record rates. It's changing how they live
Douglas L. Clark has waited a long time for this. The 65-year-old
retired British businessman bought his first personal computer, a
Commodore Pet, in 1979, and ventured online in the late 1980s. But
despite graduating to ever-more-sophisticated computers and software,
Clark could never get the one thing he wanted: a fast, always-on
Internet connection. Then, six weeks ago, his remote hamlet in
Berkshire was finally wired for digital subscriber line (DSL)
broadband.
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The $26-a-month service, from discount provider ADSL4Less Ltd., has
already changed Clark's life. He listens to streaming music over the
Net from BlueBeat.com. He posts higher-quality photos on his family
Web site. And he spends more time online perusing pictures of vintage
motorcars he might add to his collection. The downside? Clark admits
sheepishly that he sometimes leaps up from the dinner table in
mid-conversation to look up information on Google (GOOG ).
The besotted Englishman is just one of the more than 14 million
Western Europeans who have signed up for broadband access in the last
year alone, bringing the total number of subscribers to 44 million,
says consultant Pricewaterhouse-Coopers. That's more users than in the
U.S. Some 25% of European households now have high-speed Net access --
enough to qualify as a mass-market phenom. "Broadband has become
mainstream" in Europe, says Charlotte Davies, an analyst with
London-based telecom researcher Ovum Ltd.
It's already a big business for telcos. PricewaterhouseCoopers figures
European clients will spend $24 billion this year alone for zippy
cable and DSL connections, rising to $42 billion by 2008. More
important, broadband is a rocket booster for the rest of the Net
economy. London-based Continental Research found that when British Web
surfers upgrade from dial-up service, they're more than twice as
likely to download music, use instant messaging, or frequent online
auctions. Use of Net radio stations and online games more than
triples. And while a quarter of dial-up users buy books and DVDs
online, the figure jumps to 40% for high-speed subscribers. "Broadband
changes customer behavior and makes it possible to do things that
weren't realistic before," says Nick Hazell, alliances director for
Yahoo! Europe (YHOO ).
The surge of super-surfers is helping plump up results for companies
across Europe. Telcos such as Deutsche Telekom (DT ) and Britain's BT
Group (BT ) are signing up DSL subscribers as fast as they can. France
Telecom, for instance, boosted its DSL subscriber base by 65% in one
year, to 3.4 million as of the end of March, yielding record quarterly
broadband revenues of $410 million. And in the Netherlands, which
leads Europe in broadband penetration at 47% of households, market
leader KPN saw a 51% first-quarter rise in DSL revenues vs. the same
period in 2004, to $131 million.
The broadband effect is most dramatic for companies that specialize in
digital content and services online -- music, games, gambling, and the
like. Take Photoways Inc., the largest European online photo printing
service, based near Paris. "There would be no Photoways without
broadband," says Chief Executive Michel de Guilhermier, who figures
98% of his customers have high-speed connections. A few years ago, he
says, the company's busiest day was Monday, when photo buffs uploaded
their weekend snapshots from their office computers; now, with home
hookups so much more common, the peak time is Sunday evening. The
privately held company doesn't disclose results, but de Guilhermier
says revenues tripled in 2004 and will do so again this year.
A SONG OF SALES
Online music sites are also ringing up record sales. Deutsche
Telekom's T-Online unit has drawn 1.5 million users to its Musicload
service, which sells more than a million downloads per month. Apple
Computer Inc.'s (AAPL ) iTunes is now available in 16 European
countries. And European users listened to 14 million songs in June via
Yahoo's new streaming music service. By 2008, online music could be a
$2.4 billion business in Europe, predicts Forrester Research. Online
viewing of music videos is taking off as well. "We're seeing massive
increases in the numbers of videos consumers are accessing," says
Barney Wragg, senior vice-president of Universal Music Group eLabs in
London.
At the same time, high-speed Net access is changing the way Europeans
communicate. As consumers switch to broadband, many are trying out
phone calls over the Net for the first time using so-called
voice-over-Internet protocol, or VOIP, technology. London-based
startup Skype Technologies, which offers free Net calls PC to PC, has
signed up 47 million users around the world, 82% of them on broadband
connections. U.S.-based rival Vonage launched $17.50 per month
all-you-can-call Net phone service in Britain in May. And mainline
carriers like BT and France Telecom are pushing flat-rate VOIP
packages to combat erosion of their traditional voice services. All
told, figures market researcher IDC, Net-based phone calls may be a
$4.2 billion business in Europe by 2008. "The killer application for
broadband could be telecom," says Greg H. Garrison, director of the
PricewaterhouseCoopers Menlo Park Europe Technology center.
E-commerce benefits from faster connections, too. Richard Ambrose, a
category manager for eBay UK, says broadband customers spend twice as
long on its site. But the real boost is richer graphics and sound
clips. Some sites offer 3-D "fly-throughs" only possible via
high-speed links, such as the virtual real-estate tours on Britain's
findaproperty.com. Milan-based Yoox.com, which sells discount designer
fashions, has a feature that allows users to create custom ensembles.
"Customers enjoy the interactivity," says Chief Technology Officer
Gabriele Tazzari.
The same interactivity is giving a lift to online advertising. Movie
distributors, phone companies, and carmakers, among others, are taking
advantage of faster connections to add animation, music, and even
video to their banner ads. A 2004 report from ad services firm
DoubleClick Inc. found that "rich media" banners drew click-through
rates of 1.17%, nearly twice the level for static ads. "We've seen
some very high response rates with rich media," says Ed Ling, strategy
director for London-based agency i-Level PLC, which specializes in
digital media. Ling cautions that interactive ads still represent less
than 10% of the online market. Nonetheless, PricewaterhouseCoopers
predicts the spread of broadband will help drive European Net
advertising to $8 billion in 2008.
The next wave could be even more disruptive. Broadband surfers are now
starting to create their own rich media, from video blogs to podcasts.
Within a few years, the entertainment and communications businesses
could be dramatically transformed. And you can bet that Doug Clark
will be along for the ride.
