A two-legged stool: How to add a third leg to Larry Tesler's Apple Internet Strategy

Sender: net-thinkers@thumper.vmeng.com
Reply-To: Robert Hettinga <rah@shipwright.com>
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Date:  Fri, 14 Mar 1997 04:28:36 -0500
From: Robert Hettinga <rah@shipwright.com>
To: Multiple recipients of <net-thinkers@thumper.vmeng.com>
Subject:  Re: Apple Internet Strategy, Take Two
At 9:42 pm -0500 on 3/13/97, Larry Tesler wrote:
> Goal: Accelerate Apple's business growth by tying our growth rate to that
> of the Internet (including intranets).
> Strategy:
> 1) Authoring.
> 2) Publishing.
> 3) Access.
> Mac ease of use as a weapon in this battle is a given.


The interesting thing here is, you have content creation (point 1, above), and content publishing (points 2 and 3), but you're missing the whole issue of content settlement here, which should the third leg of the stool when thinking about an internet strategy for Apple. We should always think about a way to pay the Macintosh/NeXT/Rhapsody-based developers of internet content as easily as possible for the work they do -- and eventually hope to sell -- on the net.

Since historically, Apple/NeXT customers and their machines have been collegial and peer-to-peer in their behavior, Apple should pay attention to collegial, peer-to-peer content settlement mechanisms. Frankly, all the other stuff, SET, SSL, etc., is hapening on the Mac anyway.

So, we're talking about stuff like the following, in order of implementation difficulty, and, I think, reverse order of revenue potential for Apple:

1. The Financial Services Technology Consortium's electronic check project, where I can e-mail you a check, you can endorse it, and email it to your bank for deposit, all without leaving your desk. This is a fairly simple internet-to-ACH-gateway protocol conversion problem, coupled with a boilerplate account validation, an on-the-box certification authority, in other words. This technology has already gone through proof of concept, that is, digitally signed checks have actually gone through the payment, endorsement, and deposit-to-ACH cycle from the internet. FSTC will hopefully go live with a demo gateway this summer. Frankly, I see no reason why Mac/Newton clients, and an particularly NeXT internet-to-ACH gateway / account certification authority servers, can't be the first movers into, and rule, this market. NeXT already has a significant presence in the mission critical financial solutions market as it is. Leveraging that into the creation and dominance of the market for internet-to-ACH gateways, which will probably become a "black-box" business necessity for any bank, shouldn't be too much of a problem. Call it internet checking.

2. Mondex (as much as I don't like book-entries :-)), which is an up and coming book-entry cash settlement mechanism popular in Europe and the Far East, and currently the largest online cash system in the world. Hyperion, the developers of Mondex, would be only too happy to show Apple/NeXT developers all the ropes for handling Mondex smart cards, which can already be plugged into telephones, among other devices, for peer-to-peer payments and cash transfers. All it takes is an invitation to Cupertino.

3. Finally, but most important, any digital bearer certificate payment protocol, like Digicash's ecash product, or DEC's Millicent, or Shamir's (the "S" in RSA) MicroMint, or Rivest's (the "R" in RSA's) PayWord, or any other protocol where I hand you a cryptographic blob which directly represents value of some kind. These systems are infinitely preferable in the low latency environment of the net. Book-entry transactions, where, in the case of credit cards, for instance, we need a professionally maintained transaction server and 6 financial intermediaries to clear a trade (your bank, my bank, our respective credit card clearing operators, the credit card association and the ACH system), are eventually going to be too slow and cumbersome. Hint: when you, personally sold something, a house, a car, something in a garage sale, did you take VISA? I thought not...

Bearer settlement on the net is a more complicated problem to solve, but it's actually mostly psychological. One, it requires, (horrors!) strong cryptography and most people don't understand that digital commerce is strong financial cryptography yet. Two, the significant patent holders, financial cryptographers like Digicash, BV, of the Netherlands in particular, tend to operate under the wrong business model (don't get me started...:-)) and need to have their world views reevaluated for them :-). And, three, there are thorny potential regulatory issues, but, oddly enough, the Fed and FinCEN, the people who should be the scariest, now understand either the economic benefits (in the case of the Fed) or just the outright unregulability (in the case of FinCEN) of these systems. That leaves the Justice Department, who'll wake up and smell the coffee sooner or later, and sooner, if companies realize the full economic impact of online digital bearer settlement on our transaction infrastructure.

After all, economic reality is never optional. Crime is orthogonal to technology. You can't legislate away cars and airplanes because they can be used for criminal purposes. Besides, the criminal use of cash, even in high-profile crimes like money laundering, is measured in the hundreds of billions of dollars a year, which sounds really scary until you understand that foriegn exchange alone is a 1 to 2 trillion dollar a day enterprise. So, do the math. Say $300 billion in laundered money divided by $600,000 billion in foreign exchange equals? :-). Remember, when I buy software with cash directly from your server in, say, Anguilla (where we were for Financial Cryptography 1997 last month :-)), that's peer-to-peer foriegn exchange. Moreover, it's cash, which settles instantly, while a paper check takes 40 days to clear. Yes. 40 days. Heck, even having a US bank account and FSTC electronic checks alone would be a boon to entrepreneurs in such financial backwaters, as oh, Teipei, or Bangalore, or even, say, Santa Cruz. ;-).

The neat thing about promoting commerce, particularly Apple's brand of peer-to-peer commerce, is that that's where all the real money in meatspace is, and one can expect the numbers to transpose nicely into cypherspace. Checks are many orders of magnitude larger in both dollars and total number of transactions than credit card transactions, and cash is many orders of magnitude more than checks and credit cards combined. Anyone who is at the forefront of putting that much money onto the net is going to get a little of it, I figure, and, if they do it for the Mac first, they really won't need much from Apple in the way of resources either, except lots of encouragement. Some evangelism and marketing of the concept of digital commerce as an easy thing to do on the Mac/Rhapsody, stuff like that. The only real sticking point is going to be bearer certificates, because of the blind signature patent, currently held by Digicash, BV, but that's probably a case of shuttle diplomacy and rights management finesse. It'll take some, as the esteemed Francis Uquhart used to say, "putting a bit of stick about", :-), but the rewards should be handsome for everybody, including the patent holders.

The trick for Apple is to make it happen on the Mac first (why does this sound familiar? :-)), so that Apple can ride that next wave of internet use -- this time in personal commerce -- for all it's worth, before brand-x gets there. Actually, I think that brand x will probably miss the boat on personal commerce altogether. They don't really think like Apple does about this stuff, because they've built themselves around the corporate client-server desktop so much.

Here's one way of thinking about how much economic potential we're talking about. Take whatever yearly transaction volume is being done on the net now. What, $250-$500 million as a conservative estimate? It's all credit cards. Without accounting for its exponential growth because it's still ramping up, just add a few zeroes to it. That's how much money would clear on the net in checks if it were possible to do so. Add a bunch more zeroes to that. That's how much would clear on the net in cash, if it were really possible to do so. We haven't even talked about microtransactions, like the inevitable e-mail postage to kill spammers, much less my crackpot ideas about cash-settled internet resource allocation. :-).

So, you've now seen the crux of my "Digital Commerce for the Rest of Us" personal digital commerce idea. If we can make actual money easiest to handle --and make--- on Apple systems, the people on the net are going to use Apple systems, above all others, to handle and make their money.

Wouldn't that be nice?


Bob Hettinga


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