[12569] in Commercialization & Privatization of the Internet
Convergence is a Crock... (long)
daemon@ATHENA.MIT.EDU (William C. Hulley)
Sun May 22 02:56:41 1994
Date: Sat, 21 May 1994 14:33:55 -0700 (PDT)
From: "William C. Hulley" <wch@shell.portal.com>
To: com-priv@psi.com
When you sit down and take a close look, you will find the digital
convergence, like its less reputable astrological cousin, is fun to
talk about as long as you understand that it means nothing in the
physical universe that you inhabit. If however, you start to believe
the convergence is a real, happening event that will cause real
happening things in this world, you will make decisions about
how you work, live, invest and play that will cost you untold grief
in the years to come.
Because the digital convergence is a crock...
An interesting crock, a press release making and share price hiking
crock, a great source material for hooked-in politicians crock, a cocktail
discussion hipness-major-bonus-points crock, but a crock nonetheless. The
need for a "digital convergence" can be buried with a hundred different
shovels but let me toss you three of the handiest ones:
- the customers don't care.
- the target industries are structurally incompatible.
- the capital markets won't pay for it to happen.
The customers don't care - sorry but they don't. In trial
after trial, big companies throw big bucks into interactive TV, v-text
video-on-demand and other trials in affluent communities with plenty
of spare disposable income and in trial after trial, customers don't
use the product. They don't like it, they don't care about it even when
they get it for free, and they certainly don't have an interest in paying
for it even though they have money to waste on such stuff.
They don't want it for good reason -- what they use now works. People
*watch* television, they *talk* on the phone, they *work* on their
computers. The tools and toys they have for each of these tasks work
just fine, so why would they change? You know, a telephone does what it
does pretty well, has a well understood user interface and is amazingly
reliable. When I compare that to Windows NT, POTS starts to look pretty
good well into the 21st century.
The target industries are structurally incompatible - yup, regulated
industries with huge installed capital assets don't really have much
in common with hit-driven, brain-powered software producers. Over
and over and over, big slow-growth companies lift their big
heavy corporate noses from the grindstone that has profitably, if
boringly, provided for their existence for the last ten or fifteen
year and discovered a shiny new object called synergy. Synergy, that
fountain of newer, faster growth and, boy oh boy, bigger management
paychecks. The big guys can see it, its out there, they *know* -- that
synergy thing, never more than a quarter and the next acquisition or
two away -- and it looks like a pretty good way to speed up the buck
making machine.
So the big old, heavily invested in bricks and mortar and wires and
trucks juggernaut, often loaded with more cashflow than good
management sense tries to go out and buy itself some small company
brain-powered growth rate. And usually finds out, after spending a ton
or two of hundred dollar bills, writing off three or four acquisitions
and firing a platoon's worth of top management, that small companies have
high growth rates because they're, well, small and yes, that different
industry segments exist for a reason. yup, its true -- differences in
culture, channels, costs and customer needs drive the creation of
fundamentally different structures for doing business.
What do the big guys learn (and then forget again after that platoon's
worth of firing happens) by the end of each cycle of synergy driven
buying, merging and purging? Well, mostly that even if the person
that buys phone service from you uses a computer too, there is no
reason to imagine that she can't wait to buy one of your nifty,
we-just-acquired-the-division, multimedia encyclopedias from you just
because you're the phone company.
The capital markets won't pay for it to happen - usually in the short
run, and always, without fail, in the long run, capital markets
adjust rates of return paid on investments to eliminate the effects
of aggregating unlike businesses. Sometimes it takes a while, as it
did for the synergy and and the conglomerate growth multiple waves
in the sixties or the LBO wave in the 80s, but eventually capital
markets integrate enough information to figure out that a company
with cable and content divisions should get paid differently for the
each cash stream. Hell, it usually takes hardly any time at all. Most
investors are already pretty smart so when you get a zillion of them
in one room like you do on any given morning at the NYSE, the collective
investor hive conciousness figures out pretty quick what's a crock
and what's not.
The managers of TCI and Bell Atlantic and QVC and Paramount and
Blockbuster found this out after they announced they had discovered
the grail of renewed growth and boundless markets and called
it the "digital convergence." The capital markets did the right thing,
as it always does; it picked up those management teams by the scruff
of their collective collars and told them that digital convergence was
a stupid idea using the simplest means possible. It trashed the value
of all of their stock options. Of course, most of the managers, big, fat,
growth-driven paychecks dancing in their dreams, ignored the message; see
the above paragraph on structural incompatibility for the most likely
outcome of such hubris.
Buying the idea that a few huge monolithic conglomerates will converge
to run a single wire to all the homes, build all the boxes and supply all the
info-stuff is about as silly as sitting in a field and waiting for the
earth to shake apart because the planets are aligned. On the other hand,
you can make some neat bets oh how Things Will Be if you take the
digital convergence for what it is -- a handy dandy metaphor
that the United States is developing a multiple mode, densely
interconnected communications and information network that will be
owned and operated by dozens or hundreds of companies, supplied by
thousands of content providers and based on whatever delivery schemes
- Bill
_____
William C. Hulley
Fostin Capital Partners
681 Andersen Drive
Pittsburgh, Pennsylvania 15220
voice: 412.928.1408
facsimile: 412.928.9635
internet: wch@shell.portal.com
