Steeny, here is a WSJ Editorial from yesterday that addresses more deeply the AT&T deal. Food for thought. AOL looks better everyday. Celebrate,
TA
PS: Is the answer at the bottom of the Editorial, AOL? <g>.
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Editorial, Wall Street Journal
May 10, 1999
The New AT&T:
Already a Dinosaur . . .
By John Browning and Spencer Reiss. Mr. Browning and Mr. Reiss edit
In the heady days of late 1980s, when Microsoft was taking over from
IBM as the alpha company in computing, Microsoft executives had a new
vision: "Windows Everywhere." Windows would run on wristwatches,
supercomputers, automobiles and television sets. It would become the ether
of the digital universe, the ubiquitous platform on which would be created
everything from electronic business cards to traffic-management systems for
electronic roads. Given the ease with which Microsoft's flagship desktop
operating system shrugged off IBM's anointed successor, the now-forgotten
OS/2, even the most ambitious vision seemed possible.
No longer. Microsoft's $5 billion investment in
AT&T is an admission of weakness, if not outright
defeat. If customers won't buy Windows CE -- a
lightweight version for the "post-PC" future --
Windows CE will buy customers. And while the
deal will load Win CE into 2.5 million AT&T
set-top boxes -- at a cost to Microsoft of $2,000
each -- it will make it far harder for Microsoft to
achieve its vision in the long term. In the exploding
telecom universe, AT&T chief Michael Armstrong's
own wildest dreams can't pretend to promise
anything like the dominance his own company once
had, or that the lords of Redmond still enjoy on the
PC desktop today.
Now that Microsoft has thrown in its lot with the cable industry, telephone
companies and other would-be providers of bandwidth to homes and
offices have a powerful incentive not to use its products. Why, after all,
should they buy from the competition? And by putting a large,
self-interested partner over its shoulder, the deal further weakens AT&T's
already dubious strategy of vertical integration -- mixing content and
conduit, as our colleague George Gilder describes one of the cardinal
telecosmic sins. Last but far from least, the deal repudiates the qualities that
made Microsoft a great company in the first place.
Microsoft ousted IBM in large part because IBM
became entangled in just the sort of web of money
and high-powered corporate politics that Bill Gates
and Mr. Armstrong are now busily weaving. While
IBM asked customers to wait for a delayed OS/2,
Microsoft argued that every company should live or
die on the strength of products in the marketplace
today. So it is more than ironic that another of the
clauses of last week's deal pledges AT&T to use a
largely untried and only partially completed
operating system, the already-delayed Windows
2000, in the infrastructure of its new cable service.
So much for letting the best technology win. Even if
Windows 2000 works flawlessly -- the odds against which are astronomical
for a product consisting of 35 million lines of mostly new code -- AT&T's
commitment to Microsoft promises little but strategic trouble.
While Internet, telephone and television are famously converging, the
underlying technologies that make convergence possible -- long-haul
bandwidth, local access and interactive content -- are pulling apart. So
AT&T will have to compete in three increasingly distinct markets. Each is
highly competitive. Each plays by increasingly different rules. The obvious
risk for AT&T is a weak link anywhere; entanglement with Microsoft
makes it all the harder to be flexible in response to fast-changing markets.
In long-haul bandwidth, AT&T will have to compete with Qwest, Level 3
and Global Crossing in the new breed of companies laying down vast
fiber-optic networks. By installing massive new capacity, they are rapidly
transforming bandwidth into a commodity -- and destroying AT&T's own
cherished long-distance networks. As the trade in megabit-seconds grows,
what had been a service-oriented industry is becoming a commodity, as
fast-moving and price-competitive as pork bellies or memory chips.
Connecting that bandwidth to homes and
offices is a different business altogether.
AT&T's cable modems are but one of a
spectral array of competing technologies,
including digital subscriber lines, wireless and
fiber-optics all the way "to the curb." All will
require flawless billing systems, armies of neat
and cheerful service engineers and sympathetic phone support for baffled
customers.
Content providers, by contrast, require Hollywood virtues: enthusiasm, a
willingness to sprint with unusual ideas and an equal willingness to dust off
failure and sprint again. AT&T and Microsoft have already poured billions
into comically disastrous efforts to create compelling things for ordinary
people to see and do online.
To win on all those fronts -- as AT&T proposes to do -- is like asking a
TV programming executive to merge a steel mill with an employment
agency. Yet AT&T insists that the core of its strategy is the ability to bundle
content with high-bandwidth consumer access and its own long-haul
network.
AT&T is right to see value for the customer in integrated service; most
people don't really want to manage for themselves the complexities of
converging Internet, telephone and television services. But AT&T is
profoundly wrong to conclude that the company providing one-stop
shopping for information and communication also has to make the bits it
sells. That may be the way AT&T ran the Bell network 30 years ago, but
the fundamental truth of the Internet age is that connectivity can be taken for
granted; you don't need to run the whole thing to make the parts work
together. The only company that has recently come close to success in
integrating content and transmission, America Online, has been retreating
from the conduit business, the better to make sure that its content can run
on every network from mobile phones to interactive TVs: "AOL
Anywhere."
Buffeted by competition from without, AT&T will be hobbled not just by
corporate politics with Microsoft, but by the double barn-sized target their
marriage represents for hostile consumer groups, mischievous competitors
and ambitious politicians. Regulators are already under pressure to set new
rules guaranteeing open access to bandwidth and to content, from which the
cable world to date has largely escaped. Mr. Armstrong argues that
AT&T's new pipes will be open -- to anyone willing to make a deal. But, as
everyone from AOL and the Net's IPO-fueled legions is already asking, on
whose terms?
By buying itself a $5 billion seat at the term-setting table, Microsoft has also
put itself in a no-win situation. If it succeeds in tilting the playing field, it will
drive away the other innovators that AT&T desperately needs to make its
convergence a success. Indeed, it was Microsoft's own steadfast (and
self-interested) defense of the open platform for desktop operating systems
against IBM's efforts to tilt the playing field that enabled the PC to beat
Apple, and that brought Microsoft to power. Like IBM in the 1980s, if
Microsoft fails in this new endeavor, it will have helped to buy the rope with
which it's hanged.
If we've learned anything from the Internet's explosive growth, it's that open
systems are the breeding ground of success. Microsoft and AT&T are
re-creating the Big Blue monolith that Microsoft defeated -- closed,
inward-looking, vertically integrated. The question is, who will be their
Microsoft? |
