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You want a good internet economy with lots of jobs? Here’s How.

2014 April 18
by Ian Welsh

I’ve been blogging for a long time, and I was managing editor of both the Agonist, and FDL.  While at both jobs, advertising income wasn’t my responsibility, except indirectly (I was responsible for traffic), I kept an oar in and an eye out.

Here’s the deal: advertising revenue collapsed.  In particular it collapsed in 2007/8, and it kept collapsing.  The reason it collapsed is that in the old days you sold your ads direct, or through brokers who offered good deals.  As time went by, however, the percentage offered dropped and dropped and dropped.  The brokers consolidated, and one broker took the lion’s share of the market: Google.

The reasons are simple enough: Google can offer the widest portfolio of websites to advertise on, and for all but the best branded websites, it determines more traffic than any single other factor.  For people with no brand, it determines almost all the traffic.

Google takes the value because Google takes the value of websites: content creators don’t matter for squat because without Google they don’t get read, or watched.  Oh, there are some exceptions, websites with a large enough community to provide their own traffic and push (Facebook, YouTube, etc…), but for the long tail and even the lower part of the fat end, Google is it.

I bring this up because of the extraordinary open letter from a German publisher about Google. 

“We are afraid of Google,” Dopfner wrote. “I must say this so clearly and honestly since scarcely one of my colleagues dares to do this publicly. And as the biggest of the small fry, we must perhaps be the first to speak plainly in this debate.

“The discussion about Google’s power is not a conspiracy theory propagated by people mired in yesteryear,” he added, noting that Springer is making a big digital play and now reaps 62 percent of its profits from digital business.

Attacking what Schmidt had characterized as Google’s willingness to compromise with the European Commission over a 4-year-old complaint about its practices, Dopfner declared: “This is not a compromise. This is the introduction, sanctioned by an E.U. authority, of that kind of business practice which in less honorable circles is called extortion.”

Google is remarkably similar in important ways to Walmart.  If it doesn’t carry your goods, or sticks them in a lousy place on the shelves, you aren’t going to sell much.  The information problem in economics has absolutely not been solved, people cannot find what they would actually want to read or buy, but only what a few key companies show them (see Apple’s App Store for another example, or Steam, both of which take 30% in exchange for giving people a lottery ticket to make some money.)

This is pure rent-seeking, pure skimming off of other people’s work, and while it makes a few companies obscenely profitable (Apple doesn’t even know what to do with all the money it’s sitting on) it destroys businesses. If you have to pay 30% to someone simply as the price of getting your product before consumers in theory (often not in practice), a lot of businesses simply become unviable, and the jobs at Apple or Facebook or Google do  not make up for all the jobs they kill.  If Google doesn’t serve your website in the first few pages, it’s not going to be read.  You will make a deal with Google (if you’re big enough for them to care) and you will create your content to pander to Google’s preferences as embodied by their algorithims, or you won’t get traffic, and even if you do get traffic, well your ads don’t pay squat, because Google takes almost all the profit.

Companies like Google, the key App stores, Walmart and so on must be heavily regulated, and the amount of commission they can take must be fixed by law.  If it isn’t, well, you get to read all sorts of articles wondering where the tech jobs are, asking why Instagram has so few employees, while Kodak had tons.  The reason is that tons of people are providing value to Instagram, or Google, or Apple, or Facebook, and they either aren’t getting paid, or are getting peanuts: they create content, that content has value, but because someone stands between them and the people who pay, they aren’t rewarded for the value they create.

You want a good economy again?  You want an internet economy that lives up to the early hype and which provides even more jobs than the old economy?  Break or regulate Google, Apple, Facebook and all the other gatekeepers, scrapers and information brokers.

(Oh, and reduce patents to only a few years, and enforce mandatory licensing, and a million (ok hundreds) of cell phone companies will blossom, driving smartphone prices down to a tenth of what they are today, or more.  It’s called a competitive market, and it doesn’t work in a strict protected works world.)

You can have an economy that works, or you can have a few oligopolist companies which make obscene profits and create oligarchs: your choice.


