NetFlix deal with Comcast; a monumental disaster for the nascent digital economy

Not the right time!

NetFlix announced a ‘paid peering’ deal with Comcast last month.  This which will see Netflix pay Comcast for better access to its customers is seen as a knock-out blow for Net Neutrality.  In peering, large providers normally exchange data among themselves, no fees paid.  It could mean costs going up for consumers.  It will make it harder for the innovative internet start-ups. 

It began with the courts finally (previous attempts by the carriers failed) handling Sprint a victory to strike down Net Neutrality in the US.  Before this ruling, ISPs are obliged to deliver content equally among all content providers.  With this ruling, the broadband providers can speed up delivery of specific content when a content provider pays them extra.  This is what happened with the Netflix-Comcast deal.  Remember, previously this payment cannot even be made because all content providers had to be treated equally by law.  Now, what happens when say a video streaming startup (typically cash-strapped as with most start-ups) can’t afford to pay Comcast extra?  However good their service is, they are handicapped at the starting block because their content is delivered slower than Netflix.  More likely than not, they will fold. One implication is that the ruling favours the largest companies.

There are two issues here, the Netflix-Comcast deal and the ruling against Net Neutrality.

With Net neutrality, all data on the internet are to be treated equally.   Internet service providers cannot discriminate or charge differently by user, content, service or site.   They cannot charge a different rate to carry different content.  They cannot discriminate against certain services or content by prioritizing or impeding access to any particular site or application through blocking or slowing bandwidth.  They cannot advantage a paying content provider to deliver their content faster.  They cannot block content (except banned content) from any content provider.  It is to prevent unfair discrimination by the ISPs.  It is the preservation of an open internet, important for the ecosystem with the argument that this approach is the reason for the free flow of ideas and inventions and by association good for the economy.

The whole issue boils down to FCC’s not treating internet service as a utility like telephone services and therefore not classifying broadband providers as a telecommunications service.  Which of course it is, the ISP is the future telco!!  This lead to the ruling against Net Neutrality quickly followed by the Netflix-Comcast deal. This article “THE WRONG WORDS: HOW THE FCC LOST NET NEUTRALITY AND COULD KILL THE INTERNET” explains it well.  See http://www.theverge.com/2014/1/15/5311948/net-neutrality-and-the-death-of-the-internet. The Federal Communications Commissioner (FCC) is the US telecommunications regulator.

This reminds me of the 2008 financial crash, a failure of regulation.  Businesses will do what it takes to maximise profits and with a regulated industry, it is the government’s job to prevent what eventually could be granting of excessive powers that takes years to unravel.  It is now widely acknowledged that the US government failed to do this with the financial industry leading to 2008.  I hope they realise the gravity of Net Neutrality and do something to correct the recent court ruling.  This and the Netflix-Comcast deal is a massive blow to the emerging digital economy.  It will hamper this still nascent industry.  Regulations should protect these mostly minnows but instead chose to side with the giants.  To me, they endorsed giving more power to the already powerful! 

The problem is that there is currently no true free market in the ISP industry (although it is liberalised), if there was, Net Neutrality wouldn’t be needed.  And revenue of the dominant broadband providers (mostly the incumbent telcos in Asia) continues to rise.  It is not even falling.  They do not need to be further advantaged.  Worst, telcos in the past only played a secondary role in the economy as enabler for communications, but now they have a direct impact on an economy that’s increasingly digital ie. impact is now primary and much greater.  I wonder if the powers that be realise this.  The large carriers ought not to be allowed to strangle it for their own sake.

The rest of the world tends to follow the US’ lead in such matters so it has a global impact.  In Malaysia, Net Neutrality is law but we need to watch the space.  The Netflix-Comcast deal may embolden the telcos to attempt the same.

For the sake of the internet industry, I hope there would be a response.  And just yesterday news broke that the merger of Time Warner Cable with Comcast will go through an antitrust investigation.  A good start but the Net Neutrality ruling needs to be re-instated.

Dotcom bubble; round 2?

There has been dark talk of late?

Let’s see what happened with the first (1996 to 2000).  I was in its midst, rode it like many early internet participants in Asia, courted by financiers.  I entered the industry in 1991 operating internet service providers in Singapore, Malaysia and around the region.  ISPs are the first to emerge in the internet era.

In Asia the internet pre-1995 was laughed off.  With hindsight this was a sign of impending disaster with the public taking to internet stocks only a few years later even as they thought little of it.  Largely unknown, it was only from 1994 onwards when the press got excited did the public start taking notice.  The founding of Yahoo (1994) in particular struck a chord.  The explosive Nasdaq listing of Netscape in 1995 then created the buzz that made it headline news.

