7 ms·

Is the Internet Different?

80 points by headalgorithm 6y ago

throwaway7281 6y ago
Call me a bluff old tradionalist, but there are costs associated with "internet operations", tech firms: That is, they are or will abuse their enormous insight into the heartbeat of society. If you know for billions of people where they are, what they do, and all other thousands of attributes, what is your end goal? To sit on the money printer? No, tech just moves forward and what is possible will be implemented. I love tech, it's so cool to build stuff. But in 2030 the majority of the population will be flies in a web of tech, surrounding and controlling you in various ways, all day every day. Opt out will be the ultimate luxury item.
bryanrasmussen 6y ago
somehow saying >falling into the novelty trap by asserting things like “the internet has made transaction costs zero” — a sentence that would make any serious economist howl with laughter. gets translated into >the idea that the Internet has not had a massive impact on transactions costs.
- vmg1 6y ago
  I don't understand what you are trying to say here? Zero and near zero are effectively the same.
  - sumtechguy 6y ago
    if the cost was 0 geocities would still be running.
  - Jtsummers 6y ago
    No, they aren't. "Zero" is zero, it means no cost. "Near zero" means some cost. Some cost, in aggregate, can easily become a major cost. Ever wonder why manufacturers of physical goods choose the component that's 1 penny less? Because that one penny can translate into millions in savings over the lifetime of a product. "Near zero" could translate into millions in costs over the lifetime of a product versus "zero".
    - dasil003 6y ago
      The discussion is around financial and market dynamics for different types of companies. Quibbling over the definition of zero vs near-zero is completely side-stepping the argument. The point is, for Google search variable costs are immaterial. This is not the case for any business that needs deals in physical inventory or human-provided services (which was the majority of businesses pre-Internet). Does Google incur some marginal infra costs from increased traffic or growth of the web? Yes. If you project out infinite growth does it become a "major cost"? No, the limit of profit over variable cost approaches zero.
      - bryanrasmussen 6y ago
        >The point is, for Google search variable costs are immaterial..... >No, the limit of profit over variable cost approaches zero Ok well Google is an example, but the argument is about Internet companies not just Google, but ok Let's take Google and use that to go back to the more general level. aside from any other arguments - is it possible that variable cost approaches zero because Google is a monopoly with a high profit margin. If the profit were to decrease a lot from each transaction then they would be at a position where variable cost becomes more relevant. That is to say Google's special place has nothing to do with it being a magical internet company but rather its being in a seller's market that they dominate. If it were suddenly to no longer be in a seller's market or to have to do stuff like save data longer to get value from it, or to earn much less per search because advertisers didn't want to pay, or to find that there are side effects from having too much traffic that ends up decreasing ability to serve relevant data because of signal to noise ratio thus causing a loss of profit etc. etc. we would end up with the cost to Google of a transaction being much closer to what they earn from that transaction. In the last scenario I put up there, which I believe could actually be a problem if you project out infinite growth (search growth) does it become a "major cost", yes, in such a scenario too much traffic decreases the value of all traffic. In fact too much traffic decreasing the value of all traffic is a well known feature of Internet companies, because internet companies actually use physical devices (just wanted to point that out, since there seems to be this special thing about Internet companies not having physical inventory) to serve their customers or users (depending on which we're talking about here) and this is why DDOS is a thing and why even natural spikes in usage can be problematic. So in fact, I would actually say about just about any online company there is - if you project out infinite growth ( of traffic ) does it become a major cost? Um probably, and depending on how that a growth is structured it might in fact be a crippling cost.
- disown 6y ago
  > a sentence that would make any serious economist howl with laughter. A serious economist like Krugman who said the internet was going to have an impact on society no more than the fax machine? Or the serious economists who helped create the asian financial crisis? Or the serious economists who created the housing bubble? It almost seemed like you think society should care what "serious economists" think.
