by Dana Blankenhorn
Volume III, No. VII
For the Week of February 15, 1999

This Week's Clue: Broadband Myth And Reality

This Week's Clue: Broadband Myth And Reality 

SSP (Shameless Self-Promotion)

Build Them Up, Tear Them Dow 

How Washington Becomes Relevant 

Figuring Out Microsoft 

Clued-in, Clueless

The broadband era arrived here a week ago after two BellSouth technicians (with some help from a supervisor) spent 4 hours installing an ADSL modem on my main phone line. The new box is not only rated at 1.5 Mbps, it runs alongside my regular phone service. (Call me while I surf.) 

What you'll learn when this arrives at your home or business is 1.5 Mbps isn't 1.5 Mbps - not on the Internet, anyway. You get the best speed only when downloading a continuous file, and even then the best I saw was just 150 Kbps, not 1.5 Mbps. Moving between servers and waiting for ads to arrive is just as slow as with a modem. If you jump among sites a lot (as many journalists do) you'll still require patience. On the other hand, my 7-year old son was able to download a 2.5 Mbyte game from CartoonNetwork.Com in less than 30 seconds. 

There are things you can do with broadband you'd never do with a modem. I thought nothing of watching that Victoria's Secret fashion show. (It was incredibly overrated.) RealMedia, not just for audio but for video, becomes practical, although it turns out the pickings are still rather slim. Since the ADSL modem is always "on," - it's like being on a Local Area Network - Netscape is nearly always running on my desktop PC. 

That's it for the good news -- now for the bad news. Broadband will take a lot longer to happen for most people than even I thought. Mine was a simple installation, but the technicians had to visit my basement to make sure I had a direct link between the box outside my home and the line near my PC - a "home run" my Bell-head called it. The technicians had to install a network card inside my PC, and their server went down when they tried to get my service started. I asked the supervisor as he left how many of these installations they could do a day, and he said that while they'd like to do 2.5, they usually just do two. Do the math on mass deployment - BellSouth has over 10 million lines in its service area. Oh, and BellSouth.Net can still only handle 8-character e-mail addresses, so my e-mail is still coming in via modem.

Cable operators have even bigger problems. TCI didn't put fiber into its network on its own because the cost was prohibitive. Even when AT&T does spend the billions needed for TCI's fiber network, consumers will see service degrade with each neighbor who gets the service. The fact that AT&T is insisted on monopoly status before making the needed investment means this whole thing could be held-up further.

Now the Bells have said rival ISPs can have access to their networks and provide ADSL. In practice there is as-yet no alternative to BellSouth's service in my neighborhood. (Mindspring, for one, wants to offer ADSL under a single standard, and smaller ISPs who've investigated the needed access to BellSouth's switches in Georgia have found the cost of actually competing is prohibitive.) BellSouth is also scared of this genie. They'll only let consumers link a single PC client to ADSL - no in-home networks.

Finally, the impact of broadband on my life has been less than I anticipated. I don't spend more time online than before. I don't spend more money at Web sites than before. I will be spending a lot more for my Internet access than before -- $60/month on top of my current $20/month AT&T ISP service. (I'll even be stuck with AT&T after my e-mail goes into my desktop, because I need local nodes when I travel to trade shows.)

What does this mean? It means the mania over Internet broadband is based on nonsense. Internet broadband will remain a niche market for years, except in offices and other institutions that can afford their own big pipes. It's also likely that Internet broadband is overrated. The broadband revolution is a question of decades, not months, and that's news you can build your business plan around.

SSP (Shameless Self-Promotion)

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Now back to the show...

Build Them Up, Tear Them Dow

It was inevitable that Amazon.Com, having risen so far so fast, would face concerted attack from the media. No matter the field - politics, sports, entertainment, business - those we build up we next seek to destroy.