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27 Responses
  1. Bruce Wilder permalink
    April 18, 2014

    Micropayments.

    Create an institution that can channel payments to content creators, which are not tied to third-party advertisers.

    Commercial advertising finances way too much of the culture, too much of the media, too much of our politics.

  2. Celsius 233 permalink
    April 18, 2014

    But first must come education; education, not dogma, propaganda, or agenda.
    Without an educated citizenry the rest is just dreaming.
    I do remember when most degrees required 2 years of liberal arts; foreign languages, sciences, literature (world), history, and art history.
    Without education there is no civic pride/awareness and without that oligarchs or worse, rule.
    Ian, I had a vague awareness of the plight of monetizing the internet and use very little of it; no facebook, no twitter, no google search (duckduckgo), no gmail (I have an account but no longer use it) and would not use Yahoo mail if I could find an alternative.
    Anyway, thanks for the details…

  3. Celsius 233 permalink
    April 18, 2014

    Erm, my badly written point was; Ian’s post enlightened me to something I didn’t know.
    I think very few of us know the full extent of Google’s reach. I do not remember the last time I purchased anything through the I-net. I guess I’m just naturally averse to doing business via the I-net and don’t offer much if any support.

  4. bobs permalink
    April 19, 2014

    Google is evil. But Dopfner is a whiner. His company is just as disgusting as Google. So that crybaby is “afraid of Google”? Poor thing. It’s hard out here for an oligarch…

  5. TheAngryPeasant permalink
    April 19, 2014

    I see a lot of similarities, at least in principle if not the specifics, with what Amazon’s done to the publishing industry.

    See George Packer’s piece in The New Yorker:
    http://www.newyorker.com/reporting/2014/02/17/140217fa_fact_packer?currentPage=all

  6. Dan H permalink
    April 19, 2014

    Bbbbbbbbbbbut the tech geniuses wouldn’t so graciously let us buy their innovations if they couldn’t scrape by with yachts and helicopters. And then we wouldnt be making Progress. You luddite!

  7. zot23 permalink
    April 19, 2014

    Patent law is out of control, no two ways about it. The problem there is the same as finance; it’s as dull as doormats and a highly technical, jargon infested business. The public zones out on the details in under 2 mins (maybe as they should, this stuff is like watching someone else watch paint dry.)

    But when pharma companies can make miniscule changes to medicines, get a new patent on an existing product (that has moved out of patent protection), and then put it back on the market at +200% the price (it is essentially the same medicine as before), something has gone horribly wrong. I take QVAR for asthma, 1-2 puffs daily. Used to cost $70 for 120 doses, in the last 2 years it jumped to $250 for the same product (it has a slightly different name and label than before.) Or Albuterol, which has basically been around since the 1950s. Should be dirt cheap but it goes for $100 an inhaler. Highway robbery.

    Ian, my fear is that so many aspects of our culture are so broken that only a clean sweep of institutions (and govt?) could put things back to parity. But gods, that would be an awful, dreadful thing to live through. At best crushing austerity and scarcity. At worst? I don’t even like to think about it.

  8. James permalink
    April 19, 2014

    Since the oligopolists control the legislature and the executive and the judiciary (mostly), how, pray tell, do we change the status quo? (Not whinging; not a rhetorical question.)

  9. Pelham permalink
    April 19, 2014

    Jaron Lanier’s last book makes similar points. The solutions he proposes, however, are complex and improbable.

    The Internet is wonderful — in many, many ways — but on the whole, across society and even in how it shapes us mentally, its effects on balance are pernicious.

    I’m not anti-technology. Far from it. But I do believe technologies need to be judged on their actual effects and not on fantasies of what they might become based on changes that are politically unattainable. The Internet has been around long enough that we can chart its cost/benefit arc with some assurance. And it’s not looking good.

  10. Bruce Wilder permalink
    April 19, 2014

    @ James

    Take control of the Executive, the Judiciary and the Legislature? Take control of the state?

