Tag Archives: Internet

FCC, Net Neutrality, and the Internet as a platform

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The proposed FCC rules for Net Neutrality are pretty terrible. The Verge has a pretty good write up on them, here. Is this a good or bad thing? Personally, I think this is terrible for the future of innovation as I’ve written about before in a few spots, most recently here. I also think it depends on what you think about the role of the ISP. If you think that the role of the ISP is to provide a conduit to the internet and simply pass data to you, then Net Neutrality is for you. If you believe that the ISP should actively play a role in the content you seek, then Net Neutrality is not for you. If you think that the ISP has a role in shaping the way data flows, has the right to extract as much money out of the internet ecosystem, then you probably don’t think that Net Neutrality is the right thing either.

I believe that this comes from a fundamentally different world view on how the economy should function. There are a lot of people out there that truly believe that organizations have the right to maximize profitability. I don’t really think that’s true. I think that organizations have a role to play and those that exploit platforms like the internet are drains on the economy and limit our ability to innovate.

Many of the developers of the initial internet protocols strongly believe in net neutrality. Ranging from the guys that used to run Xerox PARC to Tim Breners-Lee, there’s a lot of different push back against non-neutral positions.

I think from an evolutionary economics standpoint, technology platforms of the past have been wildly successful because they’ve been able to continually lowered in prices which increases accessibility. This drives further adoption of that technology as a platform encouraging more companies to compete to make that technology platform. Some historic platforms are roads (shocking), steel, silicon chips/processors, and now the internet.

Roads have been pretty much government sponsored and open for just about anyone to use. In Portland, the Blue Line MAX line has driven $7 Billion in new development, the largest for a new commuter line anywhere. Computer chips are near and dear to my heart as I’ve worked at a few companies that make them. I think that we can all see in our daily lives how these chips have dramatically changed the world. That the company that makes chips (Intel) is worth a lot less than a company that leverages those chips (Microsoft). The combination of these two companies has essentially driven a great deal of the modernization we’ve experienced in the last 20 years in the US.

In the last 10 years the internet has driven the worlds most valuable companies. It has more quickly shifted how companies engage with their customers and powerful retail based stores have fallen on extremely hard times (Sears/KMart,etc…). My job is only made possible because of the internet I work with people in different states every day.

The fact that it will soon be government policy to enable a company to seek as much money from every user of their platform is only going to hurt the entire ecosystem. If my service stays the same but my price continually increases, that means I can’t afford to buy services that I want online, so I’ll switch to other options or drop the options all together. This will kill competition and negatively impact consumer choice. Furthermore, if I’m paying for Netflix and Comcast and Netflix is forced to pay for access to Comcast customers, then Comcast is charging everyone. I’d expect massive quality upgrades on a continual basis or something in return for all this extra cash flow. Instead it will likely go to investors in the form of higher profits.

The EU goes Net Neutral

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If the EU had voted against strong Net Neutrality laws there would have been a serious problem between a few national governments and the supra-government of the EU. A few years ago the Netherlands became the second country in the world to fully support Net Neutral principles. Furthermore, the EU level Telecom and internet lady is Dutch, Neelie Kroes. She’s been very vocal supporting Net Neutral and “Internet Freedom” since I started following her a few years ago.

I’m not really surprised by this law passing. The EU has been under less influence of many companies than the US government. Additionally, net neutrality inherently has more privacy built into the system. It limits the requirements of deep packet inspection – because there’s no shaping based on the content of the packets, just the amount of packets. Ideally, this will mean that there is less capability in the network for deep packet inspection.

This could lead to some difficulties in the differences between US ISPs and EU ISPs. I’m interested in the ramifications of throttling across the different continents. Clearly someone getting content from a company in the EU won’t want it to be throttled in the way that Netflix has been. It could create some legal ambiguity and issues. I’m going to be watching how all of that resolves.

Kickstarter, Oculus Rift, and internet rabble rousing

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The internet is mad that Facebook bought the VR company Oculus Rift. We shouldn’t be surprised that someone bought this company, it was going to have an IPO or be bought. There’s no doubt about that. The problem isn’t that it was bought, but the company that bought it.

