AT&T

"The search engine business will shake down to a natural worldwide duopoly" was how the New York Times paraphrased Randy Befumo, the Co-Director of Research for Legg Mason, which is one of the largest investors of both Yahoo and Google, in the article Sunday "Sunny and Gloomy Signs at a Web Crossroads." Befumo also said: "We think that Google and someone else -- we think the odds are Yahoo -- will do this for a majority of the Internet, ... Very few other people will be able to get the scale of traffic to make it work."

I wanted to highlight another solid data point in the clear pattern of the online giants expecting to use other people's property for free. Tuesday the Washington Post ran an article "Internet Firms Seek Rollback of Quote Fees" which explained that Google, Yahoo, and IAC (ask.com) plan to petition the SEC to forbid stock exchanges from charging them fees for real-time stock price quotes. The Executive Director of this Net Coalition -- of Takers said bluntly, "we dont think they own the information." Obviously the SEC disagreed and believes the exchanges do "own the real-time price quotes" information. However, "takers" don't take "no" for an answer.

It's instructive to point out that this Net Coalition -- of Takers, are some of the same folks that:

• The book publishers and authors are suing for digitzing their book without permission;
• The newspapers are suing for using their headlines and photos without permission;
• Trademark owners are suing for using their trademarks without permission.

This Net Coalition -- of Takers appears to have a very self-serving definition of "ownership." It appears that they think "information generated by others is not "owned" by others because its digitizable, and if its digitizable its fair game for them to search or provide and make money from. Apparently in the digital values and ethics of these online giants, it is "wrong" for others to make money off of the valuable information that their businesses generate, but "right" for the online giants to make money off selling access to information that others produce.

The Wall Street Journal front page story on: "How Microsoft is learning to love online advertising" is a perfect example of Microsoft's hypocrisy and double standard on net neutrality.

The article highlights how after a slow start Microsoft is rushing into online advertising to catch up with Google. Two quotes from the article sum it up well:

• "Online advertising has emerged as the foundation stone of a host of new web businesses."
• "I think everyday its (Microsoft) becoming more of an advertising company than it was the day before."

So?

Those who oppose state and local taxation of the Internet are happy that Sen. Lott (MS) won (25-24) the post of Senate Republican Minority Whip today. Â I blogged on Monday why this leadership race was an important precursor on Internet tax and net neutrality. Senator Lott's opponent in the whip race was Lamar Alexander of Tennessee, the Senate's biggest proponent of ending the Internet Tax Moratorium and allowing state and localities to tax the Internet.  

"On search, you want to be on that first page," Leonsis said. "You don't exist from Page 3 on." This is what Ted Leonsis, a co-founder of AOL, said in the Washington Post this week.

This is very relevant to the online giants and their call for a fifth non-discrimination net neutrality principle in legislation and on the AT&T-Bell South merger. What Leonsis is saying is what we all know. It doesn't matter that Google or Yahoo give a hundreds of thousands of links in our search results, virtually everyone only has the time or inclination to check the first or maybe second page of search results. "You don't exist from Page 3 on."

The Sunday NYT had a great piece on Google by Richard Siklos "A Struggle Over Dominance and Definition." The crux of the analysis is Google: mate or menace? friend or foe? to media players and others?

My favorite quote was Microsoft CEO Steve Balmer: "The truth is, what Google is doing now is transferring the wealth out of the hands of rights holders into Google."

• Duh. Google is getting sued for different kinds of theft by a very wide range of property owners.

However, what I really love is how Google keeps self-redefining themselves in a way that makes net neutrality regulation more likely to apply to them in the future.

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.

With power comes responsibility and with responsibility comes tough choices. Both Speaker-elect Pelosi and Majority Leader-elect Reid have pledged to "govern from the center." The operative word here is "govern." While net neutrality may have been a good "political" issue for the Democrats, it is not a good "governing issue" for them.

With control of Congress, the Democrats can now make policy and pass legislation, which means, very practically, that they have to live with the real world consequences of their legislative rhetoric and decisions -- because Wall Street, markets and voters are taking them very seriously.

 

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?   

FCC Democratic Commissioner Copps editorial in the Washington Post, America's Internet Disconnect" is a very good guide to how the debate over communications policy and net neutrality will shift with Democratic asendancy in Congress.  

I have the utmost respect for Commissioner Copps personally even though I generally disagree with his conclusions when we look at the same set of facts or analysis. It probably results from his greater trust in government than markets and my greate trust in markets than government.