Where Danger Lurks

Spam, complexity, and piracy could hinder tech's recovery

Turn down the music. Put the Veuve Clicquot on ice. The party could be delayed. You're the skeptical sort, right? The type who looks for rust on the underbelly of a shiny Corvette. Now you're reading about the glittering future of technology, and you may well be thinking instead about the cell phone that drops calls and the printer that stalls just when the kids' papers are due. It's enough to make you doubt.

The tech world can be a bewildering place. Machines freeze and crash. They come with thick manuals that, for English speakers, might as well be in Pig Latin. Far worse, the Internet has dark alleyways filled with thieves, hackers, and scamps -- and the industry hasn't found a way to cordon off their mean streets. Earlier this year, the Pew Research Center surveyed the 42% of Americans who are not yet on the Internet and asked them why they were holding back. Expense and confounding technology discouraged some. Even greater numbers feared barrages of online pornography and attacks by credit-card thieves.

If these issues aren't resolved, they could prove formidable roadblocks to a strong technology recovery. Sure, the industry could turn a deaf ear to the complaints and still expand at a single-digit rate. But a strong turnaround hinges upon far more than gaining the grudging support of the grin-and-bear-it crowd. Whether technology regains its momentum depends, in large part, on how the industry tackles these thorny problems.

SPAM. Wake up in the morning, turn on the PC, pour a cup of coffee, and before the first sip, you're face to face with everything that's ugly, scary, and just plain wrong about the Internet: spam. All over the globe, spammers are churning out junk e-mail, many of them sending tens of millions of messages a day. Spam accounts for 50% of Internet traffic and is on track to deliver more than 1,000 mailings this year for every man, woman, and child on the Net. This not only clogs everyone's in-box but also slows down the Net and jams servers around the globe.

Spam weighs down productivity. Companies have to buy more hardware to handle the avalanche of mail, and workers are wasting precious time every day combing through unwanted messages. Nucleus Research Inc. in Wellesley, Mass., calculates that spam costs companies $874 a year for every worker with e-mail.

It also undermines e-commerce. Spammers often hide behind the names of real companies. Sometimes they even direct unwitting customers to facsimiles of real companies' Web sites, including retailer Best Buy (BBY ), Wells Fargo (WFC ) and eBay. The goal: to coax credit-card numbers from the victims. Few people report falling for the trick, says the FBI. Yet even those who sidestep danger come away with the message that the Net, teeming with grifters, is a risky place to shop. That message -- poisonous for tech -- gets reinforced when they purge their spam every day.

Solutions? There are plenty of them, from new legislation to outlaw false headers on e-mail messages to spam-blocking technologies that send junk mail straight into the trash. But even the solutions pose risks. For example, the U.S. may soon have a national Do-Not-Spam registry modeled on the popular initiative against telemarketers. The trouble is that loads of clandestine spammers are unlikely to heed the law. And the measure could wallop legitimate companies. According to the Direct Marketing Assn., legit outfits have received orders in the past year worth at least $2 billion through marketing e-mails that weren't asked for, and a further $5.7 billion from requested e-mail.

The onus is on techdom. It's not just a matter of building better software to block spam. Tech companies must also lead the debate, helping steer Congress and the public along a path that will protect e-mail and keep e-commerce safe -- without sacrificing the efficiency of one of the industry's treasures, electronic mail.

INSECURITY. Two types of villains prowl through the open doors and windows of cyberspace: vandals and thieves. Vandals deface Web sites and set loose a steady stream of destructive worms and viruses. Thieves steal and extort. And they're on a roll. Last year, according to the FBI, reports of Internet fraud -- from e-commerce scams to identity theft -- tripled, to 48,000, in the U.S. Reported damages climbed to $54 million, but the real tally is presumed to be far greater. FBI Director Robert S. Mueller III estimates that two of every three fraud cases go unreported. And he has listed cybercrime as the FBI's third-ranking priority, behind only the war against terror and counter-espionage.

Even powerful companies are proving vulnerable. Early this year, a software worm launched by a vandal infected the systems at Bank of America (BAC ), bringing down 13,000 automated teller machines. Weeks later, a hacker broke through the security system at Data Processors International Inc., an Omaha credit-card processor, and made off with account information on up to 8 million cards. Such thieves, says Bill Murray, a spokesman for the FBI's cyber division, often sell stolen credit-card numbers on black-market Web sites for $1 apiece. "They put up the sites for a day, do their business, and then disappear," says Murray.

