Disney’s Collaboration’s With Video Games Never Worked… Still Do Not

Software | Posted by Aaron October 30th, 2014

vgnwDisney. The name rolls off the tongue like soft sweet chocolate. Certainly the Walt Disney Co. is America’s best-loved brand, strong enough to stretch the franchise into everything from a cruise line to a baseball team. Yet the Magic Kingdom has extended its borders very effectively to computers. Sure, Disney has produced dozens of software tides, but the quality of most was closer to the movie studio’s somnambulistic “One of Our Dinosaurs is Missing” than the sonorous “Sleeping Beauty.”

But Sleeping Beauty is starting to stir–and the influence on the PC edutainment market could be more enchanting than the kiss of a prince. Over the last six months, Disney has started an ambitious and growing interactive division, tapped its muscular home video sales network to sell software, and taken steps to ensure that the company’s rich talent pool of animators and ride designers also work on multimedia titles. Next year Disney will start pumping out up to 50 titles a year. oOur charter is to take Disney’s strength in animation, story telling, and character development into the new interactive media,” says Steve Fields, senior vice president of edutainment and multimedia for Disney Interactive. The goal: $1 billion in annual sales in five years.

That’s no Mickey Mouse matter. Disney would be a major player in consumer software and a major competitor to such family-oriented software makers as Broderbund, Davidson & Associates, and The Learning Company. But Disney could be much, much more: the force that legitimizes game and entertainment software in mass-market channels: They are going to be the bulldozer that pushes software into supermarkets and drug stores, and companies like Broderbund will ride alongside,” says Broderbund spokesman Eric Winkler.

Unlike Disney films, however, a happy ending is not guaranteed. For one thing, Disney periodically announces plans to get serious about interactive entertainment, but then nothing much happens. Sure, Disney knows how to tell a linear story, but can it create interactive adventures? Since many of its titles are tied increasingly to movies, stumbles on the big screen will dampen sales on the small one. There is also a PR problem: former employees say the company played Cruella De Vil with them, a reputation that some say is now hurting Disney as it tries to recruit top talent. Says a former employee: “They’ve managed to upset so many people that no one wants to work there.”

Nevertheless, it now appears that Disney gets it. In December it formed Disney Interactive by merging the old software division with the formidable Walt Disney Television and Telecommunications division, the umbrella over film, animation, home-video, and theme-park groups. That merger already is making it easier for the software group to draw on local talent for titles such as the upcoming “Pocahontas” products. DI is staffing up quickly. Head count will increase from 125 last year to 400 in 1996, the company says. It’s taking steps to beef up its technology, too. In February, for example, it licensed three-dimensional rendering software from Argonaut Technologies Ltd.

That’s not all. Disney is augmenting its software sales force with the company’s Buena Vista Home video distribution network. That will result in more sales through mass merchants like KMart, WalMart and Target, where 30 percent of Disney software sales now occur. “Over the next two to three years we will expand into additional channels, which could include grocery stores, drug stores, and specialty toy stores,” says Steve McBeth, Disney Interactive’s president.

Full of Character

Disney’s key assets, however, are its characters. And there will be plenty of them populating hundreds of thousands of PCs this year. Six multiplatform titles will be released through Christmas including a screen saver, education title and action game, all derived from the animated feature “Pocahontas,” to be released June 23. Other titles include “Winnie the Pooh’ and a new “The Lion King.” Expect a Halloween release for “Gargoyles,” a TV show spin-off. Early next year, look for “Disney’s Animated Storybook: Toy Story” based around the upcoming Tim Allen Christmas animation; “Maui Mallard,” featuring Donald duck, and “Pinocchio: The Video Game.”

Family edutainment won’t be the company’s only playground. It is planning a line of reference works and, in 1997, will release core curriculum titles for home and school. Company officials will not talk about either initiative yet.

Disney doesn’t break out its software sales, but they are part of the consumer products division that grew 27 percent, to $1.8 billion, in the fiscal year ended Sept. 30. For the first half of the current fiscal year, consumer sales jumped 24 percent, to $1.15 billion. Disney earned $1.1 billion on sales of $10 billion, up 18 percent in 1994.

King

The software potential, of course, is just enormous. According to Link Resources, interactive entertainment revenues totaled $8 billion last year–compared to $7 billion in movie revenues. The market is expected to jump to $23.5 billion in 1999, predicts Link. To understand why DI is tying so much of its software strategy to movies, take a look at “The Lion King” phenomena. The movie grossed $740 million at the box office–and the kicked out another $1 billion at retail counters via sales of the soundtrack, books, and of course, software (400,000 “The Lion King” programs have been shipped so far). Where other software developers pay up to secure bankable licenses like “Star TreK” and “Power Rangers”, Disney is the Fort Knox of golden properties. “I have to take seriously any company who can start with the most endearing, recognizable characters known to American entertainment,” says Suzie O’Hair, director of product marketing for the children’s division at Sanctuary Woods.

Cuddly content is only one thing working in Disney’s favor. The technology curve is another. Only today are families putting enough computing horsepower on their desks to take advantage of the company’s rich graphics and animation capabilities.

And here’s some real potential power. For the first time, Disney is harnessing the Imagineering team, the creative force that designs its thrilling theme-park rides.

The Walt Disney Imagineering Virtual Reality Studio, which built Aladdin’s Magic Carpet exhibit at Walt Disney World, is helping develop a home version slated for 1996. Players will don a virtual reality headset, then mount a flying carpet to search for Aladdin’s magic lamp. Additional Imagineering-related plans haven’t been announced, but expect other Disney rides to get the home VR treatment if “Aladdin” takes off. “I don’t think most game companies understand 3-D, and that’s a perspective that Imagineering will bring to Disney’s interactive,” says Tom Garland, director of strategic alliances for Silicon Studio, a subsidiary of Silicon Graphics Inc., and a Disney partner.

