The Mobile Challenge
We are fascinated by the disruption underway in mobile applications. Carriers seem to have lost their role as gatekeepers for applications as smartphone sales are rapidly ramping and "app stores" or direct downloads are the new distribution models. This is exciting as it opens up a whole new arena for startups to compete in. Here is some of our early thinking about this with the goal of getting a discussion going.
The challenge for startups (and investors!) has been identifying opportunities that are "native" to the new platforms. By "native" we mean opportunities that simply did not exist previously and cannot exist without the phone. For instance, we would not consider delivering breaking news to a mobile a native opportunity, as a startup rarely has a better chance of being "CNN for mobile" than CNN does.
Native opportunities are the ones that make use of unique capabilities of mobile platforms. Here is a starter list of such capabilities:
* Location. To be precise this should really say "high resolution and continuous location" because computers too have location, but IP geo-lookup is a lot coarser grained, less reliable and most importantly not available when the user is not at their computer.
* Proximity. This could simply be thought of as location, but it is likely to be so important that it deserves its own mention. Knowing the location of a user makes it possible to determine not just where that user is in relation to stores, landmarks, etc. but also to other users.
* Touch. Not all smartphones have touch screens (most Blackberries don't), but touch is an important and (almost) unique capability.
* Audio input. This may not seem like a big one, but the fact that all phones have it (hard to be a phone otherwise) makes it unique. Building a desktop app or web app that relies on audio input is a bit more challenging.
* Video input. Sure you can attach a camera to a PC (and most Macs have one built-in), but that camera is never where the user needs it, except for video chat. Also you can take an image with your regular camera and import it into the computer but that adds at least three steps which will result in a huge drop-off rate and prevent any immediacy. So having video input that is always and conveniently available is a unique capability.
Something that is noticeably absent from the list of unique capabilities is (data) connectivity. This is new for phones, but it has always existed on the web, so it is unlikely to provide an opening for startups. For instance, wanting to be a streaming music service for mobile won't easily give a startup a leg up on existing streaming services.
Each of these unique capabilities, taken individually, is not novel. For example, Palm devices brought touch to consumers in the 90s and location has been available on standalone GPS devices for decades. But the convergence of all of these features on a single device with access to an internet connection will allow new behaviors and applications to emerge that were not previously possible on any other platform. The potential emergence of new behaviors is likely to be as important -- if not more so -- than these technical capabilities themselves. After all, there were no large changes in technology that allowed Facebook to take off; rather it was a social shift in personal information sharing.
We don't know which native applications will emerge as ones that combine these unique capabilities and new behaviors into true breakout services, but here are some categories that we find interesting along with some of the challenges that they face:
* Location-based social networking, such as Loopt, Brightkite and foursquare. The big question in this category is whether these new networks will gain enough scale that they can compete effectively with the mobile offerings of existing social networks, or if the mobile networks differentiation in value proposition will be insufficient to overcome the current gap in scale.
* Gaming, such as Rolando and FieldRunners. As evidenced by reviewing the Top 25 apps at any given time, gaming has been one of the killer categories for the iphone. However, games played on mobile phones that don't leverage the unique capabilities are likely to be quickly dominated by the large existing publishers. For example, currently 7 of the top 25 best-selling paid games are major publisher releases. There would seem, however, to be an opening for a new type of gaming experience, such as mainstream versions of Alternate Reality Games (which using the phones might become "Augmented Reality Games").
* Shopping applications will likely be interesting and there has already been an early exit with SnapTell being acquired by Amazon. Most US-based mobile shopping applications simply supplement the real-world shopping experience with more information (barcode scan sending you to Google, BBB, Consumer Watch info, price comparison, etc...). This behavior contrasts with Asian markets where actual commerce/checkout via mobile is far more prevalent. We're interested in seeing if the unique capabilities of smartphones will accelerate mobile shopping all the way through checkout on the phone.
* Healthcare, such as Epocrates for practitioners and LoseIt for consumers. Healthcare practitioners and consumers are two key target audiences for mobile applications and their needs vary greatly. The practitioners are generally a lower scale and higher ARPU market whereas the consumers are a higher scale and lower ARPU market.