    Don’t just Occupy space, but take power?

    Stop expecting a palatable political choice to magically appear on a menu you aren’t even willing to pay to print?

  11. Mallam permalink
    April 19, 2014

    zot23: I’m a patent examiner. We do our best to reject what we can, but it’s simply not enough time, there are a myriad of incentives to allow applicants to overwhelm us, and the courts have had far too many favorable rulings towards patent owners. I’m not in the medical or software arts — areas that really cause headlines showing an “out of control patent system” — so I can’t speak for everywhere. My allowance rate is somewhere around 40%, though this is somewhat misleading because some allowances go through 3, 4, 5 iterations until they are finally granted. That is one step we could take to fix things, though: in limiting the number of times an applicant can request for continued examination.

    Here’s an article about the courts’ decisions that changed a lot of how we do our work:

    http://arstechnica.com/tech-policy/2012/09/how-a-rogue-appeals-court-wrecked-the-patent-system/

  12. Jessica permalink
    April 19, 2014

    We have never had a fair and reliable pay to both pay the creators/distributors of intellectual goods and turn those goods loose. Patents and copyrights were created to cripple intellectual goods so that they could function within the economics of physical goods.
    At one time, this did not matter too much, but with advanced economies having long matured to the point where intellectual goods are the core products, the absence of a good way to handle them has become a primary roadblock.
    I think this much is obvious, but I would like to suggest taking it a step farther. This roadblock became crucial sometime around the 1960s. In fact, the 60s were its first symptom. (We had educated a work force for a kind of economy/society that we did not have and still do not and that work force rebelled at being shrunk into tiny niches within the old economy.) The myriad of problems we have, in particular the decline in humaneness of governance across the entire 1st world and the rise to power of rentiers and oligarchs are opportunistic infections only made possible by this primary roadblock.
    Resolving this will require a fundamental maturing/advance in how societies operate and also require an equivalent maturing in how individuals operate.
    We already did this in the shift from the Middle Ages to the modern world and industrialization and before that we did it in the Neolithic revolution.
    At this point in time, dealing with things from their roots looks quite intimidating compared to pruning a couple of branches, but we are quickly seeing that no set of possible pruning even moves us forward with the task unless we address the root issues.

  13. James permalink
    April 19, 2014

    @Bruce Wilder:

    What’s the saying? If voting changed anything, it’d be illegal. Take control – need a critical mass of people for that.

  14. Bruce Wilder permalink
    April 19, 2014

    We certainly have a mass of people. Several to choose from, if it comes to that. It is the critical part where we’re a bit short.

  15. Kevin Hayden permalink
    April 19, 2014

    You can call it whatever fancy i-name or e-name or economic principle you want, but it’s NOT entrepreneurial, it’s not interested in the commons or the health of a society, it’s not ‘good business practices’.

    It’s so very libertarian as many techies are. But when the creators get shit and the marketers take the gate, it’s still slavery. With less visible whippings.

    It’s greedy scumsucking stuff and the (mostly) men doing it should be tarred and feathered and run outa Dodge.

  16. Mallam permalink
    April 20, 2014

    James imo they are trying to make voting illegal and much harder to do, especially among minorities and young people.

  17. adrean permalink
    April 21, 2014

    @Mallam
    On that score, Canada’s Harper is leading the way – he’s subverting democracy in his own country while promoting democratic ideals in others.

    http://www.thetyee.ca/Opinion/2014/04/07/Unfair-Elections-Act/

  18. adrena permalink
    April 21, 2014

    adrean is adrena

  19. zhai2nan2 permalink
    April 22, 2014

    >Since the oligopolists control the legislature and the executive and the judiciary (mostly), how, pray tell, do we change the status quo? (Not whinging; not a rhetorical question.)

    The best answer to this is from Bruce Wilder – micropayments.

    That’s just one word, but it summarizes an action plan.

    The second-best is “Resolving this will require a fundamental maturing/advance in how societies operate and also require an equivalent maturing in how individuals operate.” from Jessica.

