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page 8 of 10
Goliath
At Bay
Looking beyond
Intel, this experience led Corrigan and Halla to conclude that their company
commanded all the crucial CoreWare ready to deploy a teleputer on a single
device manufacturable in volume for about $50. Attesting that Halla’s
view is not fantasy is the success of the Sony PlayStation, now on sale
for $299, leaving room to buy a monitor and still stay under $500. LSI
also has several as-yet-unannounced design wins for cable modem chips
aimed at the markets to be opened by @Home.
Intel’s response to such capabilities is its currently embattled
program for native signal processing. NSP allows software implementation
of real-time functions performed in special-purpose hardware under the
“CoreWare” model. As Grove points out, DSPs and compression
chips may be getting cheaper all the time, but from Indeo video to Proshare
teleconferencing to Intel’s new Vertical Blanking Interval webware,
NSP comes free of charge—if you are already buying a Pentium (and
you probably are).
But no sooner will the CPU suck in another real-time role than a new virtual
temptation will glimmer on the horizon. For reaching the ever- receding
real-time goals—from continuous speech recognition to 3D rendering—the
CoreWare approach will prevail, at least until the arrival of the new
super broadband mediaprocessors from MicroUnity and other Silicon Valley
firms.
REGARDLESS OF WHAT HAPPENS on these far frontiers of technology, John
Doerr will launch his five smooth stones as the foundation for a new industry.
With Intuit leading the move to Internet financial services, Netscape
pioneering Internet software, Macromind supplying the authoring tools
for multimedia, @Home providing the bandwidth and Sun offering Java and
UltraSPARC, the entente is on its way.
But perhaps Doerr’s most important stone is Sun. Asked to name the
key influences in TCI’s shift toward the Net, John Malone mentions
Doerr first, hesitates and then stresses the role of Scott McNealy, chairman
and CEO of Sun Microsystems. Relentlessly, year after year, McNealy would
travel to Denver and give his pitch to Malone: Buy sets of Sun servers
and link them to your headends in order to supply data services. At first
Malone resisted. “Two-way data,” he used to say, “is not
a business that I want to be in.” But as the Internet grew, McNealy’s
argument gained new force. In late 1994, it triumphed.
Malone now believes that two-way broadband communications is the heart
of his business. For a total investment of less than $188 million, Doerr
claims @Home can launch a business yielding at least $500 million in cumulative
revenues by the year 2000. Later this year, the Sunnyvale system will
be up and running. Weeks later, depending on cooperation from other cable
companies, the entire state of Connecticut will move onto broadband two-way
cable.
At that point, all the other cable companies will accelerate their drive
to upgrade their facilities to accommodate the gold rush. By the turn
of the century, @Home hopes to extend service to all the major urban and
suburban centers.
With Sprint, TCI leads a cable group that is paying $2 billion for wireless
personal communications service (PCS) spectrum across the country. Through
New York-based Teleport Communications and other bypass providers, TCI
and other cable firms already command fiberoptic rings through most major
metropolitan areas. With cable providing broadband backhaul for pcs, @Home’s
founders think the company will emerge as the backbone for a full service
digital communications network, including high resolution teleconferencing,
on-demand films and other pay-per-view video, local news and school listings,
classified advertisements, World Wide Web resources, and multimedia programming.
TCI itself is furiously upgrading and streamlining all its billing systems
to accommodate this rich transactional environment.
Zero Marginal Magic
Perhaps most important, as Nathan Myhrvold explains, is the extension
of the computer model of flat-rate pricing into the field of communications.
When you buy a PC, you purchase its MIPS and bits essentially at a flat
rate. The average cost per MIP or bit of memory you use is determined
by how much you use the machine. The marginal cost is zero. As a result,
people have a powerful incentive to use computers as intensively and creatively
as possible.
This flat-rate pricing effect—where incremental costs are essentially
zero—largely explains the huge success of the general-purpose PC
and the companies supplying it with software and peripherals. Faced with
a zero marginal cost of incremental use, PC owners channel as much of
their information processing, education and entertainment as possible
through the PC. Flat-rate pricing makes the PC a dire threat to all contiguous
industries and related functions.
Similarly, on the Internet model, you will pay a flat rate for bandwidth.
Again marginal costs will be zero. Average cost will respond to the extent
of usage rather than to a Public Utilities Commission tariff or some per-minute
charge. As Myhrvold points out, this approach will give you a tremendous
incentive to exploit bandwidth as fully as you can, channeling as much
communication as possible away from systems that charge incrementally
and toward flat-rate systems. In the end, nearly all communications will
gravitate toward the Internet model, and companies will prosper to the
extent that they can ally themselves with this tremendous force of creativity
and economy.
Myhrvold now says that bandwidth is growing at the same pace as Moore’s
Law. Gates, too, though long alert to the effects of exponentials in semiconductors,
is strangely blind to the faster trajectory of communications. He finds
the Internet a big surprise: “Who predicted it?” he asks. “Let’s
find the guy and make him king.”
But by any measure—nodes, total bandwidth, traffic—the Internet
has been doubling every year since 1970, and many people have predicted
that it would come to dominate communications. I prophesied in 1989 that
it would usurp television.
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