CASHING IN ON E-COMMERCE

Last week, PSINet continued its acquisition rampage by buying Transaction Network Services. The $720 million acquisition plants another seedling in PSINet's growing e-commerce timberland.

TNI's top bargaining chip was its transaction services, which will complement PSINet's Internet and Web site hosting offerings. TNI's core business is managing the network and applications for credit and debit card purchases. It processes more than 20 million transactions daily.

The point-of-sale division, which represents 72% of TNI's revenue, leads its market segment, supporting significantly more customers than Sprint and MCI WorldCom claim. In September 1998, TNI knocked out its primary foe, AT&T, by purchasing AT&T's transaction access service unit and has since posted a 70% market share.

One of TNI's first orders of business is extending online transaction capabilities to PSINet's customers. Only about 5% of PSINet's Web hosting customers have e-commerce capabilities, said Leo Imperial, e-commerce product manager for PSINet. TNI should be able to improve those numbers by acting as a gateway from the Internet to the credit card authorization processors. TNI provides connectivity to have credit and debit transactions authorized and settled.

TNI has seen its Internet transaction authorizing numbers leap recently, jumping from 4.5 million in March to 5.4 million in April, said John McDonnell Jr., president and CEO of TNI.

"In the next four or five years, 80% of commerce will be dependent on the Internet. This includes presales, orders, transaction, payment, delivery and tracking. We're talking many millions of dollars," said William Schrader, PSINet chairman and CEO. "We're now in a position to take advantage of that market on a global basis."

PSINet plans to bundle new Internet services to TNI's large customer base. In addition to its legions of point-of-sale customers, TNI has a division that caters to the financial services arena. More than 184 financial institutions use TNI's extranet to electronically trade large blocks of stock. In addition to PSINet Internet services, the acquisition will help these financial customers to expand into the Asia-Pacific.

TNI represents one step toward PSINet's goal of owning the entire e-commerce chain. "Enabling transactions is only one piece of e-commerce," said Jeanne Schaaf, senior analyst for public networks at Forrester Research. "Other parts include middleware, chat, e-mail, streaming video, business processes and applications, authentication, certification and integration to legacy systems."

PSINet isn't alone in its attempt to capitalize on e-commerce. Several carriers are attacking the market from different directions, but there are no pacesetters. "It's an immature market with no leaders. Competitors are scrambling to put the pieces together and develop business models," Schaaf said.

Last week, American Management Systems released a study that echoes Schaaf's perception of the carrier market. "We're seeing a variety of different parts of e-commerce, but no clear leader is jumping to the front," said Chris Tatem, chief eCommerce officer for AMS's Telecommunications Industry Group. "The good news is that there is tremendous opportunity for companies to exploit this market. No one has missed the boat."

With the TNI acquisition, PSINet has placed an integral piece - transactions - in the e-commerce puzzle. The ISP also has joined a number of the other pieces: global Internet services, a network with international data centers for hosting e-commerce sites, multimedia applications and authentication. As PSINet enters its targeted vertical markets, financial institutions and sports marketing, it can support its claims of electronically enabling a company's business supply chain.