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The Costs of Free on the Internet

How can free have a cost? Well a lot of different things are converging in Washington that could bring much more focus to -- "the costs of free" on the Internet.

  • Last month's Revised Behavioral Advertising Principles from FTC Staff are largely about making more transparent the privacy "costs" of "free" Internet products and services funded by online behavioral advertising.
  • This month's NYT news that House Internet Subcommittee Chairman Boucher now supports passage of new Internet privacy legislation requiring consumer "opt-in" permission in order to exploit consumer information, implicitly recognizes the substantial hidden privacy "cost" of behavioral advertising.
  • This week's privacy and security-related complaint to the FTC filed by EPIC against Google's free cloud computing services, further brings to the forefront the hidden "costs" of free on the Internet.

Google has 97.5% mobile search engine share -- per survey's latest survey of mobile search engine market share has the following market shares:

  • 97.50% Google Global
  •  2.03%  Yahoo Global
  •  0.21%  Ask Global
  •  0.09%  Microsoft MSN/Live Global
  •  0.04%  AltaVista Global
  •  0.03%  AOL Global

NetApplications noted that "Microsoft recently partnered with Verizon to make Live Search the default search engine of all Verizon devices in the next few months."




Opening Pandora's Box? The forward-looking Implications of "interest-based advertising"

What are the big forward-looking implications for the broader Internet-related economy of Google's announcement it is launching a new variant of behavioral advertising, called "interest-based advertising."

  • Analytically, this may be one of the most significant developments in the digital economy, Internet advertising and online privacy in a long time.
  • Why? 

First, it is probably a major catalyst escalating and accelerating public discussion about behavioral advertising and online privacy.

Context is always important, and this announcement does not occur in a vacuum. It has broad implications because of the pervasive reach of the issue and the market leadership of the announcer. For example:

a Twitter in the vortex of the Internet economy?

Who buys Twitter?     

By way of background, Twitter bought the search engine Summize in July of 2008, raised $35m more in capital last month, and reportedly turned down a $500m offer from Facebook.

Why is this notable?

If Twitter's future is similar to other fast-growing technology first-movers, Twitter will eventually be bought by a large player, sooner rather than later, like NewsCorp bought MySpace, Google bought YouTube, and eBay bought Skype.

While Google may be at the top of most people's minds as the most likely buyer of Twitter, given its value as a fast-growing originator of searches,   Google CEO Eric Schmidt's much-reported dissing of Twitter as a "poor man's email" struck me as strange, and prompted me to noodle about why Google is uncharacteristically talking down such a popular first-mover app?

Internet "history is written by the victors?" -- or is it "to the victor go the spoils?"

Winston Churchill prophetically said: "history is written by the victors." This truism is timely now given Eric Auchard's great column "How the web devours history," that I built upon in my latest post: "Will history be the casualty of an 'ecommony?' If info is free who will pay to archive it for posterity?" 

Given the Internet's natural first-mover dynamic, global scale and scope efficiencies and powerful reinforcing network effects, which I have written extensively on, could the Internet's 'victor' effectively write history by deciding what information ultimately gets archived and found?

To answer that question requires establishing some important baseline points.

Antitrust at the Vortex of the Internet Economy

If net neutrality/open Internet proponents believe that non-dominant, competitive broadband providers should be not be allowed to advantage their own content, products or services over competitors', why do they tolerate monopoly application providers disadvantaging their competitors' content, products or services? 

A new private antitrust lawsuit by against Google brings that question to the forefront.

  • Trade Comet charges that, since the DOJ concluded in November that Google was a search advertising monopoly, it is anti-competitive for Google to dis-advantage its competitors' products, services, and content for the benefit of Google's products, services and content.      

    This new antitrust suit is significant and bears watching for a variety of reasons.

Why FTC’s Behavioral-Ad Principles Are a Big Deal – Privacy-Publicacy Fault-line Part IV

The FTC staff's revised behavioral advertising principles make it clear that the FTC understands the Internet’s growing privacy-publicacy fault-line. The FTC’s new guidelines are all about tackling the growing problem of unauthorized publicacy – meaning the tracking, collecting and “mashing-up” of information consumers reasonably expected to be kept private.  (“Publicacy” is the opposite of privacy.)

  • Privacy-Publicacy Fault-line Part I, II, III.


Why are the FTC’s new guidelines a much bigger deal than most appreciate?


First, the new guidelines put a new and brighter privacy regulatory spotlight on Google, the world’s dominant behavioral-advertiser, and to a lesser extent, Yahoo, Google’s distant #2 competitor.

Looking into the Vortex of the Internet Economy

Google’s earnings remind us of the core competitive dynamic of the Internet content economy – the increasing market dominance of Google.

  • Google’s 18% revenue growth Q407-Q408 during this economic maelstrom is extraordinary, especially when its secondary search competitor, Microsoft, posted zero growth in online services and 2% revenue growth overall.
  • I expect Google’s growth to be even more impressive when compared to Google’s main competitor, Yahoo, which I expect to post ugly fourth quarter negative growth.
    • Yahoo has been in the corporate equivalent of a fetal position ever since the DOJ blocked its ad agreement with Google and it became obvious Yahoo had no “plan B.”
  • I was even more impressed with Google’s dominance when I calculated that Google grew revenues over 31% in 2008 off a large $16.6b 2007 base. The law of large numbers did not take as big a bite out of Google as many expected.


As strong as Google’s revenue growth was, the most interesting earnings development to me was the big peek Google gave us behind its infamous secrecy curtain – in disclosing it was re-pricing most of its employee stock options.

Implications of a Search Monopoly for Content/Applications

The content and applications industries have yet to connect-the-dots of the U.S. Department of Justice concluding search advertising is a monopoly and that Google has pro-actively sought to further its monopoly in search advertising and search advertising syndication.  

  • The long term implications of this DOJ conclusion are sweeping and profound for content and apps providers.  

Simply, if the DOJ believes Google is a monopoly, then it follows that DOJ would believe it is illegal under antitrust law for Google to proactively disadvantage its competitors’ content/applications by favoring Google-owned content/applications over competitors’ content/applications on Google’s search advertising monopoly platform.

Must read WSJ Digital Daily post on Google

Kudos to John Paczkowski of the Wall Street Journal's Digital Daily blog for a interesting big picture perspective on Google's evolution. Don't miss it.


Q&A One Pager Debunking Net Neutrality Myths