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Posted Sunday, March 31, 2002 Wi-Fi networks illegal?Erick Schonfeld of Business 2.0 helps inflate the Wi-Fi balloon.
Nothing stopping? Actually, 80211b.weblogger Glenn Fleishman sees a little problem.
Not surprisingly, your home DSL license says that you cannot re-sell your DSL service. Cable licenses are even more restrictive. Why would the local Bell or cable company want to let you compete against itself for free? You can bet that if people want to re-sell broadband to their neighbors, the service providers are going to want a piece of the action. This should keep the lawyers and regulators busy for awhile. . . . . . .
Posted Friday, March 29, 2002 Did AT&T Slow the Internet?According to Lawrence Lessig, the answer is yes.
A less conspiratorial picture was painted years ago by economists Hal Varian and Jeffrey MacKie-Mason.
In the economists' view, the Internet only arrived when it did because the relative cost of packet switching was too high to make it competitive in the 1960's and early 1970's. The issue is important, because it affects how you view the need for government regulation. If, like Lessig, you see monopolies conspiring successfully to resist technology, you will want to see government intervention. If instead you see market forces determining the rate of technological adaptation, you will see less need for government intervention. Take the issue of broadband provision and local phone companies. It is easy to weave a conspiracy theory involving the local phone companies, and to use that to argue for government splitting the phone companies vertically, with the wholesale component forced to sell access to any retailer. On the other hand, if you believe that markets work tolerably well, you would tend to argue that new 80211b networks and other forms of competition are sufficient. Apparently, FCC Chairman Michael Powell takes this view. Lessig's view of history tends to support activist regulation. However, in terms of analyzing the factors that slowed the adoption of the Internet, I suspect that his view of history is not valid. . . . . . .
Economists Vs. EnvironmentalistsEconomists tend to disagree with environmentalists. In this article, I try to explain the economist's point of view.
Comments welcome. . . . . . .
Netscape as a Legal EntityNetscape's market share has plunged in the last several months, according to this story.
This is not surprising, given that Netscape no longer is a software company. It turns out, again not surprisingly, that "open source" is not an effective development model for consumer software. Back when Netscape was a software company, its best opportunity was in the server market. However, its flagship server product was terrible, as I learned from bitter personal experience. America Online reportedly intends to use the Netscape browser in its software, which would boost its market share. AOL's motive for switching to Netscape is purely legal leverage. AOL's revenue model for Netscape is to sue Microsoft. They know that in court they will face the question, "If Netscape is so great, why does AOL use Internet Explorer?" My prediction is that they will use Netscape until their antitrust suit against Microsoft is over, and then switch back to IE. . . . . . .
Posted Tuesday, March 26, 2002 Put your Money Where Your Mouth IsI'll wager that this site becomes "in" with the digerati: www.longbets.org, where seers must back their predictions with dollars. My favorite bet so far is this one:
Dave Winer, who I assume is userland.com's Dave Winer, takes the affirmative. Martin Nisenholtz, who I assume is with the Times, takes the negative. Personally, I think that if this does come to pass, it will be sooner than 2007. . . . . . .
Identity on the InternetOn the Internet, nobody knows you're not a spammer. And David Reed argues that the attempt to identify spammers in the middle of the process (at the ISP level) rather than at the endpoint of the process (consumers and their email programs).
I complained about the issue of poorly-defined Internet identities in People Protocols. But I'm not sure what is involved in creating the technical solution. Reed is more expert than I am, and even he does not clearly spell out a solution. . . . . . .
What They DeserveBy fighting Microsoft in court instead of in the markets, competitors risk unintended consequences. For example,
In order for the public to benefit from the Microsoft anti-trust case, (1) the judiciary has to be very astute about what is optimal in terms of technology regulation and (2) the optimal policy has to fall within the law. People tend to forget that the anti-trust verdict does not give judges license to do whatever they want with Microsoft. The remedy has to have something to do with the improper behavior which Microsoft engaged in. My guess is that the two constraints are likely to lead to actions with many more unintended consequences than genuine benefits. . . . . . .
Posted Monday, March 25, 2002 A Nice metaphorIn a fascinating interview, Ray Kurzweil tosses off a helpful metaphor. Talking about cloning and other issues in bioethics, he says:
This is a better hydrological metaphor than cross-currents (see below). Copyright laws are like stones in a stream. The song-swapping phenomenon just runs around them. . . . . . .
