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MR. McGINTY: Well, we’d like to think that. I note that even as the ATMs have become more ubiquitous, we’re now paying up to $1.50 per transaction to use an ATM machine. It doesn’t seem like the competition’s forcing that price down too much.

MR. KIMSEY: Senator D’Amato probably will, though.

MR. MELTON: Well, I think we’re mixing a couple of issues here. What you’re paying for when you pay a buck apiece for the ATM is the convenience—the ability to do it any time, any place. There you’re talking about geographical convenience. Now, with the Internet remember what’s happening. You’re having the evaporation of geography. So you have all the banks, the entire 9,000 banks or 10,000 banks in the United States potentially sitting on your desktop. That becomes a slightly different environment when your closest ATM is a mouse click away.

MR. McGINTY: Ah, so in other words, if I’m at an ATM machine I might not be able to get to another one that doesn’t charge me, so there’s not much competition at that particular moment . . .

MR. MELTON: Or you might be too lazy to walk to one.

MR. McGINTY: Right, exactly, but if I’m online and someone wants to charge me, then there’s any number of others I can go to.

MR. KIMSEY: There’s nothing so efficient as the free market.

MR. MORINO: The enormous potential we face today is that the Internet is hitting so many market inefficiencies. When you have a market inefficiency, markets tend to move and close them.

MR. McGINTY: I’m curious about the labor situation. I’ve been reading that a lot of companies in this region are, in a word, cannibalizing each other, fighting for programmers and other high-skilled people who can do the work that we’re talking about. How’s the situation there?

MR. KIMSEY: Well, this has been a much lamented problem in the Washington area because we don’t have the same large population of high-tech labor that they do, say, in Silicon Valley. I think the Potomac KnowledgeWay Project has initiatives going on in this direction, but I think both industry and the educational community understand this and will work together to try and open the spigot further and make sure that the community here expands to meet the demand.

MR. McGINTY: Mr. Morino, is it your sense there’s a labor shortage?

MR. MORINO: Oh, there’s a labor shortage, but realize that same labor shortage exists in Silicon Valley, it exists in Boston, it exists in Austin, Texas, today. There’s nothing unique about the shortage itself. What’s unique here is maybe the sheer volume in the demand that has been created. The very thing we’re talking about in terms of the robustness of the economy is also driving that demand, which, in one sense, is a great opportunity. The hard part is dealing with it, but I think you’ll see changes in a few ways. One is a lot of focus coming on educational institutions, and the Potomac KnowledgeWay Project is involved with many of them. But also, I think the greatest opportunity is that we have, to date, been somewhat unknown—a great secret to the rest of the country. I think a lot of kids are waking up to the fact that this is a pretty interesting place to move to.

MR. McGINTY: Let’s go to Mary in Washington, DC. You’re on the air.

MARY: Hi, thanks. I tuned in late so I hope my comments are relevant, but I’d like to put a little bit of wet blanket on this. I’ve been using AOL Internet and I find that the number of ads coming in through the Internet are just increasing dramatically and I find it very annoying. I just want to deal with things that I want to deal with. I want to be able to pick and choose who I communicate with, and I have to delete ten emails every day of junk mail.

MR. McGINTY: That is starting to get a little annoying.

MARY: And also, it seemed like about six months ago they sent out a message saying that we could sign up for something to have the mass mailings screened out and I signed up for it. It’s done nothing but increase. I have one other comment after that.

MR. McGINTY: All right. Well, hold on for a second and let James Kimsey speak to some of that.

