Privacy versus “Free” – The Need to Make Internet Advertising Work

Posted on April 19, 2011 by Seth Walworth

Jeff Chester, executive director of the Center for Digital Democracy, thinks that AT&T’s proposed acquisition of T-Mobile is about a lot more than eliminating a competitor.  In an interview with Dan Butcher in Mobile Marketer, Chester says the real driver is that “AT&T wants to take on Google and be the king of mobile commerce”.  He wonders if AT&T will “be creating mobile profiles” and urges regulators to assess the consumer protection issues raised by this deal.

No argument here.   AT&T does want to eliminate a competitor but the company also intends to be a player in ecommerce – whether via mobile, online, or Internet-enabled TV – and this will be a huge AT&T objective whether the T-Mobile acquisition goes through or not. As net neutrality expert Tim Wu has observed, “One way to see the net neutrality battle is to see it in terms of the fact that the carriers are trying to get a piece of the internet advertising revenue — now they get zero”.

AT&T has no intention of waiting for mobile service pricing and margins to crater.  “Dumb pipe” communication services have a nasty habit of eventually becoming low profit commodities – (though absorbing major competitors like T-Mobile is one way to avoid this). So AT&T will make every effort to add value to the data it transports and participate in ecommerce transactions.

There are indeed major consumer privacy issues. AT&T has a huge subscriber database, knows the approximate location when subscribers make a mobile call, and knows every keystroke they make from the start of a session to the finish.

But the privacy issue goes well past AT&T. Google, Facebook, Apple, and plenty of others are using highly personal customer data – purchase and browsing histories, current location, and social media comments – to sell targeted advertising.

And this is not a bad thing. In fact, it is essential. Because consumers expect most Internet content to be “free”, which requires advertising that works. Advertisers won’t pay, or at least pay well, for anything less. Increasingly granular behavioral targeting – for relevance, engagement, measurement, and ROI – is what they want.

So the bigger issue is privacy versus free. How much personal information are Internet consumers willing to let AT&T and other players use, and under what conditions and regulatory protections, to subsidize the free content model?

In Jessica Guynn’s recent Los Angeles Times article on how Facebook is using personal information to deliver targeted ads, one Facebook user commented, “I don’t feel any weird privacy thing. We’re all putting everything out there already.”

What do you think? How much do you like your free content?

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AT&T and Verizon want you to trust them – should we?

Posted on April 12, 2011 by Seth Walworth

Carriers have all the tools – quality-of-service transport capability, massive subscriber databases, end-to-end visibility into what users do during online sessions, visibility into cyberlocker (pirate site) traffic, storage, distribution, security, billing, and any-screen formatting infrastructure – to make the Internet work better for everybody.  But we need to trust them not to abuse their power and to do the right thing.

Right now, that’s pretty hard to do.

First Verizon files a legal challenge to the fairly toothless Net Neutrality rules adopted by the FCC.

Then AT&T announces plans to merge with rival wireless giant T-Mobile and cap broadband data usage.

You would think that Verizon would be happy with a Net Neutrality ruling that – amazingly – treats wireless access to the Internet differently from landline access. And with language that leaves room for “specialized services” that carriers can charge more for.

But Verizon wants even wider latitude and less oversight, and is “deeply concerned by the FCC’s assertion of broad authority for sweeping new regulation of broadband networks and the Internet itself.”  But fear not, Verizon seems to be saying, because we are “committed to preserving an open Internet.”

For their part, AT&T’s response to the company’s dismal wireless consumer rankings is to absorb a major competitor with a better ranking.  This move won’t do much to improve AT&T’s wireless service any time soon – but it will consolidate considerable pricing power and 70% of the U.S. wireless market between AT&T and Verizon.

And one year after putting caps on wireless data, what’s with the AT&T caps on WIRED data?  Could it have anything to do with the threat that Netflix and Over-The Top TV poses to U-verse?

AT&T and Verizon do have very legitimate concerns:

  1. A projected 4000% increase in wireless data traffic by 2014
  2. Meeting user expectations for Quality-of-Service on voice and video over the “best-efforts” public Internet backbone
  3. Getting a fair return on necessary network investments

But unfettered, trust-me, let-the-market-decide ability to do what they want?  Not if consumers have so few market choices.

For wired access, you basically have two choices – your local telco (usually AT&T or Verizon) or your cable provider.

For wireless, you will basically have AT&T, Verizon, Sprint (unless they get bought too), and Various Little Guys.

Not a lot of leverage over AT&T or Verizon if you don’t like what they are doing.

There has to be some real regulation here, and some real anti-trust enforcement – because market concentration doesn’t foster innovation or fair pricing, no matter what AT&T or Verizon say.

What do you think?

 

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Paying for the Internet – Explosive growth requires a new approach

Posted on September 16, 2010 by Seth Walworth

There are two basic ways carriers can monetize the projected huge growth in Internet traffic, 4000% by 2014 for mobile users alone, to justify needed Internet backbone upgrades.

1) Carriers can charge users more for data transport – with volume pricing tiers, metered rates, and/or higher rates for more sensitive traffic such as video.

2) Carriers can add value to the data they transport – a better user experience, one-click transactions, more targeted and measurable advertising, intellectual property protection, anywhere-anytime-any screen distribution – and get paid by retailers, advertisers, and publishers.

