August 3, 2000 3:35 PM PDT

Will consumers warm up to CATs?

If you are not yet a cat lover, you may be by next year.

Several influential publishers, ad agencies and retailers are embracing CAT, or keystroke automation technology, which bridges the gap between print publications and the Internet.

Forbes magazine, for example, is preparing to take advantage of the new technology by sending its subscribers a feline-shaped, mouse-sized scanner, also dubbed CAT, that connects to a computer.

Readers of the magazine's Sept. 11 issue will be able to pass the small scanners over the embedded codes in stories or ads and be linked directly to specific Web sites. By scanning in the code buried in a Ford ad, for example, the reader's browser would be directed to a Web page with specifics about Ford cars.

Although some smaller publishers are already experimenting with similar technology, the process is about to go mainstream: Executives with DigitalConvergence, which developed the technology being used by Forbes, plan to distribute tens of millions of the inexpensive scanners by the end of next year, which will also read bar codes already embedded on everything from books and magazines to soup cans and shampoo bottles.

"If I tried to find the Crystal Geyser Web site, I would never know how to spell it right," said Jovan Philyaw, chief executive of DigitalConvergence. "Now I can swipe its bar code and go directly to their site."

The company calls such linking of the offline and online worlds the next operating system because it gives people instant access to the Internet without forcing them to remember Web addresses or sift through lists of search results.

"We're an enabling technology that can deliver a massive number of people to the Web," Philyaw said. "It's like an operating system because you don't need a URL; it takes the fear out of computing."

DigitalConvergence's software can also connect TV programs to the Web using sound. If TV viewers were watching the news, for example, a sound embedded in the program would cause a browser to pull up a related Web page.

While the technology appears to hold tremendous promise, whether it succeeds depends on widespread consumer adoption.

3D glasses?
"The question is: Will these devices be a gimmick, like getting 3D glasses at the 7-Eleven as part of a Pepsi/Super Bowl promotion? Is there going to be a reason for consumers to use it on a day-to-day basis?" said Clay Ryder, vice president and chief analyst at Zona Research.

Many people are betting that the technology will take off. Digital Convergence, which filed a preliminary statement in April to go public, has attracted $168 million in investments from advertising giant Young & Rubicam, retailer RadioShack, newspaper publishers A.H. Belo and Scripps Howard, and soft drink giant Coca-Cola.

DigitalConvergence, which is based in Dallas and has 200 employees, plans to close another $105 million round of financing this month.

Forbes and the other investors are hoping to take the lead in the nascent market of linking mass media to the Internet.

In May, a small-circulation newspaper in South Carolina distributed pen-sized scanners and began printing digital codes from DigitalConvergence rival GoCodes that link readers to the Web.

Online drugstore PlanetRx launched a similar program in March, selling an egg-shaped scanner that customers can use to scan bar codes of household products that they would like to buy online.

Wired and Popular Mechanics started placing Web-enhanced codes in ads and stories this summer through so-called watermark technology from Digimarc. For it to work, readers need to have a digital camera and software provided by Digimarc.

RadioShack giveaways
But DigitalConvergence's entrance this fall will be significant because of its scope. It plans to put nearly 10 million scanners into the hands of magazine subscribers, publishers and advertising executives. Starting in September, RadioShack will be giving the scanners away at its stores across the country.

By the end of next year, DigitalConvergence predicts that 40 million to 50 million of the devices could be in distribution. The company plans to offer the scanning technology within pens, key-chain attachments and Palm handhelds this year, and in cellular phones next year.

However, such lofty ambitions draw heavy skepticism from analysts. Much of the innovation is driven by the business goals of publishers and advertisers, they say, because it gives companies the ability to track the consumer's path to the Web through advertising codes in print. But the handheld scanner doesn't necessarily solve anything for the consumer.

Installing the software and supporting customers' questions about using the scanners are also major hurdles to consumer acceptance.

"To the degree that this make things easier to do and gives consumers a better experience on the Internet will determine its success," said David Goldstein, president of Channel Marketing, a Web promotion and research firm.

"There's clearly consumer demand to integrate mass media with the Internet. Which technology consumers select to do that is going to depend on how it is easier, faster and better than how they're already doing it," Goldstein said.

Past failures
Previous efforts have met with disappointing results.

"Twenty years ago, Panasonic introduced a line of VCRs that let people scan codes from the TV Guide and to program shows. That failed," Goldstein said. He also referred to a test by Office Depot years ago that tried to link catalog shoppers and its ordering system through such codes.

Digimarc, which provides the watermark symbol for Wired's initiative, would not say how many consumers have downloaded the technology so far. But the company said it has deals with 30 to 40 other mainstream publications, such as Good Housekeeping, that plan to use the Digimarc coding in their magazines this fall.

Larry Tarelton, the assistant publisher for The Post and Courier in Charleston using GoCodes, said that although his company has gotten positive responses from subscribers testing the codes, the project hasn't fully taken off.

"We don't have enough of the pens in the market right now," he said, noting that only 250 have been distributed.

Financial gain?
A Forbes spokeswoman said the magazine has made a "substantial investment" in the project, which will send 850,000 scanners to subscribers. Forbes plans to let advertisers use the codes for free until 2001. But if the technology takes off, it could be quite lucrative for the magazine.

"The financial gain for Forbes is not a direct one," Forbes spokeswoman Virginia Sorisio said. "The direct response will be to attract additional advertisers and more readers and subscribers. We're doing it first, and we're offering it free."

DigitalConvergence plans to make money from licensing the codes to publishers, retailers and individuals. It also plans to collect various fees based on sales performance that result from using the codes, according to the company's filing with the Securities and Exchange Commission.

But competition will be tough. Motorola and Symbol Technologies have initiated a venture that will incorporate Symbol's bar code technology in Net-ready devices, including mobile phones.

"A lot of technologies are getting ready to launch, but it's a matter of the right marketing and customer support to see who's going to be the initial winner in this market," said Richard Doherty, director of research at the Envisioneering Group, a technology assessment and research group.

"If you send out a million AOL CD-ROM discs, it's usually going to be a response in the single-digit percentage. Rarely does it go over 10 percent," Doherty said. "You spend a lot of money to acquire a customer, but it's not a guarantee of success."

 

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