Somewhere between Nick Carr's "Typology of Network Strategies" and Chris Anderson's "Four Kinds of Free" is the secret to understanding our new economy:

Carr's "Typology of Network Strategies":

1. Network effect


2. Data mining


3. Digital sharecropping, or "user-generated content"


4. Complements


5. Two-sided markets


6. Economies of scale, economies of scope, and experience

Anderson's "Four Kinds of Free":

1. Direct cross-subsidy (get one thing free, pay for another)


2. Ad-supported (third-party subsidizes second party)


3. "Freemium" (a few people subsidize everyone else)


4. "Gift economy" (people give away things for non-monetary rewards)

Of course, both Carr and Anderson are building on theories and business models previously articulated by many others. A few that come to mind:

• Carl Shapiro & Hal Varian, Information Rules: A Strategic Guide to the Network Economy (1999)


• Stan Liebowitz, Re-thinking the Network Economy (2002)


• Jeffrey H. Rohlfs, Bandwagon Effects in High-Technology Industries (2001)


• Oz Shy, The Economics of Network Industries (2001)


• Don Tapscott & Anthony Williams, Wikinomics: How Mass Collaboration Changes Everything (2006)

Back in the mid- and even late 1990s, I was engaged in a lot of dreadfully boring telecom policy debates in which the proponents of regulation flatly refused to accept the argument that the hegemony of wireline communications systems would ever be seriously challenged by wireless networks. Well, we all know how that story is playing out today. People are increasingly "cutting the cord" and opting to live a wireless-only existence. For example, this recent Nielsen Mobile study on wireless substitution reports that, although only 4.2% of homes were wireless-only at the end of 2003...

At the end of 2007, 16.4 percent of U.S. households had abandoned their landline phone for their wireless phone, but by the end of June 2008, just 6 months later, that number had increased to 17.1 percent. Overall, this percentage has grown by 3-4 percentage points per year, and the trend doesn't seem to be slowing. In fact, a Q4 2007 study by Nielsen Mobile showed that an additional 5 percent of households indicated that they were "likely" to disconnect their landline service in the next 12 months, potentially increasing the overall percentage of wireless-only households to nearly 1 in 5 by year's end.

And one wonders about how many homes are like mine -- we just keep the landline for emergency purposes or to redirect phone spam to that number instead of giving out our mobile numbers. Beyond that, my wife and I are pretty much wireless-only people and I'm sure there's a lot of others like us out there.

Anyway, I've been having a strange feeling of deva vu lately as I've been engaging in policy debates about the future of the video marketplace. Like those old telecom debates of the last decade, we are now witnessing a similar debate -- and set of denials -- playing out in the video arena. Many lawmakers and regulatory advocates (and even some industry folks) are acting as if the old ways of doing business are the only ways that still count. In reality, things are changing rapidly as video content continues to migrate online.

I was reminded of that again this weekend when I was reading Nick Wingfield's brilliant piece in the Wall Street Journal entitled "Turn On, Tune Out, Click Here." It is must-reading for anyone following development in this field. As Wingfield notes:

Over at TechDirt, Tom Lee has a sharp critique of Muayyad Al-Chalabi's much-circulated paper (via GigaOm) opposing bandwidth caps. Make sure to read Tom's entire essay, but here's the key take-away:

this whitepaper merely amounts to a complaint that a free lunch is ending. Bandwidth is clearly an increasingly limited resource. And in capitalist societies, money is how we allocate limited resources. The alternate solutions that Al-Chalabi proposes to the carriers on pages 6 and 8 -- like P2P mirrors, improved service and "leveraging... existing relationships with content providers" -- either assume that network improvements are free, would gut network neutrality, or are simply nonsense.

Indeed. But Tom generally agrees that "Comcast's bandwidth cap is a drag" and that "Instead of disconnection, there should be reasonable fees imposed for overages. They should come up with a schedule defining how the cap will increase in the future. And the paper's suggestion of loosened limits during off-peak times is a good one." Well, those are three different things but I generally agree with all of them. Let me just repeat, however, my strong endorsement of the first option -- metering at the margin -- and again highlight the optimal way to do it from an economic perspective. As I noted in one of my many previous articles about metering for bandwidth hogs:

