Face IT - IESE Technology Blog

Charging Google in Spain or Net Neutrality?

“It is evident that internet search engines use our networks without paying us anything, which is good for them and a disgrace for us” …. “this can not continue, we set up the networks (….) we do everything. This will change, I am sure.” These statements were made by Telefonica’s president Mr. César Alierta this past Feb 5, 2010 in a business school in Deusto, Spain. He is not alone in this quest of sharing the wealth “search engines” (a  peculiar way not to mention Google explicitly) amass versus the meager profits of the telcos last year. The stock market is not blind to these events, and although has rewarded Telefonica with an increase in valuation of 35% in the last twelve months (one of the best among the telcos, Verizon for example has fared worst, with an increase of 10.30%) is far form the astonishing 58.73% of Google, and this including a substantial drop of 30 points from the beginning of the year.

What is the reasoning behind Alierta’s statement? Google does use network capacity mostly when crawling the entire web and transferring to its servers a cached copy of the page it visits, but it is unlikely to be the source of Mr. Alierta’s position; and search results use practically no bandwidth. YouTube, one of Google’s properties, which in the last reported data had above 1.2 billon views per day and every minute receives for storage four hours of video, is probably a far larger source of network saturation, but if it were an independent company it would have no “cake” to share with Telefonica. The heart of the matter is not Google, YouTube, or even Apple, which has been accused by the telcos to make too much money through its App Store for the iPhone; the real issue is a stealth attack to net neutrality.

Net neutrality has many definitions, but the simplest one is that all packets that move through the networks have to be treated equally. This has a number of implications the most important one being that two subscribers that purchase the same bandwidth from an operator should statistically get the same quality of service regardless of, say, they use a P2P community to share content, watch a video through a newspaper online site, or use Skype to talk to the other side of the world avoiding hefty telephone bills. Operators generally oppose net neutrality. One of the basic strategies of any seller to increase their ability to capture rents is to price discriminate; and discriminating by the type of packet transported is an opportunity difficult to pass.

Even in a presumed situation of net neutrality there are a number of hidden (or not so hidden) strategies used by operators to circumvent it. Imagenio, the IPTV service of Telefonica, is a case in point. Subscribers of Imagenio get a reserved 6Mb/sec channel for the video signal to ensure the necessary image quality. Telefonica clients of their 10Mb/sec service do not get this “guaranteed” quality of service if they try to watch the same video channel streaming from the original site outside the Imagenio palette. One could say, then, that the network discriminates in favor of the packets labeled Imagenio, for which the company charges extra. How long will this situation last is hard to tell; if a law is passed to ensure neutrality, it will most likely stop, and if packet discrimination is allowed, we will see a number of services for which operators will charge differently, most likely P2P, streaming from sites outside the home network and that therefore do not pay to the operator of the receiver, and IP telephony as Skype and alike.

It is time to start talking about net neutrality in the open, with its pros and cons, and sooner than later come to an agreement that stabilizes the playing field, rewards players that follow the established rules, and penalizes those that do not. Although this blogger is one hundred percent for neutrality, I am a lot more for clarification. There is no worst situation than that of indefinition. 

The Other Side of the Buzz

On February 9, 2010, Google launched Buzz - the newest addition to the rapidly growing family of online social networking tools.  Borrowing heavily from Friendfeed, a part of the Facebook platform, Buzz’s feature set includes the usual suspects of real time activity streaming, photo and video sharing, as well as several bonus features, such as geo-location and content recommendations.  Currently, Buzz is offered exclusively to consumers through its integration with the existing Gmail service. An enterprise version is expected to be available in mid 2010.

The launch of Buzz had generated a great deal of ...well buzz in the blogosphere and the mainstream media with most commentaries focusing on two aspects: (1) dissecting Buzz’s feature set, and (2) pondering what the launch of Buzz means for the online social networking space in general and the likes of Facebook, MySpace, and Twitter in particular. There are some very insightful analyses on both topics out there and I would definitely encourage you to check them out.