  - jboog 6y ago
    Can't trust doctors because one time a doctor made a mistake! Flawless logic!
    - TT3351 6y ago
      I hope we can both agree the standards of measurement for doctors and economists are not exactly comparable, given that one is just "is the patient better" and the other can be judged in any way imaginable. Is the economist macro, micro, do their solutions add to income inequality, or reduce it? The field of economics is clearly much more mercenary than the field of medicine.
    - disown 6y ago
      One time... Okay. Also, my dig wasn't at economists as individuals, but the pseudoscience called economics as a whole. There is a difference between a "mistake" like oops gave you the wrong medicine by accident and a pseudoscience like chinese medicine. And the internet prediction, asian financial crisis, housing bubble, etc aren't "mistakes"? It's just shows "serious economists" are just charlatans. The priests of modern era.
      - 6510 6y ago
        You are being to harsh on chinese medicine. I like the way Richard Wollf put it: There is a reason economics and business school are separate buildings.
  - 6gvONxR4sf7o 6y ago
    Economists make mistakes. Like any other science. Their uncertainty is larger than something like physics, but not large enough to be considered pseudoscience. In newspapers they’ll shoot their mouths, but in their journals, they’re quite scientific. Your criticisms kinda remind me of data science work, where you say “the effect of doing this will probably be between -3 and +7, assuming X, Y, and Z, so it’s worth looking into.” Which PMs (like politicians) take as 2 (+/- 5) and promise the rest of the org a gain of 2. Then we implement it and it comes out as -1 and you need a post mortem about how data scientists (economists) got it so wrong.
- magwa101 6y ago
  Agreed, Thompson misinterprets so he can make his point, constantly "aggregation theory" and massive cut and pastes of prior posts to prove that he's right. He's interesting but in terms of making his case when confronted, he is a little reactive not heavy metal and reflective.
6gvONxR4sf7o 6y ago
> [Google]’s scalability is effectively infinite, because serving additional customers is a function of fixed costs, not transaction costs; it really is not comparable to Amazon at all, in this regard, as the companies’ respective market shares demonstrates. > The same reality applies to Google’s marginal costs (including distribution); while Google spends a tremendous amount of fixed costs on its data centers and networking, any one search is “free”, including Google accepting the search term, computing the result, and delivering it to the user. Doesn’t google spend some insane amount on infra? This argument could be made identically for the old retailer down on the street corner by my house. Once you’ve bought the building and fixed the roof and bought all your merch, handing over that t shirt in exchange for cash is free. It’s better than free, even, since people are literally just giving you money for stuff you don’t have to spend any more marginal dollars on! But if I want to keep doing business, I’ll have to keep paying my mortgage, and paying my sales reps and if I want to grow, I’ll need more space (maybe another storefront per thousand transactions per month?), etc, just like if google wants to grow, they need more sales reps and more land in Mountain View, and for more customers and queries (maybe a new data center per gajillion queries per month, or per upgrade to costlier search processing expensive neural network layer?). Without commenting on the rest, OP is throwing a lot into fixed costs. You can’t say it’s near zero when the revenue is also near zero. And you also can’t examine the costs in a way justifies zero marginal costs, pointing at the cost of someone who walks into and out of the retailer without buying anything, which is also basically zero (your typical user who never clicks an ad). Maybe the most apt comparison is a nail making factory or even to AWS where, once you’ve bought a data center, renting it to your customers is free, but that’s not a useful viewpoint. The cost of one single marginal call to your AWS lambda is basically zero, but basically zero times basically infinity is a good old traditional number again.
- migueloller 6y ago
  Well, I guess you could say that if the store was run by robots so you didn't have to pay employees and if the shirts were made out of thin air so that there are no COGS. I'm not trying to be facetious. I think the distinction between marginal and fixed costs is important here because it's all about the feedback loop for aggregators. And one can think of marginal costs as "friction" in this loop. That being said, perhaps aggregation theory won't be complete until Ben considers fixed costs in addition to marginal costs, which I believe might be your argument?