One notable absence from this set of categories is navigation. While this will clearly be an important category, we expect companies that have established the technology necessary to deliver navigation on previous custom devices to dominate on the phones as well. For example, the iPhone SDK license agreement disallows "real time route guidance" applications. There was speculation that this restriction was put in place because Apple wanted a major navigation company to tackle this problem first, and, subsequently, TomTom produced a great implementation at WWDC.
There is a good chance that the truly breakthrough application category is not on this list. It will be obvious in hindsight but a lot harder to anticipate. If you are working on a native application, please tell us about it.
June 25, 2009, By Albert and Andrew
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Bring the world to your event
Union Square Ventures hosted an event called Hacking Education that sparked conversations far beyond the day of the event, and did so in a way where we gave up control of the conversation and allowed it to spread. Steven Johnson recently wrote his thoughts about how Twitter will change the way we live, and within that article explained the process by which we shared our small event with anyone who was interested, and explained its impact:
Injecting Twitter into that conversation fundamentally changed the rules of engagement. It added a second layer of discussion and brought a wider audience into what would have been a private exchange. And it gave the event an afterlife on the Web. Yes, it was built entirely out of 140-character messages, but the sum total of those tweets added up to something truly substantive, like a suspension bridge made of pebbles.
I wanted to take the time to explain exactly how that was done and some of the thinking around it.
Leading up to the event we debated internally about what to project up on the screen. Albert was going to curate the conversation throughout the day and had a few visual references and videos that he wanted to show, but a question remained of what to put up the rest of the time. The day before the event we settled on a Twitter search stream hoping that our audience would contribute to this "back channel". Not everyone is willing to jump into a conversation, especially in front of a large group - and this provided an easy way to react, agree or even disagree with someone simply by sending a message for all to see.
Early in the morning we put up a message explaining that any update using the hash tag "#hackedu" would appear on screen.
The first few tweets trickled in, mostly recapping great points, or synthesizing great thoughts for the outside world to see. Soon questions and retorts began to appear on screen, but none broke the flow of conversation. As Stephen alluded to in his article, many folks from outside the room were following, answering back, and participating in the room as their messages were being seen by all participants.
Below is example of how it looked
To get this accomplished we setup a laptop connected to a projector and broadcast the standard search.twitter.com page with one slight adjustment. The standard search page does not update in real time and rather then clicking "refresh" every few minutes we needed to find a real time solution. Thankfully, someone had already created this solution in the form of a greasemonkey Firefox script. After loading up the page, confirming the auto-refresh was in place, we simply began sending the hash tag #hackedu into the system and the rest is now online forever.
Steps to setup real time Twitter conversations to your event:
1. Agree on a hash tag to use for the duration of the event (in our case #hackedu was short, descriptive, and easy to remember)
2. Have a laptop with an Internet connection projecting onto a wall or screen
3. Use Firefox and install the add-on called greasemonkey
4. Once greasemonkey is installed grab the Twitter search auto refresh script (or something similar)
You can continue to see and even join the conversation today simply by searching for #hackedu
June 15, 2009, By Eric Friedman
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Heyzap
Online casual games are a large and rapidly growing form of entertainment. According to Comscore over 85 million people play casual games every month in the US alone and minutes spent playing grew a staggering 42% from 2008 to 2009.
Casual games originated as downloadable PC games. Based mostly on free trials with payment for full play, the industry grew to over $1 billion (published numbers vary widely and some estimates are significantly higher). The move to online has come with a fairly pronounced decline in the price for downloadable games. One of the reasons for this price decline of downloadable games is that simple online casual games are easier to develop than downloadable games. The low threshold for creating a playable game is also reflected by the incredible fragmentation of the market: with over 20,000 online casual games, the average number of games produced by an individual developer is around 3.
One might argue that this fragmentation has not been an issue for people looking to play casual games, as there are many portal sites, such as Miniclip and Big Fish Games, which aggregate thousands of games. But for someone to go to a portal site requires a conscious decision to play games. Yet many online casual games can be played in increments of only a few minutes, which means that "impulse play" is possible. Impulse playing occurs when someone comes across a game in an unexpected place and decides to try it out. For instance, games might appear in a sidebar next to content or someone might end a blog post by including a game.