Carriers should do both. Consumers and companies who tie up more Internet resources should pay more. And all participants in the “e-commerce” ecosystem – consumers, advertisers, publishers, retailers etc. – would benefit if carriers did more than just provide “dumb pipes”.

Charging more for Internet data transport probably has to happen, because of all the demands that users are placing on the Internet. Cisco predicts that 66% of the world’s mobile data traffic will be video by 2014, as smartphones and iPads proliferate. And Internet delivery of TV shows to the living room, a drop in the bucket today, is expected to grow dramatically, as device manufacturers enhance set top boxes and cable companies launch TV Everywhere.

And it’s not just video stressing the network. Multi-player gaming, Facebook, Twitter, Skype, browsing, Voice-over-IP, location-based ecommerce, etc., are all delivered via the Internet to an on-the-go populace that increasingly wants to be entertained and connected at all times.

But rate increases alone are risky. Nobody wins in the ecommerce ecosystem if carriers raise rates and consumers cut back on their Internet use. But everybody wins if carriers are able to unlock and leverage other native assets to lower Internet distribution costs, improve advertising effectiveness, and enhance the user experience.

These assets include:

- Massive subscriber databases across mobile, broadband, and TV platforms
- End-to-end visibility into what subscribers do during online sessions
- Visibility into cyberlocker (illegal subscription service) site traffic
- Storage, distribution, security, billing, and any-screen formatting infrastructure

These subscriber databases could deliver large, hyper-targeted audiences to advertisers.

These subscribers could opt in to “personal agents” that would travel with them during online sessions, improving their online experience and giving advertisers better metrics on advertising performance.

Piracy could be curbed, freeing up lots of bandwidth and improving online subscription models.

And deployment of cloud-based, back-office infrastructure would leverage carrier scale to deliver “everything-in-one-place” cost efficiencies for ecommerce.

Third rail issues perhaps. But worth serious consideration to develop a framework that benefits everyone. Because “free bandwidth” and “free content” are not going to fund the Internet of the future.

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The Reality of Neutrality – Don’t Kill the Carrier

Posted on August 25, 2010 by Seth Walworth

If there is anything positive about the Verizon – Google proposal to modify Net Neutrality and reshape the Internet, it’s that it will make everyone confront the fundamental issue of “Who is going to pay for the Internet and how?”

The proposal itself is just an opening gambit, intended to provoke debate, with the suggested wireless Net Neutrality exemption an obvious overstretch and non-starter.  The real message from Verizon, the largest provider of backbone Internet infrastructure, is “Bandwidth is not free” and “We’re not going to take it anymore”.  The real message from Google is that they agree with Verizon and want to make sure that future infrastructure investment will support the flood of video and data traffic projected in the next few years.

The reality is that the Internet did not descend from the heavens.  It is a marvelous, intricate, and very expensive machine, designed, built, and maintained by telecommunications carriers – the same carriers often characterized as decrepit and desperate by an uninformed public.  Verizon is not decrepit.  Greedy maybe, clumsy definitely, but calling Verizon and other carriers decrepit is ridiculous and ignorant.  Carriers are the Internet, and there is nothing simple or free about it.

What’s forcing Verizon’s hand is the changing dynamics of the wireless market.  Mobile has been immensely profitable, more than making up for the collapse of traditional local and long distance revenues, and the thin margins of Internet traffic.  But now that most Americans have cellphones, the growth in new subscribers has leveled off.  Price wars have started for wireless voice.  And wireless data traffic is expected to grow as much as 4000% by 2014 – most of it headed right for the Internet.

So who is going to pay for all of that data, and how are they going to pay for it?

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Introducing “Digital Dough”

Posted on August 25, 2010 by Seth Walworth

This blog, “Digital Dough”, an extension of our whitepaper “Making Online Profitable”, is about making money and improving user experiences on the Internet.  The intent is to highlight structural barriers that interfere today and ways to fix things moving forward.  The basic point is that the Internet is nowhere near to fulfilling its ultimate potential as a business and entertainment vehicle, but that it will be, particularly as “third rail” issues regarding privacy, piracy, and bandwidth pricing are confronted and resolved.

A central theme will be that the capabilities and infrastructure of telecommunications carriers, often forgotten next to Google, Apple, and other providers of applications and content, are absolutely fundamental to a thriving Internet, cannot be taken for granted, and indeed must be far more fully deployed.  But also central is that a thriving Internet must thrive for everybody – carriers, content publishers, advertisers/agencies, aggregators, device manufacturers, value-add service providers, entrepreneurs, and, of course, consumers.

Topics will include advertising ROI, net neutrality, the user experience, privacy, bandwidth pricing, content discovery, intellectual property protection, cross-platform delivery – anything impacting the economics of the Internet ecosystem.

I look forward to your thoughts and a frank discussion of the issues.  Thanks for checking us out.

Seth Walworth, KontrolMedia

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Welcome – Kontrol Media blog

Posted on August 2, 2010 by Mark Kapczynski

Welcome to the Kontrol Media blog – we are excited to start the dialog with you on the subject of intersection of the Entertainment, Telecom and Advertising industries.

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