The Feds helped make the Internet the incredible success it is today, so it seems sensible at first blush to suggest that this should continue. As you probably know, the government is in fact abandoning the Information Superhighway, heading for the exits just as the place is starting to look pretty darn impressive. Many people have in fact wondered out loud why the government doesn't just buy a bigger backbone and stay in the business.
The Internet was a highly successful government program mainly because they didn't do much. Yes, they provided the funding, but the key to the Internet's success was that they didn't put very tight control over what it was used for. Thus the curious fact that a sizable percentage of network traffic is alt.binaries.pictures. erotica.female instead something sensible like scientific reports. The Internet has been operated not by the government, but by local sites.
Unfortunately, this non-governmental control combined by Federal funding just cannot last. Now that the "Information Superhighway" is becoming a more prominent part of people's lives, it's only a matter of time before Fundementalist Christian groups try and get alt.sex.stories booted off the net. And if our woozily incompetent government is still in control, there's a pretty darn good chance of that happening.
Best of all, the lack of government control over the net gives us the ability to start our systems, run them as well as we can, and even have a little fun doing it. Don't ask for the government to return, or we might get the Post Office of Internet providers - slow, expensive and stupid.
Cable TV companies represent a more interesting competitive threat. For just $ 75 or so a month, they tell us, you can have a circa 56k connection to the Internet, providing you with far higher quality fthen you'd ever get through a traditional ISP. PSI recently conducted a joint experiment with a cable company in Cambridge, MA. Obviously this is a very biased location because more computer and Internet lovers live there than virtually any other place; you would expect firm demand here even if the whole thing was a disaster everywhere else. (True, many people would have access through their places of employment. Still, there are more people who would find the sheer technological "win" of interest than anywhere else I can think of). I have read that the venture was a disaster, with hardly any signups. My suspicion is that few people wanted to pay those prices, when they could get a $ 20/month account from an ISP. However, it's also possible that people are using their free university and work-based Internet accounts instead of going with PSI. Many Internet users, however, normally use separate accounts for work and home, so my guess is that the PSI service was just too expensive for the benefits offered.
Update: PSI's Cambridge venture into Internet over cable TV has
apparently been cancelled, per Karl Denninger
--
I was a bit amused by the commentary on our PSICable project up in Cambridge, Mass, where we did early work on delivery of Internet service over a CATV plant. You refer to it as a disaster. Actually, it never went to market. We actually considered it a success, in that we managed to get early technology working well despite the wild hairy beast of a live 2-way cable plant. But we also figured that the difference between what it would cost to provide the service well versus what folks would actually be willing to pay, given all those less sexy but tried and true alternatives, just did not make a good business case. So, with tears in our techies' eyes (mine, too!), we put it on the shelf for another day and moved on.
--
Before ending our discussion of cable TV companies, it's worth noting the results of another venture, "video on demand". This was supposed to be the holy grail of cable TV, the service that would pay all the fantastic costs associated with the "information superhighway". A distinctly low-tech test was created, where a rack of VCRs was hooked up and a person hired to grab the requested tapes and load them. Prices ranged from $ 0.99 to $ 4.00 per view. For a typical video on demand venture to be solidly profitable, executives predicted that roughly four rentals per month would have to be made per customer. The actual figure was slightly under two, attained with the kind of promotion blitz that couldn't possibly be duplicated on a wide scale. Apparently people actually enjoy making the trip to the video store to check out their evening's entertainment. (This was reported in a recent issue of Wired (I think September 1994) and in the LA Weekly).
My conclusion from these two points of information is that the telephone and cable-driven superstructure is likely to be a flop. Internet services would require far more complex connections than video on demand or home shopping, and I doubt that the profit potential is as high. As a result, I doubt that we have much to fear from the "cabledroids".
Phone companies, such as Pacific Bell, have gotten into the Internet business, but despite reasonable rates, they don't seem to have much effected the ISP scene, although cross-selling with second phone lines might be a trend to watch for.
There is, however, one thing to watch out for: Many telephone companies are arguing to drop the traditional local calling areas and replace it with metered service. If they did that, and offered an unmetered Internet connection, they could own the market. Be sure to do your darndest to make sure this doesn't happen in your state!
ISDN might be another version of this, which should in theory be able to offer switched 56k connections to the masses. So far, the phone companies have been very sluggish to promote this service, but with the ever-increasing demand for bandwidth this is bound to change in time. Unfortunately, such an event is bound to hurt the typical ISP big-time, since the T1 lines we buy (forget about a 56k when your customers use ISDN!) will carry about 1/3 the users they did previously. Whether the public is willing to pay the increased costs associated with such a service is open to question, considering the failure of early cable TV efforts discussed above.
