The broadband era has been a period of major innovation, including the first steps of a potentially vast new e-book market. But is the Internet as we know it—the platform that has fueled such innovation—at risk?
Yes, says "net neutrality" defender Tim Wu, who argues in his timely new book, The Master Switch: The Rise and Fall of Information Empires, that we now stand at the edge of a historical slippery slope, a step away from a slide into another period of major corporate dominance, with potentially far-reaching consequences.
Already, 2011 is setting up to be a make or break year for the Internet. On December 21, the FCC will vote on whether to extend net neutrality principles, a measure cable companies oppose.
But what makes the potential erosion of net neutrality even more troubling, Wu observes, is a corresponding wave of "vertical" mergers and partnerships in media. For example, cable provider Comcast recently acquired the NBC Universal network. And this summer, Google offered a "proposal" with Verizon that, if adopted, would have allowed for a two-tiered Internet—public and premium. "The recent Google/Verizon proposal and the Comcast/NBC Universal deal suggest a return to an age of vertical integration of content and transportation," Wu tells PW. "But when the people who control access to the gateway begin to discriminate, there are serious risks," he says, "both in terms of an open market and free speech."
What does this mean in practice? It means that Comcast, which owns its own on-demand movie service, can now charge Netflix a fee for speedy delivery of movies over its network, a development that could hinder Internet innovation, Wu says, by favoring entrenched corporate giants over cash-strapped but forward-thinking startups. Had there been a "two-tier Internet" in 1995, he explains, Barnes & Noble would have destroyed Amazon, Microsoft would have crushed Google, and Skype would never have been launched. "We'd all be the losers."
Widely praised—including a PW Best Book of 2010 designation—The Master Switch is a fascinating look at the cycle of technology and media development over the past century, and implications for the future. "Markets are born free," Wu writes, but soon enough a "would-be emperor is forging chains."
Historically, the greatest would-be emperor, Wu notes, was AT&T, a company so powerful it was able to delay the answering machine for decades to protect revenues from public phone use. Is another AT&T set to emerge in the Internet era? "It's definitely possible," Wu tells PW. "I don't know if it's Apple, Google, Facebook, or Comcast, Verizon or AT&T, or a mixture of these companies, but the conditions are definitely there for the rise of a monopoly—and one with the kind of power we have not seen in decades."
With e-books and digital publishing just getting started, PW caught up with Wu to talk about the market forces shaping the digital landscape.
In the Master Switch, you write about the effects of mergers and large conglomerates over the past century. Should we be more wary of the giants now emerging in the digital content business?
It isn't that I am necessarily down on conglomerates—I actually think conglomerates are very interesting creatures. In the '70s, one of the things that helped Hollywood films be so creative was that conglomerates bought studios. GE owning Universal Studios looks like an attractive model because GE makes $187 billion a year, so, in theory, it can support all kinds of films, and can even risk losing a couple hundred million dollars. That is nothing for GE; in film terms, however, that money could support hundreds of independent producers.
What I'm concerned with is vertical integration. For example, when a cable provider like Comcast owns a network like NBC, it is in position to directly influence what TV shows people can watch. There's a real danger when the people who move information are too closely linked with the people who sell information. One of the conclusions of my book is that we're probably going to have monopolies again. There is almost an inevitable cycle. But we have to be careful they're not discriminatory monopolies—that we don't let anyone be in position to decide in any sort of absolute terms what content the public can get to.
With so many new devices, services, and offerings, it can be hard to see the downside of such consolidation initially. How is this bad?
The problems come over the longer term. As the information world becomes more monopolized, particularly in the Internet age, there are benefits. Anyone who uses Facebook will agree that it's convenient to have one social network where everyone is. And Google is the best search engine. But eventually every monopolist begins to direct more attention to defending its monopoly than to creating better products. In the book, this is what I call "the Kronos effect," for the god Kronos, who spent his time eating his own children after an oracle said one of them would dethrone him someday. There's a critical turning point when monopolists stop making better products and start trying to destroy better products in order to preserve their power.
Is this a central lesson of the last great monopoly—the telephone industry?
Yes. The telephone business was the startup culture of 100 years ago—it was exciting, it was interesting. Money was being made and lost. But what came out of the intense, initial period of competition in telephones was AT&T, the greatest tech monopolist in American history. AT&T subjugated all of its competitors and ruled telecommunications for 70 years. And it was good for the first 20 or 30 years. But then it started to become an enemy to innovation. AT&T did innovate, of course, but it also suppressed a ton of innovation that was incompatible with its corporate rule, and we didn't realize until decades later just how much innovation was being stifled. This had an incredible effect on American culture and the American economy. And here we are again, in the midst of another big tech boom, with all these new companies, and the big question is: are we setting up the conditions for another great monopoly? Even with Google, an incredibly innovative company, you can see how 20, 30 years down the line it would begin to suppress things that would move us toward a world where Google was less relevant.
What are the dangers behind such large, vertically integrated media companies? Certainly, it seems like we have more choices, and speech certainly seems freer than ever on the Internet.
Sure, it's true, anyone can write a blog post. But that doesn't mean everyone can read it. I'm concerned that we're setting up a vulnerable situation for free speech in America. In America, free speech is far more determined by private companies than by government. We don't have a highly censorial government. We have a First Amendment tradition. But when you have a limited number of gatekeepers, whether Facebook or Google, or Verizon or AT&T, companies that have interests in some content and not others, you have the potential for private censorship. Google, for example, gets daily pressure to take stuff down. Now, it's a fairly free speech friendly company. But what if it changes? It isn't far-fetched; it happens all the time—companies change. What would be our response if Google decided to start taking down all this stuff? Leave Google? And where do you go? Bing? Like Microsoft is going to be any better standing up for free speech? Right now, Google's libertarianism is what stands between us and a highly censored Internet experience. We have to recognize just how tenuous this is. Private companies exist to make money, not to safeguard free speech.
