The Nation's Pulse: PCs in Our Time
Schwartz, Mark I.
THE NATION' S PULSE by Mark I. Schwartz PCs in Our Time 0 n July 8, the Commerce Department released a report pointing to a wide disparity of Internet access between the majority of the American...
...Both Microsoft and its rival Netscape had already given up on selling browser software, having realized that the quantifiable value of a Web surfer using a particular browser was far greater than the price the market would allow them to charge for the browser itself...
...Second, the value of such a captive audience is magnified many fold by the ability to record users' online interests...
...More importantly, Internet service providers (ISPs) such as America Online In a wired world, value resides in controlling what you see on your computer screen...
...This would not be the first time the administration spent tax dollars and implemented a regulatory framework in an attempt to level the high-technology playing field...
...Giveaways will be the next big technology trend and, in fact, have already hit the PC industry...
...As a result, other sources of revenue are becoming more and more important, and certain corporate trends in the technology sector are taking shape...
...EMachines, a nearly-free PC manufacturer established last November, was the fourth-largest PC vendor in the U.S...
...It involves charging a nominal sum for the machine in exchange for the user subscribing to a multi-year Internet-access service contract costing anywhere from Szo to $40 per month...
...Both companies have already benefited tremendously from the contributions of open-source developers...
...Only slightly less dramatic than the PC giveaway phenomenon is that of the nearly free computer...
...This multi-billion dollar tax hike on telecommunications companies was, not surprisingly, immediately passed on to consumers...
...Linux has garnered the support of companies such as Novell, Oracle, Intel, Dell, and Compaq, amid hopes that it will someday challenge Windows for operating-system supremacy...
...There is no reason why this principle shouldn't also apply to wired hardware...
...There would be nothing to stop another company from copying the Windows codeand improving it, to the detriment of Microsoft's bottom line...
...44 September 19 9 9 The American Spectator substantially...
...Your local phone company charges a basic fee for monthly service (which, once competition comes to the local phone market, will likely go down Computers get cheaper, no thanks to government...
...The budget for Universal Service is expected to exceed Sao billion by 2003...
...This trend will allow consumers to obtain a new PC with Internet access for slightly more than what had recently been the cost of Internet access alone, and without the inconvenience of Free-PC's continuous online monitoring...
...To paraphrase Kevin Kelly, Internet guru and editor-at-large for Wired magazine: The only truly scarce commodity in the world today is "the human attention span," and giving away communications devices allows a company to capture that precious attention, or mind share, which then leads to market share, and enormous profits...
...As for the software industry, it is being transformed not only by giveaways but by a trend called "open source...
...Federal funding for community Internet access centers or for the wiring of classrooms is unnecessary...
...This reality exposes the futility of antitrust laws drafted during a bygone era, (Continued on page 71) The American Spectator • September 1999 45 Nation's Pulse/Schwartz (Continuedfrompage45) when a company such as Standard Oil could be expected to dominate its industry indefinitely...
...This is a movement dedicated to revealing software's source code, the statements and instructions written by programmers...
...First, the next decade will see an explosion in the number of people accessing and buying products over the Web...
...Furthermore, once a company gets a consumer to use its particular device, that company is very well placed to charge for supplementary services...
...To remain dominant in such an industry, a company must properly anticipate every trend, as it is taking place...
...All of this according to the Reston, Virginia-based research firm PC Data...
...Microsoft wanted Windows users to use Explorer as well, because this would allow Microsoft to control which screen those users saw when they accessed the Web...
...One more reason this PC trend seems here to stay is that industry leaders, such as Dell Computer and IBM, have themselves decided to introduce nearly free PC programs...
...If software source code is released to the public, the reasoning goes, a broader group of programmers will be able to modify it, which ultimately means a better product for all users...
...It is far more likely that the Justice Department's Antitrust Division is itself stifling competition and creating inefficiencies with these suits, by interfering with companies' temporary positions of market dominance without the slightest idea of how these actions will affect information technologies down the road...
...M ore and more consumers now purchase PCs for their ability to access the Internet, and since that requires only the most basic equipment, the PC is fast becoming a commodity, with negligible differences among many brands...
...ois' The American Spectator • September 1999 71...
...and an audience of tens of millions offers enormous advertising potential...
...Just over two years ago, computers costing less than Si,000 didn't exist, yet by this April they made up about 70 percent of all computers purchased at the retail level in the U.S...
...Free-PC is betting that advertising will provide a satisfactory revenue stream for two reasons...
...Even in the hypersonic world of the technology sector these are startling statistics...
...are already teaming up with some of these new manufacturers, expecting to bring in millions of additional customers...
...The world's most popular Web server software, Apache, is open-sourced, free, and can be downloaded from the Internet...
...For instance, if your interests include golf and you frequently surf the World Wide Web in search of related sites, you may begin to see advertisements for golf equipment, accessories, club memberships, or even golf vacations along the border of your screen...
...Indeed, thanks to market MARK I. SCHWARTZ is an attorney in the Washington, D.C...
...Imagine someone walking into an electronics store to buy the computer he has long wanted, only to be told by the store manager that he can take it, free of charge...
