                            Web Usage Explosion

                          By Charles H. Ferguson

                         You think the Web is hot?

You ain't seen nothin' yet. The Web is much more than an office
distraction; it's a whole new software standard that makes the current
software industry obsolete. In this article, consultant and entrepreneur
Charles Ferguson argues that the Web provides a rich new landscape in which
to plant entrepreneurial seeds, and that it poses the first real challenge
to Microsoft's worldwide dominance.

Suddenly, software has become interesting again, and with a vengeance. The
World Wide Web has blossomed into the biggest revolution in information
technology since the development of the computer, or perhaps even the
telephone. Just 18 months ago, there were perhaps 5,000 Web services (aka
"home pages") worldwide. Now there are over half a million, with about
5,000 new services being created every day. It's the fastest-growing
technology in economic history.

And that's just the beginning. Over the next five years, the Web will grow
by at least another factor of 100. This implies tens of millions of new Web
services annually. There will be, perhaps, 20 million Web authors, editors
and publishers, and, potentially, 200 million Web users.

Thus, while the frenzy over the Web has caused some excesses, the frenzy is
generally merited. Despite all the publicity the Web receives, some of its
most powerful implications are not yet widely appreciated.

We are witnessing the stunningly rapid establishment of a new,
open-architecture, global information infrastructure. This new
infrastructure (based on the TCP/IP protocol, and the Web architecture)
will not be limited to the public network that defines the World Wide Web
today. It will also work for personal archives, CD-ROMs and and a variety
of embedded, free, paid, open, restricted, private and corporate services.

This new architecture arrives at an opportune time. Several current
information technology markets are badly served by a lot of closed,
incompatible and obsolete proprietary systems. Just as there was a large,
pent-up demand for personal computers when they came on the scene to
displace centralized mainframes, there is now a pent-up demand for a
distributed, open-systems solution. Therefore, this new architecture is
going to replace many inferior, proprietary architectures, such as Notes
from Cambridge, Mass.-based Lotus Development Corp., and traditional
on-line services. It will build a large new industry in their place. In a
very real sense, the Web will drive the client-server reengineering
revolution.

This will be an industrial revolution whose scope makes the personal
computer industry of the early 1980s seem like a small family business by
comparison. It includes both full, Web-based information services (both
public and private Web sites), as well as "webs," which are subservices or
documents within those Web sites. Web services will become as universal as
telephones, fax machines and e-mail. Basic Web capability is already
becoming standard system software. People use browsers on the desktop as
search and display engines, and Web servers as standard document servers or
as personal archiving systems. Now, end-user Web development tools are
available. Moreover, within 18 months, the infrastructure will be in place
for full electronic commerce, directory services and navigation systems.

That makes the Web a Very Big Thing, guaranteed to become the core of the
global information infrastructure for the next several decades. And, if we
do a few more things right, it can become Everything. Web infrastructure
would be as interoperable as the world's telephone systems, and webs could
then be easily created, universal, interoperable, transportable
documents--in short, the basic units of the information economy. We would
have a common, scalable architecture underlying all personal, corporate and
public information systems. And, last but not least, we could have a
software industry that is not controlled by Microsoft Corp.

Of course, we're not there yet. The Web is still a 1990s architecture
laboring under a 1970s infrastructure. That was tolerable when the number
of Web sites developed each year was small, but it breaks when we add 10
million services per year. For the Web to continue to grow, its software
model must become something more akin to shrinkwrapped, graphical PC
software. Fortunately, that change is already underway as billions of
investment and revenue dollars pour in, creating commercial-quality user
interfaces, security, tools, applications and services.

What follows is a survey of the Web revolution

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                              on-line/off-line

Web-based systems will unify and replace conventional on-line services,
workgroup systems such as Lotus Notes, personal archiving systems and
embedded information systems. Conventional on-line services alone are a $15
billion industry, including both the business-to-business services, such as
Bloomberg, Lexis/Nexis and Dialog Information Services,and the consumer
services, such as America Online and CompuServe.

