June 2012

Keeping the Spirit of Steve Jobs Alive

[Commentary] It takes a lot for Silicon Valley to see the glass half empty. Not even the sharp drop in Facebook's share price or the passing of Apple visionary Steve Jobs suppresses the optimism of technology entrepreneurs. Yet Washington is making it harder even for growth industries to see the glass half full. That's a big take-away of last week's All Things D conference, which for 10 years has been the best way to measure the mood of Silicon Valley. The Wall Street Journal's Walt Mossberg and Kara Swisher grilled top CEOs in front of hundreds of technology executives and entrepreneurs, but the most telling moment came at the end of an otherwise cheery 112-slide presentation by Mary Meeker, a longtime technology analyst at Morgan Stanley now with the Kleiner Perkins venture-capital firm. She notes that the country has the biggest peacetime gap between revenues and expenses, with entitlement spending swamping everything else. "What gives me pause is that when we were born, 85% of households paid federal income taxes. Now only 49% do," she pointed out. "Soon more people will receive government aid than pay taxes. That scares me a lot."

Google Readies New Local-Ad Assault

Google has repeatedly tried, and largely failed, to crack the market for local business advertising. As early as next month, the Internet company will try anew, as it trains its largest-ever assault on the roughly $20 billion market.

Google plans to have its newest small-business service -- which at one point it was calling Business Builder -- up and running as early as July. The project combines several products and services aimed at small businesses under a single banner. It is based on a mix of internally developed software and recently acquired technologies that the company hopes eventually will bring in billions of dollars a year in new revenue. Central to the effort is Google+, the company's social network, which it hopes consumers will use to interact with local businesses that now have special Web pages on the network. Those Google+ pages will draw traffic from the company's Web-search engine. When shoppers visit these businesses, Google wants them to use their Internet-connected phones like a digital wallet, earning loyalty points and making payments at stores that sign up for Google's new services. In turn, Google is hoping stores and other businesses will use their new Google+ pages to communicate with customers, such as by showing them special offers. And it hopes to persuade them to sign up for other Google products.

Networks Win Ad-Rate Rises

Major TV networks have begun striking ad-sales deals for the fall season, winning higher prices over last year, despite resistance from one big advertiser, General Motors. GM is asking broadcast networks to reduce their ad rates by as much as 20% and is willing to move some of its dollars to the networks that will agree, according to people familiar with the matter. It isn't known whether GM, the third-biggest TV advertiser by spending behind Procter & Gamble and AT&T, has struck any deals.

In the meantime, the broadcast networks are winning price increases in the so-called upfront, when networks sell as much as 80% of their prime-time ad time for the coming fall season. Prices are set based on what an advertiser paid during last year's upfront. CBS, which ended the just-concluded 2011-12 season as the most-watched network among all viewers, appears to be the only broadcaster getting double-digit-percentage increases in the rates based on every 1,000 viewers, media buyers said. CBS, however, has also struck some deals in the high-single-digit range, according to media buyers. Both Comcast’s NBC and Walt Disney's ABC are getting mid-single-digit increases, buyers said.

Google Playing With Fire on Patents

Take the nuclear option off the table, and some patents look like less-powerful weapons. Among the best intellectual property that Google acquired through Motorola Mobility were "standards essential" patents -- the foundation of certain technology standards on which others have to build.

Take "3G" or Wi-Fi. If, say, Apple wants the iPhone to work, it must use such standards in its design. In exchange for its technology being adopted as a standard, a firm like Motorola commits to licensing the technology for a fair and reasonable price, lest it hold too much market power. So it is problematic that Motorola had used such patents as a basis for suing firms like Apple and Microsoft. Google continues to pursue the legal strategy since buying Motorola, despite warnings by the Justice Department. More frustrating to government authorities is that Motorola took its case to the U.S. International Trade Commission, which has only one draconian penalty if it finds an intellectual-property violation: an import ban. Now the Federal Trade Commission, which is already investigating Google on allegations of antitrust violations, plans to weigh in.

