Information Processing: TELECOMMUNICATIONS
MULTIMEDIA BY TRIAL AND ERROR
Whatever happened to AT&T's bold plunge into the new worlds of multimedia and anytime-anywhere communications? Under former communications products chief Robert M. Kavner, the company bought up, started up, or invested in virtually every segment of the converging voice, data, and video worlds. And, in a high-profile "You Will" television advertising campaign, the long-distance telephone giant promised that a new era of futuristic communications was about to dawn.
Well, like lots of other multimedia wannabes, AT&T is finding that the future isn't arriving on schedule. Its foray into pen-based mobile computers, EO Inc., was a flop and has been closed down. Its 7.4% stake in General Magic Inc., a developer of communications software, doesn't look promising, given that none of the gadgets using General Magic's technology has made much of a splash. Interchange, the online network purchased from Ziff Communications Co. for approximately $50 million in December, won't go live until June, six months behind schedule. In May, the phone giant announced plans to sell its 2.4% stake in 3DO Co., a much-hyped maker of video-game machines that is now struggling. AT&T says it is bailing out because game machines don't fit into its plans--although it still owns the ImagiNation Network, an online video game network.
Despite these setbacks, AT&T says that it's not worried. Chief strategist Richard S. Bodman says the company, which had $2 billion in free cash flow in the last quarter, is willing to seed all sorts of startups and new ideas in the hopes that some will flourish. "Our experience has not been any different than any other venture capitalist's," says Bodman. "When you spawn new businesses, only one or two out of 25 typically make it."
FALLBACK POSITION? Still, industry insiders say that AT&T management wants to see more successes. Chairman Robert E. Allen has publicly complained about the poor performance of Kavner's biggest legacy--the former NCR Corp., which was supposed to help vault AT&T into multimedia leadership (page 114). Now, consultants and industry executives who work closely with the company say AT&T has recently been narrowing its focus. It's in the midst of developing a strategy with greater cohesiveness--aimed more at business customers initially than at consumers.
The switch began after Kavner left last June for Michael Ovitz' Creative Artists Agency Inc. There have been no significant outside investments in consumer multimedia since. Instead, AT&T has been forming alliances to bolster its business offerings. The latest: On May 22, Apple Computer joined AT&T WorldWorx, a group that includes Intel and Lotus Development and is working on videoconferencing.
Another sign: In April, AT&T brought together most of its multimedia businesses under the stewardship of John C. Petrillo, head of its business-communications services. "Within the last 6 to 10 months, AT&T has gotten much more serious about planning around a single strategic environment," says Tim Bajarin, president of Creative Strategies Research International Inc., a consulting firm.
Take Interchange, AT&T's online network. AT&T isn't trying to be America Online or CompuServe. Instead, it will operate Interchange as a very sophisticated development "platform" that other companies, such as Washington Post Co. and Ziff-Davis Interactive, will use to build their own online services.
Interchange President Michael E. Kolowich says that AT&T's close relationship with some 10 million business customers on the phone side should attract service providers for Interchange. "If you think about it, AT&T is creating a platform for businesses to do business under their own brand name, the same way they do with an 800 number," he points out.
GUIDING PRINCIPLE. Whether it's in business or consumer services, there is a single guiding principle behind all of AT&T's multimedia endeavors: Use new interactive services to drive ever-increasing demand for phone networks. That doesn't mean getting into content, the way rival MCI Communications Corp. is doing through its investment in News Corp.
The No. 1 carrier has always said it's not interested in creating the videos, information banks, or other content traveling down the line--it would much rather transmit everyone else's traffic. "That's a smart strategy when you're the largest market-share player in the long-distance business," says Daniel Reingold, an analyst with Merrill Lynch & Co. "When you're the biggest, you want to be able to carry everybody's content."
And being the biggest, AT&T can afford to plow some money into losers now. Besides, it may be too soon to tell what a loser is. The EO pen computer was a bust. On the other hand, a product such as General Magic's Telescript communications language may pan out. It works only on handheld communicators from Sony Corp. and Motorola Inc., which makes it look like a dead end now. But there could be a payoff later. "It's a brilliant technology on the wrong platform," says an executive who works closely with AT&T. "But the concepts are still very important to AT&T. They've learned a lot."
The learning process will most likely continue to be messy for AT&T and everyone else in a business that continues to be embryonic, to say the least. As Merrill's Reingold says, multimedia "is going to take a long time, a lot of money is going to be spent, a lot of trials, a lot of errors." You don't have to tell AT&T that.
Pieces of the Puzzle
A few of AT&T's multimedia products
INTERCHANGE ONLINE NETWORK A would-be rival to Prodigy and America Online. Launch pushed back from Dec. '94 to June.
IMAGINATION NETWORK (FORMERLY SIERRA NETWORK) An online interactive-games network.
VIDEOPHONE 2000 AT&T's videophone for consumers, with a list price of $1,400, is selling slowly.
INFORMATION CENTER A set-top box that connects to both TV and telephone and uses the TV screen as a display. Available starting in July.
GENERAL MAGIC An AT&T partner that developed the Telescript software for wireless transmission software used on Motorola and Sony devices.
COURTESY OF AT&TBy Catherine Arnst in New York