American History 1988
Chapter 358 - 347 Beyond Imagination

Chapter 358: Chapter 347 Beyond Imagination

"This data comes from MCI and Bell for a cost accounting system performed on cities with over 50,000 people.

You know, Steve, these two phone companies have already been able to cover most of the cities in the US."

In the era when fiber optics hadn’t become widespread, dial-up internet was the mainstream.

The data line and phone line for accessing the internet are actually the same, even though the internet speed could be limited.

But this greatly reduced the cost of internet access, as service providers didn’t need to bear the costs of laying down infrastructure such as lines.

Once the lines were established, the only investment service providers needed to make was in hardware like switches and modems.

But it was a one-time investment, and other than expanding scale, it wouldn’t incur additional costs in subsequent use.

The information Dean is presenting now includes all these factors and the final calculated cost.

Steve was amazed at the $20 monthly fee, which was several times lower than he had anticipated.

"If we calculate it at $20, it means a family spends $240 a year on internet access fees."

"Does this number sound familiar?" Dean then took over a financial report from last year from Anna for AOL.

"$240, this exactly matches the average annual revenue contribution of $245 from AOL users."

Steve’s surprise grew more evident, as things seemed to coincidentally align.

"So it’s clear, after adopting a monthly subscription model, the value AOL derives from each user hasn’t decreased.

Moreover, $20 a month is not the actual cost, it even includes a portion of the gross profit.

And when the number of users exceeds a thousand, this cost will be further diluted.

Think about the number of users AOL has in each city, they are far more than a thousand!"

Steve was tempted, but he still had some questions.

"How is this achieved? Or why is the cost so low?"

This seemed unreasonable, how could the revenue from a monthly subscription match the revenue from the current per-hour billing?!

"Because dial-up service is simpler than imagined, and after unlimited time, users aren’t as dependent on the internet as imagined."

Dean opened the case information table from the MCI sample survey and started to gradually analyze the intricacies with Steve.

As is well known, dial-up service assigns dynamic IPs, and the IP address each user accesses the internet with is not fixed.

As to why this is done, it relates to the principle of dial-up internet access.

At the service provider’s end, one number corresponds to one IP address.

If a fixed IP address were allocated to every user, it would mean that a national service provider like AOL would need to have a large number of numbers available for allocation in every state and city.

But that is clearly not feasible, as the cooperating phone companies wouldn’t have so many numbers to provide to it.

Moreover, managing such a huge list of numbers itself would require significant investments for maintenance.

At this point, dynamic IPs were created, which allows service providers to allocate resources more flexibly.

Considering that not every user, every moment of every day, will have a demand for internet.

So it is only necessary to allocate an available IP address when a user dials in.

Whoever needs it gets the number allocated to them.

If the current user goes offline, the number can be immediately reallocated to another household.

This greatly increases the utilization rate of the numbers, without worrying about them being left idle.

So in a region, the numbers for internet access are actually communal.

Sometimes, a user might dial multiple times in a day, and the IP address could change several times.

So, in a typical city of 50,000 people, how many numbers are needed to meet the entire area’s internet demands?

According to statistics from MCI and Bell, roughly 400-500 numbers are completely sufficient to cover a medium to large city.

This number is much lower than expected, because 500 numbers compared to a population of 50,000, that’s a hundredfold difference.

As a network service provider, these numbers also need to be purchased or leased from phone companies.

Now, only needing a few hundred numbers per city significantly reduces the operational costs for ISPs.

Of course, having phone numbers alone is not enough to provide dial-up internet.

Each number must be equipped with an access point, also known as a POP.

The phone call receiving modem pool at the POP is one of the largest cost expenditures for ISPs.

In an ideal scenario, each POP phone call would have a corresponding modem to ensure all users can smoothly use the internet.

However, in reality, ISPs only need around one-fourth to one-third of the total local facilities’ modem pool capacity to service the entire market area.

Because the demand time for internet from users is limited, averaging about an hour a day.

Moreover, this usage time isn’t concentrated together, which keeps the utilization rate of the modems very low.

In other words, whether it’s the numbers or the modem pool, the demand for them is much lower than imagined.

This means that ISPs can cover the internet service of an entire city with very low costs.

