Guest Columns
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Where there smoke there does seem to be fire, at least in the case of Microsoft. The impending launch of a line of portable media players and/or game consoles - the Argo, or Zune, or whatever its going to be called - seems to be a foregone conclusion at this point, if reports in the Seattle Times and Joystiq are to be believed.
I think it will happen. The rumors have been flying over the past year, and the bottom line is it just makes too much sense. While their Portable Media Center 2.0 software and products from partners are much less clunky that the first generation, the company is still breathing Apple’s fumes and will continue to do so with the PC model they’ve retrofitted onto the digital media player market.
I wrote a research brief in February of this year saying basically the same thing, suggesting that Microsoft needed to launch an Xbox branded media and game player of their own. Now I don’t claim that my article was the reason they’ve gone down this route, because it was clear to me, and a few others (and most likely Microsoft), that they needed to do something if they had any hope of establishing themselves in portable digital media.
But I also think there’s a bigger story here. Some of it has to do potentially with gaming and the Xbox 360 – Microsoft is the only of the big three console makers without a handheld gaming console – but its also the fact they want to dominate the living room of the future, and right now they’re best shot is not necessarily their Windows monopoly and the upcoming Vista, but instead lies with the Xbox.
Now there are a bunch of Sony fanboys who take umbrage with any suggestion that Sony won’t repeat its 100 million console dominance of the PS2. Well I’m here to say, face facts guys, there is no way Sony’s going to sell another 100 million. They’ll be the leader worldwide once again, but it’ll be by a much smaller margin. Both Microsoft and Nintendo have a much stronger story this time around, and Sony continues to stumble, first with delays, then with high prices ($600 for a game console?), and now with lack of details over their online gaming strategy.
Back to Microsoft. So why is Microsoft’s Xbox franchise, or at least parts of it, the company’s best bet to take on Apple, Sony, and others leveraging their own respective brands as beachheads into the digital living room? First, despite some early production hiccups and a box that does run fairly hot and loud, the 360 is the best thing by far that Microsoft has done in the consumer space, bar none. There’s a reason Xbox folks like J Allard keep getting promoted in the company: they’ve given the company a real shot at leading North American and European market share for this generation (forget Japan – Microsoft would probably be better off to just give up now), and did fairly well the first go around.
Secondly and related, Xbox Live is the currently the most evolved online gaming service for consoles, and while Sony and Nintendo are planning massive upgrades this go around to their online gaming offerings, Microsoft has a four year head start. And, more to the point, it’s not just about gaming. Microsoft plans to expand the service cross platform with Live Anywhere, allowing it to reach the PC as well as mobile devices, including the Argo/Zune.
Even as Microsoft works with MTV to develop its URGE online music portal, its not unlikely to think that Live Anywhere will serve as the underlying platform for purchases of digital media. The company is already offering microtransactions through Live to the 360 for levels and maps, for casual games, and even for viewing HD movie trailers. Why not use extend it to a portable device?
So that brings me back to Apple and the digital home. Apple has grand plans for the living room as well, and there’s no doubt they’ll leverage iPod/iTunes as well as the growing popularity of their Intel based line of iMacs and Mac Minis. The Front Row application is their media hub software, and with support for Bonjour media networking standards, an iMac or Mini transforms into a media server. Microsoft sees this, sees the potency of combining the iPod, Apple’s newly charged line of Macs, and iTunes.
Seeing this, they know they can’t afford to rely on OEM partners in the portable space anymore.
So they’ve decided to throw the PC model out the window, alienate partners like iRiver and Creative and whoever else has standardized on their PMC software, and risk another hundred plus million dollars in building this player in a market where the ship has already sailed, at least in the digital music side of things.
Why? Because they know Apple’s model of tying a seamless experience of hardware, software and services has proven to be a winning combination in this market, and more importantly, they can’t afford to let Apple have unrivaled dominance in an area that will be crucial in the connected home of the future. They’re going to use the best thing they’ve got going for them in the consumer space, the Xbox, and even though they may not even brand the player with Xbox (though I think they’d be wise to do so), they’ll certainly tie it to the Xbox 360 through Wi-Fi and will likely use the Xbox Live Marketplace as a commerce engine for content.