sanderjd 6y ago
I read both articles and maybe I'm just a fanboi, but it really seems to me like Mr. Thompson has thought about this specific question a lot more than Mr. Wu, even if Mr. Wu has more experience in adjacent topics.
- TheOtherHobbes 6y ago
  I stopped reading when he described users of search as Google's customers. There didn't seem any point in reading further after such a basic misstatement. The point about marginal costs is absolutely wrong too, but I don't have the patience to pull it apart in detail. The reality is there is a customer acquisition cost, it will be spread across multiple domains (technical, legal, financial, and even political) and I would be very surprised if Google believes it's zero.
waxman 6y ago
I'm a big fan of both Ben Thompson and Tim Wu. One of Wu's specific critiques is my biggest disagreement I have with Thompson, and is a train of thought that seems to be dogma in Silicon Valley Twitter. Wal-Mart putting their own brand of toilet paper on more prominent end cap shelves is fundamentally different than Amazon promoting their own Amazon Basics toilet paper on a search results page on Amazon.com. Amazon has a much greater ability to drive conversion to its own products than a brick-and-mortar retailer (e.g. limited screen space, UI, information hierarchy, better data, etc.) Thompson's argument that "it's all the same," "private labeling has been going on forever," is flimsy and intellectually lazy. Once we agree on this basic set of facts the more interesting question becomes: is this dynamic bad for consumers long-term? The crux of this round of tech anti-trust scrutiny is time horizon. Many of these practices are neutral or beneficial to consumers in the short-term, but that's always how monopolies operate. Undercutting prices to put a competitor out of business benefit consumers immediately, but hurt consumers after the competitor goes out of business and the monopolist can raise prices. Amazon selling Amazon Basics products at a loss or near-loss is good for customers now, but if it puts too many other online retailers out of business, eventually they'll raise prices and hurt consumers.
- RcouF1uZ4gsC 6y ago
  > Wal-Mart putting their own brand of toilet paper on more prominent end cap shelves is fundamentally different than Amazon promoting their own Amazon Basics toilet paper on a search results page on Amazon.com. The other fundamental difference is scale. It can physically walk down the toilet paper aisle in Walmart in see all the available toilet papers in less than a minute. In fact, I can probably wander the entire Walmart store in about 30-45 minutes and see everything they are selling in that store. It is not entirely impractical. On the other hand it is impractical for me to go through all the items Amazon is selling. Thus what they are promoting becomes much more important.
  - lotsofpulp 6y ago
    Are you suggesting that physically going to a Walmart and walking down the aisle to view all the toilet paper options is more "practical" than typing walmart.com, searching for toilet paper, and scrolling through the options? Personally, I find it much easier to search for products at home. It's literally seconds versus at least 10 to 15 minutes to get to the nearest store and browse around. And what is the use case for browsing all of the products in a store? I can't imagine why I would need to walk around an entire Walmart.
chillacy 6y ago
> When it comes to understanding what really makes large tech firms dominant and predicting what judges will do, you aren’t getting the full picture. Maybe I’m just suggesting the site should be more modest and, in particular, be careful about treating aggregation theory as if it were almost like a brand that needs be elevated. The danger for readers is a false confidence, for what Thompson too rarely reminds the reader is what we don’t know. This section off Wu's criticism I can agree with, Thompson has a way of shoehorning everything to fit his models which doesn't always work. >> Antitrust should be dealing with the reality of anticompetitive behavior in markets, not ideals of how companies work > Wu does not believe that Google is unique as far as scalability is concerned, he appears to assume that the company must be doing something nefarious to command such market share. And, by the same token, there must be some sort of unfair lock-in, because again, companies ought not be so dominant. This is a sure recipe for lazy arguments that end up criminalizing the basics of business. This I can get behind Thompson on. Blindly enforcing laws which are not updated for the fundamental changes in technology will lead to poor outcomes. Laws have to evolve with what technology enables, and Thompson has at least thought about this in a depth that Wu doesn't even care to acknowledge.