    That’s a great piece of sociological writing, but it’s not an action plan.

    The fundamental phase shift that Jessica mentions will probably happen when enough people use micropayments to transact a critical mass of business. IMHO, it won’t happen in the West – it will happen in China.

  20. Celsius 233 permalink
    April 22, 2014

    zhai2nan2
    April 22, 2014
    >Since the oligopolists control the legislature and the executive and the judiciary (mostly), how, pray tell, do we change the status quo? (Not whinging; not a rhetorical question.)
    ~~~~~~~~~~~~~~
    I have the exact same question.

  21. Jessica permalink
    April 22, 2014

    @zhai2nan2
    Thank you for the vote for second best. You are absolutely correct. What I wrote is not an action plan but a general statement of where we are. In the worst case scenario, it could even be a prompt for paralysis.
    On the other hand, if we keep going forward as though we know where we are, but in fact we do not, then we could wind up being like the drunk in the joke who looks for his keys under the streetlamp because that is where the light is, even though it is not where he dropped his keys.
    I can see how micropayments could be a positive change for creators of writing and music, but I don’t see how it would help correct the “Enclosure” of larger pieces of knowledge into intellectual property, for example pharmaceuticals, or the kind of medieval-like IP warfare we see, for example, in Apple vs. Samsung or Apple vs. Google.
    Micropayments also have the problem of the decision-hassle factor. Research has found that the mental energy required to decide whether an article or song or whatever is worth the micropayment is a measurable burden.
    Micropayments would be a good reform but they stay within the current pattern of trying to fit knowledge production into the social rules for thing production. A modern Procrustean bed.
    More generally, I think that the phase shift needed to fully resolve this runs deeper than politics. We will need an advance at least as large as the spread of the Freudian understanding of the existence of the unconscious and the (still not complete) spread of that knowledge into the ordinary lives of much of the population of the first world. I am guessing that the next phase shift though will be less about wisdom and more about compassion.

  22. Bruce Wilder permalink
    April 22, 2014

    @ Jessica

    You make some good points, though I think some could be addressed by clever administrative design.

    The institutional point I would emphasize as vital is that we reduce the extent to which we rely exclusively on advertising support as a business model. Corporate advertising is corrupting, but it is how we pay for news media in the U.S., and for a lot of culture.

    I don’t think it is news to anyone that, say, having the magazines that review automobiles be underwritten by car manufacturers doesn’t result in very good car mags, or that having cosmetic makers and fashion pimps finance magazines for teenagers might not result in magazines optimally designed for teens. But, we don’t do anything about it. And, we should. It should be part of our political desiderata.

    Because advertising is in the nature of a public bad (like a public good, which broadcast information is, but annoying and welfare-reducing at the margin), we should be taxing it, to reduce it.

    And, advertising as a support for cultural and informational products is subtly uneconomic in other ways. It can sometimes encourage, for example, a lot of redundancy, in news production, which makes it hard to concentrate resources and to invest deeply.

    We also need alternative business models, so some news and political commentary and some widely disseminated culture is produced and shaped in alternative business models. The British finance the BBC from a television license fee, and the very existence of the BBC in the information mix, alters British politics. Not enough, perhaps, but, still, in important ways. It is very sad that public broadcasting in the U.S. is now dependent on corporate advertising to the same extent as for-profit broadcasting.

    Micro-payments doesn’t have to mean a lot of micro-shopping. Public libraries in Sweden pay a fee to authors, in proportion to how often their works are borrowed. A portion of internet service provider fees or some other kind of subscription fee (e.g. Netflix) could be distributed, in proportion to the time spent by patrons with the cultural or information content. (Living in a surveillance society ought to have some usefulness to someone. ;-) It can’t all be supermarket club programs and ten cents off coupons.)

    I think we underestimate the economic importance of accurate and detailed feedback from consumers to the producers of all kinds of products — cultural products as well as tangible, consumer durables.

    “Competition” in an effective political economy ought to mean a diversity of institutional forms and business models. We need state banks to compete with non-profit thrift institutions to compete with for-profit commercial banks. And, we need some news media to be partisan, and some to be supported by non-profit, endowed institutions, and some to be for-profit.