"Hasn't Steve Jobs learned anything in the last 30 years?" asks Farhad Manjoo of Slate in an interesting piece about "The Cell Phone Wars" currently raging between Apple's iPhone and the Google's new G1, Android-based phone. Manjoo wonders if whether Steve Jobs remembers what happen the last time he closed up a platform: "because Apple closed its platform, it was IBM, Dell, HP, and especially Microsoft that reaped the benefits of Apple's innovations." Thus, if Jobs didn't learn his lesson, will he now with the iPhone? Manjoo continues: Well, maybe he has--and maybe he's betting that these days, "openness" is overrated. For one thing, an open platform is much more technically complex than a closed one. Your Windows computer crashes more often than your Mac computer because--among many other reasons--Windows has to accommodate a wider variety of hardware. Dell's machines use different hard drives and graphics cards and memory chips than Gateway's, and they're both different from Lenovo's. The Mac OS, meanwhile, has to work on just a small range of Apple's rigorously tested internal components--which is part of the reason it can run so smoothly. And why is your PC glutted with viruses and spyware? The same openness that makes a platform attractive to legitimate developers makes it a target for illegitimate ones. I discussed these issues in greater detail in my essay on"Apple, Openness, and the Zittrain Thesis" and in a follow-up essay about how the Apple iPhone 2.0 was cracked in mere hours. My point in these and other essays is that the whole "open vs. closed" dichotomy is greatly overplayed. Each has its benefits and drawbacks, but there is no reason we need to make a false choice between the two for the sake of "the future of the Net" or anything like that. In fact, the hybrid world we live in -- full of a wide variety of open and proprietary platforms, networks, and solutions -- presents us with the best of all worlds. As I argued in my original review of Jonathan Zittrain's book, "Hybrid solutions often make a great deal of sense. They offer creative opportunities within certain confines in an attempt to balance openness and stability." It's a sign of great progress that we now have different open vs. closed models that appeal to different types of users. It's a false choice to imagine that we need to choose between these various models.

This is the first in a series of articles that will focus directly on technology instead of technology policy. With an average age of 57, most members of Congress were at least 30 when the IBM PC was introduced in 1981. So it is not suprising that lawmakers have difficulty with cutting-edge technology. The goal of this series is to provide a solid technical foundation for the policy debates that new technologies often trigger. No prior knowledge of the technologies involved is assumed, but no insult to the reader's intelligence is intended.

This article focuses on cookies--not the cookies you eat, but the cookies associated with browsing the World Wide Web. There has been public concern over the privacy implications of cookies since they were first developed. But to understand them , you must know a bit of history.

Dean Takahashi wrote an exposé on the "red ring of death" problem exhibited by a large number of Microsoft's X-Box 360 game consoles. The problem was so big, Microsoft implemented a free replacement program which will cost up to $1.15 billion dollars.

Takahashi suggests the lesson to be learned is this:

the video game industry has never seen a consumer problem as bad as the "red rings of death" and the size of the $1.15 billion charge stands as one of the biggest liability glitches in consumer electronics history. How Microsoft handled the flaw may provide a lesson for all modern electronics companies; that is, if you are going to promote the hell out of something, it better work the way you say it does and you better have a strong customer support and engineering debugging team to back it up.

Amazon and eBay have their periodic outages. Sony had its problems with batteries, Intel had flawed Pentium chips that were bad at math, Nvidia took a $200 million charge to deal with graphics failures on laptops, and Apple has had its share of glitches on the iPhone. As electronics become and more complicated, it becomes a practical impossibility to test for every single flaw. But with the force of the Internet behind them, angry customers can exact a revenge that can be extremely damaging to a company's brand image.

(emphasis added)

This just shows how the market can correct itself, even when the conflict is between mere end-users and one of the biggest market players.

Faithful readers will recall that, several months ago, I penned a 7-part "Media Metrics" series that took a hard look at the health of the media marketplace. Today, the Progress & Freedom Foundation is releasing a greatly expanded version of these essays that I have put together with my PFF colleague Grant Eskelsen. In this 100-page special report, "Media Metrics: The True State of the Modern Media Marketplace," we begin by noting that heated debates about the state of the media marketplace continue to rage in Washington, and opinions seem to range from grim to outright apocalyptic. As we note on pg. 1:

Many people--including a large number of legislators and regulators--argue that America's media marketplace is in a miserable state. Some claim that citizens lack choice in media outlets and that options are just as scarce as ever. Others believe that media "localism" is dead or that many groups or niches go underserved because of a lack of true "diversity" in media. Others argue that the market is hopelessly over-concentrated in the hands of a few evil media barons who are hell-bent on force-feeding us corporate propaganda. And still others say that the quality of news and entertainment in our society has deteriorated because of a combination of all of the above. It all sounds quite troubling, but is any of it true?