However, the technologies and business models of the conventional on-line
services are obsolete. They are closed and proprietary, and cannot operate
with each other or the world at virtually any level. There are no
cross-vendor, on-line directories, archives or search facilities. Every
service uses its own mutually incompatible browser, user interface, data
formats and development tools, most of which are hopelessly obsolete. Some,
like Bloomberg, even require proprietary hardware.

All the services use centralized architectures (most use mainframes;
CompuServe uses PDP-10s; and America Online uses fault-tolerant
minicomputers), with an order of magnitude poorer cost/performance ratio
than modern distributed systems. Their server software is not easily
scalable or portable, so you can't move content or allocate services across
different computer systems. They cannot easily access real-time or local
data generated and stored by their content vendors or customers. That means
they cannot be competitive for electronic commerce, where you need to know
if someone's green widgets are in stock today in the downtown store.
Content providers can't design, manage or cutomize the user interfaces or
content in the services. And the on-line services often refuse to supply
detailed customer information, or they charge high prices for it.

The on-line services have prospered only because, when computing was
centralized and complex, it was costly and difficult for new services to
get started. Thus, despite the fact that everything was wrong with them,
the established on-line services vendors could charge royalties of up to 80
percent on the content they carried.

Now, Web services will destroy those feudal systems. The Web enables anyone
to create his or her own service, offering the potential for millions of
electronic publications and information services, and allowing their
creators to keep 100 percent of their revenues. Such services can either be
self-operated or operated by outside hosting services.

Web services are evolving as a layered, open, interoperable industry. Any
service can be linked to any other service. Independent vendors offer
browsers that can be used to view any service on almost every major
computing platform. Servers also run on most computers, and a few can
support a service accessed a million times a month (more than enough for
your average florist or graphic design firm!).

The response of the proprietary services thus far has been a mixture of
resistance, panic and accommodation. The smart on-line services vendors are
converting to Web-based architectures. The on-line services companies not
moving to the Web should be running scared. Following a $100 million
acquisition spree, Vienna, Va.-based America Online Inc. has begun offering
Web hosting services and software products alongside its proprietary
services. Microsoft is repositioning the Microsoft Network to provide
greater access to the Web. Still, the problem these companies face is that
the market for on-line services logically consists primarily of potential
competitors and frustrated content providers. Even with Microsoft's
enormous power, the Microsoft Network, in its present form, will not
dominate on-line services because it cannot destroy the Web.

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                     Workgroups and the Death of Notes

For many of the same reasons, the next casualties of the Web will be
workgroup applications, such as Lotus Notes and Microsoft Exchange. For a
few years, Lotus Notes was the only game in town. It was the best way to
provide some types of internal corporate services, if only because it could
make use of modern server hardware. Notes flourished in the vacuum left by
the failure of the proprietary, on-line services to make their server
software available to corporate users.

But Notes has many limitations, derived from its internal corporate focus.
It is too difficult to install, use and develop applications for Notes, a
reflection of the fact that it was designed in an era when MIS was a large,
centralized function with armies of programmers and support engineers. When
Notes was designed, personal computers were primarily corporate capital
goods, and information architectures did not need to scale from corporate
to public or consumer volumes. Notes databases are limited to 1 Gbyte, and
each Notes server can effectively handle only about 100 concurrent users.

Moreover, every new user must be registered by a system administrator, and
it is difficult for end users to hop from one server to another. This
effectively precludes anonymous use, self-registration and casual browsing,
all necessary ingredients for large public services. Notes cannot easily
access external database systems or real-time data. Consequently, it cannot
easily be used for public services or electronic commerce. That will keep
it isolated from most mission-critical systems.

Now, server hardware is shipping at a rate of about 10 million units per
year, exceeding the volume that forced the shrink-wrapping of PC software a
decade ago. It is impractical for server applications to require custom
installation and professional development and administration. Of course,
the Notes support organization isn't standing still in the face of these
burdens: it just put up a Web server.

The other problem with Notes is perhaps the most fatal of all: It has been
managed by Lotus, and now it is managed by IBM. I'm not just being cute;
this is a serious issue. Consider: For the $3.5 billion it paid for Lotus,
IBM could have purchased virtually the entire Web software industry,
including Netscape, Spyglass, Vermeer and NetManage, plus one of the major
independent Internet access providers, such as Netcom Online Communication
Services, PSI Holdings or UUNet Technologies. Moreover, IBM's server
platforms are losing market share rapidly to Unix, Windows NT and NetWare.