    Homogeneity is as much the enemy as monopoly.

  23. zhai2nan2 permalink
    April 22, 2014

    >Micropayments would be a good reform but they stay within the current pattern of trying to fit knowledge production into the social rules for thing production. A modern Procrustean bed.

    For the short-run, that is true.

    In the long-run, here is my entirely unscientific prediction:

    Micropayments will stimulate numerous markets in anonymous buying and selling. The “Silk Road” of drugs was just a foreshadowing of the 21st century.

    These anonymous markets will demand highly anonymous “darknets” that will be designed to protect anonymity.

    In order to prevent unsolicited “spam” emails, darknets will start using micropayments for communication. This will drastically change the cost structure of the secure Internet. If you want to watch funny cat videos, you’ll still use the insecure web. If you want to do anything private, you’ll pay a fraction of a penny for every web page, every email, etc.

    This means that knowledge products won’t be safe. If Buyer A purchases Book X for 10 renmimbi in anonymous electronic cash, Buyer A will be able to pass Book X to all of his friends – perhaps making 100 copies for the cost of 2 renmimbi. All of his friends will be able to pass it to all of their friends – they will each spend 1 or 2 renmimbi, but they will produce thousands and thousands of copies.

    The PRC does not have sufficiently subtle secret police to crush such underground communication without destroying its 21st century technology. The PRC will wisely decide to allow its underground thinkers to write anonymously.

    *That*, IMHO, will be the tremendous phase change of the 21st century. The Pax Americana will be forgotten, and the Pax Sinica will begin.

    As for the West:
    >>Since the oligopolists control the legislature and the executive and the judiciary (mostly), how, pray tell, do we change the status quo? (Not whinging; not a rhetorical question.)

    The oligopolists of the West have tremendously subtle secret police forces. They might very well crush their dissident intellectuals. They might ban cryptography, and force their proletarians to watch cable TV and give copies of every email to their ISPs, to Google, etc. The UK might shut down all private speech as potentially libelous, the USA might shut down all private speech as subversive, etc. But the rest of the planet will not be interested in trading with the USA and the UK. The rest of the planet will be following the PRC, Russia, Brazil, etc.

    So I don’t believe that we English speakers will change the status quo. The folks who will grow up to change the status quo are probably still in various kindergartens, learning how to write in Portuguese, Russian, Mandarin, Arabic, etc.

  24. Celsius 233 permalink
    April 22, 2014

    @ zhai2nan2
    April 22, 2014
    So I don’t believe that we English speakers will change the status quo. The folks who will grow up to change the status quo are probably still in various kindergartens, learning how to write in Portuguese, Russian, Mandarin, Arabic, etc.
    ~~~~~~~~~~~~~~~~~~~
    Interesting post: My thoughts have drifted in that direction as well. We Americans, with our provincialism, tend to consider ourselves the center of the known universe…

  25. Celsius 233 permalink
    April 24, 2014

    @ btffc
    You’re either not very observant or you’re a troll.

  26. Deadhead permalink
    April 26, 2014

    Hey, Ian! Any association with the firebaggers is best kept under your hat, unless you are trying to brag that you had the good sense to get out.

  27. Ian Welsh permalink*
    April 26, 2014

    I did good work at FDL, and so did the people I was editor of, by and large. It’s not an association I intend to play down. At the same time, I am not responsible for anything there after I let, except a couple articles I wrote. The firebagger ad-hom dates from after I left as Managing Director.

    That said, actually, FDL is not as radical as I am, and does not despise Obama as much as I do, so if you call them “firebaggers” you probably don’t agree with me on most things. I left mainly due to health reasons, but I actually wanted to hit Obama earlier and harder than FDL did, both on economic and foreign policy (I had information he was ramping up the drone murder program, for example and his economic policies and appointments indicated that he had no intention of ever allowing ordinary people to have a good economy again, something I wrote at the time.)

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