Yet more number games

A few months ago, I wrote a column here about Internet numbers - pondering the various statistics, both national and international, that are bandied about. Some are true, some false, and most somewhat questionable in terms of the methodology used to arrive at them.

The past few days have shown two significant news stories - on ITWeb and elsewhere - which have once again made "Internet numbers" the top-of-mind discussion item on everyone`s boring IT industry party conversation list. Yesterday finally saw the announcement of the long-rumoured big network provision deal between UUNET Internet Africa (UIA) and M-Web, while last week`s report on Cathy Stadler`s and Arthur Goldstuck`s 1998 Internet usage survey shed new light on the state of the industry, albeit only until March this year (the cut-off date for the research report).

Goldstuck and Stadler confirm that the Internet in SA has now reached "critical mass". While it`s not exactly clear how the one million user marker was set (the researchers claim that industry opinion says that one million dial-up users constitute critical mass), the research appears to be an accurate reflection of where the different access providers were at during March 1998. I believe that due to various ISP marketing campaigns centring on free modems and the like which have run since March, the growth has in fact accelerated in the seven months since. However, the overall balance of power remains the same: UIA now has more than 80 000 users, M-Web more than 50 000, etc.

Overall, I would imagine that right now there are more than 1.5 million dial-up Internet consumers in South Africa, while the market in so-called corporate (leased line) connectivity has also grown substantially once again. In a Web users survey, performed by Media Africa (Goldstuck and Stadler) in conjunction with THOS, international trends are borne out locally, what with a steady rise in older Internet users (age 40+) and a slowly but steadily increasing number of women. Other trends, here, aren`t surprising in the SA market: Internet users are firmly and almost exclusively at the very top end of the income spectrum (average income more than R10 000) and most work in the computer industry. This is slowly starting to change too, as general management discovers the joys of spending lunch hours surfing.

Yesterday`s announcement of UIA`s long-rumoured network provision deal with M-Web will no longer have come as a surprise for industry watchers after weeks of speculation. The companies announced that UIA and M-Web will combine their dial-up user bases, to be jointly managed by M-Web, and their backbone networks, to be managed by UIA, while M-Web`s existing business solutions customer base (leased line customers) will migrate to UIA. Stated like this, it seems less dramatic than the "sell-out" rumours that have been making the rounds. But it is still probably the single most significant larger-scale consolidation this industry will see during 1998.

The key to both Media Africa`s new research reports and the UIA and M-Web consolidation is "critical mass". Much like in any other service industry, numbers are everything in Internet access provision. Hence the incredibly high marketing spend that we`ve seen during the past few months and hence most clients` observation that going with a bigger provider is often the better route to go. Economies of scale dictate how well something works and how cheap it is. While larger providers may not always be the best at customer service and personal care, there are good reasons why things work better over a more expansive infrastructure. ISPs, like telcos, only start making money once they hit the 50 000 dial-up user mark, at least under South African conditions where international bandwidth is the most important cost component.

So far, there is little reaction from other industry thinkers, but it`s only been a day since the announcement. Some of the more opinionated Internet users are reacting with comments about a "monopoly" and how capitalism and the Internet don`t mix - predictable perhaps, but ultimately uninteresting as comments. I see this as a pure business arrangement: Datatec and MIH, IT and media giants, respectively, are flexing their muscles together, for mutual benefit. Profit and exploiting economies of scale go hand in hand in the Internet access industry.