ratpie

Category: markets

  • What Happened to Vint Cerf?

    This August, 2012, on FT.com Vint Cerf was quoted in an article about the upcoming UN discussions over Internet governance.

    But Mr Cerf says that pricing structures are antithetical to the internet as they could stifle innovation. “When Larry Page and Sergey Brin started Google, they didn’t have to go and cut a deal with every ISP in the world. It’s a gun-to-the-head model to say: ‘You’re making a lot of money, give us some.’ An alternative would be to compete – improve your own value-added services.”

    What a concentrated and irresponsible little bundle of words this is! Cerf has many public roles – as a scientist, and as an honoured innovator, and as an expert on set of technologies that are important for many aspects of the improvement of the human condition. How disappointing to find that his role as a paid evangelist – a faith based persuader for money – overrides all of these honours and achievements.

    He starts with a half-lie. As a startup, Google did not have to negotiate with every ISP because they were able to buy connectivity in the market, like every other internet business, and piggy-back on the deals ISPs had done with each other. Today’s new businesses can follow the same path, and can also take advantage of a much more developed infrastructure market that puts massive processing and connectivity within reach of almost anyone. In fact Google preferred to move away from the wholesale hosting market in favour of public and private peering, where in effect it did cut a deal with many many more ISPs, in order to get preferential treatment and lower costs for its traffic.

    What Google demonstrated conclusively was that when you generate a little traffic it’s your problem, but when you generate a lot it’s everybody else’s. Peering was not supposed to be quite so asymmetric, so a market was never fully developed. Now Cerf is lobbying to prevent a market being created and to preserve privileges that Google enjoys over newer startups; the original gun was Google’s when it bought YouTube, and Cerf wants to make sure the other side remains unarmed.

    Having positioned Google as a startup at the mercy of arbitrary behaviour in wholesale connectivity markets Cerf goes on to deploy all the sophistication of the teenage sneer. While for an online advertising business Google owns a lot of infrastructure, compared with the investment it requires from other network providers to keep its platform connected it is still well on the right side of the deal. The excitement surrounding a very limited trial of Google fibre internet access seems to have died down a bit since the limits and the price, as well as the behind doors politics, have emerged. And no ISP is more upfront than Google about preferential treatment for its own value added services.

    And yet the answer is almost certainly not to attempt to regulate paid peering, or paid for QoS at peering points. Content and services gain in value the more they localise, and while it’s Cerf’s employer who is as he says ‘making a lot of money’ at this point, competing on thousands of local exchanges is not the same as competing on dozens or hundreds. Regulators would do well to preserve the mostly unpaid and informal peering model, not because Google does so well out of it now, but because it is more likely to deliver a platform for Google’s competitors in the future.

    Preserving the openness of Internet Exchanges in the future from crowding out and from anti-competitive contracts will be a far more important regulatory challenge than defending Google from pricing of traffic exchange is now.

  • Orphans Don’t Belong in Collective Farms

    The case for exemptions from copyright for some limited purposes, such as preserving our cultural heritage, or advancing scholarship, is surely uncontroversial. Who would really argue that old photographs or diaries, letters home, and the ephemera of life should not be allowed to become a window into past times or important events. With some minimal adjustment to our copyright laws, diligent preservation and digitisation can make material available, free of legal risk and without touching any markets.

    Without really bothering to explain why, or for whose benefit, the UK Government plans to go far further, effectively nationalising anything that is found without a copyright assertion, and creating a State sponsored competitor to the national copyright industries. This much was clarified at the recent Hooper enquiry session, by the Intellectual Property Office – presumably to be merged with the lost property office as it seems to want much the same function. There might be a fight as the legality of the move seems open to question given Berne’s clarity on automatic copyright. Win or lose however the UK Government seems to be indicating with this move that if it thinks it needs to choose between creators or users of copyright material, it’s firmly for the latter.

    But how did we get to this sorry state? The presumption behind Hargreaves’ and Hooper’s enquiries was that copyright management had failed to keep up with the demands of digital businesses. Hooper has been keen to stress that he sees a huge amount of excellent work going on. In response he moved the focus from trading platforms, of which there are many and more coming, towards coordination, to make sure the full value of all the investment could be realised. This is all smart, and admirable. The Government however seems irritated – firstly by all the digital detritus hanging around untaxed and poorly managed (to you and I these are our photos, our lame attempts at making pop music, and our fan fiction etc.) – and secondly by the copyright industries rather monomaniacal demand for protection before reform. Hooper seemed last month to have been asked to convey a message to the copyright great and good at his last big meeting, that not until the Government (Vince Cable) had seen dramatic improvements in licensing efficiency would the enforcement agenda creep up the priority list.

    More than this though, it seems that the UK Government has given up on the ability of the creative industries to generate value directly and by private negotiation. Given a simple choice, between a Wikipedia world, where free to re-use content on a huge scale provides context for search driven advertising, and a Britannica world where expertise is packaged and sold to consumers who care about quality, the UK plumps for flat rate, low to zero cost content as a superior engine of growth. And it is prepared to go into competition with its own domiciled creators and copyright businesses to achieve this aim.

    Given that they can change the law (probably), the UK Government seems to have a great opportunity here to ensure than it can never be proved wrong. After all you can’t really do A-B testing with copyright law. If the outcome is not great the copyright industry lobbyists have spun such a tale of trouble and decline that you’d be forgiven for thinking that saving them was an impossible task anyway. No situation is so dire it’s not better than it might have been.

