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The Hollow Promise

by Glen Emerson Morris

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The Internet Appliance, otherwise known as the 'hollow computer', is one of the hottest topics in the computer industry these days. Essentially, it's a stripped down computer with just enough horsepower to run an Internet browser, priced low enough to become a standard household appliance. Sun and Oracle have announced plans to have units on the market as early as summer of 1996, and some of these will sell for less than $500. This could be a very good development for the advertising industry.

The Internet appliance is going to make someone billions, but it may not be Sun and Oracle. The people who will make the real money out of this are the people who will take advantage of the new markets the $500 net-computer opens up.

The Internet appliance manufacturers are taking the approach of the blade manufacturers, who nearly give away razors so people will buy their blades. In this case, the computer is priced extremely low so people will buy it and then use the rental software it needs. Sun has created a system that can run applications over the Internet. The system, called Java, has browsers that will run on Sun, IBM, and Macintosh computers. An application written in the Java format will run on all three platforms, so developers can substantially reducing development costs.

The Internet appliance is essentially a dumb terminal system similar to the old corporate mainframe model, where all the applications, data, and processing are handled by a mainframe employees access through dumb terminals. In the same way, new systems based on Java will keep costs down for consumers by storing their data on a mainframe, and renting them the applications they need on a cost per minute basis. This is the Internet variation of pay-per-view. It promises huge profits, which the market never delivers.

There are several reasons why this model won't become the industry standard. First of all, a new Internet appliance will cost about as much as a used computer (about one generation back in terms of processors). A used computer will do everything a new Internet appliance will do except require rental software (most used computers come with used software). A used computer won't require people to keep sensitive information stored on some distant company's mainframe.

Many of Internet appliance sales will go to homes that already have a computer system, for the same reason that many homes have more than one TV or telephone. The Internet appliance will be the equivalent of a 13" TV, mostly seen as a secondary appliance, for the bedroom or the kids room.

The Internet appliance could even replace the secondary 13" TV. The Internet appliance should have at least a 13' screen and could easily be made to display regular broadcast TV. Unlike a regular TV, the IA screen will be steady enough to allow people to read 9 or 10 point type easily and for extended periods of time. The IA is coming at a perfect time to replace newspapers as the primary channel to reach consumes with print ads, especially the kind that use a lot of text. Newspapers, already losing subscribers and profits, will face serious paper cost escalation in the next decade.

The problem is that China is beginning to bid up the price of paper on the international market, and it will continue to escalate the price for the next ten years, at least. Now that China is allowing a limited degree of capitalism, it is also of necessity allowing a limited degree of advertising, and the media to support it. Most Chinese can't afford color TVs yet, let alone computers or Internet appliances. Many can't afford good radios, but they can afford newspapers, even if the newspapers cost far more relative to gross income than do newspapers in the U.S. or Europe. Most Chinese can't get the credit to buy a TV, so buying newspapers will become their primary daily source of news, jobs, and ads. Within the next ten years most Chinese will become affluent enough to buy a daily newspaper even at a dollar or more a copy.

Those in the West will find it cheaper to buy an Internet appliance long term than subscribe to a newspaper, at least one that publishes in print rather than electronically. Everything in a newspaper will be on-line, and for less money, so subscribing to a printed newspaper will become a luxury. A newspaper will be something only the poor can afford. The Internet will be something the non-poor can't afford to do without, and very soon. Wall Street should be encouraged by the media and advertising industry to continue investing in Internet appliances, even if the media and advertising industry declines investment such itself, for very good reasons.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

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