============================================================================= Seidman's Online Insider ============================================================================= Weekly Summary of Major Online Services and Internet Events ----------------------------------------------------------------------------- Vol. 3 No. 3 January 21, 1996 =============================================================================  Copyright (C) 1996 Robert Seidman (robert@clark.net). All rights reserved. May be reproduced in any medium for non-commercial purposes so long as proper attribution is given.   IN THIS ISSUE ============= -Notes from the Editor -Internet vs. Online Services -Some Interesting Predictions -Will Off-line Online Be The New Rage? -More On CompuServe Newsgroup Censorship -Java Saves Prodigy? -Stock Watch -Disclaimer -Subscription Information  Notes from the Editor =====================  In last week's report in defining the FIND/SVP study's universe of 9.5 million users, I broke it into 8.4 adults and 1.1 million children. Some wrote to say that sometimes it seemed like there were only 8.4 adults, but that there were probably 8.4 million adults. C'mon, you know what I meant! Seriously though, I'd like to thank Dan Campbell who is the director of the Emerging Technologies Group at FIND/SVP. Dan was very helpful in explaining some of the aspects of the study, and I'm sure I'll be writing more about it in future issues. More information on the study is available on the web at: < http://etrg.findsvp.com/features/newinet.html >.     Internet vs. Online Services ============================  I'm often asked "will the Internet kill the commercial online services?" Perhaps the better question is "will the media kill online services?" Many are predicting the imminent death of the commercial online services. Will the model die? Someday, I have no doubt that the pricing model will have to change drastically. But the best forecast for this year is that CompuServe and America Online will be a lot bigger by the end of 1996 than they were at the end of 1995. For more on this, see my "connected" column on c|net at: < http://www.cnet.com/Content/Voices/Seidman/011596/index.html >.  This week, the Wall Street Journal ran a story on why people are shifting away from the commercial online services and switching to Internet service providers. This no doubt happens and happens often. Still while numerically those switching might add up to a big number, they're not indicative of the gigantic sucking sound, followed by massive busy signals and system problems you'll be aware of when all the users of commercial online services shift to Internet service providers.  It has to do with markets and market segments. There's this big market of people that want to connect. Some are tremendous computer enthusiasts. Some are tremendous Internet enthusiasts. Some log on once a day for 5 minutes to send their mom an e-mail, while others rarely log on at all. Some want an easy to use service with a lot to offer, and others want to surf all day and all night without having to pay very much for it.  If you want all you can eat for one low price, than the commercial online service isn't the place to be. If your usage is occasional, or you're just starting out, the commercial online services are an easy way to go. In the case of America Online and CompuServe, we know (because they tell us) that most of the users, anywhere from 50%-70% depending on who you talk to, don't use the 5 free hours of service. There are a lot of users using more than the 5 free hours though, and these users drive up the average time spent online to about 6-8 hours per month, on average spending about $17-$18 month in the case of America Online.  You can scream all you want to about how for about the same price, you may be able to find a flat-fee based Internet provider. That may be true, but for everyone using less than say, 10 hours per month, there's no real advantage to switching. As a percentage, the people using less than 10 hours a month make up what I'd estimate to be at least 80% of the current commercial online services market.  So what about the other 20%? $20 for 40 hours probably takes care of most of the other %20. For them, Netcruiser or GNN style services are a good deal. For the vocal minority that's online all the time, there's only one way to fly the flat fee service.  Recent studies have clocked average Internet usage at anywhere from 5.5 to 6.5 hours per *week*. If you take America Online's revenue from online services and you divide it by the average number of subscribers for the period, you'll come up with something on average closer to 7 hours a *month*.  In a recent executive poll taken at the Interactive Service Association's conference held last week in Florida, 54% of those polled said the top barrier to widespread consumer adoption of interactive services was "lack of perceived need". Only 3% cited cost of the services as an issue. If you buy into "lack of perceived need" as being the biggest barrier, and I do, the bigger issue for online services and Internet providers isn't whether there will be a giant shift away from the commercial services to flat-fee Internet services, but it's coming up with cool things to get people online in the first place and then keeping them there.    Some Interesting Predictions ============================ I refrained from making predictions for '96, simply because I get enough e-mail as it is! In my recent c|net column though, I fly in the face of the Wall Street Journal article and c|net's editor, Chris Bahr, who predicted a rocky road for AOL in '96. I don't think so, sorry. But, enough about me, I want to talk about International Data Corporation's (IDC) predictions for '96.  