why symmetry matters in "business"

[David Farber <dave () farber net>]

Begin forwarded message:

From: Scott Moskowitz <scott () bluespike com>
Date: September 3, 2008 10:38:23 AM EDT
To: "Patrick W. Gilmore" <patrick () ianai net>
Cc: Dave Farber <dave () farber net>
Subject: from IP :: why symmetry matters in "business"

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Mr. Gilmore:

I agree with the points you make but it assumes the business is (or
needs to be) asymmetric. I do not use any peer-to-peer service & pay
for all of my content, seriously - then again I also pay for
shareware over 50% of the time. Contrary, I am not a big movie goer
and may have purchased 20 DVDs as cable content is "good enough" for
me. But I would not extrapolate my bandwidth consumption with any
other user as I believe the more we provide the better our society
will benefit.

My point? The Universal Service Fees today have largely become
dividends to the carriers *not* in accordance with the intent of why
we have them to begin with. A copper-line costs about 2 cents per
month (I'll pull a reference if needed - The Economist quoted this
number most recently). The lowest possible price I can pay for a POTS
is about 20 dollars per month. That is a lot of "jack".
Telecommunications has become 90% plus - billing, advertising &
collections - & lobbying. Where is the innovation? Innovation driven
by demand for a scarce resource is one thing, innovation driven by
narrow definitions of what constitutes "expense" is a very different
thing if it comes from the "incumbent" status quo. There is plenty of
bandwidth. That all business can be reduced rather easily to bits
(the value is the intangible the rest is "made in XXX") makes the
asymmetry of how to allocate resources more contentious.

A simplistic example: The major labels have a lot of clout (political
& distribution) and yet only 30 or so of the 30,000 plus releases
(which includes all of the independents as well) annually account for
over 50% of revenues. Catalog, *not* any long tail, is what provides
the margins as do the term for copyright (amongst the bundle of
rights for a sound recording). The movies business? Well, perhaps 10
movies a year represent the bulk of revenue - even considering
shrinking windows for varying distribution channels (Blockbuster,
cable, download, etc.). Even pharma aggressively pushes product that
has been introduced within a trailing 18 month period. So, why does
policy favor filtering when the alleged owners of goods & services
cannot predict what is hot and what is not? In Pharma, for one, we
legislated that Medicare won't negotiate lower drug prices: in
telecommunications we legislated immunity for any number of filters
but do not require innovation in differentiated services.

The issue is that most sales for intangibles occur in a very shrunken
time frame (the 1980s speed as competition paradigm attributed
typically to George Stalk & Boston Consulting Group is true). When I
sold compact discs in Japan in the early-mid 1990s a fairly typical
major label release sold 90% of its eventual "revenue" within 8-12
weeks. This of course excludes long sellers that may have been so
popular you may own the product in several formats. This "time to
sale" is now about 7-10 days. The music did not stop. Nor did movies
stop being put out on the big screen: they go to video, so to speak,
much more quickly.

Resources need not be infinite - in fact, economics is about
allocation but accounting enables the allocation decision to be made
tangible or at least transparent. You could have all of the world's
music on your hard drive - doesn't mean you can listen to all of it
or that other people will turn to you for getting those songs. A
celestial jukebox is sexy to those who want to keep those quarters,
efr dollars, coming. But, too often the user is providing resources
and does not get to "participate" (in a money / consideration sense),
many unknowingly, in the exchange. The "willingness to pay" is there
- - CDs may be down - concert revenue up.

My ISP plays all kinds of games that follow the same story - I pay
for what I think is more bandwidth ("broadband") but get more direct
marketing from the provider's business packages sales unit. I also
get reminders about non-authentic certificates being passed & see my
up & down load speeds are way below what is advertised. And, I have
no P2P connection and pay for 2 wired lines & 2 wireless lines. How
is it that those moneys are being expensed (sold as marketing to
other 3rd parties, for one) and not valued for building out a more
responsive network? Better yet, how is it my ISP can assume intimate
knowledge of any business model for the companies they sell a
marketing service too? (They can't). And, what kind of liability do
they share when their activities enable others to engage in ID Theft
(been there several times & yet I'm still me & had to use trademark &
copyright of my name to deal with one aspect of that issue - create
liability using IP law)?

Too many assumptions & free passes (well paid with "political
capital" - the most expensive form of capital?) for what should be
regarded as a resources for all Americans.

