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30
The Internet—A Model: Thoughts on the Five-Year
Outlook
Ross Glatzer
Prodigy Services (retired)
We've heard a lot of statistics about the mushrooming growth of
the "Net." I believe it's much more than a fad. What I see on my
radar is a stunning social change as important as anything in this
century. You can see signs of it already.
•
One example is in the area of religion. Devout
people are increasingly sharing their faith online. They hold
religious services, complete with sermons and music. There are
online support groups for every need. By the turn of the century,
we may have tithing online by way of credit cards.
•
In politics, candidates now routinely debate
issues online. Citizens have been sending e-mail to their
representatives for a long time. Will it be that many years before
we have online voting? I think it could be available in a decade.
The only barriers are social, not technological.
•
Consumer access to online medical information is
growing rapidly. How long before you can buy prescriptions online?
Make medical appointments? Even get consultations?
Clearly, the online medium is taking to a much higher level what
started with radio in the 1920s—that is, the dispersal of
knowledge, culture, and democracy more directly into citizens'
homes. But, unlike radio—or, later, television—now it's
two-way. And therein lies the profound significance of this
trend.
I'm going to go out on a limb and say that I think the online
medium will become a mass phenomenon in 5 years, or very soon
thereafter. No, I don't predict that 100 million Americans will be
sitting at PC keyboards every night, squinting at their screens,
typing in URLs, and watching the hourglass while waiting for a
grainy picture of Jerry Seinfeld to paint—ever so slowly.
There's just no way, at present course and speed, that the online
experience will become the ubiquitous social glue that television
and movies are today. Online resources are too hard to use and too
expensive.
So why did I say this will be a mass medium? Because I don't
think it's a linear world, and we're not going to continue at
present course and speed. There's too much at stake and too many
smart people seeking breakthroughs. In other words, I'm factoring
in major advances—yes, advances in the underlying technology
and infrastructure, but also some major breakthroughs in the human
interface:
•
Something that will make going online as simple as
hitting the power switch on a TV set.
•
Something that will replace keyboards.
•
Something that will improve the resolution of
displays by a couple of orders of magnitude.
•
Something that will make navigation as intuitive
as dialing grandma's phone number.
NOTE: This paper is a transcript of Ross
Glatzer's remarks at the NII Forum, May 24, 1995.
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It's going to happen. Just look at who's working on
it—companies like AT&T, Microsoft, MCI, IBM, the broadcast
and cable networks, the Baby Bells, and many others, plus a fair
number of smart people in their garages or home offices.
But another type of breakthrough could be the emergence of our
industry's Holy Grail: the "killer application." It's happened
before without any change in technology. Sony came out with the
Betamax in 1975. Everyone thought then that the "killer app" for
VCRs would be time shifting. And VCR usage rose steadily—but
not spectacularly—toward 10 percent by 1982. That growth curve
closely parallels the experience to date of online services. But
something changed in 1982. Suddenly, mom-and-pop video stores
sprang up in every town. The "killer app" turned out to be movie
rentals. Within the next 2 years, home penetration of VCRs
approached 50 percent. So we could be nearing a flash point for the
online medium. All we need to do is make it easier to use and
figure out the "killer app." In my opinion, the ''killer app" is
communications.
Sure, I know, online services have had communications from Day
One. And these services are still a niche product. But consider
this: most online services to date have been built around
information, not around communications. That's turned out to be
backwards. It's backwards because all people communicate; but only
a small percentage of the population really cares about any one
topic of information—O.J. Simpson excluded!
Consider this. CompuServe has 2,000 categories of information.
But how many of those does the average member use? I know from my
experience that it's seldom more than four or five applications. At
Prodigy, there's a terrific feature called Strategic Investor, yet
only a small fraction of members subscribe.
Given these facts, anyone starting an online service today would
probably be advised to build outward from a rock-solid
communications core, optimizing everything for subscriber
exchanges. And you wouldn't just have bulletin boards, chat, and
e-mail. You'd have instant messages, 3-D chat, and easily attached
files for sound photos, video, and graphics. You'd also let
subscribers create their own home pages on the Web, where they
could talk about themselves—even show their cars. Prodigy will
do this shortly, and the other services will quickly follow.
After you'd established a firm core of communications, you'd
want to start adding information and transactions to it. But the
information and transactions would be tightly integrated with the
communications. That's important, because getting around online
services today is like being the guy who explains where he's
calling from by saying he's in a phone booth at the corner of WALK
and DON'T WALK.
The leaders in online services will be those who can best
integrate communications, information, and transactions. They will
build on a core of communications to create communities of
interest.
Let me give you an example. A company like Ford spends a fair
amount of money each year putting information online. So as a user,
I can navigate to Ford's advertising section and read about its new
cars. Even see photos of them. OK, fine. But how often am I going
to come back to see the same information? Now, if I'm interested in
cars, maybe I'll log on to a car enthusiasts' bulletin board. But
after a while, I'll get bored talking to the same old regulars. On
another day, I might order a subscription to Car and Driver
magazine right from my computer. The problem is, all these are
discrete activities that I carry out as an individual. They don't
create much excitement. They don't involve me very much.
