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Is Content Still King? Infrastructure and end-user issues keep a prince of a business model from attaining its original handsome form
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Boardwatch - June 2002 - by John Sullivan

WHY YOU SHOULD CARE:
The content-driven broadband business model has taken increased heat for not living up to expectations. However industry players are not counting it out just yet. How should providers assess content's ability to drive broadband subscriberships?

Ever since providers first began deploying DSL and cable modem services, they have tried to leverage content to attract broadband subscribers. However, that strategy has had its ups and downs. Looking at the broadband market's recent history may yield some clues as to how well content can increase broadband revenues.

John O'Keefe, president and CEO of Manhattan-based Fine Point Technologies Inc. (www.finepoint.com), agrees, and notes the dangers of a pure connectivity model.

"There are people that are looking for the straight open pipe," O'Keefe counters. "There are two negative aspects to that. When you're an ISP and targeting that market, you are essentially going after customers who produce the highest rate of churn."

O'Keefe says a person has to look no farther than the lessons learned from dial-up in order to prove his point. "What was the difference between one provider and another? Really not much, other than an occasional busy signal. People would shop for the service provider that was $0.50 less per month. That's what took place."

Companies existing in this market are forcing themselves to compete in a business in which they have to continually reduce prices to compete with companies that are continually dropping there own.

As the competition in dial-up became more and more competitive, price points and profits started to decline, so providers needed to find ways to reduce costs or generate additional revenue.

"It makes it very difficult because you are constantly catering to those types of users," he continues. "Now look at the market that a content company like AOL is trying to address. Are they trying to address the user that is just looking for the open pipe? The answer is no. Because the major part of their model is the value-added content services that they can market to their subscriber base through their AOL portal."

O'Keefe notes that this is where the idea of the portal really came into play. At the end of the last decade service providers thought they could generate additional revenues from signing deals with companies such as Excite and Yahoo! Inc. (www.yahoo.com) to provide content.

However, with the collapse of the dot coms and last year's funding pull out, money for service provider deals of this type are scarce. So O'Keefe notes that broadband providers will have to figure out ways to generate more money from existing companies without these types of deals.

The reason he believes portals and the Web content failed for a lot of the dial-up providers was due to the providers producing their own content through a home page to their Web sites.

"That would be great for about two or three days," O'Keefe says. "The ISP distributes a browser to their customers pre-set to the home page and then three days later the user figures out that they can reset the page to MyYahoo.com. Then the service provider loses the branding as well as all the other content and value-added services they were trying to market."

THE TALE OF JOE ISP
An additional factor that O'Keefe believes will effect the speed of content broadband deployment is customer churn.

"It will be much more of a factor in the broadband market than it was in the dial-up market," he states. "What broadband providers cannot let happen is what happened in the dial-up industry, which is to let broadband service become a commodity."

"There is not enough room in the profits to do that," he continues. "They are already charging $39.99 a month and the profits are so slim, that if users start to hop back and forth between service providers then it will be a serious problem. That's what killed so many of the DSL companies."

To illustrate his point, O'Keefe relates the tale of Joe ISP:

"Suppose I'm a customer of Verizon and I decide to go down the street to Joe ISP. Joe ISP is just a reseller of Verizon service and will offer me $0.50 or a dollar less per month. If I jump ship and go to his service, Verizon is going to have to eat the cost of de-provisioning that DSL circuit and then re-provisioning a virtual circuit at Joe ISP. So the costs of doing this become mind boggling if you start to introduce significant churn factors. It will absolutely destroy the broadband market."

THE FAIREST OF THEM ALL
O'Keefe believes that the reality of the situation dictates that in order to succeed, a company only has to look to the most successful service provider to date, AOL.

The demographics of the people that are signing up for Internet service today are the less technical people, he contends. They are individuals that require entertainment in order to continue with a particular service provider.

"The ISP industry looks down on AOL and everybody tries to not be it. The grim reality is that AOL is the most successful company we've seen. They have 35 million users. That's a pretty strong number."

But if they do, then what it all boils down to user retention. The bottom line is that the focus of the content broadband service providers today is not the portals. The idea is that to remain competitive and to fight the user churn, retaining the user interest is key. Additionally, generating additional revenue from the portals is key to make themselves more profitable.

"To me the answer is very clear, which is to never re-invent the wheel," O'Keefe concludes. "If somebody is out there and successfully doing what it is that you are trying to do then you should look at what they are doing and try to mimic it. Who is successful at doing this? Well, we're back to AOL."