Much less attention, however, has been paid to the role that Buzz will eventually play in the enterprise space. Perhaps, the time for this discussion hasn’t come yet - after all, the enterprise version of Buzz will not be available for at least few more months. Nonetheless, given Google’s insistence on the importance of the enterprise segment for its overall business strategy, it would be helpful to consider some key implications. So, here are a few early thoughts:

•  Why is Google launching Buzz? The launch of Buzz is a step towards making the Google Apps suite, currently consisting of basic productivity and communications tools, into an integrated multi-mode enterprise collaboration platform. Deploying such platforms to foster better work practices around core business tasks and processes is gaining momentum at the more forward-looking firms. Google’s first attempt in this area, Google Wave, was perhaps overly ambitious and has lost most of its traction due to the lack of integration with established communication means, such as email, and the scarcity of proven use cases. Google is eager to right its wrongs. By disentangling the Wave and incorporating some of its more widely accepted features, such as status updates, into the established services of the Apps suite, Google may be able to offer a much more convincing package to meet firms’ productivity and collaboration needs.

• Who will Buzz be competing against? On the enterprise side, Buzz will be up against a very different set of competitors than those currently being mulled in the blogosphere. Instead of Twitter, we will have to see how Buzz stacks up against Yammer and Chatter (a recently launched social collaboration tool by Salesforce). On a more fundamental level though, if the consumer version of Buzz is widely being seen as a jibe at Facebook, Buzz for enterprise will - perhaps unsurprisingly - escalate matters with Microsoft. Sharepoint, MSFT’s flagship collaboration solution, has been recently getting a lot of grief for its rigid hierarchical structure and inability to support free-flow real-time collaboration. There is little doubt that Google will try to take advantage of this by pushing forward its Sites solution (currently a part of the Apps suite) with Buzz providing an additional social collaboration layer on top of the Sites’ portal- and wiki-like capabilities.

• Can Buzz be successful in the enterprise? Trying to answer this question months in advance of the actual solution launch seems a bit premature. Yet, a few general thoughts wouldn’t hurt. First, Buzz is unlikely to take the enterprise by storm. Instead, much like Google Apps, it will see a gradual mainstream adoption with higher diffusion rates in certain niche markets, such as SMEs, education, etc. Second, fundamentally Buzz’s success or failure will come down to the overall viability of the Google Apps suite and Google’s willingness (and ability) to tweak Buzz’s feature set. The latter will include addressing concerns currently being discussed in relation to the consumer version. Finally, in terms of the end-user adoption, Buzz seems to have an advantage that none of its direct competitors, such as Yammer, Chatter, etc., has. Because the enterprise solution will be following in the footsteps of the consumer version, Buzz’s end-user adoption may receive a significant leg up from the personal-to-business usage spillover. As the line between personal and professional becomes more blurred by the day (thanks in big part to the rise of online social media), these spillover dynamics are likely to become more important in the vendor turf battles.

Again, it is very early to say what kind of impact Buzz will end up having in the enterprise space. What is clear, though, is that business social software is gaining momentum and more vendors are turning their heads toward this space. Google is set to become the next big entrant - be sure to expect more.

Why is Google a little touchy with the iPad? Another sequel of Cloud Wars

Last October, The Economist trumpeted “The Clash of the Clouds” or the beginning of an epic battle between Microsoft, Google, and Apple. For the last two years, we have witnessed a bipartisanship in this war, which simplified to everybody against Microsoft. Google’s announcement last November of Chrome OS (see a previous post in this blog) could be interpreted as another step in this war against Microsoft’s Windows 7. So far, it looked like all the efforts, both by Google and Apple, were aimed to turn Microsoft software into a relic of the past. Not anymore. It was very clear when Steve Jobs said, “Netbooks aren’t better at anything” while introducing the new iPad as the anti-netbook device two weeks ago in San Francisco. Apple and Google are now frenemies. Both share the view of convincing consumers to feel comfortable with their applications and leaving Microsoft, but they have very different strategies to achieve it. On one hand, Google wants the consumers to move towards doing everything on their apps (Gmail, Google Docs, Maps, Calendar, Voice etc) in the cloud, using cheap netbooks, running Chrome OS.  On the other hand, Apple prefers the consumers to use iPhone OS-based apps instead in its new appealing iPad through its wall-garden AppStore.

