A D V E N T U R E S   in   C Y B E R S O U N D

Last month, O.J. Simpson, the LAPD, and hordes of competitive media types provided us with a preview of the infinite connectedness, infinite vulnerability, and infinite exploitation that await us all on the information highway. The lines between news, law enforcement, showbiz, and commercial product blurred hopelessly as the entire world stared fixated at a white Bronco between commercial breaks; the market for secure cellular phones was almost certainly given a boost, not only by the fact that the police located Simpson by his phone calls, but that he was no sooner in custody than enterprising cellular phreaks were offering recordings of his phone conversations for sale.

None of this, one suspects, would be a surprise to George Gilder (right), who's been pondering innovation-driven social change for some time. His first book, Microcosm, was a history of the semiconductor industry and its key players.

...In his more recent books Life After Television and Telecosm... he discusses the changes being wrought in our daily lives by faster, cheaper, more ubiquitous communications.

In recent months he's attracted media attention for, among other things, predicting that the personal computer and not the television will inherit the information superhighway, and stating in no uncertain terms that technological innovation works a lot better without government intervention.

You use the "microcosm" and "telecosm" quite a lot, and "microcosm," at least, means something quite different from what I learned in Medieval Lit. Could you explain the terms a little?

"Microcosm" is the term I use for the whole domains of quantum physics where microelectronics occurs. How you put scores of transistors on the point of a pin is not a Newtonian achievement. You have to be working with the microstructure of matter itself. You have to really be reaching beyond matter, as the book depicts it. It's the overthrow of matter in order to create these devices.

The law of the microcosm is: you take any number n transistors and put them on a single chip, and you get n-squared performance and value. Single chips are exponentially improving in comparison to centralized systems.

In the microcosm, as things get smaller, they get faster and cheaper and cooler and better. You interconnect a billion transistors in a single sliver of silicon, as we will in the next few years, and you will get a hugely improved performance at radically reduced price. That's in the microcosm.

Well, if you interconnect a billion of anything in the macrocosm, you get decreasing performance at just huge cost. To interconnect a billion macrocosmic elements would be prohibitively expensive, essentially. It's like the micromodules that were the Air Force's idea for the initial integrated circuits, kind of Lego block concept, with a transistor in every Lego block, and you could put together any kind of architecture you wanted just by interconnecting the Lego blocks. Of course, by their design, an 8086 would be as tall as the Empire State Building, but apart from that problem, the micromodule was a good idea. But it was a macrocosmic idea. And the integrated circuit brought this technology into the microcosm.

That's the essential law of the microcosm. Even though it's more expensive to interconnect chips, nonetheless you do get another exponential benefit out of it. That's the law of the telecosm: you take any number n computers and you interconnect them and you get n-squared performance and value. And that's the, it's more costly to do that but you do get this other exponential.

This is really Bob Metcalfe's idea. Bob Metcalfe was the inventor of Ethernet. This explains the tremendous impact of these computer networks on society because they are governed by this exponential power.

Ray Kurzweil tells a story to dramatize the effect of exponential trends. It's the dramatic way of conveying the impact of these technologies.

The Emperor of China was totally infatuated with this new game of chess that had been invented for him. He was so grateful to the inventor that he came to him and said, "I'll give you anything you want in the kingdom as a tribute for this wonderful game you gave me."

And the inventor said, "Well, I want one grain of rice. I want one grain of rice on the first square of the chess board, which has 64 squares, then I want two grains of rice on the second square. Four grains of rice on the third square, eight grains of rice on the fourth square and so on."

In other words, this exponential process.

And the Emperor happily granted this apparently modest request, and everything went fine for the first 32 squares. After 32 squares, he could produce the several billion grains of rice fairly well on a quarter square mile of rice fields. But after the first 32 squares, things began to get interesting.

There are two ways the story ends. One is, the Emperor went bankrupt because after 64 squares, this was several billion trillion grains of rice, which would take the entire surface of the earth, plus the oceans times two to produce. The other end of the story was that the inventor lost his head.

But in any case, to get some perspective on how this applies, Kurzweil estimates that by 1993 there had been exactly 32 doublings of computer power since the first digital computers were invented in the early 1940s. So we've now completed the first half of the chess board, where things really become interesting and where the Emperor began to take notice of this process.

