Setting Up Shop: The Kaleidospace Experience

Jeannnie Novak and Pete Markiewicz

One of the key promises of the current on-line revolution is that it will increase the power of individuals while reducing the power of large, centralized information providers; the traditional mass media such as radio and TV. The availability of powerful computer hardware, software, and inexpensive high-speed modems has made it possible for anybody with a few thousand dollars to become a mini-broadcaster.

Kaleidospace was formed to promote and distribute art on the Internet, independently of normal advertising and
distribution channels. In the traditional centralized way that music, video, and other works are sold, only a tiny
fraction of interesting artists ever reaches the public. Kaleidospace (based in Los Angeles and available at
http://kspace.com) and similar Internet sites allow independent artists to present themselves at low cost to a wide audience.

In a reversal of the traditional broadcast model, Kaleidospace's artists pay to create multimedia presentations of their work and make them accessible on the Internet. The artists benefit by gaining a worldwide audience and selling directly to consumers; without an extensive hierarchy of distributors, agents, and labels.

We chose to put Kaleidospace on the Internet to take advantage of the combination of the global network and the
multimedia capabilities of the World-Wide Web. However, building a site on the Internet using advanced tools like
Mosaic is substantially more difficult and expensive than creating a local dial-up bulletin-board system (BBS). The
problem of collecting payments and the difficulty of connecting to the Internet present major barriers to creating
digital delis and boutiques.

Confronted with these obstacles, is it really possible for tiny companies to compete effectively with huge corporations on the Internet? Will there truly be a digital version of Jeffersonian democracy on the Net, or will big players quickly squeeze out the smaller ones? And what does it take to start an Internet business today? Examining the building of Kaleidospace can shed some light on these questions.

The on-line broadcasting model is different than that of traditional TV and radio. On-line users actively look for
information rather than passively receiving it from their TVs and radios. The new on-line model is so alien to
advertising agencies that many of them may not be able to adapt to the new media. In fact, many people question
the necessity for centralized distribution of some media. In a world where music can be downloaded on demand,
why have a record store?

Unlike access providers, Kaleidospace elected to create an Internet company based on content rather than
providing on-ramps via phone dial-ups and paid subscriptions. The reason for doing so became clear at an early trade show we attended. A large booth had dozens of machines connected to the Internet, but interestingly, there
was nothing showing on the screens. It appeared that the Internet, while in one sense awash in information, was
information-poor in another. Thus, it seemed that a highly graphical, intuitive site displaying works for sale by
independent artists and musicians should stand out like a supernova in this environment.

When the company was started, it was not clear how money could be made from this approach. In early 1994,
there were a few other sites on the Internet displaying artwork, but they did not charge for submissions. Because of the structure of the Internet and the primitive state of Mosaic and the World- Wide Web, it was impossible to create a subscription-based system. There were additional problems involved with displaying art because it would be easy for users to copy and reproduce it. Also, bandwidth limitations made it impossible for most Internet users to
download entire videos, record albums, or even single songs. Thus, to make Kaleidospace work the following
business model was developed:

Artists pay fees to display their work on the service.
Fees are cheap ($50 per month for artists; $100 per month for independent companies), so low sales and
high overhead will not prevent artists from using the service. Selling only a couple of videos or CDs will pay
the rent. Excerpts of artists' works are provided as promotional teasers rather than users having to download the complete work. Clients can order works on-line, or by phone, fax, e-mail, and regular mail. Standard Mosaic and World-Wide Web software is used rather than proprietary software.

At first it seemed that a PC might suffice as the Kaleidospace server, but after further research a Unix system was purchased.

Buying a remanufactured Sun workstation helped keep costs down. A Macintosh Quadra 660 AV is used for HTML (HyperText Markup Language) programming and to digitize artists' information. A mini Ethernet network, leased line, and Internet connection complete the Kaleidospace system. The amount of money needed to start up the business was about $30,000.

Setting up the Internet connection was not easy. Conflicts between rival phone companies and a general lack of
understanding of the difference between the Internet and other digital lines resulted in more than a week of wrangling
to get a connection. The companies had difficulty dealing with users who were not corporations or universities, and
Kaleidospace had to educate them about the Internet.

Location is not supposed to matter for a virtual business, but the closer you are to your provider, the less you pay.
Because Los Angeles is spread out relative to other large cities, costs for a 56Kbps or T1 (1.45 MBps) leased line
can be double or triple the national average.

Coding a Web site can proceed rapidly because HTML, the language of the Web, can be learned in about a week.
We spent much more time designing the user interface. By this time, we had already run across many obnoxious
Web sites; pages with 80 or more graphics, huge tracts of text loaded with typos, and cul- de-sac sites with no outward links.

