AOL Sees Future Connecting Homes to Internet Through TV, Phone
Dulles, Virginia, May 11 (Bloomberg) -- America Online Inc.
has seen the future and it's televisions and telephones --
connecting to the Internet through commonplace technology, rather
than personal computers.
As rivals such as Yahoo! Inc. and Lycos Inc. challenge it on
the Internet, AOL is taking the first steps toward an online TV
service that could put it in almost every U.S. home. Last week,
it announced the acquisition of closely held NetChannel Inc., a
small Internet TV service. AOL is also exploring Web technology
for telephones and handheld computers, said Barry Schuler, head
of interactive services.
The foray into TV and telephones will not be without
problems for the U.S.'s biggest online service, with more than 12
million subscribers. AOL provides access and content, not
equipment, and the new service would need new hardware. Still,
AOL is pushing forward, hoping to leave its competitors behind.
''If you look at the TV, it has 99 percent penetration in
households. That's the number AOL has in mind,'' said Patrick
Keane, an analyst with Jupiter Communications, a New York market
research firm.
Also last week, Spyglass Inc., a Naperville, Illinois-based
company which makes Internet browsers for TVs and telephones,
said it's talking with AOL about creating a product for the
online service.
Web Site Redux
While Dulles, Virginia-based AOL is examining how Internet
use is changing, the company also is refining its existing
service. Among other things, the company is conducting trials of
high-speed Internet access over phone lines in cooperation with
GTE Corp. This summer, it also will reintroduce its Web site,
aol.com, which analysts consider weak when compared with
Yahoo!'s. Schuler declined to specify any changes.
''They can raise revenue and put pressure on competitors
with the Web site,'' said William Blair analyst Abhishek Gami,
who has a ''buy'' recommendation on AOL's stock.
Yahoo!'s Web site ranked first in usage in March among
people accessing the Internet at work, while AOL was rated third,
according to Media Metrix, a service that tracks Internet use.
AOL's site was most popular with home users, with Yahoo! a close
second.
America Online, which has provided online services since
1989, helped popularize the Internet by making it simple and easy-
to-use. That same approach could help AOL make the Internet-on-TV
a mass-market phenomenon, analysts said.
What works for the Internet on the PC may not be suited for
the television or the phone, Schuler said.
Linking TV and the Internet needs to be communal, Schuler
said. An AOL TV service might have a split screen that would let
people watch, say, ''Friends,'' while chatting over the Internet
with other viewers about the show.
Internet TV shopping is another application the company has
high hopes for, he said.
''It's worked well both online and on TV,'' Schuler said.
Risks
Analysts aren't so sure there will be a mass audience for
Internet access through TVs and telephones.
The 25 million households, now online mostly using PCs and
telephone lines, will expand to 57 million by 2002, according to
Jupiter Communications. But only 12 percent of those will go to
the Internet through TV -- that is, through modems provided by
cable TV companies -- Jupiter estimates. There now are only about
200,000 cable-modem subscribers.
Most people ''will still access through dial-up modems,''
said Abhi Chaki, a Jupiter analyst.
There are other problems, and AOL must persuade cable-TV
companies to give it a place on the lineup of channels.
And because AOL doesn't make hardware, it must rely on other
companies to create set-top boxes to hook TVs to AOL.
''The biggest issue is that devices aren't just here yet,''
said William Blair's Gami.
AOL won't say when its Internet TV service might be ready
for prime time. It took the Internet a decade to become a
mainstream medium, and it might take that long for Internet TV,
Schuler said.
''The PC will be No. 1 for the foreseeable future,'' he said.
GROW you AOL, grow! You'll soon be ready for more 3COM equipment.<g>
o~~~ O
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