One’s a fact box, the other a souped-up phone

At the recent Consumer Information Appliance conference in New York, we discovered that there seem to be two distinct schools of thought about just what a “consumer information appliance” is supposed to be. One school sees it as a self-contained, ultra-portable box that holds answers — a kind of Walkman for facts. The other school views it as a wired-in, home-based communication center for conducting transactions — a glorified telephone.

Both schools agree on a few basic principles. First, consumers won’t pay very much for the hardware. Franklin Electronic Publishers, which is known for pocket spelling checkers and the like, says that $60 (including the intellectual content for one application) is the upper limit for a standalone device. But that’s okay, because successful products will sell in the millions.

Second, whatever it is, an information appliance is not a personal computer. The difference is one of purpose: A PC is designed to manipulate information that the user provides, while a CIA is for accessing information that others provide.

Data in your pocket. Bruce Mendel, speaking for Casio, said that his company expects to begin providing content and applications, up to a megabyte in size, on PCMCIA cards. (PCMCIA is the newest computer industry standard for plug-ins of all kinds; cards are about the size of a very thick credit card.) Casio’s target price is $50 at retail.

He also noted that, while a gadget that fits in a shirt pocket is nice, most prospective users will demand a big screen. Casio is exploring a three-panel folding display (like a triptych) that it hopes will resolve the contradiction.

Franklin’s Mike Strange countered by saying that even PCMCIA is much too big for a shirt-pocket device. And while PCMCIA may be a computer-industry standard, it is hardly an information-appliance industry standard because, in fact, there aren’t any standards yet. However, if Franklin is successful in selling millions of its “digital books,” it believes it will be able to set standards for the industry.

SELLING POTS USING ‘SMART PHONES’

ISDN, the much-discussed integrated services digital network, may indeed be just around the corner, as its supporters say. But the bulk of the phone company’s revenues will continue to come from POTS — plain old telephone service — for years to come. (For that matter, a lot of telco customers have ignored the previous big technology shift; they still have rotary-dial phones.) Fortunately, there are several growth applications that can work fine over ordinary voice-grade phone lines.

Add a display. The key to all of them is adding a character display of modest size to the standard touch-tone phone. The display can be used to deliver information (e.g., your bank balance) directly. But its main role is to display prompts and menus, substituting for an endless aural recitation of choices. (“Press 1 for the sales department; press 2 for customer service; press 3 to be put on hold for 20 minutes.”) The display is rapidly updated by the information provider via a built-in, 1,200-bps modem.

With on-screen menus to guide them, users can rapidly navigate a complex hierarchy of services and options. Applications include home banking and other financial services, placing catalog orders, buying theater tickets and restaurant reservations, and even fairly sophisticated public opinion polling. The phone company already knows (and could pass along to service vendors) your phone number, and thus your name and address.

Perhaps the most telling proposed application, though, was put forth by Northern Telecom’s Eric Hochstein. He pointed out that the star-codes used by the phone company to activate call-waiting, call-forwarding and similar optional services are too hard for many phone customers to remember, so they simply don’t use them. With menu prompting, more customers would buy these services. Thus the phone company has a very direct interest in how complex a phone you buy.

ADSI. As with everything else in telephone land, there is a Bell standard, complete with acronym, for this technology. In this case, it is the ADSI (analog display services interface) protocol. It was originally devised for caller-ID and call-waiting-ID displays. The protocol specifies touch-tone signaling from the customer to the service provider. The service provider can reply with voice or with modem data, but not simultaneously.

Although ADSI was designed for a standard tone pad, it is possible to use it with a full typewriter keyboard. This makes possible additional applications, but it raises the manufacturing cost (and, let’s face it, the complexity in use).

One area in which ADSI falls short is security and encryption. Apparently the Bells aren’t very worried about this, but the banks and brokerages that would be natural service providers are very concerned. We predict that the lack of an encryption standard will delay any widespread adoption of ADSI by the financial service industry. As privacy and security concerns grow in the population at large, whether other applications will attract a critical mass of customers is doubtful.

Keep it cheap. Depending on the size of the screen, such a phone would cost $500–800. Few consumers would pay that much outright, but many (according to Nynex’s research) would cheerfully pay $50 up front and have $10 per month added to their phone bill. In some cases, the service vendors might be willing to subsidize the hardware, either because they expect to lock in a customer or they expect to realize substantial cost savings.