Will they succeed? Too early to tell, but if the Argo or Zune or whatever it is ships by Christmas, it’ll be certainly be fun watching them try.
One other thing of note: At WinHec 2006, Microsoft announced a new web services initiative tied to their home networking technology suite for Vista, called Windows Rally. Pieces of this suite go beyond what is in the new Universal Plug and Play 2.0 specs announced this week by the Universal Plug and Play Forum.
By pushing a more proprietary approach to web services for connected devices beyond the standard they helped create (Microsoft was the driving force behind UPnP 1.0) means Microsoft may truly be moving towards an Apple-ization strategy. Windows Rally can be expected to be a key underlying component of the Zune.
Michael Wolf covers digital media, home networking and gaming for ABI Research. He can be reached at wolf@abiresearch.com
Written by Michael Wolf on July 16th, 2006 with no comments.
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By Michael Eisenberg
The telecom downturn following the bursting of the late 1990s bubble is finally becoming a distant memory. While US telecom and broadband markets are only now emerging from the slump, broadband networks have been growing at a breakneck speed. The growth of telecom and broadband networks worldwide has created big opportunities for Israel.
Israel 2.0 is all about broadband, and broadband driven innovation.
Despite being a tiny country, Israel ranks ninth in terms of broadband penetration. Although speeds are limited to 2 Mbps, Israel is obsessed with news and connectivity to the outside world, Israelis spend more time online than any other country on a per capita basis (link to Ynet article in Hebrew).
This Broadband penetration is critical to Israel’s continued success in the web infrastructure and content world. Because if you can touch it and experience it, then you can build it. If you can sense what users want as a user then you can develop it. Without realizing it, Israeli technology touches lives of users world wide. There is a good chance, you phone bill is processed by Amdocs, the world’s leader in billing systems. Your voicemail is likely based on a system from Comverse Technology and many of your networks are protected by different Israel-based security companies.
The broadband experience has also resulted in Israel becoming a hot house of development for key broadband technologies. It also means good times for telecom/broadband companies such as ECI Telecom and Metalink, both seeing substantial growth for their products. In a 2004 report, Lehman Brothers remarked “All of China’s major operators rely on Israel telco equipment and software…Hong Kong/China has now become Israel’s fifth largest export market…growing 30% annually…Telcom equipment represents as much as 50% of this trade-grew at a 40% rate last year.”
Israel is also beginning to contribute breakthroughs and leaders in the broadband internet world. Bigband is a $100M revenue leader in video, voice and data transmission (triple play) on the brink of an IPO according to reports in local Israeli press. Passave, the leader in EPON was just scooped up by PMC Sierra in a $300M acquisition.
While many of these companies are unlikely to become verbs (like To Google, for example), a new crop of Israeli start-ups are building compelling experiences for broadband users and have become part of the Internet life.
Many of you have heard of YouTube in the online video sharing space but fewer of you know about Metacafe (Disclosure: Benchmark investment), an Israeli company that ranks #2 in the online video ( alexaholic graph here.) Similarly, Myheritage is pioneering a web 2.0 approach both to genealogy and face recognition. Kassamba is a leader in expert advice, while Jahjah (backed by Sequoia) is taking on the VoIP giants such as Skype.
Michael Eisenberg is a general partner with Benchmark Capital and is based in Tel Aviv, Israel. He is a veteran of Israeli VC community and his past investments include Finjan, Gurunet, Picturevison, Shopping.com, Tradeum and Xacct.
Written by Michael Eisenberg on June 6th, 2006 with no comments.
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By Robert Young
Last year, in a piece titled Inherent Truths and Value of Community, I wrote about how online communities were shifting the balance of power between consumers and corporations. Simply put, as social networks, blogs, and social media aggregators continue to empower individuals, the foundational structure of the media landscape is transforming rapidly and the levers of control are increasingly falling into the hands of consumers.