NBC Owned Stations, NBCUniversal to Grant $1.2 Million to Nonprofits

The NBCUniversal Foundation and NBC Owned Television Stations will provide $1.2 million in grants to the top nonprofit organizations in NBC's owned station markets. The initiative, called 21st Century Solutions, "will enable nonprofits implementing new and innovative programs to compete for funding in the ten local communities served by the NBC owned stations." Likely recipients will be nonprofits in arts and media, civic engagement, employment and education, among other categories. Applications must be received by Aug. 15 and winners will be announced this fall.

CCIA Launches New Project Promoting 'Disruptive Competition'

The Computer and Communications Industry Association is launching a new independent project aimed at promoting "disruptive" competition and innovation. The Disruptive Competition Project, or DisCo, is set to focus on several policies favored by CCIA, including encouraging "robust competition" in the Internet market, a "balanced" approach to copyright protection, privacy policies that promote transparency and choice over "prescriptive" regulation, and the free flow of information online around the world.

Watch Those Commercials -- Or Else

[Commentary] It's hard to believe these days, but there was once upon a time when TV executives didn't mind consumers taking control over TV sets. There were no lawsuits, like the ones recently filed by the TV networks against Dish for its new commercial-skipping DVR. This is what NBC said in its complaint against Dish in its May 24 lawsuit: "The U.S. broadcast networks cannot provide the news, sports and entertainment programming they have historically created and offered if the revenue-generating ads are systematically blotted out on an unauthorized basis by distributors like DISH." Keep those words in mind. Once upon a time, there were no cases taken to the U.S. Supreme Court to challenge the right of consumers to record shows, as in the 1984 Betamax case. These days, of course, are different. Our TV overlords continually demand our strict attention at the same time as they sue innovative companies out of existence.

Turning Off The Phone System? What Do You Mean We’re Turning Off The Phone System?

[Commentary] A few weeks ago I went to a fascinating gathering of a few dozen academics, policy wonks, and others from the U.S. and elsewhere to talk about the end of the phone system. While by no means a unanimous consensus, a very solid majority considered the phone system obsolete and ready for the scrap heap.

This will come as a surprise to those of you who called home on Mother’s Day or who thanked God for a call center number when your broadband connection went down. But in fact, most of you are probably not using a phone service but a “phone service,” so we are half-way to shutting down the actual phone system anyway. For about a year now, folks in the nerdiest, geekiest, obscurest reaches of Policyland and Wonkdom have been talking about how to turn off the phone service and replace it with “phone service.” For those of you enjoying “phone service” from the likes of cable companies or cell phone providers, you may wonder why this matters. Sure, Grandma may finally need to replace that princess phone, but other than that, who cares? As is so often the case, however, these technical issues matter quite a bit in the real world – but you won’t notice until waaaay too late to make a difference.

Code Wars

[Commentary] We are now at the dawn of another rapid change in weapons and technology, the rise of cyber conflict.

The digital revolution has transformed global commerce, communications and culture, but also provided a new avenue for destruction — attacks on computer networks and critical infrastructure that are at the heart of modern society. Six nations, including the United States, China and Russia, already have built offensive military cyber capability, and perhaps 30 more are seeking to acquire it. A cyber arms race is well underway, although it often draws less attention than the related surge of cyber theft, espionage and hacking. The offensive cyber arms race makes it even more urgent to think about defenses. The United States is still seriously vulnerable, as are other nations. We have deeply embedded network technology in every facet of our economy and our lives, and it has been under constant assault in recent years. So far, the attacks have been largely aimed at theft, disruption and spying, but it will get worse. We live in a mammoth glass house and ought to be mindful of the dangers when we throw stones.

Asleep at the Laptop

[Commentary] The alarm bells sound regularly: cybergeddon; the next Pearl Harbor; one of the greatest existential threats facing the United States. With increasing frequency, these are the grave terms officials invoke about the menace of cybercrime — and they’re not understating the threat. Some cybercrime is aimed directly at our national security, imperiling our infrastructure, government secrets and public safety. But as the recent wave of attacks by the hacker collective Anonymous demonstrates, it also targets private industry, threatening the security of our markets, our exchanges, our bank accounts, our trade secrets and our personal privacy. With all the attention paid to the so-called fiscal cliff approaching at year’s end, it is equally important to ask whether collective inaction has us simultaneously barreling toward a cybercliff of equal or greater height.

[Bharara is the United States attorney for the Southern District of New York]

Benton

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