The Press Pressed

There's an awful doubt beginning to infect the media scene as autumn comes. It takes the most commonplace assumption of newspaper life and hangs a great question mark on it. We're constantly told that newspapers as we know them are in a period of transition, moving to become purely digital papers on the web, on tablets, on mobiles, on gadgets as yet uninvented. There is light at the end of a long tunnel of uncertainty, a vital transition. Yet suppose, just suppose, that there's not.

Readers who read the online runes will recognise some of the doubts involved here: advertisements priced much cheaper than print, because cyberspace is infinite and therefore infinitely available; paywalls that raise useful sums that aren't quite useful enough; tablet efforts such as Rupert Murdoch's the Daily, that begin in a blaze of publicity then disappear behind a veil of silence; phone applications that seem hugely promising until you try charging a regular rate for them.

None of this means there isn't good money to be made on the net. Some specialist sheets and smooth operators are doing that already. But your average, all-purpose paper on a standard path to survival? Forget it.

On the surface of things, cause and effect seem inexorably clear. Paid circulation of national papers slides down from 13m to 9m over a couple of decades. Internet usage for news balloons from nothing to nearly 4 million uniques a day (in the case of the Daily Mail, while the Guardian reaps the fruit of phone-hacking). One side goes up, one slips back. It's a simple equation, surely? But look closer.

Take free daily papers, the ones that, for instance, have contributed hugely to the great disaster of London circulation results. Take 750,000 Metros each morning, another 100,000 City AMs, plus 750,000 Evening Standards. Look at what's being read on your commuter train or bus. People aren't sitting with an iPad: they're turning pages of reading material that cost them nothing. This isn't the average death-of-newspapers lecture. This is free print taking over from expensive print.

And expense, of course, is another factor. A pound a day for your favourite morning read, a couple of quid on a Sunday, a magazine or two for the family? Say £600 or £700 a year. It's a big item in the midst of a big squeeze, as fewer copies sold – and disasters such as the News of the World – mean fewer and fewer newsagents can make a living. You can't easily buy something you can't easily find.

Figures that lump all newspapers together as though they're the same can be pretty misleading, too. Go back to a world before the internet. In August 1970, the Daily Mirror sold 4,486,693 a day and the Daily Express some 3,605,883. Ten years later that was down to 3,624,575 and 2,224,651 respectively. In August 1990 it was 3,121,050 and 1,608,361. Think 3.5m wiped from the two biggest titles of their day in a brutal 20 years, but don't think of the curse of the net. It didn't exist. And some papers – the Mail, the Mail on Sunday, the FT, the Times – are selling as many or more today as they were in 1990. So movements in "the sector" can be somewhat misleading.

This doesn't mean that the general sales trend isn't down, by 5% or 6% a year. But general is not particular – and neither is there any convincing correlation between individual swings and roundabouts. The Mail, with its potential 80 million unique visitors online, is holding its own in print circulation; the Express, with no web effort worth mentioning, is flaking away.

So any "transition", when and if it comes, looks patchy and unpredictable. Is the Mail in print dying? Not at all. Is the Mail online snapping at its heels? Not when all those unique visitors attract only £18m a year in advertising. Does the Daily Telegraph, for all its huge web investment, see a future without print? Specifically not. Every newspaper has a different take on things to come and a different prescription for survival (while old prescriptions based on political leanings – one left, one right etc – are surely not redundant either).

It's comforting to talk about industry tendencies and share of total audience. Trinity Mirror has been doing it for years, to convince investors that its nationals are doing better than average. But no one engaging brain needs to buy the whole story. On the contrary, there are other, simpler, consequences to consider here. The Atlanta Journal-Constitution (to nominate one prize example) runs a bit short of resources. It cuts back on deliveries to outlying areas to save money. That means circulation falls faster than ever, which in turn lops away advertising cash. The old Constitution wasn't doing too badly until it decided to make things worse.

No: the supposed facts around transition can be misty going on mystic. More than that, the arithmetic doesn't always add up. If you're producing the New York Times with, say, 1,100 staff journalists (roughly double the Telegraph, Times or Guardian norm) then those reporters, commentators and correspondents – integrated to serve a print paper and a website interchangeably – are a vital expense. They bring the expertise you must have and can charge for. You need your foreign bureaus and specialists in any medium. You can't take a scythe to such costs.

The nominated nirvana of transition is an eventual digital-only operation with the heavy-industry costs of paper and presses – maybe 60% of the production bill – theoretically removed. But how does that work in an era where print and its price structures are history, and far cheaper ads and subscriptions bring in the money that's needed? Nothing you see around you anywhere in the world currently hints at revenues on the requisite scale. The Huffington Post, now beating the New York Times's numbers of unique visitors, can afford to employ only a 10th of its journalists – and still can't pay its contributors.

Free access helps ad revenue, but not enough; paid subscriptions make a contribution, but nowhere near enough. Even a profit-making news venture such as Politico, the trailblazing specialist site for US political wonks, relies on a print version and print ads to keep it in the black. And that, for all the hype, is also the case for splendidly successful specialist sites from the Wall Street Journal and FT. They prosper because they're tied to market-leading print newspapers. The two mediums can grow simultaneously, as they do at the WSJ.

