Law in the Internet Society

Capitalism, Internet Bubble and Beyond

Section I Anecdote: Criteria for My First Job

When I looked for my first job in 1996, I realized that even top Japanese blue-chip companies were not using the Internet and it took until 1998 that most of Japanese employers allowed their employee to assign a personal e-mail account. I started to use the Internet relatively early in Japan and once I started to use it, I could not think of moving back to the days without the Internet. So, I looked for a job in an American firm in Tokyo where I could use the Internet as much as I wanted.

This was the choice I made since I was looking for a position in a profit-making institution. If I would have focused purely on maximizing my Internet experience as a computer science expert, I should have chosen to work for a free software developer or a research institution affiliated to one of the large scale universities.

Section II Capitalist Behavior and the Internet Bubble Burst

Besides enjoying surfing on the web, I got involved in capital raises for some Internet companies for initial public offerings and other financings. The late 90’s and until September 11th was a so-called Internet Bubble, and many companies with “.com” names easily raised capital and founders of those “.com” companies made a large fortune out of IPOs. I was sitting in the core center of the capitalist system and some of my work was to assist kind of capitalist names which Professor mentioned in the class.

Microsoft, Oracle, News Corp… Many lawyers and bankers are chasing for big capital raising or acquisitions by those blue chips. In the capitalist game, what matters are quarterly financial results and how a corporation increases its shareholder value. However, it is almost impossible for those big players to keep constant earnings growth for a long period of time. CEOs do not have much time to think about advancement of technology or social benefit, rather they concentrate on how to look beautiful from investors. For that, they even try to have a plastic surgery to look pretty. In this mindset, even a corporation with strong research and development function is tempted to look for outside solutions to increase its share price by buying a new business or purchasing a competing business to dominate a certain market. At the end of the day, many of big business leaders turn out to be pirates who are good at acquiring other people’s technology, know-how and brands. Or, it may be a sad saga for No.1 giants to do anything as long as it is not illegal to keep its position.

Let’s take an example of a web browser company, Netscape, which had a historic record of going IPO in 17 months from its inception. They went public in 1995 and merged with AOL in 1998. AOL then merged with Time Warner in 2000. Aside from professional fees for lawyers and bankers, I am not sure if value has been really created in a series of transactions. However, Netscape was constantly battling against Microsoft’s Internet Explorer. Through the competition between Netscape and Microsoft, the browser technology seems to be advanced, thus probably benefited Internet users (also, some of the efforts by Mosaic was evolved into Mozilla/Firefox at later stage).

Following the landmark IPO of Netscape, many start-ups tried to go public or to sell its business to a large acquisitive company. However, as things go forward, there were fewer companies who could meet high expectations of investors. After everyone in carnival danced pretty crazy, the Bubble was evaporated. Microsoft seems to have won this battle in the capitalist context. Google was still a start-up with no significant presence in 2001.

Even though there were many activities in business and finance with regards to browser technology, core technology was not necessarily invented nor developed under capitalist experiments. Netscape was a commercialized version of the free software called Mosaic, made at the NCSA at the University of Illinois. Capitalism may have entertained capital markets and marketing business of new technology. However, it is difficult to say capitalism led the advancement of technology.

Section III Google and Beyond

As large numbers of websites became available, internet users looked for a better solution for search technology as a concierge or a butler on the Internet. Google succeeded in monetizing search technology and they became the largest company in the Internet. While Microsoft charges consumers high costs for their products and provides unfriendly technology with constant upgrades, Google is based on advertising fee and is free of charge for users. However, Google’s effort is potentially dangerous in a way that one corporation will control information on a person’s behavior on what he or she reads and writes. If Google monopolizes the Internet access of the citizens of the world, it potentially puts Google in an unfairly privileged position to influence media and public opinions.

Now is a critical point when the Gilded Age of the Internet may turn into monopolistic situation in media. Currently, the focus of the Internet technology for ordinary people is on Twitter, Facebook and Google book. All the ventures have greedy investors seeking for higher return to recoup their investment. They will probably benefit and entertain users to some extent. However, they are aiming to achieve a No.1 position in what they do and they may try to control people’s behavior about expressing their opinions and how people communicate each other. As Microsoft distorted the way how the Internet originally operates, a next generation empire may try to control and potentially distort the way the Internet operates.

While Capitalism has not really been a driver to create value one from value zero by innovation, Capitalism may viciously prevail in commercially distorted use of new technology which enhances value from one to hundreds (in capitalist context.) Open source efforts have enormous raison d’Ítre to combat the unhealthy monopoly in the Internet, and they can magnet powers to keep freedom of the Internet. The Internet should evolve further to benefit all the citizens and to keep its soundness to efficiently and fairly facilitate communications at various levels.

-- By AndoY - 12 Nov 2009 -- By AndoY - revised 5 Dec 2009 -- By AndoY - revised 17 Mar 2010


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Andy, I hope you don't mind that I created this comment box so i can leave a comment. I think your first point on finding a job that would allow you to use the internet is interesting. Back home, we were allowed to have email access (to email clients) but if we wanted to access the internet to do research, we had to line-up for the computer in the library. I think your point about the internet evolving to benefit all people is important. But in some sectors, use of the internet is still viewed with suspicion (and just a tool to play with like in my job). Also, this paper follows the development of finance and securities markets together with the internet which is interesting to read.