Deeper integration with content would also provide an opportunity for "habitual play." This is what happens today with newspaper puzzles like Sudoku and KenKen. Readers read whatever they are interested in and then turn to the puzzle as a habit (some of course turn to the puzzle first). Similar habitual behavior exists for the funnies. Puzzles and funnies serve an important function of providing a kind of comic relief / distraction from the generally mostly bad news. Online, casual games can serve a similar function.
To make these modes of gameplay more widely accessible requires making it super easy for publishers to add games to their existing content. We are excited to be backing a team out of Y-combinator doing just that. Jude Gomila and Immad Akhund launched Heyzap in January 2009 and are working hard to let all kinds of publishers -- from individual bloggers to large sites -- add games as readily and with as much control over content as videos. Heyzap already offers plugins for Wordpress and Blogger, several different size widgets, RSS feeds of games and an API for programmatic control, all of which let publishers with just a few clicks select games that best match their audience or personal interests. Many more features are on the way.
We look forward to discovering new games in unexpected places and enjoying our favorites with our daily dose of tech news.
May 27, 2009, By Albert Wenger
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Hacking Education
It has been two months since we hosted a great group of academics, entrepreneurs, educators, and administrators at our Union Square Sessions Event, Hacking Education. Fred posted his initial thoughts immediately after the event and in a great example of peer production, Alex Krupp curated the Twitter stream that captured the thoughts of folks inside and outside of the event.
I finally found some quality time to spend with the transcript that is now online, and thought I would try to expand on Fred's initial thoughts and develop a couple of the key themes that came out of the conversation. Before diving in, however, I'd like to make a pitch for the transcript. It is not perfect (imagine trying to record 40 high powered people all talking at once), but it is readable and full of lots of insights. I would encourage anyone who is interested in the impact of technology on education to plow through it. I have tried to pull some of the highlights here, but there is no way that even this overlong post can do justice an energizing and enlightening afternoon.
There was broad consensus that the internet is enabling substantial changes in the way we learn and teach. It has always been possible to learn outside of a school setting. The ubiquitous connectivity and very low cost of content production and distribution seems to enable the unbundling of key components of education.
Dissagregation - David Wiley broke education into these components, 1) content provisioning, 2) research - conducted, archived, and disseminated, 3) help provided to a student with a question on the content, 4) a social life, and 5) issuing credentials.
Historically all of these components were bundled together in the experience of on-site education in a K-12 or University context. Already today, it is possible for a student to get many of these services outside the walls of a traditional educational institution. One of my favorite illustrations of all of this is a story recounted by Mimi Ito in her report - Living and Learning with New Media (pdf link)
In her study of anime music video (AMV) creators (Anime Fans), Mizuko Ito interviewed Gepetto, an 18-year-old Brazilian fan. He was first introduced to AMVs through a local friend and started messing around creating AMVs on his own. As his skills developed, however, he sought out the online community of AMV creators on animemusicvideos.org to sharpen his skills. Although he managed to interest a few of his local friends in AMV making, none of them took to it to the extent that he did. He relies heavily on the networked community of editors as sources of knowledge and expertise and as models to aspire to. In his local community, he is now known as a video expert by both his peers and adults. After seeing his AMV work, one of his high-school teachers asked him to teach a video workshop to younger students. He jokes that "even though I know nothing," to his local community "I am the Greater God of video edit¬ing." In other words, his engagement with the online interest group helped develop his identity and competence as a video editor well beyond what is typical in his local community.
In theory, Gepetto could have learned video editing in school. In practice his school was not equipped to teach it. He found content, help, a social life, and even credentialing (as others linked to his work) on www.animemusicvideos.org.
Rob Kalin kicked the discussion on the separation of learning and credentialing into high gear with this story.
