Stablity vs. Innovation

Brad deLong draws our attention to an article in Business Week about MSN and AOL trying to capture a chunk of the highspeed home ISP market. The article misses the point; this competition is about who will control the bandwidth market. Sure! It’s also about who will control the top of the power-law heap in the customer eye-ball market – but are these two really different. This is about big time innovation & disruption.

Like the computing industry the bandwidth industry is downstream of mind amazing technology progress. That’s wonderful for creating fertile opportunities for innovation, but it’s very disruptive. All communication industries have potent network effects. It tends naturally to huge concentrations of power in the hubs of those networks. The hubs in such systems are very resistant to change. A tension emerges – a gap between what is obviously possible (a social good) and the disruption to existing stable structures (a social bad?).

MSN, AOL, and the entire rest of the “internet” economy want the disruptive new stuff to happen – well, they want to absorb a portion of that stuff into their platforms. We, the society, hack out solutions to this tension in standards, regulation, and platform (or maybe entrepenurial) competition.

The choice to privatize huge swaths of the bandwidth some years back has us denied some of the tools we used to have. If the players would like to lower the risk of/to their investments so we could get on with this they now lack a forum to negotiate in. Their only tool now is the Cato Institue’s certified moral means: rent seeking and property rights. Contrast this situation to the situation with 802.11b where the players did work out a negotiated open solution at the FCC/IEEE/etc. – that solution is limited in scope (i.e. 802.11b has severe limits on broadcast range) but even so it has created huge social benefits.

The incumbant powers – telecomm companies to take just one example – would like to resolve the tension gradually. The neighboring platform companies would like to disipate the tension in a lightning strike of distruption that creates fresh markets. They hope.

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