At that stage, internet penetration was low, perhaps 1%.  But it was all over the news.  Then as other listings followed; Yahoo (1996), Amazon (1997), eBay (1998) with PE ratios climbing stratospherically, public fervour was fuelled and speculators entered funding anything that had .com behind it.  I must say it felt like the years preceding 1997 just before the Asian financial crisis, a euphoric period of optimism, of riches with stock prices that only went up amid heightened excitement.  Then in 1998 I remember thinking that the IT industry was little affected even after the massive crash that so badly mauled most Asian countries.  In fact it was a small blip, the party continued.

But just about all internet companies were losing money with a business model that screamed “don’t be silly now, high grow (website hits and users) is it, profits in time would come”.  It was all about being the first to climb a mountain and the next and the next.  With even traditional companies changing their names to include ‘.com’ and seeing their share price rise, you know something is amiss but it was difficult to see the woods for the trees in the madness.  Same atmosphere today?  This amidst unknown new business models that hope shrouded.  To be sure, this is still the model today but prove is required before funding came in and only in stages.  Previously financiers simply jumped in pumping adrenalin into the hatchlings.

In Asia there were few internet stocks so the play was on internet startups, internet personalities (brand name for a startup!) and I know of a job search company with a newly setup website that got bought for being a .com!.  The idea is to list them before long.  They hardly paid attention to the business plan.  Anyone with even the slightest experience in the internet industry was fair game.  In fact, one financier told me that it’s not important for a startup to make a profit because hope was what drives the speculators!  Such a tone is not felt at least not in Asia this time round.

It’s been 14 years after the crash.  So what’s the diff?

Fundamentally, the most telling is that internet penetration is now high which at 1% during the bubble era wasn’t really viable for online businesses and eCommerce.  The internet as a business cycle has also now entered mainstream.  And internet business models, once an unknown have now been proven to be viable.  Monetisation that began during the dot.com has proven successful for the better run companies (this possibly is one factor for the run up of new internet companies this time round).

5 differences:

1.     Then the wider industry was excited; now it is only within the internet and financial industry and even then, orders of magnitude less.  Tellingly, there was a perceptible buzz in the public then too, now hardly.

2.     The anticipation today is mostly around new online services from social media, cloud to the sharing economy.  Then even traditional firms were rushing to re-invent themselves, not improving business with the new tools but a tangent towards aping high profile internet firms, perhaps in a hope that the high valuation would rub off on them.   These firms now need to re-invent themselves but most are not doing so, Starbucks is an exception.

3.     Now the push or effort for financing a venture is on the entrepreneurs, then there was also an equal and opposite pull by financiers that we now know to a large extent fuelled the dot.com mania.  This time hardly.

4.     Most internet firms are in better financial shape now, making real revenue.

5.     Facebook shares tanked for a year or so, something that would not have happened during the dot.com run up.

If we think in cycles we would know that in the first stage, infrastructure build must come first to increase internet penetration.  At 1% how many buyers online can there be?  The suppliers (digging tools) make the profits as the online gold rush was often compared to the Californian gold rush during those heady days.  It was a warning from the then insiders of the industry including this author but no one listened.

Being one of the pioneers in Asia, I was asked soon after the crash if that was the end of the internet.  Many imminent industries, history says, start with a financial crash during phase 1.0 of their development.  We saw it in the car industry, railways, electricity that in fact alludes to an industry in the making.  It shows in fact that it was going to be the next big thing!  Whilst most internet ventures failed, it was not due to a fundamentally flawed model but of timing.  Those were simply formative years, internet 1.0.

As they say in Asia, if you see housewives and retirees talking excitedly and crowding the trading lounges of their brokers, you know it’s bubbly.  There is no similar hype today, only slightly frothy perhaps.

So I think not.

Software programming should be taught like a second language

In the 21^st century... a digital age, coding should be learnt by all.

Currently in the shadows, the web 3 phase is at its beginning (bell curve).  In this blog, web 3 follows web 1, the pre-dot.com bubble phase and web 2, the current with the wave of new internet start-ups aka sharing economy, social media, etc ie. the rise of the mostly consumer service providers.

Web 3 moves tech from the back office (this is what IT is mostly used for up till now) to the front.  While web 2 is mostly about the service providers, web 3 is about companies and organisations, finally using the internet for business.  Instead of treating the homepage as the cover page of their annual reports, progressive firms are now turning them into real shop fronts; for marketing, to generate sales, for revenue generation, to re-invent themselves.  This is lead by the traditional retailers threatened by the online retailers who have stolen the momentum, and is slowly making its way to other commercial sectors.

