LATimes interesting article on @home
[Also good articles on daytrading in Sunday edition...]
latimes.com
Sunday, February 21, 1999
A Clash of Cultures, Expectations at the Internet-Cable
Frontier
Technology: As demand for high-speed Web access heats up, @Home
has run afoul of both partners and customers.
By MICHAEL A. HILTZIK, SALLIE HOFMEISTER, Times Staff Writers
REMONT, Calif.--Aficionados of "community-building"
on the Internet would be hard pressed to find a better
example of how the Web brings people together than a
gathering here last November.
More than 50 people, summoned by an e-mail appeal
distributed over @Home Corp.'s Internet service, of which
they were all members, met at a private home to chart a protest
campaign: concerted action, alerts to local media, even a
possible class-action lawsuit.
As it happened, @Home was not only the instrument of
their gathering but also its target: The issue that had brought
them together was an inexplicable deterioration in @Home's
service and their inability to get a straight answer from its
customer service representatives.
The Fremont crisis was eventually solved, but it delivered a
couple of important lessons to @Home's management. One is
that the system's unusually complex technology still has
countless bugs. The other was that customers are developing a
highly personal relationship with their @Home service. .TE:
"I'm glad people are emotionally involved in what we're doing,"
Dean A. Gilbert, the network's senior vice president and
general manager, said dryly.
But that is not surprising. @Home, founded in 1995 as a
consortium of Silicon Valley networking engineers and a group
of cable television operators led by Tele-Communications Inc.,
is bidding to become the leader in delivering "broad-band" Internet access to the
home.
It is also an experiment of a different sort: an exploration of whether two
businesses with highly disparate technologies and cultures--cable TV and Silicon
Valley high-tech--can coexist long enough to exploit the tremendous financial
potential of a new communications medium. Relations between the two sides have
often been touchy, leading to at least one heated argument at a recent board
meeting.
@Home will have to plumb these issues under an increasingly bright spotlight.
Once a modest, if well-financed, start-up, the company has begun snaring more
public attention. Though it opened 1998 with only 50,000 subscribers (barely a blip
on the roll of Internet access providers), @Home had 330,000 by year's end in the
U.S. and Canada, including more than 30,000 in San Diego and Orange counties. It
expects to cross the 1-million threshold later this year.
The company estimates that about 13 million North American homes are
currently served by cable lines upgraded to handle the service (although actual
subscriber numbers are limited, in part, by the fact that fewer than half those homes
may be equipped with personal computers to access the Internet).
Perhaps more important is the public impact of @Home's high-profile, $6-billion
deal last month to acquire Internet portal company Excite Inc. The deal, @Home
executives say, is a key to transforming the company from merely a novel
distribution system for Internet content to a purveyor of a multimedia
"experience"--something they believe is essential to make @Home a must-buy for
average consumers.
At the heart of @Home's business is the technology to funnel data to customers
through a much larger and faster pipeline--in @Home's case, the coaxial television
cables--than the phone-line-and-modem setup through which most consumers reach
cyberspace today.
The difference is theoretically huge: Think of the capacity of a fire hose compared
with that of a kitchen tap. The larger pipe affords users the ability to download video
clips and other heavy-duty content at a rate that @Home claims can be up to 100
times faster than that of conventional modems.
Moreover, because the Web access comes into the home on cable rather than
tying up a telephone line, and thus can be on permanently rather than intermittently,
the system makes the Web much more of a utility than does conventional dial-up
access.
"People use the computer very differently because it's always connected," said
Milo Medin, an @Home founder who is its chief technical officer. "You can use the
computer for 30 seconds at a time--go for movie listings, the weather forecast, the
phone book. No one is going to do that if they have to boot up the computer, start
the modem, wait for it to connect and so on."
Yet the route to bringing that capability to hundreds of thousands of homes has
not been without its potholes. Perhaps the most serious is a cultural and
philosophical gap dividing the two industries that must converge if @Home is to
succeed.
Under the exclusive arrangements that bind @Home to its 18 cable partners,
@Home is responsible for designing the high-speed network and providing such
centralized services to subscribers as e-mail, Web-page hosting and a home page
featuring news headlines, shopping links and chat groups.
