now highly concentrated: the 50 largest companies hold about 80 percent of the market; the four largest companies hold more than 50 percent.
This review doesn't include electronic commerce companies like Google, Amazon, or eBay that sell products or services over the Internet.
Competitive Landscape
Demand is driven by consumer and business demands for information. The profitability of individual companies depends heavily on efficient operations and good marketing, as most costs are fixed. Big ISPs have large economies of scale in operations, purchasing, and marketing. Small companies can compete successfully by serving small markets or providing technical expertise to customers.
Products, Operations & Technology
Major products are Internet access, website design and hosting, and technical support services. Internet access accounts for about 60 percent of industry revenue. Internet access allows individuals or companies to connect to the Internet over ordinary and special telephone lines, cable, or wireless connections (including satellite). Website hosting allows users to have an address on the Internet (a website) by maintaining files on a specialized computer called a server, while Web design and technical services involve designing and constructing websites, and consulting on various communications and operations issues. Some Internet access companies provide content services, like chat rooms, bulletin boards, and music downloads.
The Internet is a collection of computers (big mainframes or small personal computers) connected by communication lines. By making files on a computer available to others, individuals and companies can communicate with each other. Three major systems operate on the Internet: the email system that allows users to send messages to each other; the file transfer system, called FTP, that allows users to exchange many types of files; and the World Wide Web (by far, the largest part of the Internet), that allows users to see special graphical files called Web pages.
Several special types of computers operate the Internet. Servers (computers with many hard-disk drives), hold most of the information, while routers (computers with rapid processing capabilities) direct information to the correct communications channel. The speed with which customers can gain access to the Internet depends on the bandwidth of their connection. Most consumers using ordinary phone lines can take information off the Internet at a speed of 56 kilobytes per second, which is called narrowband access. DSL phone lines, cable, fiber optic, and satellite links can accommodate speeds from 300 kilobytes per second to more than 10 megabytes per second, which is known as broadband access. Although broadband is rapidly gaining in popularity, a large portion of industry revenue still comes from narrowband dial-up access.