Equipment and Software

from Internet Business

While a substantial portion of the computer hardware used to provide Internet services and user connections is commodity lines developed for more general purposes, the rapid uptake of information services is already providing a bonanza for specialised vendors of data communications equipment such as modems and routers. As the lead time to establish a specialised hardware business is much longer than that for other business activities discussed in this paper, the main new opportunities relate to the coming era of broadband services. This will facilitate the use of a much wider range of input and output equipment as Internet services move closer to the shared virtual reality of 'cyberspace'.

Entry to this market typically requires that relatively high priced, low volume prototype equipment can be viably sold into the restricted market of those developing cutting edge services and then scaled up to mass market production some years down the track. Mass production will almost always involve licensing to a major manufacturer, so the challenge to the developer is to ensure that they establish intellectual protection which cannot readily be bypassed. While it is easy to see potential in many hardware technologies to be useful in a broadband networked world, relatively few will 'make it' and the real challenge for developers is to select those which have a reasonable chance of meeting long term needs as well as being open to mass production.

The entry costs for hardware developers will be millions of dollars and are likely to produce low or even negative revenues through the prototyping years, however the few which 'make it' may eventually produce hundreds of millions in royalties. However for software the story is somewhat different.

The Internet is widely seen as being the final nail in the coffin of the method of distributing software products 'in boxes' which have dominated the past decade[1]. The recent record-breaking float of Netscape Communications recognised the potential of free electronic distribution of preliminary versions as a mechanism for establishing market share. The continued growth of Adobe Systems confirms the validity of fitting distribution to product as they utilise a complex mixture of arrangements to distribute products with very different usage profiles. Those new directions in distribution will become more important with the rise of 'component software' which 'plugs' specific functionality into each user's preferred 'platform' for working with information.

Most users, depending on their area of work, use only one or two of a word processor, spreadsheet, page layout program, drawing program or Web browser for most of their work. So there is a trend to incorporate other functionality into ever larger products based on one or other of this small set of standard models.[2] The rise of component software and the capability of the Internet to provide very low cost promotion and distribution of components gives rise to two areas of opportunity. The first is development of new components which is being greatly simplified by the emergence of standards for 'object oriented programming'. The second is to invent new platforms which are much better suited to today's component model, networking and multimedia than are the bloated old platforms that have grown out of applications packages conceived to meet simpler needs with limited resources.

The only significant cost in becoming a producer of component software is the time of the designers, programmers and documenters needed to build each component. The returns depend on market size and penetration, both of which can be difficult to predict with great confidence. Returns in this area are likely to follow the normal statistics for new ventures, with a small portion generating enormous profits. As more and more components become available, it will again become practical to develop slimmed down platforms offering more appropriate core functionality than today's bloated standard applications. There appears to be an opportunity to support collaborative research into and development of platforms which can be positioned to grab an early significant share of the market. As evidenced by Netscape, Microsoft and others, timely investment in the order of millions of dollars can provide returns of billions of dollars. One just needs the right idea at the right time in the right place.
[1] and made Bill Gates the richest American

[2] An exception to the rule is graphic design where a user usually has to be able to move between a number of products offering specific functionality.