* [Doors of Perception] *

Realities of Interactive Television
and Telecommunications Networks
MITCH RATCLIFFE

My talk today is about the realities of the interactive television and telecommunications networks. It seems my lot in life to be a skeptic, but after having written books about Newton and the EO Personal Communicator, I've learned the highest hopes are not where the coats of industry are hanging.

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The press surrounding the emergence of interactive networks has been frantic. Even the skeptical articles I read about the information superhighway are based on the exaggerated claims made by telephone, computer, software, cable and wireless companies about the potential for digital technology. We are promised video communications to and from the home, the ability to live and work anywhere through intelligent networks, a universally-accessible life-long learning resource in networked information and, basically, the world at our fingertips. Amazingly, even the most informed press measures new technology against its publicity. In fact, none of the systems under development today will offer the kinds of services presented in ads from AT&T, MCI, IBM, Apple and Microsoft.

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The idea that society is about to demolish the economic, social and philosophical foundations of the past to erect a shiny new future are ludicrous. The companies which are dominant in today's markets will not function in these twisted planes of digital existence. Rather, the giants of today's telecommunications and computing world want to establish a careful balance between the past and present. By combining new technology with existing broadcasting and advertising business models, they are preparing not a 21st Century economy, but a digital riff on the late-20th Century's most pervasive media paradigm: the massification of information and entertainment. They will offer the same old bites of Dallas, Wheel of Fortune and Baywatch, but we'll be freed from the confines of the programming schedule.

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Why? The facts speak for themselves. As long as many competing data formats exist on the networks, the cost of developing programming will be concentrated in the hands of a few large companies with ample resources. Video server tests, while they succeed in delivering a stream of video content to a few homes now and again, are essentially closed, one-way systems. Servers will not be able to communicate with one another for many years -- it's not a priority; what the network owners need to do is make money by selling content to viewers and advertisers. Video dial tone is a modified broadcast business that shifts the work of programming to the consumer.

So, in the meantime, we'll have as much interaction as can be built into the list of available programming. We won't be talking to one another through these networks. We won't be earning our living in new ways. We won't be learning from resources which are not stored locally -- at least, thank the gods, we have the Internet, where information seems to be flourishing.

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Digital technology will be used to contest the revenues of existing markets. We're not seeing new business initiatives, because when the business plans are written they all aim for known sources of revenue, like today's newspaper industry, long distance calling, cable television and advertising.

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Granted, we are approaching a huge shift in the distribution of spending across existing channels and new digital channels.

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The information superhighway will be dominated by recombined versions of tried and true businesses. That's why you hear more in the press and at conferences about the role of advertising and television programmers than about the new kinds of skills that will attract people to innovative products.

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Let's take a look at some of the markets that digital technology will let telecommunications, computer and consumer electronics companies take a piece of:

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Automated banking, virtually unknown in 1980, has destroyed the old idea of bankers' hours. Now, people get money at all hours of the day. And, with the introduction of Point-of-Sale terminals in stores, many transactions formerly carried out with cash or checks have become plastic-and-bits transactions executed by data networks. While there were no ATM transactions in 1980, Americans made purchases or got cash from the bank using ATM cards more than seven-and-a-half billion times in 1992.

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Likewise, the volume of credit card purchases will quadruple in just 20 years, from $201 billion in 1980 to an estimated $882 billion annually in 2000. Telecommunications, operating system vendors, retailers and content providers who pay credit companies a fee each time a card is used today hope to take that fee for themselves by offering transactions over interactive networks. This is the most lucrative short-term use of data networks, not video-on-demand. Most of the tests I've seen involve bringing the retailer to the consumer. The message of commercial television -- Buy, Buy, Buy! -- will ring even more sharply on interactive networks.

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Another favorite subject of publicity is the remote medical care application. Now, these are very valuable to people who don't get the best medical care -- or any medical care. But they also present a very lucrative target for telecommunications and computer companies. Consider the growth in cost of physician services, from $13 billion in 1970 to $142 billion in 1990, and you can see how any service which intervenes in the doctor/patient relationship to save either the doctor or the patient time and money stands to benefit handsomely. Or look at the increased cost of drugs, and the difficulty in managing the disbursment of medication. Elimination of the paper prescription slip and automation of medical insurance payments will reap the company who brings the enabling technology to market a vast share of the $60 billion in drug industry revenues.

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Distance learning is another popular hot button for the technologist to press when talking to the press and public. Christopher Whittle made a name for himself by bringing television technology and his Channel One news broadcasts to the American classroom. Now, despite harrowing set-backs, he claims he will begin using technology to run public schools at a profit. If you consider the escalating cost of education, and the natural role of software and communications technology in the classroom, it's a no-brainer to invest heavily in taking a slice of that pie.

