The U.S. Videotex Experience

In the 1980s, marketing experts predicted that videotext would revolution- ize the marketing, advertising and broadcasting industries, and become a $5-billion-a-year industry (Major, 1990). Videotex enabled customers to use

a keypad to call up screens of content from a centralized database for dis- play on a home viewing screen. It was an early example of technological convergence—combining television, the telephone, and the computer.

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This hybrid technology frequently evoked notions of social and technological revolution. Videotex promised to change shopping, banking, news delivery, travel, and messaging. Many of the more optimistic predictions came from vendors offering such services.

Market researchers projected billions of dollars of revenue from equipment sales and service usage. As a result, $2.5 billion was invested in videotex. The videotex industry in the first half of the 1980s, however, generated only $400 million in revenues from 1.5 to 2 million customers. By March 1986, three U.S. videotex providers had ceased operation after consumer disinterest led to combined losses of over $100 million (Major, 1990).

The original failure of the videotex revolution could have been that early marketers of videotex were promoting a system that did not exist: Con- sumers lacked low-cost, user-friendly PCs and applications, consumers preferred to get news from traditional media, PCs were not widely distrib- uted, pricing was based on the minute rather than the month, and videotex offerings were limited. As a result, videotex producers abandoned their original target of replacing traditional media and repositioned themselves as a supplemental information service provider (Major, 1990).

Another possible explanation could be that the market for videotex services was narrower than companies originally anticipated (Truet & Hermann, 1989). In this area, it is difficult to analyze the market without first understanding France Telecom’s Teletel service, dubbed Minitel. France had long been the world leader in videotex activity, with 5 million active users of more than 15,000 different services by 1990.

Maital (1991) traced Minitel’s success to three factors. First, France Telecom invested substantial tine and money designing Teletel, concentrat- ing on long-term evolutionary planning. Second, they spent millions on a technologically advanced switching system known as Transpac, providing

a more efficient cost structure of the service overall. This switching system enabled data bits to be grouped and then transferred as a “bundle” through the system, cutting the cost of sending messages and making “the cost inde- pendent of the geographical distance between the consumer and the seller” (p. 8). Third, France Telecom’s monopolistic position made it possible to launch a mass-market product for which market demand did not yet exist. As Maital observed, “Who would invest massively in such terminals without first being assured of the demand for their services? The answer: A government with deep pockets, a clear purpose, and a national technology strategy” (p. 8).

By contrast, the United States government historically had none of those three requisite criteria, despite some attempts by a handful of gov- ernmental officials recommending immediate execution of a nationwide construction of electronic superhighways (Gore, 1991). Market observers attributed Teletel’s success to France Telecom’s farsighted planning,

CARVETH

cost-effective service rates, and monopoly position in telecommunica- tions. Americas initial inability to compete globally in the information services arena may be traced to the fragmentation of American telecom- munications after the breakup of the American Telephone and Telegraph Co. (AT&T) monopoly (Maital, 1991). During the period from 1984 to 1990, France Telecom installed 6 million Minitel terminals in France—1 for every 10 people. Comparatively, in 1990 there were only 1.5 million subscribers to online videotex services in the United States, or 1 for every 165 people (Hawkins, 1991).

Yet another problem was the overall poor performance of videotex systems. These problems included overall economic viability of videotex, involving costs of specialized equipment and costs of communications; benefits not seen as sufficient to justify costs; a lack of industry standards with a consequent incompatibility among systems; and human social factors involving new and different ways to do things (Grover & Sabherwal, 1989). Obviously, a change in strategic orientation would be needed to re- pair all of these problems.

Although the launch of Prodigy in 1988 led to another round of optimistic predictions, the modest overall performance of online services dampened talk about their social impact. By 1993, three national online services, Prod- igy, AOL, and CompuServe, claimed about 3 million subscribers, although Prodigy had already suffered cumulative losses of more than $1 billion.

The videotex industry began to rebound in 1990 when car manufactur- ers became some of the first major advertisers to tap into the videotex market (Fahey, 1990). To accommodate these new clients, Prodigy began taking steps toward making the service a mainstream advertising medium (Fahey, 1989a). Prodigy began by charging advertisers by “measured response pricing,” where viewers could see teaser ads across the bottom of a screen and could access the full ad for more information (Fahey, 1989b). Although the average length of most ads was 30 screens, if a viewer accessed only 5 screens, the marketer was charged for only those 5 screens. This new method of advertising was hailed as a no-risk medium, because it charged on the basis of actual advertising exposure (Fahey, 1989b).

Prodigy, however, began running into trouble. General Motors Buick divi- sion reevaluated the videotex systems and decided to pull its advertisements from Prodigy, although maintaining the advertising campaign on CompuServe (Fahey, 1990). Audi renewed its contract only after serious delib- eration, saying that they may have obtained a large number of leads, but the concern was whether or not they were qualified leads. Audi wanted to make sure that the Prodigy subscribers were good targets for Audi automobiles.

Such criticism evoked a strong response from Prodigy, which com- plained that it was “unfair for advertisers to expect videotex to provide information they don’t request from other media” (Fahey, 1990, p. 54),

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claiming that no magazine client requires that a medium provide it deliv- ered enough sales to justify the ad dollars. Unfortunately, although this may have been a valid argument, the fact remains that videotex advertising in 1990 was still an experiment.

By 1994, there were between 1.5 and 2 million loyal videotex users who used the various networks religiously. Nevertheless, the event that pro- pelled explosive growth in videotex services occurred in the spring of 1994 when AOL finished its gateway onto the Internet. Since that time, growth in online services has wildly exceeded expectations.

The development of narrowband services demonstrates a pattern of pro- gressive decentralization of the technology and content components. Video- tex was a top-down model of centralized providers furnishing centralized services through a specialized terminal. The design reflected the technology of the time, but it also then emphasized centralized (i.e., transaction- and information-oriented) interactive services. These services were assumed to be desirable, but consumers were not interested; prognosticators (and suppli- ers) confused technological capability with market demand.

Prodigy was a centralized provider offering mostly centralized interactive services. A key component, however, changed with the use of consumers’ own standards-based computers. The change in delivery device from a passive terminal to a multipurpose machine changed the assumed model for services, although Prodigy’s marketers did not seem to take this fully into account. Consumers followed the pattern of text-based online services such as CompuServe and showed greater interest in electronic mail (e-mail) and bulletin boards—something for which Prodigy was architecturally and strategically unprepared.

Today, the Internet operates on a completely different model than that of the first videotex experiments. The network features decentralized content that can be created by anyone and accessed on a standardized technological platform. If the original assumption was that consumers would access online services in their homes to save time, current research sug- gests that consumers are more interested in using online services to pro- duce or peruse content (web pages, e-mail, newsgroups) as a new, enjoyable way to spend time. Thus, online services have found their success through decentralization: Content is now more in the hands of users than providers, and services to communicate with others, such as e-mail and chat rooms, are highly popular.

The U.S. Videotex Experience