MR. KIMSEY: It’s like building a wall at Alcatraz. No matter how high you build it, somebody will figure out a way to get over it. We at AOL are very concerned about "spamming," as we call it, the amount of folks that are sending out junk email. We’ve talked to legislators and government officials about the fine line you must tread between the freedom of speech and expression and the intrusion of those spammers on everybody’s account at AOL. It bothers us for a number of reasons. It bothers our subscribers and it puts an additional load on our system. The question about whether they have the right to do that or not is one that has not yet fully been answered. We’ve created a number of technology tools to try and block these spammers from loading up your email account with junk. Unfortunately for us, these spammers are also very technically adroit and our blockage techniques have been successful only momentarily until they figure out a way around them. We will continue our efforts to block them and we hope that over a period of time that we can reach some accommodation with regulators and so forth that will put at least a damper on that kind of activity. With respect to ads that we generate, we’re still trying to find the best way that our subscribers will understand that we’ve given them a fixed price, all-you-can-eat, and that’s going to be subsidized with advertising and transaction revenue. In fact, we expect that over time that’ll be the majority of our revenue. But we are looking for ways to make that an enjoyable part of the experience, as well.

MARY: Well, the thing that we would want, I would think, would be the ability to tune into that or not tune into it.

MR. McGINTY: Well, see, that’s the problem, of course. No one would choose to tune in to a bunch of ads if they didn’t want to. If someone said, "You can watch television without ads or with ads," all of us would say we’d rather have without, but we like the idea that we don’t pay anything for television.

MARY: Yeah, when you’re watching television, you can get up and go get something to eat, so you don’t actually have to watch the ad. In the newspaper, you turn the page and you don’t have to read the ads.

MR. MELTON: A simple question. If AOL were to provide a, say, a $40.00 a month service, all-you-can-eat with guaranteed no ads, would you subscribe to that as opposed to the $20.00 service?

MARY: Well, that takes me to my next point. I was trying to get off of AOL and on to IBM because I heard it was much more efficient and also because it had a lot of sites overseas and I work overseas a lot. Apparently I was supposed to be able to download signing on through the Internet and I think AOL has blocked it. And even when I called an AOL technician to talk to them about it, they sort of inadvertently, quote, unquote, hung up on me.

MR. McGINTY: So now, you’re saying that AOL has blocked you from downloading the software that would allow you to sign on to another online service?

MARY: Right.

MR. KIMSEY: No.

MR. McGINTY: Any chance of that, Mr. Kimsey?

MR. KIMSEY: No. We wouldn’t, nor should we. We wouldn’t and we couldn’t do such a thing.

MARY: Well, then how am I not able to do this?

MR. McGINTY: Well, I don’t think anybody here can answer that question. All right, Mary, thank you very much for calling. I appreciate that. This question about the advertising and the idea that you brought up, Bill Melton, about paying more not to have it, is that something that would actually be possible in the future?

MR. MELTON: Technically, I see no particular reason why it wouldn’t be possible. I think, though, when consumers are really faced with that choice, I suspect that they will find the ads much less offensive than they claim them to be. I imagine there are some test markets that can be done and probably will be done to test that hypothesis.

MR. KIMSEY: Actually, there’s been a lot of research that shows that there’s a lot of people who watch Home Shopping Network, that watch the infomercials on television. The public is not totally abhorrent to ads, they just don’t like the ones they’re not interested in. But to the extent that you want to buy a car, all of a sudden car ads have a special relevance. I think the beauty of this medium is it’s going to have the capacity to funnel ads in which you might be interested. That’s going to be the challenge that we and everybody in this medium faces. It has the capability now to be much more addressable and much more pointed and significant to the receiver. Hopefully, over time, it will make it a plus to the experience of being online.

MR. RAMSEY: But that’s the power of the Internet—it puts the consumer in control. If you don’t like the ads, you hit the delete button. If you don’t want to go at a certain time, you don’t show up. If you don’t like the site you’re on, you go somewhere else by pointing your mouse. That is truly important in this communication revolution, by far the most powerful communication medium. It allows the consumer to totally control their destiny. If you want to be a couch potato, you can. But if you want to be interactive and proactive, it’s in your control.

MR. McGINTY: I’m curious. And all of you might want to address this question. Because of the speed with which things change on the Internet, it seems to me this has also affected the business cycle. You see companies come, grow really big really quick, and then shrink back down to maybe nothing and disappear; or maybe they sell and the owners go away rich or whatever. It happens very quickly. We saw it happen, for example, with Netscape, they’re still around but they saw their price get really high, now it’s back down a great deal. How has that changed the way netpreneurs operate compared to other business people?

