Archive for June, 2011

Penalizing Success – The FTC’s Google Investigation

Wednesday, June 29th, 2011

In theory, the antitrust laws do not penalize size, but it seems that virtually every firm that has become dominant in the technology sector—IBM, Microsoft, Intel, and now Google—ultimately becomes the subject of a major antitrust action.  The FTC started its investigation of Google formally last week and Paul Rubin and I wrote a piece on it that was published in Forbes.com.

We discuss the problems with antitrust action in high tech industries and, specifically, the nature of the complaints against Google:

Some websites are complaining that Google is manipulating its search results to advantage its own products and disadvantage its competitors. They want search to be “neutral.” But what does “search neutrality” mean? Does it mean that search engines should rank websites randomly?

Google’s market position was earned precisely because it found a way of ranking search results that is more useful for consumers, and it will quickly lose that position if someone can find an even better ranking algorithm. Before Google, the Web was much less useful precisely because search engines did not rank results in a way that consumers found informative. “Neutrality” could return us to that world.

Also problematic are the possible remedies the FTC could impose if it finds Google has violated antitrust law:

Google’s most valuable asset is its search algorithm, which is secret and constantly being refined. The secrecy of the algorithm is an integral part of its value because there is an entire industry trying to game it in order to achieve higher rankings. Would the FTC ask Google to reveal its algorithm so that the FTC lawyers and their technical advisors can try to determine how to make it neutral?

It is quite possible that the FTC investigation will not lead to further action because thus far there is no publicly available evidence that Google has violated the antitrust laws.  Let’s hope that the investigation doesn’t divert too much of Google’s attention and resources from what it should be doing—improving its current products and developing new ones.

Research Roundup: Cyber Security, Network Neutrality and More

Monday, June 27th, 2011

This edition of Research Roundup highlights a paper by Amalia R. Miller and Catherine Tucker on the risks of publicized data breaches in the health sector. Miller and Tucker perform one of the first empirical analyses of the medical sector by looking at how hospitals have adopted encryption software over time. They find that “the use of encryption software does not reduce overall instances of publicized data loss. Instead, its installation is associated with an increase in the likelihood of publicized data loss due to fraud or loss of computer equipment.” (p 3) The authors speculate that focusing on encryption software may be to the detriment of implementing effective internal access controls and lead to employee carelessness. In other words, without human-based company processes that complement encryption’s effectiveness, the risks for data losses could increase with the software’s implementation.

(Click through to the full post to see the abstract and link to this paper and 11 others on topics from privacy to copyright policy)

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Where Does the Cable Industry think It’s Going? Empirical Observations from the 2010 and 2011 Cable Shows: More Programming and Consumer Interface Applications

Monday, June 20th, 2011

Many aspects of the 2011 Cable Show were the same as the previous year. Like last year, the show featured:

  • Lots of swag,
  • My inability to understand why some people wait in lines of 30 minutes or more to get a free backpack (do they really value their time that little?),
  • The need to stay far away from the booth with the purple dinosaur crooning about how he loves you and you love him except that clearly nobody loves him, probably because of his pathetic cries for attention,
  • Company slogans that make you hope they put more thought into their products, like Huawei’s “Innovation Through Technology” (which is kind of like “construction through equipment”),innovation through technology
  • Lots of white, grey, and black boxes packed with all kinds of cool stuff, but still just look like white, grey, and black boxes, and
  • Painful feet at the end of the day from too much walking and not enough sitting.

Despite those consistencies, some things were conspicuously (almost) absent this year. Most notably, the 2010 show floor was full of 3D television exhibits. This year a few booths had a 3D TV, but it was typically shoved into a corner, and nobody ever seemed to be watching it. Whether this means that companies that sell to cable have decided consumer demand for 3DTV is less than expected or simply decided nobody wanted to see that display again is hard to know.

