The trend bodes particularly well for tech companies such as the newly formed AOL Time Warner or Microsoft, companies that are hoping to someday cash in on the combination of the two mediums.
Industry research firm Dataquest said that the number of adults who use the Net and watch television at the same time increased from 8 million in 1998 to 27 million in 1999, according to a recent survey.
These users are being called "telewebbers," or people who surf the Internet over a PC while watching television. Some 40 percent of telewebbers logged on to a TV show's Web site at least once a week, the survey found. Others use the Web to check what TV shows are scheduled while watching television. Not to mention the vast number of people who send millions of email messages each evening while watching their favorite programs.
Promises of Net access, e-commerce and interactive programming via television have been hyped for years but haven?t had much success. The word on telewebbing therefore comes as good news for companies that are promoting set-top box technology to combine the Net and television into a single entertainment device.
"The fact that the number of telewebbers is increasing attests to the potential for Internet functionality through television and interactivity in TV programs," said Dataquest analyst Sujata Ramnarayan, author of the report.
AOL's entrance into the market for interactive TV services in particular will be the subject of much scrutiny. With the cost of the Time Warner merger looming over its head for the next decade, AOL needs to boost its bottom line with new revenue that it hopes to garner through interactive services.
Merrill Lynch analyst Henry Blodget estimated in a recent research note that the upcoming AOL TV service could add at least $200 million in annual revenue for the combined AOL Time Warner. He based his number on an estimated $10 service fee plus $2 per month from increased ad and commerce fees if 10 percent of AOL's 22 million subscribers add the AOL TV service.
Blodget said he thinks the devices could eventually appear in 30 to 50 percent of households that subscribe to AOL.
Analysts at Forrester Research think that interactive TV services could generate as much as $7 billion in commerce revenue and $2 billion in subscription revenue by 2004. Advertising on electronic TV program guides alone could generate $3.2 billion in ad revenue in the next five years, the research group said.
There are already ongoing experiments in the area of television-based commerce, or what might be termed "t-commerce." New York-based 1-800-Flowers.com has been running interactive commercials on Echostar's satellite broadcast network that enables viewers to hit a button on the remote and order products from a special Web page downloaded by the receiver.
Although early results are promising, even advocates of the technology say interactive television has a long way to go.
So far, "TV-Internet convergence is clunky, but it's a first step," said Jim McCann, president of 1-800-Flowers.com. So-called early adopters are responding to the ads favorably, but it's too early to tell with any certainty if the mass market will sign on, he said.
Blame reluctance on habit. Those in the industry say consumer habits and the need to make interactive services simple to use remain key barriers to adoption. The TV-as-portal concept also has yet to catch on.
For example, Microsoft?s WebTV claims about 1 million subscribers--significant compared to most other ISPs--but AOL has 22 times that number logging on to the Internet from dial-up connections alone.
Many of the several hundred orders 1-800-Flowers.com received as a result of the ads could have simply been placed for the sheer novelty of it, McCann said. Nevertheless, he believes that the technology does hold the promise to one day be a significant sales channel for the company.
"You can over-read the tea leaves," McCann said of both the Dataquest report and response to his company's ads. "It really has to be simple before you can reach a (mass market) audience."
Spiderdance chief executive Steve Hoffman sees telewebbing as an "organic convergence" that's grown purely out of people's Web surfing habits and doesn't indicate that they won't adapt to new devices. Spiderdance provides server-based software that synchronizes TV broadcasts with Web-based content on PCs and sees in its future a market for convergence devices like AOL TV and WebTV.
"I think it's a mental barrier more than anything else. People like to do things in patterns that they are comfortable with," Hoffman said.
Until those habits change, a growing number of other technology and service providers are targeting interactive, TV-like services exclusively through the PC, instead of WebTV or a hybrid TV and PC environment.
"Right now it's an unnatural act to have video on one screen and then shift to a computer that's 18 to 12 inches away. That wreaks havoc on the cranium," said Roger Keating, CEO of Zatso. Zatso teams with local broadcast TV stations to offer video clips of news stories and in-depth information for viewing on a PC.
"What we are doing today is merging on the same computer screen video that (people) would otherwise be watching on TV," Keating said.
Dataquest's Ramnarayan and Merrill Lynch's Blodget said they think that interactive services will take off once companies are able to offer Internet access through multiple devices on a single bill.
"We believe that consumers will not want to access a different online service through each device but instead will want to access a single online service through multiple devices," Blodget said in his report. So far, he thinks, "(AOL) is in a good position to become the dominant consumer interface to interactivity across all devices."
If AOL TV, as well as the company's overall effort to offer service over phones and handheld devices, is anywhere near as successful as its efforts in the PC market, "We would regard it as analogous to Microsoft's control of the PC operating system," he said.