I graduated high school with a D minus average. ...My guidance counselor said "drop out of high school, you'll have an easier time getting into college if you just get a GED." I [decided] to graduate with this D minus and see what it does for me. I didn't get into any accredited school . I got into a diploma program in an art school in Boston, and it was near MIT. ... I used the art school to make a fake ID to go to MIT. Someone said [college is] expensive. I said no, it's free, you just won't get credit for it.
Today, no one is going to ask Rob for his college transcript. His credentials are the companies he has created. Not every student can be so cavalier about the lack of a diploma, but the web is having an interesting impact on the value of credentials. In an earlier era, it was very difficult to evaluate a student's work directly, so a grade from an accredited institution served as a proxy. Now, if an employer wants to hire a video editor, Geppeto's work is on the web readily accessible. Students in the future will be as likely to be evaluated on their portfolio of work, as they are on their grades. That's lucky for Geppeto because, as his story makes clear, there is no way his school was capable of evaluating his work.
Fred pushed the conversation about disaggregation to another level when he suggested that in the future, he'd like to see students be able to opt in or out of a school on a class by class basis.
When I think about where we are going to be in 50 years, I think we are going to have a marketplace model for education where the student is in control of their education and they determine who is going to educate them, when, where, and how... I'd like my kids to be able to avail themselves of the quality classes and teachers they have in their physical space but then opt out of those [classes] that aren't good and go get that knowledge somewhere else.
A byproduct of the disaggregation of education will be to weaken the authority of schools, but the bigger challenge may be to align their cost structures and business models to remain competitive in a hyper connected world.
Bing Gordon dropped a bombshell just before lunch when he proposed that we should work to drive the marginal cost of education to zero.
From an economic point of view, I would say the goal... is to figure out how to get education down to a marginal cost of zero. Somebody mentioned Oxford. I think the marginal cost for a student at Oxford is probably $250,000; at a U.S. university it's probably $90,000. That's what it costs per student. That's not what they charge. Public school, I think, they are trying to do it for $6-8000 per student. So, what if we had to get it to zero? We've seen technologies that get the marginal cost [of services] to zero, plus bandwidth.
This is not as crazy as it sounds. Knowledge is, as the economists say, a non-rival good. If I eat an apple, you cannot also eat that same apple; but if I learn something, there is no reason you cannot also learn that thing. Information goods lend themselves to being created, distributed and consumed on the web. It is not so different from music, or classified advertising, or news.
For Shai Reshef the idea of reducing the cost of education isn't just theoretical. He described University of the People this way.
It is a non-profit, tuition free, online university...students are not going to pay for courses or tuition. However, they pay admission and they pay for exams that they take after each course... The idea is open admission to everyone.
...We use open source and open courseware... basically everything that is available for free... there are not going to be any teachers in the classroom. Students are going to teach each other...
... [the discussions are] asynchronous... because of the time differences and there is not going to be any video... it's very, very simple [so] that anyone around the world can get it.
... we teach only two courses, business and information technology... these are the most needed degrees to get a job.
It's not for everyone. You need to know English, you need to have a computer... our assumption [is that the students will be from] the upper end of the lower class or the lower end of the middle class... its people who almost made it... who could have been at the university but missed their chance.
So by targeting a very specific audience, delivering only two courses, using open courseware and open source technology, asking students to teach other on a very simple platform, Shai hopes to be able to deliver a limited, but valuable education to an important segment of the global population for free. He will ask them to pay only for testing (accreditation).
Shai is not dropping the marginal cost of education to zero. But he has figured out how to deliver two courses at a marginal cost of pretty close to zero. His costs (and the price to students) is in accreditation. The marginal cost of Gepetto's self directed "course" in video editing was also zero plus bandwidth. He did not pay for accreditation. The only "credit" he got was the approval of his peers on the web site and the recognition of his teachers back at school.
I had a lunch conversation with David Wiley (it's not in the transcript) about whether or not it would ever be possible to reduce the cost of accreditation to zero. I was stuck on the problem of grading papers. I understood how a computer could grade a math exam, but how could you grade an essay on Aristotle. The best I could imagine was that underpaid, but still costly, teaching assistants grade the student's essays. David said, "oh that's easy". You agree with the students on a set of criteria for how the essays are going to be graded and then have each student read a few essays. The readers critique can then also be read by a couple of students and the students final grade is based on how well they wrote and how well they critiqued according to a jury of their peers. By having every essay and every critique reviewed by multiple people, you eliminate the outliers and arrive at a fair grade. So at least in theory, it is possible to peer produce the critique something of as abstract as an essay on Aristotle.
