Will ISDN Steal CD-ROM’s Thunder?
Note Written December 27th, 1997:
Well, I got the ISDN part wrong; it turned out to be the Internet that stole CD-ROM’s thunder. Close enough.
It now appears that CD-ROM is finally taking off. You can go into a mass market software outlet and find a section devoted to CD-ROM titles, and there is actually a selection of titles from which to choose. Most of the stuff available is still weak, but we’re starting to see new titles with some regularity. Moreover, shipments of new CD-ROM titles are building up some impressive numbers. It looks as if CD-ROM might actually be taking off at long last.
But looming on the horizon is another technology: ISDN (Integrated Services Digital Network). ISDN is a protocol for shooting digital information through optical fibers. The telephone network is now almost completely digital. All the major links between local stations, all the satellite links, all the microwave links, everything transmits digital information. The only part of the system that is still analog is the twisted-pair of copper wires running from the local telephone switching station to your home. It’s called "the last mile", and it’s the only part of the phone system that’s still analog.
The basic idea behind ISDN is simple: make that last mile digital by installing optical cable into each home, and then let people tap directly into the long-distance digital lines without recourse to modems, either in their homes or at the switching station. Of course, installing all that optical cable is a huge job that will take years, but the phone companies have committed to making the leap. Within ten years, many of the country’s copper wires will have been replaced with optical cable.
When this happens, ISDN will become a serious possibility. What strikes me as significant is the possibility that ISDN might supplant CD-ROM as the primary delivery medium for entertainment software. Why? Because ISDN offers everything that CD-ROM has, and more.
Let’s walk through the basic parameters. Consider capacity. Sure, CD-ROM has lots of capacity. But a server computer can offer vastly more capacity than a CD-ROM. ISDN’s capacity is as much greater than CD-ROM’s than CD-ROM’s is greater than floppy disks.
Or consider data transfer rates. CD-ROM boasts a sustained data transfer rate of 150 Kbytes/second. Narrow-band ISDN comes in at 18 KBytes/second but the smart money is now betting that narrow-band ISDN will be dropped in favor of wide-band ISDN, with transfer rates in excess of 150 KBytes/second.
Access times are trickier to compare. Slow CD-ROM drives have average access times of 700 ms, while the best (and most expensive) drives have gotten that down to 300 ms. Access times on a network are more difficult to estimate. A well-endowed network with lots of excess capacity can get its access times down to 10 or 20 ms, but most economically operated networks run more slowly than this. Access times can easily run into several seconds.
Next we turn to cost considerations. The first such consideration is the cost of the hardware that gives the user access to the medium. In the case of CD-ROM, that hardware is the CD-ROM drive. It started off at $1000 five years ago, and despite predictions of steep price plunges, the price drifted downwards slowly. Current prices of CD-ROM drives range from a low of $200 for the slowest drives to $900 for the fastest and best units. Thus, it’s difficult to say what the average price of a drive might be. From my own examination of all the drives out there, my guess would put the figure at $400, falling to $300 by 1994.
The cost of an ISDN interface box is harder to estimate, because there’s nothing on the consumer market. Note, however, the close similarity between this box and a CD-ROM drive’s electrical components. Both convert fast laser signals into electrical signals. Thus, the ISDN interface box could be thought of as the electronic side of the CD-ROM drive, without any of the mechanical components. It’s gotta be cheaper. And surely the biggest lesson of microcomputer pricing is that purely electronic systems enjoy steep economies of scale, where mechanical components do not.
The cost of delivering the information is the real kicker that puts ISDN ahead of CD-ROM. The problem with CD-ROM is that it puts information onto a physical object and then sells the object to transfer the information. That requires the use of a physical distribution system. The overhead costs of the retail distribution system are staggering. Consider the case of a product for which a customer pays a price of $50. Where does his $50 go? About $25 goes directly to the retailer, and $5 goes to the distributor. Another $10 goes to the costs associated with manufacturing and shipping the product, including sales costs, management costs, inventory, warehousing, and so forth. About $3 will be allocated to marketing costs. That leaves $7 to cover all the costs of development, publishing house overhead, and such. Here we have a system that is truly screwed up. It costs $7 to create the product, $3 to market it, and $40 to actually get it into the customer’s hands.
This is the beauty of ISDN: the distribution cost is lower. Right now, the cost to distribute information on a 2400 baud network is about 10**-4 cents/bit. CD-ROM’s actual cost to deliver information (when you add in the distribution costs) is about a hundred times lower than that: 10**-6 cents/bit. ISDN, however, will be even cheaper. Current cost projections are hard to place much confidence in, but we can bet that a system that is 400 times faster will likely be a lot cheaper. Indeed, for the last forty years, the cost of telecommunications has fallen with each year, and there are no indications that the price fall is anywhere near slowing down.
Moreover, ISDN offers a huge advantage that CD-ROM can never touch: it can tailor the information transmission and the charges to the precise needs of the user. With CD-ROM, the customer has to buy the whole kit ’n kaboodle. But with ISDN, the customer can download an initializing chunk of information (say, the graphic front end) and then grab only those bits and pieces he needs to play the game. If he plays a lot, he pays a lot; if he chooses to play little, it doesn’t cost much. With the costs of games approaching the $100 mark, the ability to sample the game without committing such a big chunk of money becomes all the more valuable to consumers.
There’s another big advantage to ISDN: it is absolutely pirate-proof. CD-ROM offers only a temporary respite from piracy; writeable optical media are already available, and it will be only a matter of time before they are within the reach of too many people to preserve the security of CD-ROM products. By contrast, a game on an ISDN system can enjoy total security merely by requiring occasional access to the host computer.
On almost every count, then, ISDN is clearly superior to CD-ROM. There is only one factor that gives CD-ROM an advantage: CD-ROM is here now, while ISDN is still on the horizon. But CD-ROM’s arrival has been tentative. It "burst" upon the scene with all force of a tidal wave of molasses. This "revolutionary" technology has crept in on little cat feet, slowly insinuating itself into the marketplace in an oh so discreet manner. Those of us who have waited for years for the glorious predictions to come to pass have begun to wonder if or when they’ll ever be realized. For a long time I’ve been claiming that CD-ROM won’t surpass floppy disk entertainment until 1995. When I first made that prediction I was laughed at. A few years later people just argued with me; now there are actually a few souls who agree with me (Hmm, this is disturbing; I’d better come up with some new heresy.)
If indeed CD-ROM fails to accelerate, there is a very real possibility that a steeply climbing ISDN curve could surpass the CD-ROM curve before it is fully established. In other words, ISDN could steal the show from CD-ROM before it gets its chance to blast off. Even more serious is the possibility that the anticipation of ISDN could have this effect. After all, how many people have been working on CD-ROM all these years in anticipation of its heyday? Could not the same effect apply to ISDN?
All this hinges on how quickly optical fibers are installed and ISDN services are made available. Predictions of the installation times are variable. The most optimistic projections suggest that we’ll have a viable little system by 1995; the most pessimistic ones put this off until well after the year 2000. If the ISDN pessimists are right, then CD-ROM will have at least five years of unchallenged supremacy. On the other hand, if the ISDN optimists are right, then the window of opportunity for CD-ROM shrinks to almost nothing.