Category Archives: Economics

What’s the difference between Ma Bell and Comcast?

Posted on by

If you were born in the 80’s or before you know that Ma Bell was the only phone company in town. Born any later than that you were born into a world without a single monopoly for telecommunication. That’s right, we’ve had a point in our collective history where there was only a single phone company. There are rules in place that prevent something similar from happening with Comcast, but we’ve been there before. However, I believe there are critical differences. AT&T knew they were a monopoly and they were a state sanctioned monopoly. They did everything in their power to keep prices down to prevent being broken up. AT&T actually had a broader monopoly than what Comcast could ever hope to have. They made the phones that worked on the line, they made all the telecom technology that made it work, and they designed the services that made it work. This is something called a natural monopoly, which I’ve written about before. A former founder of Comcast has declared Comcast a natural monopoly.

The biggest difference between Comcast and AT&T, back in the day, was that they did everything they could to keep the government happy. Was it perfect, no clearly not, there were shady business practices, but we as a society benefited greatly from Bell Labs. To this stay is still one of the greatest research facilities that ever existed. If it wasn’t for Bell Labs our current way of life would be very different. I highly suggest checking out the book on it.

Comcast claims to be pushing innovation with their X1 Xfinity platform, but that’s not really true, it’s simply a new operating system pushing content. Voice activation isn’t innovation and if that’s your main selling point then you’re in serious trouble. As I mentioned yesterday, the Netflix deal is a major concern, the Verge is saying the Internet is fucked and that we need to be contacting the FCC daily to un-fuck it.

I’m not entirely sure that the FCC can fix it. Congress has greatly hamstrung the FCC in dealing with internet companies, furthermore, their solution of calling the internet a Utility won’t work. If you aren’t aware we’ve had big pushes to deregulate the utility industry which unfortunately hasn’t really made rates better in many cases or in the long run. I think that it’s fair to say that in the telecom industry this is true as well. The impact of the AT&T break up has been this long term collection of conglomerates that continually increase price as well as “Fees” which similar to baggage fees are hidden from the “price” of the service. So, treating the internet like a utility isn’t going to work. What we need to do is treat it like a road.

Everyone that uses a car on the road is taxed based on use (Gasoline taxes) everyone pays for a portion of the maintenance based on other local taxes too. No, these aren’t perfect and are going to be under pressure based on hybrid and electric cars – and new models are being proposed. Of course one way to do this is through toll roads (which really never work) or through some sort of black box in the car to measure mileage (which no one wants).

Essentially it’s a pay for bandwidth consumed, so if you’re a high consumer of bandwidth you’d pay more, but the rates need to be realistic and the goal would be to cover expenses and continually improve service while making it cheaper. Which brings me back to AT&T – the president of Bell Labs had one mantra anything could be tested but only if it could lead to a “Better, cheaper or both” network. A public internet similar to a road that was paid to continually get cheaper, better, more secure, and faster is the only way to truly un-fuck the internet. It’s not likely to happen because it’s not a capitalist response. However, the internet these days is similar to public transpiration – it’s goal isn’t to make money, it’s goal is to enable economic activity. If think of it that way, then we can see the long term benefit of the whole economy rather than singular actors.

Data, Monopolies, and the Comcast/Netflix Deal

Posted on by

So, apparently, there are these groups that sell bandwidth for data transit to companies like Netflix. These companies interface with the major ISPs like Verizon and Comcast and connect the broader backbone of the internet to specific ISPs. These interfaces, like any interface can become over burdened – similarly to a congested intersection on the road. The problem is that with data information can be lost or transmitted extremely late, the lost data is called a “dropped packet.” These packets are like little packages of data that will likely provide some desired bit of image, article, or video.

These companies have typically provided “peer connections” that are free to transmit data because, well you’re paying to access the data and Netflix is paying to allow you to send the data. Win-win for both user, ISP, transit company (Cogent), and Netflix. Pretty good system right? Well it was until Verizon and other ISPs went and decided that they wanted to charge Cogent to for access to their networks so their users can access the data that Cogent is transmitting for Netflix.

Why can the ISPs do this? They are acting like monopolies in many ways. These companies are essentially islands of monopolies that do not compete with each other. With little incentive from the market to change behavior they are able to seek additional monies from their customers and providers without much risk of member defection. Furthermore, as Verizon is continually posting higher and higher Average Revenue Per User (ARPU), they are making more from the same number of people. When you have no where to go, that means raters are going up, and if they aren’t investing that additional money, that means profits are going up.

What does this all mean? It means that Netflix is getting the squeeze in a way that they weren’t expecting and with the proposed merger between Time Warner and Comcast things are only getting worse. The ISPs are able to say that they aren’t negatively hurting Netflix alone, because everyone that uses Cogent is getting hit the same way. It’s intentional according to the Cogent CEO. To get around the Cogent bottleneck, Netflix has decided to have a direct connection between Comcast and Netflix. This means that Netflix services will have less of a bottleneck to compete with other bits of data. This is a big deal for Netflix as lost data packets likely mean blocky video or video that is unwatchable.