The possibility that education can be unbundled, and that, as an information good, it may be possible to radically reduce the cost of providing at least some types of education could have important social consequences. We spent a good portion of the afternoon talking about some of those issues and some creative ways to use technology to address the issues that technology is creating.
As the web becomes more central to learning, bridging the digital divide becomes more critical. The webs resources are only available to someone with a computer. That sounds simple but as Danielle Allen points out, it's not.
A small anecdote on the issue of technology in schools to underscore the fact that any conversation on education needs to take a whole bunch of other factors into account, which are pretty absent from our conversation. I've served on the board of the University of Chicago Charter School for a number of years. We had to quit handing out laptops because kids were getting attacked. First, we tried school buses so they did not have to walk home, but that wasn't enough, and it's super expensive. So, it wasn't a sustainable program, just because of various social factors.
The difference between those who have computers and those who do not is important but there was also a lot of conversation about those who do not have the cultural background that would lead them to take advantage of the learning opportunities on the web.
dana boyd reminded us that "technology does not determine practice"
Just shoving broadband into a group of kids, just giving them an iPhone, we can think of a gazillion designs that are valuable ... but, if you don't have a culture embedded in it, [it] becomes just another toy you can text your friends with... I've become so infinitely frustrated with... "let's just dump a bunch of laptops into a population and see what they do with it"... That doesn't work... We've watched students rip out the batteries and use them for everything else under the sun.... I don't think we can just think about the technology.... We have to think about it in a broader system.
Even if you solve the real world problems Danielle cites, and embed the technology into a framework that enables meaningful learning, students will still fall into two groups, those that were lucky enough to have been raised in a cultural context that values learning and those that who were not. The story of Gepetto suggests that someone with access to a computer and a desire to learn can learn a lot on the web. What about that portion of the student population that is not self motivated? How can we reach them?
Jon Bischke reminded us of the William Butler Yeats quote "Education is not the filling of a pail, but the lighting of a fire". Several people suggested that this is the role of a great teacher. Steven Johnson described how he learned a passion for baseball and suggested that game mechanics may be one way to light a fire when a great teacher is un available or unaffordable.
When I think about the skills that... I got when I was a young kid that are still valuable, I think back to when I was 10 or 11 when I spent thousands of hours playing baseball games and designing better baseball games. I got a huge amount out of that in terms of the math involved in creating the whole statistical model of how baseball works and stats, and a lot of collateral learning experience... But the most important thing about that was, I learned how to be obsessed with things... I got obsessed with these things and I had a series of stages in my life where I got obsesses with something else. And I just immersed myself to learn as much as I could. And it's that mechanism I used again and again and again in my professional life. So how do you teach kids to be obsessed with things?
I think one of the advantages we have with technology and particularly with games is that they have a built in structure, almost to a fault, as most parents would say. They have an addictive quality where people will just immerse themselves and become obsessed with them...When you look at the games that most of these kids are playing, the amount of information that they have to accumulate and master to perform well in these games is massive compared to the amount of information they are willing to learn at school... there is something in this kind of platform. Without anyone telling them to do it, they are going out, learning all this information, and becoming really skilled at it.
Katie Salen has spent the last two years trying to tackle all of these problems at once. She has created a New York City public school that will open in the fall that is based on the idea of game based learning.
We wanted to open a public school because we are really interested in the equity and access question.
Like Dana, Katie understands the importance of context and culture.
In order to actually have transformative change, you needed to work at a systemic level. So the idea was to design a school from the ground up. All aspects of the school, the curriculum, the professional development program, student recruitment, the kinds of technology and communications platforms in the school, the leadership model - all of that is built around a pedagogy, which is the way we think kids learn best.
And it's based on game dynamics.
