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Sunday, December 30, 2001 - Page updated at 12:00 AM

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Commentary

What folly to shun the basics of business

Special to The Seattle Times

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Having by now lost most of my hair along with my retirement portfolio, I no longer worry about bad hair days. Instead, what concerns me lately are bad tech days.

One day not too long ago, my cell phone dropped calls repeatedly despite my being stationary with a full signal, my DSL connection went dead for six hours, my Windows 98 laptop completely froze and refused to reboot, and the electric locks seized while our van's doors were open, preventing them from being closed (was this a hardware or a software problem?).

Granted, it was Halloween and a full moon. But I've had several other bad tech days recently. And when I bring them up in polite company, everyone chimes in with a tale or two of their own.

Once the shining promise of the 21st century, technology seems to have turned into the economic downturn's favorite whipping post. What went wrong? And what needs to happen for technology to regain the glitter and anticipation of yore?

At a very fundamental level, the tech community can blame itself for the collapse. In its heady rush toward a digital future, technology's elite mistook promise for reality and theory for market. Concepts that looked great on the white board were bruited as cornerstones of a New Economy long before undergoing the torture tests of customer demand, business modeling and market execution.

Thus we got sagacious-sounding business plans — "If you build it, they will come" — based on things like baseball slogans ("Field of Dreams"), while P.T. Barnum-styled entrepreneurs erected New Millennium enterprises such as Webvan, Kozmo, MyLackey, eToys and Pets.com with little notion of when — maybe even whether — they could be profitable.

Enduring a shakeout

The resulting shakeout was both necessary and healthy and should not be mistaken for a terminal case of the blues. Any close examination of the technology sector shows lots of good ideas lurking in the miasma.

But to regain the excitement and inspiration it has held since the birth of the personal computer, the tech arena needs to get back to basics. That means delivering what you promise and pricing at for-profit rates. That means trashing the cherished but misbegotten principle that digital goods and services should be free. Finally, it means that the technology itself has to work — day in, day out, with the reliability that a paying public expects and deserves.

The venture-funded approach blew up. How about making money the old-fashioned way — by earning it?

The Internet held vast potential for new markets till companies started giving stuff away. Chairman Bill Gates' decision in 1995 to give away Microsoft's browser to compete with Netscape Communications helped establish the precedent that anything delivered digitally could be had for nothing. The assumed advertising model — gather "eyeballs" and companies will throw millions at you to post banners on your site — also contributed.

In the process, all content — newspapers, magazines, books, music and film — was dangerously devalued, contributing to the overall economic downturn in ways not widely acknowledged.

Some daily newspapers, as one highly noticeable example, are now 25 cents instead of 50 cents — a whopping 50 percent cut. Publishers of all ilk have slashed jobs and enacted other cost-cutting measures, including fewer issues or titles. And a whole generation has grown up thinking content is something to avoid paying for.

Weaning the Net from the "free" nipple has to happen — not only for real digital commerce to succeed, but for the Internet to survive as a viable medium.

Reasonable value must be assigned to digital content. Software makers, content providers, investors and banks need to put their heads together to come up with a fair "digital valuation" for goods and services.

A truly new New Economy is needed, where a digital book or song or movie can be purchased for a reasonable price. A new system enabling "micropayments" — purchases at a few cents or even fractions of a cent — may be required, acknowledging that the efficiencies of digital transmission should equate to lower consumer cost.

What is the right fee? The market will have to decide. But sites need to start charging something more than zero. A study from the Pew Internet & American Life Project offers some compelling data on the "free" front. Only 17 percent of Internet users have even been asked by a Web site to pay. Of those, 12 percent — 1 of 8 — actually went ahead and paid. Half found a free alternative, and the remainder, 36 percent, stopped bothering with the information or service altogether.

Percentages sound small, till you think about actual numbers.

What if all 500 million (or so) Internet users had been asked to pay? Twelve percent — 60 million — is a pretty good market. Add 50 percent (users who, lacking a free alternative, would still want the information or service) and you've got more than 300 million potential paying customers. And at least a certain percentage of the remainder, faced with no alternative, would start to pony up as well.

The Napster case

The most notorious case study in this mix is Napster, the music-sharing service. Representing the biggest computing breakthrough since the Web itself, Napster has all but collapsed under legal challenges. Think of the global market that could have emerged if the music industry and Napster had collaborated to assign reasonable fees to digital music. Millions of downloads daily, even at a nickel apiece, add up soon to real money.

