Google

Now that the Democratic-controlled Congress is back in full swing, and now that a lot of cards have been put on the table, its helpful to take stock of where we are on the net neutrality issue. Below I provide: an overview, a Senate outlook and a House outlook. 

My bottom line analysis is that there is a very low liklihood of net neutrality legislation passing in this Congress, despite the hype.

• That said, I have seen nothing that would suggest that net neutrality won't remain a leading techcom issue in Washington for years to come.  

Overview:

Given that net net neutrality advocates really want a change in the law, they badly blew their golden opportunity last year to get net neutrality principles into law -- by wildly overplaying the moderately strong hand they had last year.

I debated Gigi Sohn of Public Knowledge again today at a Media Institute luncheon and was really surprised at her candor in saying that the net neutrality conditions imposed on AT&T were "extortion" that she was happy to be a part of it.

• Broadcasting and Cable Magazine's online edition picked up the exchange so the reporter must have been surprised by her candor too.

While I have debated Gigi several times and respect her highly as a very capable advocate for her positions, I was troubled that she was so open that the net neutrality conditions imposed on AT&T were "extortion."

There's new evidence today that Yahoo continues to stumble as Google continues to gain market share. Yahoo just announced meager 13% revenue growth for 4Q06, while Google announced at the end of the year that Google's revenue grew 86% during the same period. (That's over SIX times faster for those who care about those things!)

This is powerful additional confirmation that Google is quickly on path to reach 50% market share and beyond, a significant antitrust threshold of being considered "dominant" and warranting "stricter scrutiny" of its business practices for potential anticompetitive behavior.  I explained the broader significance of this "dominant" threshold in my blog yesterday.

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.

National Journal's Tech Daily recycled an old factually incorrect charge about Netcompetition.org in its article today on how grassroots groups are lobbying the Senate to omit themselves from the Senate's Ethics and lobbying law.  

I have asked National Journal for a correction for recycling the factually wrong assessment of Common Cause that Netcompetition.org is an "astroturf" grass roots group. 

• I systematically refuted Common Cause's bogus report in August in my blog on Common Cause's report. It was a blatant attempt to intimidate free speech that backfired.
• NetCompetition.org has always been fully disclosed that we are a forum representing the views of broadband companies. There is no secret here! No "astro-turfing" here.
• NetCompetition.org is good old American free speech that Common Cause and its net neutrality supporters don't like and want to stamp out.
• Its pathetic and unethical when people try and abuse the ethics and disclosure laws to single out people or groups whose speech they want to limit or discredit.

The offending excerpt of the Tech Daily article is below:

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.