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The three areas I just discussed-- banking transactions, health care, and education-- grind through $1.6 trillion dollars a year. If interactive networks can take just three percent of these markets, they will have earned $50 billion a year. That's more than the video game industry, Hollywood, cable television and book publishing combined. That's why the networks you hear so much about today will turn out to be little more than transaction mechanisms that reach into your home, that follow you during the day and even tie you to your accounts after a major auto accident.

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Let's take a quick look at some other markets that are thought to be up for grabs. These are some of the largest businesses in the information economy already, and plenty of people are investing big piles of money to get at them.

Long distance calling in the U.S. is a $67. 2 billion dollar business.

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Local telephone calling earns $40.2 billion in gross revenues each year in the U.S. Roughly twice the cable industry's revenues.

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The big three television networks in the U.S. earn $20.8 billion in revenues.

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U.S. cable companies gross about $23.3 each year.

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Advertising is probably the largest single concentration of very volatile and liquid assets. Ad money leaps from medium to medium in search of an audience. Interactive networks promise to eliminate the sloppiness of market penetration in analog mass media. All tolled, the U.S. sees about $89.6 billion in ad expenditures each year.

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All these forces have combined to prevent the kind of daring innovation that results in radical departures from past media. In fact, for the next decade or more, consumers will see very cautious investments by media companies which are jockeying to add a portion of an existing market to their own. The crown jewel of the new marketplace lies in transaction services, health care and education.

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So, when we hear a Bell Atlantic or British Telecom talking about new services, what do they really mean?

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When they say "Video-on-demand" they really mean time-shifted broadcasting. We'll have to do the work of finding programs and pulling them off the virtual shelf for viewing.

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When they say "Home Shopping", what they are really talking about is a constant barrage of targeted electronic solicitations. As one producer attending the infomercial industry's convention in Las Vegas last month put it: "With all these new channels, people are going to have to come to us to get fresh programming. We're talking about an infomercial superhighway." If you think you'll escape the ads because you retain control of the network feed, think again. Viewing will cost dearly, unless you sacrifice time to commercials. Only Bill Gates has the money to watch whatever he wants commercial-free. Hopefully, interactive television will cut down on television viewing overall.

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When they say "Interactive Games," interactive programmers are proving that we've lost track of what makes humanity unique. While it's interesting to share the solving of a puzzle with friends, it is not true that all learning is a function of the level of entertainment in an interactive title. The emphasis in interactive gaming is on the consumption of a service, not on learning.

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When they talk about intelligent networks filtering information, network providers often mean that we will encounter only that advertising which specifically addresses our needs. But a shortage of junk mail is not what we're going to see. Rather, the networks and advertisers will collect so much information about us that they can analyze and anticipate our purchases. Eager cybersalesmen are mixing up the commercialization of the Internet with the acquisition of personal information through subscription and advertising-paid services. Today, we trade attention to advertising as the price of a movie. In the future, we'll be sacrificing exclusive control of personal information as a subsidy for entertainment and educational information. I dread the thought that when my son reads Sartre's Being and Nothingness he will receive an electronic message saying something like "So, you're reading the existentialists. Perhaps you'd like to know more about Prozac?"

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Now, here's the fundamental mistake. It's one based on the mass market media of the past, and it tells the story of the control today's media giants don't want to lose: We have to make this stuff as simple as we can, said John Malone, the business mind behind cable television giant TCI. This idea that we have to design systems that are dog-stupid in order to facilitate easy consumption of content is the source of the klutzy information superhighway metaphor. Highways are delivery systems, they are not like the trails cut by pioneers between their homes and to town, where they came together with their community. An interstate highway, the Autobahn, these are not organic systems. But that's what John Malone wants to build all over again, because his trucks are going to run on it.

Ultimately, these broadcasting-like interactive networks are nothing but marketing systems designed to install in the imagination an approved set of familiar icons to which viewers will turn again and again. This kind of regularity doesn't breed much in the way of high culture, daring images, exciting stories, important new businesses, or thought.

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But there is a way to look at interactive networks that allows anyone to see that the individual and home can play a more important part in the world than ever before. We introduced the idea of the technosystem in Digital Media a few months ago. This view of the emerging networked world holds that every transaction -- from simple contact between people and institutions to an exchange of value -- is a new connection in an ever-growing web of relationships between devices, information and Homo Sapiens. The technosystem is unfriendly to the carefully controlled synthetic environments created by marketing messages. This is a democratic environment, where it's possible to publish a work of art for consumption by one or a million viewers, without regard for the incremental cost of network bandwidth. The technosystem cannot thrive if a cadre of powerful players have a monopoly on broadband transmission.

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What are the conditions that let the technosystem thrive? Everyone on the network should have equal upstream and downstream network capacity. This shifts the cost of entry into information markets from the hardware to the ingenuity and efficiency of content development. Moreover, universal broadband connectivity creates economies of scale that support network providers with sufficient revenues. It also encourages the sale of more powerful, and more profitable, hardware at every point on the network, rather than at a few locations running video servers.

