Transcript of a talk given by Ken McCarthy, November 5, 1994 in San Francisco to an audience of advertisers, publishers, and multimedia producers at Pacific Bell's Yerba Buena Media Center

      "This was a great talk for 1994, and it would still be a good talk today. Most people still don't get the points you made..." - April 27, 2000

Jakob Nielsen, Ph.D.
User Advocate and Principal, Nielsen Norman Group

      In the spring of 1994, the Internet Gazette's founding publisher Ken McCarthy made an amazing discovery. Here in the Bay Area, the undisputed capital of digital media, there was virtually no conversation between the multimedia industry and the world's largest collection of Internet gurus.

      To remedy this strange state of affairs and open a dialogue (which is now in full throttle), Ken enlisted the aid of Marc Andreessen and Mark Graham to introduce the multimedia world to the wonders of the Internet and the World Wide Web. This meeting - the first major conference ever devoted exclusively to the subject of commercial opportunities in web publishing - was made possible by the enthusiastic support of Maurice Welsh, Pacific Bell's Director of New Media Development and Jeannine Parker, International President of the 3,500 member International Interactive Communications Society.

      What follows are excerpts of Ken's remarks from this now historic meeting held November 5, 1994 in San Francisco, at Pacific Bell's Yerba Buena Media Center.

      We're here today because this year the Internet has really changed. It's become a true medium that attracts people from all walks of life. How did that happen? Well, Mosaic is the reason it happened and the Internet now takes its place with television, radio, publishing, and CD-ROMs as a medium, not just as a place for computer people to hang out.

      Of course, the number of people on the Internet now is very small relative to the other mediums I mentioned, but that's not the point. That's not what defines a medium. It's not just numbers. It's who shows up to play. And what the future holds.

      How did this particular meeting come to be? I was amazed to discover when I did some inquiries last spring that very few multimedia producers were even on the Internet, let alone Internet savvy. It's a growing number, but then it was less than 20%. I thought, that's very odd. Here we are in San Francisco, the world center for multimedia development. The Internet, by definition, is distributed all over the world, but a lot of the great Internet talent is right here in the Bay area. Yet there was no dialog. Kind of strange. It's particularly strange because the Internet really needs multimedia developers, and vice versa.

      What's going to determine whether the Internet succeeds or not are not technical issues, it's going to be content issues. Is the programming that's going to be on the Internet interesting enough, motivating enough, enlightening enough that people are going to want to tune in and use it? That's purely a content issue. Nobody goes to the movies to watch the technology of the movies. They go to the movies for the story and the action. When we think about movies we think about the Academy Awards. Hundreds of millions of people watch the Academy Awards on TV every year. How many people know or think about the annual SMPTE Convention? A very, very small number. And that's what's going to happen in the Internet too.

      The Internet needs compelling content. And who better to produce digital interactive content than multimedia title producers? They're the only people on the planet who have experience doing it, who even think about it.

      But there is another reason why multimedia people should get hip to the Internet very fast and that's because the CD-ROM business, in my opinion as a person in the publishing business, is a lousy business to be in. It's terrible. Why? Well, let's say you spend two hundred thousand dollars to produce a decent title. Now you've got to press it. You've got to package it, and the packaging often costs a lot more than the pressing. You've got to inventory it, which is like taking a big pile of money and putting it in a closet. Not much fun. You've got to find a distributor. You've got to beg a distributor to take your material. It's true, isn't it? I see people nodding their heads. Then you've got to give them a big piece of the sales price. Then your distributor has to persuade a retail store to take the disk. And to be truly effective your persuasion somehow has to reach a $6 an hour clerk to take those titles out of the backroom and make sure they're well stocked on the shelf, and that one link in the chain can undo millions of dollars of promotion.

      But as bad as all this is, there is even a more important reason why CD-ROMs are not a great deal for publishers. You have no contact with your customer. You have no relationship. Their relationship is with the store or the catalog they're buying from. So you've gone through all this effort to produce a title, to excite somebody enough to buy it, but at the crucial moment when money changes hands, you're not there, and most importantly, you are not positioned to sell them your next creation. You have to go right through the old channels of distributors and stores all over again.

      Now the thing that excites me about the Internet is that it allows you direct contact with your customers. No middlemen. You produce it, you distribute it. And you can build up a following and profit from that following. One of the tragedies of the way our media system is set up now is that we all have to go through film studios or recording companies or publishers to get our work out. And these companies don't necessarily make their decisions based on quality. They just don't. Their decisions are made with a lifeboat mentality. They have limited resources and ferocious overhead, like distribution and inventory, which eats up enormous amounts of capital.

      So what gets produced these days is not necessarily the best, the best for society, or even what people are really interested in, but the lowest common denominator that fits within certain financial parameters. What fits in the lifeboat. The Internet can do a lot to change this and we've seen some success stories already.

