The Internet Power Grab

Everyone knows that the Internet is moving from free to fee. So why isn't the Internet army fighting back?

The great transition that is taking place on the Internet -- from free to fee -- is now gathering speed. You used to be able to listen to audio streams of Major League Baseball for free. Not anymore. Now you have to buy something called Total Ticket at www.mlb.com for $9.95 a month or make do with Gameday Audio for a onetime fee of $14.95. You used to be able to read the Financial Times at www.ft.com for free. Not anymore. Now you have to buy a subscription to read its "most valuable features," just as you do for online content from the Wall Street Journal. Want extra storage space for your Hotmail account? Please remit $12.95 annually.

There's a blog that chronicles all of this at http://theendoffree.com. It reports on the latest converts from "free to fee and beyond." If you read it every day, you can see the trend unfolding in real time, right before your eyes.

This was inevitable. None of the dotcom revolutionaries ever thought through the permission-advertising model that might have enabled "forever free" Web content. The Webmasters went with a broadcast-advertising model instead. White space on a Web page was filled with billboards that no one wanted or needed. The Webmaster's response to consumer indifference was to make the advertising ever more invasive, which made it ever more annoying. We have gotten to the point where "traditional" advertising on the Web is probably an exercise in bad brand management. And so the end of free content nears.

This trend, from free to fee, is emblematic of a more ominous development in the Internet arena. Bill Taylor, one of Fast Company's founding editors, calls it "the counterrevolution": mature companies in mature categories striking back at Silicon Valley technology and the pricing-power collapse that it implies. They are doing so in Washington, DC and in state capitols, where the technology crowd is weakest and most clueless. Their efforts are meeting with considerable success.

To understand what is happening, it's necessary to back up a few years. Back then, on Sand Hill Road, where the top venture firms met the top technologists, there was the sense that the work that they were engaged in represented the future. It was the future. Their technology would reinvent every business and shift the paradigm of every enterprise. And nothing could stop it or them.

They had no use for politics, no use for government, no use for the old rules. But it was more than that. They were openly disdainful of government regulation of any kind, and they didn't bother to hide their contempt. When the National Security Agency raised concerns about unbreakable encryption software, Valley technologists sniffed that their concerns were the product of old thinking. The whole nation-state thing was so retro. The digerati weren't really Americans, after all; they were citizens of a wider world. They were global technologists. They could sell to whomever they chose. And they did.

Just as their technology raised security concerns, it also threatened two established businesses in particular. The first was old-fashioned telephony -- the telephone business was the choke point of Internet technology. With billions of dollars of Wall Street cash, thousands of miles of information-superhighway fiber-optic cable was laid into the ground between major hubs. The problem was the so-called last mile: the wire into your home. Most homes were equipped with three wires: electric, telephone, and cable television. Most people connected to the Web over a standard phone line. Converting that line into a high-speed-access line was crucial to the success of all of the other Internet technologies that the Valley had to offer.

But there was a problem. Regional Bell Operating Companies made their money on local and long-distance telephony. The Valley was proclaiming that the days of such services being fee-based were numbered; in the future (through Internet-Protocol telephony), all voice calls would be free. And it was true. If every last mile was connected by fiber-optic wire or high-speed cable, every voice call could be free.

The RBOCs, of course, did not see such a future as beneficial to their financial health. So they went to work at the state and federal level to forestall the implementation of this technology until they could control it. RBOCs have state and federal political relationships that are the envy of every industry, with the possible exception of the electric utilities. They own most state legislatures, and they know everyone and anyone who matters at the federal level. They have been dealing with regulators since the first part of the last century, and they've been contributing to the political war chests of committee chairmen for as long as anyone can remember.

And so the Tauzin-Dingell bill, a blatantly pro-RBOC piece of legislation that granted the Baby Bells the more or less exclusive right to build out DSL access, passed the U.S. House of Representatives this spring by a comfortable margin. This success came on top of an FCC regulatory ruling that favored the RBOCs on building out DSL access. Tauzin-Dingell will probably not pass the Senate in its current form, but when and if it gets to a House-Senate conference committee, the betting among political professionals in Washington is that something favorable to the RBOCs will emerge.

This outcome would have seemed unimaginable three years ago, when Internet technology seemed like a tsunami. But today, the outcome seems almost predictable. After all, the last-mile logjam hasn't been broken. Voice calls are still not free. And the companies that will build out the high-speed-access system to most homes will be the very companies that did so little to make it available (at an affordable price) for so long.

The other empire striking back is the entertainment industry. Bad as Tauzin-Dingell might be, it pales in comparison with what Hollywood is proposing. Threatened by companies such as TiVo and Napster and copying technology that essentially Napsterizes everything from movies to television to live programming, the entertainment industry called in all of its chits and asked for passage of the Digital Millennium Copyright Act, which was enacted in 1998. It is now asking for passage of the Consumer Broadband and Digital Television Promotion Act, introduced by Senator Fritz Hollings (D-SC). That would require computer makers to build copyright-protection technology into all personal computers. It could also make illegal all software that enables copying. The target of the latter piece of legislative legerdemain is the Free Software movement itself.

The Hollings bill is breathtakingly far-reaching legislation, but it is a measure of Hollywood's clout that California senator Dianne Feinstein -- formerly the mayor of San Francisco -- has cosponsored it. If it passes both houses of Congress, the Hollings bill will likely be vetoed by President Bush. But that's not the point. The point is that legislation that would effectively devalue Apple Computer (whose new iMacs are capable of copying music and video and sharing those copies over the Internet) may well pass both houses of Congress. That's real power. There aren't many industries that can cut themselves that kind of deal.

With free content heading toward extinction, free telephony on hold, free sharing of private property under attack, the design of personal computers in question, and the Free Software movement in the gun sights, you might think that Silicon Valley would be organizing itself to fight back on the political front. But they're late to the game. And remarkably, they still haven't appealed to the public for support. There is no widespread public campaign to defeat Tauzin-Dingell. There is no widespread campaign to defeat the Hollings bill. And there are no grassroots efforts on the Web. The Internet army, which is enormous, hasn't been engaged or conscripted.

There was a time when Silicon Valley could ignore politics. But that was then. These days, their business depends on it. Either they get a mitt and get in the game, or they lose. And if they lose, we -- the Internet army -- lose big-time.

John Ellis (jellis@fastcompany. com) is a writer and consultant based in New York. Read his weekday musings (www.johnellis.blogspot.com) or find a catalog of his columns, here.

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