OUTLOOK FOR CYBERSPACE
Welcome to the digital nation.
This is a quick tour of a country with around 50
million citizens and a population growth rate that dwarfs that of Zaire.
We'll take a look at the culture, infrastructure, and coming booms and busts
in the digital nation.
The week after the print version of Taipan's January
Forecast Issue went to press, all hell broke loose. The biggest news was
Apple confirming industry rumors with its US$400 million
acquisition of NeXT from prodigal son Steve Jobs. Its just like the people
at Infinite Loop, the worlds longest-running silicon soap opera, to go and
mess up Taipan's print deadline.
At least we have Taipan Online. This is the updated
version of the Outlook for Cyberspace from the print Taipan, substantially
revised from just a month ago. From now on, you can check out the web_head
section of this site for dispatches from the digital nation.
Surprises are no surprise around here, of course.
The Net has been around since the early 1970s, but the explosion began with
Tim Berners-Lee, who developed the Web protocol, and Mark Andreesen, who
cooked up Mosaic as an undergraduate at the University of Illinois.
Suddenly, the academics and comp.sci majors who
owned the Net were joined by publishers, pornographers, hucksters and family
albums put up by dorks from New Jersey with too much time on their hands.
Traffic exploded. The cost of moving around all the little packets of data
ballooned.
That's why 1997 will be the year in which the Net
begins to fragment. Already, universities in the United States have begun
to petition the government for an Internet II, something all their own that
excludes the carnival barkers who have muscled in on their little preserve.
The Internet Engineering Task Force (IETF) - the
Net's closest thing to a governing body - is hearing a clamor for new top-level
domains to supplement the jam-packed .net, .gov, and especially .com. Pretty
soon we might see ads for the website http://www.babes.xxx/ - unless political
correctness carries the day.
Also, we've seen a subtle shift in the nature of
the Net since the U.S. government - the Net's original nanny - began to
hand over control of the Internet's backbone to the telcom companies that
carry most of the load. As in most cases when government gets its nose out
of business, the results have been good. Capacity has surged, almost as
fast as traffic. Gridlock on the Net - like the mob that flocked to the
1996 Summer Olympics websites - results not from neglect but from surging
demand.
Hold your horses
Don't expect a complete meltdown. Scare stories
- such as last summer's America Online blackout - make headline news only
because the media who bring it to you are now heavily invested in the Net.
Remember the Internet
Worm? Of course you don't. Because
in 1988, when a Cornell grad student let loose a program that eventually
took down much of the Net, hardly anyone knew or cared. The worm infected
computers at universities, military facilities, and medical research labs.
It took anywhere from US$200 to over US$55,000 to disinfect each site. The
culprit was sentenced to three years of probation, 400 hours of community
service and a fine of US$10,050 plus the costs of his supervision.
Today, this kind of rogue hacker story would make
the front pages of newspapers and lead on CNN ... the guilty geek would
be hounded to the ends of the earth... and the cost would run to billions
of dollars. Except today it's not likely to happen. Random acts of incompetence
like the AOL fiasco can take down some neighborhoods, but the whole digital
city is now so distributed, walled up, and guarded that a conflagration
is unlikely.
Taipan won't indulge in Nicholas Negroponte-style pipe dreams about the Net as a techno-Utopia that eradicates
hunger and brings peace in our time. It's encouraging that news blackouts
from China to Chechnya have been subverted by some people with PCs and access
to e-mail. But what really matters is how the Net is finally beginning to
mint real money.
Looking back, 1996 was the year the Internet won.
Landmark decisions in U.S. courts upheld First Amendment protections for
on-line speech and overshadowed restrictive moves in the U.K. and Germany
- which, really, still amount to digital backwaters. The U.S. Supreme Court
will hear the Communications
Decency Act case in 1997.
Taipan predicts the court will uphold the rulings
of the district courts, granting First Amendment protection to on-line content.
This will help both Internet publishing and the purveyors of on-line content
filters like SurfWatch that are designed to let parents protect the kiddies
from digital sleaze.
The next Netscape?
