Demon: What is going on? - Analysis

A few years ago Demon led the pack. It was aggressive, talented and had a visionary leader at the helm. How times have changed. Jane Wakefield reports...

In the beginning there was one and its name was Demon, the UK's first affordable ISP. founded in 1992 and charging a modest £10 per month for Internet access it was the market leader.

Now there are many and Demon is just another ISP among PC manufacturers, football clubs, banks and electrical shops. Most of these new players are free, both of access charges and controversy. Demon is not. Just over a year after it was bought by Scottish Telecom -- stating categorically it would not join the ranks of the trendy freebies and balancing a high profile defamation case -- what is the future for Demon Internet?

It hasn't had an easy ride in recent months. The Laurence Godfreydefamation case has cast clouds and sent its PR machine into confused overdrive. Originally seizing the case, in which a UK particle physicist is suing for defamatory statements on Demon's servers, as a chance to champion the ISP community Demon promised to fight the case on the 'free speech' ticket. Unwittingly it had the opposite effect. The judge threw out Demon's defence of innocent distribution, setting a new precedent and heralding a new era for the industry where all ISPs risk being held liable for defamatory postings if they are aware such postings exist.

If this horrified the very community Demon was supposed to be championing, fall-out from legal battle also succeeded in alienating some of the company's most loyal subscribers.

Newsgroups resounded to the cries of 'hypocrisy' as users accused Demon of double standards. Complaining about the way Godfrey was attempting to gag the much-vaunted freedom of the Net was all well and good, but not when Demon had itself pursued a libel action against newsgroup user Neil MacRae three years earlier. The fact that eleven Demon users were prevented from posting stories on the Godfrey matter did not help. Neither did managing director David Furniss' comments to ZDNet News that the defamatory postings in the Godfrey case may have remained on its server due to an "administrative error". The ISP's defence was turning to debacle and users were questioning whether there was something rotten in the state of Demon.

Furniss has already admitted the defamation action is now a personal case between Demon and Godfrey -- so much for our Knight in shining armour.

One legal expert, David Swabrick of Swabrick and Co, is bewildered: "Demon is attempting to demonstrate, in a very expensive way, that it is not to be trifled with," he said. "Questions will be asked whether this is proper behaviour for a substantial public company and in what way this is intended to benefit shareholders." He likened the Demon versus Godfrey case to a playground fight. "Demon calls itself the champion of morality and yet is prepared to spend many thousands in a street fight." Estimates of the cost to Demon of the case so far is already in six figures.

Controversy aside, the changing face of UK ISPs has forced Demon to reassess its position in the market. As Freeserve hoovers up users by the second, even the mighty AOLis u-turning on its attitude to free access. A spin-off, almost certainly from AOL's newly acquired Netscape, will see the ISP dabbling in the free market for the first time. Demon, according to Scottish Telecom's director of interactive services Martin Higginson, will definitely not go down that path. "We are in the business of quality, not discounts," he stated confidently to ZDNet News earlier this week. There will be no free service and no free spin-off of Demon he asserted. But Higginson's projections for user figures are conservative to say the least. Demon currently has 291,000 subscribers and Higginson predicts 325,000 six months down the line, a growth rate of just 11 percent -- less than 6,000 new members per month. Hardly impressive.

James Eibisch, analyst with research firm IDC, didn't raise an eyebrow. He believes Demon has had its growth and will now concentrate on maintaining its core of serious home users and small businesses and, in the future, a back-end provider of DSL. The fact Demon was first to market, its base of computer-friendly early adopters, its branding and reliable service will stand the company in good stead despite the controversy maintains Eibisch.

The fact Demon has been taken over by Scottish Telecom will have inevitably changed the personality of the ISP, which it has, dramatically. However Eibisch thinks it is only by links with telcos that ISPs can survive and change is just a wound along the way. "Name one large ISP that is not part of a telco," he said. "Voice and data are converging and ISP/Telco deals are the future," he said.

The sheer number of ISPs in the UK now, will inevitably mean casualties and the extent to which Demon can ride the free access and Godfrey case storm will be tested over the next year. The fallout from both is yet to be counted.

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