MR. McGINTY: And maybe that last part is the most important thing. The consumer understanding and trusting this technology. Can AOL fit in there somewhere?
MR. KIMSEY: Well, this has been our raison dętre. We came to the marketplace with the consumer in mind. Obviously, the consumer ends up being the most important part of that equation. You can have all the technical elegance you want but if the mice dont eat the cheese, so to speak, you really end up with nothing, because ultimately you have to be commercially viable. In our case, that means the consumer has to accept it; and they will only accept it, as theyve shown many times over, if its affordable, easy to use and relevant to them.
MR. McGINTY: Now, AOL has gone through its own changes with regard to making the consumer happy and also continuing to make money. You just went through this issue of going to an all-you-can-eat service and youve tried to go to more advertising. Do we have a sense on the Net yet, do companies have a sense, or advertisers have an understanding of how thats going to work and how these things are going to be priced and where is that technology?
MR. KIMSEY: Well, were obviously pioneering a new medium. Our sense is that, over time, transactions and advertising will pay the cost of this new medium, as it has in other new media. So, yes, were moving in that direction. We have found that the pricing model weve got now works, and we just made a profit in our last quarter and expect to make a bigger one in the next quarter. But the first part of the strategy was to try and establish critical mass so that advertisers would understand that youve got lots of eyeballs that they can point at.
MR. McGINTY: Whats critical mass in your business?
MR. KIMSEY: Well, were eight and a half million subscribers. Were 53% of all the folks online, and so were talking about dial-tone and online dial-up services. To the extent that weve got over half of that audienceeight and a half million people is bigger than most magazines, its bigger than many of them put togetherthats an attractive medium for advertising, and advertisers have come to understand that. You could see it in the recent transactions weve made where they gave us a lot of money up front.
MR. McGINTY: Lets take some phone calls. Tommy in Arlington, youre on the air. Go ahead.
TOMMY: For an entrepreneur thats interested in trying to get something going, its very tough to get introductions to venture capitalists (VC) in and around DC. People tell me I have to go out to the Bay area. I have partners. Ive got a business plan. Ive got a board of directors. Ive got a lot going, but its very tough to get in just over the transom to a VC if you havent worked with them before. What do you recommend?
MR. RAMSEY: Well. Obviously, the Potomac KnowledgeWay is doing a tremendous amount to promote entrepreneurship and utilizing the Web as a means to provide both a distribution mechanism to get your ideas and your business plan out to available funding sources. Mario probably can amplify on that.
MR. MORINO: Yes. There is a Web site you can come to today, the Netpreneur Exchange [http://netpreneur.org]. There you will see, first of all, a complete directory of online services for funding across the country, and we can put you directly in touch with 25 to 28 venture firms that are now located right in this region. We have a daily dialogue with those firms, Russs Pegasus fund is an example. This kind of matching process has already been underway for two months.
MR. McGINTY: You mentioned the Pegasus Fund. You put together a $25 million venture capital fund, didnt you, just for people like this?
MR. RAMSEY: Correct. Thats the the primary objective, to focus on businesses within the electronic commerce, Internet/Intranet sectors and telcommunications services; businesses which have ideas we think are going to benefit in this new environment.
MR. McGINTY: So Tommy, its your sense that people just wont even talk to you at all?
TOMMY: No, people will talk to me, but they have preconceived notions. I spoke with a gentleman who was uninterested because our proposal doesnt center on hardware. Its a service proposal that has to do with marketing. So because it wasnt hardware I couldnt even get in to give a presentation.
MR. McGINTY: Well, let Mr. Melton comment. Bill Melton, you wanted to say something?
MR. MELTON: Tom, let me comment as an entrepreneur all my life. Ive spent many days, in fact many months of my life, on my knees in front of VCs. My knees are bloody from all the hours Ive spent in front of venture capitalists and the like, trying to raise funds. So I very much know where youre coming from, but Id like to point out a couple of real facts that you need to recognize.
First of all, whether its Friedman Billing & Ramsey or any other venture capital firm, they get literally thousands of plans a month. They have to have some filtering mechanism to get through and pick the wheat out of the chaff. And, frankly, the way that it happens is, to some extent, an old boys network. As much as I hate to admit that, all of us, as humans, rely on people that we know and trust. So what you really need to do is somehow figure out how to break into that old boys network, that sort of initial filter, and get to people who are known as peers in the networkthis network of knowledgeand to get "recommenders." Certainly in this geographical area, people like those in The Netpreneur Program are there at various levels. You get more of those people with you and you get recommendations and you break through that barrier of inattention. Even with a poor idea, if you get some good recommenders on it youre going to get through and get in.
