The Big Idea
It's simple. Everyone is entitled to an exciting and satisfying online experience.
Yet it's revolutionary. Netpliance is removing the last barriers to the Internet by delivering the i-opener, the first genuinely simple Internet appliance. Millions of people -- with and without computers -- are looking for an immediately rewarding online experience, and the i-opener delivers.
-- Netpliance Web site (About Netpliance)
Most industry analysts agree that the Internet appliance market is set to explode.
International Data Corporation (IDC) forecasts the US market for Internet appliances will reach 18.5 million units. This is extremely significant since IDC pegs PC sales for that year at only 15.7 million. These numbers, should they be borne out, are stunning. They play on the fact that around 50% of US homes do not have PCs and thus lack access to the Internet.
The barriers preventing this population from being online already are cost and lack of technical aptitude. The Internet appliance at it's basic conception is a device which eliminates these barriers by making Internet access as natural and commonplace as using a microwave or turning on a television.
Netpliance was incorporated just over a year ago in Austin, Texas. They have since hit the ground running with their i-opener, introduced to the market in November. It has been widely heralded as the first widely-deployed device that has truly reached appliance Nirvana: "one-button Internet". It's important for a young, relatively small company like Netpliance to get an early foothold in the industry.
Competition in the market will be fierce. Not only will they be in direct competition with other startups like New Internet Computing (founded by Larry Elison of Oracle), and Boundless Technology, looking to make a big splash, but they will soon be going up against a broad cross-section of industry heavyweights including Microsoft, Compaq, Gateway, AOL, Acer, and Phillips.
Netpliance is focused on the ideal of getting new people on the Internet. On some level, we all are. Who among us so-called technical elite hasn't tried to give her parents an email primer and walked away thinking, "It should be easier; I didn't realize it was this hard for 'normal' people"? Who can find fault in a company whose business model allows them to use testimonials as wholesome as the following in their press material: "For busy moms like myself, the i-opener allows me to have quick access to news, weather, and even the latest recipes."?
As CEO Kent Savage idealized it, "the minute our customers take it out of the box, i-opener begins to bring the Internet and all its educational and entertainment possibilities as simply as turning on the TV, radio, or microwave -- truly representing the Internet for everyone."
The Internet for the masses. This is the mission of Netpliance.
The Big Leap
We've combined an Internet appliance, Internet service, and a consumer portal in a single, friendly package. Now users can be served instant, personal, relevant content with just the touch of a button. (Even PC veterans are asking "Why didn't anyone do this before?".)
-- Netpliance Web site (About Netpliance)
The i-opener was first announced in July 1999. The company set the appliance's retail price at $399 with monthly access fees ranging from $4.95 to $24.95 depending on the number of family members accessing email and customized content. At this price, they were undoubtedly making at least a small profit on each device sold. Because the system was explicitly designed to work with only the i-opener ISP, the company also stood to maintain a continued revenue stream from access fees. There was also the prospect of future revenue from targeted e-commerce activity and advertising that would just be gravy.
By the time the i-opener hit the market in November, Netpliance had cut the sticker price in half and flattened the access packages to a flat $21.95. At Comdex in November, they also spent a considerable amount of time talking about revenue from e-commerce -- showing off a special "pizza" key on the keyboard that would order a pizza when pushed. They explained that sharing transaction revenue from schemes such as this combined with practically guaranteed Internet access fees would subsidize the price of the hardware, now an unbelievable $199.
Subsidizing an initial purchase in this way is not unusual. There is a classic business maxim that says: give away the razor, sell the blades. Gillette notwithstanding, cell phones provide a good example of how this principle works rather explicitly in today's market. The idea of actually paying $300 up front for a phone seems distasteful or unnatural to many of us. The ubiquitousness of offers for "free cell phones" probably accounts a lot for the massive growth of the market in recent years.
Netpliance was taking a similar approach. It was a wise move. In the competitive appliance market, it made sense for them to take whatever steps necessary to gain an early market lead. But they took it one step further -- they did not even require people purchasing their subsidized hardware to sign a terms-of-service agreement. Long-term contracts and obligations make people uneasy, especially when they are for a service that they might not fully understand. Besides, the i-opener couldn't work with other service providers, so once someone laid out the initial purchase cost, it would be unreasonable for them to not subscribe to the service. The device just wasn't designed to be useful for anything else.
It's uncertain whether Netpliance decided to become even more aggressive or if they were disappointed with their initial sales, but on March 1, they decreased the retail price once more, this time announcing a %50 off sale that would price the unit at $99, just one quarter of their originally planned price. At this stage, analysts agreed that the company was losing hundreds of dollars per unit.
In their IPO registration statement filed on December 23, 1999, they stated it plainly: "at current pricing levels, a new customer must pay monthly fees for our service for a significant period of time before we recover the purchase price subsidy on that customer's appliance. ... If we are unable to achieve sufficient revenues from user fees and other sources to cover the subsidies of appliance purchases, we may never become profitable and our business model could fail."
It's a complex relationship that has to develop between a technology company and the non-technical public. Almost as complex as the relationship between a technology company and... well, we'll get to that.
