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At Last, the Web Hits 100 MPH


Jon Nordmark has been through the e-tail bust, so the CEO of eBags Inc. has learned that the next cool thing is rarely what it seems. Yet he increasingly thinks broadband will be boffo. The evidence: In tests, customers who watch videos about the luggage he sells are 19% more likely to buy than customers who just look at pictures on his site. "We don't go hog-wild on any new idea until we have proven its effectiveness," Nordmark says. "Now we have."

Experiments like the one on eBags explain why experts are increasingly optimistic that high-speed Internet access really, finally, will help deliver the full promise of the Web. A new study by the Pew Internet & American Life Project says 31% of U.S. Web households now reach the Net via a broadband connection, up 50% in a year. And by the end of this year, at least 7 million, or 39% more, will switch -- a number that could double if more companies follow Verizon Communications Inc.'s lead and slash broadband fees to $35 a month, a 30% drop, says analyst Anthony Noto of Goldman, Sachs & Co.

That's why 2003 is shaping up to be an inflection point, when broadband will reach enough people to kick off a round of changes on the Web. What's ahead? Broadband connections are always on, so people don't have to think twice about turning to the Net for news or a quick peek at airline fares. That's one reason people spend two-thirds more time online each day -- around 2 hours -- after signing up for broadband. And once there, they're big shoppers, spending 29% more annually, or around $523, according to a survey by Goldman Sachs and the Chicago research firm Synovate. Speed demons also are more likely to create art on the Web, download music, and try out online gaming.

Add it all up, and Pew predicts no less than the emergence of what it calls a "broadband lifestyle," where people watch less TV, spend less time in stores, and live more of their personal and professional lives online. "I really do think it's a revolution in Internet usage," says Pew Senior Research Specialist John B. Horrigan.

Over the next five years the impact of broadband will show itself in stages. One reason it won't happen all at once is that it will take three years for speedy access to surpass dial-up. Until then, businesses will cater primarily to those with poky connections. Plus, Web operators are still tinkering with strategies and pricing plans that will take advantage of broadband, such as trying to find the right price point to make online music and game-playing mass-market businesses.

Down the road, broadband may pave the way for such struggling business models to succeed. Much of the game industry, led by Microsoft Corp. and Electronic Arts (ERTS) Inc., is eager to get consumers to pay monthly fees to play online versions of games they already play offline. In other cases, speedy access will force change. Consider the movie business. Downloading a two-hour film is nearly impossible over an old, creaky connection, taking upwards of 14 hours. With broadband, that drops to 45 to 75 minutes, luring more film buffs to the Web. That could put pressure on Hollywood's cherished system for releasing movies, which slowly rotate through theaters, home video, pay-per-view, and cable markets.

For now, though, changes brought on by broadband are coming one step at a time. Faster connection speeds are likely to entice consumers and e-tailers to make more use of services, such as chat and product guides, that can take time and many clicks to use with dial-up. That could help the bottom line. At e-tailer Lands' End, new customers are 70% more likely to buy if they talk to a sales rep via online chat.

As more consumers have fast access at home, they'll also shop less at work. Buy.com (BUYX) Inc. is making the most of that by offering four-hour sales that give consumers a reason to also shop at night and on weekends once they have a fast connection at home. The result? Buy.com's best promotions boosted sales 40%. "We saw an immediate increase," says Larisa Hall, marketing director at Buy.com, which began the experiment late last year.

Media companies aren't as far along -- yet. Most models to sell broadband content are still struggling to figure out what consumers will pay for -- and what they'll pay. But leaders are emerging. ESPN (DIS).com found a simple way to turn broadband into a profitable ad medium. Its four-month-old ESPN Motion feature, which lets broadband surfers watch 60- to 90-second video news reports, can handle the same made-for-TV commercials ESPN's cable channels run. This has attracted advertisers such as Universal Studios, which used the service to push its film 2Fast 2Furious. The key innovation: With speedy broadband, clips are clearer because they are downloaded to viewers' PCs, rather than played on the site.

Other media companies are following ESPN's bid to rev up broadband-powered businesses. On May 22, RealNetworks Inc. announced RealOne OpenPass, which it sees as a kind of online mall for broadband content. More than 20 companies, from Playboy Enterprises (PLA) Inc. to Motor Trend magazine, have signed up to sell through OpenPass. The advent of programs like OpenPass shows how experimentation is flourishing as Web operators try to exploit broadband. This happy talk, though, comes with a touch of grim news. The biggest difference between broadband users and other people is that they do more work at home. Lose the weekend, gain the World Wide Web. By Timothy J. Mullaney in New York, with Jay Greene in Seattle


Reviving Keynes
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