Lots of software flaws, or bugs, provide ports of entry for thieves and vandals. Charles C. Palmer, head of IBM's computer-security unit, says that roughly six new software vulnerabilities are reported each day to CERT, a center for Internet security expertise at Carnegie Mellon University that compiles industrywide stats on bugs and hacker attacks. By 2005, Palmer believes, the number could swell to 64 a day.

Technology leaders are starting to grapple seriously with security. A year ago, Microsoft Corp. Chairman William H. Gates III announced a "trustworthy computing" drive. He shut down much of software development for 10 weeks so that employees could take security-training courses. And Microsoft's next operating system, code-named Longhorn, should have far sturdier defenses than Windows when it's released next year. Steven M. Bellovin, top network-security maven at AT&T Labs Research, says he's impressed with some of Microsoft's security efforts, but cautions that they will take years to develop and be deployed.

Even with secure systems, users can create plenty of vulnerability. They routinely log on to corporate networks through undefended home computers. Worse, the most common password is...PASSWORD.

To create systems safe enough to host much of the world's economy, tech companies must build in bullet-proof security from the get-go -- and convince the public to lock their computers as firmly as they bolt their front doors.

SQUEEZED BROADBAND. Who most enjoys a fat broadband connection to the Internet? That's easy. The people who download massive music and film files from the Web, most of it pirated. Sadly, the legal offerings for broadband, from streaming video to Internet radio, are not nearly as compelling. That's one reason the migration to speedy connections in the U.S. has been slow: Dial-up connections work fine for the No. 1 Internet application, e-mail. But this delay has a cost. Brookings Institution economist Robert Crandall estimates that rapid deployment of broadband could generate hundreds of billions of dollars in new business, spurring everything from telecommuting to digital entertainment.

Sounds strange, but one reason broadband doesn't grow big is that it's too darned small. Even after growth of 30% last year, only 19.9 million U.S. households -- 17% of the total -- subscribe to broadband, says researcher RHK Inc. This size discourages marketers from developing great broadband programming and services. The long-awaited explosion of rich new offerings isn't likely to take place until the broadband population accounts for half of the 60 million Web households. That, say analysts, is when the scales will tip, and the Net will finally become a broadband medium.

The U.S. comes late to the game. Japan and South Korea already have ultrahigh-speed connections, averaging 10 times the speed of broadband in the U.S. Their fiber-to-the-home networks are something that U.S. companies, such as Verizon, are only now beginning to plan. "In broadband, we're almost a Third World country," says C. Richard Kramlich, founding partner of venture firm New Enterprise Associates.

The news isn't all bleak. Costs in the U.S. are coming down. Verizon and SBC Corp. are offering broadband service for as little as $29.95 a month, only a couple of cappuccinos more than a standard dial-up subscription. The upshot: The broadband tipping point could arrive within two years. If tech and media companies quickly come up with imaginative broadband programming, they can hasten this migration to fat pipes -- and position themselves as leaders in the next phase of the Internet.

PIRACY. Hollywood's pain burns on. The music industry snuffed out the file-sharing phenomenon Napster with a legal barrage two years ago. But users promptly shifted to successor sites such as KaZaA and Morpheus. This piracy pummels CD sales, which are expected to fall by 5% to 8% this year, after an 8% drop in 2002. And even in the face of threatened lawsuits from Hollywood, file-swappers are moving quickly to video, downloading about half a million movies a day, according to entertainment-industry estimates.

The danger for the tech industry is that Hollywood, in its zeal to defend its business, will wage war on digital entertainment. Early shots are ringing. The music and movie studios are hurrying to file suits against hundreds of individual downloaders. This has prompted a July 30 lawsuit by SBC against the Recording Industry Association of America charging that the subpoenas of its customers are unconstitutional. Hollywood lobbyists meanwhile are pressing for stringent laws that would wrap their products in enough legal and technological armor, many fret, to make them unappealing.

For digital entertainment to flourish, the tech industry must respond to Hollywood's fears. This means coming up with innovations that satisfy a generation of Napsterized downloaders while ensuring that the studios' property is safe.

Signs of progress are popping up. Apple Computer Inc.'s iTunes service, released in April, gives customers much of the freedom and selection they want. It lets them buy songs for 99 cents each and copy them to as many as three other computers or music players. Even Napster founder Shawn Fanning is proposing solutions. His latest: a music clearinghouse that will automatically check copyrights on a song and charge a user for it. These are steps in the right direction. The key now is for tech and Hollywood to hammer out agreements on building sophisticated copy protection into the next generation of digital TVs, cable boxes, and personal video recorders.

