5.0 The Big-Time Competition: Should you worry?

5.1 Invasion of the Federal Government

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.

5.2 Invasion of the Phone and Cable People

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 then 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 .

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".

The phone companies may be more of a threat, but my suspicion is that their bloated overhead levels will require high pricing and thus plenty of room for Internet providers.

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. (Another data point: Pacific Bell has recently announced that its outrageous local/toll rates are going to be decreased by 40%. It looks like the threat of competitive pressures is working to reduce Pac Bell charges substantially).

Karl Denninger offers ISDN on his provider. When I asked him how well it was working, and how good customer acceptance was, he said, "It's dogs---; interoperabilty problems galore."

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.

5.3 What about public libraries and Freenets?

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 was kind enough to write with some additional comments on this issue. Frank is on the board of directors of CapAccess, a Washington, DC community network; he was also its "administrator and chief technical honcho" for its first couple of years. ("Community Network" is the public domain term for "Free-Net"; the latter is a trademark of the National Public Telecomputing Network. CapAccess is not part of NPTN and therefore not a "free-net", even though the same general concepts are used).

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."

5.4 Microsoft and IBM, the Terrible Two

In a previous version of this document, I put IBM first and Microsoft second. This was because IBM was competing as an actual Internet provider, capitalizing on their own global network system. At the time I first wrote this, I thought Microsoft wasn't going to put much emphasis on the Internet part of their offering.

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).

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.

Keep in mind that, despite the Internet access being offered, the main purpose of Marvel is to try and wean their customers off of phone support and on to cheaper (and potentially revenue-producing) on-line methods. I don't think the Internet will be their main focus, even though they will be using much of its technology.

A convenient SLIP package is included in every copy of OS/2 Warp, the latest incarnation of IBM's OS/2 operating system. Early returns say that the Internet services part is a truly superb package, more than competitive with other available Internet software. Information on the Internet's OS/2 forums are showing IBM's software capturing the hearts and minds of those who buy it.

At first blush, this looks like excellent news for Internet providers, especially if Windows95 follows this lead. (Windows95 is presently rumored to have Internet services, but they are said to be far inferior to OS/2 Warp's).

Alas for us, IBM is going to compete as a provider, offering a full Internet connection at what looks like a very reasonable price. If I recall correctly, it's $ 12.95 for six hours or $ 30 for 30 hours. This is ominously close to what normal ISPs charge. If IBM's service is of high quality, it could make a serious dent in our industry, especially with the members who had not converted from Unix shell to SLIP/PPP accounts.

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