If you surf on over to < http://www.idcresearch.com/96pred.htm >, you'll see some interesting predictions by IDC analyst Frank Gens. I'll share some of them here.  Mr. Gens predicts that '96 will be a year of disappointment and retrenchment in the development of the electronic marketplace. Gens also forecasts that 1996 will be the year of the Internet shifts away from "intoxication" mode to "hangover" mode. Gens says this will linger into '97.  Gens says investors and corporations will be disappointed by slow growth in the consumer base for online commerce. He also points out that there will be disappointment over the results from some of the "high flying" Internet suppliers. He cites Netscape and says, "Do we even bother predicting lower-than-expected results 1996?" He also says that 20% of Fortune 500 companies will have either stabilized their Web sites or shut them down altogether.  But this was my favorite Gens' Gem:  "The growth in online subscribers will continue to be very strong, but there will be an underlying high turnover rate as users who are underwhelmed by the 1996 content on the Web cancel and turn on their TVs."  *Cheap Internet Appliances*  Gens also predicts that the cheap Internet appliance will be built, but that it won't be $500, but will be priced somewhere in the $100-$300 mode. We should note that Oracle announced they would deliver their first Internet appliance (network computer) in 3 months and is still clinging to the $500 model. The gaming industry is already slicing into this market, Gens says, and cites announcements from Sony and Nintendo on $100-$250 devices that will make their game systems Internet ready. Within two years Gens says these devices will become giveaways by companions that want you to use them for access.  *Content vs. Access*  Gens predicts that the commercial online services will shift from content aggregators to access providers and that 50% of the revenue these companies generate by mid '97 will be from providing access to the Web. Gens says of AOL, CompuServe MSN and Prodigy, that two out of the four companies will have a difficult time making it through the transition.  *Cheaper ISDN*  Gens predicts, that competition from the cable industry via cable modems will drive the price of ISDN down.  *Nice Future*  As Yogi Berra might have said, "the future is in front of us."  While '96 may be the year of the Internet hangover, the prognosis from IDC for the future is still good. By the year 2000, they say, electronic commerce will hit $150 billion. By 2010, they predict that there will be over 1 billion people "wired" and that electronic commerce will generate one trillion dollars in revenue.  There are many more predictions, so be sure to check out the Web page listed above.  Separately, IDC sent out a press release for their new "Web Index" and predicts an Internet "backlash". IDC reports that the number of Web users grew eight-fold in '95, and will grow fourfold in '96. They believe later this year that the number of Web pages will grow faster than the number of users. This will cause a glut of sites on the Web that will frustrate end users and cause some businesses to question their investments in the Web. For more info, see the press release at: < http://www.idcresearch.com/icomye.htm > .   Will Off-line Online Be The New Rage? =====================================  It doesn't take a marketing genius to come up with the biggest problem the Web faces. All it takes is end users. They'll tell you this: "It's too slow!" I echo the sentiment. Even at the office, where I surf over a T-1, it's too slow. Even when I'm there at 10 p.m. and there's hardly anyone else in the building. Granted, it's a whole lot better than a 14.4 Kbps or 28.8 Kbps, modem, but still, it isn't as fast as it needs to be. High bandwidth connections don't solve the problem of server load at the remote site.  As the number of users on the Web continues to grow, at least for a while, the speed issues will probably get worse. I can't count the number of times where I have wanted to see a site, but given up in frustration at the amount of time it takes. Sure, I can turn off all the pretty graphics, but when you get right down to it, it is the multimedia pictures, sounds, movies, etc., that make the Web so appealing. It could be that I have a bad imagination. Whatever. I like pictures!  Wouldn't it be great if you could just fly through the Web pages you want to surf without having to wait for them to load? Several companies are banking on your desire to do just that. They're working on products that download Web pages while you're not around and then let you view them offline at your convenience.  The companies PointCast Inc.< http://www.pointcast.com >, Digital Delivery < http://delivery.reach.com >, First Floor Software < http://firstfloor.com >, Forefront Group < http://www.ffg.com/whacker.html > are now joined by Freeloader < http://www.freeloader.net/ >, who bills itself as the first "offline World Wide Web delivery service."  Freeloader was formed by former America Online Internet Product Manager, Sunil Paul and venture capitalist, Mark Pincus.  "We won't replace online services, but enhance them. You'll be able to see what's going on at your favorite sites while offline, and then get there automatically," stated Sunil Paul, the 31 year old chairman and CEO in the company's press release.  