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[ENODE] How Business Almost Rerailed the Net
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Date: Tue, 17 Dec 1996 10:09:40 -0800 (PST)
From: Nathan Newman
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Vol 1, No. 6 DECEMBER 15, 1996
To subscribe to this monthly newletter on information technology and society, send the message "subscribe" to enodelist@garnet.berkeley.edu
HOW PRIVATE BUSINESS ALMOST DERAILED THE INTERNET ...AND HOW THEY STILL MAY
-- by Nathan Newman, Progressive Communications, newman@garnet.berkeley.edu
In a remarkable turn of societal imagination, many conservatives have begun picturing the computer age as the rejuvenation of small-scale entrepreneurial capitalism against the institutions of the nation state. Whether it's Alvin Toffler talking about "demassification" or George Gilder citing the "quantum revolution" or Newt Gingrich promoting decentralization of economic decision-making to local regions, there has been a steady stream of conservative analysis making the case that new technology has made government's role, especially the federal government's role, irrelevant and even dangerous to the healthy functioning of the economy.
Even THE ECONOMIST, a magazine with an early enthusiasm for the Internet and usually a somewhat more balanced eye, has described the success of the Internet as the "triumph of the free market over central planning. Democracy over dictatorship." The new conservative view has been that the private sector is the font of technological and economic innovation. The federal government should get out of the way and leave economic development to the private sector, maybe occasionally working with local governments promoting innovation and job creation locally.
What is repressed in this bit of economic myth making is not only the key role the federal government played in each step of the growth of the computer industry, and, to an even larger extent, in the birth and formation of the Internet, but also the fact that left to private industry, much of the computer technology would never have come to market and, in the case of the Internet, the result would have been less innovative and less of an economic engine for growth. In fact, it's unclear that the integrated communication and information exchange that is the hallmark of the federally-created Internet would have even occurred out of the private visions and competition of industry.
The Internet is in many ways the product of central planning in its rawest form: planning over decades, large government subsidies directed from a national headquarters, and experts designing and overseeing the project's development. The government not only created whole new technologies to make the Internet a possibility, it created the standards for forms of economic exchange of information that had never been possible before.
The comparison has been at times to the interstate highway system but the analogy would hold only if employees of the federal government had first imagined the possibility of cars, subsidized the invention of the auto industry, invented the technology of concrete and tar, and built the whole system with only a few stray dirt roads existing anywhere on the assumption that private industry would build along.
It's worth remembering that the headlines just a few years back in 1993 about the Information Superhighway were not over the Internet and software companies like Netscape but about mergers and financial deals between those who controlled the cables to the home, on the assumption that those who monopolized control of the physical hardware connecting homes and business would reap monopoly profits in selling information services. As Fortune magazine described the ultimately unsuccessful merger of TCI cable and Bell Atlantic telephone back in 1993, "It was the bold stroke of two captains of industry bent on securing their share of whatever booty washes ashore when the interactive age finally arrives...When the dust settles, there will probably be eight to ten major operators on the highway, some earning their way mainly by collecting tolls for the use of their networks."
In many ways, this private vision harked back not to the original federal highway system but to the first transit system that criss-crossed the nation's land--the railroads. And in fact, that historical legacy gives some sense of what a privately designed system would have looked like. In the 1840s and 1850s, the first large railways were built, usually with incompatible track widths where trains entering the same city could not switch directly to another company's rail track. This was not accidental but a deliberate strategy by merchants sponsoring one railroad to avoid having another company (usually sponsored by merchants in a rival city) siphon off freight. It would take decades before the gauges of different train companies were all standardized and freight could be easily transferred from line-to-line for longer distances. Even as such standardization was achieved by the 1880s, giant railroad companies sought to create competing railway systems that could control enough territory to control the flow and pricing of significant portions of freight against competing systems, becoming the first major oligopolies in the US economy.
Later columns of ENODE will talk about some broad ways the federal government contributed to the creation of the Internet, but this month I just want to emphasize a number of cases where the private sector either missed where the technology needed to go, or, worse yet, came close to derailing the publicly funded Internet system.