At the service provider’s end of the phone call, the equipment requirements are relatively modest: a touch-tone decoder, a voice synthesizer, a modem and an interface to the firm’s existing mainframe computer. The cost, when amortized over hundreds of calls each day, is trivial.

FROM AD RESPONSE TO ENERGY USE

With very modest increments of hardware, further applications open up. Nynex’s Bob Springer proposed adding a bar-code wand. Newspaper and yellow-pages ads could be bar-coded; to respond to the ad, you would only have to swipe the bars. Companies might spring up offering to encode the numbers you call frequently. Your bank would furnish a sheet of bar codes that would jump right to the services you have signed up for, bypassing the menu system entirely.

Sheryl Geddes of First Pacific Networks noted that ADSI offers an opportunity for remote energy management by the electric utilities. Most utilities would like to price electricity in such a way as to level the demand, charging you more for juice consumed at peak hours — and making sure you know it is more expensive then. The trouble is that the peak periods change with the seasons, with weekends and holidays, with the production flows of nearby heavy industries and so on. Timers on the water heaters aren’t flexible enough.

By interfacing the phone to controllers of the household’s major appliances, the power company could either control them directly (if the customer had opted for interruptible service) or adjust the billing multiplier based on actual load conditions. To no one’s surprise, Geddes noted that every maker of appliance controllers uses different communication protocols. However, a communication standard is in place for water heaters.

Peter Dyson

AMERICA ONLINE MOVES INTO SYSTEMS
Wants its ‘common services platform’ to become standard

Although other online information services may be older, bigger and better known, America Online (AOL) is moving into the digital media business in a way that the others are not: It is becoming a vendor of system software for information services providers.

AOL, based in Vienna, VA, recently agreed to provide Apple Computer with foundation technology for its new Apple OnLine Services division. The technology itself consists of AOL’s well-regarded user interface software, and the engine of the system itself, its server software and support.

Company president Steve Case believes many more companies like Apple, previously not known as “information” companies, will be providing such services in the future. In addition, the nascent market for portable communications and computing devices will also provide a significant new customer base for new and existing online services.

REASONABLY BIG, AND GETTING HUGE

Online information services today require a computer and a modem, which then connect customers via the telephone network to transaction services such as electronic shopping or banking, or to banks of information such as news wire services, stock quotes, software or customer support. Personal communication, via private electronic mail or interactive forums, is also extremely popular.

“The market for online services is already reasonably big and it’s going to be huge,” says Case. “We want to establish AOL as a leading brand. We already do well on the desktop, and we also want to be strong as new consumer devices like screen-based telephones and interactive TV emerge.”

The new line of business for which Apple was the first licensee will focus on establishing AOL’s technology as what Case calls “a common services platform” to be used by telephone and media companies, among others, to create their own branded services. In addition, the company is working with hardware vendors such as Tandy and Casio to provide a built-in interface to the AOL information service on devices such as the new “Zoomer” (see p. 24).

Cheaper than mainframes. Case believes the new line of business will be successful for AOL because its system is not based on the traditional mainframe delivery mechanism of most of today’s online services, and thus costs much less to support. “Our system is more of a client-server model, which we believe is much more affordable to run on a cost-per-hour basis than CompuServe or Prodigy,” says Case. “Since it has a cost advantage versus other approaches, licensees will be able to get not just a technology that works well but that they can run inexpensively.”

Though there is no boilerplate deal for AOL’s system software division, Case says he hopes what it’s done with Apple will become the standard. Apple, he claims, has committed to fund some additional co-development of the software during 1993. It will then launch its Apple-brand services, and pay a royalty to AOL for each hour of customer use — a minimum of $15 million during the first five years. “From Apple’s standpoint, they were able to reconcile paying a royalty because they knew they’d likely end up with a better system sooner than if they tried to do it themselves,” says Case.

A COMMON INTERFACE IN A COMPLEX WORLD

In addition, he says, if AOL can become the standard platform for information services, customers may benefit also. “When you’re in the systems licensing business and you want to create a common platform, you level the playing field with the belief that both the consumer and the content providers will equally benefit from consistency,” he says. “And AOL can benefit by simply accelerating what will eventually happen anyway [i.e., the adoption of a standard platform].”