In examining the Web, we concluded that the common practice of writing a long document with interspersed
icon-size graphics could be replaced with a series of non-scrolling, graphic-intensive screens more typical of a
CD-ROM. By drawing rather than scanning the images, the images' size was reduced; sometimes by as much as
60%; and the time to download any one page was significantly lessened. User response during testing was highly favorable, and over time we found ourselves increasingly emphasizing the graphical and audio potential of the Web over its hypertext capabilities.

Kaleidospace officially went on-line on April 1, 1994, after only three months of design, development, and testing
that usually ran into early morning. Unlike many other Web sites, it was created from scratch as a home business
instead of riding piggyback on a university or corporate network. The demands on our time were so great that we
quit our jobs to run the business. We had accumulated a small set of forward- thinking artists eager to adopt this
new medium for their work.

Advertising had been minimal, limited to a few discussions in America Online and phone conversations with our
original group of artists. Despite this, the log-ins to the Web site began immediately and continued at a high rate. A
substantial portion of the hits were international, and Kaleidospace soon acquired a new artist from Croatia named Vitold Kosir, who exchanged his sculpture photos and other information on Kaleidospace entirely over the Internet.

Despite the huge number of log-ins (around 7,000 daily, but sometimes up to 40,000), only a small fraction of users
seemed interested in ordering art or in leaving mail for the artists. A typical user would log in, browse through the
work of several artists, and exit through one of the hypertext links. After a few weeks, it became obvious that many
people did not realize the artists' works were for sale, despite the clearly marked "order" buttons. This was made
clear when we began to receive letters asking us if we were planning to go commercial.

Changing the interface reduced the confusion, but it is still difficult to convince Internet users that they can buy the
works they find in Kaleidospace. Somewhat surprisingly, we find that many users only buy work from our artists
after they have communicated with us by e-mail and received our personal reassurance that they can order the
goods.

We also encountered some less-than-friendly people. Kaleidospace uses a circular tool mandala to link artists of
various types. The graphic made a few Web designers jealous, and some demanded that we explain how it was
created. A few people attempted to break into our binary files to discover our methods. The irony is that the
information to implement clickable images (image maps) is freely available from NCSA and other locations on the
Internet. In contrast to the aggressors (many of whom were university- based), Internet businesses were easy to
work with, and we formed mutual links between our site and theirs.

We learned other interesting lessons about users' responses to the site. One of Kaleidospace's artists, Nancy Gaian,
had placed excerpts from her entire album on the server. As we accumulated statistics, it became clear that the sole
determinant of whether users would listen to an excerpt was its position on the on-screen page. In one month, nearly
1,000 users looked at the first entry, 100 looked at the second entry, and none looked at the eighth. This showed
that users dislike scrolling through windows screens to read information.

User after user commented that Kaleidospace felt more like a real place than did other Internet malls with a wider
range of products. It appears that by signing up anyone who will pay, many Internet companies diffuse their service

THE SHARKS CIRCLE

As the Internet became the subject of major hype in 1994, a swarm of people attempted to cash in on the new
medium. Many of them tried to milk us for information about our venture. Sometimes they could be spotted at trade
shows, furiously scribbling notes while avoiding eye contact. Others tried to pick our brains in extended phone
conversations. Like any new business, we learned to ignore those people and identify our true clients.

This caused some of the sharks to become more persistent. We were called at odd hours and stalked at trade
shows. Some people approached us expressing an interest in joining our company to provide "guidance." One person had his mail sent to our address to make it appear that he was part of the company. Another person had our mail sent to his address and put the Kaleidospace name on his voice mail. Some lawyers and CPAs also developed dollar signs in their eyes and became useless for providing genuine help.

Sensing that most Internet companies were small start-ups in need of financing, many predators offered the prospect
of infusing the business with money. In reality, their goal was to take over the business.

Our casualty statistics are probably typical. By July 1994 (three months after start-up), we had ceased doing
business with two people and fired two others. We had hung up on several others, and in one case we physically
ejected an angry marketing representative from our booth at a trade show. In general, we learned to pick and
choose our business associates very carefully; and always with help from our lawyer. Internet hype has increased,
but serious investors are moving into the field and many Internet companies are likely to receive significant financing
in 1995.

Kaleidospace's decision to concentrate on content was a mixed blessing. On one hand, creating a visually
compelling site displaying independent art resulted in a huge amount of free publicity, which never would have
happened if we had simply become an on-ramp provider.