In the early sixties, researcher Paul Baran had begun planning how to build the technology necessary for the goal of networking computers. Baran worked at Rand Corporation, a research company setup to monitor and preserve the US government's operations research capability. Worried about the survivability of US communication networks in the case of nuclear war, Baran envisioned the movement from analog telephone signals to digital signals that could perform in a networked system of digital transmission. Instead of a central switching node where the whole wire between two points would be reserved specifically for the sound signals of a specific conversation, such a system would be a "distributed network" with each node connected to its nearest neighbors in a string of connections, much like the child's game of telephone. Allowing fuller use of all lines in the network instead of holding lines open from end-to-end for each message, such a system would have each node would keep track of the fastest route to each destination on the network (and be constantly updated with information from adjoining nodes) and help route information without need of central direction.
RAND was enthusiastic about Baran's ideas but when AT&T was approached about its feasibility, AT&T executives dismissed the idea and even refused to share information on their long distance circuit maps--Baran had to purloin a copy to evaluate his ideas which he and RAND were convinced were right. Based on RAND's recommendation, the Air Force directly asked AT&T to build such a network but AT&T still refused saying it wouldn't work (except for a faction of scientists at Bell Labs). This may have been technical myopia by the business-oriented executives, but it was an economically self-interested myopia. Such a distributed network threatened (and today does threaten) the central economic assets of the telephone industry: central computers and central switches. It highlights the fact that corporate research labs, the main alternative to long-term government funding of technological alternatives, rarely if ever invest in fundamental technology that will likely undermine the natural economic monopolies they currently enjoy.
In the meantime, British physicist Donald Davies had begun promoting a similar idea of a computer network with "packets" of information. He soon learned of Baran's similar ideas and was encouraged enough to get support by the British Post Office, notably a state run agency which ran the telephone system in Britain. In 1968, the first computer distributed network was established on computers located at the National Physical Laboratory where Davies worked.
It was at the US military's Advanced Research Projects Agency (ARPA) that distributed computing would be taken to the next level. Larry Roberts, a researcher from the military-funded Lincoln Labs at MIT, was hired to work on the computer networking project. Starting out at four west cost sites: UCLA, UC Santa Barbara, University of Utah, and the Stanford Research Institute, the plan was to install a new computer at each site as part of the network.
In 1968, ARPA advertised the bid for building the specialized computers to be used to run the network. IBM and other big computer companies declined even to make a bid, saying it wasn't possible at a reasonable price. Again, like AT&T, this was partially the myopia of those grounded in older technology but it was also a self-interested economic fear of the new timesharing minicomputer technology (itself recently heavily funded by ARPA) that was challenging the dominance of companies like IBM. They rightly feared that networking would make many government agencies and businesses rethink the need to actually own their own mainframe computer.
In the end, the small (600 employees) consulting firm of Bolt Beranek and Newman (BBN) did the work. BBN was intimately tied to MIT and it was sometimes called the "third university" in Cambridge. With the promise of a large government contract and the top technical talent of mostly MIT graduate students, BBN was able to take on a task that only a large company could have done without such a government contract. By October 1969, the network connection between SRI and UCLA was established and within months, all four nodes were on-line. By the time the network was demonstrated publicly for the first time at the International Conference on Computer Communications in October 1972, there were twenty-nine "nodes" in the network (dubbed at this point ARPANET) clustered in four areas: Boston, DC, Los Angeles and San Francisco. What would evolve into the Internet had been born.
Throughout the 1970s and 1980s, ARPA would build a national community of public-minded experts who helped shepherd open Internet standards that would radically expand the network to a wide range of users. In doing so, it was clear that the public- spirited professional norms promoted by ARPA and the community of researchers was critical in keeping individual profit-taking from undermining that openness. In 1973, ARPA's networking head Larry Roberts was hired by BBN to run a private packet switching network subsidiary called TELENET (which would evolve into SprintNet). In coming to BBN, Roberts carefully deflected a bid by BBN to take over the ARPANET privately. And his ARPA successor J.C.R. Licklider, a key researcher in building the ARPAnet and one-time BBN employee, was faced with his old employer BBN refusing to publish the original computer code for the networking computer routers they had designed, while at the same time becoming more and more reluctant to fix software bugs on the ARPANET. Licklider, in the name of the openness of the Net, threatened to hold up BBN's federal contract funds unless they released the code publicly. BBN published the code, enhancing the tradition of open codes in the development of standards.