In my view, one of the most effective ways to gauge the shifting balance of power between consumers and corporations is to look at the web as a vast collection of URLs, and then to distinguish those URLs that are controlled by corporations vs. the ones that are controlled by consumers. With the explosion of user-generated content over the past 4 years, it’s a foregone conclusion to say that the number of URLs controlled by consumers has increased exponentially.
These URLs include the web addresses for blogs, all the pages at social media aggregator sites that contain media produced by individuals (e.g. YouTube), and social networking profiles (n.b. although the URL of a user profile on MySpace is actually “owned” by the corporation, I still categorize it as one that is “controlled” by the user).
As we all know, the URL is a powerful and extensible concept… it represents the most fundamental element of the web and it continues to grow in breadth and depth of its utility. After all, URLs enabled eBay and Amazon to create virtual storefronts. If you put a major destination site like Yahoo! behind an x-ray machine, the skeleton that you’ll see is a vast collection of proprietary URLs that contain all sorts of media. Google used URLs as way to poll collective wisdom in its effort to determine high relevancy for its search results. Without doubt, in the world of new media, URLs are a source of power, control, influence, and dollars.
Social networks represent an innovation in the use of URLs. In any social network, URLs are mainly used as a container for self-expression, or as danah boyd would say, “identity production”. And since URLs can be linked to one another, doing so in this case creates what we all know as social networks. These consumer-generated URLs shift the power between corporations and consumers because identity production represents the simplest form of “user-generated content”. And as more content is being generated by the user, ownership of traditional media machines represents less power for the corporations in the overall media economy. The same goes for the blogosphere. This is why Rupert Murdoch’s acquisition of MySpace is now widely-recognized as such a brilliant strategic move (as I have written much about).
Now, when so many URLs are being controlled by consumers, things are bound to change. Like every media revolution in history, when tectonic shifts occur on the production side of content, equally disruptive shifts follow in distribution (or visa versa). What we’re experiencing now is no different. Not only do these URLs mean that consumers are now “producers”, they are also being used as a new channel for media distribution… the consumer is also becoming a “distributor”. Since the Internet does away with the need for physical packaging of content (e.g. DVDs, CDs, newsprint, etc.), the need for specialized distribution outlets goes with it. Instead, the new “containers” and “distribution outlets” are increasingly URLs and with that the dynamics of media distribution are being disrupted.
Simply put, each and every URL should be viewed as a container for content that, in turn, can be distributed and redistributed. And the control of such distribution is increasingly in the hands of consumers, not corporations. For instance, if NBC.com puts up a video on their site and I points to the URL in a blog entry, I have exercised my influence over the distribution of that content. And if my blog post subsequently starts a huge viral redistribution of that URL to millions of other people, my control and influence over the distribution of that NBC video will have been at the expense of all other distribution outlets that are under the control of NBC. Therefore, when one is attempting to analyze the business model potential of Internet-based media, it is critical to understand the power and control any party may have over URLs. Consequently, the total share of the URLs under the control of consumers should also include all the outbound links that are included in the pages authored by users (whether they own the destination URL or not, users are controlling the traffic by posting hyperlinks and directing other users to them).
Looking out several years, it’s not too difficult to envision a media landscape where the majority of traditional media distribution outlets reliant on the benefits of natural monopoly economics have largely been replaced with a highly-fragmented layer of people-powered community-based distribution networks. As a case in point, I hardly ever go directly to the NY Times, LA Times, and the Wall Street Journal any more. Instead, I rely wholly on the authoritative blogs I rely on to filter out the articles of interest in those publications. In fact, the sites I prefer offer both an original voice as well as a consistently generous collection of outbound links to other related content, professionally produced or not. It’s just a matter time before I do the same with all my media consumption, including my audio and video needs.
The desire and demand for creative self-expression and identity production gave rise to new business opportunities for blogging platforms, social networks, and social media aggregators. It’s now time for new opportunities to be tapped on the distribution side. Established distributors in the traditional media value chain have long extracted huge amounts of dollars for the value-added role they have played (think Wal-Mart or cable TV). What is the new economic/business model for people-powered distribution? Will content owners reallocate their dollars to compensate people? If they can’t retain control, don’t count on it. Thus far, the most efficient and rewarding system is Google’s Adsense, which re-channels $2.5 billion of compensation back to the people who produce content.