INVASION OF PRIVACY. Camera-flashing paparazzi invade the privacy of celebrities but leave the rest of us alone. That could change. An estimated 37 million people this year will buy cell phones equipped with Internet connections and digital cameras. This means that all of us -- not just celebrities -- will be surrounded by legions of shutterbugs, even as we're showering at the gym. These pictures can be zapped in a flash to the Web. No wonder the YMCA in Australia already has banned such phones on its facilities.

Every day, technology is coming up with new ways to track our movements. We leave electronic footprints on every Web we visit. Online receipts, electronic orders, e-mails -- none of it disappears.

This loss of privacy is giving birth to powerful resistance. A public uproar led the U.S. Congress last winter to suspend a Pentagon-driven surveillance program, dubbed Total Information Awareness, that had the scent of Big Brother. Similar protests pushed Italian fashion house Benetton Group (BNG ) to step back from a radio-based inventory tracking system. Consumers feared that the tags could be used to track people's movements and purchases.

Much of the privacy challenge boils down to openness, clear communications, and sharp limits. Instead of giving people a small, hidden choice to opt out of an information-sharing program, companies should limit participation to those who explicitly opt in -- a privacy defense common in Europe. To cash in on the power of these new networks, tech companies and their customers must steer clear of even the appearance of a privacy infringement. Otherwise, they'll face fierce resistance, from Net bulletin boards to the corridors of Congress.

COMPLEXITY. Granted, it's a bit cruel, but it's also a wickedly effective test of design. To judge whether a PC, a Web service, or a cell phone lives up to its user-friendly billing, find a couple of septuagenarians and put them at the controls. More often than not, frustration will ensue. The biggest challenge technology faces, says Massachusetts Institute of Technology professor Nicholas Negroponte, "is a consumer revolt against unreliable, difficult-to-use, and outright ugly products."

Inside companies, the complexity is daunting. Says Edward W. Felten, a computer science professor at Princeton University: "A corporate computer system is one of the most complex things humans have ever built." The tech industry's answer is to build even more complex systems, but ones that are smart enough to manage themselves. IBM, Hewlett-Packard Co., and others are betting big on so-called utility computing which would permit customers to tap into computing resources as simply as they turn on electricity or water. It's a fabulous dream, but one likely to take the best part of a decade as companies stitch together a tangle of systems -- and iron out security concerns.

Complexity may well be a greater problem for the public. The latest fad -- some call it the Digital Home -- beckons consumers to fashion large radio networks in their houses, linking computers, handhelds, stereos, digital TVs, even refrigerators. This involves a host of machines made by different manufacturers shuttling countless applications. To pull this off, the tech industry must settle on common standards, so that the gadgets understand each other. Equally important, they must build systems simple enough for grandparents to assemble.

JARGON. "If you could spare a second, I'd like to tell you about an innovative suite of Java-enabled Web-service solutions."

"You don't say."

"It's customized for the SME sector. Plugs seamlessly right into your ERP backbone. Architecture-agnostic. Backward-compatible. So your legacy doesn't come up and bite you."

"That could hurt."

"I'll say. And what about your front end?"

"You tell me."

"We have an open-source CRM platform. We've Web-enabled it, and it's massively scalable. We've got a beta running on mobile clients. Should be ready for 3G, two-point-five G, or 802.11b solutions by the end of Q4'03. Worst case: Q1'04.


"You're probably wondering about price points...."

Tech jargon equals miserable communication, and it's a drag on sales. Jargon-spewing marketing execs pitch their products in what amounts to, for many listeners, a foreign dialect. The industry spends $10 billion a year on advertising that befuddles potential customers. A recent survey by tech-research firm MetaFacts Inc. found that even computer buyers are left cold by the language in ads. "Slightly more than half of the PC users we spoke with don't understand the term 'megahertz' -- which is used in a vast majority of PC advertisements," says Patrick Moorhead, vice-president for corporate marketing at chipmaker Advanced Micro Devices (AMD ) Inc.

The solution is simple: clear English. In tech-speak, it's a concept platform to accelerate legacy removal. But for info tech to spread and prosper, it's nothing less than essential.

By Stephen Baker

Contributing: Heather Green, Ira Sager, and Steve Rosenbush in New York, and Andrew Park in Dallas

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