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March 6, 2011
Bruce Guthrie's ongoing troubles with Telstra raise the question why bother with them. ISP’s are the only entry point to the Internet and digital networks and Telstra's behaviour is that of a monopolist. Why not shift to an ISP that routinely provides better service?
The deeper issue that this saga raises is that we are dealing with the way that capitalism shapes the internet. The incentive is to “privatize” the Internet as much as possible, and to use their control over broadband access as a bottleneck where they can exact additional tolls on users. That is the argument for the “information superhighway” to be a public network analogous to the national or interstate highway system.
The tendency for capitalism is not towards cut throat competition and increased consumer empowerment --as proclaimed by the free market economists-- it is to consolidate monopoly power, create artificial scarcity, and erect fences wherever possible. Wired editor Chris Anderson put the matter succinctly:
Monopolies are actually even more likely in highly networked markets like the online world. The dark side of network effects is that rich nodes get richer. Metcalfe’s law, which states that the value of a network increases in proportion to the square of connections, creates winner-take-all markets, where the gap between the number one and number two players is typically large and growing.
Google is one example. Apple another. The latter's devices such as the new devices, such as the iPhone and the iPad, carry with them applications specific to a given device that are designed to lock customers in a whole commercial domain that mediates between them and the Internet.
The more that a particular device becomes the interface for whole networks of applications, the more customers are drawn in, and the exponential demand-side economies of scale take over. This directly translates into enormous economic power, and the ability to determine much of the technological landscape. Once such economic power is fully consolidated and people become increasingly dependent on a new device, network prices can be leveraged up.
Those within the walled garden are fleeced. The internet is not simply a generator of competition and consumer empowerment. Just as the internet is not impervious to control or censorship, and is just the tool of the democratic activism.
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John Naughton in Forget Google – it's Apple that is turning into the evil empire spells out the reasons for Apple's success:
ITunes illustrates the monopolists beahviour:
This allows Apple to flex its muscles --if you want to do business on the iTunes store, then they have to do it Apple's way.