Wall Street spent much of 1996 looking for the next Netscape. When
none appeared, investors got peevish and spent the latter part of the year
whipping Internet stocks like a red-headed mule.
Wake up, folks: there isn't going to be a next
Netscape, at least until the earth moves again in technology. Think about
it. Three years ago, no one expected this Internet thing. Everyone ... from
investors to geek gurus to "billg" himself ... got blindsided
by the whole explosion. And Netscape was at the center of the explosion.
The Internet and its related technologies are in
a consolidation phase. There will be winners in the next year, and Taipan
will let you in on them well before they show up on the general press radar
screen. But they'll be small companies with niche products, ancillary hardware
and software.
The decline of America Online
The Net also convincingly defeated the proprietary on-line services.
With the exception of America Online, the commercial services - Compuserve, Prodigy et al. - are dying of slow starvation. Even AOL's
future is uncertain, thanks to churn and mounting costs to acquire each
new member. That's why AOL finally broke down and gave members the option
of a US$19.95 monthly fee for unlimited service. Trouble is, that slaughters
AOL's cash cow, the user who happily racked up triple-digit bills hanging
out in chat rooms.
The engines behind AOL's growth - from one to six
million subscribers in two years - have been carpet-bombing the United States
with free software and a reputation as being more user- and family-friendly
than the big, scary Internet.
Apps like SurfWatch knock out the family-friendly
advantage. Mass mailings from Internet services like the Microsoft Network
and phone companies mean AOL's is no longer the only free disk in the mailbox.
On-line service and Internet access is rapidly becoming a commodity that
will most successfully be served by the software and telephone companies
that are already in the business.
The two lamest clichés in the entire
industry are:
1. Apple = Betamax and
2. The Web is the CB radio of the 1990s.
Cliché Number 1 is useless because
it's true: a superior technology that got there first and then was clobbered
by smarter marketing. Cliché Number 2 is a joke because, if memory
serves, corporations around the world did not spend billions of dollars
upgrading their mission-critical systems to CB radio standards. Nor did
major media companies spend gobs of loose change creating new divisions
for CB.
Ironically, just as AOL offered flat-rate pricing
for Internet access, several other providers began the move to metered use.
Giving heavy Internet users cheap, flat monthly fees is a losing proposition
for ISPs and telephone companies. The ISPs suffer already from the need
to buy and maintain the hardware to handle exploding traffic. Telephone
companies in the U.S. are waking up to the fact that Internet use - the
average user spends around 17 hours per month online - places a heavy load
on their circuit-switched networks.
Dial-up customers are beginning to hear a grating
chorus of busy signals on many of the larger services. While AOL users are
inured to lousy service, and may put up with access problems for the novelty
of flat-fee service, customers elsewhere will likely be willing to pay more
for consistent, reliable connections.
Taipan predicts a three-level field for Internet
access. Level 1 will be the giant services such as AOL and Compuserve who
provide clueless newbies (AOL) or time-pressed corporate customers (Compuserve)
with off-the-rack connections. Level 2 finds the existing local ISPs, many
of whom will begin to meter use like the AOL of old as they are squeezed
by lower margins and higher telcom costs. Level 3 will be an emerging market
for gold-plated services, providing more reliable dial-up and high-speed
connections at premium prices.
Homo ludens: Doom, quake, blood, and
guts
Much of the Wired magazine-style high talk about the Net ignores
the powerful demand for computer games. Net pundits focus instead on the
Internet as a post-nation-state digital Utopia of free speech and true democracy.
Don't hold your breath.
(Speaking of Wired magazine, Wired Ventures twice
backed off from planned IPOs in 1996. They have a great brand and a fat,
ad-laden magazine with ideal demographics to pay the bills. But the handwriting
was on the wall last year: Wall Street was on the lookout for Internet-related
punching bags, and at the end of the year Wired found a well of cash through
private investment instead. Given the climate of the times, it was the smart
choice.)
The Net is like any new medium in history, from
writing to motion pictures. It starts as the toy of a few obsessed geeks,
and moves on to satisfy mass demands that suit its strengths. Film was great
for escapist entertainment (and smut). The Web is great for computer games
(and smut).