Perhaps, on the Bloomberg or Thomson Reuters model, there is a life after print. But that's the weight you can place on particular services for particular audiences. A general daily paper – all-singing, all-dancing, all-providing – has a seemingly crippling cost structure to bear if it goes wholly online. One can talk, almost emotionally, about transition. But, coldly, the next generation of the news business may involve sweeping renewal instead.

Yes, you can make money from special services. Politico can do it by targeting powerful politicians. Forbes.com targets international conference organisers. Auto Trader in Britain has a vice-like grip on the used car market online (in straightforward transition from print). There are lots of good ideas; there is loads of opportunity.

But suppose – as many are beginning to do – that you look at the evolving digital landscape and ask the basic question the other way round. If you knew what you know now, would anyone have invented a newspaper in the first place, rather than news services that come free on the net (from the BBC for starters) and a myriad of separate specialist strands so that users can follow their driving interests, from hedge funds to celebrity couplings? And, in most though not all cases, the answer is no: you wouldn't have invented newspapers, with their inevitably wide spread of coverage and equally inevitable burdens of cost. Least of all – alas for Murdoch's doomed, depleted Daily – would you invent a quasi-newspaper for tablet users only?

Transition, in any comforting, life-goes-on sense, is probably an illusion. Think way outside the box instead. Think unpredictable upheaval, utter transformation, to no set timetable; a stuttering, deluding rate of change. Think of a revolution we've barely begun to glimpse as yet.

by Peter Preston

Old School Google

Twit or Else...

Dick Costolo was in full flow. The chief executive of Twitter – installed after a brief power struggle in the autumn of 2010 – was outlining his unifying vision for the company's product at the Mobile World Congress in Barcelona in February. "Our mission," he said, "is to instantly connect people everywhere to what's most meaningful to them."

As mission statements go, it is up there with Microsoft's "PC on every desktop" and Google's "organise all the world's information and make it useful". What Costolo did, in an impressive talk, was to pull out examples of how Twitter is used socially by everyone. He put up a picture of a sunset posted by a user who had added the comment "What a day … in more ways than one". What does that mean? "Maybe a friend or loved one knows that there's more meaning than that in it," Costolo noted. The idea that tweets can carry more information that what is simply encoded in their 140 characters – that they have extra value to the user through their context – was powerfully made.

Injunction application

If anyone needed reminding of that, the timing of thousands of tweets mentioning Ryan Giggs earlier this month – curiously just as the law firm Schillings went to the High Court over an injunction taken out on behalf of an unnamed footballer – should have disabused them. Costolo's case is proven: tweets are social. And Twitter has been proven to have enormous power. Though the odd point is that the company doesn't wield it in its own right; it can only go where its users go. The flock decides the tweets' direction.

The tough question Costolo now faces, as Twitter looks back at a month where its UK audience leapt by 20%, as people logged on to the site to try to find out the details of so-called "superinjunctions" (more accurately, anonymised injunctions), and where the company's name has had the invaluable free publicity of being on every news bulletin and newspaper front page, is: how can he turn that into a thriving, profitable business?

It's now five years old, and has an estimated 300 million registered users worldwide, with new signups running at about 600,000 per day.

By the time Google was five years old, in 2002, it was making more than $430m per year from AdWords – the automated system that lets advertisers bid to appear beside specific search results. It had introduced the system in 2000 – though it was hardly innovative; serial entrepreneur Bill Gross and another company, LinkExchange, had both had the same idea in 1998. AdWords is the money machine that powers Google.

Twitter hasn't had the same benefit of bootstrapping itself to income on pre-existing ideas, and doesn't seem to have the same money machine, at least, not that it has revealed.

It has some deals to generate income: Google and Microsoft's Bing search engine buys its real-time feed to go into the search results. Advertisers can buy "promoted tweets" (which appear on users' pages, in the hope of going "viral") and "promoted trends" in the list of "trendings topics", and simple AdWords-like ads that appear when users search on topics.

But none of this looks like enough to make a really vast and scalable business in the longer term, says Ross Taylor, group digital director at the London-based marketing services company Creston Group.

"A few years ago, before Twitter, we did look at the opportunities for using the leftover space in text messages – which is typically 80 or so characters – for sponsorship and ads," Taylor says. "But it fell apart because there's no real value or need for it for the consumer."

Contrast that with Google's AdWords, he says: "80% of transactions begin with a search, so you can see how Google makes money. For social networks like LinkedIn and Facebook, you can see the possibility for brands to get into the space and benefit. The point is that people are using Twitter in a different way from how they're using LinkedIn and Facebook. It's not social, it's a small way of sharing small fragments of news."

Certainly journalists know that: in the words of Neal Mann, a freelance producer for Sky News speaking at the News Rewired event on Friday: "If Reuters is your example of a solid news wire, Twitter is Reuters on acid, crack and cocaine." The ability to query a huge number of people all at once from locations all over the world – or as locally as you like – is utterly addictive.

But that's not the same as being crack (or cocaine) for advertisers. "I love Twitter, but it's like a piece of plumbing," says Taylor. "I can't see how they're going to be able to generate significant revenues from the type of clients that I work with, for example." (Those clients include Walkers Crisps, for which Creston has run Facebook and Twitter campaigns.)

He thinks there might be some value in the "data sale" model: "understanding and collecting how people are sharing things is going to be valuable. But it isn't going to be as valuable as Facebook's opportunity to sell space to brands. It's an adjunct to a total experience, rather than driving total engagement."