In a lot of our work we found that kids that have struggled in traditional schools do really well with some of the work we have been doing around game-based learning.
As encouraging as Katie's story is, there was also some real concern about the future of education. Fred put it this way:
the problem is that the whole economics of that physical space breaks down as [students] opt out [of parts of traditional campus based education]. Maybe this is just what we're going through in other industries... that they get crushed by the organizing efficiencies of the Internet. But I don't know how to get across that chasm
Fred is suggesting that the education industry may soon face the same challenges that currently confront the music industry and the newspaper industry. Like those industries, education can be peer produced, delivered as bits, and curated by a community. Like the music and newspaper industries, the cost structures embedded in the education industry's current business models may be very difficult to support in the face of competition from hyper-efficient, web native businesses.
Unlike the music and newspaper businesses, education plays several roles in current society.
Diana Rhoten pointed out that:
School is a safe place for a lot of kids. It's not only the single parent argument. But, it's also that school represents the eight hours of your day when you are actually warm and have food. Not every kid can opt out of that.
Katie Salen picked up on that:
In the early part of the [last] century there was this configuration between home, church, and school. And it was understood that kids learned in those three different places and it was really clear what was learned in those three places. And over time.... all of it got stuck back in the school.
The day was characterized by this conflict between the technologists and entrepreneurs who were driven by the conviction that we can use what Tim O'Reilly calls the "magic powers" of the web to drive down the cost of learning and increase access to knowledge. This optimistic view was tempered by the concern that education is not music and that the existing structure of education delivers a lot more that knowledge. If the transition from the current high touch, but high cost, learning environment to an efficient peer produced learning network is as abrupt and brutal as the transition we are witnessing in the music and newspaper industry, the social consequences are likely to be a lot more severe.
Early in the day Bob Kerrey's reminded us that education is not like other industries, that it has always, at least in the U.S., always been tied up in our notions of citizenship, and that the collective decisions we make about education have always been politicized.
It is worth remembering that the history of the common school in the United States is a history of people attempting to pass state laws mandating education at an early age, mandating the creation of public schools. And up until the 1920s, when there began to be the a rise of the nativist movement, as a result of the enactment of the openly racist Immigration Act of 1924 and the creation of the American Legion, that resulted in the rapid expansion of public schools in the United States of America for the purpose of teaching citizenship. That's why the Pledge of Allegiance is mandated in all schools. If one of your 11-year-olds is found out on the streets of Atlanta this afternoon, they can be arrested and found in the juvenile justice system for violating their -- as an offender of their status. They're required, for approximately a thousand hours a year in all 50 states, to be in schools. So, that's the context.
Secondly, you've got to sort of imagine yourself -- I have a 7-year-old in the largest public school district in the country, the New York public school system. If you're trying to have an impact on PS41 where he goes to school, to put it mildly, that's a hell of a challenge. Just to try to have an impact upon the arrival of air-conditioners in June, let alone the curriculum and the budget and other sorts of things. So, I think you have to separate the conversation between the effort to improve the public schools and the effort to improve the non-public school environment. These are two completely different things.
And finally, you have to get used to the idea that you have to bring an argument inside the context -- you haven't been in a room full of parents. There are 2 million parents in the New York public school system that might, I should say, have a slightly different attitude about what they want the New York public school system to accomplish than I do. And these board meetings can be raucous, dispiriting and at times counterproductive. You find yourself saying, Gee, I don't want to do that anymore. You can find yourself fighting the battle to get curriculum imposed and brought to the schools and it's exactly what you wanted and, two years later, the board of election occurs and the people you supported get turned out.
So in the end, the technologist's enthusiasm for radically reinventing education was tempered by an increased awareness of the broader social role that our educational institutions play and a greater appreciation for the political will needed to bring the full benefits of the web to public schools. The academics and educators heard about a number of interesting experiments that use peer production, game dynamics, super distribution, and the ubiquitous connectivity of the web to create meaningful demonstrations of what can be done. The challenge for all of us it to find ways to exploit technology to reduce the cost and increase the accessibility of education; build political support for the structural changes needed to make this a reality in public schools and architect a transition from the current industrial model of education to a network based model while minimizing social dislocation.
