Briefing.com: Broadband's Failure - The Real Reason
02-Jul-02 09:20 ET
[BRIEFING.COM - Robert V. Green] Last week, Yahoo announced that they were shutting down their broadband product lines that create original content, including Yahoo! FinanceVision and Yahoo! Radio. Herein lies a key, simple explanation as to why broadband has been slow to be adopted - and why broadband will not revive the technology vendors.
Why Broadband Is Important
Broadband technology was widely viewed as the next wave of the great internet buildout. Internet I, as it was called, was the textual internet. Internet II was viewed as the visual internet.
As late as 1999, the internet II was viewed as the next phase which would take the internet revolution, and stock market boom, to even higher heights. The internet infrastructure would have to be doubled, benefitting every level of network supplier, including: Cisco, JDS Uniphase, Exodus Communications, etc.
Even the collapse of the textual internet dot-com companies did not deter some investors from believing in the internet II broadband vision. The AOL/Time-Warner merger was supposed to the king of the new broadband era. But that never happened.
In fact, many still view broadband - meaning streaming video and audio - as the great technology white-horse that could rescue the technology industry from its current slump.
And it isn't going to happen. At least, not in the foreseeable future.
The Real Problem
Broadband video applications failed because of one simple reason:
You can't watch TV at work.
Face it, the vast number of internet users are using the internet at work, instead of working. And broadband video is essentially the same as TV.
Certainly on-line brokerage accounts owed their great emergence to one simple fact: you could finally trade stocks at work.
Online trading software existed before the internet came along, but it was largely considered a colossal failure. FOX (Fidelity Online Exchange) software, manufactured by Meca Software (now defunct) was a huge disaster in the early nineties. Why? Because you couldn't use this software at work. It required that you dial-in, on a modem, to the system. Office PCs didn't easily have this capability.
When the internet came along, access to online trading was simple. Internet access, especially in the beginning, was completely open. Anyone could trade. Instead of calling your broker (which others in the office would be able to hear), you could enter a trade - and it would look like you were working. Not only that, but it was cheaper than a trade from even a discount broker.
Online trading, and all of the associated internet activities with it, boomed. Internet trading made an existing task easier and cheaper: online trading liquifiedthe market for market transactions.
The applications which were successful on the internet during Internet I days all had the following aspect in common: they liquified an existing trait or business. Chat rooms liquified water cooler talk. Email liquified phone calls. Instant messaging liquified email.
But broadband video doesn't liquify anything, especially in the business arena.
Yahoo! FinanceVision failed because it is neither cheaper nor easier than watching CNBC and most offices don't watch CNBC anyways! Because of this, no one was willing to pay for it.
The Future For Business Broadband
So if broadband is to succeed in the business market, it needs to liquify an existing business function.
At the moment, teleconferencing is the most likely business event to be liquified by broadband video.
However, here, audio already works remarkably well, and the price has been continually dropping. Audio conference meetings are becoming more popular and more frequent. Broadband audio conferencing stand little chance of replacing the audio teleconference.
Webcasting of conference calls, now widespread, does not replace ordinary teleconferencing, although it has reduced dial-up 1-800 costs. However, those costs are replaced by the costs of providing the webcast service.
Technologies such as webconferencing (Webex or Interwise, for example) are growing in popularity. These allow a company to present Powerpoint presentations or multi-media presentations over the internet. These services liquify a sales call. They probably have strong futures.
But the webconferencing technologies all work well with existing internet infrastructure. Even rapid growth in webconferencing will not provide a strong driver to building out the "internet II" network, with the anticipated benefits to Cisco, Juniper Networks, Sycamore, etc. Webconferencing services work well with today's infrastructure.
Other than webconferencing, what existing business function does broadband replace, at lower and easier costs? If you cannot provide an answer, broadband cannot be viewed as a dramatic driver of the internet infrastructure.
The Future For Consumer Broadband
Consumer broadband prospects are even fuzzier.
The truth is that broadband simply costs too much for much home markets. Most people use the internet primarily for email and instant messaging. AOL has about half of the consumer market - and that's what they think the internet is - email and IM.
TV rules the video entertainment market. Broadband internet video is neither cheaper (it is often more expensive than cable) nor easier (the remote control beats keyboard/mouse easily) than TV. Until it is, broadband will not dethrone TV as the video device of choice.
To make matters even worse, content for broadband video is significantly worse than for TV, because the best TV content has been syndicated to TV, not the web.
Pornography is the only significant broadband service. It provides pay-per-view video and is a lot easier, and more private, than going to the XXX video store. Quality of video does not matter. Broadband pornography liquifies the existing porno market.
But there is nothing on broadband today that liquifies the home video entertainment market. In fact, there is a lot working against broadband: TiVo and DVD subscription services are just two major drivers.
Until broadband, internet-based on-demand-video gets linked to the TV, and not the PC, broadband will not have significant penetration difficulties in the consumer market.
The Implications
For those of you thinking "Great - why didn't you tell me earlier" we did. Any frequent reader of our Stock Briefs knows that we have long been discussing this. We became luke-warm on the "internet II" idea years ago:
23-Oct-00 The Broadband Future Gets Fuzzy
27-Nov-00 The Internet: What We've Learned
If you are still waiting for broadband - Internet II as it is called - to rescue the tech sector - forget it. You need to develop another premise for a major driver of technology stocks. (Good luck - we haven't been able to.)
Broadband applications are likely to continue to develop, but slowly, and not be a major driver of the overall technology market and certainly not be a major driver of continued internet buildout.
Unlike cable TV or satellite TV, both of which took their markets by storm, broadband video is still looking for the key element that would make it a bull market: liquifying an existing market. Until that happens, broadband applications are likely to continue to struggle to find meaningful markets.
Yahoo! found this out the hard way with Yahoo FinanceVision and Yahoo Radio.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com
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