Corporate Welfare

Google openly represents its value in the marketplace as supplying users with "free" services: free search, free email, free docs/spreadsheet/other applications, free content, etc.  

The Washington Post's editors should have been more forthright and put a "news analysis" label on their front page story today "Japan's warp-speed ride to Internet future." If the Post had put the "news analysis label on the story, I would not be writing this critical analysis on why the story was not news but a thinly-disguised advocacy piece for net neutrality masquerading as news or straightforward unbiased reporting.

Given how extremely politically activist Google-YouTube has become, I thought it might be instructive to revisit my earlier blogpost from January where I asked: "is Google-Youtube a politically neutral gateway to Internet content and videos?"

Lets review how extremely politically active Google has become in just the last few months?

Google continues its self-serving campaign of "open for you, but not for me."
The master of the double standard, Google loves to claim that Google is "open" and even has the gall to name its net neutrality coalition the "Open Internet Coalition."
However, does Google really support "open" principles? In other words, Google talks the talk, but does it walk the walk?

• Or is Google just playing lip service to "openness" in order to gain a competitive advantage with special Washington treatment and generous corporate welfare?
• The facts indicate it.

Elise Ackerman of the San Jose Mercury News had a noteworthy and relevant article on this issue: "Google's growth has come at a price."

• The article mentions that concerns over the lack of "openness" in Google's search, are "driving the effort to develop an open-source search engine."
• "Search should be transparent, open and participatory," said Jimmy Wales, founder of Wikipedia... Wales says Internet search is plagued by the same problems that bedeviled proprietary software - lack of accountability, transparency and freedom."
• "Google closely guards its top-secret formula for ranking Web sites, making it impossible for a publisher to know why a site might enjoy front-page ranking one day in the search results and drop to Page 100 the next."
• "... Wales' programmers will publicly disclose their algorithms for ranking results in the Wikia Search project."

Well Google, if openness is truly an important principle to Google, why not agree to make Google's search algorithm, which is the industry's ultimate "Black Box", "open" to all so all can benefit?

The outrage over Google-Youtube's complicity in rampant content theft and piracy continues to spread around the world.

• As reported by the AP in "Youtube blasted over copyright issues": 
• "A coalition of Japanese television, music and film companies slammed YouTube Thursday, saying the online video sharing service was not doing enough to rid the site of cartoons and other clips that infringe copyright." ...
• "There is no middle ground," Matsutake said. "We demand that all copyrighted material be removed immediately."

Let's focus on the corporate scofflaw pattern here: American, Japanese, and European content owners accross a wide swath of content industries are all outraged and suing Google for theft.

Johna Till Johnson of Network World, has got Google's number in the article "Net Neutrality? Google, go first!"

• "Forget "don't be evil" -- Google's real motto is: "Just trust us (and pay no attention to the man behind the curtain).""

  "Sorry, fellas, I'm not the trusting sort. And I always worry about the man behind the curtain. The reality behind the propaganda is this: The "open" company's considerable fortunes are based around the world's most proprietary search engine. And as for "neutral" -- try Googling Google, and you may notice something surprising: very few negative comments on the company pop up. Odd, no?"

There are so many problems with the FCC's new 700 MHz auction rules that create a more regulated open access/net neutrality license -- its hard to know where to start.

• Be confident that I will get to them all over time.

Yesterday I highlighted the dirty little secret that there is very substantial risk that this will become known as the "do over auction" because it may not raise enough money to satisfy the rules and because the FCC likely overstepped its legal authority and will be overturned  in court.

Let's raise another dirty little secret behind the new rules that will increase regulatory uncertainty for broadband deployment.

A much under-reported part of the high drama behind the FCC's current 700 MHz auction rules is that there is a very substantial risk that this becomes known as the "do over" FCC auction.

First, to any outside observer, the FCC's highly-tailored auction rules appear to have a pretty obvious "set aside" for the Google camp and its proposed net neutrality/open access business model for a third of the 700 MHz spectrum.

• The FCC reportedly is "hedging its bets" on the Google set aside license -- worried that its policy experiment may fail to raise the revenue for the US Treasury that is estimated in the US Budget -- so it is imposing a "reserve price" -- in English, a price floor for this new set aside spectrum open license -- to supposedly guarantee the taxpayer 70% of what an "open" auction would deliver.
• Some could characterize this FCC-signaled minimum acceptable price for the "Google-set-aside license" as a fixed 30% discount from the price paid at the AWS auction price. However, the real discount is much larger than 30% because the AWS spectrum is no where near as robust or valuable than the 700 MHz spectrum.
• There are a lot of reasons that Google or others will not bid billions for open access spectrum.
• First, it is likely not worth it.
• It's an untested and unproven business model that offers little opportunity to earn a return on the roughly $10b it would take to build and operate such a national network.
• Most professional and independent investors will ask the blunt and pointed question: how does the 700 MHz set-aside-licensee expect to make money building a highly-capital-intensive wireless-facility model that has dramatically less business and operating flexibility than the other seven existing broadband competitors that have many years head start, and when the cost of acquiring just one new customer could easily be in the $200-400 range on average?
• What's wrong with that investment and business pitch?
• It's a money pit.
• It's dotcom bubble pixie dust.
• It's a loser.
• Net neutrality/open access, while cloaked in consumer terms, is basically an old-style industrial policy and corporate wealth transfer scheme from the risk-taking capital-intensive builders of wireless facilities to high-profit tech applications companies like Google, eBay and Amazon, companies who seek for consumers to pay for the bandwidth that they would profit the most from.
• Second Google is not getting the wholesale resale and unbundling mandates they requested, so their highly-publicized offer to bid $4.6b is moot.
• Third and most important, why would Google want to become a facilities-based, capital intensive wireless provider?
• Such a move would change their business model and virtually none of Google's existing growth shareholders would want the dilution and huge capital and operating cost spikes required for Google to become a wireless carrier.
• It's not going to happen.
• Google's promise to bid will probably go down in FCC history as one of the best "head fakes" of all time.
• In short, the FCC has chosen a new policy path that has substantial risk of not generating the revenue expected -- requiring a "do over" of the auction.

Second, there is substantial legal risk that the FCC does not have the authority to condition these licenses in a way that limits an "open" auction and substantially reduces the revenue for the US Treasury.

Please read Jim Harper's (of Cato) cogent and on-point critique of the FCC's 700 MHz auction.

Well said Jim!

"Open" is clearly in the eye of the beholder.

And "open access" is just as impossible to define as its philosophical twin: "net neutrality."  

Great satire is rare.

• Today's Wall Street Journal Editorial satire on Google entitled "Search and Destroy by Holman Jenkins" is truly GREAT satire.

Please read it and laugh out loud and shout ouch!

The pen is surely mightier than the algorithm.