Indeed some of the emperors of existing technologies, like broadcast television, are beginning to notice the computer, although they still don't imagine it to be such an important piece of equipment as the television set. They actually suppose that just by adding a few cosmetics to the TV set, TV will last for a long time and have a prosperous career with set-top boxes and HDTV systems and pay-per-view or whatever. They say that PCs are all very good, and they're office equipment, or people might use them to do their accounts or whatever, but they aren't really relevant to their imperial business.

You hold a contrary opinion?

I hold a contrary opinion. Because it's after the first 32 squares that things become interesting. As we proceed into the second half of the chess board, as Ray puts it, the personal computer is just going to blow away television and all these broadcast technologies associated with it.

So how do you think that's going to happen?

Oh, it's happening right now.

In entrepreneurship you look for your upside surprises. That's your key index of Peter Drucker in his book on entrepreneurship.

I think the big upside surprise in the world economy last year was the production of computers. Early in 1993, both Bill Gates and Andy Grove, the world's leading experts on computer production, essentially, both projected a great year. There'd been 32 million PCs sold in 1992, and a lot of people were saying that was an amazing boom produced by a collapse of pricing in some markets, and could not be reproduced in 1993. A lot of people were projecting a decline in PC output in 1993. Instead Grove and Gates both projected around 35 million, another great phenomenal year.

World-wide computer production in 1993 was nearly 50 million, almost 40% greater than most projections. This is a tremendous upside surprise.

It's combined with just runaway growth in networks, the other huge upside surprise. Internet, for example, which for a long time was growing 15% a month, last year grew about 9% a month. Still a tremendous growth, and between 1989 and 1994, over just five years, the proportion of computers connected to networks rose from under 10% to over 60%. It's continued to expand.

Sixty percent of the computers that are being sold today go into homes and home offices, small offices. This growth in homes and home offices is about ten times the rate of growth of TV sales. The idea that's widespread, that the TV is this universal appliance that everybody loves to use, and the computer is this special elite device that only a few people understand and most people fear, is no longer true at all.

All this talk about how computers are impossible and no one wants to use them is just nonsense today. Computers are selling at a tremendous pace; people are becoming addicted to the communications interactivity of computers, and it's an incomparably better market than the TV market. People pay four hundred bucks for a TV and a couple hundred more for a VCR. People pay fifteen hundred bucks for their PC and then spend another fifteen hundred bucks on peripherals and software. They use the TV chiefly to distract themselves and their kids, to reduce themselves to some kind of amnesia or couch potato stupor. They use their computers for communications and career advancement, wealth creation. It's really a major social force, and it's life-enhancing rather than stupefying.

So all the people that are going for interactive television and stuff completely misunderstand the digital revolution and how it's happening. All these people that are trying to do set-top boxes and game attachments for the TV are mostly failing and will probably continue to have very disappointing surprises, downside surprises as opposed to upside surprises.

I like to compare 3DO with Creative Labs. 3DO started with everything going for it. It had all the leading venture capitalists--Kleiner Perkins and Vanguard. It had Matsushita committed to manufacture their boxes. It had superb new graphics chips and technology. It was just a really splendid venture by all conventional measures-and when it was first introduced, I just kept asking "Well, doesn't it connect to the computer?" "No, this is to connect to the TV." And I said, "Then it's not going to work."

People don't really want to interact that much with the TV. The computer is an interactive device. The TV isn't. And the whole culture surrounding it is different and it's not going to work any more than CDI worked. Here Philips spent hundreds of millions of dollars developing and attempting to sell CDI, and it's still a dubious project.

Most of the sort of TV-oriented interactivity products have been a disappointment, while the computer-oriented ones are just bursting forth in constantly dramatic upside surprises. Creative Labs didn't have any of the advanced technology that 3DO had. It had none of the venture capitalists. It had none of the glamour or hype or publicity or anything. It didn't have the endorsements from gigantic conglomerates. It didn't have the glitz or glamour. It had nothing, but it was targeted on the personal computer and it's now a $300 million business.