May 8, 2009, By Brad Burnham
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Open Spectrum is Good Policy
Fred wrote a post earlier this week advocating for more "open spectrum". Fred argues in his post that freeing up more open spectrum will have a much larger impact than spending $7.2B in stimulus money to run wires to rural constituents. He also references our friend Tom Evslin who has been thinking and writing about telecom policy for 30 years. I'd like to flesh out the argument here and at the risk of coming off as a total fanboy, link to a couple of Tom's other posts here and here on the subject of spectrum policy.
The first question to ask about spectrum policy is "are we using spectrum efficiently today?" The answer is no. Google makes this argument in their May 21, 2007 letter to the FCC asking for a clarification of the service rules governing the 700MHz band.
"the vast majority of viable spectrum in this country simply goes unused, or else is grossly underutilized. Our nation typically uses only about five percent of one of our most precious resources."
This study done with the National Science Foundation (warning 20meg download) supports the first part of Google's contention. It chronicles spectrum usage in New York City during the Republican National Convention. It shows that in the largest city in the country at what should theoretically be one of its busiest moments, we use a tiny fraction of the available spectrum.
So we only use a small portion of the available spectrum under the current policies. The second question is "could the spectrum in use today be used more efficiently?" The answer there is yes.
In there letter to the FCC Google goes on to say...
"even that minimal use is inefficient compared to what is technically possible today."
I have been working in and around telecom for a long time and I am slightly embarrassed to admit that I did not understand how obvious our underutilization of spectrum is until a few weeks ago when I was rummaging around in some of Tom's old posts.
Over simplifying slightly, the current allocation of spectrum is a lot like circuit switching. Open spectrum operates more like packet switching which is phenomenally more efficient at the cost of some complexity.
When I make a phone call to my dad in Florida over a circuit switched network, I tie up a continuous electrical circuit from New York to Vero Beach. When I send him an email, that note is chopped up in to packets and put out on the net intermingled with lots of other packets.
Circuit switching is simple but very extravagant in its use of resources. Packet switching is more chaotic. It has to deal with the possibility that two packets will arrive at the same place and the same time. But it is much more efficient. This is, by the way, why in times of crisis, when there is a huge surge in demand such as right after the attacks on 9/11, the phone networks don't work but email gets through.
Before you all jump down my throat, I know this analogy is an oversimplification. Telcos use packet switching in the backbone to multiplex lots of phone calls over fewer circuits, so one could argue that the profit motive of the Telcos naturally leads to an efficient use of circuits. An argument could also be made that the cellular carriers are using a related technique to get many conversations into the same spectrum by deploying lots of towers broadcasting at low power and switching users from cell to cell as they travel. But we should not be surprised if the increase in the efficiency of licensed spectrum is less than we, as consumers, would like.
Anytime a vendor is granted a monopoly by the government, we should expect that vendor to manage their monopoly to maximize profits. When we license spectrum to mobile carriers, or TV networks, we are granting (or selling) them a monopoly over the management and use of a shared social resource. It is like giving the major oil companies an exclusive license to all of the oil in the US and expecting them to aggressively invest to increase the efficiency of extraction to drive down the price of gas at the pumps. The much more likely commercial reaction would be to extract slowly and manage the availability of the resource to keep the price and their profits high.
So, I for one am convinced that we do not use spectrum efficiently. Only a small portion of this important resource is in active use at any one time, and even when it is in use, most applications tie up a lot more spectrum than they need. I suspect that an analysis of currently available unlicensed spectrum would show that those frequencies are used more efficiently than most licensed spectrum. I have not seen research on this so if anyone can point me to some, I'd be grateful. But, efficiency may not even be the most important reason to open up more spectrum. As a society we benefit from technical innovation, and the pace of that innovation is much greater in unlicensed spectrum. This chart that I also found on Tom's blog comes from a comment submitted to the FCC proposing more unlicensed operation in the TV broadcast bands (white space) by a coalition of consumer advocates, wireless operators, and media watchdogs.
