Deregulation

An interesting and relevant antitrust milestone is coming for Google -- maybe as soon as this year -- Google is poised to pass the significant 50% market share "dominant" threshold in antitrust.

• In April of 2005, Google had 36.5% share of searches, according to ComScore.
• As of December 2006, Google had 47.3% share of searches, according to ComScore.

This is relevant because when Google exceeds 50% market share, the antitrust "rule of thumb" is that Google will be considered by antitrust authorities to be a "dominant" company.

In my ongoing "hypocrisy watch" service, eBay is back in the news again not being neutral at the same time they are pleading to Congress to pass a law forcing their broadband competitors to be neutral. The recent Forbes article "Why so Worried?" reminds everyone about how in July eBay banned the use of Google's Checkout, a competitor to eBay's PayPal.

• According to the article, eBay upped the ante in the fight with Google's checkout last week when it decreed that new eBay sellers must offer Paypal or credit cards for payment. It further turns up the heat by requiring that you must be PayPal -certified to sell cross-borders and to get $2k in listings insurance.
• The article implies eBay is worried about Checkout hurting PayPal's revenues and hence eBay's stock price.    
• Google has not been neutral either. Reportedly, Google subsidized its competitive checkout service with $20m in 4Q06 by paying transaction fees and promotional discounts. It appears Google's is not afraid to be anything but neutral and leverage its emerging dominance in search to pry open and buy share in the online financial transactions marketplace.

I blogged on this topic twice before, in July I defended eBay's right to competitively differentiate and be hypocritical, and in Decmber I blogged on how Google was not abiding by neutrality principles with it's Checkout competitive tactics.  

Bret Swanson in his WSJ editorial over the weekend "The Coming Exaflood" provides a real service to the net neutrality debate -- he forces the discussion to focus more on how we must deal with the coming explosion of demand for capacity on the Internet.

• In a phrase, Swanson is saying to the net neutrality crowd: "It's the capacity stupid!"

Net neutrality is a classic liberal big government idea that is all about trying to carve up the pie of today to be more fair, while assuming that somebody else will always make more pie for them to carve up. 

• As Milton Friedman so eloquently said: "there is no free lunch" no matter how much people want to "assume" it.
• Somebody must build and pay for a faster Internet to handle the explosion of traffic produced by video, and soon HD video.
• Swanson persuasively forces the reader to think through the massive increases in demand that we already know are "in the pipeline" that require more investment to create a higher capacity Internet.

The insanity of the net neutrality position is that its advocates assume future capacity will be there magically. That capacity will be there, only if there is a functioning marketplace that allows those private network operators that carry the traffic that comprises the Internet are able to earn a return on their investment in new Internet capacity. Otherwise, the Government will have to tax and spend to subsidize it. There is no free lunch.

The insanity of the online giants' position with ItsOurNet, is that they believe they should get a free ride and that the consumer should have to shoulder the entire cost of increasing the capacity of the Internet.

Kudos to Dave Farber and Michael Katz on their very persuasive and compelling Op Ed in the Washington Post opposing net neutrality. I strongly endorse their perspective and wisdom.

I feel great kinship with their point of view. There is no problem here. And there is a lot of harm and unintended consequences that can result from preemptively regulating the Internet.

Like David and Mike, I am well aware of the potential problems that market power could have. I have a long and public record of standing up to monopoly behavior that I viewed as out of bounds. But I am also a fact and analysis person. The facts and the analysis show this is a competitive marketplace becoming even more competitive in the future.  

Robert Kahn, known as the co-father of the Internet along with Google's Vint Cerf, opposes net neutrality becuase it would inhibit necessary experimentation and innovation. Kudos to a great article in the Register on this.

The fact that Network engineers like Robert Kahn and Dave Farber oppose net neutrality make it clear that net neutrality is not this simple benign policy. It is very dangerous preemptive legislation that presumes to perfectly know the future to allow them to lock in for perpetuity one interation of the Internet.

I just got around to watching  House telecom Subcommittee Chariman Ed Markey address the Memphis media reform conference and was struck that he felt the need to go out of his way to defend Google and only Google at this strongly anti-business forum.

• About midway through his speech, Chairman Markey noted that opponents of net neutrality last year asked: "Why should we protect Google?" New House Chairman answered his own question and said "this was the wrong question."

With all due respect Mr. Chairman, "Why should we protect Google?" is precisely the right question.

The respected National Journal has a very interesting article about YouTube and how it may be choosing sides or is not "neutral." It's an important quick read; kudos to National Journal for focusing on it.

• The article says critics are complaining that "YouTube's censoring process is too opaque and inconsistent."

Why is this noteworthy?

1. Google owns and controls YouTube and is leading the charge for net neutrality to keep the Internet open and free of "Internet gatekeepers." 
2. ComScore just reported that Google's market share of the search business is 47% and rising (and with Yahoo, the "search duopoly" now controls 77% of all searches and rising.) This makes Google an increasingly dominant Internet access technology.

It is the height of hypocrisy that non-neutral Google/Yahoo, with 77% share of the search market and rising, continues to assert that the neutrally-operating phone and cable companies are duopolists that endanger the free and open web.  Google and Yahoo are increasingly dominant search gatekeepers for the Internet. ComScore's latest figures show Google with 47.3%, Yahoo with 28.5%, market share and rising -- and #3 Microsoft 10.5%, and #4 IAC Ask at 5.4% and falling.

Why this is so hypocritical is that:

To commemorate the "Seinfeld-ian" aspect of "net neutrality being a show about nothing," NetCompetition.org has introduced a prominent, "What's the Problem?" daily ticker on the NetCompetition.org site.

• It displays how many days it has been since net neutrality supporters claimed that there was a problem and that there has been no net neutrality mandate.*
• The point is clear: there is no problem here. The Internet isn't broken and it doesn't need fixing.
• There is no consumer harm.
• Prices are falling.
• Consumer choice and speeds are increasing.
• Adoption, investment and deployment are healthy.
• There is an explosion of new products/services and innovation.

It has been 1,516 days or over four years, since the term "net neutrality" was first used publicly and that there has been no net neutrality mandate.

• In other words, for a long time, net neutrality proponents have been running around like "Chicken Little" screaming the "Internet sky is falling, the Internet sky is falling" and they can't point to a problem or provide any substantive evidence of it.
• Let me quote FTC Chairman Deborah Majoras:
• "...thus far proponents of net neutrality have not come to us to explain where the market is failing or what anti-competitive conduct we should challenge; we are open to hearing from them."

*Professor Lawrence Lessig is credited with making up the term "net neutrality". Its a clever, but vacuous term that has caught on.

There are several telling indications that net neutrality remains a political and partisan issue and is not a serious legislative/policy issue or industry problem.

First, the only change in the Senate net neutrality bill just introduced, was to change its name from Snowe-Dorgan to Dorgan-Snowe to reflect the new Democratic changeover of Congress. Other than that, the actual bill language is identical to last year’s bill -- according to Senator Dorgan’s spokesperson and my review of the two bills.

Second, isn’t it very telling that the sponsors have learned nothing, let me repeat nothing, since they introduced their bill eight months ago that might have made their bill better or attracted more consensus?