    And that leads me to my greatest criticism of the UK Government approach, for its inability to see the industry behind the lobbyists, or look for a simple intervention that helps creators to bring their work to fair and open markets. We don’t need the British Library setting up a commercial content library with whatever its interns can shovel in off the web, and with rates set at two thirds the expected advertising CPM. That will simply divert much needed investment away from new creation, while undermining the markets that do support creators. Instead, the Government could, if it wanted to, help creators find and use the markets that already exist, through training and encouragement for market infrastructure, without sending any orphans to the collective farm.

     

  • Don’t Give Up On The Music Market Just Yet

    The huge and growing catalogue of music digitally available through an expanding choice of retailers and services might suggest that any supply side problems are well on the way to being solved. Look a bit closer however, and something is missing. There might be more songs, but the hits are coming from an ever smaller group of companies. And there are signs that, outside of a small handful of contenders for international success, less money is being spent on each new track.

    This matters, because a thriving music sector depends on more people rather than fewer having access to the best studios, the best arrangers, session musicians, and everything else required to make excellent new recordings.

    Chris Anderson noted that a long tail world favours aggregators over producers; how can the market be reshaped to put the incentive back into making great records, rather than simply collecting as much generic music as possible and tagging it for SEO? Some commentators advocate giving up on the market, and replacing it with a flat rate and a layer of bureaucracy. This seems to me a counsel of despair; we surely have not run out of other ideas quite yet!

    Perhaps part of the answer is to look at how new music is coming to the market. Is there a flattening effect which is failing to reward creators who make an extraordinary effort? I’d say there is; a track that was made in a rush by people who don’t care is most often on the market at the same price as a piece made with love by a skilled and careful craftsman. The reward that flows back is a reflection solely of popularity, which clearly penalises musicians who are chasing something other than broad appeal.

    This is carried through to the retail layer, where the way catalogues are traded makes it difficult for a business to find and develop a focus. Retailers and services are forced to buy huge quantities of music they don’t want in order to get what they need, and denied the chance to capture the value that they might otherwise have an incentive to create by serving a niche or two with currently undervalued music.

    Between these two effects we have strong incentives to avoid diversity and to invest as little as possible in risky new music. There is no reason why music should have to do without the tools that just about every other market uses to allocate resources and signal value to producers. Both price and popularity can be expressed and captured in a wholesale market with fine granularity on the same kind of electronic trading exchange that supports future contracts in commodities, or shares in public companies. Discussions about databases would evaporate as the ability to interact with the market would depend on robust and reliable data management and standards. Exclusion and unfair trading would be a lot easier to detect. There would be no need to collectivise anything, or force participation, as better conditions for trade would by themselves attract buyers and sellers to the market.

    This is easy to say but of course much more difficult to attempt, and might well do nothing to improve either liquidity or incentives in music. What can be said with some certainty is that it would create both openness and a lot more information about the value of music in the market, and would by necessity force the creation of sophisticated trading strategies on both sides. At least then we would find out what the market wanted, even if we might not like the answer.

  • How Art Changes the Architecture of the Internet

    Reading Neelie Kroes’ recent blog post on net neutrality (link updated Dec 2017) reminded me of a startling presentation that was given to Nanog in 2009 (I was not there so was thankful that the slides were made available here) which brought into focus some vague ideas I have been thinking about for the last few years.

    That 2009 report was one of those ‘everything you thought you knew about x is wrong’ moments. Because by 2009 the open, public, internet, with a predictable hierarchical cascade from core to access, was over. Instead we had arrived at a world of private connections between big content and service platforms where IP protocols carried private bits over private networks. And what drove the change was, bizarrely, art – or rather content if you want to avoid aesthetics. More specifically, Google’s YouTube acquisition could create so much traffic for ISPs that it was uneconomic to carry it via IP transit, bought from upstream providers. Google had to be let into the peering points, and the biggest ISPs choose to peer privately with large partners to avoid overloading the public switches and getting into complicated recharge discussions.

    Earlier in the evolution of the internet CDNs had been let into the exchanges, to some grumbling, but as wholesale suppliers of connectivity they sit behind the consumer services so arguably were similar in their role to the wholesale transit providers. Having a consumer service in the networks club was a new experience.

    Now here’s some conjecture and speculation. Carpathia, a Dulles, Virginia blue chip hosting business, joined a select club when it accepted a new customer, MegaUpload, in November 2008. Almost instantly it was generating 1/20th of all internet traffic. If Carpathia did not manage to use that leverage to move into the internet exchanges and form some private peering agreements it should have. Private traffic is cheaper and inherently less visible than public. And some more speculation on a historical matter – the apparent drop in internet traffic resulting from Sweden’s introduction of IPRED laws could at least partly have been the effect of some publicly peered traffic going private for similar reasons.

    A minor version of this happened very recently when customers of UK ISP Virgin Media were reporting severe difficulty using Spotify. The Register extracted a comment from Virgin Media to the effect that they had been suffering from poorly configured peering with one of Spotify’s data centres. To fix it they will have either turned up the public peering, or gone private. Either way the shape of the internet changed in response to demand for music.

    I suspect it would be possible now to avoid the internet entirely and just use private networks if your access comes from a major consumer ISP. And it is art/content that has driven this change. How much the content creators and their industrial representatives have been party to the changes is anyone’s guess, but I suspect not very much. That looks like an opportunity to me.