When Hughes Electronics launched DirecPC in 1996, it promised high-speed Internet access that wasn't dependent on infrastructure upgrades by telephone or cable companies. But while the firm's television cousin DirecTV has been a raging success, with over 8 million subscribers, DirecPC has been a non-starter, with fewer than 100,000 users, according to analysts.
The service struggled in part because it was a kludge: dishes installed at users' homes could only download data, and so a traditional phone line was needed to send information back to the service. Others fault the lack of marketing for DirecPC; there were no real incentives to entice DirecTV users to sign up for the service, for example.
That's why many analysts think things might be different this fall, as both MSN and AOL (aol) are expected to roll out competitive satellite-based broadband services.
"Satellite is going to be worth another reassessment," said Jupiter Communications analyst Joe Lazslo. "As [they] get their broadband marketing machines up and running we will hear both companies competing with the message 'We're anywhere the customer wants to be.'"
MSN has partnered with Israeli firm Gilat-to-Home Inc. and satellite TV provider EchoStar. AOL is teamed DirecTV and its parent, Hughes Electronics Corp. Neither has announced pricing, but both companies said costs for consumers will be competitive with cable and DSL monthly fees. Analysts expect prices to be on the higher end of that range, perhaps $50 or $60 per month, after a setup cost of several hundred dollars.
"Gilat will be a good start for this market," said Clara Sigrid Lo, an analyst with Frost & Sullivan. "It will bring new stimulus. There will be new applications to take advantage of the bandwidth."
For once, analysts say, MSN might be able to claim a leg up in a battle with AOL. Gilat-to-Home, a subsidiary Gilat Satellite Networks Ltd., will provide the bandwidth, Echostar the dish, and MSN the content and much of the marketing.
Microsoft (msft) will also include "two-way" dishes that allow downloads and uploads just as fast as cable modems or DSL. AOL said its service will still require a phone line for uploads.
The MSN-Gilat service is in a 5,000-user trial right now, and analysts suspect it will beat AOL's similar service to market.
"That's my feeling right now," Lazslo said. "There is an advantage to being first to market ... I don't know if we talking about a lag of a few weeks or a few months, though."
Paul Gaske, General Manager of Hughes Network Systems' Consumer Division, says MSN-Gilat will have hardly a month's advantage. Hughes will provide the bandwidth for AOL's service.
"Maybe they're out in October ... we're figuring we'll be out roughly in November," he said. "The Wilat folks are calling that first-mover advantage. Well, we invented the satellite broadband business in 1995. We think that's first mover advantage."
A spokesperson for America Online said the company declined to jump into two-way satellite delivery in part because of the cost -- one-way dishes, which cost about $150, are cheaper than the two-way dishes Gilat will sell.
"One-way broadband speed is for most people a very compelling high-speed option," said AOL's Marta Grutka. "A majority of our users still use dial-up. With 'one-way,' you're able to do things much faster."
The two alliances also expect to have slightly different target markets. Zur Feldman, Gilat-At-Home CEO, makes clear during interviews that his service is not designed to compete with telephone companies or cable firms.
"We are offering this service to people who cannot get broadband now, or will not have the service for a while" he said. "Everyone agrees that by 2004, there will be around 26 million homes in the U.S. who will not have a way to be connected (via broadband). We think that's a huge market we can help create."
Gaske has more aggressive plans - he does want to target urban customers who already have DSL or cable modem access.
"We fully plan to be in those neighborhoods, to have dishes on homes just like you see now with DirecTV," he said.
Analysts think AOL has other strong advantages, too. The AOL-Hughes service can be sold to America Online's 23 million subscribers and DirecTV's 8 million. That's a much larger mailing list than MSN and Echostar can boast. Both services have about three million users each.
Hughes also plans to sign up customers outside the AOL service; while America Online is an investor in Hughes, the company's deal with AOL is not exclusive. Gaske said other Internet Service Providers, such as Juno and Pegasus, will also offer their own brand of Hughes' two-way satellite service.
Still, Marc Liggio, vice-president of broadband research for Allied Intelligence, is skeptical that the launch of either service will provide a sudden jump in the number of consumers accessing the Internet at high speeds. In the past, Internet providers have been overly optimistic about consumers' demand for high bandwidth. In fact, he said, when DSL or cable modem access arrives, "take rates" are usually only about 10 to 20 percent.
"If it were free, I'm sure there would be a line," he said. "But people only spend so much money on communications. Where will most of them get the extra $50 a month from?" He said the service would only succeed in places where "you really need (bandwidth) and can't get it any other way and you have the money. Fifty dollars a month is a lot in New York. It's a lot more in Montana."