MR. McGINTY: Good luck, Tommy. J.T. in Herndon, youre on the air, go ahead.
J.T.: Im with a firm called the Partnership for a Networked Economy. One of the untapped resources in the DC area is the plethora of industry and trade and professional associations that are here primarily to represent the interests of their members to the government. Given that these groups have a wealth of content available about these companies and their capabilities, what role does the panel see for these groups to facilitate the adoption of business-to-business commerce or collaboration. Thank you.
MR. MORINO: A key role, and in a couple different ways. At the higher level, the Netpreneur Program is looking at the various audiences we need to reach to inspire more netpreneurship. Associations, we hope will play a key part in that. A lot of it is educational. Our first qualification is to find those groups that are receptive to it. For example, were working extensively with the real estate industry in associations here, because they are starting to see a change in their business base as a result of the network society.
The second avenue is to realize that in various sectors there is an opportunity for entrepreneurship based on intellectual capital. Again, the Netpreneur Program, is trying to work with associations, for example the American Library Association and other non-profit groups like Highway 1, to help them see that they have very important intellectual capital that is marketable. We have discussions underway today with the Information Industry Association, as an example, to develop an education program that will reach out to the people in this region who are content producers; to show them that the entrepreneurial opportunity exists today, and where this opportunity is going in the next five to ten years, as Bill indicated.
MR. McGINTY: Lets go to Judy, whos in her car. Youre on the air, Judy, go ahead.
JUDY: You were talking about how you expect to get more people on the Internet and what will bring them there. I consider myself a relatively computer-literate person. Ive used email for ten years. I do a lot of my business financial transactions on the computer. It wasnt until two things happened that I suddenly got on the Internet and sought it out. One was that we got an Internet provider that had a flat feethat was before AOL had its own flat feeso we could be on the Internet for an unlimited amount of time and not worry about the additional charges.
The second thing, though, was that we essentially had a hook to go there, and I think thats what people need. They need to have a hook. They need to go to the Internet because they cant find the information elsewhere or as easily. Last year our son actually died of SIDS. We received a tremendous amount of information from the SIDS Web Page and I received a tremendous amount of information from other SIDS parents who also are on the Internet. I found it absolutely amazing that I could speak to a person in Ireland three times in one day without the cost of trans-Atlantic calls or anything like that. So I think its two things, I think its the cost and the unlimited availability, and the hook that will get people on there. Now we are all over the place on the Internet. We love it, basically. And Ill hang up and hear your comments. Thank you.
MR. McGINTY: Well, thank you, Judy, and Im very sorry to hear about your son. I will note, however, that there are heads nodding around the table for just about everything that you said.
MR. MELTON: Yes. Judy, Id like to comment that as the Internet moves from the head to the heart, we will have made the transition. The Internet started out with the head. Libraries, academic scientists, for lack of a better word, "nerds," but obviously, on a day-to-day basis, as were using this stuff to connect with family, with friends, with support groups to get information that is important to us on a personal level and strikes us at the heart, thats when the mass adoption will happen. It certainly has happened in your situation, and its really great, the kind of mutual support that we can give each other over the Net.
MR. McGINTY: Im curious about the issue of bandwidth. If theres something else that may be standing in the way of greater adoption of the Net, its limited by the amount of time it takes to download various pages and so forth. Its great for email but the bandwidth issues remains a problem, and Im wondering what you guys think about how quickly thats going to be solved.
MR. MORINO: Well, people have different opinions. I think its short-termshort-term being a couple of years. Cable modems right now are driving speeds at ten times the speed of ISDN. You see a material difference in the usage, and I think whats around the corner in wireless is just going to blow the roof off the bandwidth issue.
MR. McGINTY: Really!
MR. MORINO: Yes.
MR. RAMSEY: Yes, and its important to understand that these things get their own momentum and they move at speeds that you can never imagine. The question people should ask is not what commerce is happening over the Internet or what percentage of people are online, its how many people come online and just dont want to go through the aggravation. But thats changing rapidly. A billion dollars used to be a lot of money. Even though now its just dinner with Bill Gates, you have a lot of capital going in to make this bandwidth issue a non-event. The question which should be asked is, "How many people would be online if it was fast, ubiquitous, dial-tone and they could have access anywhere?"
MR. MORINO: Derek, going back to my background in the computer field, when I started with online networks in the mid-60s, the one thing that you could almost predict like a clock was that whenever you increased the speed of the network you actually increased demand. Its an inviolate rule, and its still true. Thats why we see so much promise going forward as bandwidth gets sorted out. You can assume that not only will it address the current demand and the latent demand, but we will actually create new demand for services.