Over the next few years, new ventures will emerge to monetize such new distribution opportunities, and they will more directly compensate people for the role they are playing as filters and distributors of media. In fact, I am myself in the process of launching a new venture with this precise mission (I call it Microchannelz). The success of Adsense can in large part be tracked to the growth of consumer-generated URLs. In similar fashion, the magnitude of the opportunity on the distribution side of the equation will parallel the total share of media URLs (both content that is both user-generated and professionally produced) that will be controlled by consumers.
Robert Young is a serial entrepreneur who played a major role in the invention & commercialization of the world’s first consumer ISP, Internet advertising (pay-per-click ads), free email, and digital media superdistribution. He is a regular contributor to GigaOM!
Written by Om Malik on April 4th, 2006 with no comments.
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By Robert Young
With nearly 60 million registered users, 15 billion page views per month, and more than 150,000 new users signing up every day, MySpace is that rare social networking contagion that keeps spreading and growing. Can this beast be stopped? Is there anyone out there that can challenge the leadership of MySpace? Can any of the many new upstarts, like Tagworld and MyYearBook lap MySpace into the pole position?
With numbers like that, its safe to say that MySpace has essentially captured the entirety of Americas youth. Moreover, these kids have created their own unique MySpace profile pages that are, in turn, rapidly becoming their personalized dashboards to everything that is important to them in their daily lives. Currently, that includes social networks of their online friends, venues to communicate with them, and collections of their favorite music & videos.
But as they mature, and their hunger for new types of information, media, and social connections expand, they will want their dashboards to grow and morph with them, each personalized with only the items that they are individually interested in. At the end of the day, services like MySpace have the rare opportunity to become the ultimate console for consumer control (C3).
Every media and technology company on the planet, both old and new, will eventually all be battling each other for presence on these millions of C3s. The way I see it, C3s represent the killer app and the end-game for the alphabet soup (e.g. XML, RSS, AJAX, etc.) that is Web 2.0, and the early adopters this time are proving to be the teenagers (just like I grew up with the PC in my most formative years, these kids are the first generation to grow up with the Internet).
And as adoption moves beyond the teenagers to the mass market, C3s will become the platform of choice for media creation, consumption, and distribution. In such context, how brilliant a move was it for Rupert Murdoch to have scooped up MySpace when he did? Conversely, how short-sighted is it for anyone who wants/needs significant share of the attention economy to *not* develop, or acquire, a similar strategic asset for their portfolio of web services?
As unbeatable as MySpaces market position seems at this juncture, it behooves anyone eyeing this space to remember that consumers are faddish and fickle. There is no demo where this more true than it is with teenagers. This means there is still ample market opportunity to take market share away from MySpace, especially as everyone is trying to figure out what the ideal C3 platform will ultimately look like.
Recently, two fellow bloggers provided their unique perspectives on this general subject matter:
- Umair Haque’s post on MySpace ; and
- Greg Yardley’s post on Yahoos social media strategy.
So in an effort to add to the conversation, let me chime in with my own thoughts.From a strategic viewpoint, there are two fundamental qualifiers that anyone whos looking into this space should first consider:
- look for social media services that specifically target the markets low-hanging fruit, specifically the teenage demographic (e.g. the older the demo, the less valuable the property in this context); and then
- further filter out the contenders by identifying those services that have successfully crossed the chasm of early-stage viral adoption (the elbowof the hockey-stick adoption curve).
On the latter point, it should be emphasized that such adoption is not predictive… as Yahoo! and Google are finding out with their social networking experiments, there is no proven transportable formula for creating the next viral mega-hit. Rather, pinpointing such potential is almost a purely empirical exercise of wait-and-see… based on adoption/usage data, look for the services that have reached the inflection point.The big reason why this is the case, more than ever, is due to the fact that a social media services competitive edge increasingly comes from the community itself, and not from central planning (as I wrote in my previous piece here
In my own analysis of this space, there are a limited number of services that meet the aforementioned qualifications. But thats only the first round. If you then further refine the analysis with added criteria, one service stands outamong its peers… and thats myYearbook.com (some recent growth numbers can be found here.)
