Free shipping: getting closer

April 3, 2009

Public Knowledge points out AT&T’s new Terms which give different treatment to video based on its source. (No, it’s not neutral but of course, I think that’s fine.)

What right now looks like preferential economic treatment to an incumbent’s preferred bits is in fact setting the stage for putting such treatment up for sale. Mind you, the network won’t treat, say, iTunes’ actual bits any differently than anyone else’s. They’ll get delivered just like they are now.

However, it will be in iTunes’ (and Netflix’s and ESPN’s) interest to ensure that end users feel free to consume their services. Which means that these content providers will want to make a deal with AT&T (and Comcast etc) such that delivery of their videos and songs do not count against a user’s bandwidth limits.

It’s free shipping. Get a video from us and we pay the delivery. Really, it’s what Netflix is doing already.

Consumers’ bandwidth is subsidized by the content providers. The network providers get paid for building pipes.

It’s more expensive for content providers, but only if they choose to play. And they’ll play if one of their competitors does it first. It’s called competing on price.

The brilliance is that there is no non-neutral behavior by the ISPs. They deliver the bits regardless. Nothing is blocked or slowed. What changes is who pays.

The only way this violates net neutrality is if we further expand the already-squirrely definition.

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Posted by MattS

The long game on metered pricing: free shipping

June 3, 2008

Time-Warner cable has begun to roll out its metered pricing plan in Beaumont, Texas. Alley Insider says it won’t work, and Mike Arrington declares it a moral outrage. Both are missing the “third way” which I wrote about earlier this year.

Tying consumers’ prices to their consumption is not inherently a bad thing — in fact, it’s probably good for network buildout. Relating usage to fees provides a return on investment: more bandwidth provided equals more revenue, thus more capacity equals more revenue. Expecting any business to invest in its product without a return is a bit silly, even if we like to huff and puff.

The alternative, in a world of non-infinite bandwidth, is something like a tragedy of the commons. The idea that two people can consume vastly different amounts of a resource, while paying the same amount, will logically lead to a bank run of sorts. Imagine if food or gasoline were priced in such a way.

(All that said, TW’s particular plans may or may not be the right numbers.)

In any case, here’s what will likely happen with metered pricing: Content providers will pay to have their bits not be counted against the consumer’s bandwidth limit.

So let’s say you go for the low-end plan with a limit of 5Gb per month. Apple (or Netflix or ESPN…) really wants to get their programming to you — say 1G worth of sports highlights (with commercials, natch).

They know that if you’re on a metered plan, you are less likely to consume the content. What’s a content provider to do? Pay for the delivery. Let the consumer know that the shows we deliver don’t count against your “minutes”.

It’s free shipping. Just like Amazon makes a deal with FedEx, ESPN makes a deal with Time-Warner. Heck, maybe ESPN will sell something like Amazon Prime.

The consumer is subsidized by the producer. And the delivery guys (Time-Warner, FedEx) make a few bucks too.

1 Comment | Broadband, Net neutrality | Tagged: , | Permalink
Posted by MattS

The biggest threat to your rights? Scarcity.

March 1, 2008

I would not have predicted this:

The U.S. Federal Communications Commission (FCC) should allow broadband providers to manage their networks and slow “bandwidth hogs,” despite concerns that such practices arbitrarily target some customers, said a coalition of seven civil rights groups.

Net neutrality rules for broadband providers would protect bandwidth hogs at the expense of other customers and civic organizations, said the coalition, which includes the National Black Chamber of Commerce, Latinos in Information Sciences and Technology Association, League of Rural Voters, and National Council of Women’s Organizations.

[...] “Regulations prohibiting network management risk undermining free speech on the Internet by allowing P2P traffic to overwhelm the network and prevent non-P2P traffic from reaching its destination,” the coalition said in its filing. “The effective prioritization of P2P traffic would represent an altogether new type of ‘back of the bus’ second-class status for our speech on broadband networks — and ought to be resoundingly rejected.”

Read the whole thing.