Netflix decided to push for their members by paying for higher speed access directly to Comcast. This is great, but on the other hand terrible. It’s terrible because one of the greatest champions of Net Neutrality has bowed out of the fight giving in and paying to provide higher speed video quality to their members. It’s good because they are doing what’s right for their members, even though Comcast is at fault here by making cynical business choices to negatively impact the quality of the services provided over their pipes.

This could have interesting implications if a company decides to use this clear agreement as an obvious breach in the NBC/Comcast Net Neutral agreement. This could, if pushed correctly, have serious far reach implications for the company. However, I’m not sure who would push for this law suit. Hulu won’t, as it’s partially owned by Comcast, maybe Google will as they are looking to compete head on with Comcast as an ISP, video content provider, and in other realms. Another potential is Aereo that has already won a few major victories over NBC/CBS in copyright (The company streams over the air HDTV as a DVR service). So if they don’t have equal access as Comcast or Netflix, they could certainly sue over this – as it would hurt their business growth possibilities.

Update: Apparently Netflix is in negotiations with both AT&T and Verizon as well. Furthermore, Verizon believes that these agreements are clear that we don’t need more “regulation”in the form of net neutrality. Clearly, if a monopoly can extract as much money from both their members and the content that brings value to their networks, there’s no need for regulation!

I think that these practices are going to seriously impact the ability of smaller firms to compete. I also would fully expect a company like Twitch to start feeling the pressure next.

Economics is failing

Posted on by

Yes, that’s right, traditional economics is failing, but then we knew that. We hear talk that we’re out of the recession, but for a lot of people that doesn’t seem to be true. Many businesses are out of the recession and the “market” seems to think we’re out of the recession. However, what does it mean when the market is out of the recession? A lot of the market runs on high frequency trading, so the market can make money without a lot of people participating. Based on traditional economics theory, these markets should behave in a specific manner and they aren’t.

Slate calls this the difference between salt water and freshwater economics. Where the freshwater economics is based upon a lot of the traditional neoclassical theories, while the salt water economics is what the market traders are using. They’re using physics or other sort of network models that aren’t included in traditional economics theories.

Many of them have begun to use various forms of evolutionary economics, because it works. However, there’s a disconnect between the market and many of the leading theorists in Academia. Why? because those economists have made a career out of developing these theories. I believe that economics is at the beginning of a paradigm shift and it’s going to be painful. A lot of things are going to be changing because of this paradigm shift.

We’re staring at the end of jobs within the next 40 years, not all jobs, but a huge amount of the works force is going to be automated. Google’s working on industrial robotics with Foxconn, multiple companies are working on driverless cars, a few companies have developed drag and drop software so you don’t need to know how to code to develop software which will automate work because you build in your process rather than building your process around the system. This is radically going to change work. In the Race Against the Machine book it’s clear we’re going to be seeing changes in how our society works.

We’re going to be entering a time period where traditional economics doesn’t work and neither does capitalism. A blog post I read the other day has an interesting discussion of how we can move beyond capitalism (based on Star Trek). By the way, when I’m saying capitalism isn’t working, what I mean is that it’s not going to work to fundamentally keep the majority of the people working or provide any realistic relief to non-working people. It will be working quite well for a subset of the population that figure out how to survive or thrive in that economy. The question at that point becomes not what we think our economy is or should be, but what we value as a society.

I’ve talked about this in other posts in the past, however, I think that when we are looking at the “market place of applicable ideas” and we see that the people that should be influenced the most by economic theory AREN’T using it, but our government is, we have a serious problem. People at banks making huge sums of money on trading should be influenced by economic theory because they deal with vast sums of money and are actively driving a huge portion of our economic activity (valuable or not is another question). If they don’t see value in using those theories, then our leaders that are still applying them need to seriously rethink what theories they are applying to “manage” our economy.

When the prevailing theory in a discipline is failing, for the discipline to survive it must move beyond it. Typically the new theories that save it come from outsiders and indeed in economics it has – from two sources, Biology and Physics. Hopefully our leaders and teachers can see it before our current economic theories destroy us all.

Weather, urban planning, and regional differences

Posted on by

So, you may or may not be aware, Portland got some snow. Compared to my friends in Pittsburgh, it was about the same they were getting every few weekends. We got between 5-8 inches in the span of a day or so. The impact compared to the east coast city was absolutely insane. There were 500 accidents on Thursday night alone. The public transportation system was almost completely shut down and tomorrow may not be running – I’ll be working from home tomorrow because of that risk. I’ve seen more tire chains here than I have in my entire life having grown up in part of the Snow Belt. It’s amazing the differences.

The major highway between myself and Portland had multiple inches of snow standing on it after a full day with light snowing. I’ve never seen it before. There was actually a full lane missing because of it.

Why does this happen? Well, first Portland normally doesn’t get this type of snow, this was the most since 1971 or something like that. Second, they just don’t have the infrastructure for it. To buy enough salt or trucks to deal with this once in 30 year incident isn’t really responsible buying for a government.