So I recently met with the founders of myYearbook.com to get a closer look. Not only do I think they represent the best contender to give MySpace a run for their money, I also believe they have a better model that is more solid and sustainable over time, and less vulnerable to consumer market volatilities. As for why thats the case, youll have to wait until I post the second part of this story, which will be sometime in the next few days (meanwhile, you can read what this week’s edition of BusinessWeek had to say about them.)
As an exec at Delphi Internet Services, Robert Young played a key role in launching the industrys first nationwide ISP (he then orchestrated the sale of Delphi to Rupert Murdoch). Then as founder/ceo of Freemark Communications, he invented the business of free email and Pay-Per-Click internet advertising. Robert is currently focused on superdistribution digital music pioneer, Weedshare.com, and is also in the process of starting up a new venture in the online video space.
Written by Om Malik on February 26th, 2006 with no comments.
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After reading my rant about Starbucks and some of the comments on that post, Jackson sent in this guest column about how many are using indi-cafes in San Francisco as mobile office space. (Ritual is my favorite….) If you are not in San Francisco and have names of entrepreneur friendly locations you want others to know, leave the details/links to their location in the comments. If anyone wants to build a Google Map of all this, drop me a note. - Om
By Jackson West.
Forget Palo Alto garages — San Francisco coffee shops are where to get your startup off the ground. Internet cafes are emerging as an important place to get work done, hold meetings and network. Since writers, designers, developers and anyone else who can work from their laptop are going to show up, you can even recruit talent, publicize your project and even demo your product for potential users and investors.
On Charter Street, Greg Olsen writes about “Going Bedouin.” The idea is that instead of worrying about leases, infrastructure and support staff, a startup can stay nimble and focused by using third party services and mobile technology:
By focusing almost exclusively on service-based infrastructure options, a business could operate as a sort of neo-Bedouin clan - with workers as a roaming nomadic tribe carrying laptops & cell phones and able to set up shop wherever there is an Internet connection, chairs, tables, and sources of caffeine.
My own experience helping to organize the WebZine conference pretty much echoed this. No office space was rented, communication was primarily through email lists and a private wiki, and meetings were held at cafes with free internet, with notes and ideas quickly disseminated to those who couldn’t attend. When a contact was needed to help out with services such as advertising, sponsorships or donations, cell phones came out and calls were made, and issues were often resolved before the meeting was even over. Even during the conference itself, local cafes served as press rooms, panel development forums and, of course, somewhere to get some lunch.
Of course, the business of coffee shops is to sell food and coffee, not to take the place of VC-run incubator offices. While some have dealt with the problem of freeloaders by charging for their Wifi, this often turns geeks away. Coffee to the People in San Francisco’s Haight-Ashbury is trying to come up with guidelines, and the issue of coffee shop etiquette is a popular topic of discussion among digerati. Some cafe owners only share the WEP or WPA key with paying customers, limit the number of wall jacks to recharge batteries, or shut down wifi on the weekends to encourage offline socializing.
Niall Kennedy has proposed a number of ideas for proprietors to keep up their cash flow and the loyalty of the laptop-toting set. Other services, such as community office space offered by Coworking, have also begun to answer the needs of freelancers and small startups who need a place to plug in. Backoffice wikis, group chat and social calendars also promise to make it easier for teams of nomads to work as a group even if scattered across the four corners of the globe.
Here’s a list of cafes in San Francisco chosen by popular acclaim and personal recommendation. Any one of them will keep you fueled with caffeine, connected online and give you a chance to network with fellow travellers.
Ritual Coffee Roasters
This is the current ‘it’ cafe, and at any given time you can probably find a blogger who’s been BoingBoinged there, like Scott Beale. It’s Mission location makes the move from work to play just a short walk away.
1026 Valencia Street [map | site | yelp]
Caffe Trieste
This North Beach establishment has been around since Jack Kerouac lived in the neighborhood. Word on the street is that Wired News’ Tony Long regularly holds court there.
