This season's onslaught of ads for Web companies is popularizing a strange new come-hither phrase: "Log on to our Web site." The truth is, of course, that very few Web sites require you to "log on" for access -- only those rare services that charge money or that require registration demand any kind of user ID and password, and most of those let you store your logon info (usually in a "cookie" file on your computer) so you don't have to keep retyping it.
The Web is a logon-free zone; most Web sites know nothing about you other than what you choose to tell them (and you could tell them anything). But there is somebody in the online business who does know exactly who you are, where you live and what your credit card number is: your Internet service provider, or ISP. And in an industry where information about users is considered money in the bank, that kind of relationship is priceless -- thus the rise of a new "free ISP" industry, which offers consumers free Net connections in exchange for even more detailed marketing data.
Mostly, the Internet has evolved with a healthy division of labor and responsibility between companies that provide content, information and services (like Yahoo, Amazon or Salon) and companies that provide raw connectivity (the Baby Bells, EarthLink/Mindspring, your local mom-and-pop ISP). There's only one major exception to this rule -- America Online. In evolving from a proprietary dial-up service to the mother of all ISPs, AOL cultivated its business of aggregating content and commerce while expanding its role as the world's largest provider of online access. That put it in the catbird seat of Internet marketing.
I'm taking the time to review this with you because it's essential background if you're going to make any sense of the hurricane of rumors that has recently engulfed the Web industry: Excite@Home, the story went, was going to split apart, selling its "content" business (chiefly the Excite Web portal) to AOL and leaving @Home's cable-modem distribution "pipes" in the hands of Excite@Home owner AT&T. The rumors blew across the markets all last week before subsiding in a cloud of official press releases packed with non-denial denials and a cancelled Excite@Home board meeting Monday.
Didn't Excite and @Home just announce their merger in January, to analysts' cheers? Isn't the company engaged in a high-profile regulatory battle with AOL, which is demanding that @Home be required to allow AOL customers to connect to the Net via the "pipes" of @Home's many cable-company partners? What on earth is going on?
Excite@Home was the first company in a long time -- at least since Microsoft tried and failed to turn its Microsoft Network into a media empire -- to challenge AOL by co-opting its strategy of tying together distribution and content. @Home planned to pull off the same coup that AOL once did, but using speedy cable modems instead of poky telephone dial-up connections.
Now it seems that AT&T -- which, when it acquired cable giant TCI, also acquired a controlling interest in @Home -- has had second thoughts about this strategy. AT&T, of course, is the original "all-pipes" company, and apparently it has little stomach for the thorny world of new media -- or the kind of trench warfare it might have to engage in to fend off AOL's "open access" attack.
So if the rumors prove correct, and AT&T engineers a breakup of Excite@Home and a detente with America Online, it means that AOL has won a bloodless victory and secured its future in the "broadband" world of high-speed cable modems and DSL lines. Right?
Not necessarily. Indeed, it could be the beginning of the end for the cozy AOL universe.
America Online currently derives enormous amounts of revenue from its $22-a-month fees. And it's through collecting those fees and providing Net access that it establishes a closer relationship to users than its chief rivals, like Yahoo, can count on.
People typically hate the idea of paying more than one company each month for their Internet service (that's one reason subscription-based pricing for Net content has had such trouble -- consumers feel that they've already given at the office of their ISP). So if in the future you are paying a cable provider (AT&T or whomever) each month to connect you to the Net, you are unlikely to want to send a check to AOL as well.
Now, of course AOL could sign a deal with AT&T -- in fact, one is rumored -- in which AOL provides the content and services, AT&T provides the connectivity, and the two companies find a way to split the monthly check. Everyone's happy. Except there's one hitch for AOL: That "open access" banner it has waved so avidly this year would fly back into the company's face.
To AOL, "open access" has so far meant "open up your cable networks, AT&T/Excite@Home, and let us in!" But if AOL closes a deal with AT&T, open access will suddenly mean something very different: The principle would require AT&T to give AOL's rivals the opportunity to deliver their services over AT&T's pipes, too. And -- here's the rub -- most of those rivals (like the most formidable, Yahoo) don't charge users a cent. So they can give consumers or AT&T (or both) a better, or certainly cheaper, deal than AOL can.
Now, it's not at all clear that open access is a legally enforceable concept in this area. But AOL has been its loudest proponent to date, and the company would look ridiculous if it signed a treaty with AT&T and then turned around and denied open access to its competitors. Furthermore, those competitors' services are already accessible from any Internet connection -- you can use Yahoo from any AOL account today.
AOL doesn't care about any of this as long as it collects its monthly tax from you. But what if the new world of cable modem service undermines that revenue?
The dirty little secret of AOL's success is simple: It's not the quality of content or service but the ease of installation that has allowed AOL to prosper. AOL's introductory disks are idiot-proof, and its service remains the single easiest way for neophytes to connect to the Net.
Today, high-speed Internet service -- whether based on cable modems or telephone companies' DSL lines -- is still pretty complicated to set up: Technicians typically have to visit your home. But it won't always be that way. And as soon as someone invents a high-speed Net connection with a no-brainer installation process like AOL's, AOL is in big trouble.
To be sure, AOL could invent that easy on-ramp itself. Then, if it could also wean itself from its dependence on revenue from monthly fees (as it once kicked its hourly-fee habit), it could continue to extend its roster of millions of users. But whether it adapts this way or not, the company is plainly entering a new era in which its old formulas will no longer serve it. If it tries to remain an ISP, it will lose ground to the higher-speed competition; if it gives up its ISP role, it will lose its privileged relationship with its customers' credit-card accounts.
In other words, whether AOL wins the open-access war in court or at the deal-making table, its world will never be quite the same. As for Excite@Home, it now looks fairly unlikely that the company will survive in its present form -- which means that its attempt to emulate the AOL model is also headed down the tubes.
However the broadband future evolves, it looks like there's still hope we can keep some kind of division between ownership of Internet content and control of online distribution -- in other words, to prevent, as it were, the publishers from owning the newsstands, or the telephone companies from owning all the 800 number services.
I don't know about you, but I'm kind of relieved. AOL's captive-audience model has been successful for the company, but it's not my idea of the ideal arrangement for the customer, who winds up barraged with pop-up advertisements. How would you feel about paying a telephone provider who expected you to listen to ads before making a new call? Anyone with such ill manners doesn't deserve to know my credit card number.
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