Enron Nation?One Enron is not enough for some people. Paul Krugman, in his New York Times columns of January 29th and February 1st, said that Enron was more important than the September 11 terrorist attacks, and that there might be many more Enrons out there. The Wall Street Journal headed an editorial Fannie Mae Enron? And according to the Washington Post,
New York Magazine's Michael Wolff wrote
The answer to the embarrassing question is "very little." The past twenty years have seen dramatic increases in overall well-being in the United States, a fact which can be demonstrated through statistics on health and longevity; ownership of homes, personal computers, and appliances; availability of products and services that did not exist twenty years ago; etc. Our economy is more reliable than are its pundits and commentators. . . . . . .
Cross-currentsThis Dan Gillmor fears that we are losing.
But this Dan Gillmor says,
And this Dan Gillmor reports,
The current in Washington is flowing in the direction of rules that favor incumbent telephone companies and content owners. The current in the real world is flowing in the direction of new methods of Internet connection and new models for content distribution. The first Dan Gillmor points out, correctly, that life would be bleak if the big companies had their way. They and their friends are trying to outlaw the future. I find the attempt more pathetic than threatening. The future will arrive, with or without Washington's blessing. . . . . . .
Posted Saturday, March 23, 2002 Dead HandsDemocrats in the U.S. Senate have decided that they know better than the market which technologies are most efficient for energy production. As self-styled conservative economist James D. Miller points out,
Meanwhile, on the Hollywood protection front, Senator Hollings finally introduced his draconian bill (CBDTPA) that outlaws any device that might be used to thwart copy protection. This also affects software, as Wired's Declan McCullagh reports.
It looks as though what Brink Lindsey's book calls The Dead Hand of central planning is alive and well. . . . . . .
Posted Wednesday, March 20, 2002 Data MiningOne application for cheap storage is data mining, as this article about Harrah's describes.
Actually, I don't believe the man. I would wager that data mining is used to increase customers' propensity to gamble. A few years ago, I wrote (somewhat idealistically) that
I still think that the better business model is exposing data to consumers and enhancing their decision-making, rather than spying on them behind their backs and playing tricks on them. But, again, I may be too idealistic. . . . . . .
Visual Porn StudioTMOne theory of Internet development holds that applications first are invented to satisfy the desires of Horny Teenage Boys (HTB's) and then later are adapted to mainstream uses. If that is correct, then we can speculate on the initial application of the trends discussed by Microsoft's Rick Rashid (see below): cheap data storage, alternative human-computer interfaces, better graphics, and distributed computing. What these trends together can support is home-made pornographic videos, produced and shared by HTB's. High-quality graphics obviously are suited to this purpose. Full-motion video with high-quality graphics will require lots of data storage. HTB's will want to share and modify one another's videos, and that implies distributed computing. As to alternative human-computer interfaces, er, I don't want to touch that one--let's leave that up to the imagination. But where is the business opportunity? As usual, it is in creating the enabling software. For example, someone might develop a program that would extrapolate how people would look naked based on photos that show them clothed. That way, HTB's could scan in photos of girls they know and use them in home-made porn. And someone needs to develop a program that makes it easy (perhaps using those alternative human-computer interfaces) for the HTB-producer to add motion and sound to still images. In conclusion, if we combine the HTB theory with Rick Rashid's view of trends, then the clear implication is that the killer application is something like Visual Porn Studio. I am not sure whether Microsoft has the b--er, I mean, nerve--to develop that application, but you can bet that they will own the trademark. . . . . . .
Posted Tuesday, March 19, 2002 Storage to WasteRichard Koman interviews Microsoft's Research Director, Rick Rashid, about technology trends.
Three other trends Rashid points to are more modes of human-computer interaction (pen computing, voice recognition), much more powerful graphics, and distributed computing (due to XML and other phenomena). Reading this interview, my sense is that we're waiting for a killer application for these technologies. My guess is that if you combine the technology trends with the new concern about terrorism, you almost have to predict that there will be a surge in databases, biometric identification, and such. I also think that the design of applications is going to have to take into account the fact that portable devices are constrained by battery life. You may be able to make a laptop with a terabyte hard drive, but can you run it for any decent length of time? . . . . . .
Posted Monday, March 18, 2002 Worries about Internet2Glenn Fleishman's 80211b.weblogger pointed me to this article, which does start by hyping 80211b. However, the article then veers off into a discussion of other "trends" about which I am dubious.
Internet2 is an attempt to increase the capacity of the Internet backbone. I am skeptical of the videoconferencing application. First of all, Internet2 does not speed up the "last mile." Secondly, videoconferencing has been the application that nobody uses ever since the first picturephone was introduced in the 1960's. My guess is that Internet2 will end up costing a lot more in taxpayer dollars than the original Internet, and that it will deliver only a fraction of the benefits. If these predictions are borne out, chalk it up to a very old proposition in economics: the law of diminishing returns. . . . . . .
