The News – 06/06/02
Broadband Content Wars, Part III
OK, I admit it. I stalled in writing this third installment.
The main reason for my reluctance is this: I don’t think there’s
any compelling need in the majority of Internet users to pay
$50 a month for a high speed Internet connection. That’s probably
not a very popular opinion, especially among the telecom crowd,
but it is one shared by an increasing number of industry analysts.
Broadband’s killer app has yet to arrive. You remember the previous
computing killer apps: VisiCalc (and then Lotus 1-2-3) drove
PC adoption; Solitaire drove Windows adoption (OK, I’m kidding.
MS Office was the real killer app.); the Mosaic browser (and
then Netscape) drove early Web adoption; email drove Internet
(as distinct from Web) adoption; and crippled email, known as
Short Messaging System (SMS), is driving cell phone adoption
The thing is, few of the popular applications
of the current Internet require much more than a 56Kbps modem.
Sure broadband would make everything that consumers like about
the Web happen faster, but there’s nothing really out there
that absolutely demands faster communications and justifies
paying twice as much for access. You could argue that music
file sharing services increase one’s appetite for bandwidth
but, let’s face it, despite the hysteria of the music industry,
ripping off music is not a common activity among the majority
of Internet users.
On the business side, there are some emerging uses that require broadband:
video conferencing, watching videos of archived events, and
the like. But broadband penetration in business is not really
the issue here. I don’t think the growth of business broadband
is going to be enough to stop telecom industry heavyweights
like Mike Volpi of Cisco and Rick Roscitt of ADC from whining
Content Wars, Part II for more details). No, the consumer
market has got to heat up for these guys to get well (and for
my @#$*+ Cisco stock to go up!).
So what’s the problem with consumers? Why aren’t they jumping on
the broadband bandwagon?
Part of the reason is cost. Fifty bucks a month is a lot harder to
justify than the $21.95 AOL charges for a modem connection.
“Anecdotal evidence from around the globe suggests that subscriber
growth only accelerates when the price drops below US $40/month,”
notes John Yunker of Pyramid Predictions. “Consider Deutsche
Telekom (DT). Since DT began offering DSL service at US $22/month,
it signed up 1.3 million DSL subscribers in 2001 alone. [. .
.] Compare DT with Verizon and BellSouth in the U.S., who both
charge $50/month for a DSL line - and, combined, added less
than 1.1 million subscribers in 2001.”
Hmmm. And the
major US broadband companies are actually increasing costs at
Despite the cost
problem, US broadband adoption has actually been fairly brisk.
The FCC reports that the number of high-speed lines increased
250 percent between August 2000 and June 2001 to 9.6 million.
Sage Research, in a report commissioned by Cisco, found that
44 percent of US households would be willing to pay for internet-delivered
entertainment services while 42 percent would pay for communication
services, and 39 percent would pay for education services. But
consumers are notorious liars when it comes to surveys.
SBC Communications surveyed their DSL customers, and found
them quite satisfied. A whopping 96 percent said they believe
DSL is the most important technology in their home. Most would
gladly sacrifice to retain DSL: 78 percent would give up their
daily newspaper, 74 percent would give up their radio, and
63 percent would give up their coffee. But remember, these
are the already converted, and they’re not the majority.
So what is the consumer’s killer app for broadband? What will it
take to ignite the rocket under consumer demand and return the
telecoms to the black?
I think it will involve video, both the movie and TV kind and the
video game kind. John Yunker agrees, saying, “Online
gaming is in fact one of the primary drivers of broadband uptake
in Korea.” Korea, with 4 million DSL subscribers, has the highest
broadband penetration in the world, partial due to the way the
Korean government has been actively engaged in bringing schools
and communities online, investing $7.5 billion in broadband
infrastructure over five years.
Korea is every telecom company’s favorite
example, because it shows how aggressive government policy
can spur broadband adoption.
Sure video games will help drive broadband adoption, but not without
the cooperation of the current gaming giants like Sony, Nintendo,
and Microsoft. And let’s face it, not everyone plays video games.
A true killer app has got to be used and useful to the majority,
not just thumb twitchers.
Hollywood movies or favorite TV shows on demand will also be big,
although broadband to the home is the least of the infrastructure
upgrades that will be necessary to support mass adoption of
Video On Demand (VOD). I personally think a distributed approach
to disseminating video, like that provided by Onion
Networks (inventors of Swarmcast), will be absolutely essential
to VOD becoming a mass phenomenon. Another key will be the adoption
of a less-than-Neanderthal attitude toward fair use and the
inevitable unfair piracy by Hollywood. I’m not holding my breath
on that one.
All these uses of video over the Internet will have their place in
driving broadband adoption. But I think home video will be the
true broadband killer app.
According to IDC, digital camcorder sales went from $6 billion in
2000 to $7.1 billion in 2001 and are expected to grow to $7.9
billion this year. The cool thing about these cameras is, you
can download the video to your PC, use an inexpensive non-linear
editing program such as Pinnacle DV Studio, Dazzle, or Video
Factory to tart it up a bit, and email the grandparents the
latest in your 2-year-old’s developmental saga. So for about
an extra $100, you can become a movie producer. And you and
your audience will need significant bandwidth for you to attain
the stardom you deserve.
When you think about it, home video has the same kind of appeal as
email, the perennial killer app. It facilitates person-to-person
sharing of thoughts, ideas, information and, most importantly,
stories. As a species we love to yack, and we especially love
telling each other stories. The way video and special effects
technology is progressing (see The 405, put together by a couple
of video professionals in their spare time with consumer-grade
equipment and software), you could rival George Lucas in a matter
of a couple of years.
Leave aside all the fancy effects and gimmickry – it’s all about
stories. Desktop video will allow the majority to easily share
their own stories, whether it’s baby’s first steps or avant
garde expressionist musings on the nature of life. For $600
you can be in show biz, and the Internet will be your theatre.
But that’s just my opinion, and I could be wrong. I’d like to hear
what you think will be broadband’s killer app. Send in your
ideas and I’ll feature them in a future SNS.