Don't regulate the Internet: Facebook's flop and "net neutrality"

[Roxanne Appleby]

Facebook's Flop
By RANDALL ROTHENBERG
WSJ, December 14, 2007

Within the space of a month or so, Facebook launched and then shut down an advertising program called Beacon that alerted users to purchases and other activities their "friends" made outside Facebook. The episode has been called many things: "annoying," "upsetting," "creepy," a "nightmare," a "privacy hairball." I call it proof that when it comes to the evolution of the Internet, market forces work.

An increasingly organized coalition of anti-business groups, sensing a power shift in Washington, is lobbying to regulate interactive media, marketing and advertising. Their recommendations include a federally-administered "do not track list" and a ban on well-targeted ads. Such recommendations would severely curtail investment in interactive technologies. They would also curb the flow of otherwise free services that have revolutionized Americans' ability to teach, learn, communicate across boundaries and build entrepreneurial businesses using the Web.

The Facebook imbroglio is an almost-perfect representation of the power of the Internet to mobilize people to change the Web for the better. On Tuesday of this week, the search engine Ask.com announced a program intended to offer people privacy protections more advanced than those on other search services -- an explicit effort to turn consumer privacy concerns into a competitive business opportunity.

The onslaught against Facebook was so severe that it didn't even wait until a competitive threat materialized. The site specializes in connecting friends to each other through a network of individually-created home pages that feature biographical information, photos, gossip and just about anything else a person wants to post. Changes subscribers make to their pages appear in a news feed that runs across the home pages of each friend in their network. For example, today on my Facebook page, I discovered that one of my 309 friends is going on vacation in three days, another celebrates a birthday today, and a third joined an interactive television business alliance. This intimate connective tissue has helped propel Facebook's growth to 55 million registered users in only three years.

The controversy began in early November, when the site introduced Beacon and began sharing information about users' purchases and other activities outside Facebook, accompanied by relevant advertisements. Almost immediately, Facebook subscribers began complaining about invasions of privacy. Facebook's attempts to defend the program -- "All we're trying to do is make sure anytime there is a trusted word-of-mouth referral that your friend has made about this product, we share that information with you," one company executive said -- were met by complaints that Facebook was exploiting for commercial purposes personal information members hadn't intended to share. MoveOn.org got 50,000 people to sign a petition calling for Facebook to allow users to completely opt out of Beacon. A month in, Facebook did just that.

Facebook's blunder illustrates one of the hoary maxims of the Internet era: The consumer is in control. The ability of aggrieved Americans to band together and make noise that is either (depending on your point of view) productive or destructive is a reality that organizations as diverse as the Democratic Party and Dell Computer have learned the hard way. "Listenomics," Advertising Age's critic-at-large Bob Garfield calls this new principle: "The herd will be heard."

Why does the herd have such a powerful voice? Because the technologies that enable people to network to their 10,000 closest colleagues, build a blog or launch a global digital video network are now built into personal computers or available gratis on the Web.

This environment -- a world of no barriers-to-entry and unlimited shelf space -- has generated countless businesses, many of them constructed around the promise of advertising. The entrepreneurial equation is simple: Offer great content or great services, build an audience and bring that audience to advertisers. Advertisers love the Internet because its mathematical and technological tools enable them to analyze anonymous data to detect patterns in peoples' interests and consumption habits and to match ads to them, adding precision, accountability and productivity consumer marketers previously had lacked.

The Internet has paid off on this promise: The volume and value of the free services available on the ad-supported Web are almost incalculable. Google, Yahoo and MSN together provide 500 million email accounts -- for free. The research firm comScore reports that more than 200 million Americans age 15 or older conduct search-engine searches each month, also for free. And each month some 20 million people search the top three online job-listings sites -- Monster, Hotjobs, and CareerBuilder -- without charge. Just one of those sites, Monster.com, has 41 million résumés posted on it by job-seekers.

Of course, none of this is really free. Advertisers are paying for it. Internet advertising revenues are likely to exceed $20 billion in 2007, about one-third the amount marketers spend on national broadcast and cable television, according to research by the Interactive Advertising Bureau and Price Waterhouse Coopers. The Veronis Suhler Stevenson investment bank projects that Internet ad spending will reach $62 billion in 2011, surpassing newspapers as the largest advertising medium. Small providers as well as large are benefiting: 32 million American adults have used online classified ads for selling or buying, according to the Pew Internet & American Life Project.

