[iwar] [fc:The.Internet.Power.Grab]

From: Fred Cohen (fc@all.net)
Date: 2002-07-21 21:53:52
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From: Fred Cohen <fc@all.net>
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Date: Sun, 21 Jul 2002 21:53:52 -0700 (PDT)
Subject: [iwar] [fc:The.Internet.Power.Grab]
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The Internet Power Grab

Everyone knows that the Internet is moving from free to fee. So why isn't
the Internet army fighting back?

by John Ellis
illustrations by Brian Cronin
from FC issue 61, page 98
image
GIF(1415bytes) GIF(1814bytes) GIF(1814bytes)
image

The great transition that is taking place on the Internet -- from free to
fee -- is now gathering speed. You used to be able to listen to audio
streams of Major League Baseball for free. Not anymore. Now you have to buy
something called Total Ticket at http://www.mlb.com 
for $9.95 a month or
make do with Gameday Audio for a onetime fee of $14.95. You used to be able
to read the Financial Times at http://www.ft.com 
for free. Not anymore. Now
you have to buy a subscription to read its "most valuable features," just as
you do for online content from the Wall Street Journal. Want extra storage
space for your Hotmail account? Please remit $12.95 annually.

There's a blog that chronicles all of this at http://theendoffree.com. 
It
reports on the latest converts from "free to fee and beyond." If you read it
every day, you can see the trend unfolding in real time, right before your
eyes.

This was inevitable. None of the dotcom revolutionaries ever thought through
the permission-advertising model that might have enabled "forever free" Web
content. The Webmasters went with a broadcast-advertising model instead.
White space on a Web page was filled with billboards that no one wanted or
needed. The Webmaster's response to consumer indifference was to make the
advertising ever more invasive, which made it ever more annoying. We have
gotten to the point where "traditional" advertising on the Web is probably
an exercise in bad brand management. And so the end of free content nears.

This trend, from free to fee, is emblematic of a more ominous development in
the Internet arena. Bill Taylor, one of Fast Company's founding editors,
calls it "the counterrevolution": mature companies in mature categories
striking back at Silicon Valley technology and the pricing-power collapse
that it implies. They are doing so in Washington, DC and in state capitols,
where the technology crowd is weakest and most clueless. Their efforts are
meeting with considerable success.

To understand what is happening, it's necessary to back up a few years. Back
then, on Sand Hill Road, where the top venture firms met the top
technologists, there was the sense that the work that they were engaged in
represented the future. It was the future. Their technology would reinvent
every business and shift the paradigm of every enterprise. And nothing could
stop it or them.

They had no use for politics, no use for government, no use for the old
rules. But it was more than that. They were openly disdainful of government
regulation of any kind, and they didn't bother to hide their contempt. When
the National Security Agency raised concerns about unbreakable encryption
software, Valley technologists sniffed that their concerns were the product
of old thinking. The whole nation-state thing was so retro. The digerati
weren't really Americans, after all; they were citizens of a wider world.
They were global technologists. They could sell to whomever they chose. And
they did.

Just as their technology raised security concerns, it also threatened two
established businesses in particular. The first was old-fashioned telephony
-- the telephone business was the choke point of Internet technology. With
billions of dollars of Wall Street cash, thousands of miles of
information-superhighway fiber-optic cable was laid into the ground between
major hubs. The problem was the so-called last mile: the wire into your
home. Most homes were equipped with three wires: electric, telephone, and
cable television. Most people connected to the Web over a standard phone
line. Converting that line into a high-speed-access line was crucial to the
success of all of the other Internet technologies that the Valley had to
offer.

But there was a problem. Regional Bell Operating Companies made their money
on local and long-distance telephony. The Valley was proclaiming that the
days of such services being fee-based were numbered; in the future ( through
Internet-Protocol telephony ), all voice calls would be free. And it was
true. If every last mile was connected by fiber-optic wire or high-speed
cable, every voice call could be free.

The RBOCs, of course, did not see such a future as beneficial to their
financial health. So they went to work at the state and federal level to
forestall the implementation of this technology until they could control it.
RBOCs have state and federal political relationships that are the envy of
every industry, with the possible exception of the electric utilities. They
own most state legislatures, and they know everyone and anyone who matters
at the federal level. They have been dealing with regulators since the first
part of the last century, and they've been contributing to the political war
chests of committee chairmen for as long as anyone can remember.

And so the Tauzin-Dingell bill, a blatantly pro-RBOC piece of legislation
that granted the Baby Bells the more or less exclusive right to build out
DSL access, passed the U.S. House of Representatives this spring by a
comfortable margin. This success came on top of an FCC regulatory ruling
that favored the RBOCs on building out DSL access. Tauzin-Dingell will
probably not pass the Senate in its current form, but when and if it gets to
a House-Senate conference committee, the betting among political
professionals in Washington is that something favorable to the RBOCs will
emerge.

This outcome would have seemed unimaginable three years ago, when Internet
technology seemed like a tsunami. But today, the outcome seems almost
predictable. After all, the last-mile logjam hasn't been broken. Voice calls
are still not free. And the companies that will build out the
high-speed-access system to most homes will be the very companies that did
so little to make it available ( at an affordable price ) for so long.

The other empire striking back is the entertainment industry. Bad as
Tauzin-Dingell might be, it pales in comparison with what Hollywood is
proposing. Threatened by companies such as TiVo and Napster and copying
technology that essentially Napsterizes everything from movies to television
to live programming, the entertainment industry called in all of its chits
and asked for passage of the Digital Millennium Copyright Act, which was
enacted in 1998. It is now asking for passage of the Consumer Broadband and
Digital Television Promotion Act, introduced by Senator Fritz Hollings (
D-SC ). That would require computer makers to build copyright-protection
technology into all personal computers. It could also make illegal all
software that enables copying. The target of the latter piece of legislative
legerdemain is the Free Software movement itself.

The Hollings bill is breathtakingly far-reaching legislation, but it is a
measure of Hollywood's clout that California senator Dianne Feinstein --
formerly the mayor of San Francisco -- has cosponsored it. If it passes both
houses of Congress, the Hollings bill will likely be vetoed by President
Bush. But that's not the point. The point is that legislation that would
effectively devalue Apple Computer ( whose new iMacs are capable of copying
music and video and sharing those copies over the Internet ) may well pass
both houses of Congress. That's real power. There aren't many industries
that can cut themselves that kind of deal.

With free content heading toward extinction, free telephony on hold, free
sharing of private property under attack, the design of personal computers
in question, and the Free Software movement in the gun sights, you might
think that Silicon Valley would be organizing itself to fight back on the
political front. But they're late to the game. And remarkably, they still
haven't appealed to the public for support. There is no widespread public
campaign to defeat Tauzin-Dingell. There is no widespread campaign to defeat
the Hollings bill. And there are no grassroots efforts on the Web. The
Internet army, which is enormous, hasn't been engaged or conscripted.

There was a time when Silicon Valley could ignore politics. But that was
then. These days, their business depends on it. Either they get a mitt and
get in the game, or they lose. And if they lose, we -- the Internet army --
lose big-time.

John Ellis ( jellis@fastcompany. com ) is a writer and consultant based in
New York. Read his weekday musings ( http://www.johnellis.blogspot.com 
) or
find a catalog of his columns, here. 


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