Teenage boys' demand for high-powered gaming will
give a potent push to in-home Net access. The biggest games in the past
two years have been multi-player, three-dimensional splatterfests such as
Doom and Quake. With a little work you can play these games well over fast
networks - today, a fiber-optic hookup will do just fine. But not many places
have fiber installed.
The video game market will make it more than worthwhile
for phone companies to string fiber and muscle in on Nintendo's action.
It's all about bandwidth
Bandwidth is the term for the capacity of a given
line or network to move data. E-mail is already successful because text
uses very little bandwidth. A 14.4 kilobyte-per-second (Kbps) dial-up connection
will move company memos and flame wars just fine. The Web - especially graphics-laden
sites - thrives at faster speeds. Real-time, full-motion video, the kind
needed for multi-player action games, gobbles more capacity than most people
can afford now.
That will start to change this year. Cable modem
services - delivering speeds ten times greater than the current standard
28.8 modem - are in beta testing in several U.S. markets. Although the early
adopters will get cable installations going, their kids' hunger for networked
games will push them into profitability.
Gaming is the "killer app" of high-speed
Net access. (A "killer app" is something that motivates people
to use new technology: for the Apple II, it was VisiCalc.) Once high-speed
hookups are widely available, the next generation of video games will move
cable and fiber into millions of households.
Searching for search engines
Search engines - several of whose IPOs were greeted
in 1996 with Netscape-like fervor - are ripe for a shakeout. Some, such
as Yahoo! and Lycos, have already seen the handwriting on the wall
and are moving into the content business. Instead of a raw directory of
sites on the Web, they give users a dog-and-pony show in an attempt to set
themselves apart.
Taipan sees this as a desperate reach; these sites
are trying to bridge content and utility. Wired, CNN and Mercury Center (and lots of others) do content. The king of utility is Digital
Equipment's AltaVista, a sleek research tool. The AltaVista blimp over
Yankee Stadium during the 1996 World Series marked the arrival of search
engines as mainstream business. AltaVista will be a winner in the search
engine shakeout, by virtue of its technical prowess and the deep pockets
of its parent company.
On-line shopping
This other hoped-for killer app has soaked up billions
in investment with as-yet anemic returns. But this one will pay off sooner
than high-bandwidth hookups and real-time game play. That's because an entertaining
catalog - say, an L.L. Bean site with animations of contented yuppie types
canoeing the Maine wilderness - is already easy to do. No burst in bandwidth,
no leaps in standards needed.
The Firefly site is a sign of just how insidious marketing
on the Net can be. On Firefly, you enter your preferences for all kinds
of recorded music. A semi-intelligent agent then sorts through millions
of entries and pops back a list of records you might want to try. Of course,
you're now listed in a bulging database that can be borrowed or sold to
anyone with cash and a computer.
Spam - mass mailings on the Internet, to e-mail
boxes and Usenet groups - is the Stone Age of Internet marketing. What's
more, it runs into hostility among Net users. It's not unusual for a would-be
Internet tycoon who resorts to spam to get gigabytes of hate mail and random
junk (aka "mailbombs") fired back to his account. Disguising the
source address is generally useless because the most Net-savvy users are
also the most likely to take offense to spam and launch a counterattack.
Internet marketing will move toward slick, catalog-style
sites and the use of intelligent software agents. Bots, crawlers, spiders
- whatever you call them - will track you down the second you dial up. Check
out AltaVista's Usenet search, or Four11.com, for a peek at things to come.
Remember, these services are given away free, and you get what you pay for.
Internet shopping will take the slickest catalogs,
ones like Patagonia's that are halfway between catalog and magazine,
a step further. The real boom in Internet shopping waits only for a real
push from marketing - when the bandwidth dam bursts.
Parenthetically, this will make overnight delivery
services more indispensable than ever. FedEx already has one of the best sites on the Web,
because the company figured out early it was in the information business
as much as the shipping business.
Companies like Levi Strauss that already use information
technology to (literally) tailor products to the customer are also at an
advantage. The cost of marrying a slick Website to information-driven customer
service is a fraction of the possible return. Keep an eye on companies that
adapt early.
