Message: 11
Date: 5.1.94
From: <nicholas@media.mit.edu>
To: <lr@wired.com>

Bit by Bit on Wall Street: Lucky Strikes Again

There is no speed limit on the electronic highway. Change, whether technological, regulatory, or in the area of new services, is happening faster than I can believe - and I think of myself as an extremist when it comes to predicting and initiating change. To me, the current state of affairs is like driving on the autobahn at 160 kph. Invariably, just as I realize the speed I'm going, zzzwoom, a Mercedes passes, then another, and another. Yikes, they must be driving at 200 kph or 220 kph. Such is life in the fast lane of the infobahn, but nowhere more so than on Wall Street.

Bob Lucky, Bellcore's vice president for applied research and a highly acclaimed author and engineer, noted recently (in "Looking Ahead at Telecommunications," Bellcore Exchange, November 1993) that he no longer keeps up to date technically by reading scholarly publications; instead he reads The Wall Street Journal. As usual, Bob is right.

The reason for this phenomenon is simple: The future of the computer and communications industries will be driven by applications, not by scientific breakthroughs like the transistor, microprocessor, or optical fiber. The problems now stem not from basic material sciences but from basic human needs. To focus on the future of the "bit" industry, there is no better place to set one's tripod than on the entrepreneurial, business, and regulatory landscape of the United States, with one leg each in the New York, American, and NASDAQ exchanges.

A Bit of Mickey Mouse
The recently completed battle between QVC and Viacom for Paramount must remind analysts of the duel between Abdullah Bulbul Amir and Ivan Petrofsky Skovar, in which each dies on the other's sword. The winner is the loser.

Maiden Paramount has come down with a case of acne since the courtship started, but remains, nonetheless, a beautiful catch because she boasts a wide variety of bits. And it's the bits that count, stupid.

However, it is not just the number of bits but their variety that matter (book bits, sound bits, movie bits, even hockey-playing bits). The reason is simple: As everything becomes digital, the bits commingle (that's called multimedia), and they leak into the interstices of humanity, previously unreachable by the delivery of physical matter (that's called new markets). If your company makes only one kind of bit, you are not in very good shape for the future; both Sumner Redstone and Barry Diller know that. The Paramount story is about bits, not egos.

All of a sudden, companies see the opportunity not only to resell their archived bits but to mix and match, to augment, and to personalize information and entertainment. The more a bit can be put to use or recycled, the more it is worth. In this regard, a Mickey Mouse bit is probably worth a lot more than a Star Trek bit. My goodness, Mike Eisner's bits even come in lollipop form. More interestingly, his guaranteed audience is refueled at a rate that exceeds 100 million births each year. I am certainly betting on Disney's bits.

Bit Transportation
I cannot think of a worse business to be in than the transport of bits - worse than the airline business with its fare wars. Consider, the business is regulated to such a degree that NYNEX must put telephone booths (which last all of 48 hours) in the darkest corners of Brooklyn, while its unregulated competition will put its booths on Fifth and Park avenues.

That's only the beginning: Now the digital era emerges, and bits need to be priced differently. Surely none of us is going to pay the same for a movie bit (there are about 10 billion of them in a very highly compressed digital movie) as we will for a conversation bit (there are only 100 million of them in a highly data-compressed, two-hour conversation). Consider your mother-in-law's return home from the hospital and her need for an open line, 24 hours per day, just to monitor a half-dozen bits per hour. Try figuring out that business model! Or what about the 12-year-old kid doing his homework, who should have access to WIRED's content for nothing while Wall Street analysts should pay a fair price.

It is not difficult to speculate. If management limits a telecommunications company's long-term strategy to carrying bits, it will not be acting in the shareholders' interest. Owning the bits or rights to the bits, or adding significant value to the bits, must be a part of the equation for telecommunications success.

Otherwise, there will be no place to add value, and telco operators will be stuck with a service fast becoming a commodity, the price of which will go down further and further.

It May not Be Necessary to Covet thy Neighbor's Bits
Nintendo and Sega have taught the world a big lesson. Their games represent a business that is larger than the American motion picture industry and growing much faster as well. We are relearning that the money to be made is in the blades, not the razors. That's not a new idea. Wall Street investment scion Warren Buffet knew that when he bought into Gillette.

Computer companies have been positioning themselves as software companies for years. By software they usually meant tools, sometimes end-user systems. A change is afoot. And, no, I'm not going to tell you about the multimedia industry, again.

What I am talking about is information about information, and the processes by which we filter the onslaught of bits. The computer industry's blades may not only be modeled after Bambi or Tetris. Instead, I see a huge market in the agent business, modeled more after the added value of an English butler or the Librarian of Congress. Yes, making and owning the bits is certainly better than simply carrying, storing, or churning them. But there may be another bit business: understanding the bits. So far, in the theater of Wall Street, the personal information filter business has only played a bit part. I assure you that it will be tomorrow's lead role on the stage of success.

Next Issue: Digital Butlers: Interface Agents

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[Copyright 1994, WIRED Ventures Ltd. All Rights Reserved. Issue 2.05 May 1994.]