Monopoly is a chief concern voiced by the opposition to the Google book settlement. Have you given any further thought to the settlement and to Google's push into the book business?
I haven't thought about the settlement much lately, but generally, I'm in favor of it. Like many people, I have reservations, but I think having access to those books is so important and so great that I hope it happens. Obviously, it could have been better. I urged Google to put this project into a nonprofit, because I think a lot of people would've trusted that more. It's a great service as a nonprofit enterprise, but the profit part makes people suspicious.
Google is a very interesting company. I tell you, I praise it in one breath and curse it with the next. On one hand, it stands up to censorship in general, yet it's also attempting to take over almost every information market. I do think Google's entering into the book industry is generally good news, because Google does understand information in a fundamentally deep way. Google may make it easier for people to find books in entirely new ways, and it's possible it'll get people interested in books that went out of print years ago. At the same time, I am cautious of the world's largest search engine becoming affiliated with content, because that creates natural incentives to favor its own stuff.
When you were writing the book, were there any current trends that scared you, where maybe you see history repeating itself?
In two words—Steve Jobs. I've been watching his speeches, and to be honest, the man scares me. I heard him recently defend Apple's closed platforms and he sounded just like AT&T in the 1930s: "You don't know what you're doing, let us take care of this for you." And it's tempting. Steve Jobs is very charismatic. He has good taste, and his products are beautiful. And everyone wants someone who will take care of their problems. But this can be a real danger to a free society.
Google is more on the open path, but what makes me nervous with Google is what happens when the current leadership disappears. One thing we tolerate in the private world is dictatorships that are as good as the leaders currently there. But no one has figured out a way to embody a company with values that last beyond the people in charge.
How do you get people to look past their dazzling iPads to address the broader implications for society?
Well, it used to be the same thing with government, right? The king would dazzle everybody—big crown, all that fancy stuff going on. But the point of the American Revolution was, forget the dazzle, we need to control power. And we need that for the private sector as well. Certainly the dazzle is there—companies like Apple are amazing, and they give us great products. But we must pay attention to power. What I say in the book is that we need not a regulatory approach to monopoly, but a constitutional approach. We need to recognize that monopoly power in private industry is a threat to our most fundamental freedoms, and we must have consciousness of and some control over that power.
How do we do this—through government? Antitrust reviews?
One thing we can do is to ask more of these companies. I think that has sort of worked with Google so far. People put a lot of pressure on Google to act as a free speech enabler, and it does. So, part of it is just putting pressure on would-be monopolists to live up to their public commitments. That, and, yes, government must have oversight, to make sure that the gatekeepers of speech are serving the public and not just themselves. It's very difficult to fight monopolization. Fighting it usually requires very intrusive government action, so it is a challenging problem. Antitrust legislation is an important tool in maintaining good monopolist behavior. But without getting too technical, section two of the Sherman Antitrust Act basically says that it's okay to be a monopolist, but not okay to abuse that position. So for these emerging Internet monopolies and dominant firms, prodding from European and American authorities should, hopefully, be used to pressure firms not to "be evil."
You write that "history shows that whatever has been closed for too long is ripe for ingenuity's assault." That makes me think of books. Do you use e-books?
I do. I don't own an e-reader, but I think I'm going to buy a Kindle. I have an iPad, but I haven't really used it to read books, mainly because I like print books. I play around with e-readers as a matter of research, but I actually find [print] books more convenient. Books are extremely reliable. They never run out of battery. They hold a lot of information in a relatively small area. Books are pretty good technology. And it feels as if a book is mine in a deeper way than any PDF file I'll ever own. Even though I'm a tech guy, I feel strongly about the attachment of people to their objects.
The industry is just beginning to grapple with that issue right now, that e-books are licensed rather than owned. Do you think this initial "lockdown" period in e-book innovation will affect how we perceive books in the future?
I think it has already. Obviously, e-books are growing, but the insistence on centralized control is making it harder for people to bond with their e-books. Apple is at least creating beautiful products—you can kind of love Apple products, even if they're still subject to Apple's vision of how you should use them. The Kindle—it's a hard object to love. I like it, but I can't imagine developing a deep affection for it. I don't know, maybe if it was wooden [laughs].
I think fear is limiting the power of the e-book market. I can understand why, and some of it is justified. It's a new industry. But I think for people to really get into e-books in a deep way, all the way, they have to be more yours, more customized, more open to users making their own experience. This is something that I really think is a problem for the publishing industry. Publishers understand the laws of intellectual property very well, but seem to forget that when people buy something, they want to own it. A license is a lot different from owning something.
PW's starred review of the Master Switch called the book a "cry for sanity." What motivated you to write this book and what would you hope your readers will come away with?
That's an interesting question. I think with the Internet boom there's this sense of revolution, that nothing will ever be the same again. In some ways that's true. But there have been revolutions before, and I was very suspicious [of the idea] that we were in a period of time that has never been experienced before by humanity. I've spent a lot of time in Silicon Valley and in Washington, D.C., and I was sure there were longer, historical patterns at work, and I thought we might better handle what we're going through now if we looked more closely at the mistakes of the past.
My hope is that people will read this book and also develop a deep interest in how their information and content actually gets to them, almost like the way people have done with food. People are increasingly thinking, well, where exactly do these eggs come from, or these vegetables? When we consume information, I'd like people to have the same sense—where did this come from, how did I get it, how was it produced?