This warms my heart. The premise of most regulation (read: economic planning) is to protect the interests of some group over another. These might take the form of protectionist tariffs, subsidies or price controls.

Unfortunately, such regulations usually have the exact opposite effect. By restricting the development of markets, we end up with less of the intended good, less competition, and higher prices. This inhibits everyone’s progress, which one might see as rights.

In this case, these groups realize that their ability to get their message out is threatened primarily by scarcity of bandwidth, rather than the actions of any one company.

With net neutrality legislation, there is a great disincentive to network buildout, as providers’ returns on investment are reduced. Further, they spend more time fighting lawsuits than building networks. Each new customer comes with new legal liabilities — and such risks are ultimately counted as an expense.

In the longer term, under such regulation, the surviving network providers are those who are best able to lobby for advantages and comply with ill-defined regulation. Result? Fewer new entrants, less competition and less network capacity.

Groups whose existence fundamentally depends on the ability to get their message out should realize that the best solution is a bigger pie for everyone, instead of the quibbling that serves only to keep the pie small.

Mmm, speech pie.

2 Comments | Competition, Net neutrality | Permalink
Posted by MattS

Somewhere in Brussels, some buggy whips need gilding

February 28, 2008

One might think we live in feudal times, what with an unelected bureaucrat being able to tax companies arbitrarily and retroactively. However, since it’s an “anti-trust” issue, the European Commission gets around calling it a tax or tariff, and thus can charge whatever the Commission decides. There is no rate schedule to adhere to, no trade agreements to abide. Didn’t we get past this kind of thing hundreds of years ago?

Obviously, this sort of fine does not improve the software market in Europe, any more than the EC’s decision to force Microsoft to sell a hobbled version of Windows, which no one bought. And why would they? The EC has little accountability to consumers (read: citizens) and thus has very little idea what they want.

One is only left with the conclusion that the point of such punishment is self-enrichment for the EC, distraction away from a sclerotic European software industry, and self-aggrandizement for individual bureaucrats.

What to do next for Microsoft? I’ve seen plenty of comments that say they should withdraw from the European market, etc. I understand the instinct, but it would be self-defeating.

Instead, Microsoft should double down and market the hell out of its products in Europe. In other words, go straight to the people. This would offer two upsides: first, more revenue to make up for the fines. And second, to show the bureaucrats how little they know about what’s best for their citizens.

2 Comments | Competition | Permalink
Posted by MattS

Demand first, then supply

February 17, 2008

Paul Buchheit, whom I’ve never read prior, has a very nice article about what makes a successful company:

You can take the smartest, most experienced, most connected, most brilliant people in the world and have them build the most stunningly designed and technically advanced product in the world, but if people don’t want it, then you will fail.This is roughly what happened with the Segway, for example. [...]

Even if you aren’t the smartest person around, and your product is kind of ugly and broken, you can still be very successful, if you just build the right product. YouTube and MySpace are both fine examples of this.

This is a classic rich vs reach scenario. In a free(ish) market, the customer will decide what a good product, and by implication a good company, is. YouTube and MySpace are classic “reach” technologies. When their success first arrived, they weren’t at all fancy. They did what they claimed to do, reliably, even if they lacked refinement. They appeal to a broad audience.

Another good example is PlentyOfFish.com. So here’s a question. What makes lightening strike for “reach” products?

If you were an investor, where would you put your speculative dollars: a company creating a “rich” product or a “reach” one?

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Posted by MattS

Entrepeneurs vs bureacrats

February 15, 2008

A great story about TJ Rodgers’ personal green revolution.

Rich: UN committees. Reach: entrepeneurs. Advantage: reach.

h/t Peter Robinson @ The Corner

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Posted by MattS

Regulation, incumbency, haves and have-nots

February 14, 2008

When we talk about regulations, in housing or agriculture or the Internet, it is usually sold as being intended to protect some “little guy” — be it the “family farm” or the file sharer. The insight that is most lacking is that regulations often have the opposite effect, which is to weaken consumers, the poor, or the upstart competitor.

