Broadband's Failure - The Real Reason

02-Jul-02 09:20=20 ET

[BRIEFING.COM - Robert V. Green] Last week, Yahoo announced = that they=20 were shutting down their broadband product lines that create = original=20 content, including Yahoo! FinanceVision and Yahoo! Radio. Herein = lies a=20 key, simple explanation as to why broadband has been slow to be = adopted -=20 and why broadband will not revive the technology vendors.

Why Broadband Is Important

Broadband technology was widely viewed as the next wave of the = great=20 internet buildout. Internet I, as it was called, was the textual = internet.=20 Internet II was viewed as the visual internet.

As late as 1999, the internet II was viewed as the next phase = which=20 would take the internet revolution, and stock market boom, to even = higher=20 heights. The internet infrastructure would have to be doubled, = benefitting=20 every level of network supplier, including: Cisco, JDS Uniphase, = Exodus=20 Communications, etc.

Even the collapse of the textual internet dot-com companies did = not=20 deter some investors from believing in the internet II broadband = vision.=20 The AOL/Time-Warner merger was supposed to the king of the new = broadband=20 era. But that never happened.

In fact, many still view broadband - meaning streaming = video and=20 audio - as the great technology white-horse that could rescue the=20 technology industry from its current slump.

And it isn't going to happen. At least, not in the foreseeable = future.=20

The Real Problem

Broadband video applications failed because of one simple = reason:

You can't watch TV at work.

Face it, the vast number of internet users are using the = internet at=20 work, instead of working. And broadband video is essentially = the same=20 as TV.

Certainly on-line brokerage accounts owed their great emergence = to one=20 simple fact: you could finally trade stocks at work.

Online trading software existed before the internet came along, = but it=20 was largely considered a colossal failure. FOX (Fidelity Online = Exchange)=20 software, manufactured by Meca Software (now defunct) was a huge = disaster=20 in the early nineties. Why? Because you couldn't use this software = at=20 work. It required that you dial-in, on a modem, to the system. = Office PCs=20 didn't easily have this capability.

When the internet came along, access to online trading was = simple.=20 Internet access, especially in the beginning, was completely open. = Anyone could trade. Instead of calling your broker (which = others in=20 the office would be able to hear), you could enter a trade - = and it=20 would look like you were working. Not only that, but it was = cheaper=20 than a trade from even a discount broker.

Online trading, and all of the associated internet activities = with it,=20 boomed. Internet trading made an existing task easier and cheaper: = online trading liquifiedthe market for market = transactions.

The applications which were successful on the internet during = Internet=20 I days all had the following aspect in common: they liquified an = existing=20 trait or business. Chat rooms liquified water cooler talk. Email = liquified=20 phone calls. Instant messaging liquified email.

But broadband video doesn't liquify anything, especially in the = business arena.

Yahoo! FinanceVision failed because it is neither cheaper = nor easier=20 than watching CNBC and most offices don't watch CNBC anyways! = Because=20 of this, no one was willing to pay for it.

The Future For Business Broadband

So if broadband is to succeed in the business market, it needs = to=20 liquify an existing business function.

At the moment, teleconferencing is the most likely business = event to be=20 liquified by broadband video.

However, here, audio already works remarkably well, and the = price has=20 been continually dropping. Audio conference meetings are becoming = more=20 popular and more frequent. Broadband audio conferencing stand = little=20 chance of replacing the audio teleconference.

Webcasting of conference calls, now widespread, does not = replace=20 ordinary teleconferencing, although it has reduced dial-up 1-800 = costs.=20 However, those costs are replaced by the costs of providing the = webcast=20 service.

Technologies such as webconferencing (Webex or Interwise, for = example)=20 are growing in popularity. These allow a company to present = Powerpoint=20 presentations or multi-media presentations over the internet. = These=20 services liquify a sales call. They probably have strong = futures.=20

But the webconferencing technologies all work well with = existing=20 internet infrastructure. Even rapid growth in webconferencing will = not=20 provide a strong driver to building out the "internet II" network, = with=20 the anticipated benefits to Cisco, Juniper Networks, Sycamore, = etc.=20 Webconferencing services work well with today's infrastructure. =

Other than webconferencing, what existing business function = does=20 broadband replace, at lower and easier costs? If you cannot = provide an=20 answer, broadband cannot be viewed as a dramatic driver of the = internet=20 infrastructure.

The Future For Consumer Broadband

Consumer broadband prospects are even fuzzier.

The truth is that broadband simply costs too much for much home = markets. Most people use the internet primarily for email and = instant=20 messaging. AOL has about half of the consumer market - and that's = what=20 they think the internet is - email and IM.

TV rules the video entertainment market. Broadband internet = video is=20 neither cheaper (it is often more expensive than cable) nor easier = (the=20 remote control beats keyboard/mouse easily) than TV. Until it is,=20 broadband will not dethrone TV as the video device of choice.

To make matters even worse, content for broadband video is=20 significantly worse than for TV, because the best TV content has = been=20 syndicated to TV, not the web.

Pornography is the only significant broadband service. It = provides=20 pay-per-view video and is a lot easier, and more private, than = going=20 to the XXX video store. Quality of video does not matter. = Broadband=20 pornography liquifies the existing porno market.

But there is nothing on broadband today that liquifies the home = video=20 entertainment market. In fact, there is a lot working against = broadband:=20 TiVo and DVD subscription services are just two major drivers. =

Until broadband, internet-based on-demand-video gets linked to = the TV,=20 and not the PC, broadband will not have significant penetration=20 difficulties in the consumer market.

The Implications

For those of you thinking "Great - why didn't you tell me = earlier" we=20 did. Any frequent reader of our Stock Briefs knows that we have = long been=20 discussing this. We became luke-warm on the "internet II" idea = years ago:=20

23-Oct-00 The Broadband Future Gets Fuzzy
27-Nov-00 The Internet: What We've Learned =

If you are still waiting for broadband - Internet II as it is = called -=20 to rescue the tech sector - forget it. You need to develop another = premise=20 for a major driver of technology stocks. (Good luck - we haven't = been able=20 to.)

Broadband applications are likely to continue to develop, but = slowly,=20 and not be a major driver of the overall technology market and = certainly=20 not be a major driver of continued internet buildout.

Unlike cable TV or satellite TV, both of which took their = markets by=20 storm, broadband video is still looking for the key element that = would=20 make it a bull market: liquifying an existing market. Until = that=20 happens, broadband applications are likely to continue to struggle = to find=20 meaningful markets.

Yahoo! found this out the hard way with Yahoo FinanceVision and = Yahoo=20 Radio.

Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com=20