Loser PetitionsWhat happens when a low-cost business model that delivers something people want comes up against a multi-billion-dollar model that delivers something almost nobody wants? The loser petitions, of course.
Anyone looking at this from the standpoint of social welfare would say that Wi-Fi is squeezing much more benefits out of its little allocation of spectrum than is the satellite radio industry. However, we cannot count on the FCC to look at the issue from that standpoint. . . . . . .
Posted Sunday, March 17, 2002 Privacy Luddites BewareA supermarket is using a biometric ID to speed the checkout process.
This process does not require the actual credit card to be used, which reduces the risk of fraud or theft. This is the type of technology that folks like Simson Garfinkel say will harm privacy but achieve no security.
I think that, as the supermarket example illustrates, more secure forms of identification are going to be employed. It is stupid to try to deny this technology to the government. I say more about this in my essay on Privacy Luddites. . . . . . .
The True Cost of InnovationTechnology Review's Michael Schrage points out that the customer's cost of adopting an innovation is much more than just the price charged by the innovator.
Costs can involve learning to use the new technology, overcoming bureaucratic resistance to new technology, and dealing with risks and unintended consequences of new technology. Schrage is saying that many technology companies focus internally on what they are developing and fail to understand what will be necessary to achieve adoption with customers. In my experience coaching entrepreneurs, I have found many that could benefit from understanding Schrage's thesis. . . . . . .
Posted Saturday, March 16, 2002 80211b a loser?Scott Cleland and William Whyman are two telecom industry analysts calling themselves The Precursor Group. If you go to their home page and scroll down, you will find a link to an electronic reprint of an interview in Barron's last month. Cleland and Whyman have their own perspective on things. For example, they are not too fond of the attempt by the government to get the Baby Bells to allow competitors to offer services over their wires.
Even more provocatively, they pooh-pooh the fad du jour, 80211b.
I'm not saying that I agree with them, but I think the interview is worth a read. . . . . . .
The Music Industry's Legislative AgendaAfter the music industry has finished making song-swapping illegal, here's a list of all the other business models they will need to outlaw. Kevin Kelly came up with many ideas, including
The point is that one can imagine a world in which there is no copyright protection and yet musicians are able to make money. I cannot predict which of Kelly's solutions will turn out to work. But it's a safe bet that the solution will come from outside of the current music distribution industry, which is fixated on denying technological progress instead of taking advantage of it. . . . . . .
Posted Friday, March 15, 2002 Something to Read TwiceI had to read this piece by Bob Frankston twice before I even began to comprehend it.
What Frankston says in the essay (I think) is that two factors currently are distorting the Net.
The impact of these distortions is to retard the expansion that the 80211b protocol might otherwise allow.
I remember that as far back as 1996 hearing Bob Kahn (one of the original Internet architects) suggest that one of the most important uses for broadband would be encryption. His view was somewhat different from Frankston's--Kahn saw encryption as necessary for giving people digital signatures and facilitating authentication (think spam-fighting).
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Posted Thursday, March 14, 2002 More Anarchist OrganizationNow we have digitalconsumer.org, whose spokesman testifies
As I've said before, I expect that we will lose the legislative battles, but win the technical wars. Congress will pass stupid laws making it illegal to do reasonable things, and we'll find work-arounds to those laws. . . . . . .
Bet Against Business WeekThe folks at Corante's Premium Blend spotted this piece in Business Week.
This is the same magazine that predicted confidently five years ago that "push" technology was the next big thing (to be fair, Wired made the same mistake). I think that it is true that the Internet is ideal for niche services. Overhead costs are low, and the reach is wide, so it is easy to serve niche markets. However, I think that the Internet is still an exciting place for entrepreneurs, and the success of a site like blogger.com still shows the potential for new mass appeal. And I disagree with the implication that megalomaniacal companies such as Yahoo, AOL, and Amazon have achieved dominant positions from which they cannot be dislodged. On the contrary, I think it is likely that Yahoo and Amazon will have to narrow their focus in the future. My guess is that the breadth of their offerings ultimately will prove to be an economic disadvantage. For example, while Yahoo was branching out into other areas, Google stole their search business. (In fact, if the Internet pioneers could lock up the audience as well as Business Week contends, then Google should never have happened.) Trying to be all things to all people is a weak strategy when a targeted solution is just one click away. It's not that it's too late to try to build a comprehensive web service. It's that such a model never was right to begin with. The pioneers who have "captured" that space will find that what they hold has little value. . . . . . .