As a result of IBM's acquisition of Lotus, we will now watch a $70 billion
company run by a financial engineer (a very gifted one, clearly) trying to
use an obsolete product to compete against both Microsoft and an
entrepreneurial wave that is growing by 20 percent per month. The result is
a foregone conclusion. IBM will eventually have to switch its focus to the
Web, probably once again via acquisition. Ironically, by focusing on their
respective proprietary systems, IBM and Microsoft are, for once, in the
same position--making the same mistake.

Future business workgroup applications will instead be based on Web
servers. The Web architecture is very well-suited to personal bulletin
boards, discussion groups, workgroup document sharing and other
collaborative business applications. In fact, Web-based services are now
about evenly divided between public services on the Internet--that is, the
World Wide Web itself--and private services on internal networks.

The basic architecture of the Web is enormously more flexible than Notes,
CompuServe forums or Microsoft Exchange. Web servers and browsers are
scalable and portable, and can be used on the public Internet or any
private network, embedded service or personal archive on PC hard drives or
CD-ROMS. Any web can be linked to any other web, and fully integrated with
corporate databases and legacy systems. It will be easy to set up
temporary, project-by-project Web services and applications sharing
information between vendors and customers.

Lotus and AT&T Corp. have applied a few band-aids via Network Notes, but
the effort is doomed. In fact, AT&T is already entering the Internet access
business and will surely become a large Web-hosting vendor as well. So
although Notes is a moderately good 1980s architecture and will probably
reach five million users before it declines, it cannot possibly compete.

Embedded sytems represent still another market. These applications include
on-line documentation, information kiosks, point-of-sale terminals,
telemarketing and help-desk systems, and many vertical applications. Just
as many accounting packages have an embedded DBMS engine underneath them,
invisible to the user, so too will an increasing number of information
applications have Web servers, browsers and authoring tools underneath the
covers.

Finally, the Web scales all the way down to personal services. That has
created the newest, fastest-growing category for the Web. Personal services
can be both private or public, and are already being used for personal
libraries, archives, CD-ROMs and reference services. Some are created for
fun by students or hackers; others are developed by professionals for such
business purposes as posting documents to workgroups and companies or
organizing their personal archives. Having a Web service is now as
imperative for cool professionals as was having a cellular phone in 1985.

These personal Web services will be of two very different types, both soon
ubiquitous. The first is outward-looking personal services, which will
permit anyone to post information to the outside world, create discussion
groups, refer users to other services, and so forth. The second is
inward-looking, allowing everyone to create and manage their own personal
archive, library, catalog, encyclopedia, reminder system, subscription
service and "window" onto the larger corporate networks and the public webs
they use. Think of your Rolodexes, telephone directories and bookshelves.

At the same time, another revolution is underway in the use of public
systems for personal publishing. This is generating new forms of art,
literature, communication and social interaction, from newsletters to cool
sites to "zines." In the future, webs will become normal documents, created
and transported routinely by end users for everything from academic papers
to multimedia presentations.

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                       Opportunities Large and Small

So what opportunity does this portend for new and existing companies? There
are several that I predict will provide varying degrees of success.

One is Web-hosting services. Although it could become a commodity business,
it might be a profitable one, and will probably oscillate for several years
between destructive competition and high profits. If hosting becomes both
stable and profitable, it will be as a result of increasing barriers to
entry. It may require very large computer and communications
infrastructures, analogous to those required by long-distance telephony.

Another opportunity that is receiving a great deal of attention (and
deservedly so) is security, payment and transaction systems. There are a
large number of vendors entering this business, from Netscape to
MasterCard, from Microsoft to several banks. Interestingly, however, major
consumer-oriented banks, such as Citicorp and Bank of America have been
very slow to move--possibly at their peril. But these systems will not be
easy to construct, and there will probably be many more entrants and an
eventual shakeout before the industry stabilizes. The winners should do
very well.

Browsers and Web server software might be another matter. They will be
mostly low-margin, commodity businesses, most likely based largely on
nonproprietary standards and bundled free with software, computers and
on-line services.