It is based on a very simple publicly available data set - the number of devices approved by the FCC for operation in licensed vs unlicensed spectrum. This does not speak directly to the value to consumers of all these devices, but if you assume the market works and that developers only invest in devices that they believe will ultimately get bought by consumers, it should be a pretty good proxy, and it tells a very important story.
It is a story that also seems to be playing out in other markets. When Apple introduced the iPhone, it had enough market clout to get AT&T to allow it to create a market for applications that AT&T would not control. The iPhone app store now has over 28,000 applications. I suspect that that is an order of magnitude more than have ever been approved by carriers. Again, I would love to see research that supported or refuted this point. The number of applications in the iPhone applications store is broadly available, can anyone point me to research on the total number of applications approved by wireless carriers to run "on deck" on their platforms? A cynic might argue that most iPhone apps are toys, but the number of applications downloads suggests that consumers like them and even the toys point the way to really valuable innovation like hundreds of different ways of using the accelerometer, or using the headset jack as an I/O channel.
I have heard a couple of reasonable arguments against increasing the amount of open spectrum. The first is that the government needs to grant a limited monopoly in spectrum in order to create an incentive for an operator to invest in the network that will operate in that spectrum. I am not an economist but I do know the cost of network infrastructure is coming down fast, and I suspect that it may already be low enough that network operators can create business plans that are attractive to private capital. More intriguing is the possibility that networks could be built in open spectrum as a series of interconnected networks like the Internet. This would radically reduce the capital requirements for any single network node, and likely lead to the creation of very efficient network back bones just as we have seen happen with the Internet.
A more subtle version of this argument is that a government granted monopoly creates the profits that fund the research and development spending needed to increase the efficiency of spectrum use. Advocates of licensed spectrum will likely point to the absolute size of their investment in R&D and argue that they will not be able to do that unless they have a monopoly that generates the profits needed to support that R&D. The problem with that argument is that there is no evidence that that R&D is creating real consumer benefit, and there is at least anecdotal evidence (I spent my early career poking around Bell Laboratories) that large, over-funded, research groups are an inefficient way to get innovation to market.
The second concern I have heard about opening up more unlicensed spectrum is that it invites the government into an important sector of the economy which they are very likely to screw up. I completely agree that we do not want the government to be involved in the day to day administration of this hugely important social resource. But enlightened spectrum policy can be the best kind of government regulation.The government seed funded ARPANET and in the process created the standards that enabled the creation of the Internet. I don't know if anyone has tried to measure the return on the government's initial investment in the Internet (again I'd love to see this analysis), but I suspect it may be the single most effective economic development program ever created. We have a rare opportunity to replicate that success with enlightened spectrum policy. If the FCC chooses to open up more spectrum and creates the right framework for managing competition for that scarce resource, and the Defense Department, or the National Science Foundation funds a few experimental networks to operate in that spectrum, I believe that we will see an explosion of innovation that rivals the impact of the Web.
Unfortunately, as Fred pointed out in his post, that is not where we are headed today. The $7.2B the administration has committed to broadband infrastructure appears to be headed for shovel ready projects by established telecom carriers to deploy outdated and inefficient technology that will perpetuate their market dominance and dampen innovation. This is the wrong kind of government intervention into the market. It is not that it is not well intentioned, and I am not qualified to talk about it's effectiveness as a stimulus, but it will not have nearly the lasting impact that it could have if it were targeted at disruptive innovation in open spectrum. Why? Because access to those dollars will be a highly politicized process that will result in the firms with the most access getting the most dollars. Those firms tend to be the incumbent telcos and cable companies who have an obligation to their shareholders to maximize their profits by defending their duopoly. They have no interest in more open spectrum that would create an incentive for private capital to finance wireless alternatives to the wires that they now control to the home.
If the administration were to create more open spectrum, they would be creating a vibrant market. They would actually be taking the politics out of the management of communications. It may be tough in these times to walk away from potential revenue from the auction of spectrum, but the administration can have a much more profound and lasting impact on the quality of life of all Americans by opening up spectrum than they every could by putting stimulus dollars in the hands of the incumbent duopoly.
April 3, 2009, By Brad Burnham
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