Oculus Rift was a startup. Startups need money so they launched a Kickstarter Campaign and raised $2.4 million. Startup money typically comes from three groups of people in early stages (3Fs) – Family, Friends, and Fools. The Kickstarter campaign clearly is the fools. Not because they didn’t think the company would succeed, but that they thought they’d have a say in the end result. Kickstart has had other scams, such as the feminist blogger that was going to buy a bunch of games and show how awful they were (but didn’t). Kickstarter has always said that you are donating and has no control if you ever get anything out of it.

If a startup is successful with the money provided by the 3Fs (and this is a huge IF as this is typically called the Valley of Death in startup parlance), these companies try to get Venture Capital Funding. The VCs are the people that have a boatload of money and try to make even more by getting companies to “exit.” There are three options for “Exiting” a startup – IPO, Purchase by another company, or failure. VCs prefer your startup being purchased by another company – it has the least risk (you never can tell what your stock price will be – see Facebook’s IPO. To get this money you typically have to give up control of your company. This comes in two forms ownership and members on a board of directors. In some cases the VC will take less ownership for more members on the board. Apparently one of those people that owned a large portion of Oculus Rift was Mark Zuckerberg – he reportedly made $337 Million on the Facebook purchase of Oculus Rift. That means he owned roughly 1/6 or 16% of the company ($2 Billion sale and all). Supposedly 2 other VCs made roughly the same amount of money on the deal. Which means that the founder likely owned less than 50% of the company and could have been forced into the deal.

Effectively, the moment Mark Zuckerberg invested in Oculus Rift, the company was going to be sold to Facebook – as long as it was shown to be successful. What this means to me is that if you read or see Zuckerberg personally investing in something, expect Facebook to eventually buy it. Additionally, with Zuckerberg owning that large of a percentage of the company, there’s no way it could have been sold to any other company. It was IPO, Facebook, or bust.

With this broader context, I cannot be mad at either Luckey or the other leaders of Oculus Rift. They knew the game when they got into VC – even if you aren’t into making a lot of money when you start, your VC will push for a positive exit for themselves.

One of the angriest people about this whole thing was Notch, the Minecraft guy. He finds Facebook creepy and is upset that his $10,000 facilitated that sale. Even if he had gotten stock for his investment, he would have only had 0.42% ownership share over the company (assuming Luckey sold all his stocks through the Kickstarter which is unlikely). Unfortunately, it’s likely his stocks would have been diluted and the VCs would have controlled enough of the board and stock to force the sale to Facebook despite all the people that could have owned stock if the money had been raised through a Kickstarter alternative like Fundable.

When investing in a Kickstarter, you can’t get emotionally attached, you need to look at it as if you’re gambling. You might never get anything from it, but at least you helped someone else’s dream come a step closer to reality. I’m happy for the folks at Oculus Rift because they got lucky in a very unfair game. I don’t like Facebook either – but it was unlikely for any other outcome unfortunately.

Who’s responsible for the internet’s capacity?

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AT&T thinks that Netflix is trying to pass off the cost of network connections to end customers. There have been a few different displays of the architecture of the internet. Netflix operations at a different layer than AT&T does – Netflix is an application, so it runs on a layer above the network layer, which AT&T operates. Netflix doesn’t really care who actually sends their bits to the end user – they just care that they get there in a fashion that enables high def video. To this end, they purchase bandwidth from a company, mostly Cogent, and I pay Comcast (others pay AT&T) for me to receive those bits from the bandwidth provider of Netflix. I pay Netflix for access to their content.

Based on this payment model, if there’s not enough bandwidth for Netflix and I’m paying AT&T or another ISP for accessing Netflix, it’s up to them to make sure I have that connection. Content is King, so for me, it’s most important that I can access what I want when I want. That’s why I have an ISP so they can let me see what I want.

