Should Google go Back to Only Organic?

If you have a couple hours to burn on some political theater, go a watch the Senate hearings about Google. Here is a link.

Actually, as someone who foresaw the inevitability of this event, I was rather disappointed. This hearing was pretty anti-climactic. To find this interesting you have to be a serious junkie of antitrust policy in innovative industries.

There just were not many moments of drama. Rather, the hearing resembled the verbal equivalent of a tennis match that rarely left the baseline, volleying back and forth. There were long stretches between the high points, and those stretches did not contain much tension. Nothing kept an audience glued to their seat, as if they were concerned about missing some important moment.

Except once. But that moment came so unexpectedly, and after such a long stretch of nothing.

Actually, upon reflection, that moment illustrated what was wrong with the hearing. The hearing focused on the wrong issues. That is the point of this post.

Puzzling over big wireless carrier mergers: An Editorial

Let’s talk about AT&T proposal to merge with T-Mobile. Why do the parties involved still consider this merger viable?

Executives at AT&T seemed to think this merger was a good idea many months ago. For all I know, that might have been the right conclusion with the information they had then. But that was then, and this is now, and too much information has come to light to hold that conclusion any longer. Based on what we know now the proposal does not make business sense.

This blog post will argue what should be obvious to any close observer of events, and certainly to the management at AT&T. There is not a viable business case for this merger any longer.

This blog post also will argue that executives at T-Mobile should begin planning to run their business as a stand-alone entity. They always had a viable business,  but that holds even more so now, since they will get a reasonable infusion of cash from the break-up of this deal.

How did the executives at AT&T get into the present pickle? They took a strategic gamble with the US legal system and lost. In their own internal deliberations today they should be acknowledging the loss, and –  for lack of a better phrase — simply move on. That is what their business needs.

So I am puzzled. Why haven’t all the parties declared victory and gone home? This post will consider the question.

Smartphone patents and platform wars

Firms in the smartphone market have been suing one another over patent violations. I cannot recall any other platform war that involved as many intellectual property disputes.

Look, society grants patents as part of trade-off. A patent enhances the incentives to generate new invention by giving the inventor a temporary monopoly. That trade-off should never be far from the top of the discussion. Let me say that another way: Artificial monopolies are clearly bad for the economy. There is no reason to grant them unless society gets something in return, such as more invention.

It is easy to speculate that something is amiss. Was society still on the good side of this trade-off when a non-practicing entity sued RIM-Blackberry for hundreds of millions of dollars, even though the dispute involved patents invented by someone who never got close to putting them into a viable business? Was society on the right side of this trade-off when a consortium spent four billion dollars for patents in bankruptcy court from Nortel, a firm that made some very bad bets during the dot-com boom and had run itself into the ground? Was society on the same side of the trade-off when Google felt so cornered that it bought Motorola for its patents, and, after it was announced, very few analysts saw any reason to point that Google also received tens of thousands of talented engineers as part of the deal?

This is a way of introducing a recent article, “Owning the stack: The legal war to control the smartphone platform.” I recommend it. It appeared in Ars Technica. It brought considerable clarity to events by explaining the actions and motives of various players in the recent patent wars involving smartphones. It was written by James Gimmelman at NYU law school, and recommended to me by David Laskowski, a student from a prior class at Kellogg (Thanks David!).

This post passes on that recommendation and offers a few comments.

An Honest Policy Wonk

Captured regulators routinely take the blame for the ills of regulatory policy in electricity, telephony, and broadcasting. “Captured regulator” has been a pejorative term in these industries for decades.

It’s hard to say when it happened exactly, but this conversation migrated into electronics and the commercial Internet in the past decade, as both industries melded with communications and media businesses. Pieces of the topic even show up in the net neutrality debate.

Quite a bit of nuance got lost in the migration. While many episodes in the history of telephony and broadcasting illustrate regulatory capture, even the theory’s proponents know about exceptions—namely, situations that ought to have been captured but were not. For example, consider the Internet’s birth. There were numerous opportunities for regulatory capture in the Internet’s transfer out of government hands, and, yet, capture theory only explains part of the events and not the entire outcome.