On the other hand, on-line sales remained low, and although the number of artists displayed on Kaleidospace
increased rapidly, revenues barely covered expenses. Higher rentals, which would have made the service more
profitable, could not be justified until the rate of sales of increased. Based on this early experience, we developed
the following expanded model for a small Internet business:

Increase user traffic by implementing an artist-in-residence (AIR) program. The AIR is a celebrity rather than
an independent artist. They don't sell anything, but use Kaleidospace as a soapbox. Science- fiction writer
David Brin and graphic novelist P. Craig Russell have served admirably as Kaleidospace's first AIRs and
have brought many new users to the site to gain exposure for other artists.

Increase sales by implementing an interactive component to ordering. Kaleidospace will soon be unveiling a
new interactive ordering system. As we reviewed our access logs, we noticed that many people investigated
every area of a particular artist's page; and even clicked into several levels of the order form, but didn't push
the order button. We decided to have the artist in question take those always-curious users on a side trip to
see whether or not the prospective buyers are actually right for their creative works.

Just as Internet users have the power of being "prosumers" (a combination of producers and consumers, a term
coined by Alvin Toffler), so can the artist carry on a dialogue with the prospective buyer. In this way, artists retain
some say about who buys their work. This is absolute truth-telling; quite far removed from most traditional
advertising; and probably can be done only on the Internet.

Concentrate on placement, rather than sales, for some artists. Artists with low sales can still benefit from
Kaleidospace if they are hired by someone who sees their work on-line. For example, Newmatic Slam, an
L.A.-based band, received air play in Russia as a result of local radio stations hearing its audio clips on the
Internet. Brad Anderson, surf videographer, has had an offer from a film production company in New York.

As agents, directors, and producers become more common on the Internet, Kaleidospace's value as a virtual pitch
session may become more important than sales. This ties in with its mission to create a community of entertainment
professionals on-line, which is also facilitated by our work as consultants.

Implement other Internet services with the artist's information. Although a few million people have
downloaded Mosaic, many Internet users' Internet access is limited to e-mail, FTP, and Gopher. To reach
these users, Kaleidospace set up an FTP and Gopher site and a series of automated mailing-list discussion
groups. This has increased interest in Kaleidospace substantially and has led many people to get full Web
access. We also found that there is more discussion and artist feedback in the mailing groups, despite the fact
that mail buttons exist throughout the Kaleidospace Web site.
Continue to grow the consulting component of the business. From day one, we would consult with individuals
and groups to help them get connected to the Internet, build their own sites, and buy and sell over the
Internet. We realized early on that by concentrating on the entertainment community, we could help build a
placement system for our artists while helping to fund the company. As stylists and programmers, we have
begun to help arts and entertainment companies design their own sites.

We recently finished designing and programming the Web site for American Recordings, and we're in the process of working with two major record labels that want to
have a presence on the Internet. For each site, we will continue to include a new innovation.

For example, the home page of the American Recordings site changes every 10 minutes, and the theme is a "creepy
carnival." By linking Kaleidospace to the sites we help to construct, our artists have a great chance of being seen by
industry professionals, in addition to being able to sell their work to consumers.

Rent server space. Although we originally wanted to concentrate on content, we became convinced that
providing content and access is a winning combination. Although we've decided not to become full- blown
Internet access providers, we are renting disk space to our consulting clients. Rather than putting their spaces
within Kaleidospace, they remain autonomous and have their own domain names. This way, our clients will
save money on line-rental fees, and we can continue to help them administrate their sites (while getting paid in the process).

Is a mom and pop Internet site really possible? Our experience shows that it is, although our effort was greatly
helped by doing consulting in addition to running our site. Unless you are willing to devote all your time (and possibly
money) to your goal, you're venture won't succeed.

An easier project for many people might be to create a local bulletin board and add Internet access as it grows.
Companies providing bulletin-board software have all recently announced support for direct Internet access, and
some are even planning to incorporate HTML servers to make the BBSs compatible with the Web. Once this
occurs, the cost of hardware and software necessary to become an Internet company will drop significantly.

The situation for Internet startups is rapidly changing. The coming of secure systems that allow credit- card order
processing over the Internet should make business more profitable, and companies already on the Net may have a
decisive advantage over newcomers. In 1995, it will be easier to put together the hardware and software to create
an Internet presence. Despite the problems Kaleidospace encountered, we are convinced that for some time to
come anyone can create a company on the Internet.

Jeannie Novak (jeannie@kspace.com), prior to founding Kaleidospace, worked as a professional
musician/composer. She has a BA in Communication Studies from UCLA, where she concentrated on computer
interface design and programming, gender studies, and game design.

Pete Markiewicz (pete@kspace.com), prior to joining Kaleidospace, completed his post-doctoral work in
molecular biology and genetic engineering at UCLA. He has a strong background in animation and artificial life.