All I ask is for an equitable split in what resources are taken from
my machine/network/monthly payments to the provider/LAN between
machines on my property - to support my ISP's business model, while
knowing that they are not interfering with mine. It would be nice if
I got a margin when they sell my intangibles (like my address) but
then again I don't get a margin in Google's use of my search for
"fine-tuning" their business model either.

One aspect of the argument Bob is making (though I speak for myself &
do not make any assumptions about Bob's communications) is that
services have never been matched to the cost of the infrastructure.
And, because I already have plenty of wires I am not sure what the
delay is in defining the "terms" in a manner consistent with the
increasing symmetry of moving bits - not artificial caps or scarce
resources arguments which are inapplicable to information and the
Web. Thomas Jefferson said "information wants to be free" (and, the
response, not as in free beer) because it is an imperative for a
marketplace of ideas - profits or not.

The upside? This is not a zero sum proposition.

Enjoyed your take.

Sincerely,
Scott Moskowitz
http://www.bluespike.com/


Begin forwarded message:

From: "Patrick W. Gilmore" <patrick () ianai net>
Date: September 2, 2008 3:47:41 PM EDT
To: Dave Farber <dave () farber net>, Tony Lauck <tlauck () madriver com>
Cc: "Patrick W. Gilmore" <patrick () ianai net>
Subject: Re: [IP] It's hard to dance if your feet are bound

On Sep 2, 2008, at 3:12 PM, David Farber wrote:

> From: Tony Lauck <tlauck () madriver com>
> Date: September 2, 2008 11:25:49 AM EDT
> To: dave () farber net
> Subject: Re: [IP] Re:  It's hard to dance if your feet are bound
>
> Any business that thinks of its customers as "offenders" has a
> serious problem. These customers are leading edge users and what
> they are presently doing will become the norm in a few years. Of
> course, a "business" that depends on a government monopoly may be
> able to prosper for a while, so long as its political connections
> remain intact.

First, please note the quotes.  I was using someone else's
terminology.  To be honest, I'm not certain I disagree with you, but
I'm sure I agree either.

Many companies have "customers" they do not want.  An ISP (which
shall remain nameless) back in the 90s allowed their NOC employees to
fire one customer a month.  They did not die because of it, just the
opposite.  Their employees were much happier, and the other 99.9% of
their customers were happier as well because they had more resources
(modems, customer service time, incoming bandwidth, etc.).

This is not unique to the Internet industry.  Take the guy who comes
into McDonald's and orders a small fry, bothers other customers,
spills catsup all over, makes a mess in the toilet, etc.  He is a
customer, but I doubt McDonald's is going to go out of business by
considering this guy a "worst offender" or refusing him service -
just the opposite.

Companies which are required to sell to anyone in a certain class
(e.g. everyone in Town X) may have more of these customers than other
businesses.


Back on topic, it is a fact that the resources in question are not
infinite.  Given a finite set of resources to divide amongst a set of
users, the 80-20 rules might mean dumping the 20 to give the 80
better service equals more profit.  That becomes even more probable
when it is the 90-10 or, as some have argued here, the 99-1 rule.

The problem is that this is not a normal business.  It is a
government granted duopoly.  So maybe they should be forced to
provide for the 1% users?  But, just like the phone system, that
means the other 99% will have to pay more than their "fair share".
Which is not, well, fair.

Do you think people doing file sharing or downloading 10 movies a day
should get subsidized by the Internet equivalent of the Universal
Service Fund?



> If we want to improve broadband connectivity we will have to smash
> all these political connections.

Not sure how to do that.  We don't want 100 pieces of copper or fiber
running into our houses.  Therefore there will always be some
political connection.  Maybe we should do as Bob & others have
suggested and split the "infrastructure" from the "service"?

- --
TTFN,
patrick




> David Farber wrote:
>
> > Begin forwarded message:
> > From: "Patrick W. Gilmore" <patrick () ianai net>
> > Date: September 2, 2008 9:01:59 AM EDT
> > To: Dave Farber <dave () farber net>, Bob Frankston
> > <Bob19-0501 () bobf frankston com>
> > Cc: "Patrick W. Gilmore" <patrick () ianai net>
> > Subject: Re: [IP] It's hard to dance if your feet are bound
>
> {...}
>
>
> > So it is decision time: Raise prices to support full-time
> > connections?  Or deal with statistical multiplexing and prune the
> > "worst offenders" so the rest of the populace doesn't suffer?
>
>
>
>
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