^{Democracy & Technology Blog} Google’s and Yahoo!’s worst nightmare

A story by Amol Sharma in today’s Wall Street Journal illustrates the nightmare scenario that is motivating companies like Google and Yahoo! to push for self-serving net neutrality regulation under the misleading guise of protecting consumers, mom-and-pop businesses and innovators who who toil at night in their garage.

Medio Systems of Seattle and JumpTap of Cambridge, Mass. will provide web searcing services optimized for mobile devices, which the cellphone companies will integrate into their phones. Does this mean a cellphone customer won’t be able to search the net from their cellphone via Google or Yahoo! ? That’s not likely to be a problem — the FCC has declared that customers should be able to go anywhere on the web they want.
But it does mean preferential treatment for Medio or JumpTap. The cellphone carriers could design their phones so Medio or JumpTap are the home page or are only one click away. If you wan’t Google, Yahoo! or some other search engine, you’ll have to bookmark their page — meaning that it will take a couple extra steps. The majority of cellphone subscribers presumably will take the most convenient route by picking Medio or JumpTap.
Of course this is all about money. Sharma writes: “By aligning themselves with start-up search companies, the carriers believe they will keep a greater share of the generated advertising revenue, say people familiar with the matter. The wireless companies also worry that their brands will be diluted if they gave a prominent marketing slot to a major Internet brand.”
This scenario is an example of one of the ways that a portion of the billions of dollars in online advertising revenue could be diverted from content to delivery, as I talked about here.

Some lawmakers might think it’s truly awful that things have come to this — and even that there ought to be a law! — but communications networks need to be updated — even replaced — and its expensive. Innovation occurs both in content and delivery. If advertisers are willing to go along, consumers are the beneficiaries through lower subscription rates for broadband.
Does this mean that Google and Yahoo! — companies that many people admire a great deal — are on the ropes and that Congress must intervene to protect these iconic beacons of American technological superiority? The answer to this question is always no. If Google and Yahoo! have superior skill and foresight, nothing prevents them from creating services that are even more compelling than what they have already offered. Or, they could negotiate with the cellphone carriers.
Sharma quotes one industry source who believes that there is a trade-off for the carriers: “Though they might get a better revenue share in the future with smaller partners, they would likely have to spend more to create an ad network and perfect the search infrastructure.” Sounds like the answer to this question calls for a highly fact-specific analysis; there may be some uncertain variables and there could be massive potential for unintended consquences either way — the sort of exercise for which Congress would be uniquely unsuited in most cases. That there are pros and cons, from the carrier perspective — not to mention the fact that the cellphone industry is indisputably competitive — should dispel any fear that Google or Yahoo! might lack bargaining leverage.
The market can sort this out, and Congress should avoid any invitation to set the terms.
See: “Cellular Carriers Work To Outdo Google, Yahoo,” by Amol Sharma, Wall Street Journal, July 27, 2006; Page B1