The cable operators, in turn, must undertake the costly upgrading of their own
local networks to accommodate two-way transmission. They also handle all local
marketing and promotion of the service, as well as billing and customer complaints.
For that they receive 65% of all revenues from the service in their areas. At the
moment that amounts to a share of the roughly $40 per month paid by subscribers,
but it may someday include advertising receipts and e-commerce commissions as
well as other income.
Interviews with people on both sides suggest it has not always been easy to meld
the fiscally and technologically conservative culture of cable TV with the Silicon
Valley-millionaire aspirations of @Home's youthful employees--the latter symbolized
by a sales executive's cherry-red Porsche bearing the license plate "ATHM IPO,"
which is often parked in a prominent spot in front of the company's Redwood City
headquarters.
The leader of the Silicon Valley cadre is Tom Jermoluk, 42, @Home's
Hawaiian-born chairman and chief executive, who is known as "T.J." Jermoluk was
hired to run @Home, fresh from a stint as chief operating officer at Silicon Graphics
Inc., by John Doerr and William Hearst III, @Home's venture capitalist founders.
Though he is an effective proselytizer for the service in the media and in the
high-tech community, to many cable executives Jermoluk exemplifies a freewheeling,
informal Silicon Valley ethos some find off-putting. Jermoluk could not be reached
for comment.
"T.J. loves to strike a pose sitting on a Coke machine and have free food and
masseurs at @Home," remarked one cable executive. "People run around without
shoes. I'm not saying that's wrong, but it is to cable operators."
More substantive is the philosophical gulf between the two camps over
@Home's business plan. This led to open warfare at a board meeting last week,
sources say.
The fight erupted after Jermoluk described @Home's plans for exploiting the
Excite acquisition. Sources say he proposed giving Excite a prominent spot on the
@Home home page, which is the first thing most subscribers see when they open
the service and thus would incline them to rely heavily on Excite for a range of
features. Competing portals like the top-ranked Yahoo would be denied such
premier display space.
@Home and cable industry officials say there was never any intention of
preventing Web surfers from accessing Yahoo or any other site on their own.
"How to integrate Excite is a discussion underway," said Brian Roberts, who sits
on the @Home board as chief executive of Comcast Cable Communications. "But
there was an absolute discussion that @Home would remain an open system"--that
is, with free access for users to the rest of the Web.
Leo Hindery, president of TCI and also an @Home board member, reiterated
the cable companies' commitment to open access: "On @Home, all [Web] content
is just one click away."
Still, the plan to grant Excite preferential display appalled some cable executives
on the board, sources say, because it smacked of the kind of access limitation that
might infuriate regulators.
"If @Home subscribers can't get to Yahoo easily, it's bad politics, it's unfriendly
for customers, and it's what got Microsoft in trouble with [the Department of]
Justice," said one cable operator. "I want them to be nondiscriminatory."
The cable people were even more nervous because they had only narrowly
forestalled a battle before the Federal Communications Commission, their regulator,
over whether they should be forced to allow competing Internet services like
America Online Inc. equal access to their cable lines to reach customers.
AOL had tried to block AT&T Corp.'s merger with Tele-Communications, the
cable company that owns a controlling block of @Home, demanding the phone
company open its cable lines to all. Last week the FCC approved the merger but
said it would "monitor" the open-access issue, which is also being considered by
municipalities around the country and which threatens to undermine the cable
operators' potential profits from providing Internet services.
The fight underscored how differently the @Home camp and the cable operators
view the service. "T.J. thinks he's a content provider and a portal," said one cable
executive, "but he's just a glorified cable company."
The @Home people, however, believe strongly that the service cannot thrive if it
is limited to being nothing but a new kind of distribution medium. High-speed
Internet access will eventually become so widely available (many local telephone
companies are poised to introduce a technology known as "digital subscriber lines,"
or DSL, that can match cable broad-band for speed and capacity) that prices and
profit margins will plummet.
