4 ms·

You don't understand. This is the creation of an economic moat (a term coined by Warren Buffet.) The gatekeeper creates a toll and the tradesman agrees to pay

by lhnz 13y ago

You don't understand. This is the creation of an economic moat (a term coined by Warren Buffet.) The gatekeeper creates a toll and the tradesman agrees to pay the toll. This is an entry cost to new market players and therefore reduces competition. This toll may be increased as the biggest player (Netflix) grows in size and this benefits them, as eventually new startups have $1+ million startup costs and nobody is willing to invest in that cost-payoff scenario. This is a win-win negotiation for both Comcast and Netflix but a loss for consumers. Unfortunately it's just how the game is played.

nailer 13y ago
+1 Remember when online video was RealPlayer's website? Imagine if RealNetworks had paid Comcast, and a startup called Netflix wanted to show their product to Comcast's customers. There wouldn't be a Netflix. Whoever has the market right now has it extended for a long time.
thematt 13y ago
It's not a win-win, since Comcast itself is a competitor to Netflix. You only have one side paying the tax.
- lhnz 13y ago
  They reduce the cost of having to fight new market players, which is actually far more difficult to control. It's now just a question of what leverage they will have to play against Comcast which is potentially a much easier game. Generally the bigger you are, the more you will want to avoid volatility as big tends towards fragile - a big company will prefer static contractual obligations to another big company over being attacked from all sides. (I am unsure however how this game plays out in the later stages if they lose leverage and entry costs increase to the point that it begins to suffocate the market.)
jaydz 13y ago
If that's the case we really should reconsider our support for netflix. Cancel your subscription.
fragsworth 13y ago
This is an interesting perspective but I think a bit too startup-centric. Startup costs for a Netflix-like company are already in the tens of millions to negotiate license deals. Netflix is probably far more concerned with Amazon (and maybe Google) taking their business away.
- lhnz 13y ago
  True. But I framed it too specifically. My perspective holds true at the level of large organisations wanting to take punts towards similarly large markets. Signing the money off is going to become more and more difficult when the access cost is so high, and barely anybody will want to take the reputational cost of failure to enter the market.
Dystopian 13y ago
I'd have to string strongly with this. Everything we know about Netflix is that they're a data driven company. Chances are it's far more likely they have seen viewing rates drop for Comcast customers who were affected by the slow-down. If a typical end-user sees their internet working normally, bu see slow-downs selectively to streaming to sites like Netflix, chances are they're going to wrongly attribute the slow-down to the service and not their internet connection.
- hershel 13y ago
  It's very easy for netflix to educate the users about whose responsible for the issue.
  - cdash 13y ago
    Ok so they are educated, now what can they going to do about? Nothing.
Agathos 13y ago
This is more like a reverse moat: you only have to pay it after you succeed. New entrants don't have to pay the tax -- peering without money changing hands will happen to "just work" for them just like it used to. Only after they get big will Comcast create a new traffic jam and send them a quote to fix it -- that's too late to help Netflix.
- lhnz 13y ago
  Good refutation. You are correct if they do not extend the tax to new entrants (which I had forgotten was currently the case.) Still, perhaps Comcast will deem all of the companies big enough to compete with Netflix large enough to pay the tax.
madaxe_again 13y ago
Once upon a time, if you wanted to trade in your borough, you'd set up a stall and start trading. Your startup costs would be the materials for your stall, and your goods to sell. Eventually, people started "owning land", and in order to trade, you'd have to pay your local baron a levy, tax, or rent. This status quo has been maintained since, and mobility within the structure only arose as a result of vast technical and ensuing societal change (the industrial revolution). We are watching the ascension of the new barons. They will hold their privilege with an iron fist, for as long as they hold it, they define the playing field. They would be foolhardy not to. The barrier to entry will indeed rise, as peering costs will end up passed on to content producers rather than consumers - consumers will not accept the cost rises, and market competition on the ISP side will ensure this doesn't arise - but on the supply side, large players can and will pay for an advantage, and small players will either be subsumed or destroyed. New entrants will need to be well armed indeed. Now, this isn't quite the same as the feudal picture as previously described, as the barriers will at first be monetary rather than cultural, and have not yet had time to thoroughly entrench. If this is allowed to persist as is, however, without resistance or concern, we will indeed find ourselves in a entrenched technocracy of the foulest dimensions, with very little recourse for anyone without access to vast capital.

