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Weekly Column

Nothing Changes: Even in a Dynamic Industry Like the Internet, Companies and Regulators Hardly Ever Truly Change

Status: [CLOSED]
By Robert X. Cringely

So what does it mean, this deal between Google and AOL? And why didn't AOL go with Microsoft? In my view, it comes down to character, which in both love and business seems to be pretty unchanging. That is, people and companies hardly ever change, even though they sometimes pretend to.

Why didn't AOL do a deal with Microsoft, which, after all, has more money than anyone and could easily have written a check of almost any size to make it happen? The boys and girls of AOL awoke one day and realized who'd soon be lying next to them, and it was just too creepy. Remember, these are two companies that were not that long ago opposing each other in an anti-trust case that was based on the simple idea that Microsoft wanted AOL and its Netscape subsidiary to die, and did a lot to make that happen. That kind of memory is hard to shake off even if Microsoft did pay a $750 million settlement. Just because blood money is paid doesn't mean there remains no memory of the bleeding.

But even more important in AOL's decision was that they took a look and found Microsoft's technology to be "klunky." No big surprise there. The technology in question was Microsoft's version of Google's AdSense and AdWords -- products that Google has spent seven years refining and Microsoft has spent less than a year trying to copy. Remember that nearly every Microsoft technical initiative takes three tries to get right. So no matter how much Microsoft paid to Time-Warner, AOL would still be tying its future to inferior technology, which would have been a mistake at any price.

And about that price, the real value to Time-Warner of Google's $1 billion investment is as a benchmark for valuing the rest of AOL. The imputed value for the entire property is $20 billion, but that seems to me to be a stretch for a company shrinking simultaneously in revenue, profit, and market share. I MIGHT buy the concept on a generous day, but not for a penny more. Had Microsoft trumped AOL and paid $2 billion for the same five percent, well, even Wall Street wouldn't have believed it.

So Microsoft's deep pockets were useless to them and their reputation didn't help, either. But what about Google? As AOL's primary search and pay-per-click advertising partner, Google is very familiar to AOL, which made any deal easier. Google's technology -- and its future technology timeline -- were both well-known to Time-Warner, too. Whether AOL believes Google's roadmap or not, they have more reason to believe it than to believe Microsoft's.

The pundits, of course, are troubled by all this, for they see it indicating a personality shift for Google. I don't think this is so. I don't think Google is giving up its Switzerland status simply because that status never really existed.

The two big issues here seem to be Google's willingness to allow AOL to sell display advertising on the Google home page and Google's agreement to help AOL improve the return on its own Google advertising -- ads that will be primarily paid for with $300 million of Google's own money.

Display advertising isn't new to Google search results, it just hasn't looked like the display advertising we are used to seeing. When there is a box at the top or bottom of your search result containing some graphic, no matter how primitive, combined with what appear to be paid links, well, that's a display ad, folks. Maybe AOL's display ads will be kickier, but they won't be the first for Google.

And helping AOL to improve its ad yield isn't new, either. Google has for awhile had a small division that does that kind of work for big customers, though competitors in the AdWords optimization field say Google isn't very good at optimizing its own system.

Google is no different from any other company. It is out for its own interests and the interests of its shareholders. It wants to maximize profits and to do so will make modest compromises. The biggest of these compromises, it seems to me, aren't the ones people are getting all worked-up over with this AOL deal. The most disturbing compromise is providing an optimization consultancy that doesn't do a very good job. IT'S THEIR ALGORITHM and if they pretend to help customers optimize it, I'd prefer that they do it well. Otherwise, why shouldn't we doubt their other technologies?

If there's anything that does make Google different from other companies it is their algorithmic religion. They pretend the fundamental algorithms that run their business were somehow handed down by God rather than written (and continually re-written) by Google employees to advance Google business goals.

Unlike Microsoft, which I believe can't be trusted, Google is consistent, if a bit odd. Their behavior is no less self-oriented than Microsoft's, but it is both more predictable and more ethical.

And that's why I believe AOL went with Google rather than Microsoft. Between those two, it was the correct choice.

On this theme of corporate consistency I'd like to continue by looking at H.R. 4569, the Digital Transition Content Security Act of 2005, which proves the point I've made many times over the years, that when it comes to technology, government doesn't really know what it is doing. H.R. 4569, which was introduced in the U.S. House of Representatives on December 16th, is intended to protect the intellectual property rights of movie studios by MAKING ANALOG-TO-DIGITAL CONVERSION ILLEGAL.

I am not making this up.

Under the Act as proposed, manufacturers will have one year after passage to stop making devices that convert analog signals like music and video into digital forms unless those forms preserve some original Digital Rights Management technology present in presumably the pre-analog stage.

What this is about, then, isn't making it illegal to use a digital recorder to record from analog microphone. Heck, that would destroy the music industry. Congress's thinking (if we dare call it that -- I see no flashes of synapses firing) is that media are going digital more and more and the greatest opportunity for snatching content is during the actual performance when, for the sake of driving a screen or a speaker, the digital signal goes analog.

What's covered by this proposed law are things like TiVO and RePlay Digital Video Recorders, TV tuner cards for your PC, software intended to record audio or video streams, or just about any device or program you might use to actually implement that part of the Digital Millennium Copyright Act that says you have the right (though soon not the equipment) to backup or media-shift your own music and movies.

This is law-making at its worst. It isn't burning books, but very close to that since one could see how scanners, too, will be outlawed, making for some people the production of books more difficult. And of course it simply won't work. Since the act doesn't require destroying existing TV tuner cards, then the half dozen I own ought to be worth plenty on eBay. Same for every kind of DVR you can think of. And some people will still make their own devices, which won't be illegal as far as I can see, as long as they don't offer them for sale. We'll see TV tuner cards for sale minus a single resistor, thus turning them from products and into kits for, well, something. Could it be a TV tuner? Nah.

And of course the bill completely ignores the fact that the Internet is a global network. Expect our friends in Canada to create a robust industry in grabbing signals from U.S. radio and TV stations and feeding them back across the border, just as we can expect the French, who this week pretty much took all restrictions off peer-to-peer file sharing, to provide us lots of free music.

This is political posturing and special interest pandering at best and is unlikely to do much to protect intellectual property rights while doing quite a bit to alienate folks who actually understand the breathtaking inanity of what's being proposed.

Which sadly reminds me of a political fundraising breakfast years ago at the Yale Club in New York City. Bill Bradley was trying to run for President and raising money as fast as he could with events like this. Comedian Bill Cosby was there in the audience. "Bill, you are a comic, tell us a joke," asked Bradley.

"Senator, you are a politician, first tell us a lie," said Cos.

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