The venture was funded by Paul (those AOL stock options came in handy, eh?), and the 29 year old Pincus, who'll be the companies President and chief operating officer, and Euclid Partners, Inc., a New York venture capital firm.  Freeloader plans to beta its software sometime in February. Freeloader will be free of charge once it's released. The company plans for the software to be advertiser supported.  Freeloader will allow the user to "program" their Web experience. The software can be set to automatically pull the Web sites the user wants to pull during off hours. Like PointCast, Freeloader will also come with a screen saver. The screen saver will have advertisements and Web sites, that the user can immediately jump to.  The screen saver approach is interesting. Recently, someone forwarded me some information on work habits from a PointCast study. The study concluded that the average business online user only spends 40 minutes in front of the television, and spends 2 hours during each work day in front of a screen saver. If true, the screen saver is indeed an interesting advertising approach.  "We think we can make money with as few as 10,000 users," said Pincus who hopes to have many more subscribers than that by the end of the year. With 10K subscribers, Pincus pointed out, there is the opportunity for up to 220,000 (10,000 * 22 business days) unique "sections" and 2.2 million gross impressions (assuming 10 "ads" per day).  I asked Paul how Freeloader would differentiate itself from the competition. Paul recognized the competition would be heavy, and that several companies are taking similar approaches. "We think we'll have the best product first," said Paul.  "Freeloader will allow an end user to use the tools they're already using," said Paul. "If they make their connection through a local provider and use Netscape, they'll be able to use Freeloader. If they use MSN and Microsoft's Internet Explorer, they'll be able to use Freeloader," Paul added.  PointCast was formerly known as PED Software, and is most widely known for their Journalist product that allowed Prodigy and CompuServe users to essentially create their own newspaper. Recent changes to the Prodigy front end, however, make Journalist now a CompuServe only product. The word on the street is that PointCast's PCN product will utilize its own proprietary software instead of leveraging off existing browsers like Netscape.  "We don't want to reinvent the wheel," said Paul, noting that subscribers should be able to use whatever tools they prefer.  Whether these companies' products revolutionize things to the point of becoming another new medium remains to be seen, but such services and software have a couple of strong benefits going for them. For one, they allow the user to customize their Web experience. Anyone who knows me knows I am big on customization. Secondly, it might well resolve the problem of speed.  According to Pincus, Freeloader will allow users to program how "deep" into a Web site they want to pull information. This could range from pulling just the home page, to pulling every document on the site. Freeloader will employ caching that will default to 10 Megabytes.  Freeloader plans to partner with companies that will provide value added content. There will also be recommendations on Web sites the subscriber might be interested in. For example, if a subscriber has expressed an interest in sports, they might see a suggestion on a new sports site that's available. Clicking the site will add it to the bucket of sites to pull.  Pincus argues that the ability to pull the material during off-peak hours will make the service very attractive. He points to some service providers who offer unlimited off-peak usage. For those subscribers, pulling the material during off peak hours will potentially save money.  Personally, I can't wait to try such software! I think it's time to buy that new two gig hard drive and set the default cache to about a gig  Stay tuned.   More On CompuServe Newsgroup Censorship =======================================  I've heard and written more about this than I wanted to, but for those of you who've had their heads buried in the sand at the end of 1995, CompuServe blocked access to over 200 newsgroups, allegedly based on pressure from Germans. Since then, there have been many theories, including a conspiracy theory or two.  There was a list of the alleged groups floating around the Net, and I lost it during the great hard drive crash of '96. Insiders at CompuServe say that the list is, in fact, accurate. In the meanwhile, I have received a slew of mail saying why the German's couldn't have put pressure on CompuServe. This week, I spoke to CompuServe spokesman Russ Robinson. Russ tells a different story.  "In November, criminal police prosecutors office in Germany with a list of 26 newsgroups -- with a search and seizure warrant for the newsgroups," said Robinson.  "We set 'em down and explained that the groups themselves weren't even in Germany, and we tried to explain how the Internet works," Robinson continued.  Several weeks later, according to Robinson, a Mr. Schmitgall, from the prosecutors criminal police directive one, dept 123 (an arm of the Munich prosecutor's office) paid the German CompuServe office a visit.  According to Robinson, Schmitgall presented 200+ newsgroups and told CompuServe the newsgroups were under investigation and in violation of section 184 of German criminal code. That code prohibits the dissemination of pornographic materials, including making them available to minors.  