Deregulation

The Financial Times' recent video interview with Google CEO Eric Schmidt about Youtube was very instructive in how transformative Google believes the purchase of Youtube is for Google's identity.

By far the most interesting and important thing Google CEO Schmidt said was: "We see ourselves as a technology provider and a distribution network."

Whoa! Did anyone else catch the huge significance of Google's new self-description of its identity as a "distribution NETWORK?" This is very new just since the purchase of Youtube. To drive home this point I have copied below Google's quick profile from its website of what Google says Google is -- and there is no mention of being a "distribution NETWORK." To date, Google has represented itself as the "world's best search engine," a company focused on "search services" and its mission as "organizing the world's information and making it universally accessible and useful." 

Why I find this so interesting is what type of "distribution NETWORK" does Google see itself becoming? And as a new "distribution NETWORK" with 50+% share and rising of the search business, will Google agree to the same "NETWORK neutrality" principles that they believe all other NETWORKs should abide by?

Does Google still truly believe in NETWORK neutrality now that they have transformed themselves into a self-described "distribution NETWORK" company?

Isn't what's "good for the google good for the gander"?

Quick Profile

Lost in the debate over net neutrality is the inexorability of convergence and the futility of trying outlaw convergence by the government fiat. Net neutrality proponents intuitively understand that digital/IP convergence means more change, competition, and vertical-integration of products and services -- and they have a kneejerk fear and opposition to it.  Their bias lets them see only problems and blinds them to the many consumer benefits of convergence.

My big aha! moment was realizing why net neutrality proponents are so stubborn in denying the reality of inter-modal competition. To accept the reality of inter-modal competition -- they would have to accept the reality of Â "INTER-LAYER COMPETITION" -- what I have long called "techcom," the convergence of the technology and communications sectors -- but what they call "vertical-integration." 

Tech companies routinely vertically integrate. Google loves to vertically integrate and compete accross the layers of the technology "stack" with Gmail, Google talk, youtube, as does eBay with Skype and PayPal, Microsoft with MSN and XBox and Intel with WiFi to name just a few of the many instances of tech vertical integration. Inter-layer competition/vertical integration has been a hallmark of innovation and value creation for consumers in the tech sector. Inter-layer competition fuels innovation and benefits consumers Big Time!

I had a friendly and informative debate last night with Ben Scott of Free Press on a National Public Radio show Digital Spin hosted by Mario Armstrong out of Baltimore on WEAA.

What I found interesting in Ben Scott of Freepress' account of the debate was how this debate has become more about the activists themselves and their self-congratulating grass roots movement than the issue of net neutrality or the benefit of the consumers they allege to represent. 

When asked to describe how the net neutrality debate was going, I recounted the facts of winning 269-151 in the House, 11-11 and 15-7 in the Senate and that it was uncertain what the fate of the overall telecom bill would be. What I found fascinating was how Mr. Scott chose to explain it. In wrapping up his position last night Mr. Scott basically described in self congratulatory terms how a ragtag group of underfunded grass roots movement has fought to a standstill the heavy lobbying of the communications giants.

As often happens in battle combattants get so caught up in the fight that they can forget what they are fighting for. Liberal Free Press and its Moveon.org activists are so focused on the tactics of blocking the Telecom Bill that they have lost sight of what they say they are all about -- supposedly protecting consumers. They are obviously more interested in promoting themselves and their organizations' prowess than they are in delivering actual tangible results and protections for consumers.

Net neutrality proponents like Free Press seem to have totally forgotten that there is no net neutrality now and that THEY need to pass legislation to get the protections they claim are needed so direly. How comical it is that they have taken themselves hostage and they don't even get it!

Google's $1.6 billion purchase of youtube dramatically affects Google's leadership position in the net neutrality debate.

First, Google can't continue to claim its business "neutral" in the debate -- it now has its own dog in the fight -- its now a vertically integrated media company. Before Google liked to wax eloquently that their motives on net neutrality were "purely altruistic;" they said they were fighting, not for their own gain, but for the little Internet entrepreneurs toiling away in garages that needed protection from capitalists and market forces.

Now it is clear that Google is simply using the public policy process to leverage commercial negotiations for Google's commercial advantage with youtube. People need to remember that key to Google's exceptional finanical success is their abilty to dump most all their normal distribution costs on the consumer. Its by shifting their biggest cost to the consumer, that they enjoy 80+% gross profit margins, have ten billion dollars in cash, a hundred billion plus market capitalization, and can afford to pay $1.6 billion for a company that has no profits and little revenue. Remember these numbers when Google is publicly indignant about having to pay more for new innovative Internet bandwidth that can better carry video.

The Department of Justice Antitrust Division approved the AT&T-Bell South merger today without conditions. What this means is that the expert agency responsible for preserving competition believes the various markets these companies are engaged in are competitive: broadband data, voice, wireless and internet access.

The key quote from the DOJ announcement included below is:

• "The proposed acquisition does not raise competition concerns with respect to Internet services markets or 'net neutrality.'

This effectively stuffs those net neutrality proponents trying to argue that there is a "broadband duopoly."