Aside from the (thankfully, in my opinion) missing 3D experience, the plethora of inscrutable metal boxes makes it almost impossible to determine just from browsing the show floor what is new this year even if I were able to remember last year’s boxes.

Fortunately, the Cable Show categorizes exhibitors by what they do. These data make it possible to take an empirical look at where current industry participants think the cable industry is headed compared to what they thought last year.

The 2011 show featured 271 exhibitors, compared to 345 in 2010. On average, however, each exhibitor claimed to be promoting products in 4.0 product categories in 2011 compared to 2.7 product categories per exhibitor in 2010.  Because exhibitors chose more categories and the number of categories remained roughly constant, the average share of firms in each category increased by almost one percentage point. Even recognizing that general increase, certain product categories showed large increases. The share of firms offering programming increased by 21 percentage points, consumer interface technologies (e.g., set-top boxes, program guides) increased by 8.4 percentage points, and wireless technologies increased by 8 percentage points. The biggest decrease was among exhibitors offering system management, by about two percentage points.

Data

Presumably to make it easier for attendees to find the products that interest them, the Cable Show website groups exhibitors into business categories: 130 categories in 2010 and 128 in 2011. Most categories appear in both years, but 2010 had 11 categories not represented in 2011, while 2011 had 9 categories not represented in 2010. Table 1 lists the categories in alphabetical order and the number of firms in each.

It is not possible to compare the numbers directly, however, due to changes in the number of exhibitors. As Table 1 shows, the number of exhibitors fell from 2010 to 2011 while each exhibitor identified itself, on average, as offering products in more categories.

Table 1: Cable Show Number of Exhibitors and Categories

Number exhibitors Average categories per exhibitor
2010 345 2.7
2011 271 4.0

Who’s at the show and how did that change from 2010 to 2011?

Figure 1 shows how well represented each category is at the show. In particular, it shows the share of exhibitors in each category, ordered from least to most in 2010. This approach only partially normalizes the data—it controls for the smaller show size but does not control for possible reasons why firms chose to include themselves in so many more categories in 2011 than they did in 2010. Nevertheless, the figure provides a good view of which categories are the most popular.

Figure 1

Share of exhibitors in each category

Figure 2 shows the percentage point change in the share of firms in each category. Because firms chose so many more categories in 2011, the average change is about 0.9 percentage points. Thus, we can assume that any change bigger than 0.9 means that the category is better represented while any change less than 0.9 means the category is less prevalent at the 2011 show.

The Figure shows that the share of exhibitors categorizing themselves as “programming” increased substantially, as did exhibitors focusing on end-user interfaces including set-top boxes, personal video recording, and interactive services. Mobile also increased from 2010. Systems management appeared to have the biggest decrease from the previous year.

Figure 2

Conclusions

The 2011 show had about 20 percent fewer exhibitors than did the 2010 show. Those exhibitors placed themselves into far more categories, on average, than they did the previous year.

Controlling for the smaller show size, programming was substantially better represented in 2011 than in 2010, as were all manner of devices and software targeted at end-user interfaces, and wireless. Systems management showed the biggest decrease.

These changes are broadly consistent with what we observe in the broader communications landscape: the power of content companies relative to distributors and the growing importance of wireless. Firms that sell to cable apparently see growing expected profits in those areas, as well. Whether they turn out to be correct remains to be seen.