This brings us to the question of Mountain View, Calif.-based Netscape
Communications Corp. Netscape has attracted enormous publicity, as well as
extravagant amounts of cash at stratospheric valuations. But while Netscape
is undeniably a very impressive, serious company with excellent people and
technology, I'm worried about its business model. The bottom line is that
Netscape is a high-cost company, competing (and still losing money) in
browsers and servers. It has now built itself to over 300 people, with a
very high structural burn rate.

Netscape has responded by developing enhancements to the core Web server
and browser architectures. But where Netscape has developed value-added
functionalities, such as SSL security and HTML enhancements, it has done so
in a rather proprietary way, with preferential support for its own
products, rather than open, industrywide connectivity. I believe
vendor-independent, open architectures should and will prevail in the Web
arena.

Moreover, it's bad for the industry. As the Web architecture and its tools
are enhanced over time for such uses as database access and electronic
commerce, four criteria should be met. These are: end-user ease of use;
compliance with nonproprietary standards for basic communications protocols
and data formats; maximum interoperability; and vendor-independent,
platform-independent, open APIs. If the Web's standardization and
interoperability deteriorate, both users and vendors will suffer. And in
the end, the only large beneficiary would be Microsoft.

There are other important opportunities to enhance both browsers and
servers. One is putting more intelligence into browsers, to offload
processing from servers. Hot Java, from Sun Microsystems Inc. in Mountain

View, Calif., is an example of this. Programs written in the Java language,
which is rather like C++, can be downloaded from a Web server and executed
inside the browser. Netscape has stated that it will support Java in its
browsers. The problem is that Sun is commercializing Java in a proprietary
way.

Netscape has also agreed to support the Acrobat technology from Mountain
View, Calif.-based Adobe Systems Inc. for viewing PDF (essentially
PostScript) documents. This is less exciting, and possibly a mistake.
Acrobat will have a useful niche for high-end graphics but will not
otherwise be widely used on the Web, because it is not editable, requires
enormous processing power and is visually inflexible on computer displays,
due to its printer-derived heritage.

Systems integration also represents a large opportunity on the Web.
Presently, webs and applications are constructed by small consulting firms
using baling wire, pliers and glue. Soon, multinational firms will require
global, Web-based systems of great complexity. Currently, there is nobody
they can depend upon for that. As with other areas of the Web, it will be
interesting to see whether this market, a large one, will be dominated by
the likes of Electronic Data Systems Corp. of Plano, Tex., and Andersen
Consulting of Chicago, or by startups.

The area of development tools is where I'm biased. Until now, webs have
been quite hard to develop and manage (although still easier than Notes or
services from White Plains, N.Y.-based Prodigy Services Co). It has been
necessary to write raw HTML (very nasty) and, for interactive functions
such as text searches and discussion groups, to write custom programs in C
or in arcane scripting languages (even nastier). Moreover, it has also been
very hard to develop services remotely, interactively or collaboratively
across a network. There are several reasons for this, including the fact
that certain features of hand-coded webs (e.g., access control, image maps
and scripts) have not been easily transportable from one system platform or
Web server to another. This is a rather absurd situation, given that the
Web is all about networked information access.

Still, if it becomes possible to fix these problems, everyone will be able
to create Web documents and operate Web services. Web services will then
easily become as ubiquitous as word processor documents or spreadsheets. In
such a world, there will, literally, be tens of millions of new webs
developed per year, from sophisticated personal home pages to classified
advertising services to dramatically different electronic publishing.
Imagine, for example, a journalist creating an article as a text-searchable
web. Multiple articles could be integrated into a complete business page,
which would be a bigger web with a table of contents and a discussion group
facility. The business page could be combined with other pages across the
Net to assemble a whole newspaper or magazine, which would be a still
bigger web. The final document would then be installed daily or weekly on
the production Web server on the public Internet, with appropriate access
controls for various classes of subscribers.

A number of vendors and products are moving in this direction. Many good
WYSIWYG HTML editors are becoming available. NaviSoft, a subsidiary of
America Online, has marketed a good visual tool, although it requires
NaviSoft's proprietary Web server, database system or Web hosting services.
My company, Vermeer Technologies, has created an end-user, client-server
visual development environment that provides server- and
vendor-independence.