Until now, Disney has been a presence in the industry, but not much of a force. Walt Disney Computer Software Inc., formed in 1988, released 77 titles through last Christmas, but only a few–“Mickey’s 1 2 3’s,” “Donald’s Alphabet Chase,” “Who Framed Roger Rabbit?”–were hits. And even those weren’t megahits. For a company with the resources of Disney, the track record was poor. “Disney was constantly shooting itself in the foot, snatching defeat from the jaws of victory,” says David Kock, a former Disney software exec who left last year.

Here’s just one reason why. Disney’s incredible wealth of in-house talent, such as some of the world’s great animators, rarely contributed to the software products. In part that was because executives, including Chairman Mich’l Eisner, Winnie Pooh-Pooed interactive entertainment. So when Disney producers wanted an in-house artist, they didn’t get much of a price break. “I couldn’t use [Disney's] feature animation because of their high rates, so we used animation from Japan, Canada, local free-lancers, whoever we could get cheap,” says former Senior Producer Sam Palahnuk.

Corporate inertia dragged out the approval process so long that titles employed trailing-edge technology and appeared long after the movies on which they were based had played out, observers say.

Even Aladdin’s big blue genie may not have enough wishes to make Disney’s software fantasies reality. Under former software general manager Shelley Miles, the division developed original titles as well as licensed Disney properties. McBeth is focusing DI on the latter. If the movie company again loses touch with the consumer, the software group could take a box office hit, too. And there is no guarantee that a hit movie translates into hit software. “How do you turn “Pocahontas” into an action title?” asks a former employee.

There are a lot of former Disney Software employees, in fact, and that is also a problem. Disney has lost a lot of talent over the years, including Kock, who now is vice president of interactive development for Saban Entertainment; Sam Poole, now president of Maxis; Noah Dudley, director of interactive licensing at MCA Universal; and Miles, president of USAnimation.

Happy Endings? You can find ex-workers spread through the industry, many complaining of corporate infighting, ever-shifting strategies, severe penny pinching, low morale, and an “us vs. them” mentality between the software group and other parts of Disney. “I was pulled into an office once [by a Disney exec] and told, ‘You people from the software industry are useless–I’ll take Disney people to create software,'” says Kock. But McBeth retorts he is having no problem signing up talent. “What excites people today is that companies like Disney have a tremendous future in this media. They’re excited about leading development of the category,” he says.

Other former workers and partners aren’t as quick to criticize. ” will always look back on my three and a half years there with a good feeling,” says Kirk Green, now in PR with Interplay Productions Inc. He says one source of friction could be that Disney didn’t understand how software companies work, while disgruntled software employees may have become frustrated in a studio environment. At Berkeley Systems Inc., maker of a megahit Disney character screen saver, the working relationship has been fine. “We couldn’t have made such a strong product without their cooperation. They’ve been extremely professional,” says Senior Producer Maury Zeff.

Beauty or beast, one thing is clear. Disney is starting to make an impact as never before. At the recent E3 trade show in Hollywood, for example, visitors to the Disney Interactive booth were shoulder-to-shoulder to get glimpses of upcoming titles. Disney’s influence on the industry isn’t confined to software. At its Innoventions Showcase at Walt Disney World’s EPCOT Center, Disney helps companies, including AT&T, Apple, IBM, Oracle, and Sega, test new technology with “uests.” It is a co-publisher with Ziff-Davis Publishing Co. (publisher of PC Week) of FamilyPC. In February, Walt Disney announced an alliance with BellSouth Corp., Ameritech and SBC Communications Inc. This consortium plans to invest %500 million into interactive programming.

Will Disney finally exploit its heritage on the interactive front? Computer Gaming World Editor Johnny Wilson is grumpy about the prospects. “Five years ago I thought they were going to be a leader, but now I think they never will be,” he harumphs. But if anyone can make money from Never-Never Land, it’s Disney.

CN’s Case Study: IT Meets Old Transport

Other Tech | Posted by Aaron October 20th, 2014

cncsWhen he took over the top IT job at Canadian National Railroad four years ago, Ronan McGrath was like a man in a darkened tunnel with not one but two trains bearing down on him. On one hand, it was clear that the financially struggling $4.7 billion (Canadian) company needed an urgent systems overhaul, which McGrath figured would cost $250 million (Canadian) and take five years. CN had neither. On the other hand, even if CN had the time and cash, McGrath knew his 700-person IT staff was not up to rewriting the 6 million lines of legacy code in the core operating systems and migrating the railroad to new systems and business processes.

McGrath could have stepped back and watched the two forces collide. Or, like some competitors, he could have thrown up his hands and outsourced the whole thing. Instead, he and his IT managers rolled up their sleeves, licensed the systems from another railroad, and set out to revamp CN’s core systems and transform its underachieving IT organization in a mere 24 months.

How a bunch of self-styled PC fans came to find their solution in the mainframe, then marshaled IT forces to make the freight run on time is interesting in itself. But how they’re going bout making a culture change has lessons for any IT organization. They not only educated themselves in their business, but also set up cross-functional teams of IT staff members and end users. They are marketing IT changes internally and are improving cooperation between IT executives and general management.

Making the Freight Run on Time

CN is desperate to raise revenues. Deregulation and lower-cost, container-based shipping have increased the competition from trucking. Rail revenues have flattened, forcing CN and the eight other major North American freight railroads to slash costs, trim work forces, and in some cases merge with competitors. In 1992, before their cost-cutting efforts began to kick in, the Canadian industry reported combined losses of $943 million (Canadian). CN was the biggest loser at $1 billion (Canadian). As a result, President and CEO Paul Tellier announced plans to cut the work force by 30 percent.

The key to growing revenues at CN is better on-time freight delivery. However, antiquated legacy systems are a huge roadblock. Not only are they big and inflexible–many are written in assembler–they don’t allow CN to offer basic services to compete with trucking. The problem isn’t how to make trains run on time but rather how to make freight arrive on time. The Legacy scheduling systems only schedule and report on entire trains. They don’t provide information about individual cars or loads. So yard workers don’t know which cars need to be moved quickest, CN can’t guarantee on-time delivery, and it doesn’t even know what percentage of loads are delivered on time. “That’s not good enough in an era of just-in-time,” says McGrath.