Table 2: Total Number Exhibitors in Each Category

Category 2010 2011
Accounting 3 5
Advertising 20 23
Amplifiers 3 6
Antennas 1 2
Architectural/Drafting 1 0
Billing Systems 14 14
Broadband Service Provider 5 4
Brokerage 0 1
Business Services 13 11
Cable Drop Installation 5 1
Cable Information 3 1
Cable Modem Manufacturer 0 3
Cable Modem Reseller 0 1
Cable Modems 3 4
Cable Programming 57 77
Cable Residential Gateways 7 14
Cable Supplies 1 0
Cablecasting Equipment 1 2
Calibrators 1 0
Children’s Programming 6 4
CMTS 4 6
Coaxial Cable Connectors 4 1
Coaxial Drop Cable 4 2
Commercial Insertion Equipment 2 2
Competitive Intelligence 2 4
Computer Aided Dispatch 1 1
Computer Services 3 5
Computer Software 22 24
Conditional Access 3 12
Construction Materials & Equipment 1 1
Consultants 10 6
Customer Retention 4 10
Datacommunications Equipment 2 8
Datacommunications Services 1 5
Digital Cable Receiver 4 4
Digital Compression 4 2
Digital Headend Equipment 14 18
Digital Video 14 23
Distribution Equipment 8 4
DVB Product 2 7
EAS Systems 1 0
Educational Programming 7 19
Electronic Entertainment 3 3
Electronic Recycling 1 1
Emergency Warning Systems 1 1
Engineering & Construction Services 0 1
Enhanced Systems 2 2
Equipment Recovery 2 0
Equipment Repair 3 1
Fiber Optic Cable 6 4
Fiber Optic Distribution Systems 5 6
Fiber Optic Equipment 6 7
Field Services 4 5
Filters 2 0
Financial Services 0 2
Fleet Management Services 3 4
Games 6 3
HDTV 36 36
Headend Equipment 17 14
HFC Cable Demodulators 3 1
HFC Cable Modulators 3 1
High-Speed Internet Access 4 3
Home Information Services 0 2
Home Shopping Program/Services 3 4
Installation Services 4 1
Intelligent Networking 6 5
Interactive Databases 4 4
Interactive Programming 14 21
Interactive Services 24 34
International Supplier 3 4
Internet Service Provider 4 6
Internet TV Provider 7 14
IPTV 42 46
Market Research 1 2
Marketing 7 7
Microwave Equipment 3 3
MMDS Equipment 1 0
Mobile 17 26
Multi-Media Systems 5 7
Music Library 1 0
Music Programming/Services 5 3
Network Management Systems 16 20
New Networks 3 6
News Services 3 6
Non-Profit Organization 6 2
Operational Support Systems Solutions 10 13
Optical Networking 8 6
Outside Plant, Fiber & Cable Enclosures 1 1
Pay Cable Programming 8 27
Pay-Per-View Equipment 1 1
Pay-Per-View Service 2 9
Personal Video Recording (PVR) 6 17
Primary Interactive Programming 0 2
Program Guides 7 10
Program Navigation Systems 1 4
Program Networks 29 19
Promotional Programs 3 0
Publications 3 2
Religious Programming 5 3
Remote Controls 5 6
Research & Development 5 2
Return Path Products 4 3
Routing Systems 1 3
Satellite 10 11
Security Dealer Programs 0 1
Security Systems 3 4
Set Top Boxes 18 25
Signal Security 2 1
Sound Services/Audio Equipment 2 0
Splitters 4 2
Sports Programming 9 7
Status Monitoring 6 3
Studios 0 6
Subscriber Authorization Systems 7 8
Subscriber Collection Services 2 5
Subscriber Pre-Screening 1 1
Subscriber Promotion 3 5
System Auditing 1 1
System Management 16 7
Systems Integrator 11 12
Telecommunications Equipment 20 14
Telecommunications Services 24 23
Telemarketing Services 1 0
Telephony Services 4 5
Test Equipment 6 6
Tools 2 2
Training Services 1 2
tru2way 19 20
Trunk & Distribution Cable 3 2
Video on Demand 52 52
VOIP 17 16
Voting/Polling 4 4
Weather Forecast Services 2 3
Weather Programming 2 3
WiFi Products/Services 6 9
Wire and Cable 3 1
Wireless Networking 9 9
Wireless Telephony Systems 1 4
Workforce Management System 7 14

[1] For an overview of the focus of the 2010 show, see http://www.cablefax.com/cfp/just_in/Cable-Show-Takeaways_41407.html