WebTV ... not to be
... for now, at least. A few manufacturers are
rolling out televisions that are Web-capable. The problem is that the Web
still resembles a print medium. Pages are designed to be read at arm's length
and at the much higher resolution of computer monitors. Delivering the speed
of video TV viewers expect will take more bandwidth than the average household
will have for several years to come.
Again, look for gaming to be the impetus for real
growth in WebTV-type devices. Taipan expects these machines will take another
few years to reach their potential.
The Web and television are currently at odds with
one another. On the one hand, there is the average Monday Night Football
viewer, who will be willing in a year or so to plunk down US$4000 for a
giant-screen, high-definition TV. On-line users, however, likely just dropped
US$2500 and up for a new computer.
The Taipan website is a perfect example. Our data
show that usage spikes on weekends and during evening hours - just when
Mr. Monday Night Football has control of the remote. That relegates Web
use to the family PC - until households are ready for the hardware and bandwidth
necessary for multiple HDTV/Web feeds. Given the steep price of an HDTV
for the next few years, and haphazard telcom policies in most nations that
will prevent deployment of truly high-speed connections to every household,
that will take some time.
The 500-pound gorilla
Rule #1: Never underestimate the power of Microsoft. This is the company that hoodwinked IBM, thrashed
Apple (not that that's a tall order ... more on that later), and is giving
Netscape nightmares in a market that Bill Gates discovered only a year ago.
Rule #2: Never underestimate the industry's hatred
of Microsoft. Many companies have all but made the destruction of Microsoft
their raison d'etre, from Apple to Oracle to Netscape.
The behemoth from Redmond, Washington, is not going
away anytime soon. In fact, some people have wondered how long it will take
Bill Gates to acquire a majority share in the United States, move the capital
to the shores Lake Washington and vote himself emperor for life.
On a recent trip to Seattle, we met several people
on a single flight who were moving to the Northwest as new Microsoft recruits.
Of course manpower alone won't assure world dominance.
But consider how quickly Gates turned his company
around once the Web took off. A year ago, Microsoft had barely taken notice
of the Internet. Today, the company has thousands of coders fiercely updating
Internet Explorer. The next release of Windows will not only include a Web
browser, but will in many ways be a Web browser.
Of course, Gates et al. are not infallible. The
company blew thousands of geek-hours on multimedia CD-ROMs, which not only
failed to live up to the hoopla but will be completely obsolete within the
year. No one is going to bother producing an artifact like the CD to publish
software once bandwidths become fat enough to let the same content be delivered
speedily from a website.
The regent of Redmond has made a smart move into
content: buying the Bettman Archive, launching MSNBC. Internet access is
ever more a commodity - that's why the Microsoft
Network morphed from an AOL-style
on-line service to a giant Internet service provider. Chances are Microsoft
will soon find little use for the Microsoft Network; it survives only because
Gates is obsessed with keeping his fingers in every electronic pie.
Microsoft is even making a run at UNIX, the bedrock
of the Internet. In 1996, for the first time, unit sales of Windows NT servers
surpassed those of UNIX. UNIX retains many advantages. First, it is making
the move to 64-bit systems while Microsoft is still working out the bugs
in its 32-bit system. UNIX is also far more robust than NT: big-league Websites
that take millions of hits per day must use UNIX. Experienced network administrators
have an interest in protecting their expertise with UNIX systems. Many programmers
revile NT - and Windows in general - as a miserable programming environment.
But NT holds a few cards as well. It is generally
simpler to run an NT server. Although UNIX has become a graphical OS, NT
seems more familiar to millions in a Windows-saturated world. And on small
to medium-sized servers, the performance of NT is nothing to sneeze at.
Finally, any flavor of Windows comes armed with the marketing power of Microsoft.
Taipan's 1997 Forecast:
Microsoft will move to complete its dominance of
the desktop, attack the enterprise computing market with Windows NT, and
attempt to absorb the Web within Windows 97. The scary thing is, they just
might win.
Microsoft stock has been teasing all-time highs.
It will not suffer much from any dip in tech stocks. Internet stocks have
been repeatedly hammered since Wall Street's initial blush of enthusiasm.