While this simplification is taking place on the surface of the earth with the netbooks and iPads, a new complex industry has been created in the clouds mimicking the traditional three-layer architecture of computers (hardware, middleware, applications). First, we find companies like Amazon (EC2 Elastic Compute Cloud), IBM, HP, and the main Telco operators offering storage, computing and bandwidth on demand, what is called IaaS (Infrastructure as a Service). Second, a few companies like Microsoft (Azure) or Google (App Engine) are providing programming platforms to develop applications in the cloud, what is called PaaS (Platform as a Service). Last, we find a growing number of companies providing web applications from the cloud, without the need of installing a software license on your computer, or SaaS (Software as a Service), among the most popular are SalesForce, Google Apps, MSN Office Web or NetSuite. However, there some storms to overcome before cloud computing would be widely adopted not only in the consumer market but also in the corporate world.  CIOs are worried about security, privacy of data, compliance, latency, and the lack of standards.  Vint Cerf, one of the fathers of Internet, raised recently his concerns, specifically regarding data portability among cloud computing providers.

For the last six months, I have asked all CIOs I meet their position about cloud computing. The majority of CIOs see the potential of cloud computing, but most of the time they say is not the appropriate technology for their own industry, like in the Gershwin song “But not for me”. To make a forecast about cloud computing can be more complicated than a weather forecast. However, if history can serve as a guideline, one hundred years ago one the most strategic roles in corporations was the Chief of Electricity Officer. Some analysts say that cloud computing will turn IT into another utility. Who knows when and where? Meanwhile, let us keep an eye on the next battle in the clouds.

Google and China, A Bad Fit?

In a previous post on this blog, Josep wrote about how China seems to be loosening its tight control over the accessibility of internet content in that country. However, with recent developments with Google in China, the direction of these changes may be in question.

After a tough year, where Google internet services were down several times in China (sometimes for unexplained reasons), an incident recently happened which pushed Google to the limit of what they could take.

Google discovered a "highly sophisticated and targeted attack" on its systems that resulted in the theft of some of its source code. It was also revealed that this attack was part of a larger attack that targeted multiple US-based companies with internet presences in China, including Yahoo, Symantec, and Juniper Networks.

Google also found that the attackers tried to get into mail accounts of persons related to human right activities in China. The attackers were only mildly successful, but the sophistication and specific targets of the attacks were alarming. The attacks were based on a previously unidentified hole in old versions of the Internet Explorer browser. Likely, attackers infected individuals that had access to restricted parts of the Google networks by directing users to web pages with malicious code (using deceptive links in email messages).

Google had already struggled with regulations in China since releasing the Chinese version of its search engine in 2006. China has forced Google to censor their search results since they have been there. Google has been able to grab 30% of the search share in China, but search advertising has not taken off there, so they are not bringing in much revenue yet. Due to these struggles, as well as the hacking incident, Google seems to have begun to question the value of their China operations. After the incident, they announced that unless they were allowed to offer an uncensored search engine in China, they would shut down their search engine and would consider stopping all of their Chinese operations. China did not bend in response and basically said that Google would have to leave if they did not follow the rules. Further, the government denied having been part of the hacking incident.

After seeing China's strong response (as well as a drop in their share price), Google took a less tough stance. Google's CEO said, "We like what China is doing in terms of growth...we just don't like censorship. We hope that will change and we can apply some pressure to make things better for the Chinese people." Obviously, China is very important to Google in the future, but the current policies are making it hard for them to justify doing business there.

Even though Google may back down, this incident could have large implications in the near-term for foreign-based internet business in China. If companies do not feel secure operating there, they may not even enter the market, as the security risk and the cost of compliance may be too high to do business there.