Despite the dot-com crash, one or two South African Internet service providers (ISPs) are actually making profits. The dot-com crash has brought about a return to business principles and an urgent pressure on ISPs and Internet businesses in general to generate profits.
Although the dot-bomb has brought about a nervousness around IT spend, it must not be forgotten that the Internet is the major contributor to business growth, said Douglas Reed, managing director of first-tier ISP, DataPro.
"Like all networks, the Internet is subject to natural laws that shape them, the primary one being that a networks value is equal to the sum of the users squared. All networks tend to grow gradually until they reach critical mass and then grow in leaps and bounds. This exponential growth coupled with computing power doubling every 18 months is what causes the disruption in the social, political and economical arenas. This environment is conducive to an enormous amount of threats and opportunities for business.
The South African market
"In SA, there are over 350 000 businesses and, at the moment, less than 8 000 companies with a permanent Internet connection - with critical mass estimated to be around 12 000. Once this level is reached, in a very short space of time around 65 000 to 80 000 companies will connect.
This will effectively network the business community and the resultant efficiencies from transaction and time savings will be dramatic. "When the market reaches critical mass," said Reed, "it will provide opportunities for all businesses to create a Competitive-edge, making it easier to do business with them and enhancing their efficiencies by cutting transaction costs."
Reed said although the deregulation of the telecommunication industry and the advent of new technology like ADSL will bring down the barrier to entry, it would not be significant enough. The only alternative is to add value to the line by providing sophisticated online services that provide tangible benefit to smaller businesses. "After all, large corporates can`t do online business if their customers are not connected," he said.
While the impact of a mature market will be enormous on the existing ISP, too many local ISPs have over-estimated the initial take-on of the Internet in SA and over-invested in their infrastructures. Many are in serious financial difficulty and this presents a golden opportunity for the "stronger ISPs" that now have the opportunity to buy out these ISPs, including their infrastructures, for as little as 10% of the value.
"We have been making profits for the past six months and are on target to meet our goal of achieving a market capitalisation of R500 million within three years," said Reed.
Reed said the local ISP industry is set for consolidation as the stronger ISPs prepare to buy out the weaker ones. "The extent of the turmoil has recently been exacerbated by the troubles of WorldCom, owner of UUNet, one of the biggest ISPs in this country. Worldcom`s financial woes put UUNet in a difficult position. But the turmoil is not necessarily a bad thing. Things were compounded when WorldCom announced it is filing for Chapter 11 bankruptcy - although it says this move will not affect its international operations, including UUNet.
"Consolidation will be good for the consumer at the end of the day. The bottom line is that the ISP market has matured and there is no longer room for smoke and mirrors. Clients want real services and real value for money. This is why we focus on the corporate market and not the dial-up market. We are starting to blossom because we are providing our corporate clients with good services, as well as value added services. Within three years we intend being the ISP with the most corporate clients on its books. This is achievable."
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