The Big Dedication
Since the dawn of the Internet, ease of use and real people's needs have been overshadowed by showy technological feats. Feats that may appeal to technical elites, but have kept millions of people away from the power and pleasure of modern communications.
-- Netpliance Web site (About Netpliance)
The above quote so nicely sums up the developments around the i-opener that it is worth reading twice. It has in fact been a basic operating principle of Netpliance since the company was founded. Technology like the increasingly complex browsers with their plug-ins, pop-up windows, and Java virtual machines may have driven the expansion of the Internet, but the average person who has avoided the Net for this long has no interest in dealing with these issues, let alone braving things like USENET or FTP.
What if we took the phrase, "technical elites" literally? We'd probably be talking about the hacker or Open Source community -- the kind of people who read SlashDot.org daily and run Linux networks in their homes just for fun. Do the showy technical feats that appeal to these people keep millions away from the pleasure of modern communications?
It's a pretty tough case to make. The basic technology developed and supported by the Open Source community has probably done more to democratize the Internet and make it widely accessible to large segments of the population than any company, regardless of its resources and intentions.
The quote from Netpliance makes one thing clear, though: they had always framed technological elites in an adversary position to the mission.
Enter Ken Segler, a slot machine designer from Las Vegas. Ken bought an i-opener for $99, cracked the case open, and within hours had added a hard drive and installed Linux, replacing the customized Netpliance software and original QNX operating system. He eventually added an Ethernet adapter and basically repurposed the machine into a multipurpose network terminal.
The device had more than one use now. It wasn't only good for accessing the i-opener ISP (it had, in fact, become useless for that purpose); now it could be used for almost anything else -- a car MP3 player, an access terminal for around the house, or just a great, cheap, mobile computer. Ken posted instructions on the net and began offering customized modification kits for $35.
On March 11, his site got SlashDotted, with a subject heading that read "Flat Panel Linux Box for $99?"
Within days of Ken's site being featured on the premier "news for nerds" site, pockets of Circuit City stores around the country began to sell out of i-openers (reportedly the first areas to sell out were in cities that had large research universities nearby). Web sites and discussion boards popped up seemingly out of nowhere and were populated with information on new ways to install different operating systems or clever, inexpensive ways to optimize the performance of the systems. People working at high tech firms began to discuss design ideas over coffee breaks.
The whole event became a legitimate Internet craze.
Hackers love problems, and they love to take things apart and make them work better than they did before. There is a certain high to being able to do something cool that isn't supposed to be possible. The energy that this creates on an individual level increases exponentially when you get a group of people like this working on the same problem and openly sharing their solutions.
Need proof? In less than 10 years, Linux has gone from an idea to the fastest-growing operating system on the planet. Given enough time, the Open Source community would probably learn things about the i-opener that Netpliance's engineers hadn't even thought of.
The immediate implications of an i-opener hack eliminating the ISP requirement should be obvious. Most quoted estimates put the per unit cost at between 300 and 400 dollars, implying that every i-opener that was sold at $99 was losing the company around $250. Because they had never required anyone to sign a terms-of-service agreement or an access contract, they had no legal recourse. It is impossible to know exactly how many of the devices were purchased for the purpose of repurposing them, but even a conservative estimate would have to put the number in the thousands.
A simple analysis would have the company losing several hundreds of thousands of dollars which it would never recover in monthly service fees. This had the potential to damage Netpliance's IPO of March 17 and, in the eyes of many investors, hurt the future of the company and threaten their business model and mission.
Was the dramatic statement on Netpliance's Web site starting to sort its semantics out? Were "the showy technological feats" of the "technical elites" actually threatening to keep "millions of people away from the power and pleasure of modern communications"?
It's not so simple. Netpliance received enormous amounts of free publicity from the whole affair, and many of the people who bought the i-opener with the intention of modifying it were so impressed with the device that they also bought second boxes as gifts for their friends and relatives to use as originally intended. That's saying nothing of the potential benefits of Open Source development.
As the story became more widely circulated, the newly-minted Netpliance shares began a steady decline. On Monday, March 20, the company did something amazing. They responded to concerns by saying it was a positive thing for them. Spokeswoman Munira Fareed was quoted in CNET as saying, "we are interested in putting together a program to collaborate with the Linux community that essentially harnesses their knowledge. ... In the end, we want to get new appliances and applications to consumers. If anyone can help us do that, that's great"
Unfortunately, the shareholders didn't go for it, and the stock continued to decline. Finally, on Thursday, March 23, nearly two weeks after the news of the hack hit SlashDot, they announced that the machines would no longer be modifiable. Immediately following the announcement, they claimed on their Web site that modifying the device may be a violation of federal law, though it's hard to see how. Later that day, they revised the rhetoric to enforce a terms-of-service agreement. In the interest of maintaining their business model to the satisfaction of shareholders, they had little choice.
It had been implied right in their business plan: they had to choose between the moms and the nerds of the world.
Welcome to the Developer's Corner.