by lhnz 13y ago

nailer 13y ago

+1 Remember when online video was RealPlayer's website? Imagine if RealNetworks had paid Comcast, and a startup called Netflix wanted to show their product to Comcast's customers. There wouldn't be a Netflix. Whoever has the market right now has it extended for a long time.

thematt 13y ago

It's not a win-win, since Comcast itself is a competitor to Netflix. You only have one side paying the tax.

lhnz 13y ago
They reduce the cost of having to fight new market players, which is actually far more difficult to control. It's now just a question of what leverage they will have to play against Comcast which is potentially a much easier game. Generally the bigger you are, the more you will want to avoid volatility as big tends towards fragile - a big company will prefer static contractual obligations to another big company over being attacked from all sides. (I am unsure however how this game plays out in the later stages if they lose leverage and entry costs increase to the point that it begins to suffocate the market.)

jaydz 13y ago

If that's the case we really should reconsider our support for netflix. Cancel your subscription.

fragsworth 13y ago

This is an interesting perspective but I think a bit too startup-centric. Startup costs for a Netflix-like company are already in the tens of millions to negotiate license deals. Netflix is probably far more concerned with Amazon (and maybe Google) taking their business away.

lhnz 13y ago
True. But I framed it too specifically. My perspective holds true at the level of large organisations wanting to take punts towards similarly large markets. Signing the money off is going to become more and more difficult when the access cost is so high, and barely anybody will want to take the reputational cost of failure to enter the market.

Dystopian 13y ago

I'd have to string strongly with this. Everything we know about Netflix is that they're a data driven company. Chances are it's far more likely they have seen viewing rates drop for Comcast customers who were affected by the slow-down. If a typical end-user sees their internet working normally, bu see slow-downs selectively to streaming to sites like Netflix, chances are they're going to wrongly attribute the slow-down to the service and not their internet connection.

hershel 13y ago
It's very easy for netflix to educate the users about whose responsible for the issue.
- cdash 13y ago
  Ok so they are educated, now what can they going to do about? Nothing.

Agathos 13y ago

This is more like a reverse moat: you only have to pay it after you succeed. New entrants don't have to pay the tax -- peering without money changing hands will happen to "just work" for them just like it used to. Only after they get big will Comcast create a new traffic jam and send them a quote to fix it -- that's too late to help Netflix.

lhnz 13y ago
Good refutation. You are correct if they do not extend the tax to new entrants (which I had forgotten was currently the case.) Still, perhaps Comcast will deem all of the companies big enough to compete with Netflix large enough to pay the tax.

madaxe_again 13y ago

Once upon a time, if you wanted to trade in your borough, you'd set up a stall and start trading. Your startup costs would be the materials for your stall, and your goods to sell. Eventually, people started "owning land", and in order to trade, you'd have to pay your local baron a levy, tax, or rent. This status quo has been maintained since, and mobility within the structure only arose as a result of vast technical and ensuing societal change (the industrial revolution). We are watching the ascension of the new barons. They will hold their privilege with an iron fist, for as long as they hold it, they define the playing field. They would be foolhardy not to. The barrier to entry will indeed rise, as peering costs will end up passed on to content producers rather than consumers - consumers will not accept the cost rises, and market competition on the ISP side will ensure this doesn't arise - but on the supply side, large players can and will pay for an advantage, and small players will either be subsumed or destroyed. New entrants will need to be well armed indeed. Now, this isn't quite the same as the feudal picture as previously described, as the barriers will at first be monetary rather than cultural, and have not yet had time to thoroughly entrench. If this is allowed to persist as is, however, without resistance or concern, we will indeed find ourselves in a entrenched technocracy of the foulest dimensions, with very little recourse for anyone without access to vast capital.