601 Vallejo St [map | site | yelp]
Reverie Coffee Cafe
Located in quiet Cole Valley, this is where angry newspaper publishers can find Craig Newmark on any given day. With a patio out back, it’s also great if you’re a smoker.
848 Cole St [map | yelp]
Coffee to the People
This Haight-Ashbury is a favorite of cute couple Chris Messina and Tara Hunt. Second only to Ritual Roasters in terms of Dodgeball check-ins. They even have their own blog.
1206 Masonic Avenue [map | site | yelp]
Quetzal Internet Cafe
Designer and cartoonist Kevin Cheng of OK/Cancel recommends this as an oasis is a relatively barren nexus of the Nob Hill, Hayes Valley and Civic Center neighborhoods.
1234 Polk Street [map | site | yelp]
Thinkers Cafe
Potrero is the neighborhood of choice for those who need to be close to 101 and 280. Before heading to Dogster headquarters nearby, Ted Rheingold often gets some work done there over his morning coffee.
1631 20th Street [map | yelp]
Zig Zag Cafe
With AnchorFree now providing free WiFi in a number of upscale neighborhoods including the Marina and the Castro, any cafe will do, but this is the one that Annalee Newitz recommended.
476 Castro Street [map | yelp]
Jackson West, writes for SFist. He writes about Web 2.0 and other topics for GigaOm
Written by Om Malik on February 22nd, 2006 with no comments.
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Will 2006 be the yearwhen Microsoft Mobile finally takes off? It certainly looks like that. Microsoft’s mobile ambitions are on display at the 3GSM show in Barcelona. CEO Steve Ballmer gave a big wet kiss to wireless operators in his Valentine’s Day keynote address at the wireless mega show.
Store shelves are crammed with brand new Windows Mobile 5.0 devices. And a lot of it has do with HTC and its amazing designs. Cingular 8125, T-Mobile’s latest revs of SDA and MDA and Treo 700. HP just announced a refreshed line-up. The Motorola Q is one of the most eagerly awaited PDA/phones. More are coming. Like the new Samsung i320 which features a full keyboard device, very small and compact. There are 47 device makers churning out Windows Mobile devices.
This wasn’t supposed to happen …..
Guest Column by Matt Maier
When Microsoft made clear its mobile ambitions a two and a half years ago, conventional wisdom said the PC-juggernaut would fail miserably, held at bay by Nokia, and others in the wireless industry who weren’t keen on watching their businesses turn into a no-margin commoditized nightmare, and overwhelmed by the complexity of the fast-moving industry. When Redmond had problems with Sendo, its first hardware partner, many assumed it signalled the end of Microsoft’s ill-fated mobile ambitions.
Instead, the exact opposite has happened. After spending years lining up hardware partners like HTC and Palm, working around handset vendors to sign deals directly with carriers such as Cingular, and coming up with a respectable version of Windows Mobile (like usual, the third rev was a charm) Microsoft is poised for a banner year.
Revenues in its mobile and embedded devices group grew 51 percent last year (to about $75 million) and nearly broke even, posting a $2 million loss in its first quarter, compared to a $29 million loss the year prior.
“We’re finally at a real tipping point,” group product manager John Starkweather told Business 2.0 earlier. “It’s taken a number of years and software iterations, and now we’re expecting some serious growth.”……. by partnering with white-label electronics manufacturers such as HTC, Microsoft presented operators with a means to customize phones exactly to their network specifications, while HTC allowed the carriers to brand their own names on its phones. “We realized there had always been a love-hate relationship between carriers and big phone vendors,” Starkweather says.
Microsoft may have already hit its stride. Devices like Cingular’s 2125 and 8125 are popping up on most major carriers in the US and Europe, it did the unthinkable, and convinced Palm to dump the Palm OS for its new Treo in favor of Windows Mobile, and has nearly 50 different hardware partners shipping product.
