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Crafting in - home Internet services for mass markets

Tue, 11/30/1999 - 7:00pm
David Benham, Manager of Product Marketing, Consumer LIne of Business, Cisco Systems

Science fiction, move over. The New World network for the home is on the horizon. And it's fundamentally changing the way people will communicate and exchange information.

Thanks to broadband access, futuristic networked services and appliances in the home-previously the realm of inspired science fiction writers-are now emerging and potentially profitable. They promise to automate and simplify many of the mundane tasks involved with managing a household.

Yet the viability of futuristic, in-home appliances lies not in their individual genius, but in connecting them to an always-on, Internet-enabled service that's affordable to millions of potential subscribers. The excitement of inventing such new services must be coupled with rapidly bridging the acceptance gap between visionary early adopters and the profitable mass market. What strategies do broadband service providers need to successfully leap that gap?

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Figure I: Internet-enriched home of the future.

The New World network model is not just about the network infrastructure, but about those who use it and the applications they can use because of it. Throughout North America, broadband operators are uniquely positioned to deliver in-home networked service solutions-if they're priced right, easy to use and let people do things they could never do before. Providers that own high-speed, high-bandwidth access already in place at millions of homes can act quickly to roll out new services to their existing customers. For example, many MSOs are already provisioning and offering always-on data and telephone services in addition to conventional cable television. While Internet access is relatively new to cable networking, it is a commodity item available from other types of service providers, driving prices down and squeezing profit margins. To assure future profitability, broadband service providers must also offer valuable new services to differentiate themselves.

Those who offer a variety of lifestyle automation services within the home can differentiate themselves from other service providers, realize vast new revenues, and help generate a new industry of in-home Internet appliances beyond the personal computer.

Opening the gateway for in-home New World networked services into the mainstream market depends upon three strategies: low cost of entry, Internet appliances beyond the PC, and "no-new-wires" in-home LANs.

Low cost of entry

If providers can't offer services at a low initial start-up cost, they will never penetrate mainstream markets and attain economies of scale that lead to long-term profitability. To see what can go wrong, one needs look no further than recent attempts by global satellite cellular telephony and digital satellite television industries to gain mass-market acceptance. Despite their incredible potential, a major reason they have yet to realize mass-market acceptance is their high cost of entry. Both of these businesses depend upon economies of scale for long-term survival, but the high cost of entry continues to prevent their success. While these satellite ventures have suffered from other problems, at the end of the day, mass markets did not purchase the service because the initial cost of consumer equipment was extremely expensive and also difficult to use.

A combination of strategies can keep consumer cost of entry low and affordable. One way to subsidize equipment costs is by hiding the up-front hardware and activation costs inside monthly subscription fees. Cellular phone carriers in the United States have proven they can attract and hold customers by offering "free" or "nearly free" equipment to those who subscribe to a certain rate plan for a minimum period of time that recoups cost of entry and meets minimum revenue goals. There are also ways to subsidize equipment and services or increase revenues without charging consumers for it inside subscription fees. For instance, many Internet services can seem "free" to consumers because they're usually willing to accept targeted advertisements. If advertisers can have marketing campaigns targeted toward consumers who fit a certain profile, they are willing to pay much more per viewer.

This trend goes beyond broadcast-style banner ads popular in the early days of the Internet. Instead, progressive marketers want to help consumers do things or save time while providing an opportunity to buy products. Thus, smart advertising sales can generate much more revenue per subscriber.

One hypothetical example of advertising dollars subsidizing equipment or services is bundling an "Internet radio" with a premium always-on Internet service. Subscribers would tell the service about their schedule. Then the Internet service can provide useful, personalized information along with targeted advertisements over this Internet radio.

If a certain subscriber has an early-morning business flight, the Internet radio service could provide critical information about flight status, weather at the destination, a traffic report between home and the airport, and perhaps an opportunity to order breakfast from the local coffee shop. It could even provide a coupon for long-term parking at the airport. The cost of the Internet radio device is recovered in weeks from advertising sales, and the service itself builds subscriber loyalty.

Many MSOs and Internet service providers (ISPs) preparing to offer telephone services over their cable plants or the Internet can develop integrated communications and provide flexible billing. In this model, consumers pay for what they use, but can distribute usage over local and long distance telephone service, e-mail, voice mail, and integrated messaging, with a universal rate covering all services.

In the longer term, another potential source of revenue may be government rebates or subsidies from public utilities. Power companies can leverage the always-on Internet connection into homes to communicate with futuristic, intelligent household appliances, telling them when rates are lowest. Based on this information and its programmed consumer preferences, appliances automatically run during those times. This way, utility companies can offer incentives for consumers to use power during non-peak hours. This could more evenly distribute usage and reduce the need to build extra power plants or purchase expensive power on an ad-hoc basis to accommodate peak demand. By shaping demand, utility companies derive more efficient utilization from existing facilities.

Reaching beyond the PC

The ever-accelerating pace of both business and personal lives is forcing many people to consider how they can accomplish everything they need to do to manage their business and household and still make time for recreation. Service-focused Internet appliances can help them do just that. Providers can drive the expansion of their subscriber base by attracting first-time Internet users by offering services that need new and emerging Internet appliances. Service providers who expected to attract first-time users with offers of "free" personal computers to those who sign up for their service were surprised to discover that most takers are people who want a second or third PC and don't mind changing providers. This suggests that for many, the PC is not, even at any price, the desired center of Internet experience. Therefore, it's easy to see that a largely untapped market exists to attract new and current users with non-PC, Internet devices such as the over two million Internet telephone and TV-based Web surfing devices installed to date in the United States alone.

Another futuristic device coming soon is a "Webpad" with an integrated bar code reader installed on a refrigerator or kitchen counter-top. Such a device could be provided as a part of Web-based grocery delivery service. As a family uses its groceries, they scan bar codes on packaging into the device to build a list of items they wish to replenish. Once or twice a week the device automatically generates a grocery list, transmits the order over the Web, and the service delivers groceries the next day. This is also an opportunity to deliver targeted advertising according to dietary preferences. If the entire ISP/MSO industry is not thinking beyond the PC, these and other types of New World service may never span the chasm between early adopters and mass-market success.

To attract new users and keep these Internet devices affordable and easy to use, vendors should invest in "thin" client architectures, enabling devices to draw most of their intelligence from the network itself. Such devices would never need users to perform software upgrades. As part of their service, broadband providers can provision content and application servers in their infrastructures that interact with these inexpensive Internet appliances. Also, when the majority of the intelligence resides in the network, in-home devices have fewer points of failure, making them more reliable and less likely to break.

'No-new-wires' in-home LANs

In-home, networked appliances need some kind of LAN throughout the home. But the mass market is generally unwilling to install new wires or drill new holes. Such installations are expensive and require a truck roll today. Providers want to avoid truck rolls to enable a low cost of entry. So the industry must find ways to make do with existing wires and make it easy for Internet appliances and PCs to connect to the residential Internet gateway. Three high-speed technologies (10 Mbps or faster) under development meet this requirement. New solutions will connect devices within the home via short-range (up to 150 feet) wireless, inside telephone wiring (HomePNA) and power/electrical wiring. Creating the home network requires coordination and cooperation among the many network vendors and service providers, and widespread adoption of industry standards to ensure that devices and networks interoperate. Broadband service providers can play a critical role as the connection provider. Yet to avoid lapsing into the role of mere pipe vendor, those who also offer higher-layer, differentiated services with an eye toward becoming a household name throughout their regions can prosper in the competitive New World of integrated networking.

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