Ironically, as networks spread in the 1980s, it was the government experts at ARPA and universities who backed the flexible, tested TCP/IP protocol, while big private companies like MCI, IBM and Hewlett Packard adopted an untested, bureaucratically inspired standard created in international committees called OSI. Vincent Cerf, the creator of the TCP/IP system who is now a Vice-President at MCI, had been hired in 1983 to build MCI's message networking system and he remembers, "So I had to build MCI Mail out of a dog's breakfast of protocols." It was only with the technical dominance of the Internet that most private industry would convert over to the public TCP/IP protocol.
The other key thing to understand is the government's role in being the source of much of the commercial business explosion in Internet-related business. This goes beyond merely creating the Internet itself but to directly being the source of the energy that the private sector is directing to this area of economic innovation. Mitch Kapor, the founder of the software company Lotus, has argued, "Encouraged by its successor, the rapidly expanding government/academic [Internet], the commercial internet...represents the natural development and expansion of a successful government enterprise."
The political economist Karl Polanyi argued half a century ago that "The road to the free market was opened and kept open by the enormous increase in continuous, centrally organized and controlled interventionism." The reality is that the Internet is no accident but neither was it a technological inevitability. It was the product of a US federal government, in association with other nation's experts, guiding its evolution, in demanding that its standards be open and in the public domain, and that its reach be extended broadly enough to overwhelm the proprietary corporate competitors.
It is under such an open system that small companies can create Internet-related software products and know that they will be compatible with other products given the pervasiveness of the standards. The fate of the companies that were building Microsoft's proprietary network--dropped by Microsoft and left with a useless set of products when Microsoft switched to Internet standards--shows the shadow life of companies that depend on the whims of corporate standards. The open standards of the Internet and the easy distribution of products assures that new companies have the ability to at least attempt to take on established players without having the technology itself used as a block against them.
This is critical for a whole range of information-based industries that Stanford economist Brian Arthur has argued are governed by the law of increasing returns for investment. The argument (which Arthur submitted as part of a legal brief to the Justice Department against Microsoft's original proprietary system and its incorporation into its Windows 95 operating system) is that because of a range of built-in advantages for early innovators, companies that attain initial control of a market have a massive advantage over latecomers. Because business customers for software demand compatibility with other products they use and because they have to invest training time to use the initial product, those customers are often reluctant to change products, so early entrants to a market often have an overwhelming advantage in holding onto their market dominance. By assuring a degree of compatibility of all programs and cutting distribution costs, the Internet mediates against the worst monopoly effects of this increasing returns effect.
This privatization of the Internet threatens further evolution of the Internet. This extends from the coordination of networking to avoid capacity overload to the danger that standards and protocol design are being shaped more and more to commercial needs. While the overall compatibility of systems through the IP protocol is unlikely to be undermined in the near term, related standards such as Web browsers are being increasingly designed with commercial interests in mind. When Netscape or Microsoft design their browsers, they are marketing not to individual users (who generally receive the browsers for free) but to the purchasers of related software that depend on the standards determined by the browsers. If the base of a particular broser standard is high enough, corporations will buy particular server software from the producer of that standard browser so that consumers can access the bells and whistles associated with that brand of browser. This is in many ways analogous to broadcast television where stations sell "audiences" to advertisers. This is a recipe for concentration of standards in few hands, since the federal government has largely bowed out of intervention to assure broad participation in the design of standards for the Web.
What is worth emphasizing is that the federal government did a very good job for twenty-five years in designing and guiding the standards and development of the Internet. Putting some regulatory teeth back into government standards committees is an infinitely preferable alternative to letting Microsoft's or Netscape's corporate strateges in selling server software to other companies determine the standards with which the rest of us have to live.
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ENODE: to loose, untie a knot; to solve a riddle.
E-NODE is a monthly column about the Internet. To subscribe to E-NODE, send the following email to enodelist@garnet.berkeley.edu:
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