Our office in Scottsdale, Arizona, is situated only a few blocks from the famous Phoenician Resort. Built in the late 1980s by the infamous Charles Keating, the Phoenician is the coolest place that $400 million can buy. Of course, when it was first built, this resort was a disaster – its costs far outweighed any potential revenue that guests could generate. However, three owners and a lot of valuation “haircuts” later, the place is now a highly regarded, global tourist destination.
What’s the lesson? The concept was right, but the entry costs were too high and the timing was wrong. GonzoMongers, this lesson is very important in planning new technologies and understanding how they impact our industry.
At GonzoBanker, we are died-in-the-wool skeptics with new technology. Does anyone remember the Internet refrigerator? Hard as it is to believe, business folks were really reading stuff like this in 1999:
“Among Screenfridge’s can’t-live-without-it capabilities are the ability to provide alerts that certain foods are approaching their expiration date and to make recipe suggestions based on refrigerator content. It also can perform Internet-based commerce activities like ordering food items that you are almost out of, exchanging e-mail and paying your bills.”
Because my current “screenfridge” is not XP compatible, I still rely on good old stench and green mold to let me know when it’s time to clean out the icebox.
But despite a bias towards skepticism, I am writing today with a bullish message:
This whole broadband, wireless, and smart phone stuff is finally starting to get real – not as originally conceived, but in simpler and more valuable ways.
Basically, there are three important technologies that are coming into the mainstream at the very same time: broadband, WiFi and smart phones. When one combines the impact of these technologies, it’s safe to say that the original promise of “Internet everywhere” will come true in the next four years. Let’s get a quick update on each of the technologies:
It you haven’t cranked up the cable modem or DSL line in your home, you are quickly becoming uncool. Jupiter Research estimates that 30 percent of all U.S. homes (21 million) will be using broadband this year, a mongo 40 percent increase from 2002.. As James Penhune of Strategy Analytics recently concluded, “Over the next five years, high-speed access will become the norm for residential Internet users.” Penhume predicts that 70 percent of U.S. homes will use broadband by 2008.
The hottest buzz in the marketplace today surrounds wireless fidelity or “WiFi” technology. This innovation does away with those pesky computer cables by broadcasting Internet connections via radio waves. WiFi is taking off like wildfire in two key areas:
Home computer networks
According to a new report from In-Stat/MDR, 6.8 million wireless devices were sold for home use in 2002, a 160 percent increase over the previous year. This explosion is occurring because wireless home networks are cheap and simple. It took me only $100 and 20 minutes to set up the wireless network in my house. (Hey, does that make me a LAN administrator?) Other devices such as televisions, cameras and stereos are jumping on the WiFi bandwagon (no word yet on any new refrigerator developments).
Public wireless networks or “hot-spots”
WiFi technology is also popping up in airports, hotels, bookstores, and stalwart Starbucks. Here’s another recent example of WiFi’s mainstream growth: At 300 pilot restaurants nationwide, McDonalds will be offering one hour of free high speed wireless access to anyone who buys a combo meal (mmmm). Expect to see new “hot spots” for wireless Internet growing everywhere. According to research firm Analysys, these connection points are expected to grow from 3,700 nationwide to 41,000 by 2007.
The growth of WiFi is also rapidly changing the computers we buy for both business and personal use. Research firm IDC estimates that 90 percent of all mobile computers will be wireless-enabled by 2004. A number of companies now bank on that growth, selling software or services to support those wireless networks
For years, pundits have predicted the convergence of the cell phone and the handheld computer or personal digital assistant (PDA) into a new dream device known as a “smart phone.” The concept, made famous by the youth in Japan, was that we would all be walking down the street, hungrily surfing through digital data. While Palms, BlackBerrys and Pocket PCs have become extremely successful niche products, they have as yet to crack the mainstream like a cell phone or Walkman. But like the Phoenician with its third owner, the time for smart phones is coming. Here are some reasons why:
Displays will rapidly get better – Anyone who has nearly gone blind trying to read the awful cell phone or PDA displays can understand why growth of this device has not yet skyrocketed. However, these lame interfaces will be changing fast. Allied Business Intelligence predicts that 97 percent of cell phone handsets will have color displays by 2008, up from 15 percent today. The firm recently concluded that “smart phones will dominate the handset market” in this time frame.