Microsoft has proven strength in proven technologies.
It's startling how nimbly - considering its size
- Gates & Co. turned to meet the Web explosion. However well-earned
its reputation for ruthlessness and derivative products, Microsoft has yet
to fall prey to the kind of arrogance that scuttled Apple.
Netscape and the ISPs
On 10 December 1996, Netscape inked a deal with
five U.S. regional telephone companies (the "Baby Bells") to make
Navigator the browser of choice for their on-line services. That is one
sign that Netscape can't yet be counted out.
The Baby Bells are in a prime position to take
over the U.S. Internet access market, both for businesses and consumers.
They have the technical expertise in high-volume networking.
They have marketing and customer service in place,
and they possess deep pockets. By comparison, the ISPs that have eaten a
good chunk of AOL's market tend to be mom-and-pop operations by comparison.
In 1997, many regional ISPs will make the move to high-end design shops,
offering corporations advanced Websites at an advanced price. Those that
fail to make this move will either fold or be reduced to the status of low-grade,
cut-rate BBSes.
Netscape's second smart move has been a big push
into corporate intranets. These might be the flavor of the month - or the
corporate standard for the next decade. Either way, as many companies move
to TCP/IP based networks to replace aging Novell systems, Netscape can reap
big profits by getting in first.
Unlike consumers, corporations tend to make huge
purchases, less frequently, and the real profits for vendors are made from
installation and support. If Netscape can grab a big installed base over
the next year, it will be secure until beyond the year 2000.
Chipmakers
The chip industry is enjoying the most favorable
book-to-bill ratios in a long time. (In January, the U.S. chip industry
announced it was abandoning book-to-bill in favor of unit shipments as its
preferred indicator. Most analysts, however, will likely cling to book-to-bill,
as it gives the only meaningful insight for future trends.)
Intel led the pack, finishing 1996 with earnings of $1.9 billion for
the fourth quarter, or $2.13 per share. The company gave 48,500 employees
a US$1000 bonus - on top of the twice-yearly bonus they already receive.
As of this writing, Intel was seeking a 2-for-1 stock split.
Although makers of the top-end silicon have fared
well, makers of humble RAM and other chips were crushed in 1996 by a supply
glut and the best memory bargains ever. They will rebound in 1997 as massive
new releases such as Windows 97 and ravenous new Net apps force business
and consumers to load their machines with extra memory.
Look for the continued emergence of fabless chipmakers,
who piggyback on the capacity of manufacturing plants without incurring
the gigantic construction costs.
There's been a lot of industry wag about the silicon
chip reaching its technical limits, or at least the point of diminishing
returns where the cost of building new plant exceeds the means of even the
biggest manufacturers. At the scale of the most advanced chips, quantum
mechanics take hold and individual electrons start to hop over circuits
like billygoats. It's not that the industry can't devise ways to overcome
this - rather, the manufacture of smaller, speedier chips may soon become
prohibitive.
Taipan sees two strategies emerging. Look for new
chip and computer architectures. The PowerPC chip, the baby of IBM and Motorola,
powers the machine on which this article is being written. Bit per bit,
it's a RISC chip more powerful than Intel's Pentium, which is just a smokescreen
for "son of 486."
Intel is pegging a lot of hope on the newly released
MMX (short for "multimedia extensions") Pentium chip. This enhanced
Pentium was designed to boost PC performance in handling audio, video and
3D features. Although tests show it delivers on the promise to some degree,
and manufacturers quickly adopted the new chip, Intel is simply wringing
more out of a creaking chip architecture.
Parallel and multiple processing will become mainstream
in 1997. There are several models on the market now - both in Wintel (Microsoft
Windows/Intel) and Macintosh platforms. Both the MacOS and Windows NT are
evolving to support multiple processors, until recently the exclusive domain
of high-end UNIX workstations.
Eventually, the stunning cost of advanced chip
lithography will lead to consortia among chipmakers. Taipan sees a sort
of Airbus of chipmaking, with design reserved by leading manufacturers who
jointly bear the multibillion-dollar cost of new plants.