An average of $20 per month from 1000 households is enough to offset the cost expenditures.

Beyond this range, any revenue earned from each additional household is profit for the ISP.

If this rule applied to all of America’s cities, Steve’s eyes lit up.

"There’s no need to doubt the accuracy of the data, I got it from MCI through some favors."

Only the telephone companies could handle factors like different areas, phone number assignments, and total estimates for modems.

Operators like AOL and American Networks didn’t have the capability to conduct such surveys.

If it weren’t for Dean leading this, perhaps they could only infer from the marketing policies of other telephone companies later on.

Honestly, when Dean first got the data, he was surprised to find how low the cost of operating a city’s network service was.

It only cost $20,000 to minimally cover the whole city, and $80,000 for internet service for a population of 50,000.

Steve certainly didn’t doubt the authenticity of the data; Dean was also a shareholder in AOL, and he had no reason to sabotage his own interests.

"So does this prove that subscription services are feasible?"

"Not only feasible, but we should also take immediate action.

You’ve seen the report from the CIX Alliance regarding home computers,"

In a city with a population of 100,000, there are usually about 40,000 households.

A quarter of these households have personal computers; in other words, AOL had 10,000 potential users.

This number far exceeded one thousand, you know what that means, Steve."

A thousand users could ensure that the subscription service broke even; ten thousand users would of course create several times the profit.

Steve breathed deeply, "Sounds tempting, doesn’t it?"

"Of course, no doubt about it." Dean nodded affirmatively, "85% of America’s population lives in such cities.

Just imagine how big this market is, and most importantly, after launching the subscription, the enthusiasm for activating network services will surely overwhelm AOL’s headquarters building."

"OK, I will focus on this issue at the next board meeting," Steve Case was convinced.

Business judgments might be mistaken, but data doesn’t lie.

Yet Dean was still not satisfied with this result, he leaned forward slightly with a serious expression on his face.

"No! We must act fast because now is the best window of opportunity."

"What do you mean?" Steve was puzzled.

"Let me show you something," Dean gestured to Anna, who immediately brought out the prepared laptop.

"This is...?" Seeing the computer presented before him, Steve was even more confused.

"I suggest you try it out first," Dean pushed the laptop closer to him.

With curiosity, Steve opened the laptop. However, as soon as he entered the system interface, he was startled.

"It doesn’t need to go into the DOS interface and then type ’Win’ command?"

"You’re seeing it right, it’s exactly that way, completely free from DOS limitations."

Previously, Microsoft’s Windows 3.1 system needed to enter from the DOS interface upon startup.

Some of its operations still required command-line inputs, but not anymore.

As the experience continued, Steve’s mouth grew wider.

The new system shocked him, the old manner of displaying different categorized windows was replaced by a taskbar below.

This effectively saved desktop space, making operations much simpler and cleaner.

Additionally, all operations were graphically displayed, what you see is what you get.

"Steve, it’s going to be revolutionary. This system integrates networking components internally, making it easier for users to connect to the network.

Additionally, the hardware supports plug-and-play mode; it automatically detects external devices and installs drivers.

Remember Microsoft’s MSN? Just imagine, under such a system framework, how enriched its content would be?"

Steve was silent, his personal experience told him the immense power of this operating system.

Yes, what Dean was now showing Steve was Microsoft’s Windows 95 system, set to be released that year.

Byte had already obtained the development pack; although it was somewhat different from the public beta system, you could already get a good idea.

Microsoft had high hopes for the new version of MSN, all its features and display methods were tailor-made for Windows 95.

Make no mistake, if judged merely by visual effects, AOL was no different from a bare flat in comparison.

Putting down the mouse, Steve shifted his gaze.

"Dean, is this Microsoft’s big move this year?"

"I think so, it’s quite powerful, isn’t it?"

Dean signaled to Anna to pack up the computer, this piece absolutely couldn’t leak out.

"You’re right, it is powerful!" Steve stood up and paced back and forth in the office a few times.

"Not in a hurry to return to California, are you?"

"If needed, I can postpone my trip any time," Dean shrugged.

"Then let’s stay for a board meeting together."

"As you wish," Dean nodded with a smile.

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