The Internet is Proving Quite Popular. (Or, Why I Might Be Wrong On The NBN)

I’ve written before on the National Broadband Network, under the following headings:
National Broadband needlessness.
National Broadband Nuff-Nuffs.
I believed the cost of the NBN was too high, the case for it had not been made, and the idea of rolling out fibre to every premises failed to recognise the differences in need between certain types of premises.

Also, I wrote this:

“I think there is a cap on how much data we can consume. No doubt data demand is increasing. From 286 MB/month in 2000 to 14,909 MB / month in 2009. But this is a result of moving real-world activities like photos and video onto the internet. YouTube’s audience is double that of the three big channels broadcasting US prime-time TV.

Data demand is limited by human constraints. Pixel demand is limited by the size of screens we can fit in our homes, audio quality demand is limited by our hearing and demand for video is limited by the number of waking hours in the day.

Camera megapixels are a good example of this. For about five years after the advent of digital cameras, the number of megapixels available grew exponentially. But then it plateaued at about 10-12. For the majority of people the marginal benefit of more and more data wasn’t worth it.

Similarly, telephone call sound quality is abysmal and noone cares. Most of the value is in the existence of the link not the quality.”

Well, the data is in, and while I hold fast to my fundamental point about eventual data satiation, that point looks far away. Data demand is nine times what it was five years ago.


There’s another point to make too. Both this data set and my analysis above are obsessed about downloads. But that’s not the only thing that happens on the internet these days. User-generated content is becoming more important.

It was not until I started making a bit of video that I understood how very very poor upload speeds are. The NBN as imagined originally would offer much better download speeds.

Especially for business, upload speeds can easily be a major choke-point. The shadow minister for communications walloped the government with this point earlier in April.

I still believe that the NBN should be subject to a proper cost-benefit analysis and weighed against other investments. It may be the NBN has an extremely positive return but still yields less than public transport investments. In which case we should probably reconsider our aversion to debt.

Also, this argument still stands:

“There’s a big difference between giving hospitals and the square kilometre array incredible internet speed (8 tbps!), and giving incredible internet speeds to every terrace house, flat and bungalow in postcode 3068. Where productivity demands better internet access, users should pay.”

But the idea that data demand won’t create need for the NBN, I concede, looks wrong.

Rapid growth of WhatsApp should actually make Facebook frightened.

Ever since Facebook swapped the GDP of a mid-sized nation for a simple messaging service, the chart below is getting a lot of attention.  But I fear its main point is being missed.

Screen Shot 2014-02-24 at 8.53.57 am

Facebook got so excited by this sort of user growth that it spent $US19 billion buying WhatsApp. But it should be cowering.

Facebook’s biggest single virtue now, is that it’s the social network your friends are on. Facebook’s entire $175 billion market value hinges on the idea that this “network effect” is enough to lock you in and make sure you never leave. Is it?

The first person to install WhatsApp had no way to use it. The second person to install it could only contact the first one. The thing had no real value until a decent-sized circle of your contacts was on it. Despite this, despite the presence of other perfectly good options, like email, SMS, Viber, and despite its terrible IT-developer’s-idea-of-a-pun name, the application has grown faster than anything the web has ever seen.

WhatsApp’s growth shows people are now damn comfortable in the app store. Nobody is worried about hitting install, checking something out, and deleting it later. That represents an important – but predictable – change in consumer behaviour. And a major threat to the apps we already have installed.

Facebook perhaps recognises it could be gazumped. It is trying to make our commitment to Facebook a virtue, with, for example, recent videos reflecting our history on Facebook, etc. But if its major selling point is that it stores your old memories, will that be enough? If we all keep our Facebook – like we all keep our old school photos – but use something else for day-to-day use, then Facebook loses.

Screen Shot 2014-02-24 at 10.34.09 am

There’s another even bigger point to make here about the lesson of WhatsApp’s incredible growth.

When I wrote about Facebook’s acquisition of WhatsApp a few days ago I mainly just goggled at the incredible price. $US19 billion in cash and stock, or about $A21 billion. Since then I have had a very constructive argument with someone I respect greatly in the tech space, about what the point of the acquisition is.

I argued you could have lots of customers but no good way to monetise them. Twitter was a really good example, I said. The old-school capital market guys that floated facebook and were currently propping up their shareprice would, I reasoned, have to learn the hard way to not rely on their old-world model that says a successful business is one with lots of customers.

But I got an eye-opener in response.

“Don’t get me wrong, I wouldn’t buy FB shares at the current frothy prices either. Nor would I pay $19 Billion dollars for WhatApp. But the long-term play is a little more interesting than “monetise internet service”. The aim as I read it is to eliminate the existing rent-seeking middlemen (in this case, telcos) by undercutting their service. Then, once you have sufficient user lock-in and network effects, you can *become* the rent-seeking middleman, but at an unprecedented global scale! Not exactly a glorious ambition, but it may just work out that way.”

That made me think about the way I look at the internet.

There is one company that has created “sufficient user lock-in and network effects” to be considered the backbone of the internet. Google. Revenue of $15 billion and profit of $3 billion in one three-month period in 2013. Google is to the internet what the state-owned telecommunications companies were to the early days of the communication by wire. A behemoth.

