A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of November 3, 1997

Volume I, No. XXXV

This Week's Clue: U.S vs. Microsoft

In the latest battle between the U.S. Justice Department and Microsoft Corp., most independent public opinion has lined up solidly behind poor ol' Bill Gates.

Zona Research's reasoning in all this may be the silliest. If Justice beats Microsoft, they'll go after Netscape next. Trouble is (beside the fact the analogy's stupid), you're left with no recourse for Microsoft's monopolistic practices of the last decade.

We can get our Clues here by looking at history. Justice has previously gone after two other technology companies in this way, first winning consent decrees, then performing endless litigation based on those decrees. (It's law as Chinese Water Torture.) The government lost its case with IBM after a 25-year struggle, but in the process IBM became bureaucratic, risk-averse, and lawyer-driven. (It also, coincidentally, became more Republican and conservative.) Stockholders lost. IBM became ripe for plucking by committed entrepreneurs like Bill Gates. Similar actions against AT&T resulted in the Bell System break-up of 1984. If you'd had 100 shares of T (that's the stock symbol) in 1983, you'd now have pieces of 8 companies (Bell Atlantic, Ameritech, BellSouth, SBC, US West, ATT, NCR, and Lucent Technologies), plus dividends galore - you'd be much better off. The original AT&T didn't fare well, and its Bell offspring remain Clueless, but that shouldn't blind anyone to the facts. There's more competition, and those who bought the stock made out like bandits.

So how can Gigadollar Bill win? By losing. Cut the baby in two - with one company geared toward operating systems, the other toward applications. The first would be regulated under a new consent decree and the second would be unregulated. The first could hike the price of Windows toward the $1,000 mark, the second might do just what Microsoft's doing now by adding functions to Office.

Microsoft's fear of this is based, in part, on a strategy of putting applications (like Web browsing) into the operating system, profiting from non-optimal code by making it mandatory. In theory a Microsoft OS company could do the same thing, but it would have incentive (legal and financial) to license parts from third parties and to make the whole thing more modular.

The current case itself is fairly obscure. Did Microsoft break a 1995 agreement, under which it changed some of its pricing for Windows, by adding Internet Explorer 4.0 to the bundle? I don't know, but it doesn't matter. The point is the government can do this again-and-again against Gates, as it did against IBM chairman Thomas Watson Jr. Like Watson, Gates doesn't want to be a Republican. Like IBM's rivals of the 1960s, Gates rival Scott McNealy doesn't like his protectors being Democrats. (Don't you love irony?)

Look at the media coverage from the 1950s to 1980s of the cases against IBM and AT&T. It sided, by and large, with the big company (read the big advertiser), against big, bad government. In the end, this didn't matter. Microsoft might win with an all-Republican government (hear that, Scott?), but such things never last in politics. The best deal for Gates' fortune is a break-up. (With the new mega-house and, finally, a private plane, I think he's finally figured out he's rich.) This is one Clue Watson never got, and his successors paid the price. Let's see how Bill stacks up.

SSP (Shameless Self-Promotion)

We're back and better than ever. This month starts our fall tour, with visits later this month to Comdex in Las Vegas, and next month to Internet World in New York. We'll see you there.

How do I stay in the know? Remember that it's Journalism -- checking the news, calling people, listening carefully, writing on deadline -- which keeps the clues coming, although I also handle consulting and commercial writing (ask about those rates via e-mail). (I've finally finished those features for NewMedia and Internet & Electronic Commerce Strategies ).If you're looking for excellent work -- like that found in my column at Atlanta Computer Currents or my regular work for Net Marketing magazine don't wait for the e-mail -- give me a call at 404-373-7634.

And now back to our show...

What I Learned On Vacation

My 20-year delayed honeymoon, which cancelled A Clue last week, brought some eye-opening surprises about how worldwide the Web really is.

We were hiking through a rain forest on Dominica when a veteran hiker asked our guide how he could find what other mountains he could climb on the island. He was referred to the island's Web site and assured "everyone at least has e-mail." They check it regularly and respond quickly. That day's paper featured the story of a young woman who had just returned from the U.S., where she received a degree at Southwest Texas State. She wants to benefit her country, she said, by doing something on the Internet. In Barbados, meanwhile, the man running our catamaran assured us that Internet access is "a mania," despite prices of $10,000 for a basic PC. Of course, Web browsers and modems are standard equipment.