Undoubtedly, there’s still a long ways to go: Symbian powered nearly 34 million devices last year, more than double what Microsoft was able to ship, but the gap is narrowing. As the price of high-end phones begins to drop, and more people begin to use their phones as extensions of their desktops–looking for email on the go, etc–Redmond is ready to reap the gains.
Guest Post by Matt Maier, wireless and gizmo correspondent for Business 2.0 magazine. Subscribe to his Third Screen Newsletter.
Written by Om Malik on February 16th, 2006 with no comments.
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The Senate Commerce Committee is currently holding hearings on Net Neutrality. Webcast . The Bells are not be directly represented, cable companies views will be shared by Kyle McSlarrow, NCTA President and CEO. Walter McCormick, President and CEO USTA and Earl Comstock, President and CEO, CompTel. will also say their piece. Silicon Valley will be represented by Vinton Cerf, Chief Internet Evangelist at Google and Jeffrey Citron, Chairman and CEO of Vonage. This op-ed, hopefully will make everyone care about “network neutrality,” especially in Silicon Valley.
By Daniel Berninger
The desire of AT&T, Verizon, et al to end network neutrality and assert fees for access to connected customers represents a death wish. Imagine the prospects of an info tech industry without “software neutrality” where Intel charged a fee to enhance software performance. Pay Intel and your applications run faster. The incentives driving Moore’s Law disappear in this pay-to-play model. Intel’s profit maximizing incentives become serving the interests of software companies willing to spend the most on “enhancing software performance” not the end users of computers. The meritocracy driving competition between software companies disappears as Intel picks winners and losers based on willingness to pay. Innovation becomes permission based at Intel’s discretion.
The Internet does not exist without net neutrality. Consider the misleading assertion that tinkering with network neutrality simply amounts to adding class of service as in the case of air travel or HOV lanes on highways. Network neutrality refers to the uses of the Internet not the quality of access. There already exists an infinite range of classes of service as regards Internet access. End users pay for what they get regarding the performance and capacity of Internet access. Internet content and service providers like Google, Amazon, and Vonage already pay for access to the Internet.
The telco and cable companies have in mind creating another type of customer not a class of service. They want suppliers to pay for the right of transit. It amounts to airlines charging Time Warner for the right of readers to take Time magazine on an airplane. It means charging Ford tolls in addition to drivers for the right of Ford cars to use highways.
The pursuit of tolls based on content and application type requires something that does not exist in the Internet today. It requires a linkage between content type and transport. Equipment providers like Cisco increasingly deliver products offering packet by packet inspection in the name of network management, but implementing the access fees means giving billing systems the ability to monitor and track the types of applications and content customers use. Setting aside the chilling privacy concerns, the
telephone network’s linkage of usage to transport represents the primary obstacle to service creation I observed during five years at Bell Labs in the 1990’s. Forcing innovators to change the network in order to implement an application means an end to innovation. The end of innovation means the end of growth in demand for Internet access.
An end to innovation probably represents the main motivation behind opposition to network neutrality rather than merely the desire for a second revenue stream from Internet access. The dominant providers of Internet access have powerful incentitives to protect their existing voice and video revenue streams from Internet enabled innovations. The ability to add tolls by Internet application end the prospect of Vonage and VoIP as a threat to Plain Old Telephone Service. It ends the prospect of new Internet enabled video distribution models that might compete with CATV. Network neutrality allows end users to choose winners and losers in an application meritocracy
that threatens service providers long dependent on barriers to entry. The idea that Yahoo could pay Verizon to improve performance over Google means Verizon not the end user decides which search engine wins.
Beware of the monopolist that wants the “market” to decide. If there actually existed a healthy market for Internet access, users would certainly switch away from service providers tinkering with performance based on kickbacks from content companies. The toll collecting ambitions of the telco’s and cable co’s hinge on the absence of market forces. The fights against municipal wireless initiatives and lobbying budgets that exceed R&D budgets arise to defeat any leakage of market power. Network neutrality
forces a virtuous cycle where winning requires making offers faster and cheaper. This dynamic accounts for growth in the info tech industry as platform improvements expand the range of possible applications.
