Apple's ISP plan may hit the mark

Analysis Apple's emerging plan to break into the Internet Service Provider (ISP) business may well prove to be one of the company's shrewdest moves. Doubly so, it the suggestions that it also intends to recast its own Web site as an Internet portal -- a virtual gateway onto the Web -- turn out to be true too. Apple itself is keeping its cards very close to its chest. Last week, a company spokesman finally admitted that it is readying some sort of ISP offering. He refused to comment any further, but did hint that this month's MacWorld Expo show, to be held in New York from 20 to 23 July, might be a likely venue for the scheme's launch. But whenever Apple's ISP plans are revealed, it can't happen soon enough. The Internet is evolving rapidly as a medium for doing business, and companies -- PC vendors in particular -- are going to have to take a very close look indeed at how they use it. And, according to Intel chairman Andy Grove, business who fail to do so won't be around for very much longer. Speaking at the Los Angeles Times' Third Annual Investment Strategies Conference last May, he predicted that within five years "all companies will be Internet companies of they will be dead". The Net is becoming so central to the process of doing business that soon no company will be able to operate without embracing the Internet. In Grove's view, embracing doesn't just mean what so many companies have already done and use the Internet as a communications medium or as another way of selling products and services, it means making the Net the main interface between a company and everyone it does business with, customers and suppliers alike. Of course, Grove's comments about unwired businesses actually dropping down dead should perhaps be taken with a pinch of salt, but the thrust of his argument is undoubtedly correct. The Net has given business partners the means to monitor the progress of their partnership. We could be talking here about a Dell customer checking the vendor's Web site to find out how far down the production line his or her new PC has reached, or about a finance director seeing whether product shipments are being handled more efficiently by DHL or FedEx. In either case, the Net has enabled a whole new level of communication between each party. For Apple, the message is that while it has a solid Web site, providing useful product information, technical data and software updates, and the AppleStore to sell Macs direct to customers, it now needs to go further, not only to ensure that it's ready to operate in the online world Grove has predicted, but to deal with something that's likely to really hit its bottom line: budget-price PCs and, more important, Internet Appliances. Which is, of course, where the ISP plan comes in. So how would such a scheme help Apple? It's now well known that most buyers of consumer-oriented computers are doing so to get onto the Internet. Apple's own research suggests that over 80 per cent of iMac buyers saw Net access at the main reason for purchasing a computer. Bundling a modem is the most obvious way of facilitating that desire to get online, but since users will also require an ISP, why not bundle that too? Now, an iMac buyer can choose an ISP from a list presented by the computer's Internet Setup Assistant, but the process could be simplified even further if he or she could get connected to the Net straight away through Apple itself. For Apple, that makes good financial sense. If users are going to be spending $10 or whatever per month to one ISP or another, it may as well be Apple that takes the money. After all, that's why it launched AppleLink and, later, eWorld -- to cash in on the then emerging professional and, with eWorld, consumer interest in the online world. The downside here is that users, even new ones, don't like such choices forced on them -- unless, of course, it's free. This is where an ISP plan gets really interesting. If Apple is smart, it will ignore the short-term revenue gains and play for higher stakes by truly bundling Internet access -- free of charge. It sounds crazy, but there's a precedent here: UK ISP FreeServe. Launched last autumn, FreeServe's business plan centres on building up a massive community of users by allowing them to get online for free -- all they pay are phone call charges -- then selling advertising Web space to companies eager to target that community. Since FreeServe's inception, other free services have come online, and a number of older ISPs have switched over to the free subscription model. No wonder, then, that in just six months, FreeServe has built up a subscriber base larger than that of AOL UK. All this benefits Apple in a number of ways. Firstly, it makes the iMac a more attractive product to buyers tempted not by budget-priced machines from the likes of eMachines and the occasional 'free' PC offer. Longer term, these may not prove much of a threat -- what will, however, are the kind of machines AOL is planning: low-cost, own-brand Internet access devices. Essentially, we're seeing the Internet bringing online services and traditional PC suppliers together into a single market. AOL is increasingly moving towards hardware, and companies like Compaq and Dell have started to move toward online services. Apple's ISP plan would take it the next step along that path. So here's the plan in full: offer free Internet access to increase the number of people buying iMacs to get online. Next, the Apple portal provides them with a place to start surfing and forms them into a community that in turn attracts not only the advertising revenue that pays for the free Internet access, but product suppliers -- information vendors, software resellers, e-commerce outlets -- who couldn't hope to reach so many users on their own. In short, what we have is exactly what Apple tried to do with eWorld all those years ago, but failed because that plan didn't take into account the importance of the Web. This one does. It also positions Apple itself as a company that does something more than make computers, and, more importantly, provides the basis for the exactly the kind of killer Internet business Intel's Grove was talking about. ®