MR. MORINO: That’s not new. If I took you to the software industry, the exact same model occurred, you just didn’t see it in the retail sense. It was never known to the consumer. I don’t think it’s new at all. There was a good article in the Washington Post this morning about two telecommunications firms that just merged into a $600 million company. The founders of one of the firms walked away with a big chunk of money. I think you’ll see all three of those guys probably do something in the region again. We had the greatest comment from the Barons Evening. It came from a young fellow who started a company called Torso which was just acquired. His comment was, "You know, I went through a lot to get the company where it was. I thought I’d never do it again. What happened tonight, you guys really invigorated me. I’m going to do it again."

MR. MELTON: I think one slight difference is that most of the rapid growth—getting merged, getting retransmitted into the system—heretofore has happened largely in the back alleys of the financial world; among venture capitalists and other supposedly "qualified" investors. Last year it started to happen where it hit the Street. That is, Wall Street took over the role in many cases of venture capitalist. You had these young companies going public in the full spotlight of Wall Street with the retail markets looking on. That’s a bit new, and so it’s a bit daunting to do some of the things that would normally happen in the nursery, protected by the mothers of the venture capital world, is now out in full public view.

MR. RAMSEY: Yes, but make note—don’t mistake the difference between the power of communication and the impact that has on people and all the potential benefits and control that it gives, with the impact it has on business. The Internet blows apart much of the traditional business analysis, and it blows apart, in many cases, how businesses go about things today.

MR. McGINTY: What do you mean? MR. RAMSEY: Anything that you distribute or sell today that can be distributed over the Internet puts the whole business in a different light. Whether it’s World Book Encyclopedia, which has been made functionally obsolete, or other major corporate entities, they are threatened by the power of the Internet and by entrepreneurial start-up companies which can come up with a better way. It’s accelerating the business cycle and, in many respects, it’s what’s keeping a lid on inflation.

MR. McGINTY: So you think it’s accelerating the business cycle out and beyond just the companies that have direct tie to the Internet. You think it’s made the business cycle different everywhere.

MR. RAMSEY: All businesses are impacted by the Internet, whether they know it or not.

MR. KIMSEY: And, in fact, these technologies are expanding and progressing at ever increasing rates, which accelerates the business cycle. So you’ve got the same sort of Darwinian imperative that applies, but it’s just going to happen much more rapidly as these technologies advance. Then something that might have taken ten years to be obsolete maybe takes five or two, or, in some cases, a matter of months. Some company gets started with a great technology that seems relevant to everyone; starts to get itself established; and then here come some guys out of a garage that all of a sudden make their technology obsolete. They crater and the new guys pick up the prize.

MR. McGINTY: Is it your sense that we really can have any idea of what this is going to turn into? And I say that because predictions have been notoriously off-target when it comes to this kind of technology.

MR. MELTON: I think we’re dealing with such a level of complexity that it is not possible to sequentially predict a simple cause and effect. Any second order growth curve starts over on the right hand side of the chart and turns upward into this fancy word that they call an "asymptote." That means it’s going straight up, the rate of change is instantaneous—complete change, infinite change in a infinitely short period of time. That’s just about the kind of growth curve we’re talking about. Well, obviously, when you have that kind of rate of change, you end up with a change of state, and that change of state is not predictable by us mere humans.

MR. McGINTY: On that note, I think that’ll do it for us today. William Melton is the founder and CEO of CyberCash; Mario Morino is the current chair of the Potomac Knowledge Way Project; W. Russell Ramsey is founder and president of Friedman, Billings, Ramsey & Company; and James Kimsey is founder and former chair of America Online. They are the Barons of the Beltway. I want to thank the four of you for joining me here today. It’s been a great conversation. We appreciate it.


An Evening With the Barons



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