INTERESTING ARTILCE
Updated 27-Jul-98
Compaq: The Next Internet Portal?
When we first heard about it, we weren't that thrilled about Compaq's purchase of Digital. In
fact, some in the office here thought it likely that, two years from now, the remnants of Digital
will be sold off by Compaq, to the cheers of Wall Street.
Nevertheless, we recently had an intriguing idea about Compaq, and after pondering it for
some time, decided to post it for your consideration.
Hardware Vendors Have A Strength
Compaq (and all hardware vendors) have one hidden strength. They are the first contact with
all users and customers. Microsoft understood this totally and wrote Windows distribution
contracts to prevent hardware vendors from exploiting that position. What if Compaq altered
their basic strategy to exploit this position of "first contact with the customer" and helped guide
all Compaq users through the Internet? And additionally, equip them with an easy way to shop?
With the purchase of Digital, Compaq now owns two valuable technologies that would support
this strategy: Alta Vista, and Millicent.
Alta Vista
The summer of 1998 will long be remembered as the summer of the "portals." But the great
forgotten search engine is Alta Vista. You rarely hear it mentioned, since it is not public. But
it is still one of the most used sites. Digital twice considered spinning off Alta Vista as a
separate IPO. Both times the idea was tabled. This may turn out to be Compaq's hidden jewel in
the dust.
The first step would be to make Alta Vista the default browser home page for every PC sold
by Compaq. Microsoft would not likely be able to prevent this, given their current embroglio
with the Department of Justice. Netscape might not like it, but the threat of Compaq shipping
solely with Internet Explorer might persuade them to permit it.
Instantly, Compaq could become a portal company, as Alta Vista becomes the first entrance
to the Internet. In the current market environment, even a single press release stating their
intent to make Alta Vista a portal would give Compaq's stock a turbo-boost.
Of course, they would still have to make a business out of being a portal company. This might
require partnering with others to provide additional content or merchandise. But the same
problem is currently faced by all other portals. Compaq would not be far behind if they
implemented this strategy immediately .
Millicent
Step two would be to exploit the still-under-development Internet e-commerce product at
Digital called Millicent. Millicent is designed to be a repository of Internet charges for a
pay-as-you-view service, in large or very small increments (get it?, milli-cent?). In other words,
you get to explore the Internet at will, and when you encounter a Millicent enabled service, you
pay when you view it, presumably in small increments. The Millicent enabled site extracts scrip
(encoded money), from your PC. The vendor later redeems scrip for payment in dollars.
The concept behind Millicent is that some users want a-la-carte purchase ability, as opposed
to flat-fee all-you-can-use subscription services. And although there are per-use-fee sites
around, they usually require you to set up an account, with a credit card. Many users are still
uncomfortable with this.
Millicent, in its current design, faces some tough adoption obstacles, as users need to pre-buy
millicent scrip from "brokers." Vendors then need to accept the currency payments from various
brokers that sell scrip for specific vendors. The creating of a system of currently mythical
brokers, is, we think, a principal reason why Millicent hasn't gotten anywhere yet.
But by adopting Millicent as a standard, Compaq could become a centralized broker of all
Millicent payments. Suddenly Millicent might become widely accepted as vendors realize that
every Compaq PC sold would be "Millicent enabled." With millions of Compaq users out there
carrying Millicent "coupons" around, vendors might get interested.
For example, to make Millicent broadly used, Compaq could do the following:
Equip every shipping PC with a Millicent wallet
Fill every wallet with $50 worth of Millicent credits
Distribute the Millicent billing software to Internet vendors for free
Take a small processing fee, perhaps 1%, for all Millicent billings from vendors, as
vendors turn in the used scrip for payment.
In other words, turn Millicent into a standardized payment system on the Internet, in
addition to credit cards. Millicent could be the "phone-card" of the Internet, if Compaq made a
serious committment to it.
Millicent: Acceptance by Users?
Would people use it? Users often resist signing up for subscriptions, because it requires giving
out a credit card. The ability to "sample" a service, such as Briefing.com, just by cashing in
some Millicent "small change": might be very appealing to some users.