I think this is sort of a morality tale at this point. The PC is it and as the PC becomes a teleputer, which is a connected PC, as I call the connected PCs, they benefit from both these exponential forces, both the law of the microcosm and the law of the telecosm. They are the most powerful factor in the world economy. By following the PC, you can reach the pot of gold, but by following the TV, you just end up stultified like most of your customers.

Well, given what you state is the cultural dichotomy between what you use the PC for and what you use the TV for, what do you think of all these multimedia entertainment CD-ROMs--Peter Gabriel videos and movie-based games and stuff like that on the computer right now?

I think they're the first generation. I think the multimedia culture will soon resemble book culture. There are 55,000 trade books published every year, and many more thousands of educational books and textbooks of all descriptions. I think multimedia culture will increasingly resemble book culture as time passes, just as the movement of digital desktop publishing generated a huge proliferation of newsletters and magazines and books and documents of all kinds.

The current multimedia pioneers all tend to be struggling, but they are on the bleeding edge. But as these video- and image-based technologies are mastered and become routinized, there's just going to be a huge variety of programming. The CD-ROM will be supplanted with a CD with two gigabytes or so of capacity, which will mean it can hold a full high-resolution movie on one CD, which I think will be a valuable breakthrough.

As Andy Grove told ASAP, by the time the set-top box people get into 30% of the homes where PCs are today and they reach the consumer electronics form factor and price point, the PC will be controlling the TV as a minor peripheral.

So I think that that's the way to think of it--book culture. The key is that in book culture you get your first choice. You walk into Borders or one of these new superstores which are increasingly dominant in the book business, and you get the book you want. In broadcast culture you settle for some lowest common-denominator product that's been contrived for you by some collaboration between Hollywood and Madison Avenue.

My general feeling is that first-choice culture will always tend to prevail over lowest common-denominator culture when there's a real opportunity for it. That's what the computer does, it allows the country to escape this stultifying dominance by lowest common-denominator culture that's targeted toward people's prurient interests and morbid fears and anxieties and ambivalent dread of violence and longing for it. All these sort of "basic instincts," as they say, are necessarily the target of lowest common-denominator media, and I think what the computer allows is the targeting of all career interests, hobbies, intellectual curiosities, special ambitions, the unique and refined interests of people. I think it will be very good for the culture. I think that mass culture has been destructive to the society, and it would be good to have it replaced.

There's been a certain amount of thrash in the last few years over whose model is going to prevail, the telco model or the cable model. The cable guys are very oriented toward the mass-market, one-to-many-and-nobody-talks-back-to-you model; the phone company has lots of people putting lots of stuff out there, talking to lots of people, a relatively interactive process. Do you think that there is a time and place for each, or that one will prevail?

I think that the open model will prevail because of the law of networks. The more connections, the more valuable all the terminals and the network itself, and so the strategy of controlling both content and conduit and gaining monopoly rents, which is the old cable model, will collapse when you have a broad-band world.

Ironically, the creation of a broad-band world, it's called an information superhighway, truly does depend on collaboration between cable and phone companies in their own districts, and this is what the current administration wants to prevent at the moment. They fear above all the so-called one-wire model, where you have one wire into a person's home, particularly if it's a cable wire.

But the fact is the one cable link is about 70,000 times as capacious as a 4 kHz telephone wire, and there just is no way that the telephone industry can duplicate cable's 60% penetration of homes in the United States with broad-band connections over the next ten years or more. By combining the fiber-optic capability of the phone companies, which is about nine times as extensive as the fiber-optic deployment of cable companies, with final subscriber loop connections to homes of the cable industry, we can have an information superhighway over the next five years.

This is really crucial. I think it's going to happen. I think that cable is going to end up being just vital to the future of the computer industry. Intel, Zenith and Digital Equipment, among other companies, have all introduced cable modems over the last couple of years; Digital Equipment's modem allows full ethernet capabilities extended over seventy miles of a cable network. These cable modems will give the online computer services, like America Online and CompuServe and Prodigy and all these networks, real broad-band capability. When these online networks can transmit images and video and films and files of all kinds, it will be the beginning of the end for the television industry.

I honestly believe that within five years or so the cable companies are going to be making more money off computers than they are today off television programming. In fact, the cable network is going to become a computer network.

