Small Biz Entry Into ISP Market

Larry Berg <> Mon, 04 April 1994 00:43 UTC

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Date: Sun, 03 Apr 1994 14:08:46 -0700
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From: Larry Berg <>
Subject: Small Biz Entry Into ISP Market
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It seems to me that the underlying basis for the current discussion re: 
CIX membership is that the current market conditions and technical 
feasibility is such that there is a significant number of individuals who 
are preparing to get into ISP on a market entry level. Although I have not 
been involved in this service industry long enough to know firsthand what 
the conditions were like at the time that  someone such as Karl Denninger 
started his operation, it seems obvious that those conditions have changed.

Karl, through his personal vision and his willingness to take on the risk 
inherent in high-tech entrepenurial start-ups, now has a competitive 
advantage over other entrants who try to follow in his footsteps. 
Furthermore, in the event that some conglomerate or large player decides 
to dominate the ISP market, Karl is in an excellant position to negotiate 
a sale or merger of his operations, hopefully at a price that will 
fairly compensate him for his efforts and give him the financial freedom 
to pursue some other dream [say perhaps starting an offshore data haven, 
:-)]. Other smaller late entries into the market may not be so fortunate.

A low-tech analogy is the proliferation of soft yogurt franchises in the 
late '70s. New technology. New distributors. Good product. Demonstrated 
consumer demand, and small businesses seemed to pop up on every block. 
Many of them were mom and pop type operations, and when it became evident 
that there was more supply than demand, many of those small business 
ceased to exist. To the extent that the product was consumable, they 
did not have a client base that relied upon them the way that an ISP 
customer does, however, by now most people understand the consumer risks 
associated with doing business with discount brokers.    

The real issue IMHO is whether the industry/network is going to 
facilitate the emergence of small businesses as micro providers or 
coo-ops or whatever. It seems apparent that it is happening and it is 
going to continue to happen. To someone who is investing their life 
savings (which we all know does not amount to much for most people) to 
start up as a micro-ISP, a $10K ante is a big bite to swallow. While it 
would be nice to start a business with institutional financing the rule 
of the road seems to be that if you need it you cant get it, and if you 
dont need it then it is readily available. Most start-ups are financed 
through second mortgages, family loans, and credit cards.

There is a legitimate concern that the industry image will suffer from 
undercapitalized small ISPs going out of business (for any reason), 
negatively impacting their customers in the process. One way to minimize that 
negative association is to legitimize those small operations and then 
compete on the basis of enhanced service and value added products.

It is not enough to say "show me a better way and I'll consider reforming 
the industry". How are we going to stabilize this industry if we do not 
know who is doing business or what kind of business they are conducting?
If the reform does not come from within, then we should all be prepared 
for the reform to come from outside in the form of legislative and 
regulatory intervention. How many ISPs are currently paying the CIX 
membership fee and who are they? If CIX does not evolve to address the 
way that people are doing business then it will cease to be a viable 
organization. There is a strong tradition of small business development 
in this country which has steadily diminished during the past twenty years.
It is up to the established ISPs to take the lead in this arena. Is the 
risk that the future of the ISP industry will be determined by outside 
forces greater than the risk of legitimizing your competition? If so, 
then I suggest that this "flawed CIX" discussion take a more constructive 
approach to developing non-settlement interconnectivity on behalf of all 


Larry Berg
Seattle, WA
(206) 933-6928