According to Robinson, Schmitgall told CompuServe that they were in violation of German law and that CompuServe and its employees were subject to criminal prosecution. Robinson said Schmitgall advised them to "immediately comply with German law."  That my friends, is CompuServe's story, and they're sticking to it. According to Robinson, that's what led to the decision to block the groups. Lacking the technical ability to only block the groups from Germany, they blocked them everywhere. Meanwhile, Robinson says they're very close to having the ability to block groups in specific companies, but that CompuServe is looking, along with other companies in the industry, at a longer term fix.  "You and others have written about why blocking by country isn't really a solution," Robinson told me. "It's a Band-Aid. We're looking for a long term solution."  Assuming the CompuServe story is true, there's still one thing I think they should've done. I think they should've gone to the Germans and asked for time to develop the "block by country" Band-Aid and see if the Germans would've granted them some time before making them block the groups. Robinson said he was not aware such a request was ever made. Did CompuServe react too quickly? If they didn't ask to buy time, then I'd have to say yes. However, it's rumored that the German prosecutor's office really wanted to get CompuServe in court to test their legal position. If true, by complying so quickly, CompuServe left the prosecutor's office with no case.   Java Saves Prodigy? ===================  A press release I received Friday afternoon almost made me choke on the Tuna sandwich I was eating. The release, from Phillips Publishing promoting a story run in their new Interactive Daily had this headline:  "Sun Java May Infringe Prodigy Patent".  The story goes on to quote several former Prodigy employees. It turns out that Prodigy does in fact have a patent on some similar technology. Ken Appleman, a former Prodigy programmer, said he didn't know if Prodigy had a legal claim to the Java language, but that both the patent and Sun Microsystems' Java "deal with distributed functionality across the networkand solve the same problems."  The release quotes a former legal counsel at Prodigy as saying "Prodigy is sitting on a golden egg." Another ex-Prodigy employee was quoted as saying that if true, licensing fees would be worth millions.  Fat chance! Prodigy has never been so lucky before and I doubt their luck has changed. My gut feeling as soon as I saw this release was that maybe one or more of the former employees quoted had leaked the story to get some press for themself and/or their new venture. In a way, I'd really like it to turn out that Sun infringed, but I doubt it will happen that way.  Prodigy, who was hit hard this week with rumors and stories in the press that both IBM and Sears wanted out of the 50-50 joint venture, would stand to benefit a lot of they have a legal claim to Java. Java hasn't yet gained widespread acceptance among end users, but technology companies are lining up to license it. On the other hand, Prodigy would be wise to avoid something similar to the whole CompuServe/Unisys GIF fiasco of last year. I'm sure Prodigy is very cognizant of that fact since they hint at it in their only official statement on the matter:  "Prodigy is pleased that the U.S. Patent Office has recognized Prodigys work in developing pioneering technology. We are currently exploring our rights and opportunities to determine a responsible business approach that works to the benefit of Prodigy and our industry."  In speaking with Prodigy, it became apparent that they weren't happy about having to issue a statement in the first place. The Prodigy official I spoke with expressed concern that a former legal counsel was discussing Prodigy legal matters with the press.    Next Week =========  MSN gets agressive, and news on CompuServe's Internet division.   Stock Watch ===========   This $ 52 52 Week's Change Week Week Company Name Ticker Close 1 Week High Low  @Net Index IIX $219.39 $8.48 $259.85 $185.76 America Online AMER $35.00 ($1.75) $46.25 $13.19 Apple AAPL $29.88 ($4.00) $50.94 $29.88 AT&T T $65.38 ($0.25) $68.88 $47.88 BBN Corporation BBN $28.88 ($6.00) $48.75 $15.25 CMG Information Svcs. CMGI $56.63 ($22.37) $100.50 $11.00 FTP Software FTPS $10.38 ($1.18) $40.63 $10.38 General Elec. GE $74.25 $4.00 $74.38 $49.88 H&R Block HRB $34.88 ($2.00) $48.88 $31.50 IBM IBM $102.00 $15.62 $114.63 $70.25 MCI MCIC $27.88 $1.13 $28.13 $17.38 Mecklermedia Corp. MECK $12.16 $0.66 $24.38 $2.63 Microsoft MSFT $91.88 $6.13 $109.25 $58.00 Netcom NETC $32.50 ($2.00) $91.50 $19.00 NetManage NETM $11.88 $1.00 $34.00 $10.00 Netscape Comm. Corp NSCP $144.63 $7.38 $174.00 $45.75 News Corp. NWS $21.50 ($0.13) $25.13 $15.25 Oracle Corp. ORCL $45.50 $2.87 $48.75 $27.75 PSINet Inc. PSIX $15.13 ($1.37) $29.00 $12.00 Sears S $40.00 ($3.13) $43.63 $21.75 Spyglass Inc. SPYG $34.75 ($8.75) $61.00 $13.25 Sun Microsystems SUNW $47.00 $6.87 $51.75 $14.94 UUNET Technologies UUNT $49.25 $1.25 $98.75 $21.75   Disclaimer ========== I began writing this newsletter in September 1994, at the time I was working for a technology company that is now owned by MCI. In March, I began working for International Business Machines Corporation. As of July, my management has agreed to allow me to do some work on the newsletter during business hours (probably about 6-8 hours a week). I speak for myself and not for IBM.   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