Innovation

Don't miss the hilariously poignant comedy video clip (4 min) of comedian Louis C.K. from Conan O'Brien's show on how "everything's amazing and nobody's happy."

• Louis C.K.'s lampoon of how ridiculous it is to whine when new amazing phone and broadband technology does not work perfectly or immediately, should be required viewing at the New America Foundation's planned whine-fest "panel discussion" entitled "why your cell phone is so terrible," which I previously blogged about yesterday. 

Like the parable of the boy who blurted out the truth that the emperor had no clothes on, after the emperor was duped by tailors claiming to use "special" thread only visible by "smart" people, the folks at the New America Foundation/FreePress are trying to dupe the FCC into mandating new net neutrality regulation by claiming that everyone who is really "smart," like the folks at New America, know that cell phones are "terrible." 

If you did not read my systematic rebuttal of how ridiculous a premise that cell phones are "terrible" is, please see my previous post for the evidence-laden case.        

Entropy Economic's Bret Swanson has another great, clear-thinking op-ed that I recommend you read, this time in RealClearMarkets.com entitled: "Entrepreneurial Innovation and the Internet."

Bret incisively captures the amazing and dynamic nature of innovation in the currently unregulated Internet ecosystem, and cautions against Washington imagining that the Federal Government can do better than free market competition can with top-down innovation micro-management from slow-moving bureaucracies.

His piece also helps spotlight the huge disconnect over where innovation comes from. 

• FreePress, Public Knowledge and other net neutrality proponents imagine that Government regulations, restrictions and limitations on the freedoms of property owners somehow magically will foster more net innovation by those who don't believe in private property.
• Google, eBay and Amazon imagine that they can increase overall Internet innovation, if the FCC would only require broadband providers and potential competitors to seek permission from the FCC, (and by proxy -- permission from Google, eBay and Amazon) before they implement any network innovations in the marketplace.      

It is naive to think that FCC regulation can surgically micromanage what innovation is good and allowed and what innovation is "bad" and discriminatory -- before the fact.

Kudos to Larry Darby of the American Consumer Institute for his outstanding new study on the destructive effect of regulation on innovation. Please read it if you are at all interested in innovation.

The study debunks the views of some that government, regulation and regulators are somehow a font of innovation. 

After reviewing the relevant literature and evidence on the subject, Dr. Darby concluded that:

• innovation is naturally flourishing without government involvement or micromanagement;
• burdening broadband providers with new common carrier burdens would severely discourage innovation; and 
• limiting innovation in one part of the ecosystem would ultimately diminish innovation in the entire Internet ecosystem.

At core, the new notion floated by some that more FCC regulation would encourage innovation is nonsensical and unsupported by any literature or evidence.

The big takeaway here is that new "Mother may I" regulations, which effectively require some market participants to get FCC approval for their innovations, in order to protect or advantage others' innovations, is not innovation policy. It is old-fashioned industrial policy where government picks market winners and losers. This is a policy approach long proven to grossly underperform market-based policies.

Google announced it was under preliminary investigation by EU Antitrust authorities due to several antitrust complaints filed against it, and it began to frame its antitrust defense against the charges.

• How well do Google's top ten antitrust defenses hold up to scrutiny?  

  1.   "This kind of scrutiny goes with the territory when you are a large company." (Julia Holtz, Google's Senior Competition Counsel, Google Policy Blog post) 

  • No. Over 99% of the Global Fortune 1000 are "large," but are not under antitrust investigation for monopolization.
  • This kind of antitrust scrutiny occurs to a very select few companies -- only companies that serially act anticompetitively. 

  2.   "We've always worked hard to ensure that our success is earned the right way -- through technological innovation and great products, rather than by locking in our users or advertisers, or creating artificial barriers to entry." (Julia Holtz post)

Pending FCC policy proposals in the National Broadband Plan and the Open Internet regulation proceeding would vastly expand the implicit multi-billion dollar subisidies Google already enjoys, as by far the largest user of Internet bandwidth and the smallest contributor to the Internet's cost relative to its use.