Certainly there are exceptions. Our guide in Santo Domingo doubled his teachers' salary to $600/month, and if he could afford a PC its value would only attract burglars. To the people on St. Thomas, in the U.S. Virgin Islands, the Web is passe - they'd rather go sailing. But retired U.S. entrepreneurs there gotta have their Netscape, and they're busy building Web pages for everything in sight.

What's most striking is the intelligence, and the frugality, with which Caribbean people are using Web resources. They get their e-mail, change their pages, and suggest Americans surf to them. The Clue is you don't need a lot of money to make a lot of money on the Web. All you need is something to sell which people should want to buy.

Lessons From The Fall

The 1997 crash started in Hong Kong, then hit Silicon Valley like a tsunami. As predicted here, no buyers wanted to get in the way of a down-running freight train until it stopped, removing support from prices. But what goes down quickly can also pop-back quickly.

Is this a non-event? (No, it's a bear market.) The fact is, Far East economies are mercantilist: they need real structural reform to come back. Technology sales depend on Far Eastern buyers. The result of too-many sellers, with increasing desperation and not enough buyers, is deflation. If it happens then someone - maybe even the government - will have to step in and buy to halt the slide, something generations of U.S. politicians have been bred not to do. (I'm still predicting the second leg of the downturn will start with high-tech earnings disappointments - watch for it.)

What's your Clue for the Web? Here's where core values like frugality, value, and true friendship come into play. What's a true friend? Ask for a ride to the airport - a true friend will drop everything and give you one, while the rest are just acquaintances. What we all need now is a ride to the airport, and those who can should offer to drive.

Ready, SET, Don't Go Yet

Hewlett-Packard's Verifone unit last week rolled-out Version 1.0 of its SET-based transaction system, adding a list of payment processors who will support the system.

But look at the list carefully. The key U.S. processors - like Global Payment Systems , First Data Corp. and Vital Processing Systems are not on the list. Digital signatures eat processors like cruise guests eat canapes. They won't support it until they have to - until Visa makes it mandatory.

Your Clue, then, is to take note of this release, then forget it. SET will come -- it's a good thing -- but it will come far more slowly than its advocates realize.

I Know, But...

Here's proof of the limits of market research, something everyone with A Clue should be aware of.

ActivMedia last week released a study called FutureScapes, and among its findings is that "wired" people want to leave the cities. The result, the market research firm insists, will be mass flight from cities to farms in the early 21st century, reversing the 20th century trend.

Well, maybe. Certainly "nesting" families prefer suburbs, where they can get the white picket fence and feel safe. If we can get to Costco whenever we feel like it, a house on top of the mountain is a great dream. But I've observed other trends. Younger homebuyers - even those with modems - are buying inner city housing (replacing older minorities whose kids have gone to the suburbs). I wonder, after the kids are grown, how many of us will really want to be alone. I wonder whether oil prices will always be low. Buying the farm is a great dream when you're 30 or 40m, but when gas prices go up, when the kids are grown, when wired kids grow up, and your bones start to ache, I suspect cities will find a new purpose in life.

Former Atlanta Mayor Andrew Young warned me years ago we couldn't afford the city to become Disneyland. But I think that's what people who don't have to see each other at work want. People who need people are the luckiest people in the world.

Clued-in, Clueless

Clued-in this week (and I'm surprised I haven't said this before) is Andy Parker of Mercantec, makers of SoftCart, a Web shopping cart program. We'll just mention here their recent deal with American Express , to deliver complete Web store systems to businesses for $1,800. That's an important stamp-of-approval for a company that started small and stays smart.

Clueless this week is Norwegian Cruise Lines . The cruise itself was wonderful, but I found on returning home how bad my second-hand smoke exposure had been, so I went on the Web to send an e-mail. Guess what? There is no e-mail access via the Web site - not even a mailto: for the Webmaster.

A Clue...to Internet Commerce is a weekly publication of @Have Modem, Will Travel. It's sent free to a qualified e-mail list. Like Netscape Navigator, it carries a list price -- $49 per year. (Unlike Netscape, we don't expect you to pay it.)Subscribers can receive either a .txt file or an .htm file. The .htm version features links which become active when online with a browser, or an e-mail package like Netscape 3.0. (Let us know which you prefer.) To take your name off the list, simply write REMOVE as the subject, or content, of a message replying to this post. To request your free copy, write us at Dana Blankenhorn@worldnet.att.net. We're on the Web at www.tbass.com/clue and www.ppn.org/clue.