[FYI] (Fwd) Article: Closing the Scissors Crisis of Internet Acc

[Horns@t-online.de (Axel H. Horns)]

------- Forwarded Message Follows -------
Date:          Mon, 18 Jan 1999 16:54:27 -0500 (EST)
From:          Andy Oram <andyo@oreilly.com>
Subject:       Article: Closing the Scissors Crisis of Internet Access and Content
To:            gilc-plan@gilc.org
Reply-to:      gilc-plan@gilc.org

This opinion piece appears tomorrow in the American Reporter (go to
http://www.american-reporter.com/ and look under "Ideas and Columns")
and will be found online (along with suitable hypertext links and an
index of related articles) at:

  http://www.oreilly.com/~andyo/ar/provider_prediction.html

The article can be redistributed online, with author and newspaper
attributions intact, for non-profit use.  For printing or commercial
use, please contact Joe Shea, publisher of the American Reporter, at
joeshea@netcom.com.

---

      CLOSING THE SCISSORS CRISIS OF INTERNET ACCESS AND CONTENT
                             by Andy Oram
                    American Reporter Correspondent

        CAMBRIDGE, MASS. -- Your Internet provider may offer a whole
new kind of contract a few years from now, to solve the pricing and
funding squeezes the Internet industries are experiencing. A
combination of problems in bandwidth and in Web site promotion could
be cleared up by a restructuring of the industry.
        I started to think about this possibility several months ago
when I saw the prices for the kind of high-bandwidth access that cable
and telephone companies are offering.  Everybody wants better graphics
and audio, and someday the Internet will even offer video. But the $40
per month or more that you have to pay for cable modem access or ADSL
is simply more than Internet access at any speed is worth, unless you
are telecommuting or running a business that depends on the Net.
        Prices are starting to come down in a bidding war for early
adopters, but they can't stay down for long. The costs at the
provider's end -- upgrading lines, putting in switches or routers, and
so on -- requires high prices on the user ends. And as more people
sign up for access, congestion will force even more investment in
switches and routers.
        Meanwhile, a very different funding problem is plaguing
companies at the other end of the TCP session -- the large portals,
news channels, and other content providers that are trying to develop
loyal followings.
        It's no secret that the portals are having trouble making a
living. Content costs money, even though portals have no paper, ink,
or shipping costs. Nearly every commercial site now offers
advertising, but hardly any get enough revenue from selling ads to
support the site.
        What do these two problems have in common? Nothing, except
perhaps a solution.
        This week's column is speculation. It's based not on any
changes I observe in the industry currently, but on my guess that the
pursuit of solutions will lead Internet providers and content
providers to an entirely new pricing and funding model.
        If they don't find a way out, most Internet users' future may
be very restricted. Cable companies are gobbling up Internet users
with unbeatable prices and speeds for cable modems. When the customers
sign up, they are captive to the cable company for their Internet
access. And this company further directs them to a hand-picked portal
where it tries to entertain them with carefully selected content.
        I'm not going to predict whether the small Internet provider
will survive or how the telephone companies will fare against the
cable companies. My only interest today is in what kind of deal the
home user will get, whoever wins.
        The germ of the providers' contracts could ultimately come
from what portals and advertisers are doing to improve the
effectiveness of advertising. Unsatisfied with clickthrough rates,
they are exploring all the snazzy technical means that computing
technology makes available to target customers better.
        Some search engines dog you like you were carrying top
sirloin. I had fun looking back at this scrutiny recently when I
helped my mother search for information on a medical condition online.
        With every selection we made, a new set of ads appeared, and
at each step the search engine was clearly trying to figure out what
kind of person my mother was and what she'd be interested in. I knew
we must have been getting pretty nitty-gritty medical information when
an ad came up for medical journals.
        I don't know what kind of impression my mother left and
whether she'll be hearing from her insurance company, but I expect the
information that the portal thinks it knows about her will last far
longer than her presence online.
        Since I'm not pretending to humility this week, I will boldly
suggest that the search for Total Knowledge of the consumer will fail.
There are just too many sites, and people jump around too much. Even
when sites combine their knowledge by sharing databases (or using a
service that automatically combines information, like Doubleclick)
they will never gather enough information on each person to know what
he or she wants to buy.
        Furthermore, people are getting fed up with the invisible
spies. Government is starting to intervene, forced tortuously along
the path toward privacy protection despite the clear ideological bias
against regulation in the United States.
        But people may feel differently about entrusting personal
information to their Internet provider. The provider is not going to
persecute them for political beliefs or withhold medical treatment. If
it promises to keep their personal information confidential, signing a
thousand forms and swearing by all that is holy and some things that
are not, customers may just possibly be willing to fill out a card
about their demographics and interests.
        The incentive to relinquish privacy, of course, would be a
reduction in the cost of service. That fast hook-up that costs $60
today may come down to $50 or even $40 (I don't claim to know the
micro-economics of direct marketing) if the Internet provider can get
revenue from advertisers.
        Wouldn't it be more efficient to keep information about a
customer at the Internet provider through which all data comes? Every
advertiser could contract with the Internet providers, instead of
today's portals, to show ads to people who have previously expressed a
preference. Internet providers can also refine their knowledge of each
customer by tracking what ads lead to actually clickthroughs or
purchases -- all without giving a single byte of customer information
to the advertisers.
        This model has been tried before, of course. Proprietary
services like Prodigy had ads many years ago, and many people found it
annoying.  But with a high-speed connection costing three times what
the old Prodigy service used to, customers may be willing to swallow
their annoyance.
        Should Internet providers start handling ads, what happens to
the current crop of famous portals? A curtain may best be drawn over
their fate. Futurists have been predicting for years that the Internet
would cut out the middleman, so the portals' attempt to create a whole
new industry of middlemen is swimming against the stream.
        I won't say whether the model I've predicted is good or
bad. If it represents the best way out of the scissors crises I've
described in Internet access and content, it may simply be one of the
options offered by Internet providers and advertisers. I just hope
that I can find a place for my own content-generating skills, whatever
the industry chooses to do.

                              -30-

<b>Andy Oram is moderator of the Cyber Rights mailing list for
Computer Professionals for Social Responsibility, and an editor at
O'Reilly & Associates.</b>

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