McGrath’s solution: the 10 million-line, largely mainframe-based systems licensed from Santa Fe Pacific Railroad. Intended to guarantee on-time freight service to CN’s 16,000 customers, the systems use a waybill application as a central customer database. All other applications–transportation and yard planning, billing, intermodel transportation, even marketing–feed off the central customer database, allowing the railroad to manage the delivery of individual loads as they roll over nearly 28,000 miles of track in 100,000 cars daily. Santa Fe took four years to develop the systems, rolled them out in 1993, and improved its own on-time service record from 77 percent to 93 percent in 1994. Tellier says his goal is 95 percent service reliability.

CN will find out in June if McGrath’s systems revamp gets the job done. That’s when it throws the switch coast-to-coast on the redesigned core systems that will have cost $96 million (Canadian) and taken two years. The systems weren’t without risk. They’re mainframe-based and because they’re non-graphical–written in Software AG’s Natural 4GL–users needed more training than they otherwise would. But the biggest concern was that CN would have to radically change the way its 32,000 employees do their jobs. Would unionized operations workers revolt at the prospect of learning new systems and customer-centric ways of working? Or would they just smile, nod, and silently resist? For McGrath, the key issue was: “If we bring in 10 million lines of code and install it in 24 months, can we, at the same time, change out core processes to map to it?”

The jury’s still out, but early results of the SRS (Service Reliability Strategy) are impressive. After starting on the West Coast last spring, CN has met its implementation schedule as it has moved toward the more heavily traveled Eastern districts. CN is sticking to its end-of-June phase one rollout, when about 75 percent of the systems’ functionality will be in place. All legacy applications are on schedule to be replaced by the end of this year. The rollout has included many education, training, and hand-holding sessions, with IT a major player in every rail-yard meeting from Prince Rupert to Moose Jaw.

Revenge of the End Users

None of this would have been possible if McGrath hadn’t simultaneously begun the rapid transformation of his IT organization’s culture. Because SRS applications were the software embodiment of the new business processes CN would adopt, IT would be deeply involved in implementation. IT would be expected not only to get the new software running but to explain it and help generate user buy-in at a series of revival-style meetings. In effect, IT was to help market SRS to often-skeptical end users.

The problem was that before McGrath, IT had a reputation of being out of touch with the business. Although CN historically had spent an industry-average 3 percent of revenues on IT, most of it went to maintaining and enhancing legacy applications rather than creating new systems. Many IT staff, in fact, were assigned permanently to tweak legacy code. “We had people who had been in IS for eight years who had never met an end user,” says McGrath’s chief lieutenant, IT director Jim Gardner, who joined the organization about the same time McGrath did.

When IT tried to respond with new systems, it often missed the mark. “We’d ask them to build something and give them some specs. Then they’d interpret them in their own way,” says Barry Lee, CN’s chief of service delivery. “The applications never met our requirements, and they were usually late.”

McGrath himself was one of the frustrated many. After joining CN as an accountant in 1980), he asked IT for new PC-based accounting systems. IT’s idea of emerging technology, however was the coming release of Systems Network Architecture, not PC’s. So McGrath went directly to vendors, such as Lotus and Microsoft, to learn their IT directions. Soon the loquacious Irishman was a budding PC expert and buddies with the likes of Lotus CEO Jim Manzi. Others, like Garner, then in marketing, were doing the same thing. “We were PC guys gone nuts,” recalls Gardner. Crazy like a den of foxes. As CN executives began to realize they needed new systems to provide better customer service, they decided McGrath might have the right idea. In 1992 they named him vice-president for IT and accounting. McGrath says he didn’t campaign for the job but was pleased that he got it. Garner joined him from marketing, and finally the end users were running IT.

Bridging the IT End-User Gap

The ascension of McGrath had a dramatic impact. He quickly began to break down walls between IT and end users. As soon as the decision was made to license SRS, McGrath announced that IT staff on the project would be expected to work in cross-functional teams that included users and non-IT managers. IT people had a choice: They could apply for one of the 130 SRS positions, or they could apply for a job maintaining and operating legacy systems. “Everyone felt they had some choice and some control,” recalls McGrath.

Some had less control than others. Although 95 percent of IT people reassigned got their first choice of jobs, some were laid off. Under McGrath, in fact, IT has shrunk from 700 to about 500 people as part of CN’s overall cost-cutting drive.

IT staffers on the new teams got much more than just experience coding Natural. McGrath and chief of service delivery Lee, who had become the SRS project leader, ordered all teams into the field to work alongside yard supervisors and other end users. The idea was to give SRS teams a close-up view of how users did their jobs under the old system. That would help them implement the new one. The teams, for example, decided to highlight high-priority customer shipments in red on user terminals so busy yard personnel could quickly spot them.

Sending teams into the field had another benefit: It gave end users a chance to see that IT people weren’t as anonymous as they’d imagined. “It moved IS people into the rail yards, and it moved the operations people inside the technology simultaneously,” says McGrath. As a result, both communities changed radically, McGrath believes.

One person who chose the brave new world of SRS was Susan Parker, a 16-year IT veteran who had spent most of her career maintaining legacy applications. She joined an SRS team hoping to acquire new technical skills. Parker spent three weeks in Vancouver, British Columbia, dressed in coveralls, working in the yards. “Suddenly we weren’t just these faceless systems people from Montreal,” she recalls. “Both sides got the feeling that we were in this together.” The sweatshirts McGrath had made for IT staffers who spent time in the field quickly became collectors’ items.

Marketing Mania

As implementation time drew closer, McGrath and IT staffers took an active role in marketing SRS to end users. McGrath sponsored production of a pair of videos that describe SRS and how it would improve customer service. In one, a frustrated yard supervisor despairs over his inability to get shipments to customers on time. Although at first he’s skeptical that SRS is the answer, he decides to support the change.

The videos were just one effort in the rollout. In 35 locations across the country, SRS leaders Lee and Gardner presided over all-day presentations that included three-hour town meetings, lunches with union leaders, and even dinners that included the families of workers. All that was missing was the Bible thumping in the tent. “It was kind of a gospel-meeting atmosphere,” recalls Gardner. “But the important thing was that IS was seen on the stage as a partner with operations.”

