It’s a good thing that ideas of net neutrality, platform neutrality, etc. weren’t around when the telephone business was getting started. If they had been, we might still be using telegraphs and the Pony Express.
Why? When Bell Telephone was getting started, it had to convince cities (who were issuing franchises) to allow Bell to engage in discrimination. Not all telephone lines and prices would be the same. Regarding prices, Bell argued that networks wouldn’t be viable unless businesses subsidized residential customers. It appears Bell was right. And some customers got better service: In the early days, only some lines were capable of making long distance calls. Once long distance became standard, some large businesses were allowed to get fast lanes, although in those days the enhancement was having a direct connection between cities to avoid operators and long distance dialing.
Such non-neutral acts probably wouldn’t pass muster with today’s ___-neutrality advocates. In Part I of this blog, I described one of the faulty premises that the advocates believe and that enables them to discriminate against certain platforms. Here are two other bad assumptions.
Second faulty premise: Identical treatment of all ideas helps the best ideas to flourish
Innovation is a complex process. It includes creating an idea, designing a service based on the idea, and taking the service to market. The steps are complicated and blur together in practice. Those who put all three together in the right way at the right time win customers’ attention. ___-neutrality advocates oversimplify this process, thinking that at least some, and maybe all, of the design and business development can be made neutral so that ideas are all that matter.
In his book “The Innovators,” Walter Isaacson describes the history of computers and the internet. He explains how developing key ideas was almost always a team effort, and that the most successful teams included both creators and design engineers.
He also explains that no idea and design pairing went anywhere without a sound business model. Microsoft didn’t create DOS, but made it the standard for PCs. Xerox PARC created many important ideas and designs, but they largely sat idle until people like Steve Jobs turned them into businesses.
Each innovation in computing and internet has been steeped in bias: Creators, designers, and businesses played favorites in choosing who to work with. Developers and funders sometimes had conflicting goals. Occasionally a great idea was a few months too late or too early, so a different combination of idea, design, and business model captured customers’ imaginations. And often the dreams of the developers and practicalities of the businesses model did not align.
Neutrality is fruitless in such a system. Assuming neutrality is inherently productive leads to economic decay.
Third faulty premise: Platforms can withstand extensive outside tinkering
___-neutrality advocates’ arguments always begin with the assumption of a powerful platform. They seem to lack interest in the economics of platform development and sustainability.
Platforms become prominent by doing what is best for those who use them. Facebook grew quickly, but would have withered if Mark Zuckerberg had failed to see that advertising (which wasn’t his early focus) was key to its future. Amazon was predicted to fail on multiple occasions, but foiled its naysayers when it recently hit upon the combinations of products, services, packaging, and pricing that make the company profitable.
Unfortunately, once a platform finds success, the ___-neutrality advocates emerge. Their regulatory plans assume that a platform’s value remains intact even after much regulatory tinkering. But history reveals that success rests on narrow differences between platforms. For example, Facebook was one of many social media platforms trying to compete with Myspace. Facebook pulled away from the pack by hitting upon a few features, like two-way communication and the ability to find the person you just saw across the room in history class.
Customers sometimes prefer the fruits of a non-neutral business model. Google constantly innovates in search in part because drawing more consumers to its platform increases profits in the company’s vertical services, such as travel reservations. Google probably wouldn’t find this profitable if customers didn’t find it valuable.
Misunderstanding the source and fragility of platform value leads ___-neutrality advocates to be overly optimistic with their industry design plans.
What should be done?
Let customers and entrepreneurs do their work. Today’s successful platforms are not the end of innovation. George Gilder might be right. He argues in his book “Life After Google” that the Achilles heel of many of today’s successful platforms is their overreliance on artificial intelligence. Wouldn’t it be ironic if artificial intelligence — one of the very things that some ___-neutrality advocates view as an unassailable competitive advantage — is actually an Achilles heel?
(Disclosure statement: Mark Jamison provided consulting for Google in 2012 regarding whether Google should be considered a public utility.)