80 points by headalgorithm 6y ago

Call me a bluff old tradionalist, but there are costs associated with "internet operations", tech firms: That is, they are or will abuse their enormous insight into the heartbeat of society. If you know for billions of people where they are, what they do, and all other thousands of attributes, what is your end goal? To sit on the money printer? No, tech just moves forward and what is possible will be implemented. I love tech, it's so cool to build stuff. But in 2030 the majority of the population will be flies in a web of tech, surrounding and controlling you in various ways, all day every day. Opt out will be the ultimate luxury item.

bryanrasmussen 6y ago

somehow saying >falling into the novelty trap by asserting things like “the internet has made transaction costs zero” — a sentence that would make any serious economist howl with laughter. gets translated into >the idea that the Internet has not had a massive impact on transactions costs.

vmg1 6y ago
I don't understand what you are trying to say here? Zero and near zero are effectively the same.
- sumtechguy 6y ago
  if the cost was 0 geocities would still be running.
- Jtsummers 6y ago
  No, they aren't. "Zero" is zero, it means no cost. "Near zero" means some cost. Some cost, in aggregate, can easily become a major cost. Ever wonder why manufacturers of physical goods choose the component that's 1 penny less? Because that one penny can translate into millions in savings over the lifetime of a product. "Near zero" could translate into millions in costs over the lifetime of a product versus "zero".
  - dasil003 6y ago
    The discussion is around financial and market dynamics for different types of companies. Quibbling over the definition of zero vs near-zero is completely side-stepping the argument. The point is, for Google search variable costs are immaterial. This is not the case for any business that needs deals in physical inventory or human-provided services (which was the majority of businesses pre-Internet). Does Google incur some marginal infra costs from increased traffic or growth of the web? Yes. If you project out infinite growth does it become a "major cost"? No, the limit of profit over variable cost approaches zero.
    - bryanrasmussen 6y ago
      >The point is, for Google search variable costs are immaterial..... >No, the limit of profit over variable cost approaches zero Ok well Google is an example, but the argument is about Internet companies not just Google, but ok Let's take Google and use that to go back to the more general level. aside from any other arguments - is it possible that variable cost approaches zero because Google is a monopoly with a high profit margin. If the profit were to decrease a lot from each transaction then they would be at a position where variable cost becomes more relevant. That is to say Google's special place has nothing to do with it being a magical internet company but rather its being in a seller's market that they dominate. If it were suddenly to no longer be in a seller's market or to have to do stuff like save data longer to get value from it, or to earn much less per search because advertisers didn't want to pay, or to find that there are side effects from having too much traffic that ends up decreasing ability to serve relevant data because of signal to noise ratio thus causing a loss of profit etc. etc. we would end up with the cost to Google of a transaction being much closer to what they earn from that transaction. In the last scenario I put up there, which I believe could actually be a problem if you project out infinite growth (search growth) does it become a "major cost", yes, in such a scenario too much traffic decreases the value of all traffic. In fact too much traffic decreasing the value of all traffic is a well known feature of Internet companies, because internet companies actually use physical devices (just wanted to point that out, since there seems to be this special thing about Internet companies not having physical inventory) to serve their customers or users (depending on which we're talking about here) and this is why DDOS is a thing and why even natural spikes in usage can be problematic. So in fact, I would actually say about just about any online company there is - if you project out infinite growth ( of traffic ) does it become a major cost? Um probably, and depending on how that a growth is structured it might in fact be a crippling cost.
disown 6y ago
> a sentence that would make any serious economist howl with laughter. A serious economist like Krugman who said the internet was going to have an impact on society no more than the fax machine? Or the serious economists who helped create the asian financial crisis? Or the serious economists who created the housing bubble? It almost seemed like you think society should care what "serious economists" think.
- jboog 6y ago
  Can't trust doctors because one time a doctor made a mistake! Flawless logic!
  - TT3351 6y ago
    I hope we can both agree the standards of measurement for doctors and economists are not exactly comparable, given that one is just "is the patient better" and the other can be judged in any way imaginable. Is the economist macro, micro, do their solutions add to income inequality, or reduce it? The field of economics is clearly much more mercenary than the field of medicine.
  - disown 6y ago
    One time... Okay. Also, my dig wasn't at economists as individuals, but the pseudoscience called economics as a whole. There is a difference between a "mistake" like oops gave you the wrong medicine by accident and a pseudoscience like chinese medicine. And the internet prediction, asian financial crisis, housing bubble, etc aren't "mistakes"? It's just shows "serious economists" are just charlatans. The priests of modern era.
    - 6510 6y ago
      You are being to harsh on chinese medicine. I like the way Richard Wollf put it: There is a reason economics and business school are separate buildings.
- 6gvONxR4sf7o 6y ago
  Economists make mistakes. Like any other science. Their uncertainty is larger than something like physics, but not large enough to be considered pseudoscience. In newspapers they’ll shoot their mouths, but in their journals, they’re quite scientific. Your criticisms kinda remind me of data science work, where you say “the effect of doing this will probably be between -3 and +7, assuming X, Y, and Z, so it’s worth looking into.” Which PMs (like politicians) take as 2 (+/- 5) and promise the rest of the org a gain of 2. Then we implement it and it comes out as -1 and you need a post mortem about how data scientists (economists) got it so wrong.
magwa101 6y ago
Agreed, Thompson misinterprets so he can make his point, constantly "aggregation theory" and massive cut and pastes of prior posts to prove that he's right. He's interesting but in terms of making his case when confronted, he is a little reactive not heavy metal and reflective.