What about the unions? Project leader Lee says they haven’t been won over as much as convinced not to openly oppose SRS. Management has made the point that SRS is part of an effort to grow revenues, not cut costs. But the unions aren’t completely buying it. One union official, Ken Deptuck, says, “We are concluding that the upgrade will eventually involve downsizing.”

Back at Montreal headquarters, McGrath was shoring up links between IT and business executives. He replaced the old way of planning systems projects with a new one that involves representatives from each user group. They meet, debate, and agree about which projects are most important. The user representatives also are responsible for making cost estimates and doing ROI analysis. IT then measures that list against its budget and draws up an IT strategic plan for the year. The plan is presented to a committee of the company’s highest-ranking officers, including Tellier. Their job is to see that the plan corresponds with CN’s strategic direction.

The new planning process not only emphasizes alignment with strategic business objectives, it also puts the burden for prioritizing projects where McGrath says it belongs–on the business managers. That leaves IT to focus on standards. “Now I don’t make the decisions about which systems will be built, but users don’t make technology decisions either,” says McGrath.

McGrath’s IT makeover and the success to date of SRS seem to have turned around IT’s image among CN business managers. Even hardened operations guys like Lee say IT is no longer seen as unresponsive and uninformed. “It’s changed in that IS is now stressing the values that the business stresses,” he says. “We both want systems on time, on budget, and that meet the business need.”

More Work Ahead

Even IT executives outside the rail business can learn from what McGrath has done. A recently completed cross-industry study of 12 IT organizations by IBM Consulting named CN the best at five important IT processes: alignment with the business, architecture, IT vision, IT culture, and communication. No other IT shop was named best in as many categories.

Of course, McGrath isn’t without critics. Ray Carlson, vice president of management services at rival Southern Pacific, questions the decision to license the Santa Fe software. Southern Pacific looked at the same software but rejected it because it’s mainframe-based. Southern Pacific instead signed a 10-year outsourcing deal with IBM’s Integrated Systems Solutions Corp., which is performing a gradual migration of the railroad’s legacy applications to client/server platforms.

McGrath believes the Southern Pacific approach is a loser. Even though an ardent PC proponent, he says client/server is still to unreliable to handle the 1 million transactions per day that will be generated by SRS. And outsourcing IT in an increasingly information-intensive industry like transportation is justifiable only as a short-term, cost-cutting approach, he says.

McGrath acknowledges he’s still got some IT makeover work to do. Retraining of IT skills must be improved, for one thing.

“But,” he says, “we’ve come a long way in a short time.”

It would be hard to argue with that. In fact, you’d have to say that CN’s IT organization is finally on the right track.

What Would Interactive TV Pioneers Think Now?

Hardware | Posted by Aaron October 10th, 2014

itvpDavid Lockton spent nine years blazing the trail to interactive TV. Now his company is running out of friends, out of money, and out of time. So what’s left? A multitude of lessons for us all.

Brace yourself. Unless a near-miracle happens, you’re about to witness the very first Indianapolis 500-style crackup on the information highway.

The potential victim: Interactive Network Inc. The small, but high-profile San Jose, Calif., firm that was the first to bring interactivity to television. It spent nine years and $130 million trying to build a nationwide service that allowed subscribers to play along with their favorite TV shows. But now it’s out of money. And it’s nearly out of time. Unless CEO and founder David Lockton raises a new round of financing in the next two months, his company could be forced to shut down.

Lockton promises that won’t happen. He’s confident somebody will invest and keep IN running (see Close Up, right) “We’re the only living, breathing service ready to roll out,” he says. “We’re the horse to ride.” To be sure, IN has done a lot of things right. It has not only pioneered interactive technology, but programming and marketing, too.

But Lockton made crucial errors. For too long IN mistakenly marketed around its hardware, rather than its service. Some of its test markets were too large and expensive. And Lockton chose some strategic investors whose commitment skidded when the rubber met the road. For anyone entering the interactive TV race, IN’s story can serve as a wreck- averting caution flag.

IN started off in pole position. It made huge marketing splashes with its 1990 beta test in Sacramento, Calif., and subsequent service launches in San Francisco, Chicago, Indianapolis, and South Bend, Ind. And it wasn’t all hype. IN did things cable-based interactive TV companies could only promise to deliver–someday. “Interactivity is like teenage sex,” says Gordon Wade, a member of IN’s board of directors. “Everybody talks about it, but almost nobody’s doing it.” IN was. It introduced a handheld conso le that allowed subscribers to play along with the likes of “Wheel of Fortune” and the NFL. And because the system is wireless, subscribers could call the next play for the Bears, right from the stands at Soldier Field.

There seemed to be no end to its uses. At its peak, the service offered more than 100 programs a day, including mysteries and special events such as the Miss America Pageant. Even interactive advertising and gambling looked promising. What’s more, surveys showed that about 88 percent of the people who tried the service were satisfied, compared to a 40 percent satisfaction rate for cable-TV customers. IN seemed always to be just on the verge of breaking through and going national.

But things started to fall apart last summer. Four corporate backers–TCI, Sprint, Motorola, and Sony–reached a preliminary agreement to invest $100 million toward a nationwide rollout of IN. But Sony backed out at the last minute, effectively sinking the deal. Lockton tried to keep things rolling. He raised $42 million through debt and equity issues. And he launched the service in Indianapolis. But IN had thrown a rod. In March, it reported an annual loss of $51 million on less than $1 million in rev enues. Subscriptions are still flat at about 5,500. And the stock is trading at less than 50 cents per share–down from a 52-week high of $8.

Hard Sell What went wrong? A bunch of things. But nothing was more significant than Lockton’s early decision to sell customers the console for $199 and charge them $15 per month for basic service. It was a hardware-centric business model, and customers didn’t buy it. “We spent a lot of money and time marketing a product that was too expensive,” recalls Troy Winslow, a former IN marketing manager. IN finally switched last fall. It now bundles the console with the service, charging $20 per month. But by then, Lockton acknowledges, the first markets had been “poisoned.”