The key point is that cable PC will become as important as cable TV is today. The reason people underestimate computers today is because their bandwidth is so limited because of the phone lines. When they suddenly can transmit megabits a second, the whole nature of the medium will be transformed. I think it will be the path by which the PC industry will fulfill its manifest destiny of blowing away the television industry in this decade.

So where does wireless fit into all this?

Wireless is vital for anything that's mobile. Human beings are mobile so they need a lot of wireless connections. Wireless connections are going to be very important, indeed, wireless bandwidth is increasing as fast as fiber bandwidth and fiber bandwidth is doubling every year or so. You have this tremendous expansion of fiber bandwidth from a much higher level, but you have a similar expansion of wireless bandwidth.

There have been major innovations in the last couple of years introduced on the wireless side. One of the key inventions is CDMA, code division multiple access technology from Qualcomm, which allows you to have 100% frequency reuse. You can use all the frequencies in every cell, and as you reduce the cells to smaller and smaller sizes, you can multiply bandwidth to an almost unlimited extent. CDMA is almost crucial, I think, for very small cells.

Time Warner and Qualcomm have just introduced a CDMA service operating over cable in Orlando.

This is the Silicon Graphics thing?

No, no. Silicon Graphics is the set-top box in Orlando. This is using that same cable bandwidth for back haul, but using CDMA wireless to give personal communication services, PCS phones, lightweight, low-power phones, portable, wireless phones, to Orlando.

Beyond that there's also technology developed by Steinbrecher Corporation in Burlington, Massachusetts, a box that's essentially a broad-band digital radio. The usual cellular base station includes 416 radios, one for each channel, and it's hard-wired for one modulation scheme, whether it's time division multiple access or amps or TDMA or CDMA or some digital packet data scheme like CDPD, there are all these various modulation schemes and protocols used for wireless traffic, and specific frequencies used. Essentially existing cellular technology requires a separate radio for each frequency, and a channel and application-specific equipment for every modulation scheme and protocol used in the system.

The Steinbrecher is a digital radio which replaces all this hard- wired, analog electronics with one broad-band radio. This radio can essentially take all the contents of the cellular band, all the signals being transmitted in the cellular band, reduce them to base band signal, convert the base-band signal to the analog signal to a digital bitstream and then, in the digital realm, employ digital signal processors to sort out all the different calls and channels and modulation schemes and protocols in that entire cellular band. You replace 416 radios and all the associated apparatus with one box the size of a briefcase that can out-perform all of the entire process.

This technology is in the process of being introduced by McCaw as part of its CDPD project, cellular digital packet data for computer connections over the cellular network.

But the real importance of this technology will be as it's launched as a mini-cell, and that will happen over the next year. That will really change wireless drastically.

In what way, practically speaking?

Well, you get to have a base station on every telephone pole and up every elevator shaft and eventually in every household, for a reasonable price. And that base station won't be tied to one modulation scheme. You won't need hybrid technologies. It will be able to handle any kind of communications, whatever you throw at it. You have to program it for each one you throw at it, but it is programmable. It's a programmable digital device. As this technology is introduced and becomes pervasive, it joins with these other technologies to make bandwidth as available in the wireless domain for mobile applications as it is now in wire-line domain.

Then beyond that, the Teledesic program will come on toward the end of the decade. This is Bill Gates's and Craig McCaw's project which will bring broad-band digital communications to all the many parts of the world which have none. Most of the world, half the world, has almost no telecommunications at all. Even though the spread of fiber optics and various cellular wireless technologies will make tremendously rich communications ubiquitous in urban and suburban areas, this Teledesic project has enormous promise to extend it all over the world. It's a low earth-orbit satellite concept like Iridium, but unlike Iridium it's not focused on extending telephony--voice communications. It's for broad-band digital communications, digital computer links, up to one gigabit a second.

Is the idea that this should be accessible to everybody regardless of where they are?

That's right.

So from a user's standpoint, what would you need to access this when it's developed?

You need a computer terminal and a little antenna. The antenna doesn't need to be more than 1" tall because it's in the 28 gigahertz KA band of the spectrum. So you can have very small antennas and relatively low power. You can have extremely low bit error rates for digital data communications. You can also have voice, you can have connections, anything from 16 kilobits to 1.2 gigabits. It's bandwidth on demand.

