THE CUTTING EDGE: SPECIAL REPORT : Reality Check : In ‘95, Technologies Will Thrive on Profits--Not Promises

Computer and communications technologies have been changing our world for decades, but it was not until the 1990s--when the power of the computer chip reached a certain critical mass and communications networks began talking the language of computers--that the cataclysmic implications of those changes started to become clear.

By 1993, sane, rational people were talking of services that fused the two technologies, as in video on demand, long-distance learning, “tele-medicine” and “anywhere, any time” communications.

And if 1993 was the year technology entered our collective consciousness, 1994 was the year of Infobahn euphoria. Politicians, businessmen, news reporters and would-be multimedia producers vied to see whose “information superhighway” metaphors stretched furthest as they predicted vast social change and digital nirvana just around the bend.

By the end of the year, however, the cognoscenti were cynically referring to the “super-hypeway,” and it was becoming obvious that many of the promises had been off by years. Mergers between cable and phone companies that were supposed to have helped to open the new age quickly came apart. Interactive television trials were delayed. Congress did not pass a telecommunications deregulation bill as expected. Personal computers flew off the store shelves, but consumers found themselves with a Pentium chip bug.

So what of 1995? Call it the Year of the Reality Check. Next year will be the year the information wheat is separated from the digital chaff; it will be the year in which technology trials and pilot marketing efforts finally begin to generate information. Instead of just talking a good game, companies will have to lay down money and make hard decisions about which technologies they should back.

One of the most critical decisions will involve the vision of an interactive, 500-channel television service. Cable and telephone companies had been taking a “Field of Dreams” if-we-build-it-they-will-come approach. Just install the broad-band networks required to send video signals, they suggested, and a host of new businesses will flock to exploit it. Some called it the big bang approach.

Better to call it the big bungle. Once it became clear that $1,000-per-household estimates for the new networks were on the low side, aggressive rollout plans were rolled back. Look for further trials instead. Time Warner, which was scheduled to begin offering services to 4,000 homes in Orlando, Fla., by early 1994, finally got its trial under way this month after endless technical problems. Pacific Bell, which said last year it would wire 1.5 million homes by the end of 1996, now says it will have only about 600,000 homes “passed” by then. And even those plans seem fraught with uncertainty.

“The technical hurdles are more daunting than the early visionaries had expected,” said Gary Smaby, a technology consultant. “A lot of this technology has never been tested outside the laboratory.”

Still, trial marketing will provide information that can guide future services.

“The trials will weed out some bad ideas,” said Greg E. Blonder, chief technical officer of AT&T;’s corporate strategy division. “Consumers know when something is bad. They don’t know if they like it.”

Industry insiders expect a lukewarm response, which would result in a go-slow approach to building new broad-band networks.

“I’ve stood in front of a Blockbuster store for an hour and watched people go in and out,” said James Cannavino, senior vice president for strategy and development at IBM. “They all go to different aisles and come back with four or five tapes.” After discussion, he says, the typical family narrows down the selection of tapes and leaves, stopping by for fast food on the way home. “We can’t do that yet.”

A slower approach to infrastructure investments will give would-be interactive TV firms more time to make decisions about a key missing part of the proposed services: the set-top box. These devices will convert digital signals into forms that can be viewed on a television set, manage the on-screen “menus” that will give viewers control over the systems and send back the signals that will make the TV “interactive.”

Depending on the reaction to next year’s trials, these machines could be souped-up cable TV boxes or they could be powerful machines that can perform simultaneously as game machines, shopping terminals and video telephones. Computer makers such as Silicon Graphics are competing with General Instruments and other vendors of conventional cable TV equipment.

So far, the major networks have been loath to commit themselves. “Set-top boxes get twice as good every year,” said Cannavino of IBM. “Making decisions too early makes them obsolete.”

That’s frustrating for the equipment suppliers, but cable industry executives grumble in private that when it comes to the boxes, the equipment suppliers have promised the world and not delivered. And, many in the PC industry now say it is the personal computer that will pave the interactive path into the home.

Indeed, one of the most notable developments of 1994 was explosive growth in two related areas: the consumer PC business and on-line communications services. Commercial services such as Prodigy and America Online, along with the network of networks known as the Internet, have emerged as popular precursors to the more elaborate broad-band networks planned.

Already, cable companies are rushing to install technologies that will enable them to offer Internet “channels” and high access to commercial on-line services. Intel and other companies, for their part, are racing to market with “cable modems” that will, in 1995, allow many PC users to tap into the high-capacity communications capabilities of their cable TV wires.

“You’re seeing an example of a concept that has caught fire,” said William Savoy, president at Vulcan Ventures, the investment company for billionaire Paul Allen, which recently cashed in an investment in America Online for a big profit.

“More and more transactions are going to be conducted on line,” Savoy said. There will be virtual electronic marketplaces. We are still early in the cycle, but it’s clearly cost-effective.

But the growth of these services will be governed by their potential to make money. What that means, in turn, is that many of the technologies so heavily hyped to consumers in 1994 will begin to find niches in 1995--in the business world.

Electronic commerce provides a useful example. There has been a lot of talk about on-line shopping networks, with everyone from IBM to MCI and AT&T; experimenting in the arena. But public networks lack security, and there are still few areas where shopping by computer is quicker or cheaper than, say, using a catalogue and calling a mail-order 800 phone number.

The real action is in the business market, where factories are connecting with their suppliers and customers to speed up orders and deliveries and to keep inventories down--which can produce immediate savings.

Similarly, the wireless gizmos known as personal digital assistants may have been marketed first as the wave of the future, but they’re likely to retreat for the moment into specialized markets. Brian Sroub, vice president of personal information systems at Sony Corp., knows the score. He saw the Newton, over-hyped by former Apple Chairman John Scully as an all-purpose communications device, flayed for falling far short of expectations.

“We have to make sure we don’t get too far ahead of the consumer,” Sroub said.

Sony’s Newton-like device is being sold primarily as a way to collect and send e-mail. The machine uses Magic Cap, an operating system trumpeted for its capability to send out packets of software instructions, or “intelligent agents” that go out into the network on their own to make travel arrangements or reserve tickets to see Madonna.

But don’t try that trick just yet or you’ll miss the concert. “We see volume sales approaching the end of the century,” Sroub said modestly, “and 1998 and 1999 will be outstanding years.”

A technology not driven by business applications must have new mechanisms that make it profitable. Sometimes that direction comes from competition. Cable companies are feeling pressure from satellite broadcasters that offer 150 channels to people who pay $600 to $700 for a satellite receiver. While the competition may be unwelcome, their success suggests that customers will pay heavily for quality services.

Sometimes it’s just a new twist on an old idea. In the world of wireless communications, the bidding for wireless licenses will be completed in 1995. Companies will begin drawing up concrete plans for their services--and the early focus will be on the tried-and-true cellular phones and paging.

“What the world knows and understands is the telephone,” said Shafhi Rava, Hewlett-Packard’s new business development manager.

To technology watchers, last year’s hoopla and next year’s reality check are all part of the steady advancement of technology.

“It’s a relentless march, just like killer bees,” said IBM’s Cannavino.

“You keep reading about them, but each time they are another 100 miles north.”