Campaigns

I continue to be amused at Google's "do as I say, not do as I do" way of doing business. As the online champion of regulating any "non-neutral" behavior by others, it is instructive to keep a close eye on the "non-neutral" things Google does in the market.

USA Today had a great article today, "Google offer takes on Paypal." Google is using its market leading dominance of the search market, 45% share and growing per Source Media Matrix, to leverage itself into other markets like online transactions, in very non-neutral ways. Some interesting quotes from the USA Today article:

• "Google has the potential to own this market...Paypal is essentially laying down and letting Google buy market share."
• "In a retail sense, Google is using Checkout as a loss leader to get market share works for Google, becuase they will make it up more with advertising, which is highly profitable."

So what is the point? Google routinely uses its market leverage (or is it market power?) in the online ad market it dominates "to buy share" or compete in a way that another company can't. This would be perfectly kosher, if, Google was not also the champion for making this type of typical Google market behavior illegal for broadband carriers, most of whom have dramatically less broadband share than Google has in its dominant market of search.

Today Microsoft launched a new program for telecom operators, carriers, software vendors and developers called "Connected Services Sandbox."   According to Microsoft "the sandbox will encourage the creation of "managed network mash-ups" in which Microsoft's Web services are combined with telecom services so Microsoft can fulfill its ambition of offering its software as a service model over the Internet.

• (Translation: Microsoft wants competitors to "play in their sandbox" so Microsoft and their preffered partners can watch them and get discriminatory preference in commercially exploiting others' resulting innovations.)

Has anyone at Microsoft thought this through? As I explained in my recent open letter to Bill Gates and Steve Ballmer, Microsoft's hamhandedness in Washington has already resulted in Microsoft being subject to the FCC's net neutrality principles and regulatory jurisdiction. This new endeavor is just another example in a long litany of Micosoft Internet businesses that are not neutral and discriminate for commercial gain.

How is their sandbox neutral? Let me quote directly from Microsoft's own press release which is pretty incriminating: "BT will have early exposure, visibility and access to the winning services including the ability to test and deploy the prototype services."  

Like a mugger who cries foul when his victim manages to wriggle free from their well-planned ambush and pummeling, net neutrality proponents are now crying foul that Chairman Martin is excercising his legal authority to engage Commissioner McDowell to vote to break the 2-2 impasse and vote on either approving or disapproving the AT&T-Bell South merger. 

Can you believe the unmitigated gall of net neutrality proponents playing the "victim" when they were really the mugger here? I guess we should not be surprised then when these same folks impugn the integrity and ethics of public servants who have assiduously followed the legal, procedural, and political processes. Any fair-minded person should be disturbed at the "ends justify the means" tactics of many net neutrality proponents in this proceeding. Â Ã‚ 

The NYT continues its leading coverage of the search business with its article today on Ask.com "The Retooling of a search engine." The article describes what I call IAC's discrimination and gatekeeper plan to turn around Ask.com and to make it a more popular and valauable search engine. 

Barry Diller, the head of IAC, has shrewdly collected many popular Internet sites, like Ticketmaster, Citysearch, HSN (Home Shopping Network) LendingTree.com, Evite, and Match.com, and ihas said publicly that they will more tightly integrating these popular sites with Ask.com's search engine. This is a classic gatekeeper model, which creates value by skewing search results to their home-owned sites. Now this is also called vertical integration, which is legal and has many benefits for consumers. To be clear, I believe vertical integration like this is just fine.

When I learned that Google was rushing in late in the process to demand a net neutrality amendment on the Michigan franchise reform legislation, the image that came to mind was that of a spoiled child seeing people building a sandcastle on the beach and running through the sand castle cackling with glee at the attention they could get from destroying others hard work.

I continue to marvel at the undisciplined naivete and brat-ishness of this $150 billion 8 year old company called Google. Like a spolied child that has gotten used to getting everything they scream for because of over-indulgent market parents who never said no, this company truly behaves like they think the world revolves around them and their demands.

Cisco has tremendous wisdom and clarity of thought on net neutrality, which Microsoft could greatly learn from. Mr. Chambers and his Cisco team "get" the net neutrality debate. And they should. Problably more than any one single company Cisco has done more to enable the phenomenon that is the Internet today. Does anyone think for a minute that Cisco wants to kill the goose that laid the Golden egg called the Internet? It is relevant to disclose here that I tried to recruit Cisco to join NetCompetition and they declined because they reasoned their interests were much broader, straddling the tech and com sectors and not simply a broadband perspective.

