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A Netpreneur Program event, produced by
Morino Institute at the Mid-Atlantic Venture Fair. November 12, 1997

1997 Morino Institute. All Rights Reserved.

Mario Morino, Chairman, Morino Institute
Robert Pittman, President & CEO, America Online Networks
John Sidgmore, CEO, UUNET; Vice Chairman & COO, WorldCom
Alan Spoon, President & COO, Washington Post Company
Mark Warner, President, Columbia Capital Corporation

Interlude: audience questions

Mr. Spoon: Thanks, Mark. Now, we thought as a panel that we would go out to some questions at this point before Mario has a chance to wrap up, which he also enjoys doing. We have microphones spread around the room, and if there are any questions, we could take them now. Please use the microphone and let us know who you are.

Mr. Deemer: My name is Ron Deemer. I'm visiting from Atlanta. I have a question for Bob and John. Five or ten years from now, what do you think will be the dominant means of accessing the 'Net for consumers?

Mr. Pittman: Well, I think there are possibilities that exist. I think if you analyze those, we're looking at DSL (digital subscriber line), we're looking at cable, we're looking at wireless, we're looking at satellites. If you're talking a mass market consumer product, it better be as simple as what they have been living with. There is, in my experience, no history of the consumer ever accepting something which is harder than what they've had or is worse than what they've had.

Today what we're looking at with cable and to a certain degree with DSL is somebody's got to come to your home and futz around with your computer to get you on. I don't think that's a mass market product. Whatever it is, it's going to have to be something which is invisible to the consumer. Everybody knows how to take the phone clip out of the back of their phone and put it somewhere else. That's probably not a big hurdle. Much beyond that, it's a tremendous hurdle.

AOL, which has a great deal of the home consumption of Internet online, is growing very nicely. Most of the people, slightly more than half, are now at 28.8 bps. We've still got almost half the people slower than 28.8. If you do research about why they don't get a faster modem, they say, "Why should I?" When you say, "How did you select your modem?" It was whatever came with their computer. Are there about 5, 6, 10 percent of the people who might be interested in speed? Yes. But that's probably not a big part of the market. Hard to get a return. We have to add other features and make it important to them.

As far as AOL goes, technologically we are completely agnostic. We will go where the customer goes. We will go there in a way which adds to our profitability and adds up new revenue sources for us. We look to folks like John to tell us what opportunities we might have and how we might get there. Indeed, one of the important things about the deal we did with WorldCom is that it's a relationship for the future. We made a bet that they're entrepreneurial enough to be out there and will figure out solutions to the issues.

Mr. Sidgmore: I want to wholeheartedly agree with Bob on the technology. I think in the near term, high-bandwidth in the home will be a reasonably small market. If there is a winner, it will be DSL in the next couple of years. Cable modems, in my opinion, are too far away. They work fine in the laboratory, but in reality most of the cable systems in the United States are one-way only. They are limited in bandwidth, they require a lot of work in the home to make them go, and I think it's going to take a few years to work through that. It doesn't mean they won't work ultimately, but they are probably three to four years away at best. I think DSL is here today.

The only other comment I would make is, in terms of what the ultimate market is, a lot of times that's determined by the applications that are presented as being feasible. As bandwidth becomes available, applications will develop. I think it will continue to cycle out that way for the next couple of years. As video becomes possible, becomes real, that will be a huge application. If there is realistically enough bandwidth out there to do it, people will buy it, though it's probably a few years away.

Mr. Monaghan: I'm Carey Monaghan from Korn-Ferry International. What do you see as some of the hurdles to the rapid development of e-commerce, other than the obvious one of concerns about security? Secondly, how do you see the emergence of branding being applied to the development of the e-commerce market?

Mr. Sidgmore: I think the things that are holding back e-commerce are, first of all, quality and security. Whenever you talk about transactions that move money or change the financial structure of anyone's account, you're going to raise those concerns much more loudly than with typical applications. I think that's what you're seeing.

Also, you've got the issue of standards. Right now, there are dozens and dozens and dozens of platforms and software products and packages out there. That's not going to be scalable, in my opinion. You're going to have to have standards that work.

Then finally, a lot of these industries that emanated out of the old Electronic Data Interchange (EDI) theory take a while to develop. It requires a critical mass before people will start to use it in a significant way. My guess is we're going to continue to see progress year after year, but this nirvana of ubiquitous electronic commerce, digital cash and so forth isn't going to happen for a couple years.

Mr. Pittman: I think I'm going to go back to my model that you look at the consumer to determine what you should do. No one wakes up one morning, turns over in bed and goes, "Honey, let's swear off stores." They develop a habit slowly.

We've begun offering commerce. I'll come in a second to what I think the advantage is because, remember, it is a whole lot easier to shop this way. It does win on the convenience spectrum. The research I have seen doesn't show security being the big issue; it's just comfort zone.

The way people begin the process is they do a little bit of window shopping, then they do a little more window shopping, then they regularly window shop, then they consider a purchase, then they make a purchase, then they make another purchase, and over time they're developing into a customer who will be using this product day in and day out as a replacement for something else.

Indeed, on AOL we show about 78% of our people window shop and about 38% have ever purchased. Almost no one buys something every day, but the process has begun. Now, if you're a merchant where do you get in? I hear some people say, "I'll wait until it's big enough before I play in that world." They don't understand what's going on.

The customer is developing their brand loyalties in the window shopping phase. They are developing their loyalties now. By the time they start making purchases, they are going to purchase from the people they've been looking at for all this time and window shopping and thinking about making small purchases. They're not going to do all that and then suddenly shift over and start buying from someone else.

You saw this in the cable networks business. The broadcast networks saw that there was a need for cable networks, a specialized news service, a music service, a kid service. You know what they said? "We'll wait until it's big enough." Suddenly it became big enough and guess what? CNN was there, MTV was there, Nickelodeon was there. They no longer had an opportunity because someone had filled the consumer need.

Why would you come to the 'Net instead of a store? Why, as a merchant, would you want to be here? Because online does something you can't do anywhere else. We collapse the entire marketing process into one place.

As a marketer, what am I trying to do? I'm trying to get your attention first. I'm trying to answer any questions you have or tell you more about the product, and I'm trying to get you to transact. Traditionally we do that in three different places. I get your attention with a 30-second TV commercial, I tell you more about the product with some sort of text-laden print ad or a brochure or salesman's call, and third I get you to buy by sending you to a store. That's a cumbersome process. Every time I ask the consumer to go from here to here, most people won't because it's too much work.

Online I can get your attention, tell you more about the product and get you to transact right there. If I can't get you to transact, I can send you to a store or I can give the store a qualified lead. That is a very efficient marketing process, and that's going to drive the merchant there for economic reasons. The consumer's going to go there because it is more convenient than going out to a store. And I don't think the hurdles we have are so much security as they are how to give people everything they get in a store in terms of seeing the selection, being able to know that they can make returns easily, that the product will get to them quickly--thereby replicating impulse.

part 3: Mario Morino: A Time of Convergence

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  

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