There's something else too. Twitter represents, perhaps better than any (legal) internet company so far, the collision of the digital age and the sovereign state. It's an almost perfect enunciation of John Perry Barlow's 1996 "Declaration of the Independence of Cyberspace", which (ever so pompously) begins "Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone".

That's certainly how Twitter seems to have been reacting since the high court began considering a court order that would demand to know the identity of "person or persons unknown" who posted details on it which claimed to blow open a number of anonymised injunctions relating to footballers and other celebrities.

Predictable effect

A number weren't right, but the idea that the injunctions could be breached so blithely had a predictable effect: the judges were outraged. Lord Judge, the lord chief justice, asked (rhetorically?): "Are you really going to say that someone who has a true claim for protection perfectly well made has to be at the mercy of modern technology?"

To which one refers M'Lud Judge to the case of Barlow, 1996.

In fact Twitter, with its ability to work even on "feature" phones, is exactly the sort of internet phenomenon that can delight and dismay governments of all stripes. China bans it. Its ability to rapidly spread information had some limited effect after Iran's disputed elections in 2010 (so much so that the US State Department asked its engineers to delay scheduled maintenance), and arguably during the "Arab spring" uprisings. Western governments were Twitter fans in these instances; it's only when its snappy bursts intrude into the bulwarks of their own establishment that governments stop liking it, and begin murmuring about "legislating" and "controlling" the internet, as Nicolas Sarkozy did last week at the G8 summit.

But will Twitter really be able to defy local legislation? Its terms of service include the key boilerplate that: "You may use the Services only in compliance with these Terms and all applicable local, state, national, and international laws, rules and regulations."

If the person who posted the supposed injunction-busting tweets is based in the UK, they could be in trouble. If, however, they are in the US, things get more complicated: local law there might ignore English injunctions.

Global business

Nick Armstrong, a partner in sports and media at the law firm Charles Russell, thinks that becoming familiar with the legal landscape is going to be part of the process of maturing for Twitter.

"It doesn't matter whether you're providing a way for people to gossip or making cars or cigarettes, each jurisdiction has different sets of rules. But any global business faces this any day of the week. It's particularly difficult, I suppose, if your raison d'etre is giving people a platform to say whatever they want."

For Twitter, a key moment may be whether, and how, it complies with any court order to reveal what it knows about the identity and location of "person or persons unknown" who tweeted those supposed injunction-breaking identities. That could be crucial to how it is perceived publicly: either as a tool of the judiciary, or as an organisation that protects itself and its users. A confrontation with English courts was probably not what Costolo, pictured left, was expecting when he planned the year ahead, and just as the company sets up shop and sends its first executive, Tony Wang, to the UK.

But for every growing company that hits an inflection point, there comes a time when something unexpected happens: how you react can make or break you. The next few weeks could be crucial to whether Twitter is seen as an internet hero – or villain.

Microsoft buys Skype

Little more than a decade after the dotcom bubble burst, the internet business is once again partying like it is 1999. The frenzy of deal-making in Silicon Valley, which is turning social media entrepreneurs into multibillionaires, moved up another notch when Microsoft splashed out $8.5bn for the loss-making internet telephone service Skype.

Tuesday's buy is a record for the software giant and takes the total value of worldwide tech-related deals so far this year to $85.5bn (£52bn) – the strongest spell since the months before the dotcom bubble burst on 10 March 2000.

Analysts said the deal would give Microsoft a boost in its increasingly bitter battle with Apple and Google. Skype boasts about 170 million users every month and is adding 600,000 a day. But most calls are free and the service has struggled to make a profit. Last year it lost $7m.

Steve Ballmer, Microsoft's chief executive, said that with Microsoft's backing Skype would be able to build a future where "talking to friends and colleagues around the world will be as seamless as talking to them across a kitchen table or a conference room".

Buying Skype gives Microsoft a recognised brand name on the internet at a time when Google and Apple are both building up their internet phone and video services. "Google has Google Voice, Apple is building up Facetime, Skype is a great brand," said Colin Gillis, an internet analyst at New York-based BGC Partners.

Gillis said Microsoft was likely to add Skype to its Xbox video games system, Office software and its mobile and tablet software. "Skype addresses some major holes for Microsoft," he said. "If they don't screw it up."

Skype was founded in 2003 by Swedish tech entrepreneur Niklas Zennström and the Dane Janus Friis. The service has grown far beyond its techie roots and is already a mainstream product. The retail giant WalMart started selling Skype hardware in 2007. At peak times there are more than 23 million Skype users online.

This is the second time it has been sold to a big tech firm. In 2005 eBay, the online auction company, bought it for $2.5bn. But eBay struggled to integrate Skype and argued with its founders and management, eventually selling it for $2.75bn to a private equity investor, Silver Lake, in 2009 but keeping a 30% stake.

Friis and Zennström also backed the sale as part of a consortium that bought 14% of Skype. Just a year and a half later eBay has made its money back and the founders are sharing a $1.2bn payday. The Skype deal ranks as the biggest in Microsoft's 36-year history and follows multibillion-dollar strategic purchases by other tech giants including Intel, which bought the virus software specialist McAfee, and Hewlett Packard, which bought the handheld devices firm Palm.

Investors are also fighting over the new generation of tech firms including Facebook, Groupon and Twitter. Google is believed to have made multibillion-dollar offers for both Groupon and Twitter.

