In so many high-tech industries these days, the big get bigger and the small disappear. So in February, when telecommunications giant AT&T jumped into the Internet business, it seemed only a matter of time before the big guys would wrest away the industry from the small companies that had pioneered the business.
But a funny thing happened on the way to market dominance. The giants stumbled. And the number of Lilliputians - with names like Arrownet and IgLou Internet Services - is growing.
The reason: Putting Americans onto the information highway is proving to be a lot more difficult than many companies anticipated. In many cases, customers have to be towed to the on-ramp.
"The Internet is a complex thing," says Scott Reamer, an analyst with the New York investment firm Bear, Stearns & Co. "And getting on the Internet is fairly complex."
When MCI Communications and Sprint began offering low-cost Internet access a year and a half ago, "they were just buried trying to help people who could barely operate a computer," says Jack Rickard, editor of Boardwatch Magazine, a Littleton, Colo., monthly covering the on-line world. Customers would sign up for service then tie up the companies' support lines for hours trying to get up and running. Some didn't even have the necessary equipment to hook up their computers to a telephone line, much less the Internet.
The latest gaffe comes from AT&T. After offering its long-distance customers limited free access to the Internet for a year, it was deluged with 600,000 requests for the necessary software. But it has only been able to fulfill slightly more than a quarter of those orders, because it didn't have a large enough computer network or customer-support staff to handle the traffic.
The company has since fixed some of its problems and is now signing up some 3,500 people a day to its service. Analysts expect AT&T will in the long run prosper in the Internet business. But the winners so far in the Internet service business have been those companies that have managed to make it easy for consumers to get on-line.
They fall into two groups: proprietary on-line networks, such as America Online and CompuServe, and small Internet service providers (ISPs). The proprietary on-line services increasingly are serving as easy-to-use gateways to the Internet. On Tuesday, CompuServe announced it would get a license for Microsoft's new Internet technology, code-named Normandy, as the platform for its future Internet and other on-line offerings. Because CompuServe is the first to license the technology, Microsoft will include links to sign up for two of CompuServe's on-line offerings in its Windows 95 software, which runs most new computers today.
By offering easy Internet access to the 11 million subscribers that, combined, they already reach, America Online and CompuServe have far outpaced the 410,000 subscribers that Netcom On-Line Communication Services, the largest pure ISP, has signed up. In fact, the ease-of-use and organization that the proprietary online networks offer consumers may become more important than mere access to the Internet, according to some analysts.
"Six months ago, people were saying the ISPs would put America Online out of business," says Mr. Reamer of Bear, Stearns. Now, the opposite happens.
The other group of apparent winners in the Internet derby is the small, local ISP. With an average of only 1,450 subscribers, these small companies are growing in number. In February, for its first Internet directory, Boardwatch Magazine found 1,447 ISPs. For its summer directory, which went to print this week, it counted 2,266. Much of that is new growth, Mr. Rickard says, although the magazine is also getting better finding ISPs.
But there is some evidence of consolidation. A big Internet provider, PSINet, announced last month it would cut half its staff and discontinue its consumer-oriented service, concentrating instead on business customers. MFS Communications, an upstart telecommunications firm, in April announced it was buying UUNet Technologies, a longtime Internet-service provider.
But a bigger trend may be the strategic alliances that companies are making. AT&T, for example, uses the computer network of BBN Planet for its Internet service. The Baby Bells want into the business, too.
As the competition increases, consumers will see even lower prices for Internet access, says Kate Delhagen, an analyst with Forrester Research, a technology research firm in Cambridge, Mass. Thus, big companies with deep pockets, such as AT&T, should be able to weather a string of unprofitable years much better than smaller ISPs could, she adds.
So consolidation will come - someday. But Don Hutchison, a Netcom vice president, says "it might take longer than popular wisdom would suggest."