There will be a combination. Wireless will be very important and increasingly valuable. For voice communications, I think wireless will completely dominate. Virtually all phones will be wireless as the digital revolution proceeds; I think the key to succeeding in that world will be understanding that bandwidth is abundant. and you use bandwidth to enhance quality so that your voice quality and data transmission facilities are superior to current wire line voice and data communications.

Those are the companies that are going to win. The companies that try to economize on bandwidth, assuming that bandwidth is scarce, and use half-rate vocoders and systems like that to use less bandwidth, are going to fail because the ubiquitous phones will have better acoustics than existing phones. That's what really will ignite their success, where you preferentially choose your portable device against your wire line device because it's better acoustics as well as more mobile.

So you have this picture of an infinitely interconnected world across which people are moving gigabits and gigabits of stuff, uploading it, downloading it, buying and selling it. How does this work? Who's paying for it, who's buying what, where are the subsidies, where are the hidden costs? Is the model going to change from the one where now you go to Blockbuster and you rent a movie, or you go to the bookstore and you buy a book?

I think that more and more of the economy will flow through this net. As people move up the Maslow ladder or whatever--your basic physical needs for food, shelter, housing, transportation or whatever, increasingly our needs are intellectual and spiritual, informational and educational. And so more and more of the economy will flow through these systems.

So very low cost media will yield big rewards for the people who supply them. In other words, just as the cost of MIPS and bits dropped 10,000-fold over the last decade or so, it didn't demolish the market for computers. The market for computers exploded. So the collapse in the price of bandwidth that is predictable over the next decade will not destroy the business of the bandwidth suppliers. It will make their business the central nervous system of the world economy.

The first point is that it will pay to supply this bandwidth. It's going to be a good business, not a bad business. As things drop in price, they generate more profits, even at lower margins. This is the secret of enterprise in this era, if you're losing money on every unit sold, you can indeed triumph by selling more units.

The watermelon thing.

What's the watermelon thing?

The joke about the two guys who went into business selling watermelons. They'd buy watermelons for $1 and drive them to town and they'd sell them for $1 and things would go along and they would sell lots and lots of watermelons. Every day they'd sell out their little pickup truck but they wouldn't make any money, and so they were conferring as to what they had done wrong and they concluded they needed a bigger truck.

(laughter) Well, that's just right. They do need a bigger truck. If you are losing money at a high price, the way you make money is to reduce the price. And that's the principle.

In any case, what will happen is that a lot of the costs which are now associated with distribution will be eliminated. This is whether you're talking about movies, where 70% of the current costs derive from distribution and advertising, or you're talking about newspapers, where over 50% of the costs come from printing and distribution, or whether you're talking about selling computers, where today a lot of the costs come from distribution and warehousing and advertising and whatever. The network will allow you to eliminate most of these costs, these middle costs. This girth of fat in which most economic production is enclosed today will melt away into the new media and the new communications.

So what happens to all the things that are in that spare tire, like the ads that finance the distribution,

Well, ads become much more effective. Current ads are just incredibly inefficient. Broadcast ads, for example, support less and less real programming as time passes. You need more and more ads for less and less substance. Broadcast advertising focuses on capturing people's eyeballs for a few seconds and minutes, with no guarantee or even clear means to a sale in most cases. So what we think of as advertising is mostly a tremendously inefficient broadcast commercializing, and it will be blown away by new transaction-oriented commercial processes on the net.

How might that work?

Well, say you receive your newspaper on a flat panel, a news panel. It's about the size of a clipboard. And you get the front page of the newspaper on it. You click to a story on the new Apple Power PCs that are being launched, Power Macs. The story comes up and fills the screen, which now has high resolution and is as readable as paper, and there's an icon at the bottom or whatever for you to click to buy one of these devices if you want. The first icon is to see an advertisement which fills up the screen if you choose to see it, then provides further opportunities to see textual descriptions of the product and its specifications. Then other ways to see places where this device is available, or ways it can be delivered to you if you want to purchase it, and different price points and different configurations.

In the end it takes you step-by-step through to a transaction, and that process is just incomparably more efficient than the current system where they have an ad for a Mac with maybe an address but no real sense that anybody is actually purchasing anything.

Image advertising.

