(No.164) The evolving Internet ecosystem: A two-sided market?

Status:

Accepted

Workshop Theme:

Emerging Issues

Theme Question:

* *Priority theme:* Managing Critical Internet Resources Questions: Question 5: What new developments pose specific new policy and technical challenges? * *Secondary theme:* Emerging Issues: Question 3: In what ways are new opportunities and challenges being created as the new Internet services and traditional media (such a broadcast TV and radio) are accessed through the ‘same screen’?

Concise Description of Workshop:

Economists have been increasingly interested in recent years in “two-sided markets,” cases where some platform intermediates between the two sides of the market in order to ensure that there is sufficient subscription and use on both sides of the market. Free-to-air broadcast television is often given as one example, where the television network intermediates between advertisers and viewers; credit card systems are another, intermediating between merchants and consumers. The flow of payments in these two-sided markets can sometimes be quite different from those in conventional markets, as a means of achieving the levels of participation in the market. This workshop will consider: * Should the Internet ecosystem be viewed as a form of two-sided market, with network operators / ISPs collectively intermediating between content providers and consumers? * In what ways does the Internet differ from other two-sided platforms? In what ways is it similar? * How might a change in the level of any of these payments alter levels of participation? * What economic consequences might flow from changes in the level of payments and participation in the market? What social consequences might follow (for example, as regards innovation or free speech)? A diverse international panel of stakeholders will consider these issues from a wide range of perspectives.

Backgroung Paper:

application/vnd.openxmlformats-officedocument.wordprocessingml.document icon

WIK_Proposal_30June2012 v1.3.docx

Organiser(s) Name:

J. Scott Marcus is a well known researcher on Internet issues. He is a Director of the Wissenschaftliches Institut für Infrastruktur und Kommuniktionsdienste (WIK), a research institute owned by the German Ministry of Economics. He is the principal author of a study on these issues on behalf of Google. Former Senior Advisor on Internet Technology, US FCC; former CTO, GTE Internetworking (portions subsequently acquired by Verizon, Level 3). He is a member of the Scientific Committee, Florence School of Regulation, telecoms and media programme. Adam Peake is an executive research fellow at the Center for Global Communications (GLOCOM), a research institute located in Tokyo. He has been with GLOCOM since 1994 and he currently works on projects related to telecommunications and broadband policy, network and information security, and follow-up activities for the World Summit on the Information Society (WSIS). His interests include the intersection of public policy and the internet, and promoting information and communication technologies within society. Dr. Patrick Ryan is Policy Counsel, Open Internet at Google, where he supports the policy and regulatory efforts for Google's enterprise cloud services. In addition, Patrick is an Adjunct Professor at the University of Colorado at Boulder where he teaches Internet and telecommunications policy. Prior to joining Google, Patrick was a lawyer in private practice advising companies on the deployment of next-generation networks, and has worked on telecommunications projects the United States, Canada, Brazil, Germany, Spain and Belgium, Patrick received a JD from the University of Texas at Austin, an MBL from the Universität St.Gallen, (Switzerland), and a Ph.D. from the Katholieke Universiteit Leuven (Belgium).

Previous Workshop(s):

Submitted Workshop Panelists:

J. Scott Marcus; Director, WIK (research institute) (Germany); Moderator (confirmed)
Dr. Patrick Ryan; Policy Counsel, Open Internet, Google (USA, commercial) (confirmed)
Robert Pepper (Cisco) USA
Victor Kapiyo, will be replaced by Ali Hussein (3Mice Interactive Media) Kenya
Kurt Opsahl; Electronic Frontier Foundation (EFF) (USA, civil society) (confirmed)
Verena Weber; OECD (France, international organisation) (confirmed)
Ali Hussein (3Mice Interactive Media) Kenya

Name of Remote Moderator(s):

Sarah Falvey, Google (Confirmed)

Assigned Panellists:

Transcript:

WS 164 The evolving Internet ecosystem A two-sided market.doc

Gender Report Card

Please estimate the overall number of women participants present at the session:

There were no women participants at all

To what extent did the session discuss gender equality and/or women's empowerment?:

It was not seen as related to the session theme and was not raised

Please include any comments or recommendations you have on how to improve the inclusion of issues related to gender equality and:

As of October, I had confirmations from three female panelists, which would have provided a fully balanced panel. One failed to obtain travel funding. (The same was true for one male panelist.) Another had to withdraw due to a scheduling conflict caused by last minute changes to the panel schedule, and was replaced by a well qualified panelist who happened to be male. The third also had an eleventh hour conflict due a last minute schedule, and substituted a similarly qualified male from her organisation (OECD).
As a possible recommendation, I would suggest that last minute major scheduling changes on the part of IGF have an adverse impact on gender balance on the panels. If it is necessary to replace a female panelist at short notice, the limited number of female panelists can make it difficult to find a replacement with suitable knowledge.

Report

Reported by:

J. Scott Marcus (moderator)

A brief substantive summary and the main issues that were raised:

Mr. Marcus led off the session with a brief PowerPoint presentation providing background on the economic theory surrounding two-sided markets. While nearly all communications markets can be viewed as two-sided markets, the two-sided analysis does not necessarily lead to different conclusions than a one-sided analysis; moreover, the analysis is complex, and easy to get wrong. The optimal magnitude and direction of payments in a two-sided market depends on a great many factors, some of which are difficult to estimate in practice. Many of the proposals that have been made for payments between content providers, based on a superficial two-sided market analysis, rest on a weak foundation.
Patrick Ryan of Google spoke of the importance of value chains that work for all, the importance of the multi-stakeholder model, and the benefits of voluntary commercial arrangements over solutions imposed from above. The ITU WCIT that will take place in December in Dubai (and which was discussed in several sessions at IGF) runs the risk of taking actions contrary to these principles.
Ali Hussain of 3mice interactive media Ltd provided a valuable developing country perspective. Providers of content in developing countries face special challenges in terms of underlying costs. Network operators can pose significant challenges to content providers.
Taylor Reynolds of the OECD spoke of a range of research on IP interconnection conducted by OECD over the years. Again, the need for market-based solutions was a key theme.
In an animated intervention, Dr. Robert Pepper of Cisco Systems provided numerous examples of two-sided or multi-sided arrangements in the Internet. The success in each instance was attributable to voluntary, market-based arrangements rather than an externally imposed solution.
Luigi Gambardelli of ETNO made an intervention from the audience. He emphasised ETNO's desire for market-based solutions, and for a win-win approach for all going forward.

Conclusions and further comments:

All panelists seemed to agree with the need for market-based solutions that would enable all (efficient) participants in the value chain to make money. There may not have been consensus as to what arrangements would provide for that.