Compared to Pittsburgh which deals with this sort of thing on a regular basis they have designed their infrastructure around dealing with snow or enabling people to get around it. Plus, they just drive through that stuff even if they shouldn’t because they have no choice. Unlike Portland, Pittsburgh doesn’t have as robust of a public transportation system, not that it mattered since the Max was down for a bulk of the weekend.

What does this tell us about urban planning? First, because of climate change, we need to begin thinking about how we’ll be experiencing more snow and extreme storms similar to this. How can we design our mass transit systems and our highway systems to be able to handle these extreme storms? In the case of the Max in Portland, I think they should install some sort of heating element into the switches, which apparently freeze over, so these don’t stop the Max from running.

I think the interesting thing about the snow here and in other locations is that it really brings out spaces that aren’t used by vehicles. This article really pointed it out for me: What Snows Tells Us About Creating Better Public Places. I think that it’s not just snow that points out the spaces that we to design better, but rain does so as well. Thinking back to the flash flooding we’d get in Austin and how that would impact moving around the city, we need to think about how to design these spaces to minimize the impact on people and the environment around the city.

Overall, we need to think about how to plan our cities better for new weather patterns. This is going to take some serious investment into our infrastructure. This will create jobs, but unfortunately mean we need to spend more tax money on our cities. Portland shouldn’t have been shut down from 5 inches of snow, especially not the public transportation, we need to figure out how to enable public transportation no matter what. People that don’t want to drive need that, plus parking in the city costs a ton more than parking. Let’s figure this out.

Saving video games from publishers

Posted on by

There’s big money in video games. No one can deny that, especially now that the definition of casual gaming has changed from Wii type games, to games on your phone that mimic some really old school type flash games (bejeweled for example). One of the largest game publisher is EA, they have been notorious for making both amazing games (BF4), amazingly bad games, amazing games with poor execution (SimCity), and amazing cash grabs (Dungeon Keeper iPhone). However, it’s not alone in trying to destroy gaming.

Zynga made a pretty big run at the title and likely helped shape the current state of our gaming industry. They were the original most successful company in facebook for gaming coming up with Mobwars and Farmville. They’ve been replaced with King.com (Candy Crush) now though and have nearly gone out of business. At one point they had a higher valuation than Facebook.

The point of these games is similar to a casino. Keep you coming back and keep you putting money into the machine. They design games to be addicting and put frustrating blockers in your way to entice you to pay money to overcome those obstacles. They technically are “Free-to-play” but they certainly aren’t “free-to-have-fun”. For example, about a year ago Real Racing 3 came out and to unlock everything with cash, it would cost $503!

The article that got me thinking about this topic highlights a 1997 game called Dungeon Keeper which has been released on mobile platforms. In the game you build a dungeon and try to kill heroes that come through and kill your monsters. One of the things you do is dig out spaces for your dungeon, this used to just take a minute or two in game time. Well, EA did it’s little cash grab option with it and now that same space will take roughly 30 hours to mine out unless you pay them money to speed that up! Here’s a video with a nice little summary of the topic.

Now, we know that this hasn’t been limited to mobile games for some time. It’d hit the hardcore gamers in the form of Downloadable content (DLC) and in many cases would be a $15 or so charge to make the game functional on top of the $50-$60 you already paid for the game. In some cases they’ll also charge you for other visual upgrades and stuff like that.

In some cases the companies are doing it because it’s a beloved franchise and they know people will fork over the money for it even if they’ve vowed to never buy from that company again (BF4 after SimCity debacle for instance). This is because they are able to charge monopoly prices being the only game in town.

In other cases, they are able to charge this behavior because of the addictiveness of the game and the pressure of your peers playing the same game. It’s a casino mixed with keeping up with the Joneses mentality. The worst of the worst and company are pulling in as much money as they can on it. In many cases those games are straight up copies from other companies – or at least the game mechanics are the same.

This has made some people discouraged over the future of the gaming business model. I believe that we have some of the most generous people in the world in gaming. You have the Extra-Life fund raising event, HumbleBundle, and a ton of other things like that. There are also really honest folks out there trying to break into the industry, just look at Steam Green Light, Kickstarter Games (check out KBMOD’s Crowdsourced corner), and just the sheer number of new games and apps that have a single price and are honest about their pricing (this link will take you to a list of games that are pay upfront or honest free to play).

Which makes me think that we have two different type of people running gaming companies. We clearly have psychopaths at the head of the company and normal regular people trying to do right by their customers. I think the hardest thing is, we have honest people working for those psychopaths, which is unfortunate.

What can we do as gamers and employees? Well, if you think your CEO is a psychopath leave; it’s going to be an unhealthy work environment in general. Secondly, if we want to see those business models die, educate your friends on how horrible this movement is for gaming in general and point them to cheaper alternatives that aren’t cash grabs. Help inform your friends that aren’t savvy about this. Send them links to games that are better, more fun, and less vile in their pricing schemes.

If you have any recommendations for honest, safe gaming, let me know in the comments!