It's image advertising, that's right. It really is.

So I think advertising will be much more effective, but it will have to change a lot. You won't be able to trick people into watching your ad. You'll have to choose advertising copy or whatever that people deliberately choose to read.

Kind of what the catalog guys are doing now.

Yeah, what the catalog guys are trying to do.

So I think this new technology will radically change the entire advertising business. All this constant bombardment by irrelevant and distracting and mostly ineffectual images will expire; advertising will be much more effectively targeted, and people will get it when they want it.

So it will essentially be pull rather than push.

That's right.

Meanwhile, there will be some events that everybody will want to see, certain kinds of national events, Super Bowls or whatever, which lots of people will watch in common. There probably still will be some advertising associated with it.

But in general the idea of mass advertising will collapse just as all mass media become much less effective and pervasive. The lowest-common- denominator appeals will become less and less useful.

One of the ongoing issues in magazine publication is the advertising-editorial dichotomy--how much the advertisers steer the course of the editorial, and who can you trust, and stuff like that. Do you see the line between advertising and editorial blurring? Do you see it being sort of a big soup of information, and you'll pull out what makes sense to you, regardless of source?

I think editors will be very important. I think that this idea that somehow all writers will just set out independently without editors, put their material in encrypted form on the net, and expect people to pay to decrypt it, is just unrealistic and naive. I think there will be need for all kinds of publications, and they will be dominated by editors who earn the trust of the readers. I don't think that will change.

As information becomes more and more accessible and ubiquitous it will be more and more baffling in its mass and variety; there will be more and more need for people to sort it out and perform these filtering functions. So I think publications will still be significant.

But that doesn't answer your question about the difference between advertising copy and the sort of editorial substance of the magazine. My favorite journal, what I read most faithfully and regularly, is EE Times. A lot of the copy in EE Times is written by people in the various computer and communications companies, actually describing products and technologies which they also are selling. But in doing this they have to write it in a way that is not baldly self-serving. They have to actually explain the technology and mention that there are competitors producing it and make some sort of honest effort to describe some of the competitive products. These are really written infomercials in a sense.

I think there will be a lot of those, but they are chosen by the editors. A lot of these articles are better than the articles that reporters might write who had much less time to explore and really master the technologies at hand. So they don't reduce the value of EE Times. They enhance the value of EE Times. You gladly read them and pay for them.

So I don't think they corrupt the magazine. I think they're a legitimate part of the magazine. There is this kind of convergence. But it doesn't mean that you don't also have columns by independent writers and editorials and reports that are different, and the reader is capable of differentiating between the different kinds of material presented to him.

At the MIT Media Lab, they had a discussion a couple of months ago where one analyst was projecting that advertisers would begin making deals with the reader: If you click onto my ad, we'll give you some Green Stamps or some Advantage miles or whatever. The implication is that the old model of advertising persists, that advertising is somehow value subtractive.

It's the value subtractive model of advertising which currently dominates. And I think that's the wrong way to look at it. Advertising has to be value-added in a broad-band world. If you had to think of buying an issue of MicroTimes or PC Magazine or ASAP for that matter, with advertising or without, you'd choose the one with the advertising. The advertising contributes to the value rendered. You would actually, in all likelihood, be willing to pay substantially more for the edition with the ads.

This implies that they are adds rather than minuses. I think that broadcast advertising mostly consists of minuses, and what we're going to have is real advertisements that are value-added information products.

Ever since I first started hanging out online, people have been saying "We'd really love it if all the MicroTimes ads were available in digital form for us to shop through. That way we could call up all the people that are offering 486s and just price-compare them and go off and buy from the cheapest one." Which of course is undesirable from some advertisers' standpoint, because the PC universe is just coming out of this price war where everybody was undercutting each other to a suicidal point.

Suicidal price wars have their natural terminus. (laughs)

Yes. The PC Tontine...

They're going to have to deal with that.

You're giving the reader more control over the ad.

That's right. But if the vendor really doesn't offer any added value beyond delivering the lowest price, they shouldn't be in business and won't be, and so there will be other ways to differentiate your product than merely hoping that the reader doesn't have access to full knowledge of available prices.

There are a lot of little anomalies as you move through this transitional era, but I think the direction is pretty clear.