Activists' calls to regulate interactive advertising -- which include the banning of behaviorally-targeted ads -- would, if followed, shut down this flow of advertiser money and the services for which it pays by limiting the medium's effectiveness. That would be a tragedy, because it's unnecessary. Internet consumers have shown themselves willing and able to police the medium on their own. Just ask Facebook: Consumer regulation proved itself to be a far more effective, efficient, economically productive and unforgiving mechanism than federal regulation ever will be.

Mr. Rothenberg is the president and CEO of the Interactive Advertising Bureau.

 

[Roxanne Appleby]

WSJ, 6.25.06

Net Loser

Chances are that by now readers have heard the term "Net neutrality," even if they haven't figured out what all the fuss is about. This week, the controversy reached the Senate, with Net neutrality proponents attempting to write a whole new layer of Internet regulation into law.

A recent incident may illuminate the controversy for those wondering what both sides are after. Several weeks ago, users of Cox Communications' broadband Internet service found that they could no longer access Craigslist.org, the free classifieds site. Some bloggers immediately smelled a rat -- Cox's parent company also owns newspapers, which compete with Craigslist for classified ads. In a letter to the editor last week, Senator Ron Wyden (D., Oregon) cited the Cox incident as an example of why we need Net neutrality rules. Without them, supposedly, Verizon, Comcast, Cox and other Internet access companies would control users' Internet experience to the detriment of consumers.

Well, not quite. It turns out Cox had installed another company's security software to protect its users, and a bug in that software inadvertently cut users off from Craigslist. But don't take our word for it. Craigslist founder Craig Newmark, no enemy of Net neutrality, said this about the incident on his blog: "The whole thing was exacerbated by folks talking about Net neutrality," adding for good measure: "None of this was deliberate" by Cox.

Nevertheless, this is a teaching moment. Net neutrality advocates say we need new regulations for the Internet to make it illegal to do what Cox was supposedly doing. Of course, Cox is innocent in this case -- but this is precisely the point. There are all kinds of innocent or inadvertent ways that a user's access to a given site can be disrupted or slowed today. Under a Net neutrality regime, Cox could well have been subject to investigation, sanction and lawsuits for what amounted to a bug in someone else's software. This is so because most versions of Net neutrality would create a legal obligation for companies like Cox to manage their networks in a "nondiscriminatory" manner. This may sound simple, but it's not.

As it is, the big phone and cable companies, which also offer Internet service, try to ensure that a user's experience is "optimized." They have every business incentive to do so if they want to keep those customers. That this sometimes seems hard to believe (say, when there are delays in downloading a streaming music video) is testimony to how difficult a task that is. Exposing these companies to litigation or prosecution for not doing this to some Web site's satisfaction is not going to make the task easier.

Meanwhile, Google, Microsoft, Yahoo and other Net neutrality proponents seem to want it both ways. They insist both that this is pro-consumer legislation and that the best thing is for consumers to pay for things that Google and other content providers would rather not. Net neutrality only became a cause of these companies and of groups that favor more more regulation in general when some phone companies suggested they might want to charge Google or other content providers for priority access to their networks.

No way, shouted Google and its allies, many of which have fabulously rich stock prices. Far better to charge individual consumers. Well, the American Consumer Institute, a Washington think tank, actually asked an economist to look into whether this is true. In his 40-page paper, Larry Darby's answer is that pricing flexibility is good for consumers.

He cites the newspaper industry -- in which the costs of providing news are split between readers and advertisers -- as an example of the kind of "multisided market" that can develop when businesses are free to charge whoever is most willing to pay. Mr. Darby's conclusion is that barring network operators from charging for value-added services would be bad for consumers. "The practice of 'end users only paying' evolved in, and was suitable for, the world of . . . voice message only technology," Mr. Darby writes. "But, Congress should not lock that business model into a market for which it is ill-suited -- and certainly should not do so on grounds that consumer welfare is thereby enhanced."

 

[Oblimo]

What's the difference between regulation by government and regulation by corporation in this case, other than the flavor of fuck-ups?

 

[cantdog]

It's those Market Forces, praise their name.

The government is unclean but the corporations are pure; it is through them, yea, verily, that the Lord Market shall show his Invisible hand.

That's the difference.