In other words, regulations aimed at Goliath too often hit David. Case in point is a new study in Seattle where housing regulations intended to “preserve character” have driven prices up dramatically:

An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.

Who are the winners and losers in this scenario? Well, people who already have houses are the winners — the “incumbents”. They get to live in a relatively underbuilt place with small-town characteristics. Existing owners are the beneficiaries of that $200,000 increase in value.

The losers are the have-nots: those seeking housing. Artificially adding $200,000 to the price of a house puts it out of reach for the average working person. Due to the restrictions, new homes are not built so there are fewer homes for everyone. Seattle (and other places like San Francisco) effectively become wealthy, quaint enclaves that exclude everyone but the very well-to-do. David loses.

Let’s keep this in mind as we consider the possibility of “Net neutrality” legislation. If we place restrictions on what sorts of networks can be built (by legislating architectures and economic models), we shouldn’t be too surprised when fewer new networks get built. The incumbents ultimately face less competition. Guess who wins?

— 

h/t Instapundit

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Posted by MattS

What advertising means

February 10, 2008

Whenever I see a new ad for a product or industry, I am relieved and encouraged. Why? Isn’t advertising the most crass, manipulative expression of our capitalist system?

Yes. But more than that, it is a plea to the consumer. And this is a good thing.

You see, when a company advertises, it indicates that they need us. That they have reason to plead their case directly to the consumers, aka the individual citizen.

I regularly see ads for Sutter Health and Kaiser Permanente out here in the Bay Area. This reflects well on the state of private health care (at least for now). It means these companies need us, the consumer, to support them.

Companies that feel no need to advertise are the ones we should fear. It means that their business is assured regardless of their customers (existing and prospective). What sort of companies are these?

Typically, they are industries that are protected by government, and thus have little need for consumers’ direct approval. To the extent that they do advertise, they speak in terms of general good will — just enough to keep it safe for their political sponsors.

Indeed, there are companies that actually use ads to convince you to use less of their product — PG&E, Northern California’s monopoly utility, does just that, in an effort to seem green and thus politically palatable. If they can promote the idea of shrinking their business, you know that government has de facto guaranteed their survival. PG&E becomes indistinguishable from a government agency asking citizens to ration for the greater good.

–

An adage of the advertising business is that nothing will kill a bad product faster than a good commercial. Consumers are very sensitive to how well a brand lives up to its promise. We may think of ads as lies, but in fact they are commitments to be judged by citizens. This, despite appearances, is empowerment.

It is only when a business feels no need to advertise that we should be worried. Without ads, there are no promises to keep.

The only thing worse than a flashy, desperate ad, pleading for your dollars, is the absence of one.

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Posted by MattS

Podcast on broadband with your humble host

February 7, 2008

The good folks at Technology Liberation Front asked me on to discuss the ideas behind this post, broadband policy and net neutrality. Be sure to grab someone you love, crack open a Colt .45 (”works every time”) and give a listen.

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Posted by MattS

Internet diversity & cut cables

February 4, 2008

Following on to my previous post that multiple broadband strategies are better than a single one, we’ve been hearing quite a bit about cut cables in the Middle East and India. While not perfectly analagous to our domestic infrastructure, these events point out a fundamental quality of the Internet: diversity.

While it’s easy to suppose that a “national broadband strategy” is desirable, in fact it is likely to make the Internet less diverse in terms of infrastructure. If such a strategy allows Congress and the FCC to define the rules by which networks are built — effectively picking winners and losers – we are likely to end up with fewer providers and fewer technologies in play, and thus less ability to route around damage.

Have a look at our military procurement process, or agricultural subsidies. Tim Lee reminds us of the cartelization of railroads in a previous century. Each of these examples put the power of an entire industry in the hands of a politically-connected few, via well-intended “national strategies”.

The Internet, by design, is about diversity and redundancy at a deep level. Seems to me the best way to maximize the Internet’s potential is to maximize these characteristics.

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Posted by MattS

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