Smart, experienced, and creative travel agents will prosper, but they will specialize and do more than book reservations. Say you want to visit Africa. You will be able to find the cheapest tickets to Kenya, so the travel agency will have to be able to provide something else. Perhaps the agency books nothing but trips to East Africa—hence, they’ll be able to tell you what other customers especially liked, or that the Tsavo National Park is too crowded, or that if you’re really interested in seeing herds of zebra, you are better off visiting Tanzania. Some other travel agents may decide to specialize in selling travel to, rather than from, their own cities. An agent in Chicago might offer services across the network to people around the world who want to visit his hometown, rather than selling services to Chicagoans who want to visit other places. Customers wouldn’t know the travel agent, but the travel agent certainly would know Chicago, which might be more important.
Although today’s newspapers will be around for a long, long time, the newspaper business will be fundamentally altered when the consumer has access to the information highway. In the United States, daily newspapers are dependent on local advertising for most of their revenue. In 1950, when television sets were still novelties, national advertising contributed 25 percent of the advertising revenue of American newspapers. By 1993, national advertising contributed only 12 percent, in large measure because of competition from television. The number of daily newspapers in the United States has declined dramatically and the burden of financing those that remain has shifted to local retail and classified advertising. Classifieds don’t really work on radio or television. In 1950, only 18 percent of the advertising revenue of daily newspapers in the United States came from classifieds, but by 1993 that had risen to 35 percent and represented billions of dollars.
The information highway will provide alternative, more efficient ways for individual buyers and sellers to get together. Once the majority of customers in a market use electronic access to shop, classified revenues will be threatened. That means much of the newspaper advertising base could be in jeopardy.
It does not, however, mean that newspapers will disappear overnight, or that newspaper companies can’t continue to be important and profitable players in the delivery of news and advertising. But, like all companies that have a middleman or brokering role, they’ll have to be alert to change and take advantage of their unique qualities to succeed in the electronic world.
Banking is another industry destined for change. There are about 14,000 banks in the United States that cater to retail customers. Most people bank with a firm that has a branch office near their home or on their commuting path. Although minor differences in interest rates and services might shift people from one local bank to another, few customers would consider switching to a branch ten miles out of their way. Today, moving your bank records is time-consuming.
But when the information highway makes geography less important, we will see electronic, on-line banks that have no branches—no bricks, no mortar, and low fees. These low-overhead electronic banks will be extremely competitive and transactions will be made through computer appliances. There will be less need for cash because most purchases will be handled with a wallet PC or an electronic “smart card” that will combine the features of a credit card, automatic teller machine card, and checkbook. This is all coming at a time when the U.S. banking industry is already consolidating and becoming more efficient.
A lot of the interest-rate differential between large and small deposits will disappear. With the communications available on the highway, a new kind of middleman will be able to aggregate small customers efficiently and get them a rate very close to what large depositors are offered. Financial institutions will be able to specialize; one bank may choose only to make automobile loans, whereas another concentrates on boat loans. Fees will be generated for all of these services, but the fee structure will be based on broad, efficient competition.
It wasn’t so long ago that a small investor who wanted to put his money in anything beyond a passbook savings account was stymied. The world of stocks and beyond—mutual funds, penny stocks, commercial paper, debentures, and other arcane instruments—was simply off-limits to anyone who wasn’t a Wall Street insider.
But that was before computers changed things. Today, “discount” stockbroker listings are plentiful in the Yellow Pages, and quite a few investors make their stock purchases from a machine at a local bank or over the telephone. As the information highway gains in efficiency, investment choices will proliferate. Stockbrokers, like other middlemen whose job has been merely to chaperon a transaction, will probably have to offer something beyond just purchasing securities. They’ll add value by being knowledgeable. Financial services companies will still thrive. The basic economics of the industry will change, but the volume of transactions will skyrocket as the information highway gives the average consumer direct access to financial markets. Investors with relatively small amounts of money to commit will get better advice and have opportunities to make profits from the sorts of investments now available only to institutions.
When I prognosticate about the future changes in an industry, people often wonder if Microsoft plans to go into that field. Microsoft’s competence is in building great software products and the information services that go with them. We will not become a bank or a store.
Once, when I referred to a bank’s back-end databases as “dinosaurs,” a reporter wrote an article saying I thought banks themselves were dinosaurs and we wanted to compete with them. I have now spent more than a year going around the world telling banks I was misquoted. Microsoft faces plenty of challenges and opportunities in the business we know—whether it’s enterprise support, making computer software, groupware for the Internet servers, or any other part of our business.
Our success in the PC world has come from working in partnership with such great companies as Intel, Compaq, Hewlett Packard, DEC, NEC, and dozens of others. Even IBM and Apple, with whom we have occasionally been in competition, have had an immense amount of our cooperation and support. We created a company that was dependent on partners. We bet that somebody other than us would do great chips, somebody other than us would build great PCs, somebody other than us would do great distribution and integration. We took a narrow slice and focused on that. In this new world, we want to work with companies from every industry to help them make the most of the opportunities the information revolution will bring.
Industry after industry will be changed, and change is unsettling. Some middlemen who handle information or product distribution will find they no longer add value and change fields, whereas others will rise to the competitive challenge. There is a nearly infinite number of tasks left undone in services, education, and urban affairs, to say nothing of the workforce the highway itself will require. So this new efficiency will create all sorts of exciting employment opportunities. And the highway, which will put an immense amount of information at anyone’s fingertips, will be an invaluable training tool. Someone who decides to change careers and go into computer consulting will have access to the best texts, the greatest lectures, and information about course requirements, exams, and accreditation. There will be dislocations. However, overall, society will benefit from these changes.
Capitalism, demonstrably the greatest of the constructed economic systems, has in the past decade clearly proved its advantages over the alternative systems. The information highway will magnify those advantages. It will allow those who produce goods to see, a lot more efficiently than ever before, what buyers want, and will allow potential consumers to buy those goods more efficiently. Adam Smith would be pleased. More important, consumers everywhere will enjoy the benefits.