Microsoft

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.

The call for net neutrality regulation, or banning Internet tiers, runs completely counter to the highly-successful, commercial evolution of the Internet.

A recent Cable World article by Paul Kagan "Paying the Piper" highlights this truth, that the "wave of the future" is bandwidth based billing. Usage-based billing is exactly opposite to one-size-fits-all net neutrality regulation. More usage-based billing better serves users becuase it allows them to buy just what they need. Light users pay less and heavy users pay more. As Kagan aptly points out, this is "a marketplace pricing solution that encourages consumers to regulate themselves."  Â 

"Charging for Google is like charging for air" this is a quote from an Oxford student at a Google encouraged "creativity session" on net neutrality. Â The thought embodies Google's goal to be as ubiquitous on the Internet as air is to humans. Where the metaphor crashes and burns is that Google does in fact charge for "air" -- it just charges others than the user for the privilige. Google is paid by advertisers the equivalent of 11 cents per search discrimination result.

• Lets be real. Google does not work for users, users don't pay them anything.
• Google works for advertisers; 99% of Google's revenues come from search advertising. Â 

As one of the greatest economic thinkers of all time, the late great Milton Friedman, said: "There is no free lunch." Somebody pays for it.

"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."