Since IBM chose Intel's processor for the first personal computers, Intel has been at the heart of the PC revolution. Now the world is changing, and the PC is no longer the sole entry point to the Web. Intel has diversified its processor production, and has also started a number of Internet and e-commerce businesses. Intel's moves into e-commerce - which include a partnership with Excite, software initiatives like iCat and Pandesic and an upcoming Web-hosting operation - are far from its core expertise and put it in potential competition with its customers. Jason K. Krause sat down to talk to CEO Craig Barrett.
Why did Intel decide to make the jump from hardware to software and e-commerce?
If you look at projections for e-commerce today, they're rather modest. But if you look forward to 2002, the forecast is a trillion dollars, or a tenth of US GDP, so it makes sense that we need to get involved in e-commerce in a variety of ways. We're already in a joint venture with Pandesic, which is an e-commerce solution for the back end; iCat is a front-end solution. Pandesic is already into its second year. And pretty much everything we do today from architecture to streaming media is all tied to pushing rich content over the Net.
In the past, Intel branded itself as the company for graphics by introducing technology like MMX. What efforts are underway to brand CPUs as the vehicle for Internet content?
We're making them Net-centric. When we launched the Pentium III there were 70 new instructions that made it a Net-centric processor. That's 70 new instructions for streaming audio, video, graphics and animation. At the product launch, we had 250 applications and sites there to show the rich animations, audio, video and things you can do with the Pentium III. What it comes down to is being able to provide a great experience, which comes from being able to touch, see and hear what you want. For user services we have the Web Outfitter site, which lets you configure your machine and get pointers to the best experiences over the Internet.
Can you continue to sell high-end chips to consumers, or is the Web turning the CPU into a commodity?
I don't think the Web is turning the CPU into a commodity. There are probably more PCs sold than TVs now, meaning the PC itself is becoming a commodity. But that doesn't mean the CPU is. I believe there are more than 100 million computers sold each year. So, if you think of the TV as a commodity, then the PC is, too. But unlike the TV, a computer gives you twice the processing power every year, while a TV will just give you the same flickering image with every new model. That's the power of the CPU.
Do you buy the theory that modem speed is now more important than clock cycles?
They go hand in hand. If you don't have modem speed, the only band-aid solution you have is compression and decompression, which demands a lot of processor speed. And once you have broadband, the Net will increasingly demand more and more of your processor. We'd love to see broadband everywhere. We get spoiled at work. Most businesses already have 10MB to Gigahertz backbone connections, but small businesses and the home are definitely hamstrung by modem speeds.
What are the most interesting things we'll see with ubiquitous broadband access?
Broadband will be a huge boost for e-commerce. In business-to-consumer commerce, consumers like to look, feel, touch, have true colour, hear music and see greater realism when looking at things that are for sale. With more bandwidth, there is greater realism of the image and a better demonstration of the product you are trying to sell. There are probably 101 other things you'll be able to do. You'll see better visualisation, better animation, a better balance between the inherent computing power you have and the data you are looking at. And most of all, you won't have to tap your fingers on the screen waiting for something to download.
Has Intel's investment strategy changed because of the Net?
We make investments for basically two reasons, and those are usually small, minority-equity investments. One reason is to promote computer usage, and driving Internet development is one of the ways to get people to buy a computer.
One example of this is our stake in eToys. It was a small company when we invested. We made a typical investment by our standards - in the range of a few million dollars. Then eToys went public and made $US7 billion, which offered the nice side-benefit of turning our investment of a few million into several hundred million overnight.
But more important, we helped get them off the ground. An investment from us could be aimed at getting richer media, richer imaging or streaming media over the Internet, whether it be a business, a tool or a product. Anything that would make the PC or using PCs over the Internet more exciting.
How soon will the Web-hosting operation launch?
By the second half of this year. We have two test facilities under construction. Once they're ready, we will be taking customers.
It's not immediately obvious why Intel made the plunge into Web hosting. Is it a serious business, or a testing ground for Intel hardware?
Web hosting gives us four big opportunities. One is for the client, which has been our mainstream business. Historically, we are the hearts and brains of the PC, and we are always looking for ways to push more compelling content there.
Second is the networking business. Here, we started in the early '90s and have pumped it up with Level One and other acquisitions. That business is growing nicely and faster than the networking industry as a whole. Three, in the higher-performance area, workstations are important because the Internet abounds in digital content. The Intel processor family, especially the Pentium II Xeon and Pentium III Xeon processors, make great workstations and servers. And then there's the new business area of Internet hosting. This is running servers and network operations - both of which I think we know something about.
Combining our experience with the explosive growth of the Internet means an explosion of data. That data has to reside somewhere, and I think we have a good opportunity to take advantage of this side of the business.
How big is the market for Web hosting for you?
Analysts say it'll be something in the neighbourhood of $US10 billion in the next few years. If it is a $10 billion market, we will be successful getting a small portion of that. Our competition is Exodus, and a few others. But for the most part, the players are pretty small in this game. We think there are a lot of people who will outsource their business to others, like us, who can do it more efficiently.