Loser SuesOne of my favorite bloggers, Megan McArdle, has a piece in Salon arguing that Netscape does not deserve to win its lawsuit against Microsoft.
I would add that the browser was not where Netscape lost its opportunity in software. The best revenue opportunity was in the server market. However, as someone who attempted to use Netscape's server technology, I can tell you that if there ever was a company that deserved to lose, it was Netscape. The software was expensive, bug-ridden, horrendously documented, and miserably supported. Netscape would set up support forums for their server software that required paid subscriptions (on top of what you already paid for their server software) where there were no Netscape employees available to answer questions! Ultimately, these turned into buyer-venting sessions, where we ranted against Netscape and suggested alternatives to one another. With its engineers totally walled off from the user base, each release of the Netscape server was worse than its predecessors. Ultimately, for my company, I chose the JavaWebServer. This was a Sun prototype, which the folks at Sun felt was embarrassingly half-baked, so that they never declared it production-ready. It was much more robust than Netscape's $5000-and-up server products. Most server operators, of course, chose the open source web server from Apache. Given the high cost of a technical person's time, and the high cost of server downtime, the fact that Apache is free is not the determining factor. It's just that Netscape's offering stinks by comparison. No software company ever deserved to fail as much as Netscape. While it was still alive, I predicted that Netscape beating Microsoft was as likely as Swarthmore beating the Green Bay Packers. . . . . . .
Posted Wednesday, March 13, 2002 Keep your filthy laws off Doc's Internet RadioDoc Searls is a tad worked up over something called CARP.
I think that the heart of the problem is the fact that we have legacy industries that know how to make money selling atoms, and they need to be replaced by companies that can figure out how to make money selling relationships (to use John Perry Barlow's phrase). A relationship could be a monthly subscription to an Internet radio service, or something like that. The public policy issue is how to deal with a transition from the old to the new. Historically, an old industry could block new competition by buying off Congress, and that is what Big Media is trying to do. But (a) the music distributors have aroused the ire of consumers like Doc and (b) even though they may win some legislative battles they seem to be losing the overall technological war. . . . . . .
More Stock Option HysteriaThis one comes from T.J. Rodgers, of Cypress Semiconductor.
If I want to value Cypress Semiconductor as an ongoing concern, then I need to know its employee compensation costs. To me, that means treating stock options as an expense. If stock options are worth nothing, then Rodgers is deceiving his employees. If they are worth something, then he is deceiving shareholders. If he thinks that shareholder deception is necessary for the health of his company, then maybe people should think twice about becoming shareholders. . . . . . .
Posted Tuesday, March 12, 2002 ShamelessVenture capitalist John Doerr has no shame. One of the chief inflaters of the Internet bubble (what one book calls Dot.con), Doerr cost ordinary investors billions of dollars while enriching himself. Now in the Washington Post he dares to argue against transparent accounting for stock options.
Fair enough. But the current approach, which Doerr and co-author Rick White defend, is to place a value on options of zero. That is absurd. Depreciation also is a very difficult concept to measure without controversy. Would Doerr and White argue that therefore depreciation ought to be estimated at zero? Doerr and White argue that estimating the cost of stock options would "confuse" investors. John Doerr certainly knows a lot about confusing investors. He has been a director of Homestore.com, the company that confused its investors with so much phony accounting that it had to be de-listed from the Nasdaq. (2-1/2 years ago, Homestore.com bought my company, homefair.com) Doerr and White argue that when in doubt you should value something at zero. I do not think that is good advice, but it definitely applies to anything written by John Doerr.
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Posted Monday, March 11, 2002 Wi-Fi on the moveOne of the most interesting trends to watch is Wi-Fi, the local wireless networking protocol. Here is an article about an early adopter, who is using it to replace a cellular-based system in police patrol cars and other municipal vehicles.
The more I read about Wi-Fi, the more it appears to me to be a disruptive technology. It is not difficult to envision a communications world consisting of "base stations" that connect to the Internet through broadband (ideally fiber) and local connectivity through Wi-Fi. Ordinary telephony (both cellular and wireline) could be subsumed by the Wi-Fi segment.
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Posted Friday, March 8, 2002 Better Living Through FilteringI hate spammers. As an economist, I believe that spammers impose a cost on me and they do not pay a price themselves. But John ("The internet sees censorship as damage and routes around it") Gilmore makes a case against legislative action against spam in an email to Declan McCullagh:
I strongly believe that such a system is workable. In statistical terms, I would bet that you can build a system with a probability of Type I error (discarding a message that I actually wanted to read) of less than one hundredth of one percent and a probability of Type II error (letting spam get through) of less than one tenth of one percent. Once enough people have such a filter, the cost-benefit ratio may start to tilt against spammers. . . . . . .