But what if an online service creates communities of interest
built around world-class communication functionality? From a single
screen, or with hyperlinks, I can see Ford's cars, chat with other
car enthusiasts about them, debate with Car and Driver's
editors, download model specs, check the archives of the Detroit
Free Press for an article about Carroll Shelby, ask Shelby a
question, place a classified ad to sell my '67 Mustang, look up the
price of Ford stocks, buy 100 shares, and send an instant message
to a friend's beeper urging him to get online and join a discussion
group.
You can do all or most of this today on the online services. But
no one has done a very good job of integrating it to create true
communities of interest. That's what I think will make online a
ubiquitous medium. And if it is, can advertisers be far behind?
Advertising on the Web is a tricky business, however. Very few
advertisers really understand it. The environment differs from
other media and will become more different over the next few years.
It's an environment where the revenue model will become
pay-per-view—or pay-per-minute.
Today, for most users, the Internet is essentially untimed. And,
as a practical matter, so are the commercial online services, since
the majority of their users stay within the flat-rate time limits
that go with their
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monthly subscriptions. But on the Internet, people will not want
to subscribe to multiple features. They'll want to dip in and out.
And the information providers will oblige by making everything
timed, including ads. Very few companies will offer anything free
on the Internet.
So-called "free" applications on the Web today, things like
online newspapers and Time Warner's Pathfinder, are really just
experiments—beta tests, if you will. All these will be timed
when masses of consumers arrive. The implications for advertising
and transactions are profound. As commercial applications migrate
to the Net, they must change dramatically. Even the best of the
online service advertisers—and some are very good—must be
better on the Net, because most of their customers will be paying
for the time to view their applications. An advertiser or merchant
on a commercial online service today pays "rent" to be in the
service's ''mall." On the Net, advertisers will pay for the number
of "footsteps" across their thresholds—and the amount of time
those feet stay in their stores. This puts a premium on closing a
high percentage of sales. You must be a consummate retailer to
prosper.
And it's not easy. You can't just show up and be successful,
because your online customers are far more discerning than the
typical catalog or retail customer. They simply will not tolerate
anything but the highest level of service. Incredible service
explains why a few companies have prospered in an online arena
where many have not.
Take PC Flowers, for example. In the florist business, a 5
percent error rate is considered normal. At PC Flowers, it is
one-tenth of that. And they have a more complex business than any
florist. Needless to say, PC Flowers has a fabulous back-end
system, one that can easily handle more than $1 million in business
on Mother's Day. And on the rare occasion where they do slip up,
they move heaven and earth to make it up to the customer …
and the customer's customer. That's expensive. It's also
profitable.
The PC Financial Network is another online success
story—$2.5 billion in stock trades last year with an average
trade of $6,000. But to do that accurately, they've invested in 80
full-time employees on the back end.
So while it's easy to set up a business on the World Wide Web,
it's not going to be so easy to make it prosper in the long term.
You need to make major investments. Successful advertisers and
merchants understand this. They understand that information alone
doesn't cut it. It takes true relationship marketing. And the
relationship has to be based on communications.
If the commercial online services hope to retain these
advertisers—and with them, a key part of their revenue
base—they will have to change. One way they can change is to
become the preferred access providers to the World Wide Web. In
doing so, I think they will eventually have to give up the idea of
charging a monthly subscription for a defined collection of
content.
Users will pay a flat rate for access, billing, customer
services, etc. But they will select content seamlessly from
anywhere on the Net without caring or needing to know who is
integrating it. The online services will need to establish a
revenue model by which they receive a fraction of a penny every
time one of their users clicks on an advertiser's Net site. Thus,
Prodigy's home page might feature an ad pointing users to the home
page of PC Flowers. Netcom's home page might include a paid icon
pointing users to America Online. All kinds of synergistic
relationships are possible.
To summarize, here's what I see happening by 2000:
•
The Internet, especially the World Wide Web, will
become the communications/data transfer standard. It will be the
backbone for advanced interactive services, including TV
shopping.
•
There will be breakthroughs in ease of use and
input/output technology.
•
Commercial activity will be an important part of
the Web, but not as important as some people predict.
•
Advertising will be substantially more
sophisticated and will be communications centered. A click-stream
ad revenue model will replace display revenue.
•
There will be some consolidation of the online
services as we know them, although many companies will offer Net
access.
•
The online services will be forced to become one
with the Internet. Their ability to survive as distinct entities
and to prosper will depend in part on their success in creating
communities of interest.
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•
For at least a few years, the online services will
retain uniqueness in terms of structure, context, back-end
transactions, billing, customer service, marketing segmentation,
technology innovation, and distribution. But even these advantages
will fade over time.
•
Pricing pressures will be brutal. Consider that
only a few years ago, CompuServe could charge $22.50 an hour for
access at 9,600 baud. Today, it charges $4.80 while others charge
as little as $1 for access at 14,400 baud. This trend will
continue, which is great for the consumer, but ominous for the
online services.
•
More than 50 percent of American households will
be online. But many of them will use simpler access devices than
today's computers.
•
Like most successful trends, all these changes
will be driven by the competitive market.
And finally, if all this doesn't happen in the next 5 years,
just remember what Mahatma Gandhi said: "There is more to life than
increasing its speed."
Representative terms from entire chapter:
online service
