Here come the super-ISPs

Most press announcements are fairly mundane. Then there's Lucent's recent announcement that it will resell Netscape's electronic commerce software.

At first, this seems like just another reseller agreement. Look at it a little deeper, however, and you'll see that it portends a significant new trend: the rise of super-ISPs that offer far more than just a pipe to the 'Net. [See the Lucent press release]

Back when just getting onto the Internet was enough, ISPs were a hot commodity. But today, the ISP biz is fairly boring, and the really sexy players (i.e., the companies bringing in the capital) are the search engines, portals and content sites. That's going to change, however, as ISPs - and other players - evolve into commerce service providers (CSPS), enterprise service providers (ESPs) and application service providers (ASPs). Let's look at each of these before returning to our friends at Netscape and Lucent:

• A commerce service provider offers focused e-commerce services (a la Intershop, Open Market and ICat). These typically include all the necessary buy/sell components to set up an electronic store front. In a way, this is a logical extension from the hosting services of most established ISPs. It also allows many small companies to set up an e-commerce presence without the requirement to build/manage the back-office (or even part of the front-office) system.

• Enterprise service providers are non-ISPs offering CSP-type services for partners or affiliates. Good examples here would include Ingram-Micro and Ford Motors, both of whom have set up their own ESP systems to provide support for their distribution partners.

• An Application service providers represent something new. In addition to basic IP services, ASPs offer applications - from basic off-the-shelf applets to high-end custom applications tailored to specific business requirements. Where ISPs started out as generic Internet service for anybody with a few bucks to spare, ASPs are likely to focus on specific vertical markets and will likely try to provide a full suite of applications (perhaps on a variant of the client/server or thin-client models) to their customers. [See Schools have high hopes for thin-client service for one example of this approach; US Internetworking is an example of an ASP].

So how does all of this relate to Lucent and Netscape? As the promise of business e over the Internet comes true, more and more enterprises are (or will soon be) outsourcing their e-commerce operations. This actually continues a trend that began with the rise of Web server farms. Now we see organizations like Exodus (a data center ISP) being created to supply massively redundant server hosting capabilities to major corporations who rely upon the Internet for mission critical applications. [See IBM offers new Web e-commerce hosting for an example]

Why are companies likely to outsource to these new super ISPs? Bandwidth is a good reason. Not many can afford the heavy bandwidth required to keep a major site operational (we're not talking T1 here, but rather fractional T3 or OC-1/3). Redundancy is another good reason - not many firms can afford to built the type of redundant network connections that many of these new ISPs offer.

Specialization is another good reason. While early Internet applications were easy to understand, not many firms feel the need to build core competency around e-commerce tools. Instead, they would rather focus on their core business and let an outside "expert" provide the underlying Internet transaction tools (much in the same way that large department stores use the Visa or Amex systems for credit card transactions, rather than try to build their own internal systems as they once did).

All this has forced ISPs to realize they have to offer more than just a pipe to remain competitive (hence the move toward CSPs and ASPs). Netscape, to its credit, has tried several times to break into this growing market and promote its own e-commerce tools. [See Just what did Netscape get for $180 million? for a look at Netscape's acquisition of Kiva application-server technology].

However, Netscape has realized it needs a major partner to accomplish this task; a partner with an "in" to the core workings of the ISP community. Lucent is that major partner.

Through Lucent, Netscape hopes to be able to reach the new super ISPs that can, and likely will, dominate the market for commerce, enterprise and new application deployment.

The impact on your operations could be substantial over the long term. With Lucent moving into e-commerce applications, we could see accelerated deployment of new apps and services by ISPs. But more immediately, you should start looking now for ways to exploit all the new things this new breed of super-ISPs is beginning to offer. There are sure to be more than a few opportunities out there for the clever and the quick to market.

For more information on this, check out the following analytical reports located in the public area of the Current Analysis site:

"Outsourcing to the Middleman: ESPs & ASPs" and "ICE Update: Netscape and Lucent Join On Commerce For Enterprise, ISPs."