The key to success, @Home believes, is to create an "experience" that will give
customers other reasons for joining @Home than simply its speed.
For that reason, @Home's headquarters fairly hums with the energy of young
technologists developing services and commercial relationships they can market as
exclusive @Home features--downloadable CNN video clips, news and chat
groups, direct merchandising and the like. Only with such features can @Home help
its cable partners remain one step ahead of other high-speed-access providers.
"Users don't care about what they're on as long as it's fast," said Ron Rappaport,
industry analyst for Redwood City-based Zona Research, an Internet research firm.
"But they want [their service] to have a 'face.' "
Still, even with a "face," @Home needs to improve its service record if it is to
win broad acceptance among consumers, according to existing customers.
The network's growing pains have included service slowdowns and outages that
have belied its promise to deliver vastly higher network speeds.
To a certain extent, those problems spring from the complexity of the @Home
network itself, which uses coaxial cable to do something it has never been asked to
do before on a large scale: allow two-way transmission of raw data.
"We're growing rapidly, the technology is incredibly leading-edge, and we're
inventing something that has never been invented before," said Gilbert, the network
general manager.
Moreover, unlike dial-up services like AOL and AT&T Worldnet, which use
phone lines to give each user individual access to the Web, @Home is a "shared"
service. That means subscribers connect to the Web via a single broad "pipe" that
can serve up to 500 at a time.
Theoretically, the pipe is capacious enough to provide all users with high-quality
communications. But often the first subscribers in a neighborhood, after growing
accustomed to having the pipe largely to themselves, complain that their access
speed deteriorates noticeably as it becomes more crowded, much the way suburban
schoolrooms fill up with children as their communities become fashionable.
Moreover, the system is vulnerable to "bandwidth hogs"--sophisticated users
who pump so much data through the pipeline that they crowd others offline.
Rectifying these problems is hampered by the division of responsibilities between
@Home and its cable partners. Once a cable system upgrades its lines to carry the
service and begins signing up subscribers, installation backlogs proliferate, according
to customers and cable operators.
The reason is that the technology is so complex that it can take two installers as
much as a full day to add specialized hardware to a customer's computer and
connect the lines.
The system's hybrid nature has also allowed some problems and customer
complaints to fall through the cracks. That was what happened in November in
Fremont, a TCI-serviced community that was one of the first in the country to get
@Home service.
Fremont subscribers say that when they first reported significant slowdowns in
their service, their TCI customer representatives gave confusing and inconsistent
explanations.
"@Home and TCI pointed the finger at each other," recalled Dan Calic, a
subscriber who organized the protest meeting. As the primary provider of customer
support, he said, "TCI was clearly overwhelmed by the situation."
It turned out the problem was caused by an @Home technician who mistakenly
placed a cap on the speed with which the Fremont system could deliver data to
customers. But because TCI was simultaneously running tests on its system to
determine its suitability for delivering telephone service, repair technicians spent
weeks checking whether that work had interfered with the network.
"We couldn't tell customers we knew what the problem is," said Gilbert,
"because we didn't know."
He and other @Home executives say the company is trying hard to simplify the
system to make installation and trouble-shooting easier for the cable partners, who
are likely to remain the front line of contact with subscribers.
They also note that even customers who have had problems are loath to abandon
the service.
"When the service works, it's one of the best," agreed Scott Greczynski, a
Hartford, Conn., customer who runs an online forum for local @Home customers
with service gripes.
@Home executives say their most visionary cable partners appreciate that
integrating Internet access into their service offerings, costly as it may be at first, has
the potential to transform their companies.
"We're delivering a vision for themselves as communications companies," rather
than simply as video transmission companies, said Adam Grosser, @Home's vice
president for program development.
That is seconded by cable executives such as Steve Burke, president of
Comcast, which currently has 65,000 @Home subscribers.
"When we get an @Home customer, they think differently about us as a
company," he said, adding that he believes Comcast's heavy capital spending to
upgrade its system today will yield greater profits in the future as more customers
come online. "If you go out five years, the financials are very positive," he said.
Copyright 1999 Los Angeles Times. All Rights Reserved
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