MR. McGINTY: Because it will be able to do much more.
MR. MORINO: Right. Exactly.
MR. KIMSEY: We have empirical evidence of that on America Online. We started the company in 1985 as a Commodore-based service to use with 300 baud modems. Thinking back, its amazing anybody ever used it. Thank God they did, but now that were getting up to 28.8 speeds and beyond, as Mario pointed out, the number of people that use it has increased exponentially, and the amount of time they use it has increased. The average hours of usage per subscriber has gone way upthe all-you-can-eat pricing notwithstanding.
MR. McGINTY: Harry in Falls Church, Virginia, youre on the air. Go ahead, Harry.
HARRY: I was at the event the other night. Tough to get up to the microphone and ask a question. It was pretty busy, so I thought I would take this opportunity. My question is about future revenue models for the Internet. As we know, theres a lot of ad-based stuff going on right now. AOL has stated that they want to generate more advertising revenue, and yet they also have a member-based revenue source. Obviously, CyberCash is interested micro-payment and things like that. Id like each of you to comment on where you think, two to three years out from now, wheres the revenue going to come from for businesses such as the one I would like to start.
MR. McGINTY: What kind of business are you starting there, Harry?
HARRY: It would be a communitya virtual community that would marry together buyers and sellers of corporate computer technology.
MR. McGINTY: Thats interesting.
MR. MORINO: Well, just as I did the other night, I make the qualification that there is a fundamental difference between those products that are aimed at a consumer market versus those for business. Theres no mystery in the Internet products for business today because you clearly have clients who are willing to pay. They understand value and payment. The only question is to work out the various transaction issues, which is well underway. It will explode, and I think it could be one of the largest markets weve seen.
MR. McGINTY: In fact, a few companies have completely abandoned the consumer market and just said, "Well just go with business."
MR. MORINO: Right. Well, its a quick move today. Business is a receptive audience where you have more of a known commodity on both sides of the equation. On the consumer side, there are people here who can answer a lot better than I.
To Harrys question on the community ventures issue, I think in the next 18 to 24 months this might very well be one of the largest opportunities to move forward, especially for businesses engaging new communities. Books like Net Gain by John Hagel and Arthur Armstrong have discussed this. Where the revenue comes from in the community of interest model is still nebulous at best, but its the AOL issue. Its audience aggregation. Once you have audience you can be a buyer or reseller of product, besides being simply an advertising vehicle. It opens up new channel. I think the trick in terms of community of interest is to make sure youre doing audience aggregation; that you have a channel to an audience that you can then use for various revenue sources.
MR. McGINTY: Bill Melton, what do you think?
MR. MELTON: Historicallyyou know, three years is a long history in the Internetweve talked about two models, one being an advertising model and one being a subscription model. Certainly I think both are alive and well and will continue, though there may be a tilting toward the advertising model on the retail side as the advertising base grows. On the professional or commercial side, I think youre going to continue to play strongly in the subscription-based model.
A third model that we need to be aware of and, Harry, this might be more what youre going afterthough I think there may need to be some advertising and subscription in yours as welland that is what we would refer to as a transaction-based model, or more of a spontaneous interaction where you have many-to-many prior, unknown, non-related entities. Just as you would walk by a newsstand today and spontaneously grab something off the rack, thats a transaction-based model. All three of these models will exist. They are not competitive. They are cross-supplementary, and will exist at the same time.
MR. McGINTY: Which one is going to be the most important for CyberCash?
MR. MELTON: We are highly agnostic. Wherever money is spent, there we have an opportunity.
MR. McGINTY: What do you think, Russell Ramsey? Is it your sense that the business side of thiswell, what are you expecting from the consumers side?
MR. RAMSEY: Well, the consumer is going to be a major beneficiary in all parts of his or her life. Take, for example, finances. Today, the cost to distribute financial products is anywhere between a tenth and, in some cases, a tenth of one percent of traditional means. The Internet has allowed financial institutions to utilize this distribution channel to go beyond bricks and mortar. The impact is going to be that individuals will be able to conduct their financial life on one page with all their fees in one easy-to-read statement thats updated daily, hourly, in some cases by the minute. To give an example, today it costs the banking industry about $2.00 a transaction on average for individuals going into a branch office. The Internet takes that cost down to probably below 5˘. And . . .
MR. McGINTY: And the bank will continue to charge you $2.00.
MR. RAMSEY: Well, in fact, it wont because, like all market forcesremember, there are several banks now that just operate in cyberspacethe market will force these products to be bought at lower prices and the consumer will benefit.