January 28, 2021

Archives for August 2008

Is the New York Times a Confused Company?

Over lunch I did something old-fashioned—I picked up and read a print copy of the New York Times. I was startled to find, on the front of the business section, a large, colorfully decorated feature headlined “Is Google a Media Company?” The graphic accompanying the story shows a newspaper masthead titled “Google Today,” followed by a list of current and imagined future offerings, from Google Maps and Google Earth to Google Drink and Google Pancake. Citing the new, wikipedia-esque service Knol, and using the example of that service’s wonderful entry on buttermilk pancakes, the Times story argues that Knol’s launch has “rekindled fears among some media companies that Google is increasingly becoming a competitor. They foresee Google’s becoming a powerful rival that not only owns a growing number of content properties, including YouTube, the top online video site, and Blogger, a leading blogging service, but also holds the keys to directing users around the Web.”

I hope the Times’s internal business staff is better grounded than its reporters and editors appear to be—otherwise, the Times is in even deeper trouble than its flagging performance suggests. Google isn’t becoming a media company—it is one now and always has been. From the beginning, it has sold the same thing that the Times and other media outlets do: Audiences. Unlike the traditional media outlets, though, online media firms like Google and Yahoo have decoupled content production from audience sales. Whether selling ads alongside search results, or alongside user-generated content on Knol or YouTube, or displaying ads on a third party blog or even a traditional media web site, Google acts as a broker, selling audiences that others have worked to attract. In so doing, they’ve thrown the competition for ad dollars wide open, allowing any blog to sap revenue (proportionately to audience share) from the big guys. The whole infrastructure is self-service and scales down to be economical for any publisher, no matter how small. It’s a far cry from an advertising marketplace that relies, as the newspaper business traditionally has, on human add sales. In the new environment, it’s a buyer’s market for audiences, and nobody is likely to make the kinds of killings that newspapers once did. As I’ve argued before, the worrying and plausible future for high-cost outlets like the Times is a death of a thousand cuts as revenues get fractured among content sources.

One might argue that sites like Knol or Blogger are a competitive threat to established media outlets because they draw users away from those outlets. But Google’s decision to add these sites hurts its media partners only to the (small) extent that the new sites increase the total amount of competing ad inventory on the web—that is, the supply of people-reading-things to whom advertisements can be displayed. To top it all off, Knol lets authors, including any participating old-media producers, capture revenue from the eyeballs they draw. The revenues in settings like these are slimmer because they are shared with Google, as opposed to being sold directly by NYTimes.com or some other establishment media outlet. But it’s hard to judge whether the Knol reimbursement would be higher or lower than the equivalent payment if an ad were displayed on the established outlet’s site, since Google does not disclose the fraction of ad revenue in shares with publishers in either case. But the addition of one more user-generated content site, whether from Google or anyone else, is at most a footnote to the media industry trend: Google’s revenues come from ads, and that makes it a media company, pure and simple.

Comcast Gets Slapped, But the FCC Wisely Leaves its Options Open

The FCC’s recent Comcast action—whose full text is unavailable as yet, though it was described in a press release and statements from each comissioner—is a lesson in the importance of technological literacy for policymaking. The five commissioners’ views, as reflected in their statements, are strongly correlated to the degree of understanding of the fact pattern that each commissioner’s statement reveals. Both dissenting commissioners, it turns out, materially misunderstood the technical facts on which they assert their decisions were based. But the majority, despite technical competence, avoided a bright line rule—and that might itself turn out to be great policy.

Referring to what she introduces as the “BitTorrent-Comcast controversy,” dissenting Commissioner Tate writes that after the FCC began to look into the matter, “the two parties announced on March 27 an agreement to collaborate in managing web traffic and to work together to address network management and content distribution.” Where private parties can agree among themselves, Commissioner Tate sensibly argues, regulators ought to stand back. But as Ed and others have pointed out before, this has never been a two-party dispute. BitTorrent, Inc., which negotiated with Comcast, doesn’t have the power to redefine the open BitTorrent protocol whose name it shares. Anyone can write client software to share files using today’s version of the Bittorrent protocol – and no agreement between Comcast and BitTorrent, Inc. could change that. Indeed, if the protocoal were modified to buy overall traffic reductions by slowing downloads for individual users, one might expect many users to decline to switch. For this particular issue to be resolved among the parties, Comcast would have to negotiate with all (or at least most of) the present and future developers of Bittorrent clients. A private or mediated resolution among the primary actors involved in this dispute has not taken place and isn’t, as far as I know, currently being attempted. So while I share Ms. Tate’s wise preference for mediation and regulatory reticence, I don’t think her view in this particular case is available to anyone who fully understands the technical facts.

The other dissenting commissioner, Robert McDowell, shares Ms. Tate’s confusion about who the parties to the dispute are, chastising the majority for going forward after Comcast and BitTorrent, Inc. announced their differences settled. He’s also simply confused about the technology, writing that “the vast majority of consumers” “do not use P2P software to watch YouTube” when (a) YouTube isn’t delivered over P2P software, so its traffic numbers don’t speak to the P2P issue and (b) YouTube is one of the most popular sites on the web, making it very unlikely that the “vast majority of consumers” avoid the site. Likewise, he writes that network management allows companies to provide “online video without distortion, pops, and hisses,” analog problems that aren’t faced by digital media.

