The Great Internet Transformation? A First Stab 4

Is it just a coincidence that some of the leading Internet-based application companies are pushing aggressively into network connectivity at exactly the same time the major telephone companies are pushing into content? Or are we witnessing the end of the Internet as we know it?

Think back to the online world fifteen years ago. There was AOL, there was Compuserve, there was Prodigy, and there was Apple’s eWorld. Sure, there were researchers and students posting to Usenet newsgroups and navigating through Gopher sites, but the Internet was a sideshow for individuals and business users. It was a time of great innovation and excitement. Yet the online world of those days was fragmented and small. Every online service was an island.

Are we going back to those days?

As Om Malik has been reporting, Google is putting together a next-generation network infrastructure platform including a national fiber backbone, WiFi wireless networks in cities, and, through its investment in Current Communications, powerline broadband connections to the home. And eBay spent billions to acquire Skype’s VOIP and presence platform. Meanwhile, the telcos are feverishly working to put together multi-channel video services to compete against cable TV operators. They are trying to move up the stack at the same time the other companies are moving down. While all this is happening, Yahoo! is positioning itself as a video arms dealer, and Microsoft is talking about an alliance with AOL.

I don’t quite see the big picture yet, but something tells me the model of the Internet and communications world we’ve followed since the early 1990s may be falling appart.

The concept is that connectivity, applications, and content are distinct technical, business, and regulatory spheres. I’m one of the culprits, as an advocate of the “layered model” for Internet policy. But if you go back to Mary Meeker’s seminal “Internet Report” in 1995 (written, she told me, because so many prospective investors she met on the Netscape IPO road show were completely clueless about the Internet), you’ll see the same pattern: infrastructure businesses (ISPs), application businesses (search, advertising, and e-commerce), and content businesses. The only company that seriously spans all those markets today is AOL Time Warner… and look where it got them.

Soon, though, most of the major Internet players are likely to be hybrids of two or more layers. Google and eBay will be infrastructure and applications; Yahoo! and News Corp. will be applications and content; telephone, wireless, and cable operators will be infrastructure nad content; Microsoft and Time Warner will span all three levels. And that’s just what we’ve seen announced so far. In this market, everyone is in play.

Is this good or bad? Honestly, I’m not entirely sure. I’m not so much of an open platforms bigot to think that rigorous formal separation of network layers is always desirable. GoogleNet and eBay-Skype are incredibly exciting, because they herald a frontal challenge to manifold inefficiencies of legal telecom. On the other hand, there are good reasons to think that the separation of networks, applications, and content helped catalyze the Internet’s extraordinary success over the past decade.

It does sound as though all of us excited about the “Web 2.0” vision of open standards built on top of open standards, facilitating mashups and lightweight innovations all around, might want to question our assumptions. Yes, that is where we have been heading, but it might not be where we ultimately go. If GoogleNet, SkypeBay, MSAOL, Telco Fiberia, and CableLand emerge as competing integrated fiefdoms, we’ll see something more like the early 90’s online services, albeit on a much bigger stage.

As noted, I’m entirely sure what’s happening out there, or what I think of it. I just have the sinking suspicion that it’s more than we appreciate. I welcome your comments.

4 thoughts on “The Great Internet Transformation? A First Stab

  1. DW Sep 20,2005 6:15 pm

    Hey Kevin.

    Nice post — thoughtful as always. Some time we should talk about how the telcos seem to be trying to use Carrier ENUM and related addressing functions to colonize the network protocol layer(s).

    Hope all is well.

    Don Weightman

  2. T-Bond Sep 21,2005 2:41 am

    It seems that Google is trying to open access to all whereas Yahoo and others are trying to capture prime content and thus develop the fiefdom. With the suit by the author’s guild going forward, it seems that some would rather fight than accept a bonus check. I like your “combos”. It is intriguing to speculate on who will marry whom. Will Google need a cellular partner or will it count on open cellular browsers?

  3. Patrizia Sep 21,2005 6:52 am

    When you talk about TV you consider two businesses:

    1) The Infrastructure business (Satellite, cable operator)

    2) The content business ( TV programs, movies)

    When you talk about Internet you must consider a third one:

    3) The applications business.

    That is by far the revolution of our enterteinment world, it is what allows the customer to make his own content, and it is mostly the content he prefers.
    Thus the huge success of the P2P networks, of all the interactive softwares.

    But one greater revolution is going to happen soon.

    The content that was a monopoly of big corporations, thanks to the lowering cost of the hardware used to make it, will have the competition of millions of “Content makers” and “Content providers”.

    The “Infrastructure business” is changing hands.
    The customers thanks to the fact that can lease the lines for an afforfdable flat fee, are able to broadcast every content they want.

    The “content business” is changing hands too.
    From the war between the copyright holders and the “hackers” to the war of “artists” chained to a content producer and “artists” representing themselves.

    And it is not difficult to understand who will be the winner.

  4. PaulSweeney Sep 21,2005 8:33 am

    I’m interested what “light-weight innovation” might mean in terms of profit making potential, versus “heavy weight” in terms of traditional strategy thinking on barriers to entry and exit, ease of substitution, access to unique resources, vertical integration, and path dependencies (i.e. I can’t do this job, because I haven’t learned the know how my competitor has, because he competed in the previous generation). Might be an interesting angle on who needs who under future scenarios.
    Just A thought.

    Regards

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