Dear Mr. Gates & Mr. Ballmer,

This letter warns that Microsoft's pro-regulation strategy in Washington is backfiring and is likely to end very badly for Microsoft. Microsoft's recent decision to withdraw from the ItsOurNet Coalition during FCC consideration of the pending AT&T-BellSouth merger, offers a golden opportunity for Microsoft to objectively reevaluate whether pursuit of permanent techcom regulation remains in Microsoft's best interests, especially given the experience and changes of the last year.

Upon closer examination, it is evident that Microsoft's:
A) Original political judgment behind the risk-reward tradeoff of net neutrality was badly flawed; and

B) Pro-regulation efforts have made the company worse off than when it started pursuing net neutrality regulation.

History is repeating itself. Microsoft is on path to get wrapped around the Washington regulatory axle just as badly as Microsoft got wrapped around the antitrust axle this past decade. Why history is repeating itself is that Microsoft apparently has learned little about the huge risks Washington can present to Microsoft. Just as Microsoft's political misjudgment got the company legally ruled a monopoly and under the thumb of DOJ and EU regulators, Microsoft's political misjudgment on net neutrality regulation is now endangering the future of the web services model that Microsoft has staked its future on.

I. Microsoft's original judgment of the risk-reward trade-off was badly flawed.

A. Microsoft has much more to lose than gain from Net Neutrality. Just like it’s never smart to play with matches in windy weather when you own a forest, it’s never smart to push for permanent regulation of market power when the political winds are blowing much more regulatory and your company has more market power than any other.

While everyone is understandably focused on the changes in Congressional leadership on the Democratic side, arguably one of the most significant potential changes that directly affects the bottom lines of all Internet-related companies and the future of the Internet could be the ascension of Republican Senator Lamar Alexander (TN) to be the Senate Minority Whip, because he is one of Congress' biggest proponents of ending the Internet Tax Moratorium when it expires in 2007.

Why am I flagging this as potentially a very big deal for the Internet world?

First, Senator Alexander, a former Governor of Tennessee, disagrees with the bipartisan and Republican consensus of the last decade that the Internet is inter-state commerce and as such should not be subject to state and local taxes. Sen. Alexander has worked harder than just about anyone in Congress to authorize States and localities to tax the Internet. Why this matters is that any Washington insider knows that tax issues are generally negotiated at the Congressional leadership level and the interests and knowledge of particular leaders can have a very big impact on the policy outcome -- that's why they are leaders. 

Second, adding a new Senate leader, whose pet issue is to end the Internet Tax Moratorium, with the already combusible mix for the Internet of the Democratic takeover of Congress and Democratic support of net neutrality, and one gets a potentially very volatile environment for future taxation and regulation of the Internet. Given the importance of the Internet and broadband to the U.S. economy, and that there is a wide open race for the White House in 2008, this is a potentially very big deal indeed.

 

Conventional wisdom among net neutrality proponents is that a new Democratic Congress is good for net neutrality. Proponents point to the fact that the Senate Commerce Committee vote was 11-11 and two of the Senators that voted “noâ€? (Allen VA and Burns MT) were defeated in the election. They also point to the fact that Ed Markey, a big net neutrality supporter, is now Chairman of the Telecom Subcommittee the subcommittee that defeated his net neutrality amendment last year. They also point to the fact that Speaker-elect Pelosi and Senate Majority Leader elect Reid are also big net neutrality supporters. Those are the positives and they are real and significant, but are they enough?   

I launched the debate this morning at the NVTC forum on Net Neutrality with the following comment: "Net neutrality is an online fundraising ploy masequerading as public policy." It certainly focused the debate on the real reason why this issue has become so big so quickly. I pointed out that on substance it was a bogus issue. No substantiated problem or consumer harm and that all the substantive assertions made by net neutrality proponents have proven false. When the substance was so weak and the threat only theoretical, there had to be more going on.

I focused on the dirty little secret that partially-motivated many net neutrality proponents --which is how super-productive it is for groups that want to raise money online to scare people that there are boogymen that want to take the Internet away from them. Net neutrality has clearly become one of the most efficient ways to "shake the money tree."