Web at warp speed
The days of HTML as a tool for professional Web
page design are numbered. Even though it literally created the Web, Hypertext
Markup Language is a cumbersome tool that will diminish in importance. Loads
of kludges that have been cooked up to extend or improve it - cascading
style sheets, Netscape extensions, Adobe's Portable Document Format - are all signs that
the original language of the Web is dangerously over-extended.
HTML will survive because it is easy to use. For
reasons of cost, individuals and smaller companies will be glad to use it
as the basis of their Websites. The danger is for the standards now creeping
into use - Sun Microsytems' Java, exotic Netscape extensions, Microsoft's
ActiveX - to Balkanize the Web and ruin the open standards that made it
succeed in the first place.
Taipan is keeping a close watch on the standards
war, which will have a much more profound effect on the future of the Internet
than the much-hyped battle between Netscape Navigator and Microsoft's Internet
Explorer.
And Apple
Just after this article went to press, Apple finally
confirmed the rumors and bought NeXT from Steve Jobs for US$400 million. For the price
they got an operating system that never lived up to its promise ... and
they got Steve back, too.
Apple desperately needs an overhauled OS for the
Macintosh. The current MacOS is still more elegant and easier to use than
any iteration of Windows. But thats more a testament to the stultifying
mediocrity of Microsofts products than to any recent success from Apple.
Its true, as Bill Gates never tires of saying, that he and Apple ripped
off the same great idea: the graphical user interface developed at Xerox
PARC in the 1970s. But for years, Apple held the technological lead. Thats
no longer so certain.
Having gone six years without a major overhaul
- during which time the Internet and a slew of multimedia extensions have
appeared - Apple's System 7 is a morass of patches. The Mac crashes a lot,
and a crash usually takes down the whole machine.
Setting up a Macintosh for an Internet connection
is a perfect example of what's wrong with the MacOS. There are roughly a
dozen versions of the core Mac Internet software floating around out there,
many of them freeware packages written by non-Apple programmers in their
spare time. Getting them all to work together is a matter of trial and error.
Not that configuring Windows for the Net is a walk in the park ... but from
Apple, we expect better.
Late in 1996, Apple officially abandoned Copland,
the OS upgrade that had been in the works for at least two years. Instead,
Apple announced it would roll out two OS upgrades per year. The first -
System 7.6 - has actually appeared on time. Unfortunately, it offers none
of the features the Mac really needs, such as memory protection and true
multitasking. We've been told to wait for the upgrade due this summer.
What about the marriage of the MacOS and NeXT?
Unlike most of the chatterboxes you'll read out there, Taipan has actually
seen NeXT ... and it works. It is sleek, speedy, and easy to use. But it'll
take a pile of work to merge it with the MacOS. NeXTstep borrows a lot from
UNIX, including file extensions (the .txt and such familiar to UNIX and
DOS users) and other features that are alien to Mac users.
That might not be such a bad thing, though. What
advantages the MacOS retains are largely in the realm of design: the MacOS
is prettier and easier to use than any other. A shot of cross-platform compatibility
might be just what the MacOS needs to keep it alive.
The API (application-programming interface) for
NeXT makes programmers drool. That's important: developers will create apps
for a platform that is fun to use even when it doesn't always make the best
business sense. Legions of happy developers could keep the Mac/NeXT hatchling
alive long enough for it to earn its wings.
The most worrisome trend at Apple in the past year
has been the rate at which the company has been burning its once-formidable
cash reserves. Its stock price has been hammered, as much a result of the
gloating chorus of doomsaying press pundits as any real business troubles.
Its debt rating has steadily sunk.
Then there's Jobs. With a yet-to-be-determined
role at Apple, and a profitable Pixar on his hands, will the boy wonder find time for
his old/new company? You bet he will. Jobs is a flashy, emotional leader,
and he's carried a torch for Apple ever since John Sculley maneuvered him
out over ten years ago. Gil Amelio will have to keep a close eye on Jobs.
If the merger of NeXT technology takes on a leading role at Apple this year
- which it certainly should, for Apple's sake - we might see a reprise of
the Apple boardroom battle of 1985. Stay tuned.