Do you think that readers are going to get smarter as a result of this in terms of filtering information for themselves, or are they just going to be even more dependent than they are now on unseen filters back at CBS? I find right now that audiences are extremely naive about the source of the information that they just gobble. I wonder if you see that changing.

Yes, I do. Unseen filters back at CBS will have greatly reduced power. The editors who actually have them in mind and understand them will be able to deliver information to them, but there will be no advantage in being CBS. Controlling a conduit will not impart any power over content to the vendors of information. In other words, all content providers will be created equal, and that will mean that providers of the content that's really relevant to some person will win that business.

One of the hot subjects of debate on the information superhighway is that a lot of people envision the rich getting richer, the poor getting poorer, and the gap widening between the people who have access to the technology and the people who don't. Do you think that is what will happen?

No. This technology is supremely cheap and supremely distributed, and what it does is greatly enhance the power of individuals. Because it will be ubiquitously available, it will actually reduce a lot of the gaps, the sort of artificial divisions that currently leave some communities as backwaters and make others rich with cultural features and opportunities.

These technologies will give to every person at a workstation the creative power of a factory tycoon of the industrial era, the communications power of a broadcast tycoon of the television age.

The biggest benefits will come to previously bypassed communities in the boondocks or ghetto communities in the inner cities. Now in order to get a good school, you've got to live in a rich community, but with broad-band information seas or whatever, you'll be able to get the best education regardless of where you are. I think the benefits to poor people will be substantially greater than to those to the current beneficiaries of suburban advantages.

I really don't agree with that whole info-rich/info-poor picture. It's the biggest menace to the future of the technology, because it leads to a lot of government intervention and manipulation and exploitation that is mostly perverse, that just retards its development. Fears like that are resulting in the re-regulation of the cable industry.

Other fears are that these technologies will destroy employment opportunities, and it's just complete nonsense. People don't get employed because they're cheap. They get employed because they're productive. These technologies are productivity tools, and by making people more productive, they make people more employable. By generating wealth, they endow new work.

Most of the fears about these technologies are completely contrary to the facts. They completely misunderstand the most essential characteristics of the technologies they're criticizing. In any society you get paid for your services to others, essentially, and if you aren't willing to make any efforts to serve others, if you expect the society to support you regardless of the value of what you do…

A gap will open between the productive and the unproductive in any society. As the society becomes richer, it will probably be easier for some people just to opt out, you know, and just essentially subsist on leftovers. But that's a decision that they make. I mean, if they want to opt out, then they can't expect to share in the largest rewards of the economy. What's really tragic is when the government actually pays people to opt out, makes opting out more profitable than actual engagement and productive services. That is a real problem in the inner city today.

I don't think technology widens the gap, it creates all sorts of new kinds of work. The industrial era actually did try to reduce workers to kind of accessories of the big, centralized, mechanical systems they served. The computer age endows individuals with greater creative capabilities. It multiplies opportunities and careers and jobs.

Do you see the current administration being beneficial or harmful in its technological policies, or is it too soon to tell?

I think so far it's been destructive. I hope in the future it sees the light. But so far they're all obsessed with the information-rich and the information-poor, thus revealing that they belong to the latter group. (laughs)

The idea of creating a new PCS system and having all sorts of spectrum set aside for companies owned by women and minorities and handicapped and other groups, it's just a mistake. It just favors the cynical people who create spurious companies owned by their wives to bid for the spectrum.

Trying to inflict universal service prematurely is a great mistake. The rich always use technologies, overpay for technologies in the initial era before they're perfected. That's how the initial development costs are defrayed. To artificially require that some technology be distributed more widely before it's ready will just limit its penetration.

People keep pointing to the phone company's model of universal service. Well, it took fifty years for the phone companies to deliver universal service, and there's very little evidence that any regulatory requirement was very important in this process. It probably would have happened more quickly if the government hadn't essentially enforced these monopoly franchises and required them in exchange to extend universal service.

There's no requirement of universal service in the television industry, yet today television has 98% penetration to homes and telephone industry has about 94% with its universal service requirement. Television did it in 40 years rather than in 70 years or whatever.