IN prided itself on innovative marketing, but it made mistakes there, too. When its first infomercial (featuring O.J. Simpson) elicited a rousing response from San Franciscans in 1993, IN decided to make it the keystone of its future marketing campaigns. After that, the company spent less on demonstrations at stores and home shows. But further market tests showed that it was just that kind of ground work that cranked up response to the infomercial. Chastened, IN launched the Indianapolis effort with a full-tilt marketing blitz, including a page ripped from the cable TV playbook–door-to-door canvassing. Indianapolis was a fresh start in another way, too. IN had learned not to target huge metropolitan areas such as San Francisco and Chicago, which have astronomical advertising rates.

Raising money for marketing was always a challenge–and may have crippled IN from the start. As a small, independent company, it didn’t have the deep pockets of the telecom and cable giants. Lockton began gathering funds for a nationwide service rollout with an IPO. But later he turned to strategic investors–companies that paid $5 million to $15 million to look under IN’s hood. In early rounds, he netted NBC, TCI, and Gannett. Then, after the Sony deal fell through last summer, he still managed to sig n up Sprint and Motorola.

Easy Money? Think again. With each successive deal, Lockton became ever more entangled in his partners’ conflicting agendas. “Whatever you want to do with your business pleases one and displeases another,” says Lockton. If he could do it all over again, he’d seek one principal investor who would commit to financing the entire nationwide service.

Some people thought that’s what he had in TCI. But not so. The cable giant, with a 33 percent stake in IN, was one of Lockton’s most steadfast early supporters. CEO John Malone came to Lockton’s rescue when a 1993 stock offering failed. But after Sony’s pullout, TCI backed off, too. Its investment last fall was cautious: It bought notes secured by IN’s assets, not stock. Early this year, Gary Howard, TCI’s vice president of corporate development, quit IN’s board. What’s more, according to a spokeswomen, it doesn’t plan on investing more money.

Lockton hasn’t given up on Malone. “We think TCI hasn’t made up its mind,” he says. But others believe TCI’s inaction is a vote of no confidence–one that severely damages Lockton’s chances of rounding up new investors. “David’s most serious mistake was placing too much confidence in TCI,” says an IN insider. “He thought they’d be bankers and do lots of marketing, and they haven’t done any of that.” To Nicholas Negroponte, director of MIT’s Media Lab and a member of IN’s board of advisors, TCI’s stance s eems malevolent. “Malone and some of the others are pushing David into bankruptcy instead of helping. That I don’t understand,” says Negroponte. One possible explanation: If IN fails, TCI has first dibs on its crown jewels–a handful of hardware patents and 3 million lines of software code.

But intellectual property isn’t the only valuable legacy of IN’s nine-year effort. Lockton blazed a trail in interactive TV marketing that others will surely follow. IN’s marketers realized early that for people to embrace interactivity, they had to actually see it work. So, in addition to putting demo booths at ballparks, shopping malls, stores, and home shows, the company sponsored a host of innovative special events. One example: A series of LA-Z-BOY armchair quarterback tournaments. Participants compet ed for prizes in furniture showrooms during televised football games.

IN teaches advertisers lessons about interactivity, too. Sprint, for instance, just started experimenting with ads and surveys hooked to IN’s service. The goal: to be ready to succeed with interactive advertising when the big cable and telecom networks come on line. In April, during the NCAA basketball tournament, Sprint surveyed IN subscribers to measure viewers’ recognition of its sponsorship. And now it’s about to offer an “electronic brochure” to IN subscribers promoting a new telephone service discoun t program. “It’s early, but we’re learning that the people who are apt to have a unit like this are open to all kinds of interactive involvement,” says Helen Beynon, Sprint’s manager of corporate advertising. Eventually, says Lockton, interactive advertising could become a way to subsidize monthly IN subscription fees.

That’s if IN stays around long enough. Which raises a crucial question: Was it just too early? When IN started, consumers had no idea what interactivity was. It fell to a small company with a severely limited budget to teach them. And the task proved difficult. “They learned it was hard to sell people a product they’ve never used before to play games they’d never played before,” says Gary Arlen, president of Arlen Communications Inc., a market-research firm.

It might have been better if this daunting project was taken on by one of the heavyweights, a company with loads of cash and staying power. On the other hand, a giant corporation might not have been able to match Lockton’s focus and will to win. MIT’s Negroponte worries that, if IN fails, investors may shy away from startups with dreams of providing nationwide services. That would be a mistake, he says, and it could slow innovation.

IN has played the role of guinea pig for a new media. It made mistakes and achieved successes that will serve everyone well. “He showed that consumers want interactive TV, they want entertainment, and they want games,” says Arlen. “Now people just have to find and develop that community.” Yet there’s a bitter irony for IN in all this. Now, just when it finally seems to have the right formula and the market looks ripe, it’s out of money and running short of friends.

Ubiquity What’s comforting to Lockton is that his ideas will live on in one form or another, regardless of what happens to IN. Simultaneous game-playing will be part of the interactive future. His technology could be embedded in everything from PCs to set-top boxes to PDAs. It can become the wireless extension of interactive TV. “We’re the ultimate wireless-data company,” he says.

That may be an exaggeration. Regardless, IN will go down in the annals of communications as a daring pioneer that tested the road for those who followed. And that will be true whether or not it hits the wall even before the race really gets started.

Netcom: A Web Challenger That Fell Short

Other Tech | Posted by Aaron September 24th, 2014

netcomDavid Garrison knows how to ride a fast horse. He proved that at his last company by more than tripling revenues. Now his jockey skills are coming to an ever bigger test–this time at the reins of Internet access provider Netcom On-line Communications Services Inc. There, as new president and CEO, Garrison has a hell-bent charger straining under his hands. And talk about a swift steed: Since going public in December, Netcom’s first-quarter revenues nearly quintupled to $7.5 million.

With growth like that, Wall Street can’t bet fast enough on the San Jose, Calif., company–or its Internet access rivals. Performance System International, of Herndon, Va., greeted May by raising $45 million with its own public offering. And UUNET Technologies Inc., of Falls Church, Va., is expected to receive a similarly warm welcome when it debuts its own IPO in a few weeks. “The issue at this stage of the game is the rising tide lifts all boats,” says Rakesh Sood, technology analyst at Hambrecht & Qui st, one of UUNET’s underwriters.