I will refer to other episodes below, but for now, take that example as motivation for modifying the popular theory of regulatory capture. When does the regulatory environment work despite the tendencies toward regulatory capture? As best I can tell, the explanation has something to do with the presence of an honest policy wonk.

The Open Internet Order

After a year of hearings and considerable public discussion, the Federal Communications Commission (FCC) adopted the Open Internet Order on December 21, 2010.

Fireworks flared on the blogosphere almost immediately. Net neutrality advocates cried that the order betrayed and sold-out sacred principles, while Tea Party supporters heaped scornful criticism at government activism. Both sides made intemperate and grim forecasts about the Internet’s future.

Levelheadedness left the political sphere as well. Pushed hard by Tea Party sympathizers, the House of Representatives passed House Joint Resolution 37 in April 2011, largely along party lines, disapproving of the order. As of this writing, the Senate hasn’t yet taken up the measure. President Obama promises to veto it.

Frankly, this conversation needs a calm and considered middle ground, not utopian visions abutting practical considerations. The Internet has never lacked government oversight, and Internet participants have occasionally compromised on neutrality to function. There are subtle economic issues to debate here, and simplistic absolutes don’t contribute much to finding reasonable economic solutions.

Six myths about the Internet

On April 7th, 2011, I had the great pleasure to deliver the Tullock Lecture at the Law School for George Mason University.  After discussing it with the organizer, Tom Hazlett, the talk became focused on a number of provocative and (partially) entertaining themes. Hazlett suggested the talk’s title, which was “The Mythology of Networks.” Here is an ad for it.

As the talk took shape, I found myself with far more material than I had time to present. I had to boil it down, so the talk became focused on “the six myths of the Internet”.  A myth is an economic metaphor that contains a grain of truth, but misleads. An economic metaphor is a short story or aphorism that provides guidance about the key features of a situation.

There are more than six myths, to be sure, but six was as much as I had time for. And the talk just seemed to coalesce around the six that informed aspects of a big question, namely, this big question:

Was the Schumpeterian competition that blossomed in the commercial Internet a fortuitous accident or not? Can government policy for commercializing technology nudge, encourage, and recreate it in other settings?

The six myths frames this blog post. In a moment the post lists the six myths of the Internet. After that the post will list my (tentative) rewriting of each of the myths to make them less misleading.

That will frame the question: What are your favorite myths and how would you rewrite them?

Anyway, here we go. Here are my six myths:

1. The gov’t funded the Internet to design a network that could survive nuclear war.
2. It was cheap and easy to transition the Internet from government to commercial management.
3. Government funding accelerated the arrival of the Internet.
4. Openness made the commercial Internet more innovative.
5. The commercial Internet is like a highway.
6. The Internet led to the death of distance.

If you are curious, here are PDFs of the slides explaining each of the myths. Here is a recording of the talk too. But I digress….

Back to the main topic. Here are my (tentative) corrections to these six myths. These are tentative because I am very open to suggestions. If you have a better idea, please feel free to say so!

1. The Internet’s invention involved a collective effort from many participants, initially nurtured through government funding.
2. The commercial Internet faced the dual challenges of monopoly and rent-seeking.
3. Government funding can and did shape the direction of innovation in inter-networking technology.
4. Open structures can enable challenges to leading firms, and this did matter during the Internet’s commercialization.
5. The commercial Internet involves shared use and partially shared governance of some of its components at the transport layer.
6. Urban leadership shapes the economic geography of the Internet’s impact.

What other myths would you add to this list? How would you fix them and turn them into useful economic metaphors? Suggestions are welcome!

The Internet and Innovation: My Testimony to Congress

A couple days ago I had the privilege and pleasure to testify before the House Sub-committee on Communications, Technology and the Internet, which is part of the Committee on Energy and Commerce in the House of Representatives.

Broadly speaking, the topic was net neutrality. That is what the newspapers said.

