The Internet

August 15, 1995

By Bill Gates

The surging popularity of the communications network called the Internet is the most important single development in the computer industry since the IBM PC was introduced in 1981.

It is even more important than the advent of the graphical user interface, the use of on-screen pictures and fonts.

Using the Internet, a person in Tokyo can look up train schedules in Europe, a high school student in San Francisco can peruse course offerings at Cornell University in upstate New York, and people worldwide can exchange messages electronically in "virtual communities" devoted to thousands of distinct subjects.

People are even beginning to use the Internet to conduct long-distance telephone calls. The quality of voice isn't great yet, but it will be as shortcomings are overcome.

The analogy between the early days of the IBM PC and the Internet is apt.The PC wasn't perfect, and neither is the Internet. Aspects of the PC were arbitrary or even poor, and aspects of the Internet are, too.

But the IBM phenomenon became the key element in the computing industry for the next 14 years. Enormous energy was devoted to exploiting its strengths and overcoming its shortcomings. Today there is incredible momentum behind the PC, and most interesting hardware and software is being developed to work with it.

Like the PC, the Internet is a tidal wave. It will wash over the computer industry and many others, drowning those who don't learn to swim in its waves. The Internet has shortcomings, but they will be overcome.

Consequently, companies must account for the Internet in their plans. This is an area where I'm practicing what I preach.

Over the past year, I've challenged Microsoft to address the opportunities presented by the Internet. If you looked around Microsoft and said, "What's the theme that's driving innovation here?" you would discover it is the Internet far more than anything else.

Every product group--from Windows to Word to The Microsoft Network--has made supporting the Internet its top priority. For example, the Word group is charged with making Word an excellent way to author and read on-line content.

We know that the future of the company rests in part on how well we can adapt to a competitive environment changed by the Internet. Responding to a changed environment isn't always easy, but--as I've said in previous columns--it is absolutely necessary.

Even in its early stages, the transition to inexpensive communications represented by the Internet is leading people to question old assumptions--sometimes without even realizing it.

For example, I am frequently asked how Internet companies can afford to give unlimited access, even to other countries, without charging for long-distance phone calls. The unspoken, underlying assumptions are that communication is costly and that it should be billed on the basis of time and distance.

But the Internet challenges these assumptions.

The price paid for corporations to connect to the Internet is determined by the size of its "on-ramp," not by how much the connection is actually used. Usage isn't even metered, and it doesn't matter if you connect to information that is stored nearby or half way around the globe.

Except for users of the Internet and of private networks, people haven't seen the price of communications come down significantly yet. Cable and phone networks are still depreciating networks they built with expensive old technology. Government-sanctioned monopolies and other governmental involvement around the world have kept communications costs high.

But the Internet is growing so quickly that the latest, least-expensive technology is being incorporated into it as rapidly as possible. Telecommuncations switches installed a few months ago to keep the Internet running didn't even exist a year ago.

Internet providers lease communications lines on a commodity bid basis. The market for leased long-distance telephone lines is remarkably competitive, keeping costs low.

In short, the Internet is the only public network whose economics reflect the latest advances in communications technology and the full benefits of competition.

It isn't happenstance that the Internet's World Wide Web, which allows graphics and fonts to be transmitted across the network, became popular now instead of a few years ago. If millions of people had tried retrieving graphics across the Internet at the beginning of the decade, the overtaxed system would have smoked out of existence. It's right on the edge as it is.

The Internet may encounter some minor problems. It may fall a little behind, or suffer miscoordination. These temporary setbacks will not affect the Internet's overall success.

Success is assured, in part, because the Internet has become the first global venue for publishing information. Anyone can be a publisher. The network has enough users now that it is benefiting from the positive feedback loop: The more users it gets, the more content it gets; and the more content it gets, the more users it gets.

Most of this content is free so far. People and companies publish information on the net for the fun of it, or to get experience or exposure. They lose money, for now.

Commercial on-line services such as CompuServe and The Microsoft Network are evolving into communities on the Internet that people pay to belong to. Once you belong, you get a lot of stuff without additional charge - as well as an opportunity to pay even more for certain kinds of content and communications.

Nobody knows what the split eventually will be between free and commercial sites on the Internet. Ultimately, consumers will decide.

Meanwhile, countless companies are laying their bets, bringing commercial motivation to a world that until recently didn't have it.

Only some of the companies laying bets on the Internet will be winners. But companies that bet against the Internet will be losers.

Copyright 1995