And yet these access providers face obstacles that could make waves for their investors. For starters, they’re experiencing the problems that usually follow unrestrained growth: abysmal service, lousy customer support, and overtaxed systems. What’s more, it’s not so certain whether they can carry on in a market lately squeezed by behemoths. The rocks: Microsoft, CompuServe and other deeply pocketed on-line services. The hard places: Regional Bell Operating Companies, telcos, and, most recently, cable-servi ce providers–witness the May 4 announcement by giant Tele-Communications Inc. to offer Internet access. “The question really ends up being: Does pure Internet access remain a viable business?” posits Jay Batson, senior analyst at Forrester Research Inc.

And there may be no company that better exemplifies that question than Netcom, which stands as a case study in the strengths and weaknesses of those thoroughbreds otherwise known as stand-alone Internet access providers.

Right now, Netcom, with 115,000 subscribers, is the largest service provider to individuals and small businesses. Its potential for growth is astronomical. IDC/Link Resources, of New York, estimates that from 1994 to the year 2000, individual access to the Internet will climb at an annual compounded rate of 281 percent.

That is, if Netcom can survive until the end of the decade. Its first and foremost problem is sky-high costs. Expenses rose sixfold over the year-ago quarter, reaching $9 million. The reason? Every national service opening portals to the Net must spend big bucks wiring the country with ISDN and 28.8K-bps access points. That would be akin to Hayes’ stringing up a national phone service just so its Smartcom software had a place to call home. Today, Netcom has 100 POPs (points of presence) and expects to reac h 200 by the end of the year. Netcom will pay for that expansion with a second offering, on top of the $21 million already raised. PSI has 125 POPs and also expects to reach 200 by December. And UUNET? It has 80, with plans to reach 120 soon. By comparison, CompuServe claims to have 420 POPs.

UUNET’s smaller network would appear to put it at a disadvantage, but it does not. Unlike Netcom, which focuses primarily on the consumer trade, UUNET began by going after the corporate market. It’s here, say analysts, that salvation lies. “It’s a question of timing,” says H&Q’s Sood. “The commercial opportunity will be bigger, sooner — while the consumer market won’t hit its stride until the end of the century.” The advantages of that corporate focus can’t be overstated: higher revenue streams, fatter ma rgins, and a less-fickle clientele. What’s more, say analysts, it lets companies charge a premium for those critical added values — network security and management.

All three companies now say they’re pursuing a hybrid model, encompassing both the consumer and corporate sides of the access market. But, say analysts, it’s Netcom’s consumer grounding that’s a problem. One issue: By all accounts, customer service and support are abominable–an attribute that does not sit well with corporate customers. CEO Garrison admits that, but says Netcom working to improve it.

Along with improving support, Netcom must find ways to outrace its other consumer-oriented competitors. That’s why it’s adding POPs. And that’s why it must find compelling new features–Internet- hip features, that is, such as voice, 3-D, or document collaboration — before anyone else does. But if anyone can do it, Netcom can, say analysts such as Forrester’s Batson.

Still, it will be tough going, thanks to that emphasis on the consumer. “Netcom has to add subscribers at an accelerating rate to defer the cost of POP expansion,” says Sood. Which puts Netcom in a bind. If its per-subscriber revenue doesn’t keep rising, its operating margins could drop alarmingly. “But if they keep up their subscription pace and have all their POPs–with better operating efficiencies and efficiencies of scale coming into play–then Netcom will have a windfall,” says Sood.

It’s a condition all of Wall Street seems to be counting on for these Internet access service providers. At least for now. But the future may hold something entirely different. “The clear future for these companies is a sellout, so that someone like Ameritech will buy them as things get more deregulated,” says Mark Winther, vice president of worldwide telecommunications and Net research at IDC/Link Resources.

If selling out is an option, no one’s owning up to it. Still, racing at full-tilt can get awfully demanding. “Around here you have to be resilient to deal with all the ambiguities within a rapidly growing company,” says Garrison. Ambiguities, for certain. That’s why Netcom, PSI, and UUNET eventually might welcome the breather that a buyer would provide. After all, if you’re going to sprint, why not take the money–and run.

Pentium’s Dominance Of K5 Signalled The Beginning Of The End For AMD

Hardware | Posted by Aaron August 21st, 2014

pdokTrying to stem some of its archrival’s momentum, Advanced Micro Devices Inc. last week outlined a strategy to offer alternatives next year to most of Intel Corp.’s current and future Pentium variations.

Although AMD, without CPUs geared to servers and notebooks, won’t pose much threat to Intel in those markets, the chip challenger envisions offering a full line of K5 chips for desktop machines up and down the price scale.

However, even if the company can deliver K5 chips that hold performance advantages over comparable Pentiums, as AMD claims, its market and financial successes are far from guaranteed, analysts said.

The company is in for a bruising pricing battle with Intel. Moreover, until it gets the K5 out the door, AMD must rely heavily on 486 sales, and Intel is working hard to kill off that market, analysts said.

The K5 will to be available first in 75MHz, 90MHz, and 100MHz versions, AMD Chairman and CEO W. Jerry Sanders III said at his company’s annual meeting here.

AMD, of Sunnyvale, Calif., expects efficiencies in the K5 architecture — it handles four instructions at one time, while Pentium processes only two–to enable those chips to offer the same performance as faster Pentium chips (see chart, Page 101), Sanders said.

“We’ll have a lineup to match the price points for systems that [end users] want to buy,” he said.

That lineup is headed for tough price competition, since Intel plans to push the 75MHz Pentium price from $275 today to around $100 by the end of the year. The Santa Clara, Calif., company also is cutting 486 production to push PC makers to go with the Pentium.

In addition, Intel has the capacity to ship more than 30 million Pentium chips next year, whereas AMD has only enough for 5 million K5 CPUs, according to analysts.