Case says that the more AOL works with media companies he’s not only discovering a growing recognition outside the computer industry that “this whole area of digital media” is becoming more important, but also that the market is getting far more complex.

Devices are fragmenting. “A couple years ago, when the PC market coalesced into DOS, Windows and Mac, vendors just figured they could do a front-end for a Windows or Mac and they were in business,” he says. “Right now, there’s a much greater recognition that it’s going to get far more fragmented as there are more access devices such as palmtops, screen phones and interactive TV, as well as new conduits such as wireless communications.”

The beauty for service providers is that most of the tweaking required to make AOL work on different devices will be done by those adapting the software to their devices. “They’ll do most of the modifications,” says Case. “Service providers won’t have to do much.”

PARTNERSHIPS KEY TO LAUNCHING INFO SERVICES

When it first started as Quantum Computer Services in 1985, AOL’s strategy was to develop separate online services for owners of Commodore, Tandy and other PC brands. After starting America Online, it created alliances with a variety of organizations such as National Geographic and the National Education Association, and developed a package of information services specifically for home-office workers.

In the past year, it’s begun focusing on more general-interest segments of the information market, such as newspapers and magazines. “It’s a different twist on the same story,” says Case. “There’s a huge business here, a new medium is emerging — and the only way to develop it is through partnerships.”

A diversity of deals. In keeping with that sentiment, AOL launched a cooperative service with the Tribune Company for a Chicago-based service called Chicago Online, which provides local information in conjunction with the Chicago Tribune. Similar projects are planned with Knight Ridder’s San Jose Mercury News and with Tribune newspapers in Florida. Another cooperative agreement with the New Republic magazine was recently announced. AOL is also working with CNN to provide online services that complement TV programs such as “Network Earth” and “Democracy in America.”

A proven option. The Apple deal is a different model for partnership. People who want to start their own information services can use AOL’s proven system as an option to reinventing a whole new software structure, which today is a costly and risky project.

“This is particularly helpful for media companies, because we provide a migration path for them,” says Case. “They could start out as information providers with the larger AOL information service; we could then create a custom edition of AOL for them, and later, if they want their own branded service, we have that option available to them. They can bet on AOL and, depending on how their view of the world shifts, stay on that same platform. It makes their investment more reasonable and easier for their customers; plus it’s unlikely they’ll be forced to migrate to a new system down the road.”

WHEN SELLING CONSISTENCY, BE CONSISTENT

Consistency is something that online services have been sorely lacking, as anyone who relies on them to do business can ruefully attest. They’re inconsistent in interface design, ease of use, utility, reliability, convenience and affordability. As the foundation for a new industry based on information services, all of them — including America Online — are very far from perfect, and in their present condition are probably unacceptable to the broader range of non-nerdy consumers.

Get on, get off. For example, when an information service is set up to charge its customers by the amount of time they spend connected to the system, the vendor had better make darned sure that it allows the customer to get in and get out quickly. Recall some of the regulations slapped on 900-number vendors for finding unethical ways to keep customers on hold while racking up $2-a-minute charges.

Many online services today, including Dialog and Dow Jones News Retrieval, for example, force customers to either “page” through vast amounts of information to get where they want to go, or obfuscate the path to that information so that it takes forever to get there. Though information junkies and researchers will put up with this nonsense, it does not a consumer market make. Look at the extraordinary user base that Prodigy — an inferior information service if ever there was one — has attracted by charging a low, flat fee per month.

Network access. Another problem, which is particularly pronounced today for AOL, is the ability to use the service from anywhere, including hotel rooms and public phones. Services like MCI Mail and AppleLink were clearly designed for mobile users, by providing both reliability on bad phone lines and an easy way to find the right phone number to use no matter where you are. AOL’s customer base today is largely anchored to the desktop. Case admits that the system has some problems along these lines that the company is addressing as it moves more rapidly into the mobile communications market.

AOL has undoubtedly made the most concerted effort to move into the wider world of information services that aren’t tethered to the computer-modem model. Whether the company can actually succeed in its new strategy depends on whether it can simultaneously branch into new businesses while continuing to grow and improve its existing services and customer base. It certainly seems to be willing; now let’s see if it is able.

Denise Caruso