6gvONxR4sf7o 6y ago

> [Google]’s scalability is effectively infinite, because serving additional customers is a function of fixed costs, not transaction costs; it really is not comparable to Amazon at all, in this regard, as the companies’ respective market shares demonstrates. > The same reality applies to Google’s marginal costs (including distribution); while Google spends a tremendous amount of fixed costs on its data centers and networking, any one search is “free”, including Google accepting the search term, computing the result, and delivering it to the user. Doesn’t google spend some insane amount on infra? This argument could be made identically for the old retailer down on the street corner by my house. Once you’ve bought the building and fixed the roof and bought all your merch, handing over that t shirt in exchange for cash is free. It’s better than free, even, since people are literally just giving you money for stuff you don’t have to spend any more marginal dollars on! But if I want to keep doing business, I’ll have to keep paying my mortgage, and paying my sales reps and if I want to grow, I’ll need more space (maybe another storefront per thousand transactions per month?), etc, just like if google wants to grow, they need more sales reps and more land in Mountain View, and for more customers and queries (maybe a new data center per gajillion queries per month, or per upgrade to costlier search processing expensive neural network layer?). Without commenting on the rest, OP is throwing a lot into fixed costs. You can’t say it’s near zero when the revenue is also near zero. And you also can’t examine the costs in a way justifies zero marginal costs, pointing at the cost of someone who walks into and out of the retailer without buying anything, which is also basically zero (your typical user who never clicks an ad). Maybe the most apt comparison is a nail making factory or even to AWS where, once you’ve bought a data center, renting it to your customers is free, but that’s not a useful viewpoint. The cost of one single marginal call to your AWS lambda is basically zero, but basically zero times basically infinity is a good old traditional number again.

migueloller 6y ago
Well, I guess you could say that if the store was run by robots so you didn't have to pay employees and if the shirts were made out of thin air so that there are no COGS. I'm not trying to be facetious. I think the distinction between marginal and fixed costs is important here because it's all about the feedback loop for aggregators. And one can think of marginal costs as "friction" in this loop. That being said, perhaps aggregation theory won't be complete until Ben considers fixed costs in addition to marginal costs, which I believe might be your argument?

sanderjd 6y ago

I read both articles and maybe I'm just a fanboi, but it really seems to me like Mr. Thompson has thought about this specific question a lot more than Mr. Wu, even if Mr. Wu has more experience in adjacent topics.

