The Internet Is Broken

Remember the 90's? When our rock heroes wore flannel, when X-Men was a cartoon, when the internet was brand new and weird. Tech was king, dot-com's owned the planet, Seattle seemed to radiate cool, and the worst thing we could accuse our president of was banging a fat chick.

Ah, those were the days. And then it all came crashing down, so to speak. The Dot-Com bubble collapsed, the tech bubble burst, we still feel those repercussions today. More importantly, the Internet is in the middle of a monetization crisis (kind of like an identity crisis, only more expensive), because it is the victim of our second rule of broken-ness.

Causal conditions are incorrectly assumed to be normal or permanent. In other words, the world changed while you weren't paying attention.

Now, I will admit that the problem is not immediately apparent, but let's take a look at the way the Internet emerged into our culture for just a moment. You know that housing bubble that was the spark that lit the fuse of the mortgage crisis? Well, the housing bubble was an after-effect of the collapse of the tech-bubble. Think back. It was the 90's. Remember all those good things I talked about a few paragraphs ago? Dwell on those. Mmmmmm... We had just come out of a recession in the 80's and business was booming. The Fed didn't, perhaps, raise interest rates as much as it ought to have and the result was a glut of investment capital (since people had little incentive to put their disposable income in the bank).

Ergo, there was a whole, whole lot of capital being thrown around all willy-nilly and tech-stocks were the hip thing. So you have tons of startups popping up, fully or largely funded with venture capital. Some of these have a model for pulling in revenue: Amazon and eBay come to mind. Others had no such plan. Consider Yahoo! It didn't have a revenue model, but it was the hip new thing and the owners made tons of money when the stock went public.

Content was essentially free. You had some online firms that offered pay services (that allowed for things like day-trading). But mostly you had free content that was ad-based, or just free. This meant we adopted a cable-TV type business model for internet access. This made sense when there was plenty of venture capital flying around, and when companies were throwing money into a hole called "web ads". But now that all that capital has dried up and enthusiasm for web-ads is evaporating, you have tons of people online providing content with all of the money is going to the telecoms for providing access. The end result of all of this is that we have created a culture of "free" on the internet.

This is a problem. All these net services cost money to provide and have to be paid for somehow. They shouldn't cost much, but they should cost something. And here's the basic problem for providers: no one would be willing to pay for it now because they expect it to be free, but because it's free, it has no value, so people abuse it. E-mail is a great example. What if e-mail weren't free, but just really really cheap? What if it cost a penny to send an e-mail to someone, or even a tenth of a penny? That would cover the costs to providers, it would be a negligible cost to the end user, and it would all but eliminate spam.

Here are some stats on spam, which I will now summarize: In 2006, there were 12.4 billion spam messages spent daily. That's 40% of all e-mails. The costs in lost time and filtering, etc, etc, etc, were over $9 billion annually (as of '02). It's a major productivity loss. If it costs a tenth of a penny to send an e-mail, and all that did was cut the amount of spam down to a quarter volume (that is, 3.1 billion messages per day), it would pay for itself in made up wages.

There are a number of worthwhile services out there that are discovering that they can't operate on ad revenues alone, but whose customers will never pay for services. YouTube lost half a billion dollars for Google last year. MySpace just laid off %30 of its work force. Twitter is operating off venture capital, but it has no monetization model and huge costs--how long do you think it's going to stay in business?

In next few years we're going to see web services slowly redefined, and hopefully we'll develop a system of micropayments that make all that possible. But it might have been totally different if the web had emerged during a financial crisis rather than the glut between crises.

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