Screen Shot 2014-02-24 at 10.36.04 am

The question then becomes, is Google a model for the rest of the net? Can Facebook et al do that too? Or is Google an outlier?

The telcos became rent-seeking middlemen by owning a network that could not be replicated. They had physical wires that they controlled. Competitors needed to make huge investments to beat them. There’s an analogy to Google there.

Google’s search results are so good not just because of its smart Page Rank algorithm, but because of its expensive web-crawling. Its competitors, like DuckDuckGo, use third-party results in their search results, because web crawling is expensive to do right:

“While our indexes are getting bigger, we do not expect to be wholly independent from third-parties. Bing and Google each spend hundreds of millions of dollars a year crawling and indexing the deep Web. It costs so much that even big companies like Yahoo and Ask are giving up general crawling and indexing. Therefore, it seems silly to compete on crawling and, besides, we do not have the money to do so. Instead, we’ve focused on building a better search engine by concentrating on what we think are long-term value-adds.”

Google’s core products, search and ads, are protected by both being smarter than the competitors, and expensive to replicate. They look safe.

But its various add-ons, like Maps, Gmail, Youtube and the play store could in theory be beaten. It has happened before. See: 10 Google services that failed and why.

Facebook’s offering is not necessarily expensive to replicate.  Open source social networks are out there. Market leaders diaspora and Movim both make privacy a big feature. Who knows what the spark will be that sets them, or something like them, on the path to exponential growth.

Goldman Sachs and JP Morgan take note. The Google model may prove to be a once-off. The internet will continue provide a lot of terrific services, but will not necessarily continue to provide a lot of money. The economic rule that price equals marginal cost of production in the absence of market power has not broken. And marginal costs online are often very close to zero.

Just to emphasise this point, I’d like to finish this piece by introducing you to an app called Telegram. It does everything WhatsApp does, but cheaper. There are no ads. There are no fees. And it is run by a not-for-profit.

Add me when you join. 🙂


What is Net Neutrality?

Folks interested in the operation of the inter-wobble are probably aware of the concept of NET NEUTRALITY.

For the rest of us, here is the gist: Internet Service Providers (ISPs) have the capacity to restrict their subscribers’ access to specific content and websites. For example might load at the normal speed, but is made as slow as a wet week.

Advocates of Net Neutrality want such activities to be illegal.

Continue reading What is Net Neutrality?

Tit for Tat. Take that!

On the internet I found this video:

It lies at the centre of the circled wagons of pop culture. It was linked to from bikesnobnyc. It was filmed outside of Dave Letterman’s studio. And of course the Fox video cameras were there because of the recent Letterman sex-blackmail scandal.

Cab Vs. Pedicab_ Road Rage Caught On Camera (VIDEO)

It documents a road rage incident, wherein two boofheads in baseball caps bash and berate each other to an accompanying cacophony of censorious bleeps. Continue reading Tit for Tat. Take that!

A ‘greatest hits’ compilation

Because it’s never too soon to have a self-indulgent retrospective.

From the WordPress statistics page.  Hits per article, from most-read, to mostly ignored…

About _____________________________________112
Coffee Safari ________________________________77
Inglourious Basterds – a review ____________________72
Mt Hotham – a book review _______________________62
Travel Disasters – the rat. _________________________62 **
In which your correspondent is horrified ______________55
Fairtrade _____________________________________52
Accents eh, bro? ________________________________51
Travel disasters ________________________________50
Costco – A review _______________________________49
Keeping a lid on it? _____________________________47
Intelligent delivery? ____________________________45
Something-something and over it _________________44
Garbledy-gook _______________________________41
Are we dense? ________________________________38
The Best of all Time ___________________________37
America’s guns _______________________________35
A new multi-part series _________________________35
Berkeley – A good place to cycle ___________________33
Regrets, I’ve had a few _________________________32
lolcats: threat or menace? _______________________31 ^
Snowclones _________________________________30
Hello, Aliens! ________________________________30
Unsafe is Safe? _______________________________30
Lost in Translation ____________________________30
Pareidolia on toast ____________________________29
Dumbocracy ________________________________27
This train is about to depart… ____________________26
Godwin Grech and political spin __________________24
Because Food Miles Don’t Go Far Enough. ___________23
A New Kind of Humility ________________________21
Do copulating puppets shock? ____________________21
With great power comes great responsibility__________21
How about this weather, eh! _____________________20
Slumdog Millionaire: A Review Overview ____________19
Verbing weirds language. ________________ ______18
On Naivety _________________________________17
Don’t like the law? Leave._______________________17
Futurology __________________________________17
Vigilantes __________________________________14
Out for the count______________________________14
Twitter! Huh! What is it good for? _________________10
More Micronations! ___________________________8#
Fancy food __________________________________7
The RACV and the Aston Martin___________________7*
bikesnobnyc _________________________________2

** nb. Some readers may not have read the full 1900 words.

^ Most overrated  – this one inspired a phone call from an unnamed reader who advised me ‘Be less…average!’

# Unfairly ignored in my humble opinion.

* Removed due to overwhelming popular demand!