-- AllanOng - 30 Nov 2009

Allan, thank you so much for your comments. I have been really curious why bubbles in various economies happen. Professor Moglen recently gave us opportunities to think about why the financial meltdown happened in 2008. I see similar patterns between 2001 Internet bubble burst and 2008 credit bubble collapse. Telecom Act of 1996 and relaxation of glass-steagall act (gramm-leach-bliley act) shares some characteristic in a way that US governemnt opened up a pandora's box. Also, Professor Moglen analysed that universal banking system, a one-stop shop for many of the financial services such as retail bank, credit card, insurance, and security brokerage, is just an illusion in the contemporary world where consumers have easier access to various financial information via the Internet. It is a challenge to interconnect the phonomena in Internet and Finance, however, they seem to be really linked in the world we live in.

-- AndoY - 01 Dec 2009

Hi Ando. Would you like members of the class to provide feedback on your paper? If so, is it ready for comments or would you like us to wait?

-- BrianS - 02 Dec 2009

Dear Ando, I have well read your article. First of all, it was very impressive to see how you melted a lot of topics that we had dealt in our "Law in the Internet Society" class all together. Secondly, I think, this article is valuable since it is an extract of your thoughts and experiences which are from the "real world". It's something unique and this kind of uniquness counts. I like it. I will be looking forward to read your second paper as well.

-- KeeryongSong - 03 Dec 2009

Brian, thank you for your note. I would rather receive many comments than revising on my own at this point.

-- AndoY - 03 Dec 2009

Ando,

Thank you for your essay. I appreciated that you included descriptions of real world experiences. That gave the paper a welcome flavor.

If I were to offer a suggestion, it would be that you consider revising section III a bit. In the first paragraph of Section III, I was confused by the sudden mention of Google Books. It seemed to appear suddenly in the discussion of internet search. I also think that it would be helpful if you suggested even a brief answer to the important question you conclude with. It is an important question to ask and for the same reasons it is an important question to answer.

I hope these comments are helpful.

-- BrianS - 03 Dec 2009

Dear Ando,

Picking up from your last paragraph ("As Microsoft distorted the way how the Internet originally operates, a next generation empire may try to control and potentially distort the way the Internet operates. I hope that the Internet will evolve further to benefit all the citizens and to keep its soundness to efficiently and fairly facilitate communications at various levels") perhaps you would like to consider the relationship between open standards and open software and their impact in keeping the Internet an open access platform. I tend to think that open source processes are powerful 'magnets' that attract standards to form around them. The economic logic (anti-rivalness, increasing returns, etc) is part of the reason. The other part is that the open source process removes intellectual property barriers that hamper standard setting.

-- NikolaosVolanis - 04 Dec 2009

Dear Brian and Nikolas,

Thank you so much for your comments.

The last part - i thought open source is really powerful to combat with the next generation Internet commercial empire which potentially distorts the way the Internet operates. I used to use Explorer when I was a corporate guy. Now, I use Firefox with some cheat with Google Chrome. I felt actually uncomfortable using Chrome (not the fastest and the surest).

Google book: many press are focusing on the development of Google "book". However, google's potential violation of privacy is not just about Google book's data-mining of "who reads what". It is more of the general concerns "Google" as a whole has. In my home county, Google's Streetview gathered public attention in terms of violation of privacy in local municipalities last year. Thus, it is not just Google book I would like to mention as a "threat", but Google as a whole. On the other hand, as a topic, Google book is a catchy word, so i used "Currently, the focus of the Internet technology for ordinary people is on Twitter, Facebook and Google book".

thank you

-- AndoY - 05 Dec 2009

  • Ando, I think you've made some sense out of some of the phenomena of the last fifteen years. But consider this: The browser called Netscape was a commercialized version of the free software browser called Mosaic, made at the NCSA at University of Illinois. Then, as you say, Netscape (which was always actually called Mozilla, from Mosaic) became again free software Mozilla, which was rewritten into Firefox. There was also the free software browser renderer called KHTML, which became the guts not only of Konqueror but also of Apple's Safari. And consider this: on the server side, the world's first webserver at CERN was free software, as is Apache, the world's most used webserver. So there's a really good case that the Web, which is the most important change in human communication in the last five centuries, wasn't ever really led by capitalism at all: capitalism trailed along behind, as you saw it lagging in Japan.

  • But—and this is the crucially important fact about Google—as a matter of computer science no one has figured out how to search a data structure like the web in a decentralized fashion. There is an inherent economy of scale in search unless someone comes up with an extraordinarily important solution to a problem that has been stumping us all. Because the architecture of the web rewards the largest possible search entity, Google has learned how to monetize search by taking advantage of the ability to scale exponentially in the non-zero marginal cost world of a servers-and-storage "cloud." Google's cloud is now the largest one the human race can afford, except for the anarchic one consisting of "all of us," which the free software world knows how to harness for some purposes, but not for searching. Google uses the scale of search to control larger portions of the global advertising business, as consumers shift their purchasing activity into the web.

  • That's 21st century capitalism. You have written a very good introduction to an essay in which you should be able to say some entirely creative new things about how 21st century capitalism is going to work.

 

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