There is also substantial opportunity for Web-based service businesses that
support use of the Web itself. The Web is now rather like the telephone
system in 1900: rapidly growing, obviously right, but chaotic and messy.
It's difficult to register or announce yourself if you're a vendor, and
difficult to find the vendor or information you want if you're a user.
Services such as Yahoo and the Commercial Sites Index are a start, and many
specialized directories are being created, but we need much, much more.
Given that conventional Yellow Pages publishing is a multibillion-dollar
business and that newspaper classified advertising generates over $20
billion per year, the opportunity for Web directories must be large.

The embryonic, shrink-wrapped Web software industry both reinforces and
depends on these developments. These applications will typically be
distributed systems, either client-server or peer-to-peer products, and
available for multiple systems platforms (both PCs and servers). They will
also be an enormous industry. If Lotus Notes has attracted 5,000
applications and a large aftermarket with a poor product and two million
users, then think of what the Web will bring. It would be stunning if we do
not see at least a thousand Web-based applications available as
shrinkwrapped products a year from now. They will provide every combination
of workflow, discussion groups, bulletin boards, packaged content,
electronic commerce, version control, archiving and electronic publishing.

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                          The Microsoft Question

But there's still a risk to the development of this new industry.
Commercial work is outracing the sluggish committees responsible for Web
standards, and vendors aren't cooperating enough to compensate. Some
standards, such as HTML and security, are already fraying, placing at risk
the compatibility critical to the Web's power.

In the face of those problems lurks Microsoft. Its bid to control on-line
services would gain enormously from the Web's failure to maintain
interoperability. The Microsoft Network, either in its current form or as a
Web-based successor, backed by Microsoft's huge market power, is the only
system that could rival the Web in providing information services. Will
Microsoft, the most powerful, brilliant, predatory and ruthless company in
the entire technology sector, stifle or dominate the emerging Web industry?

It will certainly try. For the next year or two, Microsoft will continue to
emphasize its proprietary efforts, including the Microsoft Network (MSN) in
public on-line services and Microsoft Exchange in corporate workgroup
applications, in combination with defensive, hedging entries into Web-based
software. The Microsoft Network is a fabulous buggy whip--state-of-the-art
technology for its time, unfortunately used to implement the world's very
last proprietary, closed, centralized, obsolete on-line service. MSN might
indeed dominate the proprietary, on-line services industry, particularly if
Microsoft is permitted to bundle it with its operating systems.

But I doubt that Microsoft's potential dominance in proprietary services
will stop the growth of the Web. The real danger is that MSN's dominance of
proprietary services, combined with Microsoft's position in everything
else, would gradually enable it to dominate the Web industry and electronic
commerce. I have no doubt that, at some point, Bill Gates will become
serious about Web systems. Already, Microsoft is entering the Windows NT
Web server market, and is bundling a browser, licensed from Spyglass, into
Windows 95.

Certainly, only Microsoft could aspire to enforce a proprietary system
standard in the face of the open, largely nonproprietary Web architecture.
Microsoft's logical strategy would be to bundle Web browsers and Web
servers with its operating systems, just as it is doing with the Microsoft
Network. Its goal would be first to kill the emerging industry, and then
lock consumers into a sequence of proprietary Microsoft additions to the
Web architecture or into linkages between Microsoft Web products,
proprietary electronic payment systems, the Microsoft Network, Microsoft
Mail and Microsoft Exchange.

The fate of Microsoft's other major architectures, especially Windows NT,
SQL Server and MSN, will affect its chances of success. Windows NT, in
particular, plays a major role because it is unlikely that Microsoft will
support Unix, OS/2 or NetWare with its Web-based software. If non-Microsoft
operating systems remain healthy, Microsoft's control will be limited. If
NT takes over the world, however, it will give Microsoft a powerful stage
on which to play its usual tricks.

My sense is that Microsoft can become truly dominant in Web software only
if it is permitted to employ highly unethical, predatory strategies. I
would support legal measures to prevent any predatory behavior, especially
massive bundling.