Private investors have fought to get a stake in Facebook, which is lining up a share sale next year that could value the firm at more than $70bn.

Watch Out...

Wiki Witch-Hunt

There have been various suggestions as to what to do to Julian Assange, the founder of WikiLeaks, after a week in which his revelations have severely embarrassed US diplomacy. Tom Flanagan, a former aide to the Canadian prime minister, called for his assassination, and then regretted his glib remark. Mike Huckabee said that those found guilty of leaking the cables should be executed for putting national security at risk. You would expect a future Republican presidential candidate to say that. But a Democrat administration is close behind. A team from the justice department and the Pentagon are exploring whether to charge Mr Assange under the Espionage Act. The US attorney general, Eric Holder, has said this is not sabre-rattling. Are they all about to turn into minions of which Richard Nixon would have been proud?

More insidious than that was the complacent yawn emanating from from sections of the liberal commentariat for which freedom of information is a given. So what's new about the Gulf Arab Sunnis wanting America or Israel to bomb Iran, or Colonel Gaddafi's taste for blonde Ukrainian nurses, or Nicolas Sarkozy being described as mercurial and authoritarian, they sneer. Maybe for them, nothing is new. Would that we all could be so wise. But for large areas of the world which do not have the luxury of being able to criticise their governments, the revelations about the private thoughts of their own leaders are important.

The yawners from Primrose Hill or inside the Beltway forget that when WikiLeaks exposed high-level corruption in Kenya, toxic waste in Africa and all manner of nefarious deeds in the former Soviet bloc, they applauded it. They hailed the whistleblowers as brave democrats. But when the alleged leaker comes from within their own ranks – in this case a 23-year-old US military intelligence analyst, Bradley Manning, who now faces 52 years in prison – then it is a different matter: it is treason, a threat to national security. Close WikiLeaks down, run it off the internet, the cry goes up. All it takes is one call from Joe Lieberman, the chairman of the Senate committee on homeland security, and internet hosting providers buckle at the knees. Yesterday the French joined in. Viewed from China, which has been lectured for censoring the internet, this reaction must seem … very Chinese. Let's face it. In these cold December days, there is nothing more warming than a witch-hunt.

The cables are more than just embarrassing. They reveal the gap that has opened in some parts of the world, like Yemen, between Hillary Clinton's stated aims to fight terrorism and spread democracy around the world, and the means her country uses to do this. In Yemen's case, US air strikes against al-Qaida in the Arab Peninsula in December 2009 killed dozens of civilians along with wanted jihadis. The means to the end involves dealing with Yemen's "bizarre and petulant" president, Ali Abdullah Saleh, who told General David Petraeus, then head of US Central Command, that he and his ministers would continue to lie to their country that American bombs were theirs. If anything will turn Yemen into a facsimile of the tribal belt in Pakistan, this will. Saleh has warned that his country is on the brink of becoming Somalia.

There are no easy ways of combating an organisation which recruited Umar Farouk Abdulmutallab, the Nigerian who tried to blow up a Dutch passenger plane over Detroit. But each time Tomahawks are used to swat a fly, they stir up a hornet's nest. Each time the US goes to the aid of a weak state, it somehow manages to weaken it further. And each time it listens to the likes of President Saleh, it gets it wrong. If US diplomats come out of the WikiLeaks saga in good shape, some of the policies they help form do not. And no one should be yawning about that.

The Guardian edito

The Future Of The Internet

THE first internet boom, a decade and a half ago, resembled a religious movement. Omnipresent cyber-gurus, often framed by colourful PowerPoint presentations reminiscent of stained glass, prophesied a digital paradise in which not only would commerce be frictionless and growth exponential, but democracy would be direct and the nation-state would no longer exist. One, John-Perry Barlow, even penned “A Declaration of the Independence of Cyberspace”.

Even though all this sounded Utopian when it was preached, it reflected online reality pretty accurately. The internet was a wide-open space, a new frontier. For the first time, anyone could communicate electronically with anyone else—globally and essentially free of charge. Anyone was able to create a website or an online shop, which could be reached from anywhere in the world using a simple piece of software called a browser, without asking anyone else for permission. The control of information, opinion and commerce by governments—or big companies, for that matter—indeed appeared to be a thing of the past. “You have no sovereignty where we gather,” Mr Barlow wrote.

The lofty discourse on “cyberspace” has long changed. Even the term now sounds passé. Today another overused celestial metaphor holds sway: the “cloud” is code for all kinds of digital services generated in warehouses packed with computers, called data centres, and distributed over the internet. Most of the talk, though, concerns more earthly matters: privacy, antitrust, Google’s woes in China, mobile applications, green information technology (IT). Only Apple’s latest iSomethings seem to inspire religious fervour, as they did again this week.

Again, this is a fair reflection of what is happening on the internet. Fifteen years after its first manifestation as a global, unifying network, it has entered its second phase: it appears to be balkanising, torn apart by three separate, but related forces.

First, governments are increasingly reasserting their sovereignty. Recently several countries have demanded that their law-enforcement agencies have access to e-mails sent from BlackBerry smart-phones. This week India, which had threatened to cut off BlackBerry service at the end of August, granted RIM, the device’s maker, an extra two months while authorities consider the firm’s proposal to comply. However, it has also said that it is going after other communication-service providers, notably Google and Skype.

