Friday, December 16, 2005

Comment on Tim Wu's "How to lose friends and alienate people"

Doing business on the Internet is a complex affair, and a lapsed physicist living in a glass house shouldn’t throw stones at law professors opining on commercial matters. I shouldn’t, but I will.

Tim Wu’s opinion piece in CNET is an admirable attempt at extending the case for network neutrality. He argues that BellSouth’s hope to charge companies that want their sites to load faster than those of a rival isn’t illegal or immoral, but stupid. It’s an important step to finding the win-win-win-win for network operators, consumers, established app/content providers, and new app/content providers.

This is a welcome new line of reasoning from the “open access” camp, but it’s not persuasive yet. While it’s true that companies sometimes do things their customers hate, it’s typically by accident and not on purpose. No business can afford to alienate its customers over the long run; companies will do things that irritate some of their customers some of the time, but usually as part of a conscious trade-off.

Buyers and sellers are always engaged in a tussle: vendors want to sell for as much as possible, and customers want to buy as cheaply as possible. In the end, if they decide to do business, both settle for less than they’d like but more than they’d otherwise get. Both sellers and buyers make trade-offs, and a trade-off that one (class of) customer dislikes isn’t necessarily bad business overall.

Wu argues that BellSouth’s model, that is, trying to add value to its pipes by privileging some traffic flows over others, “neglects the market values of neutrality and consumer choice”. I’m not persuaded that the likes of BellSouth “err by thinking that their customers want their services, as opposed to better access to an open market.” Only policy wonks worry about “access to open markets”. Most consumers just want products at the lowest price for the highest quality. Open markets often provide this, but are a means to an end for consumers, not an end in itself. If they can get a better product for no additional cost – if, say, Real Networks paid BellSouth a premium to ensure that a Rhapsody media stream gets Platinum Tier treatment even though a customer has only paid for Silver Tier network performance – the consumer will take it.

Wu argues that neutral products and neutral networks are usually more valuable to customers, but neglects to explain how a company should balance this with the fact that such neutral systems are usually less valuable to sellers. As Isenberg and Weinberger said in The Paradox of the Best Network: “The best network is the hardest one to make money running.”’s home page isn’t a blank Google-esque page with only a search box; it uses the customer’s profile to lead off with recommendations that are not neutral. Any web search result, including on Google, is headlined by paid-for ad links that aren’t “neutral”. In many cases customers even find such bias useful, or at least sufficiently un-intrusive that they don’t go to another supplier.

Wu has an axe to grind: as a customer and as an activist, network neutrality is his top priority. Bias in the network is just bad, even if were to reduce the profits of network providers to the point that they don’t upgrade their networks. If he can’t win the argument by claims to law or ethics, it’s worth his while to persuade the network operators that neutrality is a better business strategy. That’s a sensible goal. However, there’s still a way to go before we can persuade a telco or cableco executive that trying to make money by adding value to their profitless commodity pipe is a bad business strategy.