Major brands ready to enter Internet market

Virgin has appointed Martin Keogh as marketing director of its Internet venture Virgin Net. The system launches in September.

Industry observers are already predicting that the Virgin move will hasten the arrival of other major branded players into the UK Internet market and spell danger for current market leaders such as CompuServe.

The Virgin service will deliver home shopping, entertainment, with a heavy bias toward music and film, and other as yet unnamed information services. Virgin is working with software companies CableTel, BroadVision and Oracle, which will deliver the separate parts of the technology, to put the network in place to target both domestic and business users.

As major telecom companies or news groups take a greater interest in the Internet, the current leaders begin to look like minnows in a tank full of sharks.

Significantly Keogh comes from a telecoms background, having worked for Orange and Motorola.

“In about 18 months to two years the Net will begin to reach critical mass and then I think telecoms or bigger branded players will buy these smaller companies,” says Patrick King, partner in accountants Price Waterhouse. “These larger companies simply have bigger pockets than existing players.”

Keogh believes the timescale will be longer but the result the same. “There will be some consolidation in five years’ time when medium-size players could find life difficult. There will always be a role for niche players but that is not where we see Virgin.”

A CompuServe spokeswoman says it is pinning its hope on market expansion: “It is like the mobile phones market when bigger players came in and took share but actually expanded the market.”

The number of Internet users in the UK is small and hard to assess, but a figure of between 1.25 million and 3 million people is generally accepted.

Similarly estimates on how much the business will be worth vary wildly. IBM says 200bn worth of business will be conducted over the Net by the end of the century. Price Waterhouse puts the figure at 7bn.

Simon Gray, sales and marketing director at the Express newspaper-owned new media company Oxford Information & Technology, claims that although online services have only been running for a few years they are already becoming less profitable. “When the telecom companies come in, it will make things very difficult,” says Gray.

One analyst welcoming Virgin’s arrival says: “Virgin is the sort of name you want to come into the market to test how mature it is at this stage. But I don’t see it staying in for very long. It is the sort of company that will build a business like this and then sell it on.”