Today's News
The Company Formerly Known As iChat
by Nathaniel Wice, Lev Grossman and Declan McCullagh   April 14, 1998

     Last month iChat, makers of what is arguably the most successful web chat client of all time, held a contest in its hometown of Austin, Tex., in which entrants competed to rename the company.

    Now why would they do a silly thing like that after winning their niche, and handily? Answer: Because the company realized -- too late -- that it was in the wrong business.

    A little history. A year ago, chat was hot. It was sexy. Community was the buzzword of the moment, the killer Internet app. If a site had community, recalls Dean Cruse, iChat's VP of marketing, "people would come back more often and stay longer." That was good for businesss, naturally, since it resulted in more ad impressions and more ad money for content-driven sites. "That was really the first market we went after."

    iChat had competitors in the chat market -- Virtual Places, eShare, GlobalChat (which it ended up buying) -- but iChat's scalability and its non-Java options quickly earned it high-profile clients such as Yahoo and Universal Studios. That's certainly why we bought into it at Pathfinder, even though its Mac client is terminally unstable and its server can only deal with some IRC clients. Pretty soon, new media analysts at Jupiter tell us, iChat owned six times the market share of its nearest competitor. By last fall iChat events were drawing tens of thousands of simultaneous users. They'd won it all.

    But they'd also won nothing. Turns out that while chat brings large numbers of unique users to a site, unless they're using ultra-clunky HTML clients, chatters stay on the same page for their whole visit, resulting in negligible pageviews. iChat's client does allow users to surf and chat at the same time, but few users bothered to take advantage. Plus chatters have the reputation of being unruly, if not obscene, and nobody wanted to buy ads that appeared on pages associated with that kind of content. Bottom line: Chat communities weren't bringing in the cash, so sites stopped paying for them.

    Epilogue: iChat, having won the field, is changing horses. As Eric Brown of Forrester Research points out, "Almost without exception companies find that while they get exposure on the Internet, the money is in the intranet. I could set up a lovely community someplace, but how do I justify that? But if I can increase sales by weaving my sales force more tightly together, then you can point to the bottom line." iChat is taking the hint and repurposing its software: "More corporate applications," says Cruse, "both for interacting with customers and internal use." He names clients such as IBM, Merrill Lynch and Xerox. All of a sudden it's not about sexy chat hot tubs anymore, it's about "distributed corporate communications solutions." The makeover was set to be unveiled today, but it's been bumped back to late May while iChat works through "various legal and trademark issues" relating to its new name. Hey, we understand -- when you're used to chatting in your underwear, it takes to time to get used to a suit.

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     Our report yesterday that GSM cell phones can be cloned has some affected companies crying foul. Terry Phillips, public affairs director for Omnipoint Communications, calls the crack "interesting but not significant. It's not news." Phillips claimed that digital ID sniffing cannot be done over the air -- which, of course, contradicts what eminent cryptographers and security experts say. Phillips did correctly point out, however, that we said there are 80 million GSM phones "nationwide," when we meant worldwide.

    Phillips also sniped at the motivations of the merry band of cypherpunks who cracked the proprietary encryption code. He suggested that they're acting on behalf of and being paid by the competition; they've been working on this for years; they're aiming for a million-dollar prize; they never actually broke the algorithm.

    Their response: Not so, on each count. "We weren't funded by anyone," says Marc Briceno. "The entire project was done in my spare time with a budget of less than $100." It took only two months, Briceno says, and besides, the million-dollar prize was just 100,000 Deutschemarks and has long since been withdrawn anyway. Qualcomm engineer Phil Karn, whose company supports a rival standard, says he didn't participate in the crack and was asked only to comment on it in the press release: "Those guys did it all on their own and deserve all the credit." As for the formerly secret algorithm, check it out yourself at

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     Al Gore just got two new technology gurus. David Beier is about to become the veep's chief domestic adviser, a job that includes overseeing Internet policy. "David has built a great reputation in the private sector and during his time on Capitol Hill," Gore said in a statement last Friday. Beier's work experience includes a stint as top Genentech lobbyist and counsel to the House Judiciary Committee. Helping him will be current senior adviser Jim Kohlenberger, who now gets to focus on technology, telecommunications, science and Net issues. Leaving is Don Gips, chief domestic policy adviser. Gips, whose more memorable feats include derailing pro-encryption legislation in Congress with a few strategic phone calls, is heading to the Center for Strategic and International Studies for a gig as a visiting fellow.

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     Forget Yahoo. The hot Internet stock this week is 25-year-old CMG Information Services. Despite the nondescript name -- the letters stand for College Marketing Group -- the company has been an early investor in Internet startups and still owns big chunks of Lycos (40 percent) and Geocities (35 percent). These investments were highlighted in meetings with equity analysts last week in New York, but the markets were closed Friday. Pent-up demand pushed the stock up 15 3/4 yesterday, or 20 percent.