Most of these industrial policies do not work, and the administration is infatuated with them. I think it's bad for technology, and what really benefits technology is lower tax rates. It allows more capital to be accumulated by individuals who can directly invest in technology companies.

Technology companies are complex and hard to finance. What you want is disposable personal capital to finance technology, people who really understand the project and thus won't panic when there's a setback, they actually understand the technology well enough to carry it through crises and setbacks that are inevitable in any difficult business project.

So what you want is lower tax rates, and the administration above all else is committed to increasing tax rates. That's more significant than all their industrial policies. But the industrial policies, as manifested by the Cable Act and other additional regulations imposed on cable, and their increasing itch to manipulate the phone industry, and their increasingly baleful eye on the computer industry, are so far destructive.

So what do you think about Clipper?

I think Clipper is a premature standardization. It's not perfected, it's not simple, it's not cheap, it's not effective, and so it shouldn't be adopted.

In general, my sense is that encryption technology is in an area of very dynamic advance at the moment. There are all sorts of new solutions being adduced, and it's just a mistake to fix on one technology at this juncture.

I do think that the problem they're addressing is a real problem, that terrorism and other such crime is a real threat and the National Security Agency is in some sense in an arms race with nuclear renegades and terrorists, bioengineers or whatever, and they're going to have to use lots of new technology to meet this challenge. But they're not going to have a sort of one-size-fits-all magical chip that will solve their problem.

I don't think there's an easy techno-fix to it as the Clipper people seem to imagine. As somebody said, if encryption is outlawed, only outlaws will have encryption, and that's really the implication of the Clipper strategy.

From a competive standpoint it's bad also, since you can get perfectly good robust encryption from foreign vendors all over the world-- I was reading an article not long ago where US vendors were saying, "Okay, fine, we're just going to build factories overseas and do all our crypto stuff there to avoid all these regulations because we just can't compete."

Well, I think that kind of thing will happen.

My view is that the government will have lots of new technologies that will allow it to eavesdrop on people it wants to eavesdrop on. And they may not consist in being able to read any transmission from some central point, but I don't think the Clipper chip would result in that kind of capability.

There is a longing by government for a static world, and this isn't a static world. Entrepreneurs constantly have to adapt to new environments, and government will have to get more entrepreneurial if it's going to protect us from these threats.

I do believe that there are lots of technologies. You can record things from all sorts of different remote positions and plant speakers in radios all over the place. I think they should be able to figure out how to chase the bad guys without ensnaring all the good guys in the computer industry in the process.

Privacy aside, you mentioned earlier encryption as a tool for protecting intellectual property. Where do you see that going?

There's a company called Wave Systems in New York that has developed encryption/decryption code that allows the essential metering of information. You could, for example, put hundreds of software packages on a CD-ROM and distribute them free, and charge only when you decrypted one of the packages. Parts of the package could be usable for a specific period of time, or some limited portion of the software could be accessible, but in order to get the entire package you'd have to decrypt it. When you decrypt it, its price, which was on a tag, would drop into a memory that could be reachable over phone lines to debit an account that you have.

That's one way to charge for software. It also would work on networks, to charge for information, you only pay when you decrypt the entire item.

I think that kind of process will be vital to increasing the market for information, because you can charge per piece rather than for bandwidth or for whole libraries or large collections, and people will get the information they want when and how they want it, and they'll pay more by that means.

So I think that encryption will be very important in the distribution of all forms of intellectual property in the next era, and I think that's one of the reasons why to throw a sort of a Clipper chip in the middle of it. is probably not so helpful. Although I'm not sure that Clipper would actually interfere with this further level of encryption that would be applied to these systems.

Peter Sprague, who is the new chairman of National Semiconductor, said that today if you want to get a glass of water in an information world, you have to buy the reservoir, or at least rent it. This technology will allow you to pay for your glass of water; this will mean that a lot of databases that are only currently accessible at very high cost can be just made generally available.

Nobody could afford to buy the CD-ROM of 600 big books you can put on a CD-ROM. Nobody could afford to buy the 600 big books. But this kind of an encryption/decryption metering process would allow you to distribute information free and then charge for its use. That is a major breakthrough, and very important to the whole future of the information era.

Source: Mary Eisenhart and MicroTimes http://www.microtimes.com/gilder.html

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