      What I'd like to use as a point of departure for my remarks today are the Internet stories that the media has missed this year. The media has done a great job of hyping the Internet and getting a lot of people interested in and excited about it, but they've gotten a few stories wrong, presented others in a confusing manner, and have left certain key points out of others. So, since I've got a podium, I'm going to do what I've always wanted to do, correct the newspaper.

      First misconception: A lot of people are talking about "Cyberspace", and the "Information Superhighway" with the idea that we're trying to create an alternate environment and the measure of our success will be that everything is done there. And that we should be gearing all our attention to creating this place that is completely independent of the rest of the world.

      That's crazy. Would you start a business that only did business on the telephone? In other words, you wouldn't have a store, you wouldn't talk to anybody in person, you wouldn't send mail or receive mail, you would only deal on the telephone. Would you have a business that only had a store but didn't use the telephone and didn't use the mail system? Of course not.

      The picture of every mature business is that they use every conceivable channel available. They use the mail intelligently, they use the phone system intelligently, they use video intelligently, and they use the Internet intelligently. So let's get rid of this idea that we're trying to create some alternate world that's going to be completely independent of all the other medias that exist. What we're really doing right now is learning how the Internet fits in amongst all these existing medias. To integrate the different medias so that they support and coordinate with each other.

      Second crazy thing that I hear going around alot is "How are people going to find out about what's on the Internet? How many places can we post on the Internet to tell people what we're doing?" Well, how do people find out about your telephone number? And how do people find out the location of your store? You advertise. And you use every available means. You use television commercials, or radio commercials, or direct mail campaigns, or space ads in magazines, or you put on conferences, or all the other things that you do to get people to dial your phone number - these are some of the things you need to do to get people to dial up your web site. So don't worry that there may not be enough advertising opportunities on the Internet itself to get people to come to your site, though even this is changing rapidly, just look out to all the other medias that are available and use those to drive people to your site.

      What other stories has the press gotten wrong? Demographics. Who is on the Internet and who is not on the Internet. In the Wall St. Journal or Times recently there was this story, "The people on the Internet have more time than money." Hey, surprise, that defines 95% of the world, including me some of the time. I know that big companies, like Dow Jones take comfort in demographic studies. But they make little sense in a new exploding medium. What sense would it have made to do a demographic study of television owners in 1949? There were 8,000 of them. Let's say you'd done a brilliant study, and you'd wrung every ounce of data out of it, what would it have proved? Nothing. What if you'd studied PC owners in 1978. That would've told you a lot. Not.

      Yes, when an industry is mature. . . if you're trying to figure out if you should buy an ad in Steel Making Today, then demographics are important. But with a medium that's growing 20% a month or more, it's off the point. "Is this is a real medium? Is this something that's going to last? Is it really going to grow?" And my answer to that is another question: "Does it fill a need?" And the answer to that question is - yes. And that is why the Internet is growing so fast and will continue to grow. So disregard all demographic studies regarding the Internet. I don't see what the point there is in them at this stage if you're making the decision of whether or not to learn how to produce content for the Web.

      There was another article in another major publication which said something to the effect that "people are setting up Internet catalogs, but nobody's buying anything." Did anyone see that story? Well, I'm well versed in the realities of the direct marketing industry which includes direct mail and catalogs, and producing infomercials and direct response television commercials, and I'll tell you right now, at least nineteen out of twenty direct marketing ventures in the old fashioned mediums of television and print don't work either. It's quite hard to create a direct marketing business that works.

      So it shouldn't be a surprise that some of the early pioneers of Internet cataloging might not be getting the sales they hoped for initially. Number one, the market is a little thin. While there are millions and millions of people with some kind of Internet access, not all of them know how to find catalogs. And number two, a lot of the people running online catalogs are not marketers, and take this on faith, one of the hardest businesses, from a marketing point of view to run is a catalog business. It's a brutal business. Every time the postage rate goes up a penny, catalog companies fail by the hundreds. The margins are razor thin. It's tough to sell things at a distance, so it shouldn't be a surprise that the initial attempts at selling via the Internet are running into certain difficulties. So I wouldn't take that story seriously either.

      Bandwidth limitations. I always hear about bandwidth limitations. Let me give you an analogy. Let's say it's 1880. And we're down at the telegraph station and the train is pulling in and you point to that train and you tell me: "Someday we're going to take that train and shrink it down. We're going to put rubber wheels on it and create a road system so you can take that train anywhere you want to go. And it's going to be so cheap that everyone's going to have their own. Anyone who wants to can have their own train, drive it anywhere they want." What do you think the reaction would have been? "You're nuts! You've been taking too many of those opium-laced patent medicines they advertise in the back of them fancy pulp magazines."

      Now walk into the telegraph office. What was a telegraph office? It was a line of people waiting patiently to hand their message to a technologist who, using binary code, would send the message to another technologist who would translate it for the receiver. Let's say you went to one of those people waiting on line and said "Someday you're going to have your own telegraph office. It's going to be in your house. And you're not going to need anybody to operate it for you because you're just going to be able to speak over the line and you're going to be able to talk to anyone you want to talk to whose got a line." Again, the reaction's going to be the same.