Frankly, I hesitated to testify. I am always happy to talk with any government analyst who calls, irrespective of party affiliation. Congressional testimony is different, however, especially in this topic, which tends to yield more heat than light. Moreover, I am neither advocate nor opponent for net neutrality — at least as that phrase commonly gets used in US political debate. Why should I be a neutral voice in someone else’s political fight?

Ah, but I could not say no. Even with reservations, there still exists a professional obligation to show up. It is the right thing to do. Also, and I will admit to this, I was excited.

One other thing made it easy. The hearing did not concern the entire net neutrality debate. It concerned a rather specific question, something called House Resolution 37, which disapproves of the Open Internet Access Order issued by the FCC last December. If passed, the entire order would not take effect — not its provisions for transparency, blocking and discriminatory traffic.

I had testified at the FCC hearings leading up to to the order, and  had testified in favor of transparency provisions, for example. That made it easy. Such a blanket resolution — getting rid of everything — looked like throwing out the baby with the bath water. To me this resolution did not make sense.

One other broad motive shaped my views. I believe there actually is a big economic question on the table, and it gets lost in the popular debate. I hoped to bring attention to that. In a nutshell, if there is anything a government might be able to do, it might be able to foster economic growth by nurturing entrepreneurship on the Internet.

Those expectations were naive (of course), but we will get to that below. Anyway, that is why I agreed to come.

This post will share what I learned about how the existing political debate filters this topic.  Below is a copy of my oral testimony, and a link to my written testimony. After that comes many  observations about what sort of questions arose at the hearing. I hope others find this insightful and useful.

Bing imitates Google: Their conduct crosses a line.

Imitation happens. It is a part of competitive behavior. Sony brings out a new feature on its TV and Samsung does the same thing three months later. Slate.com installs a better tool for soliciting comments, and a month later the same feature shows up at the Huffington Post. Chrysler brings out a minivan and within a two product cycles every other auto assembler has one too. Nobody loses sleep over this.

Moreover, the Internet makes monitoring a rival easier, so imitation involves less hassle and far lower costs than it used to. So it should surprise nobody that imitation happens with some frequency, especially among online competitors, and more often than in competitive contests offline.

Yet, so why does Bing’s imitation of Google’s search results seem to cross some sort of ethical line? Why does Microsoft’s conduct leave me shaking my head, wondering why Bing’s management did not put its nerdy foot down and just say “That is shameful. Let’s not go there.”?

Let’s consider why.

Will the iPad flatten us all?

This article appeared in the Financial Times on January 14, 2011. It was written by Gillian Tett (pictured on the right, photo credit to the Financial Times). It refers to research by yours truly, Chris Forman and Avi Goldfarb. The specific paper she discusses is titled “The Internet and Local Wages: a Puzzle.” Check it out.

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Will the iPad flatten us all?

As you trudged back to work this month, did you head to an office in a large urban centre, be that Baltimore, Bristol or somewhere else? Or did you sit down at your computer – or with an iPad – in a pleasant ski lodge, beach house or even a simple house in a poorer rural region, such as Arkansas or Wales?

Right now those questions matter not just for your own well-being, but to wider social and economic policy, too. More than a decade ago, the US author Thomas Friedman caused a stir by suggesting that the internet was turning the world “flat”: by connecting everyone, new technologies were creating competition and opportunities across borders, enabling many jobs to migrate….

Building Broadband ahead of Digital Demand

Many governments today, especially outside the US, are considering making large subsidies for broadband. Some governments, such as South Korea’s, have already done so, making next-generation broadband widely available.

In the US, debates about subsidizing broadband touch two sets of overlapping issues. One set considers the benefits and costs of an expensive action: building wire-line broadband in low-density areas. A second set considers stretching the frontier for broadband far beyond its present capabilities to enable next-generation Internet applications (typically video).

In the US today, those favoring building ahead of demand are the most dissatisfied, as are those who want to subsidize rural broadband. This column considers the economic origins behind that dissatisfaction.