Interestingly, the FCC's largely Google-driven policy proposals effectively would:

• Promote Google's gold-plated, 1 Gigabit broadband vision for the National Broadband Plan at a time of trillion dollar Federal budget deficits;
• Recommend a substantial expansion of public subisidies for broadband that would commercially benefit Google most without requiring Google to contribute its fair share to universal broadband service; and
• Regulate the Internet for the first time in a way that would result in heavily subsidizing Google's out-of-control bandwidth usage. 

I.   Does Google need more subsidies?

Google is one of the most-profitable, fastest-growing, cash-rich companies in the world, with over $10b in annual free cash flow, 17% revenue growth, and ~$25b in cash on hand.

Google effectively blew off the DOJ's antitrust, copyright and class action objections to the amended Google Book settlement in Google's 77-page brief to the Federal Court adjudicating the settlement. 

In a nutshell, Google argued that its settlement is "remarkably creative" (p 28), and "fair, reasonable and adequate" (p 67). It focused on the settlement's benefit to humanity: "the benefits of approval are bounded only by the limits of human creativity and imagination" (p 2). Google also effectively instructed the Judge to accept its redefinitions of copyright, antitrust, and class action law and to reject the DOJ's interpretation of the law and its "cramped view of the court's jurisdiction" (p 10).    

The core thrust of Google's argument is political. Google essentially asks the court to make a political, not a legal, decision to:

• Disregard existing antitrust, copyright, and class action law;
• Ignore the opinion, expertise and standing of the DOJ, the United States' Chief Law Enforcement Officer;   
• Effectively rewrite copyright law; and
• Permanently enthrone Google as effectively the derivative use caretaker and gatekeeper of millions of "orphan works" which Google illegally copied.  

I.   Google's argument is fundamentally political.

Kudos to Nicholas Carlson of Silicon Valley Insider for an outstanding must-read post on Google's new social media additions to gmail it calls Google Buzz: "WARNING: Google Buzz has a huge privacy flaw."

Google announced it plans to enter the competitive broadband market and will build out what it calls an "ultra-fast" fiber broadband network that would be available to 50,000 Americans, 500,000 at most.

Given that the purpose of my new watchdog site www.GoogleMonitor.com is making Google more transparent and accountable -- I offer some pertinent questions people may want to ask Google about its new high-profile broadband plans.

Google[-AdMob] has come up with another "we think everyone is stupid" defense of Google's anticompetitive behavior: "It's too new to be dominated."

• This new Pinocchio antitrust defense nicely complements its previous grand deception that "competition is one click away,"  and its previous insult to everyone's intelligence that scale is not important to search.  

Google Spokesperson Adam Kovacevich [and AdMob's CEO Omar Hamoui set] up a new "straw man" antitrust problem, easily knock it down, and then presto! conclude Google's acquisition of AdMob is not anticompetitive. From James Temple's San Francisco Chronicle piece:

• "Google spokesman Adam Kovacevich stressed that mobile advertising remains highly fragmented, with more than a dozen networks like AdMob. ..."
• [AdMob CEO Omar Hamoui] "did say that ... antitrust critics misunderstand the online search industry, and that he's confident regulators will approve the deal once they grasp the nuances of the nascent sector.
• "We do display advertising on mobile, which is not an area that Google (or) anyone has dominated," he said. "It's too new to be dominated."

The deception here is three fold:

News reports that the DOJ, and not the FTC, will conduct the antitrust review of the Comcast-NBCU deal is a very good development for the companies. 

First, DOJ's filing to the FCC on the National Broadband Plan just this week showed that the DOJ clearly understands that the cable industry is competitive and that DBS competition has improved innovation, content choice, and customer service in the market, and that telecom competitive entry has provided pricing pressure to the cable market as well. (See pages 15 & 16 of the DOJ filing.) 

Second, that same DOJ filing shows that DOJ rejects the radical thinking of FreePress that competition must be commodity-like to be competition and that pricing should be based on incremental costs. If the DOJ does not agree with FreePress' approach to analyzing competition in the National Broadband Plan they are unlikely to agree with FreePress' approach to analyzing competition in this Comcast-NBCU merger review. Simply, DOJ does not analyze competition and antitrust like FreePress does. DOJ is professional and driven by the facts and the law -- not politics. 

Third, the DOJ merger review process, because it is overseen by a single antitrust enforcer/prosecutor and not a commission with additional consumer protection responsibilities, is a much harder process for FreePress to politically influence/manipulate than the FTC.