Until the K5 arrives, AMD will rely on 486 processors, including 120MHz and 133MHz designs due later this year that helped land a deal with Hewlett-Packard Co. last week to use AMD 486s in HP desktop PCs.

HP turned to AMD “because of continued strong demand” for 486 systems, said officials from the Palo Alto, Calif., company. But HP has no plans to use K5 processors, the officials said.

Nevertheless, financial analysts suggest HP could tap the K5 for its new line of consumer PCs. “I don’t see why they would have allegiance to Intel for all their chips,” said David Wu, an analyst at S.G. Warburg & Co., in New York.

Analysts said other top-tier PC makers could soon follow HP in turning to AMD for 486s, because Intel has begun phasing out the 486. IBM, for one, has had extensive talks with AMD but has not signed a deal, sources said.

Yet the K5 won’t turn up in any machines from HP or AMD partner Compaq Computer Corp. untl it’s proven in the marketplace, according to other analysts.

“The K5 looks great on paper, [but] it’s not out yet,” said Dean McCarron, an analyst for Mercury Research, in Scottsdale, Ariz. “Meanwhile, Intel has a very good track record of bringing out new chips at higher and higher clock speeds.”

At its annual meeting, AMD demonstrated two K5 machines running Microsoft Corp.’s Word, PowerPoint, and Excel, and a QuickTime video under Windows, but the chips were running at only 50MHz.

AMD will focus on raising the chip’s clock speed after it irons out some remaining compatibility glitches, said Dirk Heinen, microprocessor marketing manager for the company.

“We’ve got Windows and the Microsoft applications pretty much nailed,” Heinen said, adding that some versions of Unix do not yet run on K5 without snags.

Messaging Was Notes’ Weak Link

Software | Posted by Aaron July 28th, 2014

mwnwWith E-mail a weak link, Lotus hopes bolstered messaging will make Version 4.0 the preferred home base for users

Charles “Butch” McHenry, a chief technologist for the U.S. Postal Service, fancies a Notes-centric world that would allow postal workers to share expertise and knowledge from a common workgroup environment. Sounds compelling, but unrealisticat least for now. McHenry’s crushing reality is that 31,000 post office employees depend on Lotus Development Corp.’s cc:Mail E-mail package, while only a few hundred dabble with Notes.

So why isn’t the industry’s hottest groupware package setting fire to this group? It boils down to the simple fact that the current version of Notes is weak in E-mail, forcing companies to shoulder the added burden of buying and learning another mail package. That’s a turnoff for current and potential Notes customers considering Lotus CEO Jim Manzi’s vision of Notes as “the graphical user interface” to the network, replacing Windows, which would become a “graphical C: prompt.”

“If you think about it, where do most people live today? Most live in E-mail,” says McHenry, who claims Notes Mail is foreign to most E-mail users accustomed to the snazzy, graphical interfaces of products such as cc:Mail and Microsoft Mail.

That fact is not lost on Lotus. At the time of Manzi’s promise two years ago, Notes had just more than 500,000 users. While that number has tripled to 1.5 million, it’s still a drop in the bucket compared to the 7 million cc:Mail users and 60 million-plus Windows users.

So Lotus’ game plan is to release Notes 4.0 later this year, integrating the cc:Mail interface and features that make it easier to work with third-party applications. InterNotes add-on servers will deliver improved data access along with tighter links to relational databases. Support for Object Linking and Embedding 2.0 servers and the Messaging API will allow users to launch external applications and edit, route, and replicate spreadsheets and word-processing documents from within Notes rather than exiting to Windows.

These enhancements may be just what the doctor ordered. Lotus is facing a slew of fresh competition from lower-priced groupware alternatives (see PC Week, May 8, Page 17). And rival offerings from Novell Inc. and Microsoft Corp. are on the horizon, threatening to crimp Notes’ head start in the groupware market and derail Lotus’ long-term strategy of promoting Notes as the command center for running applications.

“Running mission-critical applications makes Notes more central, being almost on the operating system side, but that is the exception, not the rule,” says Kelsey Biggers, managing director at Bankers Trust, in New York, another large Notes site.

Even customers who already spend much of their time in Notes see the need for improved integration with the outside world. But for many, Notes-based mission-critical applications, such as those for sales or inventory tracking, are more critical for making the package their primary workspace compared with enhanced-messaging or application-launching features.

“Anything that can make Notes a better applications environment will make it possible for more of our users to live in Notes,” says Joe Caruso, manager of technology strategies at the Philadelphia offices of Smith Klein Beecham. Currently, 4,000 Notes users in the London-based company’s R&D division use Notes “as their primary operating environment.”

And spending the bulk of one’s computing time in Notes doesn’t necessarily make it a replacement for Windows, despite Lotus’ positioning. Sheldon Laube, director of information and technology at the Menlo Park, Calif., offices of Price Waterhouse, sees Notes as an adjunct to Windows, designed to do simply what groupware is intended forfacilitate collaboration between people and companies.

“I live in Notes now,” says Laube, who orchestrates Price Waterhouse’s more than 30,000 Notes licenses. “I run my [custom] applications every day, but it hasn’t replaced my desktop.”

ISP, ASPs And Servers: Where They Are

Hardware | Posted by Aaron June 25th, 2014

ispsvrOptions for ISPs and ASPs looking for servers to host and manage Internet applications are multiplying.

Network Engines Inc., Micron PC Inc., Cobalt Networks Inc. and Sitara Networks Inc. are readying new appliances that offer thin- server hardware loaded with various types of software designed to help Internet service providers and application service providers set up and operate Web sites efficiently.

The idea of a single-purpose server is not new, but it is gaining traction, according to International Data Corp., of Framingham, Mass.

The market research company predicts the market for server appliances will grow to $7.9 billion in sales on shipments of 2 million units in 2003.

Network Engines, which began shipping its Blazer server appliance last June, last month introduced several new models of its hardware that come bundled with software designed to reduce the time it takes to set up the boxes.

The WebEngine Viper and WebEngine Roadster, 1.5-inch-high Blazer- based Web hosting devices, include either Red Hat Linux from Red Hat Inc. and Apache Web server software or Microsoft Corp.’s Windows NT and Internet Information Server Web server software. They also include other management and site creation software.

