Tuesday, January 9, 2018

Markets Break Down Internet Non-Neutrality

In his book WTF, Tim O’Reilly tells the story of MSN and AOL in the early days of the internet (well, the mid- to late-90s anyway). Both were trying to be exclusive content providers, or “walled gardens.” Both failed when they realized that their customers wanted access to the broader internet. In The Fallacy of Net Neutrality, Thomas Hazlett argues that the same thing happened in the Japanese market for internet service providers.

(There is a short narrative description of the MSN/AOL walled garden episode in The Rate and Direction of Inventive Activity Revisited on Google books, page 647; you should be able to find it free online.)

This might have been a good opportunity for O’Reilly to point out the implications for the wider “net neutrality” argument, but he declined to do so. I know, I know, Microsoft and AOL weren't literally ISPs in the sense of supplying and maintaining the physical infrastructure. They weren’t natural monopolies like the cable company. But the episode shows that big players can’t simply throw their weight around and run roughshod over their customers’ preferences. These were effectively internet choke points at the time, and the major players failed to exploit their supposed market power. They tried to constrain customers to their walled gardens, but were unable to.
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If you use any of those programming books with animal drawings on the cover, Tim O’Reilly is that O’Reilly. Some of my readers can probably crane their heads to their bookshelf and see a few books published by his company. Many of his books have added tremendous value to my life. WTF was not one of them. The book has some terrible economics in it, which I may discuss in a future post.

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