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Freedom of speech and thought are absolutely necessary. Every idea should have its outlet. That's not to say that consumers and providers can't establish neighborhoods in Cyberspace where some ideas are not expressed. But we've got all sorts of ugly organisms in the natural world, they make things interesting. Let them into the networks, too. Stupidity isn't a virus, but ignorance of others is.

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We should participate in public forums under an authenticated identity. Freedom without responsibility can lead to a particularly virulent strain of abuse.

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Privacy in all personal correspondence and transactions, as well as in private forums, is essential to the spirit. We must be free to experiment with any idea or lifestyle, if only to know that some things are better left alone.

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Once you've come to understand the constitution of the technosystem, you should also take a moment to think about how this natural mental landscape works. Freedom of information, that is of access to government information and data that has an impact on the mental and physical environments -- like encryption standards and privacy policies of network providers -- fosters innovation. If the people find a shortcoming in the technosystem, I'm confident that they can fix it. Millions of businesses have grown up around a better way of delivering a service or product, or a slight improvement in design. If the majority of information in the electronic economy rises into the superdatabases of a few institutions, where it is held in abeyance, resistant to analysis, the rest of us will live like slaves.

Every startling economic development on the networks has been a democratic one. Commercial online services thrive on public conversations. The Internet has opened the Academy to the people. Mosaic has made publishers of thousands of ordinary people. Even the Canter and Siegal spamming incident was remarkable for its egalitarian nature. Where else besides Cyberspace could two lawyers advertise to millions of people for the cost of an Internet shell account.

Western culture survives on the ideas of Montaigne, Locke, Shakespeare, Cervantes and Dante. We've simply innovated, albeit freely, on their seminal works.

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Just as an animal that finds a niche in the ecosystem can thrive, so can companies in the technosystem. I believe the company that acts in the best interest of the consumer will be the most successful. Phil Zimmerman's dedication to individual privacy has made PGP a standard. RSA Data's fight against encryption controls in the U.S., as self-serving as it is, made their technology an integral part of many networks and operating systems.

The best general guideline for making this technological advice work is: Build tools that facilitate communication between individuals. If the tool fits a need -- and there are many just now -- it will find customers who use it in many unexpected ways.

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An extension of this idea of finding a niche is the technosystem's propensity to speak volumes to those who will listen. Make your company or institution listen to the people of the network. Forget about the technology, the APIs, the machine instructions and all that gobbledy-gook that they told you was important in computer science class. I hear a people speaking in the Net, they want to be heard, they want to share, they want to earn a living, they want to explore, they are alive and the technology only comes to life through their participation.

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Which brings me to the conclusion of my talk, and the subject of home. The interactive services being tested in the U.S. and Europe will fail for a lack of spirit. Every company I know is focusing time, energy and resources on reinventing the wheel. They're building their own tools to do things that computer scientists have done for years. They are launching products and testing services without an inkling as to whether people want them.

I heard a story that other day about the first meeting between AT&T's top brass and the developers at General Magic. It seems Andy Hertzfeld, who did the Mac ROM and who now had helped invent an overtly cute operating system for communicating applications, was doing the first demo of Magic Cap. "People will love this," he told the visitors. AT&T's Victor Pelson, the guy who ran their worldwide networks services division, a hard-boiled telecom pragmatist, stopped Andy in mid demo and asked, "What makes you think people will love this? Have you done any user testing that supports that statement?"

The room went quiet. Andy's face screwed up into a fitful expression. Victor Pelson sat stolidly in his chair, staring at Andy, and Hertzfeld nearly shouted "I just feel it in my soul!"

If the room was quiet before, it had died and gone stiff with rigor mortis. Pelson looked back at his colleagues and then at the General Magic people. "That's good enough for me," he said, and they went on to invest in the company.

I've not seen any applications or even any hints that any company is coming at the interactive networks tests with the spirit that launched the General Magic Alliance. But I know what I feel in my soul.

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It's time we overcame the distance built into our society by the automobile and systemization of work by people like Frederick Jackson Taylor. We look at the disintegrating family, at the discontent in our communities and wonder why everything is falling apart. For the first time, we may have a technology that lets us go home to work, care for our families and participate in our communities while making a valuable economic contribution. What prevents the technosystem from taking root is the fixation on building technology that makes people better employees. These systems tend to shut up the individual, not to mention monitor their work and behavior. Technosystemic tools will free the voice of the individual, and companies will have to cope with that. The last juncture in the personal computer revolution we've lived through has arrived: We can choose to build tools that make us consumers, or that make the companies of the world better employers. After seeing the church and the state give way to the philosophy of business, it's time to recognize the rise of another over-arching structure in society, the community. Humane technology for the home will connect people to their communities, whatever the size of those groupings -- from a collection of enthusiastic readers of Thomas Pynchon to the people of the globe taking a vote on nuclear disarmament. Humane technology for the home will give each household a voice and the opportunity to earn a living in ways that were not previously possible, it will do more than facilitate the spending of money and the consumption of eye candy.