Wednesday, September 12, 2007

"Freeconomics", future of the Internet and network neutrality

[Here are some excellent additional pointers on the development of "freeconomics" and the resulting impact on the future of the Internet. As Susan Crawford points out in her insightful blog, carriers want to remold the Internet into the mobile telephone business model where every service and application is monetized in which they earn a small percentage on each transaction. Hence prioritized services, QoS and walled gardens are essential to their future. However, counteracting that trend is the development of many new free services and applications from Skype to Google Earth. As I pointed out in my last post many companies in the UK and France are offering free Internet, telephony and cable in creative bundling. If free is the way of the future Internet - then how is the infrastructure going to be paid for? One possible solution is something like our Green Broadband project. Some excerpts from Chris Anderson's and Susan Crawford's blogs as well as this article in Financial Times-- BSA]

Green Broadband and Free Gigabit Internet to the Home

The Rise of Freeconomics
Chris Anderson

I begin my economics of abundance speech with Carver Mead's mind-bending question: "What happens when things get (nearly) free?" His answer is that you waste them, be they transistors or megabytes of bandwidth capacity. You use them profligately, extravagantly, irresponsibly. You shift out of conservation mode and get into exploitation mode. You do crazy things like offering people the ability to put their whole music collection in their pocket, or promising the average email user that they'll never have to delete another message to conserve space. Just as Alan Kay "wasted" transistors to create the graphic user interface, we will all learn how to waste newly abundant resources, retraining our minds to ignore our instincts about costs and scarcity.

Today we have an unprecedented number of resources that are closing in on free when measured in units that were once meaningful to regular folks. Through the 1950s and 1960s Mead watched transistors drop from $100 each to $10, then $1, then $0.10, then a penny. Then, in the 1970s as transistors were integrated into semiconductor chips, they fell to a millicent and then a microcent. They're now nearly down to a nanocent--virtually free. Hard drives now go for about 30 cents per gigabyte, or .03 cents per megabyte (I remember my first 10-megabyte drive, which cost me a few weeks salary at the time). Bandwidth now costs less than ten cents per gigabyte at retail, and it wouldn't surprise me to hear that it's fallen below the penny-per-gigabyte level for big commercial outfits. How long would it have taken you to download a gigabyte of data in the old dial-up days, if you could even keep a connection open that long?

With apologies to Levitt and Dubner, I'll cheekily call the emerging realization that abundance is driving our world "freeconomics". Understanding when to shift out of scarcity mode and start giving away what you once held dear is a core competency for our age. Heck, there might even be a book in it!

Why giveaways are changing the face of business
Michael Schrage

Never in history has so much innovation been offered to so many for so little. The world’s most exciting businesses – technology, transport, media, medicine and finance – are increasingly defined by the word “free”.

Google charges users nothing to search the internet; neither does Yahoo nor Microsoft MSN. E-mail? Instant messaging? Blogging? Free. Skype, the Luxembourg-based company that is now a multibillion-dollar division of Ebay, offers free VOIP – Voice Over Internet Protocols – telephone calls worldwide. San Francisco-based Craigslist provides free online classified advertising around the world.

In America, the Progressive insurance group gives comparison-minded shoppers free vehicle insurance quotes from its competitors. Innumerable financial service companies offer clients free tax advice, online bill payments and investment research. Michael O’Leary, Ryanair’s colourful founder, predicts his discount carrier may soon offer free tickets to his cost-conscious euro-flyers.

Of course, Milton Friedman, the Nobel economist, is right: just as “there’s no such thing as a free lunch”, there is also no such thing as a “free innovation”. These “free” offerings are all creatures of creative subsidy. Free search engines have keyword-driven advertisers. Financial companies use cash flow from profitable core businesses to cost-effectively support alluringly “free” money management services. Ryanair counts on the lucrative introduction of in-flight gambling to make its “free tickets” scenario a commercial reality. Innovative companies increasingly recognise that innovative subsidy transforms the pace at which markets embrace innovation. “Free” inherently reduces customer risk in exploring the new or improved – and bestows competitive advantage. To the extent that business models can be defined as the artful mix of “what companies profitably charge for” versus “what they give away free”, successful innovators are branding and bundling ever-cleverer subsidies into their market offerings. The right “free” fuels growth and profit. Technology has successfully upgraded King Gillette’s classic “razor & blades” business model.

The simple reality is that technology will continue eroding entry barriers to provocative cross-subsidy. The more digital or virtual a process, product or service, the faster and easier crafting clever subsidies become. Scale matters, too. Global scale facilitates global subsidies. Just as advertisers subsidise free Google searches, marketers can easily download advertising-supported “free” songs, videos and games into iPods, Sony PSPs and Nokia phones. Internet-based telephone calls similarly lend themselves to sponsorship: “This free call from your brother in New York is brought to you by Tesco . . . please press #1 to accept . . . ” While that prospect will not thrill traditional telecommunications companies, consumers might appreciate the “free” choice.

Susan Crawford on Network Neutrality

Non-neutrality also serves the interests of those who would like (more generally) to see the internet morphed into something much more akin to the current wireless model here in the US: a fully-monetized network, permitting use of particular applications that share their revenues with the network access provider. (This network would not be the same thing as the internet.)

Another document came out last week that ties this all together. It's from the ITU, and it's called "Trends in Telecommunication Reform 2007: The Road to Next-Generation Networks (NGN)."

The ITU defines "NGN" as a network that provides quality-of-service-enabled transport technologies. The idea is that packet transport will be "enriched with Multi Protocol Label Switching (MPLS) to ensure Quality of Service (QoS)."

Translation, as far as I can tell: packet transport becomes the same as circuit-switched transport. Prioritization is controlled; it's a network optimized on billing.