After taking an objective look at the true state of America's media marketplace, we conclude that such pessimism is unwarranted. Indeed, a careful review of the facts reveals that---contrary to what those media critics suggest---we have more media choice, more media competition, and more media diversity than ever before. Indeed, to the extent there was ever a "golden age" of media in America, we are living in it today. The media sky has never been brighter and it is getting brighter with each passing year.

Barbara Esbin and I have just released a short PFF essay asking the question: "Where is the FCC's Annual Video Competition Report?" The FCC is required to produce this report annually and yet the last one is well over a year past due and the data is contains will be over two years old by the time it comes out. I've embedded our paper about this below.

As I have argued many times before (see 1, 2, 3, 4), some sort of usage-based bandwidth metering or consumption cap makes a lot of sense as a way to deal with broadband network traffic management. So, if this is the direction that Comcast is heading--and this recent Broadband Reports piece suggests that it is--that is fine with me. The article says it might work as follows:

A Comcast insider tells me the company is considering implementing very clear monthly caps, and may begin charging overage fees for customers who cross them. While still in the early stages of development, the plan -- as it stands now -- would work like this: all users get a 250GB per month cap. Users would get one free "slip up" in a twelve month period, after which users would pay a $15 charge for each 10 GB over the cap they travel. According to the source, the plan has "a lot of momentum behind it," and initial testing is slated to begin in a month or two.

"The intent appears to be to go after the people who consistently download far more than the typical user without hurting those who may have a really big month infrequently," says an insider familiar with the project, who prefers to remain anonymous. "As far as I am aware, uploads are not affected, at least not initially." According to this source, the new system should only impact some 14,000 customers out of Comcast's 14.1 million users (i.e. the top 0.1%).

It's always been my hope that we could potentially head-off burdensome Net neutrality regulations by encouraging carriers to deal with the problem of excessive bandwidth consumption by using time-tested price discrimination solutions instead of the sort of packet management techniques that are the subject of such heated debate today. Of course, on one of our old podcasts on Net neutrality issues, Richard Bennett pointed out to me that this still might not alleviate the need for other types of traffic management techniques to be used. And he also pointed out that the very small subset of true bandwidth hogs are almost entirely heavy BitTorrent users, so perhaps the way Comcast was dealing with them was just another way of skinning the same cat.

What do the debates over net neutrality, the economic "stimulus" plan, and the Fed's interest rate-cut binge have in common? And what does this gentleman have to do with any of them?

Net neutrality, tax rebate "stimulus," and endless Fed rate cuts all assume the solution to the economic question at hand is to ration or divvy-up existing capacity rather than create new capacity. With net neutrality, we must fight over a fixed amount of bandwidth and decide who gets how much on what terms. With economic stimulus, we rob Peter to pay Paul in the hope that Paul will spend the money faster than Peter would have and thus avoid an official recession. The same logic goes for the Fed's effort to pump up consumer demand for goods and credit in the short term, even though we know easy money will come back to bite us on the other side in terms of higher prices and distorted asset markets (see, sub prime fiasco). All these efforts focus on manipulating demands and wrangling over a finite supply in the short term, rather than generating new supply over the long term.

Last week, while in Paris to give the keynote speech at the European Fiber-to-the-Home conference, I paid a visit to our friend, the original supply-side economist, Jean-Baptiste Say.

Tomb of Jean-Baptiste Say (1767-1832), Pere Lachaise Cemetary, Paris

Say knew that economies don't grow via the demands of consumers. After all, consumer demand is infinite. Our wants are never-ending. But just because we want something doesn't mean we can have it. No, economies grow through production, via the supply of new and innovative goods and services. Over time, the expansion of our productive and creative capacity transcends the zero-sum battles that define greed and demand. Productive supply is the only path by which we can increase our actual real consumption, or demand, without inflation or confiscation of property. Pumping up demand while neglecting the foundation of supply is a recipe for disaster, whether in tax rebates, monetary "stimulus," or regulation of the Internet.

All our Washington leaders, from Ben Bernanke to Ed Markey, should relearn the central lesson of Jean-Baptiste Say: Supply creates its own demand.