Second, big IT companies are building their own digital territories, where they set the rules and control or limit connections to other parts of the internet. Third, network owners would like to treat different types of traffic differently, in effect creating faster and slower lanes on the internet.

It is still too early to say that the internet has fragmented into “internets”, but there is a danger that it may splinter along geographical and commercial boundaries. (The picture above is a visual representation of the “nationality” of traffic on the internet, created by the University of California’s Co-operative Association for Internet Data Analysis: America is in pink, Britain in dark blue, Italy in pale blue, Sweden in green and unknown countries in white.) Just as it was not preordained that the internet would become one global network where the same rules applied to everyone, everywhere, it is not certain that it will stay that way, says Kevin Werbach, a professor at the Wharton School of the University of Pennsylvania.

To grasp why the internet might unravel, it is necessary to understand how, in the words of Mr Werbach, “it pulled itself together” in the first place. Even today, this seems like something of a miracle. In the physical world, most networks—railways, airlines, telephone systems—are collections of more or less connected islands. Before the internet and the world wide web came along, this balkanised model was also the norm online. For a long time, for instance, AOL and CompuServe would not even exchange e-mails.

Economists point to “network effects” to explain why the internet managed to supplant these proprietary services. Everybody had strong incentives to join: consumers, companies and, most important, the networks themselves (the internet is in fact a “network of networks”). The more the internet grew, the greater the benefits became. And its founding fathers created the basis for this virtuous circle by making it easy for networks to hook up and for individuals to get wired.

Yet economics alone do not explain why the internet rather than a proprietary service prevailed (as Microsoft did in software for personal computers, or PCs). One reason may be that the rapid rise of the internet, originally an obscure academic network funded by America’s Department of Defence, took everyone by surprise. “The internet was able to develop quietly and organically for years before it became widely known,” writes Jonathan Zittrain, a professor at Harvard University, in his 2008 book, “The Future of the Internet—And How To Stop It”. In other words, had telecoms firms, for instance, suspected how big it would become, they might have tried earlier to change its rules.

Whatever the cause, the open internet has been a boon for humanity. It has not only allowed companies and other organisations of all sorts to become more efficient, but enabled other forms of production, notably “open source” methods, in which groups of people, often volunteers, all over the world develop products, mostly pieces of software, collectively. Individuals have access to more information than ever, communicate more freely and form groups of like-minded people more easily.

Even more important, the internet is an open platform, rather than one built for a specific service, like the telephone network. Mr Zittrain calls it “generative”: people can tinker with it, creating new services and elbowing existing ones aside. Any young company can build a device or develop an application that connects to the internet, provided it follows certain, mostly technical conventions. In a more closed and controlled environment, an Amazon, a Facebook or a Google would probably never have blossomed as it did.

Forces of fragmentation

However, this very success has given rise to the forces that are now pulling the internet apart. The cracks are most visible along geographical boundaries. The internet is too important for governments to ignore. They are increasingly finding ways to enforce their laws in the digital realm. The most prominent is China’s “great firewall”. The Chinese authorities are using the same technology that companies use to stop employees accessing particular websites and online services. This is why Google at first decided to censor its Chinese search service: there was no other way to be widely accessible in the country.

But China is by no means the only country erecting borders in cyberspace. The Australian government plans to build a firewall to block material showing the sexual abuse of children and other criminal or offensive content. The OpenNet Initiative, an advocacy group, lists more than a dozen countries that block internet content for political, social and security reasons. They do not need especially clever technology: governments go increasingly after dominant online firms because they are easy to get hold of. In April Google published the numbers of requests it had received from official agencies to remove content or provide information about users. Brazil led both counts (see chart 1).

Not every request or barrier has a sinister motive. Australia’s firewall is a case in point, even if it is a clumsy way of enforcing the law. It would be another matter, however, if governments started tinkering with the internet’s address book, the Domain Name System (DNS). This allows the network to look up the computer on which a website lives. If a country started its own DNS, it could better control what people can see. Some fear this is precisely what China and others might do one day.

To confuse matters, the DNS is already splintering for a good reason. It was designed for the Latin alphabet, which was fine when most internet users came from the West. But because more and more netizens live in other parts of the world—China boasts 420m—last October the Internet Corporation for Assigned Names and Numbers, the body that oversees the DNS, allowed domain names entirely in other scripts. This makes things easier for people in, say, China, Japan or Russia, but marks another step towards the renationalisation of the internet.

Many media companies have already gone one step further. They use another part of the internet’s address system, the “IP numbers” that identify computers on the network, to block access to content if consumers are not in certain countries. Try viewing a television show on Hulu, a popular American video service, from Europe and it will tell you: “We’re sorry, currently our video library can only be streamed within the United States.” Similarly, Spotify, a popular European music-streaming service, cannot be reached from America.

Yet it is another kind of commercial attempt to carve up the internet that is causing more concern. Devotees of a unified cyberspace are worried that the online world will soon start looking as it did before the internet took over: a collection of more or less connected proprietary islands reminiscent of AOL and CompuServe. One of them could even become as dominant as Microsoft in PC software. “We’re heading into a war for control of the web,” Tim O’Reilly, an internet savant who heads O’Reilly Media, a publishing house, wrote late last year. “And in the end, it’s more than that, it’s a war against the web as an interoperable platform.”