Consumers will upgrade cell phone models – In the next few years, American consumers will replace their cell phones in droves. Harris Interactive recently reported that 32 percent of wireless subscribers plan to upgrade their handsets in the coming year. During this replacement phase, they will likely move to add Internet, email and other computing capabilities to their gadgets.
Cell phones will trumps PDAs – There is a battle today between cell phone and personal digital assistant manufacturers – which one will subsume the other? From my point of view the answer is simple. More than half of U.S. households are active cell phone users. They have established subscription relationships and brand awareness. Cell phone service providers will move customers to PDA functionality faster than PDA customers can expand into the mainstream cell phone market. When this cell phone upgrade occurs, wireless email and select Internet applications will become commonplace.
So there you have it. For years, we have witnessed stops and starts in the dream of computing and communication coming together in a grand convergence. I’m bullish about this finally starting to happen because these technologies are beginning to reach a critical tipping point. People are going to have broadband and wireless and eventually smart phones not because they are techno geeks, but because they are merely “keeping up with the Joneses.” For anyone brave enough to admit they once owned parachute pants or a Members Only jacket, the power of peer influence is all too clear.
For bankers, this means that we will need to examine how “Internet everywhere” impacts our delivery strategies. While it will take a whole other column to answer this question, I do have a few opinions about where priorities should lie:
#1: Avoid the “hot spot” temptation
Banks may be tempted to jump on the Starbucks and McDonalds kick by offering free wireless access in their branches. It might get your bank some nice press in the banking periodicals, but it might also result in a bunch of no-good laptop freeloaders gumming up the place. With security concerns to boot, at this point I simply do not see a business case here.
#2: Services before marketing
In banking, we tend to always jump on technology innovations as a great new way to market. I hope our industry won’t take the “Internet everywhere” phenomenon and decide to pound consumers senseless every minute with nifty marketing messages. We tried this with basic Internet banking and quickly learned that customers want access and information, not a virtual Madison Avenue. Bankers’ opportunity with the wireless Web is to keep pushing more self-service capabilities out to the customer: check images, e-statements, online 1099s, money transfer. Consumers will find value in these types of services, which may have real back office savings potential to boot.
#3: Alerts, not SPAM… and certainly not GPS
Once customers are connected to the Internet nearly all the time, the stagnant growth in Internet alerts will begin to change. In five years, mainstream consumers could be checking alerts from a wide variety of service providers the same way business folks habitually play with their Blackberrys every 34 seconds. Again, there are simple alerts that can provide value to customers (e.g. NSF item, fraud alert, funds availability) that have nothing to do with marketing SPAM. The opportunity to look at reengineering customer service 3 – 4 years out with alerts in mind could be interesting. Within the reengineering, don’t buy the potential of global positioning as part of alert strategy. The idea that I’m going to walk into a sunglasses store at the mall because I’ve been located via satellite and beamed a marketing message is idiotic.
#4: Your Bank = Your Archive
Finally, banks need to realize that, as they make more information easily available to customers, they will become the de facto financial archive for customers. Bankers can already see this happening. Consumers love having 1 – 2 years of transaction history online with Internet banking. Online check images are being viewed at a much faster pace than anyone would have predicted. Turbotax now lets consumers store their electronic returns in Intuit’s electronic vault instead of on some old PC or floppy disk at home. In terms of future delivery strategies and service offerings, banks will have the chance to get creative concerning how they become a trusted electronic archive for their customers. Talk about stickiness! How many customers will want to leave if they have to “convert history” to do so?
The fine art of technology planning always requires GonzoBankers to decide what to pay attention to and what to ignore. For the past three years, we have appropriately ignored the buzz of wireless, but now our attention may be turning to a real wireless Web.