As the growth of the Internet flags, the people who run struggling online media, e-commerce, and networking companies think they have identified the elixir to revive it: broadband. From Cisco Systems (CSCO) and Intel (INTC) to Sony (SNE) and Yahoo! (YHOO), they're all betting that high-speed Internet service will spur multimedia ads, snazzy video, and the ability to make impulse purchases--thereby getting more people on the Net to spend more time and more money. Unfortunately, it's a bad bet.
Let's face it, most people simply won't get high-speed connections at home for years to come. Blame the steep costs of installing high-speed lines, clumsy regulatory rules, or the poor economy, but broadband has been slower to take off than expected. Market watcher Forrester Research Inc. estimates 72% of dial-up Net access customers won't pay more than $25 a month for broadband--half of what most providers now charge. As a result, fewer than 5% of U.S. online households have anted up. Intel Corp. Executive Vice-President Leslie L. Vadasz estimates it could take a decade for two-thirds of households to get broadband.
That's just the start of the problem. Too many companies assume the Net is simply slow television and hope broadband will magically transform it into a familiar entertainment medium. But that's a wrongheaded view of the Net. It's best at activities that involve interaction, not passive viewing. "Communication is the past, present, and future of the Internet," says Eric Schmidt, chairman and chief executive of search engine Google Inc. That's why e-mail and instant messaging remain the most popular things to do online. Neither requires broadband, now or ever.
Don't get me wrong, it's not that broadband doesn't improve use of the Internet. Faster-loading pages are cool, the always-on connection is even cooler, and speed is crucial for some popular activities such as downloading music. But crucial enough to overcome all the costs and other obstacles? Not anytime soon.
Moreover, other bit-hogging activities such as video seem unlikely to spur many people to pay for broadband at any price. Films on my PC? Sorry, my office chair at home doesn't recline far enough. Multimedia ads? No thanks--they're just as likely as TV ads to send me to the fridge for a beer, or more likely to another site. Media companies and advertisers "still haven't found a way to make money in the narrowband world," says Nick Gould, CEO of the New York Web design company Catalyst Group Design. "How are they going to make money with broadband?"
Even if some people might want to watch this stuff on their PC, or the PC somehow finds its way into the living room, the broadband connections available today aren't nearly broad enough for video and the like. On a dial-up line, you get grainy, jerky video in a tiny window. On a DSL or cable modem connection, you get grainy, jerky video in a larger window. Technology to compress data helps, but TV-quality video on a big screen may require the same optical fiber used in commercial high-speed lines to be installed all the way to each home. By most accounts, the cost of doing that is so high it's at least 15 years away.
The thing is, tech companies and Web sites already have plenty of ways to improve the Internet experience at their fingertips. Why on earth don't we have instant-on PCs yet? How about installing more servers at sluggish Web sites? The main reason many Web pages load slowly, points out Microsoft Corp. Senior Researcher Jim Gray, is that servers are underpowered, not that Net connections are too slow. And when are PC and network gear makers finally going to create seamless links between computers and entertainment equipment? The sooner the techies quit chasing broadband pipe dreams and work on these basics, the sooner we'll get jazzed again about the Internet. By Robert D. Hof