The trend to more closed systems is undeniable. Take Facebook, the web’s biggest social network. The site is a fast-growing, semi-open platform with more than 500m registered users. Its American contingent spends on average more than six hours a month on the site and less than two on Google. Users have identities specific to Facebook and communicate mostly via internal messages. The firm has its own rules, covering, for instance, which third-party applications may run and how personal data are dealt with.

Apple is even more of a world apart. From its iPhone and iPad, people mostly get access to online services not through a conventional browser but via specialised applications available only from the company’s “App Store”. Granted, the store has lots of apps—about 250,000—but Apple nonetheless controls which ones make it onto its platform. It has used that power to keep out products it does not like, including things that can be construed as pornographic or that might interfere with its business, such as an app for Google’s telephone service. Apple’s press conference to show off its new wares on September 1st was streamed live over the internet but could be seen only on its own devices.

Even Google can be seen as a platform unto itself, if a very open one. The world’s biggest search engine now offers dozens of services, from news aggregation to word processing, all of which are tied together and run on a global network of dozens of huge data-centres. Yet Google’s most important service is its online advertising platform, which serves most text-based ads on the web. Being the company’s main source of revenue, critics say, it is hardly a model of openness and transparency.

There is no conspiracy behind the emergence of these platforms. Firms are in business to make money. And such phenomena as social networks and online advertising exhibit strong network effects, meaning that a dominant market leader is likely to emerge. What is more, most users these days are not experts, but average consumers, who want secure, reliable products. To create a good experience on mobile devices, which more and more people will use to get onto the internet, hardware, software and services must be more tightly integrated than on PCs.

Net neutrality, or not?

Discussion of these proprietary platforms is only beginning. A lot of ink, however, has already been spilt on another form of balkanisation: in the plumbing of the internet. Most of this debate, particularly in America, is about “net neutrality”. This is one of the internet’s founding principles: that every packet of data, regardless of its contents, should be treated the same way, and the best effort should always be made to forward it.

Proponents of this principle want it to become law, out of concern that network owners will breach it if they can. Their nightmare is what Tim Wu, a professor at Columbia University, calls “the Tony Soprano vision of networking”, alluding to a television series about a mafia family. If operators were allowed to charge for better service, they could extort protection money from every website. Those not willing to pay for their data to be transmitted quickly would be left to crawl in the slow lane. “Allowing broadband carriers to control what people see and do online would fundamentally undermine the principles that have made the internet such a success,” said Vinton Cerf, one of the network’s founding fathers (who now works for Google), at a hearing in Congress.

Opponents of the enshrining of net neutrality in law—not just self-interested telecoms firms, but also experts like Dave Farber, another internet elder—argue that it would be counterproductive. Outlawing discrimination of any kind could discourage operators from investing to differentiate their networks. And given the rapid growth in file-sharing and video (see chart 2), operators may have good reason to manage data flows, lest other traffic be crowded out.

The issue is not as black and white as it seems. The internet has never been as neutral as some would have it. Network providers do not guarantee a certain quality of service, but merely promise to do their best. That may not matter for personal e-mails, but it does for time-sensitive data such as video. What is more, large internet firms like Amazon and Google have long redirected traffic onto private fast lanes that bypass the public internet to speed up access to their websites.

Whether such preferential treatment becomes more widespread, and even extortionary, will probably depend on the market and how it is regulated. It is telling that net neutrality has become far more politically controversial in America than it has elsewhere. This is a reflection of the relative lack of competition in America’s broadband market. In Europe and Japan, “open access” rules require network operators to lease parts of their networks to other firms on a wholesale basis, thus boosting competition. A study comparing broadband markets, published in 2009 by Harvard University’s Berkman Centre for Internet & Society, found that countries with such rules enjoy faster, cheaper broadband service than America, because the barrier to entry for new entrants is much lower. And if any access provider starts limiting what customers can do, they will defect to another.

America’s operators have long insisted that open-access requirements would destroy their incentive to build fast, new networks: why bother if you will be forced to share it? After intense lobbying, America’s telecoms regulators bought this argument. But the lesson from elsewhere in the industrialised world is that it is not true. The result, however, is that America has a small number of powerful network operators, prompting concern that they will abuse their power unless they are compelled, by a net-neutrality law, to treat all traffic equally. Rather than trying to mandate fairness in this way—net neutrality is very hard to define or enforce—it makes more sense to address the underlying problem: the lack of competition.

It should come as no surprise that the internet is being pulled apart on every level. “While technology can gravely wound governments, it rarely kills them,” Debora Spar, president of Barnard College at Columbia University, wrote several years ago in her book, “Ruling the Waves”. “This was all inevitable,” argues Chris Anderson, the editor of Wired, under the headline “The Web is Dead” in the September issue of the magazine. “A technology is invented, it spreads, a thousand flowers bloom, and then someone finds a way to own it, locking out others.”

Yet predictions are hazardous, particularly in IT. Governments may yet realise that a freer internet is good not just for their economies, but also for their societies. Consumers may decide that it is unwise to entrust all their secrets to a single online firm such as Facebook, and decamp to less insular alternatives, such as Diaspora.

Similarly, more open technology could also still prevail in the mobile industry. Android, Google’s smart-phone platform, which is less closed than Apple’s, is growing rapidly and gained more subscribers in America than the iPhone in the first half of this year. Intel and Nokia, the world’s biggest chipmaker and the biggest manufacturer of telephone handsets, are pushing an even more open platform called MeeGo. And as mobile devices and networks improve, a standards-based browser could become the dominant access software on the wireless internet as well.