      The human race, and I think Americans in particular, if I can be a little prejudiced, is capable of creating all sorts of amazing leaps of technology and we're really just talking about adding a little bit more bandwidth. We're not talking about inventing something new, or laying the first transatlantic cable, which was quite a difficult physical feat. We're talking about taking technology that we already have, figuring out how to pay for it, and installing it. So the bandwidth problems. . . when they'll be solved, I don't know, but the solutions are inevitable.

      Speaking of bandwidth, more than one multimedia publisher has said to me: "I can't distribute my CD-ROM on the Internet. What good is it?" Well, why not create a product that works on the network as it is? The people that produced the game Doom seem to be doing alright with this strategy. I read this week they have 500,000 store orders sitting on their desk for their first-ever retail release. They got their start distributing online.

      There is a principal in direct marketing that if you can't get your product distributed in stores, run your own mail order ads, run your own infomercials, run your own direct response tv commercials, and, if you succeed, you can force the big retail distribution networks to take you seriously and adopt your product. The Internet is another viable way to force distribution. I would look at it that way, if I were you.

      For a little perspective on where we are right now, let's take a look at this picture. It's from the cover of a magazine that was published in 1925 called Radio Broadcast. It's a very interesting thing to study. First, the topics being discussed, "A Good Four Tube Receiver." How many people listening to the radio today have any knowledge or interest at all in what is going on inside it? They don't care. And that's how the Internet should be and will be.

      Next topic - "Choosing a B-Battery Eliminator." Somehow this was important to people messing around with radio seventy years ago. And then finally, the million dollar question: "Who is to pay for broadcasting and how?" Sound familiar? Well, we worked it out somehow and we'll work it out somehow with the Internet.

      Some funny things about this picture. This could be a PC guy, right? No problem. He's got his manual open on the floor, actually there's a pile of them, and he needs every one. Batteries sitting behind his chair, a tangle of wires and headphones that no longer work, but might work again some day. He's smoking a pipe, and I'll leave what might be in it up to your imagination. And - can you see the expression on his face? - he's extremely excited. You might even say he's wired! That was seventy years ago, and guys like him created broadcasting, then a big question mark, now a multi multi-billion dollar business.

      A lot of people say the Internet is having an impact similar to the first printing press. I don't think that's an accurate analogy. Gutenberg's Bible was more like the first original mainframe computer. There weren't many of them and they were expensive. Books were still the property of popes and cardinals, kings and princes. The vast majority of people couldn't read.

      The more accurate analogy to what we're living through now is the late 19th century. What happened in the late 19th century? Because of the coming together of a lot of different forces, print suddenly became very cheap.

      We see print everywhere now, and we assume that it's always been ubiquitous. We assume that newspapers and magazines have always been around. The fact is - that's not true. We did not have an explosion of print as a mass medium until after the Civil War. For example, in 1850 there were 254 newspapers in the US total. Fifty years later there were 2600 daily newspapers, 520 Sunday newspapers, and 15,500 weekly newspapers. Before the Civil War, most families were lucky to have a single Bible, and it was a family Bible, passed down from generation to generation.

      After the Civil War, there was a remarkable phenomenon called the Sears Catalog. Richard Sears very intelligently realized: "We've got cheap printing. We've got a postal service that goes everywhere. We've got a national railroad system to ship goods anywhere. Why not make a beautiful book, put all the stuff we have to sell in it and give it away so that it ends up in everyone's home." Think about the intelligence of giving away a marvelous book, a luxury item, so intrinsically interesting that people loved to page through it - and in the process bought billions of dollars of goods in the process.

      Just as low cost printing made newspapers and magazines and the Sears Catalog possible, low cost computer networking is creating an explosion of opportunities that would have been impossible to imagine even three years ago. And remember, as the Doom guys and Mosaic showed, the Internet makes the distribution of free digital goodies extremely easy.

      There was one more big story that everybody missed this year. There was an invention 150 years ago that made high speed travel possible. It made mass production possible. It was the precursor of the telephone, of recorded music, of broadcasting. One invention. All those innovations flowed directly out of this one invention. Does anyone know what it was? It's celebrating its 150th anniversary this year. It's the telegraph, the first telecom device.

      So many amazing things came from the telegraph culture. A lot of people don't know that when Edison invented the phonograph he was not trying to record music. He was trying to make a way to automatically relay telegraph messages. The wax cylinders he used were meant to record dot and dashes. The telephone was originally an attempt to send multiple telegraph messages on a single line. Bell discovered, "Wow, we can put a voice through this too. Cool!" You couldn't have high speed train travel until you had the telegraph because you couldn't very well send a train barreling down the track at 60 miles an hour unless you knew with some degree of certainty what was going on a half hour or so away.