Revenge Against the Nerds

In the early 1990s, Wall Street began investing in untested multimedia technologies revolving largely around the Internet. Publishing giants like Penguin and Marshall Cavendish developed large interactive CD-ROM divisions, while businesses like CyberCash Inc. said their electronic money would make the green kind obsolete. Most famously, John Malone, the head of the nation’s biggest cable company, TCI, invested $2 billion in a four-year “transformation” that promised to let you place a free Internet call to your sister in Malaysia during which you could hear her over the telephone and see her on TV.

Now these and many other high-tech dreams have soured. Last month, Malone told his shareholders the time had come to “prick the bubble” of his futuristic rhetoric. “Let’s get real,” he said, marching his troops back into his original cable business.

Meanwhile, Penguin and Cavendish have refocused on publishing the traditional way, on paper, and companies like CyberCash have seen their stock prices plummet. Financial analysts are predicting that a record number of high-tech ventures will fail in 1997.

Because America’s economy, and especially California’s, is now so dependent on high-tech growth, it’s important to recognize the lessons of these and other bad investments.

For example, while many personal computer manufacturers are still turning handsome profits, industry analysts say they can no longer count on sales being spurred by “Moore’s Law,” which holds that computer chip capacity doubles about every 18 months. Their downbeat assessment stems from the facts that chip capacity rises as physical size shrinks and the physical limits of miniaturization already are being reached. To ensure healthy growth, computer manufacturers should concentrate less on raising processor speed and more on meeting other consumer demands now emerging. Recent market research, for instance, has shown that consumers hunger for computers that can understand spoken language.

Last month, Microsoft took a significant step by announcing that it will triple the size of its basic research division and center it largely on improving human-computer interaction. Other companies also should invest more in market research and “human factors engineering.”

Companies like Penguin and TCI may have let the technocrats talk them into investing billions in an alluring but fuzzy future. Now that these companies have been burned, they seem to be rejecting the technology itself. The real problem lies not with the technology but with how it’s used: to fulfill the fantasies of a few techies or to meet the needs of the buying public.