Stuck in the slow lane

If, however, the internet continues to go the other way, this would be bad news. Should the network become a collection of proprietary islands accessed by devices controlled remotely by their vendors, the internet would lose much of its “generativity”, warns Harvard’s Mr Zittrain. Innovation would slow down and the next Amazon, Google or Facebook could simply be, well, Amazon, Google or Facebook.

The danger is not that these islands become physically separated, says Andrew Odlyzko, a professor at the University of Minnesota. There is just too much value in universal connectivity, he argues. “The real question is how high the walls between these walled gardens will be.” Still, if the internet loses too much of its universality, cautions Mr Werbach of the Wharton School, it may indeed fall apart, just as world trade can collapse if there is too much protectionism. Theory demonstrates that interconnected networks such as the internet can grow quickly, he explains—but also that they can dissolve quickly. “This looks rather unlikely today, but if it happens, it will be too late to do anything about it.”

The Wiki Way

AFTER Kenya’s disputed election in 2007 Ory Okolloh, a local lawyer and blogger, kept hearing accounts of atrocities. State media were not interested. Private newspapers lacked the money and manpower to investigate properly. So Ms Okolloh set up a website that allowed anyone with a mobile phone or an internet connection to report outbreaks of violence. She posted eyewitness accounts online and even created maps that showed where the killings and beatings were taking place.

Ms Okolloh has since founded an organisation called Ushahidi, which puts her original idea into practice in various parts of the world. It has helped Palestinians to map the violence in Gaza and Haitians to track the impact of the earthquake that devastated their nation in January. It even helped Washingtonians cope with the “snowmaggedon” that brought their city to a halt this year. Ushahidi’s success embodies the principles of wikinomics.

Don Tapscott and Anthony Williams coined the term “wikinomics” in their 2006 tome of that name. Their central insight was that collaboration is getting rapidly cheaper and easier. The web gives amateurs access to world-class communications tools and worldwide markets. It makes it easy for large groups of people who have never met to work together. And it super-charges innovation: crowds of people can develop new ideas faster than isolated geniuses and disseminate them even faster.

Mr Tapscott and Mr Williams have now written a follow-up to their bestseller. They solicited 150 suggestions online for a snappy title. The result, alas, was a bit dull: “Macrowikinomics: Rebooting Business and the World”. But the book is well worth reading, for two reasons.

The first is that four years is an eternity in internet time. The internet has become much more powerful since “Wikinomics” was published. YouTube serves up 2 billion videos a day. Twitterers tweet 750 times a second. Internet traffic is growing by 40% a year. The internet has morphed into a social medium. People post 2.5 billion photos on Facebook every month. More than half of American teens say they are “content creators”. And it is not only people who log on to the internet these days. Appliances do, too. Nokia, for example, has produced a prototype of an “ecosensor” phone that can detect and report radiation and pollution.

The second reason is that the internet’s effects are more widely felt every day. In “Wikinomics” the authors looked at its impact on particular businesses. In their new book they look at how it is shaking up some of the core institutions of modern society: the media, universities, government and so on. It is a Schumpeterian story of creative destruction.

Two of the most abject victims of wikinomics are the newspaper and music industries. Since 2000, 72 American newspapers have folded. Circulation has fallen by a quarter since 2007. By some measures the music industry is doing even worse: 95% of all music downloads are illegal and the industry that brought the world Elvis and the Beatles is reviled by the young. Why buy newspapers when you can get up-to-the-minute news on the web? Why buy the latest Eminem CD when you can watch him on YouTube for free? Or, as a teenager might put it: what’s a CD?

Other industries are just beginning to be transformed by wikinomics. The car industry is a model of vertical integration; yet some entrepreneurs plot its disintegration. Local Motors produces bespoke cars for enthusiasts using a network of 4,500 designers (who compete to produce designs) and dozens of microfactories (which purchase parts on the open market and then assemble them). Universities are some of the most conservative institutions on the planet, but the Massachusetts Institute of Technology has now put all of its courses online. Such a threat to the old way of teaching has doubtless made professors everywhere spit sherry onto the common-room carpet. Yet more than 200 institutions have followed suit.

Wikinomics is even rejuvenating the fusty old state. The Estonian government approved a remarkable attempt to rid the country of unsightly junk: volunteers used GPS devices to locate over 10,000 illegal dumps and then unleashed an army of 50,000 people to clean them up. Other governments are beginning to listen to more entrepreneurial employees. Vivek Kundra, now Barack Obama’s IT guru, designed various web-based public services for Washington, DC, when he worked for the mayor. Steve Ressler, another American, created a group of web-enthusiasts called Young Government Leaders and a website called GovLoop.

FixTheState.com

How can organisations profit from the power of the web rather than being gobbled up by it? Messrs Tapscott and Williams endorse the familiar wiki-mantras about openness and “co-creation”. But they are less starry-eyed than some. They not only recognise the importance of profits and incentives. They also argue that monetary rewards can be used to improve the public and voluntary sectors. NetSquared, a non-profit group, introduced prizes for the best ideas about social entrepreneurship. Public-sector entrepreneurs such as Mr Kundra are excited by the idea of creating “app stores” for the public sector.