ISDN has the potential to be a sneaky way for the phone companies to get back into the measured service system they know and love. It looks like they have lost the battle for measured service for voice phone connections, but ISDN is a brand new game. Right now, Pacific Bell makes residential ISDN available on a measured basis during the day, and a non-measured one on evenings and weekends. We'll see if people take the bait. Pacific Bell, however, has recently doubled its ISDN per-minute charges, which makes me think the phone company is really rather clueless in its marketing; I'd have a hard time recommending ISDN to anyone not using the connection for heavy business use in view of these much higher charges.
Karl Denninger
In short: Keep your eyes open, but at this point I don't think the
competition is likely to be as bad as it looks.
Well, this is a strange one. Here in California, we hear about
libraries shutting down for lack of support every day, and yet people
are talking about hooking them up to the Internet! I guess Pac Bell
will be donating the service or something, since otherwise that would
look like a pipe dream.
There are two schools of thought among ISPs when it comes to library
connections to the Internet:
(1) They are evil, government-subsidized organizations who might
become ISP competitors "through the back door", giving free or very
inexpensive services.
(2) Why not join them, not beat them? Most libraries really don't
have the resources to run themselves, much less operate an ISP. Give
them space on your ISP, and let people have limited free access from
library-based terminals. Then, if they want more, or if they want
modem-based access, they will naturally come to you first.
However much I may dislike government-based organizations on the
main, I still think (2) is by far the best thing for an ISP with a
potential library competitor to do.
Freenets generally offer very limited Internet access. A large
number of my system's customers have come from the Los Angeles
Free-Net; they don't care for its censorship policies (which I
gather exclude the sexual stuff) nor for its very limited range of
systems you can telnet to. As a result, I think you could consider
your local Freenet a nice way to introduce people to the Internet
who you can then talk into becoming your customers.
Frank Hecker
Not surprisingly, Frank believes that your local library or freenet
can be an ally, not an enemy. "I believe strongly that community
networks and commercial providers have many potential areas of
cooperation, and are far better off in the long run cooperating than
competing." ISPs tend to have the technical ability to set up a
complex networking system; community networks and libraries have
sources of information and close ties to the community.
"My position has always been that community networks should encourage
users to move on to commercial providers as soon as possible,
especially if the users' main interest is in Internet access as
opposed to community information (which is the raison d'etre for
many community networks)."
Frank suggests that the future of community networks is less in
providing net access and more in providing information to the net.
Competition has brought the Internet to the people at an increasingly
low cost, and community networks don't have the time or fiscal
strength to keep up with net administration tasks. It might make more
sense, then, to set up local newsgroups on the community's commercial
Internet provider, and use it to run Gopher and WWW servers. Even if
the community wants to run their own server, confining it to local
content and the provision of information through the WWW might make
better use out of scarce community resources. (Just a full USENET
newsfeed takes about 130MB a day, so a few days' of global news would
tax the type of equipment a community provider could normally afford).
The only problem with this vision is that people who don't own
computers, or those who are too poor to afford an ISP's charges are
effectively frozen out. Libraries are particulary interested in this
problem, as the traditional providers of information for people with
intellectual curiosity but no money. Because of this, Frank says: "I
found your suggestion about ISPs cooperating with libraries to provide
limited free access a particularly useful one in that regard."
"The bottom line is that I would strongly recommend that any small
local ISP get to know the local people involved in community network
and "Free-Net" activities, and see if there are any possibilities
for joint ventures. Going into this, you should recognize that their
attitudes and motivations may be significantly different than yours
(especially if you're a net.libertarian) and that in many cases they
will have emotional and institutional reasons for wanting to run their
own systems. (Generally the larger the institution the stronger these
reasons will be, which is why ISPs in small communities may have more
success with this approach.) But in all cases I think ISPs will be
better off going into discussions with a "win-win" attitude as opposed
to demonizing community network people as proponents of public
give-aways and enemies of the free market."
In late 1996, in a move that was symbolic of the problems of the
Freenet movement, the umbrella Freenet organization went into
bankruptcy. The text-based model of the Freenets with its clunky
software was just not what users wanted.
The hottest news in November 1996 was America Online (AOL)'s
conversion to $ 19.95 a month flat rate. Considering their poor
profitability at their previous higher price points, it's unclear as
to how they'll be able to afford the results of this announcement,
even if subscriber churn goes down significantly.
Most ISPs who have talked to AOL users say that Internet service
quality is a far more important issue to them than price. If this is
so, the worsening user to line ratios on AOL is likely to cause severe
difficulties in the near future. Because of this, most ISPs are not
worried, despite the audacious nature of AOL's move. (Now, in July
1997, we know this is exactly what happened; AOL got a massive black
eye due to connection problems the ISP community predicted as soon as
the changes were announced).
