• by Paul Gough , January 14, 2004

Consolidation continues to be a major dynamic among Internet Service Providers, with the top 10 major ISPs accounting for nearly three of four Internet users but the top two--AOL and MSN--finding their market share sliding.

Those are among the findings of a study released Tuesday by Solomon-Wolff Associates, a New Jersey marketing research company that has been surveying online consumers twice a year since July 1998. The report, Consumerviews, not only measures ISPs but also use of wireless and other phone services, cable/satellite TV, and wireless Internet.

Solomon-Wolff Associates' study has tracked the seismic shift in ways that consumers access the Internet, which has taken place because of the move toward broadband. There were more than 1,200 ISPs in the United States in July 1999. Doug Solomon, a partner at Solomon-Wolff Associates, said most of the ISPs were small. But mergers, failures, and the consumer base's move toward faster connection speeds and better service has led to a shakeout in the industry. The study said that in 2001, the top 10 ISPs had less than half the market. Now it's almost 75 percent.

At the same time, the two biggest players have grown, but haven't been able to add to their market share. AOL and MSN had 41 percent of the market in January 2002; in July 2003 it was 35 percent. Solomon said that AOL and MSN have been losing out to other companies that have been providing broadband and what consumers perceive to be better service. The fact that both AOL and MSN offer broadband hasn't helped, with thousands of Internet users fleeing those services for other broadband providers.

Solomon said the strategy--as AOL announced recently--to provide a low-cost dialup service doesn't seem like it will work, given responses from the study's online population. "It seems like it's going in the wrong direction," he said. "There has not been a major gain in market share by companies that are offering lower-speed alternatives ... Low-cost AOL service is just not the right answer to that problem, from what the customers are telling us."

The study was conducted with 6,000 Internet users. They reported spending an average of $28.45 for ISP service, although AOL and MSN users said they spent at least 10 percent less than this price.

According to Solomon-Wolff's research, the top 10 ISPs in terms of market share are: AOL (25 percent); MSN (10 percent); Comcast (8 percent); Road Runner (6 percent); Earthlink (6 percent); Cox (4 percent); BellSouth (3 percent); and AT&T WorldNet (2 percent).