Network neutrality is a pointless, emotionally-charged distraction from the real issues involved in monetizing Internet content. The Internet is rapidly becoming a retail and marketing vehicle, just as shopping malls and other retail chains. A sound di…

Marat: your assumption about everybody being paid would be correct if Google was actually a content provider, or even if Google were indeed part of the value chain (meaning that all searched sites would receive a portion of Google’s revenue, which they don’t).

In terms of today’s retail Internet economic model, Google is an “attention provider”. People who buy ads on Google are purchasing attention, the scarce resource worth buying. Google and attention-buyers are an independent co-market. There is no method by which content providers (such as emusic, bloggers, or even Amazon) directly participate in the value chain through to the consumer. Financial relationships between the consumer and the product manufacturer are thus independent of the retail channel, just as in my “take a toaster for free” Walmart analogy.

Further, the current economic model assumes that (a) the consumer will pay their ISP for access and (b) build independent relationships with every product and service they buy. In the world of microchunked media this borders on the impossible. In addition, the advertising model, where every conceivable business uses advertising as their revenue base, is unlikely to build more than a few highly successful online product companies—only those (like Google and Amazon) who have access to consumer attention. Attention will become more and more expensive, cancelling any gains from advertising.

If you look at the “long tail” theory as a macro-model for the net, then assume that consumers will be downloading their majority of content from fragmented, barely-monetized sources, most of which will rely upon access to the consumer via ISPs who do not participate in any way in their revenue models. As VOD and other high-bandwidth services become more dominant, ISPs will realize that they control the most scarce resource: the consumer’s attention itself. Because of that, if they are left out of the value chain, their only choice is to exercise that control by limiting consumer attention to those content sources from which they can derive profit.

They also will continue to resort to regulation, politics, and traffic filtering. But, ultimately it’s important to realize that these are vital strategies for network access providers because the retail channel model for products on the internet does NOT presently function.

I am not particularly “on their side”, I am just observing an economic dysfunction, and seeing the natural tendency of commercial stakeholders to respond to it by using the leverage they have available to them.

Hate to burst your bubble, but the RBOCs have more leverage than you imagine.

Between market power, lobbying power, regulatory power, and plain old consumer inertia (I think there are STILL people on AT&T’s basic rate plan), that’s a lot of leverage.

Nor is there as much competition as you’d suspect. Sure, in some cities there are two internet access providers (DSL and Cable) but that’s not as universal as most think. And even where there is competition, it’s rare that both offer internet access at sufficient speeds for even poor video.

So if no one (or only the RBOC, once they install fiber) offers access fast enough for google’s services or other video, how is that competition? If the alternatives are extortive video or 385K internet access, what kind of choice is that?

And that’s true — in the absence of competition. In a competitive environment, the therapist just switches to Skype, Vonage, Yahoo IM, iChat, or a Sprint mobile phone, or a T-mobile, or a Verizon Wireless.

The RBOC does not have the leverage that you imagine.

The best way to ensure competition is to allow entrants to determine their own business models and their customers to decide what is worthwhile. Certainly some models will fail, while others succeed.

This is not a defense of RBOCs at all. If they decide to charge this way, one of two things will happen:

1) The customers (content providers) agree that it is worthwhile and pay for the service. The bandwidth providers invest to improve their network.

2) Customers decide that is not worth it and take their business elsewhere.

The RBOCs have traditionally enjoyed regulatory protection, sure. Perhaps we should look to move past that. The railroad analogy is a good one.

Let them charge what they want, and live or die by it.

Perhaps the subsidies are part of the reason why monetization schemes have been ignored by most of them. More likely, Web 1.0 didn’t create the compelling online business models we are predicting today, and telcos were the winners in round 1. I think they see the handwriting on the wall, now, especially when it comes to video (evidenced by Verizon’s recent motivations for 80% fibre reservations for video).

Short term confusion will abound. But, in the long run, it’s going to be hard to create a new monetization model that keeps the last-mile value chain happy unless they’re part of the monetization scheme.

Wall Street is telling Verizon that they shouldn’t be putting money into the fiber to the home, yet they continue to improve their pipe. Shouldn’t they be able to benefit from this move?

Your retail analogy sounds pretty compelling, except for one major thing. Wal-Mart did not originate nor did it survive as a result of our government giving them an effective monopoly.

The access assets of the RBOCs are currently being subsidized and supported by government regulation and restrictions. (Witness how active the RBOCs are in preventing municipalities from building wi-fi networks BASED on a legal theory of proper jurisdiction.) These access assets were given those subsidies precisely because there was a tacit promise made that PROVIDING ACCESS would be largely independent of the APPLICATIONS developed utilizing the access. Suppose you were a successful therapist who could charge $2,500 per hour by providing advice over the phone. The RBOC sees your profit margin and decides that YOUR phone bill should be higher than everyone else.

That would clearly be an example of extortion, especially since most of those assets were built under monopoly protection from a regime financed by your tax dollars.

http://futurist.typepad.com/

Or is it??

Let’s think more generally of what SBC/AT&T provides. They provide their customers access to products and services. Their customers pay them for access to the products and services.

Just like Walmart.

Imagine that Walmart allowed anybody to put products in their stores, and did not mark-up the goods, but instead charged customers to enter the store and allowed anybody to walk out with whatever they wanted. They then left it up to the customer to figure out how to get in touch with the toaster manufacturer to pay for their new toaster. This is the business model of the Internet.

The more you think about typical retail value chains, the more and more curious my analogy becomes.

Of course Whitacre wants money from the content providers. JUST as Walmart wants MARGIN on the products they sell. The whole reason value chains exist is so that everybody along the chain PARTICIPATES in the revenue.

I think content providers and technologists better figure out how to satisfy people like Whitacre with business and revenue value chains that are more like retailing. That’s what the internet is. Content providers produce products, they ship them to an ISP, and ISP delivers them to the customer. Where’s the margin?

Unless the value chain works, content providers should, rightly, feel very afraid. Any retailer like Whitacre will try to pick the most profitable products to sell. If they’re not getting good margin from one content provider, they’ll try to drop that “product line” in favor of another.

Whitacre is posturing for Wall Street. If he can’t show the financial types that his business (specifically, the huge FTTX investments) have a payback, AT&T’s credit rating will be even more in the toilet than it already is.

Don’t build fiber and the telcos eventually lose.

Build it, and they may go broke anyway (certainly faster if they have to pay more for capital). But it’s less of a sure thing.

So the game is to keep Wall St. investing money so The RBOCs can play through to the end. Hence the attempt to convince people they’ll get higher profits from this “double charging”.

Is this becoming more complicated than the healthcare industry?

Keep in mind, in 7 to 10 years, chances are good that zero revenues will come from voice. What is going to support the lines?

The market can decide, you don’t like at&t, go with cable or DSL or WiMax or any other number of choices.