An additional appealing aspect of Millicent payments is anonymous usage. By accepting
certified scrip and redeeming it later, Internet vendors would not need to collect personal
information required to process credit card numbers. At the very least, a widespread anonymous
Millicent system would probably make Internet pornography even more popular than it is
already.
There are also services where users would probably prefer a pay-as-you-go system all the time.
Real-time quotes are one example. Full time unlimited real-time quote access generally starts
at about $80 a month or higher. But many individual investors could use Millicent to get
real-time quotes on the day they wish to make a trade, and pay nothing on the days they don't
need it.
And if you ship every PC with a reasonable amount of credit, for example, $50, already built in,
you will get users to try it.
And when the Millicent wallet runs out on your brand-new Compaq PC, you just dial in with
your credit card, and load it up again. A system like this would turn Compaq into a bank! Just
think of the earnings possibility on the float alone!
Millicent Acceptance by Vendors
So much for acceptance with users. How does Compaq get Internet vendors to accept
Millicent payments?
All Compaq has to do to make Millicent attractive to Internet vendors is undercut VISA and
MasterCard's 2% processing fee. Give the vendor the appropriate Millicent software for free.
A processing fee of 1% would make any Internet vendor willing to accept Millicent as a form of
payment. Each vendor would set its own Millicent per-page-rate. Most would likely be willing
to accept Millicent for large and small payments under this system, if receiving payment were no
more difficult than receiving payment from credit card processing firms.
Of course, Millicent would have to be totally secure and "un-stealable," but Digital claims that
it already is.
Help Sell Hardware, Too
And, not forgetting that Compaq is a hardware vendor, having the Millicent wallet already
installed on their machines would give Compaq incredible differentiation at retail
point-of-sale, such as CompUSA. Competing PC's would not have, or would have to license,
Millicent software from Compaq. Wouldn't a retail user be drawn to $50 worth of free Internet
information, available only from Compaq? We think so.
Just Briefing's Idea
Will Compaq pursue this direction? Frankly, we don't know. This idea is entirely our own and
is not a discussion of anything Compaq has publicly committed to. There is no reason, at this
time, to believe that Compaq will enact the above strategy. In fact, there may be very valid
reasons why it won't work, and we haven't spent a lot of time thinking out all the angles.
But we definitely believe that if Compaq made an announcement outlining a strategy such as
described above, this stock market would react with enthusiastic glee. Look what happened to
Netscape when they announced an unnamed media partner for their "NetCenter" strategy. The
stock soared from the low 20's to over $40 a share in a matter of days.
What the market is rewarding right now are companies that are positioning themselves to
exploit their dominant position in the Internet. Yahoo's entire valuation is based on the idea
that they will be the main entrance to the Internet. But Compaq could, virtually overnight,
challenge that idea, by exploiting its ability to get to the customer before anyone else, before
they even log on to the Internet. We think the market would love it.
Still Need to Make A Business
Of course, an enthusiastic market reception does not mean that a business plan will
succeed.
Undoubtedly there are people who will react to this idea with the following sentiment: "Give
me a break. Compaq is a hardware company. They don't know a thing about being an Internet
company."
The problem with this line of thinking is best examplified by Digital Equipment itself, which to
the bitter end, viewed itself as primarily a hardware company. And vanished because of it.
With processing power and upgrades beginning to wane as growth engines, Compaq needs to
start looking for new directions now. Digital, despite its preoccupation with Alpha as savior,
managed to fund innovative software groups such as Alta Vista and Millicent. All Compaq
needs to do is bring those groups to center stage, and build a complete company strategy around
them.
An Internet portal strategy based upon Alta Vista and Millicent would both enhance and build
upon Compaq's current business strengths. Although we have only pondered this strategy for
a short time, we find it very intriguing, and would love to see it seriously considered. Compaq
is sitting on two loaded shotguns. All they have to do is pick them up and aim towards the
Internet.
Copyright c 1998 Charter Media, Inc. All rights reserved.
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