Some analysts are calling 1995 the year of Internet hype. Forecasts issued back then predicted we'd see an astounding 125 million Web users worldwide by 1999. But a funny thing happened in 1996. The rate at which new users logged on slowed for the first time.

Don't get me wrong. The market is still growing; it just didn't grow as rapidly as in 1995. The trend is still heading upward, but some statistics suggest the flow of new users online is becoming less a flood and more a trickle. This appears especially true in the home market.

The Homefront survey, conducted in July by San Francisco marketing firm Odyssey, turned up some interesting nuggets. It showed that for the first time, more U.S. home users accessed the net via dial-up ISPs than via commercial online services. Many in the mainstream press ran wild with this story, saying it spelled doom for the commercial services, even though the study said the largest of those services, America Online, was (and still is) bigger than all the ISPs in the United States combined.

I don't really much care how people get on the net. I'd just like to see a world where the grandest predictions for this new medium come true and a day when everyone has some sort of Internet access.

Many businesses make their plans in a way that depends on growth happening at set times. For such businesses, understanding these Internet growth rate fluctuations is critical. My biggest surprise in analyzing the recent slew of numbers was the percentage of U.S. households with a home computer. Tom Miller, who heads up the Emerging Technologies Research Group at New York City research firm FIND/SVP, clued me into this. According to Tom-and his assessment matches up against other recent studies-the number of homes in this country with PCs remains relatively flat, at about 36 percent. That's around 35 million homes.

This is interesting because new PC sales for 1996 were at roughly the same level as in 1995. This would indicate almost all new PC purchases are made by those upgrading to newer models or adding more computers into the household. That's not a bad trend, especially in relation to the Internet, where you have a more enjoyable online experience with a more powerful computer. But if the studies are correct, this isn't good news in terms of getting new users online.

If you look at Odyssey's numbers for July, 14 percent of the 96 million homes in the United States are logging onto some sort of online service. That's 13.4 million cyberhomes, which sounds pretty good-until you realize it also means 86 percent of U.S. homes are not online. It gets even more interesting when you look back at the number of homes with computers. Then you're looking at 13.4 million homes using online access, out of roughly 35 million homes with computers. You could jump right at that number and say, "Ah, that's excellent, because that means there are still 21.2 million homes that are ripe for the online picking." But it doesn't really work that way for a couple of reasons: Several studies have concluded that while 36 percent of the homes in the United States have computers, one-third of those don't have modems. Based on the Odyssey study, this means roughly 24 million home computers have a modem.

Now, if 13.4 million homes are online and 24 million homes have modems, that would indicate the market is roughly 56 percent saturated. Those aren't bad stats, and it would seem to indicate a potential market of 10.6 million homes. That's a lot of homes, but how many of those 10.6 million homes have old computers? I've yet to find a study that gives a good indication of how many homes have computers based on 286, 386, and low-end 486 microprocessors. I'd expect it's quite a few.

Let's face it: Folks with 286 PCs aren't surfing the Web. It would require more patience than even Job had to load Windows 3.1 on those computers and run a graphical Web browser on top of it. A 286 can do text-based net exploration, and certainly e-mail from a Unix shell account works nicely. But with multimedia, I found my patience (and my hair) wearing thin on a souped-up 486DX2/66. So-apparently like many other computer households-I upgraded. And I'm much happier, though I don't know if it will help my hairline any!

But here you have the true problem with the computer market: Internet access is tied to a computer and that affects the growth rate of Internet users. PC technology is not very stable, though it gets better all the time. And while prices are coming down, if you want state-of-the-art computing, you're looking at $2,000, give or take. That's not spare change.

I'm really psyched that technology improves so quickly. But when I realized I needed to upgrade or be forever left in a cloud of dust, keeping up with the latest and the greatest got to me. For me, deciding to buy a new computer was simple. I have to write about the Web, and if my computer won't run an Internet application, I'm out of business. But most people don't really care about that. And most people don't want to spend $2,000 now for technology that won't run the latest and greatest in two years.

How unstable is this technology? Consider this: Today's televisions accomplish the exact same task as the very first televisions. Sure, the screens are bigger, the sound is better, the picture quality is boosted, and you have a slew of nice add-on features like surround sound and picture-in-picture, but basically, today's TV does the same thing that a TV did 20 years ago. The TV set you buy today doesn't greatly enhance your television-watching experience compared to the TV available in 1990, at least not in the same way that today's computers enhance the computing experience compared to their 1990 counterparts.

Because of all this, and despite having spoken out against network computers (devices intended to provide only Internet services) for the home, I think the time has come for such a device. Appliances like the WebTV set-top box (see Cranky.com, following this column), which Sony and Phillips are each offering for around $350, are a good bet to penetrate the home market. A much better bet than a $2,000, soon-to-be-obsolete computer. But not a sure bet.

One of my icons is Walter Mossberg, The Wall Street Journal's Personal Technology columnist. When I spoke to Mossberg about WebTV, I was optimistic. He wasn't. He said people don't want to sit on a couch and surf the Web or read and write e-mail from six feet away. Computer software applications, he said, are designed for people who are only inches from a monitor. I told him the thought of doing e-mail on the couch was very appealing to me (if I purchase the wireless keyboard that's an option with WebTV). Mossberg pointed out that I'm not a typical user.

We agreed on that. And I think home users will have two major problems with set-top Internet devices: storage and pricing. These devices don't come with any hard drives for storage. Plus, I think the net PCs need to be less expensive-less than $200-to seriously penetrate into homes.

I'm a big advocate for throwing the boxes in free with service subscriptions, la cable TV boxes. Price a service between $10 and $20 a month, throw in the set-top box-and, well, call me crazy, but to see serious market penetration, that's what I think is necessary. It's either that or manufacturers have to offer a quality computer that's truly inexpensive. One of these moves must be made or we won't see a big jump in households accessing the net anytime soon.

Source: NetGuide Magazine

Robert Seidman is editor at large of NetGuide Magazine and author of Seidman's Online Insider, a weekly newsletter located at www.netguidemag.com.