TheOtherHobbes 6y ago
I stopped reading when he described users of search as Google's customers. There didn't seem any point in reading further after such a basic misstatement. The point about marginal costs is absolutely wrong too, but I don't have the patience to pull it apart in detail. The reality is there is a customer acquisition cost, it will be spread across multiple domains (technical, legal, financial, and even political) and I would be very surprised if Google believes it's zero.

waxman 6y ago

I'm a big fan of both Ben Thompson and Tim Wu. One of Wu's specific critiques is my biggest disagreement I have with Thompson, and is a train of thought that seems to be dogma in Silicon Valley Twitter. Wal-Mart putting their own brand of toilet paper on more prominent end cap shelves is fundamentally different than Amazon promoting their own Amazon Basics toilet paper on a search results page on Amazon.com. Amazon has a much greater ability to drive conversion to its own products than a brick-and-mortar retailer (e.g. limited screen space, UI, information hierarchy, better data, etc.) Thompson's argument that "it's all the same," "private labeling has been going on forever," is flimsy and intellectually lazy. Once we agree on this basic set of facts the more interesting question becomes: is this dynamic bad for consumers long-term? The crux of this round of tech anti-trust scrutiny is time horizon. Many of these practices are neutral or beneficial to consumers in the short-term, but that's always how monopolies operate. Undercutting prices to put a competitor out of business benefit consumers immediately, but hurt consumers after the competitor goes out of business and the monopolist can raise prices. Amazon selling Amazon Basics products at a loss or near-loss is good for customers now, but if it puts too many other online retailers out of business, eventually they'll raise prices and hurt consumers.

RcouF1uZ4gsC 6y ago
> Wal-Mart putting their own brand of toilet paper on more prominent end cap shelves is fundamentally different than Amazon promoting their own Amazon Basics toilet paper on a search results page on Amazon.com. The other fundamental difference is scale. It can physically walk down the toilet paper aisle in Walmart in see all the available toilet papers in less than a minute. In fact, I can probably wander the entire Walmart store in about 30-45 minutes and see everything they are selling in that store. It is not entirely impractical. On the other hand it is impractical for me to go through all the items Amazon is selling. Thus what they are promoting becomes much more important.
- lotsofpulp 6y ago
  Are you suggesting that physically going to a Walmart and walking down the aisle to view all the toilet paper options is more "practical" than typing walmart.com, searching for toilet paper, and scrolling through the options? Personally, I find it much easier to search for products at home. It's literally seconds versus at least 10 to 15 minutes to get to the nearest store and browse around. And what is the use case for browsing all of the products in a store? I can't imagine why I would need to walk around an entire Walmart.

chillacy 6y ago

> When it comes to understanding what really makes large tech firms dominant and predicting what judges will do, you aren’t getting the full picture. Maybe I’m just suggesting the site should be more modest and, in particular, be careful about treating aggregation theory as if it were almost like a brand that needs be elevated. The danger for readers is a false confidence, for what Thompson too rarely reminds the reader is what we don’t know. This section off Wu's criticism I can agree with, Thompson has a way of shoehorning everything to fit his models which doesn't always work. >> Antitrust should be dealing with the reality of anticompetitive behavior in markets, not ideals of how companies work > Wu does not believe that Google is unique as far as scalability is concerned, he appears to assume that the company must be doing something nefarious to command such market share. And, by the same token, there must be some sort of unfair lock-in, because again, companies ought not be so dominant. This is a sure recipe for lazy arguments that end up criminalizing the basics of business. This I can get behind Thompson on. Blindly enforcing laws which are not updated for the fundamental changes in technology will lead to poor outcomes. Laws have to evolve with what technology enables, and Thompson has at least thought about this in a depth that Wu doesn't even care to acknowledge.