The majority decision, in finding Comcast’s activities collectively to be over the line from “reasonable network management,” leaves substantial uncertainty about where that line lies, which is another way of saying that the decision makes it hard for other ISPs to predict what kinds of network management, short of what Comcast did, would prompt sanctions in the future. For example, what if Comcast or another ISP were to use the same tools only to target BitTorrent files that appear, after deep packet inspection, to violate copyright? The commissioners were at pains to emphasize that networks are free to police their networks for illegal content. But a filter designed to impede transfer of most infringing video would be certain to generate a significant number of false positives, and the false positives (that is, transfers of legal video impeded by the filter) would act as a thumb on the scales in favor of traditional cable service, raising the same body of concerns about competition that the commissioners cite as a background factor informing their decision to sanction Comcast. We don’t know how that one would turn out.

McDowell’s brief highlights the ambiguity of the finding. He writes: “This matter would have had a better chance on appeal if we had put the horse before the cart and conducted a rulemaking, issued rules and then enforced them… The majority’s view of its ability to adjudicate this matter solely pursuant to ancillary authority is legally deficient as well. Under the analysis set forth in the order, the Commission apparently can do anything so long as it frames its actions in terms of promoting the Internet or broadband deployment.”

Should the commissioners have adopted a “bright line” rule, as McDowell’s dissent suggests? The Comcast ruling’s uncertainty guarantees a future of envelope-pushing and resource intensive, case-by-case adjudication, whether in regulatory proceedings or the courts. But I actually think that might be the best available alternative here. It preserves the Commission’s ability to make the right decision in future cases without having to guess, today, what precise rule would dictate those future results. (On the flip side, it also preserves the Commission’s ability to make bad choices in the future, especially if diminished public interest in the issue increases the odds of regulatory capture.) If Jim Harper is correct that Martin’s support is a strategic gambit to tie the issue up while broadband service expands, this suggests that Martin believes, as I do, that uncertainty about future interventions is a good way to keep ISPs on their best behavior.

iPhone Apps Show Industry the Benefits of Openness

Today’s New York Times reports on the impact of Apple’s decision to allow third-party application software on the iPhone:

In the first 10 days after Apple opened its App Store for the iPhone, consumers downloaded more than 25 million applications, ranging from games like Super Monkey Ball to tools like New York City subway maps. It was nothing short of revolutionary, not only because the number was so high but also because iPhone users could do it at all.

Consumers have long been frustrated with how much control carriers — AT&T, Verizon Wireless, Sprint and the like — have exerted over what they could download to their mobile phones. But in the last nine months, carriers, software developers and cellphone makers have embraced a new attitude of openness toward consumers.

The App Store makes a big difference to me as a new iPhone user – the device would be much less useful without third-party applications. The value of third-party applications and the platforms that enable them is a commonplace outside the mobile phone world. It’s good to see it finally seeping into what Walt Mossberg famously calls “the Soviet Ministries”.

But before we declare victory in the fight for open mobile devices, let’s remember how far the iPhone still has to go. Although a broad range of applications is available in the App Store, the Store is still under Apple’s control and no app can appear there without Apple’s blessing. Apple has been fairly permissive so far, but that could change, and in any case there will inevitably be conflicts between what users and developers want and what Apple wants.

One of Apple’s reasons for opening the App Store must have been the popularity of unauthorized (by Apple) iPhone apps, and the phenomenon of iPhone jailbreaking to enable those apps. Apple’s previous attempt to limit iPhone apps just didn’t work. Faced with the possibility that jailbreaking would become the norm, Apple had little choice but to offer an authorized distribution path for third-party apps.

It’s interesting to note that this consumer push for openness came on the iPhone, which was already the most open of the market-leading mobile phones because it had an up-to-date Web browser. You might have expected less open phones to be jailbroken first, as their users had the most to gain from new applications.

Why was the iPhone the focus of openness efforts? For several reasons, I think. First, iPhone users were already more attuned to the advantages of good application software on mobile phones – that’s one of the reasons they bought iPhones in the first place. Second, Apple’s reputation for focusing on improving customer experience led people to expect more and better applications as the product matured. Third, the iPhone came with an all-you-can-eat Internet access plan, so users didn’t have to worry that new apps would run up their bandwidth bill. And finally, the fact that the iPhone was nearer to being open, having a more sophisticated operating system and browser, made it easier to jallbreak.

This last is an important point, and it argues against claims by people like Jonathan Zittrain that almost-open “appliances” will take the place of today’s open computers. Generally, the closer a system is to being open, the more practical autonomy end users will have to control it, and the more easily unauthorized third-party apps can be built for it. An almost-open system must necessarily be built by starting with an open technical infrastructure and then trying to lock it down; but given the limits of real-world lockdown technologies, this means that customers will be able to jailbreak the system.

In short, nature abhors a functionality vacuum. Design your system to remove functionality, and users will find a way to restore that functionality. Like Apple, appliance vendors are better off leading this parade than trying to stop it.