AT&T has put forth a major threat to existing ISPs, with their offer
of $ 19.95 per month for unlimited access. Early reports have support
as being quite poor, but nobody underrates the threat of a major national
name getting into the business with highly aggressive pricing.
Note that this rate matches some Internet providers, but doesn't beat
them. I think that, if you're offering high-quality service, people will
continue to use you and recommend you.
Many providers feel that the influx of customers generated by massive
advertising campaigns will be good for their companies. These national
organizations appear incapable of providing high-quality service; all
those who have tried so far have failed, including AT&T and MCI.
Our good friend Bill Gates, of course, wishes to take over the entire
world of computing, so consumers will soon be using Microsoft Windows
to use a Microsoft online service to hear more about Microsoft
products. Those who to hear about IBM, Lotus or Novell will probably
want to use the Internet, so of course Microsoft will provide that,
too. (I wonder if the new service will use Windows NT SMTP, which is
still known in the industry as a bug-ridden product).
The Microsoft Network's evolution over the year or so of its existance
has been rather intriguing. They never got much of a content base, and
as a result they decided to move into primarily offering Internet access.
Since their rates are higher than regular Internet providers, I don't think
they'll have much impact on our core customers, except for people who
need a nationwide dial-up network.
One fascinating fact, reported in the Wall Street Journal, is that
Microsoft has now basically deserted their content providers in their
rush to the Internet. As a result, the system described in the paragraph
below may not even exist anymore, but I thought the concept was
interesting enough to retain.
Microsoft's new Microsoft network (aka Marvel) is meant to bring the
online service world into a new age. In a hype-filled press release
available via Microsoft's web server, they made it look like death
time for all Internet providers and online services, however well run.
A base fee of only $ 4.95 a month, combined with a de-emphasis on
hourly rates, is supposed to make the Microsoft Network more
affordable and higher quality than its rivals. In an interesting
innovation, the cost of running the network was meant to be borne by
the content providers, not Microsoft or the users. For example, let's
say Time magazine wanted to get on the Microsoft Network. They would
have to pay Microsoft's internal fee for use of the service, and they
could raise the money by (1) charging their subscribers, or (2)
charging advertisers. So if MS's internal fee is $ 1/hour, Time could
charge subscribers $ 1/hour billed via MS, or they could sell $ 1
worth of targeted advertising during that hour, or they could charge $
0.50/hour to the consumer and sell $ 0.50 of targeted advertising.
And, of course, they could charge higher rates than this (say $
2/hour) and make money.
How Time would raise the money was completely up to them, and they
could bill any amount they pleased for any service. So if Lexis came
on to MS Net and wanted to bill $ 50/hour, they could.
What this means to the Internet is most mysterious, since there is no
real "content provider" who could be charged. My best guess is that
UUNET becomes the content provider (since they are the people running
the MS Network connection). If they have to charge $ 1-2/hour for the
service, as they almost certainly do, I don't think we have much to
fear from them.
I don't think the type of consumer who likes the Internet will be too
fond of Microsoft's offerings, which I feel are likely to be pretty
well sanitized. So in sum, I doubt that the MS Network is likely to
be the disaster for Internet providers it's been considered. If anyone
has additional information on this topic, though, I'd enjoy hearing it
and would update the FAQ accordingly.
Recently, Microsoft's entire strategy for their MS Network has been
changed to basically fold it into the Internet instead of fighting it.
This seems to be a substantial retreat from their earlier efforts; what
they will do with MSN itself is hard to say. Stay tuned.
The good news on the Microsoft side is that their PPP support is
genuinely well regarded, far superior to anything offered with
Windows 3.1. With the growth of Windows95, it looks like offering
Internet accounts will be far less painful in the future.
For the longest time, AOL seemed to be pretty laughable as a
competitor. Not only was their service terrible, it was also way
overpriced compared to an ISP's.
Their service is still bad and likely to get worse, but in a recent
bold move that I suspect will cost them dearly, they have matched ISP
pricing - for $ 19.95/month, you can get all the AOL you can stand.
If, that is, you can get online. I predict steadily lower revenues
and more busy signals for the online service, which should send plenty
of new customers our way. AOL also made some key mistakes, such as
putting all customers on the higher cost plan. They expected this to
help offset the loss in revenues from their high-end users, but it
backfired in very bad PR for them.
Some providers have noted that AOL's moves have had a negative impact
on customer acquisition. I'd like to hear from more people when this
issue stabilizes, since it's quite possible that things will shift
dramatically in the near future due to service problems with AOL.
They were bad before; with the unlimited policy, they can only get
worse.
Next section: Equipment
5.3 What about public libraries and Freenets?
5.4 Microsoft and AT&T, the Terrible Two
5.5 Online (AOL)