Still, the ammunition fired against Amazon last week was impressive , and it should cause great disquiet at eBay , Yahoo, and other high-flying Internet companies. "The New York Times'" front-page story accused Amazon of selling recommendations on its "New and Notable," "What We're Reading" and "Destined for Greatness" pages for $5-10,000 each. (Amazon now says it will stop doing that this month, and it never sold a recommendation on a bad book.) The charge goes to the heart of what makes Amazon different from, even better than, Barnes & Noble or Borders. (Wait until I show them the spam I've gotten in the last few months that claims to come from Jeff Bezos, which makes specific purchase recommendations, and obviously comes from the Amazon marketing department.)

There's an important Clue here for your site, one I first heard from George Shultz, Secretary of State in the Reagan Administration. "Credibility is the coin of the realm," he said. The fastest way to lose credibility is to get caught selling it. Since its high a few months ago, the value of Amazon.Com has nearly been cut in half, to about $100/share.

How Washington Becomes Relevant

It's easy to make arguments, either way, over Internet pornography, the anti-abortion "Nuremberg Files" site, or even a business issue like Internet taxation. But not all the Internet issues in Washington are so obvious or clear cut, yet some are far more important.

Here's an example. Senate Judiciary Committee Chairman Orrin Hatch is leading a push to give database compilations copyright protection equal to that of the data contained in them. In the case that started this, Feist Publications Inc. vs. Rural Tel Service Co., the Supreme Court ruled in 1991 that "white pages" directories couldn't be copyrighted. This stripped phone companies of their ownership over your phone number, creating a new industry in copied listings. On the other hand why should any company go to the expense of organizing and archiving public or private records without rights to the compilation?

Your eyes are glazing over, aren't they? The issue is complex, and there are good arguments on both sides, aren't there? That's the business problem faced by everyone in Internet Commerce today, because it's in close, complex cases that the real work of lobbying occurs, and where the real mischief is done. Before marching into battle, we need to know where we stand, and why. We need to know, in detail, where our bottom line lies when things get complicated, and be prepared to fight on that ground, not just in the hallways but on the hustings as well.

Until the Internet industries are willing to make that kind of continuous commitment to Washington, they'll continue to get rolled by complexity.

Figuring Out Microsoft

While Microsoft's attention has been distracted, defending lies (we're not a monopoly because we might not be one forever) in a Washington courtroom, the whole company has lost is swerve. Outside its monopoly holdings in Windows and Office, things aren't that rosy in Redmond. Its big stake in the CD-ROM business is worth little in the age of the Internet, and that business isn't going well, either. Not by the standards you need to see to justify a $150 billion outfit's investment (and that's a low estimate of its market cap).

MSN is in a dogfight with start-ups Earthlink and Mindspring for third place in the access market, its MSN online services have had more managers than Steinbrenner's Yankees (before Joe Torre), and its lawyers are looking like House impeachment managers.

So what's Big Green done about it? It bought a lot of ads , asked the court that dissed it on Java if it can still copy the functions "pretty please" , and signed some deals with Altavista that look suspiciously like a creeping takeover . Oh, and they had a big re-org.

The real problem is one faced by Peter Lynch at Fidelity years ago, one that eventually caused him to start doing TV commercials. As you get bigger, it gets impossible to disguise your moves, to make a big hit for earnings, or to keep control of the whole. Fidelity eventually closed Lynch's Magellan fund to new investors, brought in a host of new managers to take the clients' money, and made Lynch a corporate spokesman. Microsoft needs some new entrepreneurs, but its legal troubles keep turning its executives into bureaucrats. I suggested over a year ago that breaking up this company would be in Gates' best interest. I herewith repeat the suggestion.

Clued-in, Clueless

Clued-in is Robert Davis of Lycos and anyone else who does the math on his deal to sell Lycos for 30% of Barry Diller's USA/Lycos Interactive Networks Inc. unit. Diller takes the headlines, but it's Davis who becomes chief operating officer of an $18 billion business, with billions in sales and hundreds of millions of dollars in annual profits. (Davis says Lycos' total revenues are under $100 million.) If this bursts his rivals' stock bubbles, so much the better. It's clever, as Davis himself might say, "on every level."

Clueless is IBM's "Madison Project," aimed at selling music files while protecting copyrights. MP3 is the Internet's cassette tape, and a CD or record standard would be welcome. But this is not it.

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