10 Things You Need to Know: Broadband's Benefits Cut Wide Swath for Net Outfits

Look for more companies putting up shingles along the high-speed online network byways.
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SAN FRANCISCO -- The interstate highway system triggered the development of cities, suburbs and businesses along its lonely stretches of pavement. In the same way, an explosion in high-speed online networks could mean a long-dreamt-of bonanza for Net content, services and applications companies this year.

Wall Street has shown that it's confident the networks are getting in place to make this high-speed Net access, called broadband, a reality for more consumers and businesses. Fiber-optic equipment maker

JDS Uniphase

(JDSU)

rose 850% in 1999, while

Covad

(COVD)

, a provider of digital subscriber lines, ended the year up more than 366% from its January IPO.

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Financiers and analysts figure 2000 will bring more gains to the smartest network builders. And the new broadband networks they build will allow services and applications to flourish. For instance,

J.P. Morgan

figures the U.S. broadband opportunity for infrastructure, services and applications will grow more than 30% annually to $100 billion by 2002 from $30 billion in 1998.

"We believe that bandwidth consumption will become the prime mover of an increasingly technology-driven economy," says Mark Langner, an analyst at J.P. Morgan.

Kong-Size Opportunity
Broadband and IP data services market projections

Note: Percentage change is from previous year. Source: J.P. Morgan Securities

The winners could include established companies like

Yahoo!

(YHOO)

,

RealNetworks

(RNWK) - Get Report

and

Exodus

(EXDS)

.

Yahoo!, for instance, is leveraging its purchase of

Broadcast.com

and reportedly developing a daily, two-hour live video program for the Net. And whenever Web surfers demand richer audio and video, streaming media leader RealNetworks stands to benefit.

Small Fry

And there are scores of small fry jostling to beat the bandwidth rush. The top names that analysts cite are

Launch Media

(LAUN)

, which creates music content,

Quokka Sports

(QKKA)

, which provides sports programming, and

EMusic

(EMUS)

, which offers downloadable music.

Hand in hand with content is advertising.

CMGI

(CMGI)

, which has assembled a band of online marketing and advertising companies, is well positioned here, analysts say.

"Advertising has been somewhat thwarted by narrowband," says Dan O'Brien, an analyst at

Forrester Research

. "Rich advertising would greatly increase the effectiveness of advertising."

More bandwidth also will help companies service consumers and businesses over the Net. "You've got this opportunity to deliver a whole range of services over this pipe," explains Peter Wagner, general partner with VC firm

Accel Partners

. "I think that this story will take root in 2000."

One good example is the application service providers, or ASPs, which allow people to use software without the large upfront costs. For instance, people could dial in to rent constantly upgraded

Microsoft Word

rather than keeping an aging copy on their PC.

Small Biz Goes Big on Broadband
Business broadband penetration projections

Source: J.P. Morgan Securities

Despite high start-up costs, software companies like

Siebel

(SEBL)

and

Oracle

(ORCL) - Get Report

have high hopes for the ASP model.

Sun Microsystems

(SUNW) - Get Report

, a star stock in 1999, is distributing its

Star Office

software over the Web. And

USinternetworking

(USIX)

is focusing on the support and distribution of enterprise software applications.

Bottleneck Breakers

Meanwhile, companies tackling the Internet's bottlenecks by routing, caching or storing data may be less obvious bandwidth beneficiaries. Pioneers

Inktomi

(INKT)

and

Akamai

(AKAM) - Get Report

have the advantage of an early lead. But there are promising newcomers.

iBeam

, a private firm, has set up a satellite-based network for distributing audio and video, and

Xcelera.com's

(XLA)

Mirror Image

, a content distribution and caching service, look good, says Peter Christy, a principal analyst with the

Internet Research Group

. (Christy has done consulting for both companies.)

Another promising entrant is

InterNAP

(INAP) - Get Report

, whose network of private Net tollbooths can send data along the shortest path across the Internet. "I think InterNAP will be great for things like chat or email," says James Callinan, portfolio manager of the

(RSEGX) - Get Report

RS Emerging Growth fund, which is long InterNAP.

And someone is going to have to manage that content. Web hosting companies like Exodus and

Digital Island

(ISLD)

, both of which store and maintain Web content and applications, will be busier as more bits move around the new networks.

Just as the interstates took decades to build, there will be plenty more broadband building down the road. "It's a bit of a misperception that we're going to arrive at broadband at a certain point," says

Munder Capital

portfolio manager Paul Cook. "The buildout is just starting."