Five years ago, when the Internet was still in its infancy, Robert V. Johnson had a hunch. He figured that more and more folks would be traveling through cyberspace and they would need a way to get there. So Johnson opened Internet Specialties West Inc., a service provider based in Westlake Village. “We figured if we built it, they would come,” he says. To Johnson’s chagrin, they didn’t. Johnson, who is president and chief executive of the firm, was ready to close the doors when he met up with his current partner, Drew J. Kaplan. Together, the two repositioned the company to focus on the business market instead of residential consumers, and the company began to take off. That was 1997, when e-commerce was just starting to boom and business-to-business service was nowhere near as popular as it is today. “I saw that the company had the wrong focus, and I saw where the money was,” said Kaplan, who joined IS West as director of sales and marketing. “There was more profit on focusing on business-to-business.” A year later, annual revenue had shot up to $580,000, and in 1999 that figure nearly doubled to $1.1 million. This year, the company expects to record sales in excess of $2.5 million while looking for a new building to accommodate its rapid growth. As it turned out, IS West ended up in a segment of the market that is now growing at breakneck speed. “They were right on time,” said Greg Tally, managing editor of ISPworld.com, the Web site and business-to-business portal for Boardwatch magazine, a Golden, Colo.-based publication for the Internet service provider marketplace. “The research firm Data Monitor predicts that $89 billion will be spent worldwide on Internet access and (related) services for business over the next two years. Even if they’re capturing a sliver of that marketplace, they have an opportunity to do very well.” The old days Back when Johnson started, providers like America Online Inc. were signing up thousands of new residential accounts each day with an aggressive advertising campaign, while Johnson’s tiny company was running ads in local newspapers and waiting for the phone to ring. His service, designed by a consultant that Johnson describes as a “computer nerd,” was not nearly as user-friendly as AOL’s, and it was costing a fortune to offer technical support to the few customers the company had. Johnson, a veteran of the telecommunications and computer industries who had worked at Pacific Bell and AT & T; Corp., had met up with Kaplan through a supplier the two were acquainted with. Kaplan, an entrepreneur who began making spin-art T-shirts at the age of 16, had no experience with Internet technology. His most recent venture had been a pre-paid calling card company geared to the Latino market. He decided to close that operation because he didn’t have the capital necessary to expand. Despite his inexperience, Kaplan quickly realized that the cost of supplying Internet services to consumers was as high, if not higher, than the cost of supplying such services to businesses. But the revenues generated by business-to-business services could be higher. For one thing, businesses typically need a broader range of services, including Web-hosting and data retrieval capabilities to track e-commerce transactions, as well as e-mail. And they usually require faster connections provided through T-1 lines, which can be sold at higher prices and are more reliable than the dial-up service that most residential consumers use. That meant that by switching to business customers, IS West would be able to generate more revenue at a lower cost. “I may spend the exact same time on the phone with a (business) customer that’s going to spend $1,000 than with a (residential) guy who’s going to spend $30,” said Kaplan. “Since we figured that out in 1997, that’s all she wrote.” At the time, businesses had begun to exploit the Internet, adding e-mail for internal communications and Web sites to sell goods and services. “Why is it that ISPs continue to proliferate at 1,500 (providers) a year?” posited Tally. “It’s because this is such an incredibly lucrative market right now that plenty of people are willing to throw their hat into the ring.” There are 849 Internet service providers headquartered in California alone, according to Boardwatch, and small providers account for about 80 percent of that total. Though many smaller companies go out of business, many more are able to survive largely because the demand is growing at such a rapid clip. Accumulating accounts Rather than build its customer base from scratch, IS West went on a shopping spree to acquire other small providers. In 1998, the company acquired Channel Islands Internet, followed by the purchase of NC Plus and InfoSpec in 1999, doubling its customer base. IS West now boasts more than 3,000 accounts, typically small to mid-sized companies with anywhere from five to 50 employees. “We were lucky enough to find three ISPs at a level that were just eking out an existence (and therefore interested in being bought out),” said Johnson. “We had the staff and all the stuff in-house where we could move their stuff to our infrastructure and it added little cost.” The next step for the company is expanding its services to companies that want to host their own Web sites. Instead of using a host service, these companies locate their own servers at the Internet service provider, where they can plug into the connectivity infrastructure more cheaply than buying the equipment outright.