...Similarly, a computer might be given away along with free basic Internet access, but users wanting extras such as high-speed access would have to pay for them...
...Such federal intervention may be very well intentioned, but recent developments suggest that it is unnecessary and could prove harmful to the technology sector of our economy...
...during February 1999...
...The ISPs look to lock in subscribers with the PCs' pre-installed software, while the computer makers seek a steady stream of revenue in the form of monthly ISP payments...
...Each computer will run continuous advertisements along the borders of its screen, based on its user's online habits and interests, which the company will continuously monitor...
...But if you want voicemail, caller ID, directory assistance, or call waiting, the company charges you a premium...
...This poses a problem for companies such as Microsoft...
...But these twin trends (giveaways and open source) also mean that software companies, like PC makers, will have to provide services, such as technical support, or venture into non-software related Internet areas, in order to stay profitable...
...Hence it is no longer a question of whether a particular market leader will be replaced by another, but how quickly...
...and when he acts as though he does (whether it be by directing markets or otherwise), he engages in a fatal conceit—an attempt to redesign the essential nature of man—which can only lead to disaster...
...They wouldn't be making such preemptive strikes if the start-ups weren't a threat to their bottom lines...
...The prosecution of companies such as Microsoft and Intel, which are accused of stifling competition and creating economic inefficiencies, would be amusing theatrics if it weren't so destructive...
...Last year Netscape released the source code for its Navigator browser, and this March, Apple opened up parts of its operating-system core...
...This is a principal reason why Microsoft bundled its Internet Explorer browser with its Windows software, and became entangled in a legal morass with the Justice Department...
...The financing will be included in his fiscal year z000 budget proposal...
...Both kinds of costs could reduce productivity and innovation in the technology sector, which currently accounts for over one-third of our economic growth and — ifleft alone—is expected to employ (directly and indirectly) close to half of all American workers early in the next century...
...Mainstream software is increasingly open-sourced...
...office of Piper Mar-bury LLP, specializing in venture capital and high technology, and is the author of many articles in these areas...
...In a wired world, value ultimately resides in controlling the screen's content, and hence the user's exposure to other goods and services...
...EMachines and a slew of other startups, with names such as Intersquid.com, Microworkz, and Gobi, are experimenting with a different business model than that used by Free-PC...
...They are one of the ways in which the market is quickly opening the Internet to everyone...
...THE NATION' S PULSE by Mark I. Schwartz PCs in Our Time 0 n July 8, the Commerce Department released a report pointing to a wide disparity of Internet access between the majority of the American population and certain minority groups...
...In February of this year, Internet prodigy Bill Gross launched his zoth and perhaps most promising venture: Free-PC The company plans on giving away PCs along with free Internet access...
...For instance, in June, AT&T and MCI announced plans to charge an additional 5 percent and 5.9 percent respectively for long-distance service...
...In response, the very same day, President Clinton called for a program to create community access centers in low-income neighborhoods...
...Failing to do so on a single occasion can be fatal...
...forces, we are already heading toward universal Internet access...
...Placing the source code for Windows in the public domain would deprive the company of the proprietary information that made it so successful...
...The software giveaway movement and the open-source movement are developing in tandem...
...Earlier this year, the Federal Communications Commission, with the full support of the White House, announced its plan to boost the Universal Service Charge, or e-rate, citing its necessity in wiring all of America's classrooms...
...T he giveaway phenomenon, nearly free PCs, and the open-source movement illustrate just how open and competitive this sector of our economy has become...
...Soon price will be the only variable upon which manufacturers compete, and PC sales will provide only razor-thin profit margins...
...Sound far-fetched...
...In the words of Nobel Prize-winning economist and philosopher Friedrich von Hayek: "Man does not and cannot know everything...
...This is also the case with Linux, an operating-system software currently used on io million high-end computers...
...The sheer number of new companies trying this strategy (at least ten in the last few months, by my count), together with anecdotal evidence of a huge consumer response to their offers, suggests that this business model has potential...
...Moreover, such programs could burden the economy with new taxes and the expense of complying with new regulations...
...If ever there was a realm in which politicians ought to heed these words, it is with respect to our nation's economic engine for the twenty-first century: high technology...
...What's more, 14 percent of these sales were of PCs costing less than $600...
...The consequence of this hyper-competition is constantly shifting technology, causing today's market leaders to invariably, and necessarily, become tomorrow's industry laggards...
...If the Justice Department has its way, Microsoft may well be broken up into several distinct entities...
...Even if profit margins don't thin out as predicted, it may not be long before most PCs (and, indeed, many forms of hardware as well as software) are given away, or nearly so...
...Shouldn't market forces determine whether this occurs, and if so, how...
...The result should be a highly focused audience, far more valuable to advertisers than a similarly sized group of television viewers or newspaper readers...
...Just as importantly, however, this hyper-competition and its resulting trends (such as giveaways, nearly free PCs, and open source) are effectively eliminating the financial barriers to Internet use, and will eventually provide universal access without the need for any government intervention...
Vol. 32 • September 1999 • No. 9