Instead, the entertainment industry has seen fit to all but kill Napster while trying to preserve untenable economic models. The latest backward-thinking scheme is to copy-protect CDs, so even rightful owners cannot use their disks to mix or "burn" new CDs. Copy protection has never worked before, and these efforts merely hamstring and forestall real progress. Meanwhile, Napster alternatives, notably LimeWire, are thriving. The genie is out of the bottle.

With the advent of digital movies, entertainment moguls have a chance to learn from the Napster disaster. Some enterprising house needs to post a first-run movie on the Web and charge something for it — comparable to, even more than, what theatergoers pay. And see what happens. Yes, there will be copying and "sharing." But some viewers — maybe more than expected — will pay. And over time, more will pay than not.

Recall the videocassette experience, where an early underground emerged of "guys down the block" with big video collections. As soon as it became cheap to rent pre-recorded movies, the black market disappeared.

All content will have to undergo this admittedly painful but necessary process. News archives, for example, could charge a micro-fee (note to The New York Times: $2.50 per story is too much). Google could charge a micro-fee — a penny or two, even less — for a successful search.

Some content will remain free — weather, headlines. But advanced forecasts and detailed weather info (have you seen Accuweather's new Webcam service?), and bells-and-whistles news breaks (going "live" to a news site), could charge pay-to-view fees. There might even emerge a notion that the convenience and ease of Internet commerce merits a micro-premium, with all transactions carrying a small online fee.

The pay-to-play model is coming. Several sites have announced subscription and other fee-based approaches. RealNetworks is doing some innovative things with MusicNet. Trails.com is about to announce an e-trails subscription service. Blue Mountain is charging for e-cards. No one knows yet what the market will bear, but over time, appropriate fee structures will sort themselves out.

The need for speed

Having said all this, I will somewhat contradict myself and declare that online access must get cheaper. For digital business to flourish, high-speed connections are required. For broadband to gain critical mass, pricing needs to be comparable to or even less than simple dial-up connections.

Phone and cable connections are increasingly "broadband ready" — the building I live in requires no splitters or other special equipment for DSL, and most metro cable providers offer digital capability. There seems little infrastructural reason for broadband to cost more than dial-up, and broadband creates incredibly more opportunity for digital commerce.

No matter what broadband costs, however, poor reliability and lack of customer support will keep it in the doldrums.

As a long-suffering broadband customer dividing my time between Seattle and the Bay Area, I've seen gradual improvement in recent months from Qwest and Pacific Bell (SBC). Perhaps the Baby Bell mergers are getting their acts together. Perhaps competition from the cable sector, where high-speed connections grew by 15 percent last quarter, has nudged them into better service.

Yet broadband still flakes out too often. Ask anyone with a high-speed connection how well it works, and an emotional outpouring ensues. Dropouts, software bugs, repeated reboots — feel their pain! If telephones, TV and utilities worked this way, the American way of life as we know it would simply collapse.

Network problems are just as endemic in the wireless sector. How realistic is it to talk about Web mail, instant messaging, and "any time, anywhere computing" over your cell phone when a lot of times you cannot even get a reliable signal? For a while, wireless providers were building out networks by leaps and bounds. But then progress seemed to flag. I've owned cell phones from three providers in recent months, and none has performed anywhere near the reliability of land lines.

Meanwhile, providers squabble and foot-drag over standards and protocols. VoiceStream Wireless, AT&T Wireless and Cingular Wireless are conducting pilot projects in high-speed, or 2.5G, wireless services. But it's hard to test true interest when a "network" works in only a few places.

These advances cannot happen in isolation. They must link together in a kind of digital Hawaiian lei, where a thousand flowers can bloom. The process is simple but unalterable. Make broadband and wireless networks more dependable and universal. Build critical mass. Charge reasonable fees for access, services and content.

Then watch as new ideas, new markets, a New Economy — and the old excitement — blast off.

Paul Andrews, a longtime observer of the technology industry, formerly wrote the User Friendly column appearing in The Seattle Times. He is the author of "How the Web Was Won" and co-author of "Gates," the leading biography of Microsoft Chairman Bill Gates. He can be reached at paul@paulandrews.com.

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