Netpliance believes in Open Source development. As part of our effort to support the community, we will be developing a site that will be the premier source for i-opener product information. We are looking into providing an open hardware package for the developer community. Please watch this site for more details.
-- Netpliance Web site (Developer's Corner)
When I first heard about the i-opener hack, I was impressed with the potential of the device. I thought about getting one to turn into an MP3 terminal. Having one of these things in my living room hooked up to an MP3 server hidden away downstairs would revolutionize the way I live.
Then Netpliance announced that they were seeking to actively work with the Open Source community, and I was doubly excited. I had already seen all of the data pouring out about the device and thought about how good this could be for the company, regardless of their loss-leading sales model. If Netpliance was willing to really stick its neck out here and do something daring, it would do more than revolutionize my living room. It could accelerate the evolution of an entire industry.
It's inevitable that more and more of the software we run on a daily basis will become Open Source. The benefits are too great and the quality of existing Open Source software too high for this progression to not occur. Any company that realizes this now is still making a bold move, but it is a move that, executed properly, will pay off immensely -- even in the short-term.
There are a lot of reasons for the success of the Open Source development model. Sometimes people have a hard time understanding how a group of part-time coders could have developed the basic infrastructure of the Internet and done a better job than billion dollar companies could ever have dreamed (look at the success of Linux versus IBM's OS/2, or the Apache Web server versus Microsoft IIS). It has nothing to do with the skill of the programmers or their political beliefs; it comes down to basic structural assumptions in the way developers interact and structures of knowledge develop.
By openly publishing source code, developers are able to reduce duplication and increase productivity by having individuals naturally focus on areas that interest them rather than what management tells them to do. They also increase the quality of the work by opening it up to peer review, making software more reliable. Open Source guru Eric S. Raymond wrote Linus's Law to explain the phenomenon: "Given enough eyeballs, all bugs are shallow." It's a great statement, and nicely explains the amazing stability of Linux and programs like Apache.
The i-opener software could benefit immensely from an open development model. Most importantly, it is critical to the operation of Netpliance as a company; the software needs to be as stable and as optimized as possible if they hope to survive.
As stated earlier, Netpliance is a small fish in a big sea. They face stiff competition from the likes of Microsoft and AOL. How can a relatively small start-up hope to compete with giants? They couldn't hope to find a professional research and development team even close to being comparable to either of these companies, let alone pay them.
The important outcome of the whole i-opener affair is that Netpliance suddenly had some of the best technological minds on the planet working with their product, testing novel configurations, pushing it to the limits, and freely reporting their results back to the community. Yes, this was costing them, but it was only a small fraction of the cost of actually employing these people.
A large number of these people publicly stated that they would have been more than willing to have payed $300 for the same hardware with a basic modification kit. They didn't want to rip Netpliance off; they just really liked the design of the device and the potential it had. An inexpensive Linux terminal, it turns out, represents quite an untapped market.
Netpliance has already begun to gain published research on their device from a creative, distributed R&D team. They could conceivably produce a highly optimized version 2.0 i-opener using the same hardware within 3-4 months with all the expertise that is available to them regarding performance optimizations and expandability options.
True, it's not Open Source development in the traditional sense of the term, but the same principles apply. If the company really is willing to give something back to the community, the community will respond, naturally, by improving on what they get and giving that knowledge back.
Ironically, given Netpliance's mandate to appeal to Internet neophytes, it is the Internet's most sophisticated users that have the greatest potential to help the company fulfill its role in bringing forth the best product available to the masses.
Netpliance has pledged to start a developer program, but there is currently a lot of doubt in the Open Source community as to how well this will be executed.
Netpliance has an enormous opportunity to foster an environment that will benefit everyone. They should offer a version of the i-opener designed for easy upgrading at close to cost. This device will only be of interest to hackers who have the ability and, more importantly, the drive to modify and experiment with it. It would also be wise to develop an arm's-length organization that could openly maintain discussions and information exchange between developers. By doing this, they would gain the good will of the community, reaping enormous benefits by increasing the caliber of their R&D.
Probably just as important as that, they would instantly gain a reputation among existing Internet users as a "good" company that can be openly promoted to friends over MS or AOL. In the quest to appeal to people who are uneasy with the Internet, it should not be forgotten that the biggest influence on their migration into the wired world will be people who are technologically savvy -- their friends and families. The two groups do not exist in some sort of class war vacuum.
Netpliance must reframe their picture of how the users of the Internet are divided up. It is not natural to draw a line between the "technical elites" and everybody else, constructing some demented love triangle in which each group must vie for the affection of companies at the expense of the other.
Hackers aren't just born hackers; they have moms who raised them. They share a lot of the same values. They both appreciate technology that enriches their lives. The i-opener can do that for both groups, and Netpliance can better achieve its ideal of making the Internet as easy as pushing a button if it also pleases those who want to unscrew, attach, crimp, configure, twist, and then push a button.
Kalin R. Harvey (http://plaza.powersurfr.com/krh/) currently works as a technical analyst for a major Canadian Public School Board and holds a degree in Linguistics. He actively promotes Linux and Open Source software as a more efficient way of organizing society and getting the most out of technology.