• by Lydia Loizides , Op-Ed Contributor, September 22, 2006

How many great online business ideas have gone by the digital wayside? Too many to count. I remember during my analyst days reviewing countless business plans predicated upon 70 percent efficiency rates in user registration and 80 percent repeatable user traffic. These and other metrics of success were utterly unbelievable in light of one key element that simply didn't exist at the time: speed. High-speed data delivery, otherwise known as broadband, was the missing link in most of the presumptive businesses that tried to get off the ground in the heady days of the Internet.

No matter how great the service, application, or content, consumers are fickle. And they like things to be easy. Case in point: digital photography. Before broadband, the experience of uploading digital photos over a dial-up connection could be compared to a root canal: a painful process that seemed to go on forever.

Things are much different today. First, there's speed in the form of broadband; add to that advances in camera technology and ease of use (point-and-shoot features and easy PC uploading, posting, and photo-sharing), not to mention drastic price reductions on cameras and prints over the last three years. Now not only do you have a viable market - you have a brisk one with a lot of potential.

History Never Lies

I have spoken before about the idea of critical mass - the notion that a vertical market becomes economically viable once 15 to 20 percent of the target market has the requisite technology to sustain it. For example, when VCR penetration hit about 18 percent, three things occurred: Economies of scale for production and distribution of the technology itself resulted in price decreases; the price cuts helped spur faster consumer adoption; and this in turn prompted content owners to make more content available more quickly for rental and for eventually for sale. Quite simply, there was a viable market to sustain the cost and generate profits.

You can apply these principles to nearly any evolution in technology: television (black-and-white, color, and now HDTV and plasma); playback devices (VCR to DVD to VOD); and recorded music (LPs to 8-tracks to cassettes to CDs and MP3s). The effects of critical mass, thankfully, are truly predictable.

It's the Consumer, Stupid

What is not as predictable, unfortunately, is the effect that critical mass spurred by a technology or media platform has on consumer behavior - and in some cases, the negative effects it can have on a market. How does this apply to broadband, you may ask? Well, we surpassed critical mass about three years ago, and the effects have been staggering. Let's stop and reflect on the impact that broadband has had on online businesses, consumer markets, and consumer behavior to date. What follows is by no means an exhaustive list but rather a conversation starter:

>Napster: It was a spoke in a wheel of fire that burned the music industry, not only domestically but also globally. Napster took advantage of a platform (broadband), coupled it with an easy-to-use tool (software), and married it to a consumer behavior (music-sharing). Speed is the crucial driver in this equation, as we observed this replicated repeatedly in countries that have high broadband penetration. We are seeing the effects that peer-to-peer technologies are having on the movie industry as well.

>YouTube: The video-sharing site has created a massive online video collection and made the term "user-generated content" mainstream. Other sites have already replicated the features and functions YouTube offers. Without mass broadband penetration, YouTube and other video-sharing sites would be a novelty. (See Figure 2 for the impact that broadband has on user-generated content behaviors).

>Adult Content: Lest we forget, the adult content industry is truly a pioneer when it comes to leveraging any new technology. One day, I will write about how the adult video industry was instrumental in making VHS the format for home video distribution. This is the industry that helped refine online affiliate marketing and leverage broadband the likes of which were unheard of at the time.

>E-mail: What once was limited to academia and business is now a conventional mode of communication for everyone. E-mail is now accessed multiple times a day and is the No. 1 or 2 activity that consumers report executing online, right up there with next to search, all thanks to pervasive and speedy broadband connections.

>Search: Somewhat mundane, but crucial when you look at what broadband has done for the likes of Google and Yahoo. Broadband has given more than 60 percent of the U.S. population the access they need to search for everything: answers to questions, locations, products and services, entertainment - you name it, and in a fast and efficient manner.

>Other notables: Broadband has fueled the development of blogs, social networks, digital photo sites, gaming, retail, financial services, voiceover IP (all forms), VOD, Web-based applications, hosted environments, classifieds, and online education.

Another example of how broadband has changed consumer behavior can be found by looking at eBay. Once a simple auction site, the company has grown to offer products and services to consumers and business around the world through its online B2C and B2B auction system. If we take a high-level look at three key metrics used to gauge the health of the eBay business - registered users, active users, and listings - we discover that broadband made the most impact in terms of increasing the number of people registering (coming to the site) and people listing items (selling) around the time when broadband hit critical mass.

Other behaviors of note for eBay: There are 541, 000 stores on eBay now, with 225, 000 on the U.S. site alone and 113 million registered Skype users (free computer-to-computer communications).

The Final Frontier?

Broadband itself is arguably approaching commodity status, with close to 45 percent of the U.S. population accessing it from home. The question now is how we can develop applications, products, and services that leverage this neutral platform and tap into consumers' broadband-influenced behavior. Perhaps we should apply the idea of critical mass not to the market but to specific groups of consumers? Or maybe the threshold of critical mass is different in certain markets and within certain consumer groups?

What is even more interesting is that we are once again on the brink of a speed revolution. While broadband has reached consumers in their homes, there is a whole new world of wireless connectivity around the corner in the form of WiMAX, EVDO, 3G, ETSI Hiperman, and WiFi. Hold on - it's going to be an interesting ride.

Lydia Loizides is vice president-director, technology and media experience analytics for The Consumer Experience Practice at Interpublic Media.
(lydia.loizides@interpublic.com)