I think that the best analogy for content trumping gate keepers are the examples of higher premiums from popular channels. In some cases Timewarner cable pushed for lower rates to show a specific channel to their subscribers. In this example Forbes points out that ESPN costs $5.54 per viewer, they wanted to lower that price and pulled the channel out of rotation. This made a lot of people unhappy and in some cases people left Time warner over the issue.

Essentially, this is the same thing that is happening with Netflix. The ISPs don’t want to pay to upgrade their infrastructure to ensure that the consumers of media online (many of these people paying for higher download speeds and higher data caps). Netflix is providing a service that these people are willing to pay for but cannot control how the ISPs interact with their intermediaries so is in a tough spot. It’s a target because of it’s popularity and has no control of how anything gets to a specific user. That’s why it’s looking at the peer2peer model (which is how Skype keeps their rates low) so it won’t need to go through Cogent and will likely burden other parts of the network very differently.

I believe that if an ISP cannot meet it’s advertised speeds 90% of the time, then they need to update their infrastructure to meet my needs. If they throttle a popular service I’m watching and thus make it unwatchable, they need to upgrade their infrastructure. Most ISPs have an extremely high profit margin, which means that it’s coming out of their infrastructure investment and are not actually adding value.

There are many companies that are responsible for the capacity of the infrastructure and all of them can negatively impact our ability to use the internet. However, from an end user perspective, my ISP is on the hook first, then everyone else.

Experts and Algorithms

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I’m currently reading: To Save Everything Click Here by Evgeny Morozov. I find the book interesting because it really pushes back against what he calls “Internet Centrism” which he essentially defines as anything that is considered good because it’s on the internet. For instance, Bitcoin is good because it’s a digital currency or having the LA Times write an article using an algorithm for the most recent earth quake – or online book publishing (good because it destroys traditional “gatekeepers”). One of his arguments is that because we don’t understand the underlying biases behind an algorithm we can’t truly tell if the algorithm is actually better than a subjective opinion on something. An example he uses to argue this point is a comparison between traditional food critics and Yelp reviews. Yelp uses an algorithm to determine what are the best restaurants, while a critic uses both experience, repetitive visits, and an underlying knowledge set to determine quality of an establishment. We can learn what biases the critic has (indian over french) through reading his critiques over time, with an algorithm we just never see what we don’t want to on the web (see the filter bubble).

Interestingly, this is somewhat in contradiction of Daniel Kahneman’s Thinking, Fast and Slow, which argues that the only time an expert should be trusted, especially when something is subjective, is when there’s a great deal of immediate feedback on a decision. Otherwise an algorithm is more effective and will definitely get you well beyond the 50% accuracy of most experts. Kahneman’s argument rings true to me, not surprisingly. I have a strong background in analytics through my undergrad, master’s and job experience with Six Sigma. All of these rely on models and algorithms to predict specific behavior. These models can be applied to both people and processes. I’ve felt that experience is always good for helping interpret results of the analysis, but in many ways the analysis forces you to quest preconceived notions around a topic you might be an expert.

I do think that these two systems can live well together. If we don’t know what algorithm Facebook, Twitter, Google, or others actually are using to provide us information we can’t truly be sure what biases have been introduced. I think that Netflix provided us with a great example of the power and weaknesses of algorithms at the same time. They offered a million dollars for people to make a better algorithm than theirs. The group that won, actually used an aggregate of algorithms – they selected from the 5 best algorithms and combined them. These were tested against what people actually wanted to watch and how they rated the results. So it was algorithms guided by the results and continually improved. However, I think Netflix has a different objective than Facebook or Google –  they provide you the ability to enter you preferences and then a suite of selections to make you happy. Google doesn’t allow you to modulate your search criteria beyond your initial search term.

Experts have a role, but the need to display humility and a willingness to learn. Algorithms have a role, but they need to be tested for biases and in many cases we must forcefully push against them. If we only hear our own opinions how can we learn and grow. If we never are challenged how can we be empathetic with other people – both of these lower the quality of our lives and we don’t even realize it.