By: Steve Outing
Online news content providers are beholden in large part to forces beyond their control, as they await speed breakthroughs for Internet access beyond today's standard 28.8 kbps modems. A technology that has a lot of people excited and optimistic is the cable "modem," which provides two-way data delivery to PCs over cable systems. Cable modems promise huge speed breakthroughs, reducing the time to download a 10 megabyte file from 46 minutes on a 28.8 modem to 20 seconds, and are always connected (eliminating that annoying requirement to log on when wanting to use the Internet).
But how long do we have to wait for this technology to be available to consumers? And will other technologies from the telecom companies beat the cable industry to the market? Can the cable industry pull this off?
A new report on the cable modem industry, published by SIMBA Information and researched by Boulder, Colorado-based Lennox Research, offers a reasoned analysis of the cable industry's data-over-cable initiatives and its chance of succeeding. Here are some of Lennox's key findings. (Thanks to Lennox's Bob Wells for allowing me to examine some of the group's proprietary research.)
* Lennox is not, after completing this study, among the cable industry's cheerleaders for cable modems. "It is our contention that cable modem service will not bring 'Web dialtone' to mass-market America," the report says. "But we do think the service will be enthusiastically received by an early-adopter minority. Gaining further penetration, into the elusive 'mass market,' will be more difficult." This analysis is counter to many cable executives' bullishness on the cable data access market.
* Early users of cable modems (in the now numerous trial runs being conducted by several companies) have been upscale, educated, PC "power users" and work-at-home types. To find time for the new service, researchers found, they watch less TV, sleep less, and even cut back on sex. These early adopters say that they have become "addicted" to using the Internet at fast cable-modem speeds. (It's this enthusiasm that has aroused such excitement among cable executives. Commented one cable executive contacted by Lennox, cable modem cruising of the Web versus analog modem cruising is "like airplanes versus cars." Said another, going back to 28.8 after using cable modems was "like driving behind farm equipment.")
* A Lennox-organized study panel of marketing and content-creation experts was unimpressed by a cable modem demo. The group expressed serious doubt that cable modems can "cross the chasm" to the mass market and predicted that cable Internet access will remain the domain of early adopters and the technically savvy. The group at the outset of the session predicted cable modem penetration at 5.1 million U.S. homes by the year 2000; by the end of the discussion, the group settled on a figure of only 1.9 million.
* The report suggests that today's 28.8 analog modems and ISDN (the phone companies' "digital phone lines" offering 128 kbps speeds) will be vibrant competitors to cable modems for the near term. Medium term, the cable companies will see significant competition from the telcos' move to faster ADSL technology over twisted pair phone lines. And longer term -- by the year 2000 -- the major players in the telecom industry will invest in fiber to the curb, which will outperform cable's hybrid fiber/coax network.
* Cable modem prices will trend downward from a $450 average cost in 1996 to under $100 in 2004. Monthly service pricing for consumers will be about $23 monthly in the year 2000, with corporate, high-volume accounts at $250 a month. Initial 1996 pricing is likely to be in the $30-$50 a month range. (Cable modems are "connected" to the network at all times, so there is no per-hour charge in the cable modem model.)
* Monthly pricing for cable Internet access on networks like @Home will decrease over time as advertising begins to account for some of the revenues. @Home, the cable data venture backed by cable behemoth TCI and venture capital firm Kleiner Perkins, plans to make much of its long-term money from content providers who bring advertising to the cable modem network.
* Lennox and SIMBA believe that even with the most aggressive build-out schedule, the industry will peak with unit sales at 1 million cable modems per year in 2001; a more conservative industry strategy would see a peak of 600,000 units sold annually by the year 2003.
* Given the low projected cable modem penetration numbers, the researchers recommend that content providers create World Wide Web content that is scalable -- that is, that is enjoyable to 28.8 modem users as well as cable modem users. We already see that on some Web sites, which offer a standard HTML version and a Java version for high-bandwidth viewers.
* Games, movie spin-offs, narrowcast audio, and work-related distance learning are applications that will benefit most from cable modem speeds, Lennox says. The appeal of e-mail and personalized narrowcasting, however, is not dependent on cable modem speeds and these Internet applications will succeed even at today's slower access speeds. In fact, tests conducted at the cable industry's research unit, Cable Labs in Louisville, Colorado, found very little difference in user satisfaction between cable modems and 28.8 or ISDN when users were working with text files and simple graphics.
* Despite some compelling advantages of cable modems over existing dial-up modem Internet access and ISDN, cable companies have a serious hurdle to overcome, the Lennox report suggests. "Some of the main cable companies involved in the (cable modem) endeavor will have to prove that they are serious about overcoming a lengthy legacy of being, far too often, arrogant apostles of understaffing. An entire industry's negative image borne out of memories of outages, phone calls put on hold, and that image of the rough-hewn installer -- these don't morph overnight into a seat in the pantheon occupied by high-tech superstars like Microsoft, IBM and Silicon Graphics."
* Lennox predicts that 1996-97 will see cable modem vendors pursuing proprietary approaches, and that a set of interoperable standards will not emerge until 1998. This means that early cable modem buyers if they move to another city may not have a device that works with another cable system until 1998, which Lennox believes that standardized cable modems will be in retail channels.
Lennox/SIMBA's report doesn't seem to bode well for the cable modem industry. If the report's projections are accurate, it won't be until 1998 that fast, industry-compatible cable modems are available at a price point equivalent to today's analog modems. By that time, the telcos will (perhaps) have made significant strides toward their own fast Internet access with technology like ADSL. And the telcos don't have the baggage of the cable industry's historical dismal public perception.
The lesson of this report to Web publishers is not to give up faith -- there is faster Internet access headed our way. But for the next couple years, plan on designing Web content to please the 28.8 modem crowd, knowing that only a minority of online users will be viewing you at faster speeds.
Did you know?
Cable modems aren't new. The first devices that supported high-speed data over coaxial cable were developed in 1981-82. With funding from the U.S. Department of Defense, a group at Wang Laboratories in Bedford, Massachusetts, and Mitre's Lincoln Labs in Lincoln, Massachusetts, developed the first campus-sized local area networks using coaxial cable and what they called "cable adapters" to connect large numbers of mini-computers. This technology could carry more data than an Ethernet network. Fifteen years later, the cable modem is finally getting its day in the sun.
"Cable Modem Report: Business Dimensions and Market Opportunities" is published by SIMBA Information, 203-834-0033. Price is $950.
Contact: Bob Wells, Lennox Research, wells@lennox.com
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