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A Framework for Analyzing Strategies of Internet Service Providers (ISP)

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  1. A Framework for Analyzing Strategies of Internet Service Providers (ISP) By: Erik Wierstra, Gabriele Kulenkampff, Hans Schaffers Presented by: Ron Johnson

  2. Objectives • To Provide an analysis of developments in markets for Internet Services • Identify key factors affecting the competitive position of Internet Service Providers • Develop Scenarios describing the further development of the ISP industry

  3. Developments in ISP Market • Internet technology and Services • INTserv (Integrated Services): Technology focuses on end user to end user QoS per data flow • DIFFserv (Differentiated Services): Technology supports capacity division in different pipes each with a different capacity

  4. Developments in ISP Market • Internet Business Innovation creates new technology making way for new services • Regulatory and Policy Issues • Network Dependency may affect strategic innovation quality of services

  5. Developments in ISP Market • Different actors on the ISP-supply side • Global Operators (GlobalOne, Concert, MCI Worldcom). • National Telecom Operators (cf. EUnet, Ebone). • New Entrants • National or regional ISPs

  6. Internet Service Provider Growth Internet User Increases Developments in ISP Market (cont’d)

  7. Framework for Analyzing ISP Competitiveness Elements in Analyzing Competitive Advantages are derived from Porter include; • Competitive forces, determining industry profitability (attractiveness) • Value Chain concept aiding source of competitive advantage and development of strategies in cost and differentiation

  8. Framework for Analyzing ISP Competitiveness Value Chain Activities and its Representation

  9. Framework for Analyzing ISP Competitiveness Analysis is based on the following 5 dimensions of strategy: • Factor Inputs: This dimensions relates on the technological, capital, and labor inputs • Value Chain Structure: Specific value chain structure as well as what influences buying choices • Product Portfolio: Characterized by the services offered (IP transport, Web Hosting, email, etc.) • Pricing Policy: Flat fee compared to usage based pricing • Market Segmentation: Geographical scope and user categories

  10. Framework for Analyzing ISP Competitiveness Conceptual Framework for analyzing competitive position:

  11. Factors Affecting ISP competitiveness • Impact of factor input choices • Impact of cost provisions of service may create cost advantage • Impact of characteristics of output may result in an advantage by differentiating the services from competition

  12. Advantages Higher productivity Reduced expenses for network operations Increased reliability of network services Disadvantages Technology can be quickly outdated Higher initial investment Factors Affecting ISP competitiveness Using advanced network infrastructure over mature network:

  13. Different Types of ISPs and their competitiveness

  14. Different Types of ISPs and their competitiveness Examples:

  15. Different Types of ISPs and their competitiveness

  16. Different Types of ISPs and their competitiveness Incumbent Telco • Strengths: One stop shop for customers. Higher level of control over network allowing higher guarantee for QoS • Weaknesses: Using older technology • Opportunity: Updating technology • Threats: Increased competition

  17. Different Types of ISPs and their competitiveness New Carrier • Strengths: High degree of control over network making it easier to provide QoS • Weaknesses: Not as well known as the incumbent telco • Opportunity: Face the competition for back bone capacity with the pricing of incumbent telcos • Threats: External factors

  18. Different Types of ISPs and their competitiveness Small Regional ISP • Strengths: High quality of services and extremely flexible • Weaknesses: Only can provide service in very limited region. Cannot garauntee QoS due to factors outside of company control • Opportunity: Find niche market • Threats: External factors

  19. Different Types of ISPs and their competitiveness Volatile External Factors • Technology: Possibility of new technology changing industry • Regulation and policy: Changes in interconnection agreements, competition policies, regulations concerning intellectual property • Market Structure: New players and essential market characteristics • Customer Needs: Developments in preferences and trade-offs, pace of adaption of Internet services, penetration of services and Internet access rates.

  20. Discussion and Conclusion • Goal was to develop an analytical framework for analyzing business strategies for ISPs • The focal points of this article were the impacts of production characteristics on cost and opportunities for product differentiation • Despite certain limitations this analysis gives bases for identifying successful ISP strategies

  21. Bibliography A Framework for Analyzing Strategies of Internet ServiceProviders Erik Wierstra, Gabriele Kulenkamff, Hans Schaffers. Netnomics: Economic Research and Electronic Networking Amsterdam: June 2001. Vol 3, Iss 1, p. 35