The Viper, for high-volume Web hosting, comes with two 750MHz Intel Corp. Pentium III chips, up to two 36GB drives and 2GB of RAM. The Roadster, for small businesses or for ISPs that want to give each customer its own dedicated server, is equipped with a single 333MHz or 500MHz Intel Celeron processor.

Network Engines, of Randolph, Mass., also introduced AdminEngine, which provides a single interface for managing clusters of Viper and Roadster appliances.

AdminEngine, which can manage a cluster of up to 256 devices, provides remote management capabilities and automatically notifies administrators when problems arise.

A fourth new appliance, Commerce Engine, accelerates e-commerce transactions that are conducted across the other Network Engines appliances. It can support up to 200 Secure Sockets Layer transactions per second, officials said.

The Roadster and Viper are due later this quarter. Linux pricing starts at $1,995 for the Roadster and $2,995 for the Viper. Windows NT pricing starts at $2,695 for the Roadster and $3,995 for the Viper. Commerce Engine, priced at $9,995, and AdminEngine, priced at $4,995, are both due next quarter.

ISP and systems integrator WebCtel Inc. uses about 10 Network Engines server appliances to host Web sites for large companies, including Polaroid Corp. WebCtel CEO John Cator said he prefers the thin servers over traditional desk-side servers for Web hosting.

“Space is everything. The money we are spending for real estate is crazy,” said Cator, in Boston.

Cator also likes the modularity that the appliances offer, particularly the easy way they can be clustered.

“That’s the beauty-you can add to it in less than 20 minutes,” he said.

But Network Engines is not alone.

Last month, Micron introduced the NetFrame 4400R appliance for hosting Internet applications. Based on Network Engines’ Blazer hardware, the 4400R differentiates itself from the Viper and Roadster by offering its own service and support, including setup, installation and data transfer, as well as professional network integration and optimization.

The NetFrame 4400R, available now, starts at $3,699.

Meanwhile, appliance maker Cobalt, of Mountain View, Calif., has teamed with software developer Intershop Communications Inc. to provide a turnkey e-commerce hosting appliance. The Intershop Commerce RaQ, due early next quarter, combines Intershop’s Merchant software running under Red Hat Linux on Cobalt’s RaQ 3 server appliance.

In addition to Merchant, which provides page caching, load balancing and management tools, the new device will include the Apache Web server, Sendmail software and Front Page server extensions.

Pricing for the Intershop Commerce RaQ will range from $7,200 to $9,800.

Net performance booster

Separately, Sitara, of Waltham, Mass., next week will announce an appliance geared for improving network performance.

QoSWorks, shipping at the end of the month, enables enterprises and service providers to deploy Web-based applications without sucking up network bandwidth needed by critical network applications, officials said. It provides tools for policy management, Web caching, application classification, traffic monitoring and traffic management.

“We hit the complexity,” said Bob Steingart, vice president of marketing at Sitara. “The goal is to get simple policies in place in 15 minutes.”

The initial QoSWorks appliances will probably be deployed more by enterprises, but future versions will also be targeted at service providers, Steingart said.

QoSWorks ranges in price from $3,000 for a unit with 64K-bps maximum throughput to $10,000 for one with 2M-bps throughput.

The IT Blame Game Continues…

Other Tech | Posted by Aaron May 29th, 2014

itbgcCorporate it gets its fair share-and then some-of blame and complaints, whether warranted or not. And it’s too bad that IT is commonly the users’ scapegoat because reputations suffer for it.

For instance, as soon as a user reports an IT-related problem (real or not) to the help desk, the entire IT department loses credibility, just because the problem exists. If it’s resolved quickly, IT can win back some popularity points; otherwise, the penalties continue to add up.

But the blame game goes both ways.

As I watch my staff, I keep an eye on how they respond to reported problems. Is their first instinct to put culpability back on the user? To pass the buck elsewhere? Or to just ignore it and hope it goes away?

The ones who maintain level heads, present themselves to the users with maturity and professionalism, and treat the users with respect are the ones with the brightest futures ahead of them. They also do the best job of restoring IT’s reputation in the eyes of the users.

It’s important to understand that, between reporting the problem and resolving it, there is a virtual gold mine of opportunity for IT to improve its relationship with the user. It’s all in the approach: When you’re handed a rope, you can use it for a noose or a net.

Let’s say it takes 6 hours to fix a problem. If you tell the user you’re working on it and report to them every few hours, you’re viewed as a mature, conscientious professional. On the other hand, if you’re silent and the user calls to complain after 8 hours, and you say it was fixed 2 hours ago, you’re looked at as an uncaring jerk. It’s not that difficult to come out the friend rather than the foe in such instances. It’s just a matter of common courtesy.

Recently, a user called one of our network analysts to complain that a network segment was congested to the point of saturation. The network analyst’s response, “Thanks for bringing this to our attention-if that is the case, you can be sure we’ll move to resolve it immediately,” deserved a nomination for the congeniality award.

Admittedly, that response was probably not the first one that occurred to the network analyst, and it sure wasn’t the first one that occurred to me. But it was the first one that the user heard-and that’s what’s important.

It would’ve been just as easy to tell the user, “Can’t be, it works OK for me,” or “No one else is complaining,” which would immediately make the user-IT relationship adversarial. However, with a response of concern, the relationship started as a cooperative one.

Of course, the network analyst virtually squealed with delight when she determined that the root of the problem had nothing to do with the network, but rather stemmed from a software program the user wrote himself. But whatever absolution she felt, the user was just as satisfied because it was an amiable and productive interaction.

As an IT manager, I get my share of e-mail and phone calls from users complaining about service. Periodically, this stream is interrupted by a note of thanks for some work done by someone on my staff. Invariably, these notes of appreciation go to the staff members who are the most pleasant, even if they are not the most technical-not that those two qualities are mutually exclusive.

The point is that being hospitable in the face of problems and complaints, day in and day out, requires maturity and self- discipline. And IT must learn to earn respect in the enterprise, one user at a time.