That is to say with companies seriously moving online, ‘weberising’ will be part of its DNA and used throughout the organisation.  As this happens, we will find executives itching to use the internet for their part of business.  A retail brand executive could quickly write an app himself to take advantage of Paypal’s Beacon (location tracking devices placed in retail stores) to push his own products in a general store.  Waiting for the traditional IT department to do it will take so long, the first mover advantage will vanish.  It is about digitalisation of businesses, mostly outwards towards their clients and partners.

How many passionate executives wished they can do a quickie app to complement their upcoming marketing campaign?  Actually they can.  Programming is now much easier than when I started with assembler coding.  There are tools to help them, hiding and taking care of the complexities.  They only need logic and to know some basics.  It is certainly much easier than learning Japanese!  And I’ll say maybe 5% of the effort of a traditional program.  But I don’t expect many 40-year old executives doing this.  Most have the outdated impression that programming are for whizz kids.  So schools and parents should start them.  Young professionals should too.

“The fact that some SAP employees are actually taking the initiative to build their own applications also speaks to the trend of “shadow IT,” where end users or individual departments buy and deploy products without the involvement of technical staff.” - CIOs need to rethink their roles, MIT symposium panelists say, By Chris Kanaracus, IDG News Service, May 22, 2013 

Another trend is that globally entrepreneurism seems to be on the up and would be a significant part of any economy.  Many startups are looking at the internet pot of gold even for those in conventional businesses.  Many now see it as integral to their business.  But most are not computer science graduates and many who rely on partners who are find themselves at a loss when partnerships break up.  And statistically, most do.  It’s a handicap.  They ought to learn to develop websites themselves and most need some level of programming (but not deep).  There are many good online courses available, free to help them.

Working adults ought to view programming as another language to acquire.  This will be good for a career moving forward, now steep within an internet economy.  And like ABC, kids should start to learn programming early.  In this 21^st century, programming should be taught at school to all students.

Alan Greenspan says Bitcoin has no intrinsic value

This was stated on 5 dec 2013 (Bloomberg).

He is a great economist but does he understand the new economy?

In the information era, data has value whence once it had little or only when turned into information.  Today the data/information industry (Baidu, Facebook, Yahoo, WeChat) is growing fast, is adding new categories like the sharing economy (Lyft, AirbnB, Funding Circle) with more categories expected as we move deeper into the cycle of the information age when once it was a stagnant sector (mostly the media, publishing and information services).  Bitcoin is a currency based on data, created by computing a complex algorithm which is akin to being mined.  While the establishment criticise Bitcoin, could it be that they are seeing it through rose-tinted glasses of traditional convention? And all this as the underlying change caused by the cycle towards the information age marches on.  Admittedly, it’s early days so he may not grasps the new.

Here are a few examples showing that data has value, raw or processed:

·         Big data is an example of data now having a value on its own albeit that it needs to be mined

·      Social data, created by the social media companies now has a lot of value.  Google and Weibo are behemoths, based on information and data.  Once massive amount of data was close to valueless because there was no way to mine them cheaply but with today’s low cost of computing, it does.

·         Telcos as one example has transformed into a data business. The voice business model has collapsed with the internet (turned voice to simply data).  With increasing revenues, data obviously has a lot of intrinsic value.

Paper currencies are simply pieces of paper but backed by governments.  That’s where it derives its value now that the gold standard has been abandoned.  Not long ago, currencies were backed by gold.  Bitcoin is a ‘piece’ of data, backed by the crowd. It is modelled after gold and thus harks back to the days of the gold standard but in an information economy. In this era socio-economically speaking, the crowd has acquired an unusual place.  Crowdsourcing is now the engine of commerce (see ‘Crowdsourcing; why it works” dated 18 Aug. 2013 in this blog.  It also tells why data now has value).  The crowd’s role in the economy was once in consumption but now it also produces (see ‘peer-to-peer as a business model Part II’ posted 16 Nov. 2013). The world’s certainly more democratic now, implying the crowd nowadays has more power. The command-and-control culture also seems to be breaking down.  Etcetera.  And isn’t democracy backed by the crowd?

Like Napster (the peer-to-peer model did not go away despite the detractors) so it is likely that Bitcoin or its derivative could evolve similarly.

Update...Interestingly Federal Reserve’s outgoing Chairman Ben Bernanke ‘praised digital currencies’ in a letter to the US Senate as reported by Time 16 December 2013.