Interestingly, this time, Microsoft is not the upstart fighting musclebound
giants. For the first time, it is one of the proprietary, reactionary
incumbents with too many agendas, facing a rapidly emerging industry.
Microsoft now has both the benefits and difficulties of enormous size,
visibility, complexity, huge wealth and industrial power. Everyone fears it
or should. This gives Microsoft leverage, but it also creates difficulties
as more companies and industries--from software vendors to banks to
telecommunications firms--begin to think through the implications of
dependence upon a potential competitor for their information
infrastructure.

Moreover, Microsoft now has serious internal politics to contend with. The
right way to do Web systems is to make open, multiplatform products, with
graceful interactions to all industry-standard operating systems, database
systems, security technology, mail systems and the like. Microsoft can't
fully support the Web without damaging many of its own proprietary efforts.
I do not mean to encourage complacency, either within the Justice
Department or within the Internet industry. But abject terror is not
required, either.

I would bet that the architected, layered Silicon Valley model will
predominate, with a very important systems integration tier as its top

layer. There are just too many good ideas, smart people and opportunities,
and too much of the basic Web architecture is embodied in nonproprietary
standards, for any single firm to dominate them all.

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                          A Global Transformation

This new multibillion-dollar industry, moreover, will generate a profound,
wrenching, fabulous transformation in the global economic, political and
educational scene. By accelerating and unifying the provision of electronic
information services, the Web is bringing into collision a number of
industries that have eyed each other warily for years. In a
well-structured, on-line world, there is very little
difference-technologically or strategically--between white pages, yellow
pages, classified advertising, reference services, traditional on-line
services, news and publishing, and Web hosting.

The Web is also starting to carry real-time voice, fax and multimedia
transmissions, bringing the prospect of a sharper conflict between Internet
access vendors, cable systems and the traditional telecommunications
industry. That this is occurring at the same time as a massive deregulation
of telecommunications is being debated politically only heightens the
competitive pressures these industries will feel.

Many observers have (correctly) pointed out that the Web enables
disintermediation on a grand scale, both within companies and between
companies and their customers. In many industries, intermediary
functions--such as wholesaling, distribution, advertising, retailing and
customer service--collect a much higher fraction of total costs and
revenues than they intrinsically need to. The Web will reduce barriers to
entry and increase startup activity in industries where the principal scale
effects and entry costs derive from marketing and distribution. Software
and publishing may be such industries.

Some of this will be painful. It will cause a substantial compression in
wages, employment levels and margins in several distribution-based
industries. But there will also be large economic benefits. The Web, for
example, will enable U.S. manufacturers to bypass collusive and restrictive
arrangements in Japan. It is difficult to prevent access to Internet-based
information. China just approved the creation of 200,000 domestic Internet
access accounts because, in effect, it had to; controlling them will be
impossible.

Finally, the Web will accelerate the general pace of business activity,
will continue the automation of many information and service functions, and
will further the globalization of markets. It will also make many business
processes much more transparent, both within and between companies. Federal
Express Corp. already lets customers check shipment status on the Web by
accessing FedEx's internal tracking systems. Wells Fargo Bank lets
customers check their account balances on the Web, while many mutual funds
offer their prospectuses over the Web. Here again, there will be some
industries (I would bet on on-line services, publishing and financial
services) where this effect will be large enough to produce a new
generation of startups who will challenge the established vendors.

Similar information access and distribution patterns are transforming
internal corporate workflows. The creative use of Web-based systems may
therefore generate a much more real and useful reengineering revolution
than the "reengineering" trend ever did. To see how, look at the emerging
Web industry itself. The Internet software industry is already using
Web-based systems intensively and imaginatively, to refer customers to
resellers and consultants, to collect bug reports and answer customer
questions, to distribute software products and documentation, to conduct
market research and so forth. Once again, the information technology sector
is proving to be a laboratory not only for technology, but for the
management and technology strategies appropriate to the control of
complexity, uncertainty and rapid change. There can be no more spectacular
example than this one.

Charles Ferguson is the author of Computer Wars: The Fall of IBM and the
Future of Global Technology, and chairman of Vermeer Technologies Inc.
Contact him at charles@ferguson.com.