Look out, VerizonHere comes Sputnik, one of many companies trying to help build the wireless last mile. If this stuff works, then the phone companies will be dealing with their worst nightmare--real competition. . . . . . .
Posted Thursday, March 7, 2002 The People Vs. The PowerfulLike the anarchist party trying to get organized, Net-heads are trying to see if they can exercise some political power against Big Entertainment. I already mentioned (below) Doc Searls wanting to march on Washington. Here is Glenn Reynolds' take
Yeah, right. Glenn, when you see Trent Lott getting ready to fall in his sword for Napster, you be sure to let me know, ok? I'm not holding my breath. And here is a story about Congressman Rick Boucher
This strikes me as grandstanding. We need fewer laws, not more. I mean, I could just see Congress passing Fritz Hollings' legislation requiring copy-protection in all equipment and, just for balance, passing Boucher's legislation banning copy protection in all CD's. That way, it would be illegal to manufacture any CD that is compatible with any playback equipment. I'm pessimistic that the Net-heads will have much of an impact. Any time you have a well-organized interest group, like Big Entertainment or Big Steel, up against a diffuse opposition, the organized interest group wins. The Net-heads may find technical work-arounds for music downloading, but my guess is that they will continue to lose on the legislative front. . . . . . .
Angry Net-headsThe legislative tactics of Big Entertainment in the arena of copyright protection have Net-heads riled up. For, example, Doc Searls writes in a post that has a four-letter word in the headline,
Searls is trying to organize a march on Washington. I'm already close by, so I'm up for it. I'll post more on this issue soon. . . . . . .
Posted Tuesday, March 5, 2002 Donated Lunch?Over the past six months, a decent amount of buzz has been building over the idea that decentralized wireless networks could be the "last mile" solution for broadband. Yesterday, The New York Times' John Markoff put his imprimatur on this phenomenon.
The idea is that businesses, nonprofits (such as universities), and even individuals can put up antennas that will "mesh" together to deliver wireless Internet access throughout a community. This concept also has been touted by Forbes' Rich Karlgaard, Wired, David Reed, and others. Those 19 companies that Markoff talks about might want to ponder this anecdote from Simson Garfinkel.
Suppose that it takes 10,000 antennas to equip a community for broadband. If each antenna costs $2000, that means a total of $20 million, which I'll wager is far cheaper than trying to reconfigure the telephone or cable systems to provide broadband. If Garfinkel is correct, however, it will cost far more than that to create a billing infrastructure. It sounds to me as though this might turn out to be "donationware." Perhaps the people who manufacture handheld devices and laptops will donate a portion of revenues to help subsidize the providers of antennas. Perhaps those of us with grudges against the local phone company will chip in for a few nodes, too. . . . . . .
Posted Monday, March 4, 2002 No Free LunchIf you're waiting for broadband service providers to offer a price point that attracts the mass market, don't hold your breath, says Michael Schrage.
His view is that profit-maximization for broadband providers means identifying market segments that will pay premium prices for service. This would suggest that prices for DSL and for cable Internet access will remain high. What is missing in Schrage's story is competition. Cable TV providers can get away with high charges for premium services because of their monopoly franchises. In the broadband market, if there were effective competition--from phone companies and wireless, for example--then the price-gouging strategy would not be an option. . . . . . .
An Alternative to Tauzin-DingellThe intent of the telephone deregulation act of 1996 was to give the local Bells the incentive to open up their lines to competitors. This has failed, and now the question is what to try next. The Tauzin-Dingell approach is to give the Bells what they want (freedom to compete in long distance service) and hope that they will respond by offering broadband aggressively. It says, "OK, you don't want to open your lines to competitors. Fine, you don't have to." The alternative is to break up the Bells. In a paper presented last year, Stanford's Robert E. Hall and Columbia's William H. Lehr put it this way:
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Posted Sunday, March 3, 2002 Copyright LudditesThe Luddites smashed machines that they found threatening. Today, Copyright Luddites want to outlaw any machine that does not include mechanisms to impede copying. Dan Gillmor puts it,
Bob Frankston writes,
Steven Levy weighs in,
What creative artists and consumers need are new business models and economic arrangements. That is exactly what the movie industry and the music distribution industry fear the most. To protect their narrow interests, they are prepared to push legislation that restricts the functionality of every consumer electronic device. . . . . . .
Copyright 2002-2003 Arnold Kling. All rights reserved. Terms of use |
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