Tuesday, November 10, 2009


The changing face of economics, pricing models, and bandwith - or a continuation of my blog post on the changing social sciences.


The physical sciences work and balance out because, unless in very special circumstances, one plus one is always two. The social sciences are pretty decent too but allow for selective interpretatons of what "one", "plus", "is", "always", and "two" can mean, and the different applications where that statement might be practical, feasible, or wrong. Economics, dismally, assumes both might be true concurrently.

Which brings us to Google's famous acquisition of YouTube for $1.65 billion in stock. At the time, the deal was questionable - the up-and-coming star of everything (and I mean literally everything) was buying something with a questionable business model predicated nearly entirely upon videos of cute puppies. But somehow, the wizards of Mountain View made it work. Sort of.

YouTube, for all the bandwidth it consumes, does not make money. The millions of one-to-many culture creations uploaded and streamed, for free, did not create a booming industry that YouTube could exploit. In fact, many analysts claimed that YouTube was losing money by supplying huge amounts of bandwidth with relatively little returns on advertisements. And there was very little hope that YouTube had of beginning with a pay-per-view system given its free-for-all buffet modelling. So, yes, YouTube is exploiting "free labor" but the costs, seemingly, were astronomical.

Or not.

A new report suggests very different findings. Despite not being a traditional ISP, despite not owning the vast majority of fiber optic backbones, and despite hosting some of the most bandwidth heavy applications on the entire internt, Google's total transit costs may amount to close to nothing. Conceivably, your horrible Verizon FiOS might be relatively more expensive. Google (and YouTube) may now account for around 6 to 10 percent of all internet traffic. That's thousands and thousands of DVDs worth of information. And they pay nothing in streaming.

Clearly, something is not working as we first imagined. So, what does this mean? What does Network Society make of this? Either a) math is wrong (where Google, based on the L-Space principle, has distorted time-space as we know it), b) economics is wrong (both right and wrong), or c) everything that we theoretically believed about the network society has been based on assumptions that are no longer compatible with the network society.

Quite simply, the network is not we think it is.


"In 2007, the majority of the internet’s traffic came distributed by 30,000 blocks of servers around the net (technically Autonomous System Numbers).

In 2009, 150 blocks served up half of the net’s traffic." -- Wired Magazine, Oct 2009


Content has now created a distinct market advantage to those who host it. Creation of content has always just been a part of the media industry but now media outlets have the opportunity to gain economic leverage by hosting and distribution on a scale never before seen.

On the relatively flat and horizontal network plane, dominance is not determined by the quality of the content but on the accessibility of it. Google now accounts for 10% of Internet traffic. In the old model, Google would also have to pay carry 10% of the Internet's traffic. Not anymore.

At the height of the Internet Bubble, telecos were laying down fiber optics across the world in the anticipation that usage was picking up very quickly, and that individuals and corporations would be vying for a slice at inflated prices. When people finally realized that AOL, Excite, ZDNet and Yahoo! were useless, these fiber optics were barely used and had very little traffic routing through its servers. This is what is termed as "dark fiber", the miles and miles of bandwidth-capable cable that is hardly used - potentially terrabytes per second worth of communications left unused.

But beause Google controls just so much information, it has a potent market advantage. All of the ISPs who sank money into physical infrastructure projects would very much like to gain some return on their investment; but given that there is just so much dark fiber, Google can pick and choose just where its informatin gets routed. What Google might be doing is buying up chunks of excess bandwidth at next-to-nothing, allowing ISPs to claim that Google (and hence, YouTube, Blogger, Google Earth etc) runs faster on their server than their competitors - very useful in the high-speed internet world where, let's be honest, we can't always tell the difference between 512kbps or 2mbps.

Google's model of bandwidth acquisition is a remarkably complicated, yet delightfully obvious one. By having such a clear and present lead in sheer content hosting over its rivals, by being, for many, the portal to the Internet, and by aggregating everything, it has added a new dimension to the Information = Power equation. And it is created, in no small measure, by your free labor. Your free labor has given Google the ability to question and change the traditional network-payment scheme of user to provider.

-- huzzah
Aaron Wee

p.s. Also, http://jayisgames.com/cgdc6/ is amazing. Casual gameplay. On Your Browser. Explore.

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