Eliminating network neutrality means giving one participant in the value chain a tool to extract a greater share of revenues without delivering greater value. The best effort Internet holds far more promise than the metering of scarcity associated with QoS because “best effort” continues to improve. The improvement in modems set the pace for expansion of the dialup Internet during the 1990’s. Lowest common denominator broadband access continues to govern Internet health as access capacity and performance determines addressable applications. Continuous improvements in cost performance represents the key to growth just like every other area of info tech.
The network management quality of service argument for ending network neutrality misses the fact QoS does not work outside a private network environment where a single entity controls usage end to end. The implementation of QoS remains limited to private networks, because it makes the negotiation of interconnection compensation intractable.
The large info tech companies like Cisco, Microsoft, and Yahoo view themselves as arms dealers content to accept business from both sides of the net neutrality debate. Intel has proven a more consistent friend of the Internet as with its Digital Communities effort supporting municipal broadband initiatives. Intel may recognize the connection between meager US broadband offers and the decline of the proportion of Intel revenue attributable to the US from 41% to 18% over the last 5 years.
The future growth prospects of the trillion dollar info tech industry depend as much on network neutrality as on Moore’s Law, so the arms dealer point of view represents a very short sighted one. The Bell company and cable MSO efforts to protect existing revenue streams means preserving the 20th century telco business model of controlling scarcity. The growth of the info tech industry comes from delivering surplus value as the means to generate demand. The info tech industry needs the find a way to protect network neutrality, because the Internet will cease to exist without it.
Daniel Berninger is a senior analyst at at Tier1 Research.
Written by Om Malik on February 7th, 2006 with no comments.
Read more articles on Wired and Guest Columns.
Wall Street Journal has a long piece about new VoIP phones, but misses the point about lack of interoperability between various issues. I wrote about this last week, here and also for CNN Money. Its appropriate that we address the issue one more time, though instead of me writing, I invited Erik Lagerway to share his thoughts in this guest post. Erik was the COO and Founder of VoIP software maker XTen (now called Counterpath) and currently is living the consultant life. You can read his blog at SIPthat.
Guest Post by Erik Lagerway
We humans tend to have short memories and sometimes that works to our advantage. Maybe it’s all that cortisol flowing through our brains zapping our memories. Whatever it is we tend to forget things we swore we never would.
The telcos of yesterday are the recipient of many long faces and fowl curses by mostly all consumers who used long distance, voice mail, caller id etc. Those pesky bills sure seem bigger than maybe they should have been and even worse there were few if any alternative service providers. The ones we did have to choose from were not much better and sometimes worse than what we had to begin with. Well, it seems we have forgotten those days in lieu of VoIP … the biggest show on the Internet is VoIP.
Same road apples, different pile. The consumer is being bombarded with features - mostly shiny little phones - and with that the VoIP industry is missing the most important virtue of this technology, the ability to interoperate with many devices, which ultimately means fair choice to the consumer.
The ability to lose is also ours according to Microsoft, Skype, Vonage and many others in the mix. In many ways its worse than it was in the old days. I can’t use many of these proprietary devices to call into another service using the same technology. These new age telephone companies will tell you that they can’t make enough money by openly peering with other networks, they need to hold us captive in order to make ends meet. Hmm, it doesn’t seem like we have come very far at all does it.
Open network peering can and will work. If I have a network of subscribers and you have a network of subscribers and we both use the same underlying technology, as most VoIP providers do these days, why is it that we can’t share traffic and generate even more revenue than before? We can. The problem is that each provider is trying so hard to outdo each other they forget what the consumer really wants, the ability to choose for themselves what device they want to use and then pick a service to use it with.
Maybe an open communications federation needs to be constructed. An organization that is collectively owned and operated by all communications service providers involved. A federation that builds and maintains core open standards networks under a set of guidelines that the operators agree to and more importantly what the consumers want and deserve. This may not be entirely feasible today but I think you get the idea. There is no reason to step back into the dark ages we have built this technology to be open for a reason!
Photo courtesy of Flickr by Toshio1
Written by Om Malik on January 12th, 2006 with no comments.
Read more articles on VoIP (the New Phone) and Guest Columns.