Messrs Tapscott and Williams sometimes get carried away with their enthusiasm for the web. Great innovators often need the courage to ignore the crowd. (Henry Ford was fond of saying that if he had listened to his customers he would have produced a better horse and buggy.) Great organisations need time to cook up world-changing ideas. Hierarchies can be just as valuable to the process of creative destruction as networks. But the authors are nevertheless right to argue that the web is the most radical force of our time. And they are surely also right to predict that it has only just begun to work its magic.

(from The Economist)

A new journalism on the horizon

The delivery of news is rapidly changing

As people find new ways to access news in a post-print world, so the demands on those that deliver it is changing, says Andrew Marr, and this new media age could bring with it a better, more rigorous kind of journalism.

The winds of media revolution are gusting fiercely.

In the past few days we have the Guardian's estimate of a near 90% drop in the online readership of its rival, the Times, since the pay wall went up; and Amazon's announcement that sales of digital books for its e-reader Kindle are outstripping hardback books in the US, at the rate of 143 e-books for every 100 hardbacks over the past three months.

I just wanted to follow up my earlier "conversion confession" on this site.

These two whirling straws were given perfect context at a seminar on Tuesday by John Warnock, co-founder of Adobe and a fabled figure in the Silicon Valley story. Speaking at Nottingham University's computer science school, he predicted a cascade of new iPad-like tablets in many sizes arriving by the end of this year, producing turmoil for cinemas (which will mostly go), bookshops (ditto), and broadcasters.

Hollywood now gets just 15% of its revenue from cinema releases, while newspaper publishers find their traditional strengths - expensive printing plants and sophisticated distribution chains - have become merely costs.

Book publishers ask what they bring to the new party. A public has emerged which doesn't watch traditional sequential television, or even understands the notion of "channels".

I've just come back from Washington where I was doing interviews with grandee journalists and historians in the wood-panelled magnificence of the city's National Press Club.

But downstairs, in the coffee bar, everyone seemed to reading on iPads and phones. Getting into the lift and returning to street level felt like time-travelling, from the Age of the Press, to tablet-world.

But getting back to the big question, which is the future for journalism, two things struck me. The first is that I've started to spend quite a lot on buying online reading material, from books and magazines to news material; and that the quality's pin-sharp, easy on the eye and addictive.

This leads me to think that perhaps Rupert Murdoch's pay wall gamble is a better bet than the Guardian figures currently suggest; but that the proposition will need to be redefined.

People pay for magazines, television channels, DVDs and endless apps. The notion that they shouldn't ever pay for news is actually quite bizarre and a historic anomaly.

I'm interested in politics, social policy, business, technology and the arts. I am not interested in sport, fashion, property, crime stories or celebrity.

In this new world, where I'm being sold new propositions, I no longer see why I should buy material I'm not interested in, just because it's been bundled up by one publisher rather than another. Am I alone? I'll pay. I'll buy. But I want to be more discriminating.

Fast food, fast news

The second thought is that journalism may be on the edge of a great new age. How good have we been, honestly, at telling the truth to the powerful? When a crisis blows up, or a problem of deep complexity has to be confronted, few reporters have the specialist knowledge or time to really confront government, or a company.

Further, the daily competition for newness - always on to the next story, the next headline - means the media's attention span has been limited. Too rarely do we return to stories that have "faded away" and ask, what happened next?

Our appetite for long-term campaigning and focus fritters away. Fast news has had the same effect on our minds as fast food has had on our physiques.

The next media age may be differently configured. We may have a group of very large "aggregators" bringing busy people the most important new news of the day, rather as now, but there will be fewer of them.

But underneath that, we will have large numbers of specialist news sites - for specific companies or sectors, for different environmental issues, for overseas crises - which bring together journalists, academics, specialists, campaigners, professionals, lobbyists and so on. These will be where the expertise and longer-term attention span will be found.

They will pile the pressure onto the powerful, and keep asking the questions. And from time to time their work will break upwards, to the aggregators (we need a better word) and the global headlines.

Or so I hope. There's the real chance of a better kind of journalism in all this; something to comfort ourselves with as we pad to the bookshop, or head for the cinema while it's still there.

by Andrew Marr

Facebook 500m

iPhone Drama - California Style

Twenty-one-year-old Redwood City, California, resident Brian J. Hogan, the man identified by Wired.com as the guy who found — and later sold — Apple's missing iPhone in a bar last month, has a message for Apple, the engineer who originally lost the precious gadget, and the tech world at large: Sorry about that.

Following a trail of "clues" on social-networking sites and confirming his ID with a source "involved in the iPhone find," Wired named Hogan on Thursday as the bar patron who made off with Apple's top-secret iPhone prototype and then sold it to Gizmodo for $5,000 after an Apple software engineer left the precious phone on a bar stool.

Up until now, Hogan's identity has been a mystery to the public, but the 21-year-old college student (or at least, he was a college student as of 2008) may have sensed that he was in trouble after all the hoopla over Gizmodo's gigantic iPhone scoop last week and the subsequent fallout, including a raid on Gizmodo editor Jason Chen's house by San Mateo sheriff's deputies armed with a search warrant.

Hogan has now lawyered up, and in a statement released through his attorney, the young man says he "regrets his mistake in not doing more to return the phone," and that he thought his $5,000 deal with Gizmodo was only "so that they could review the phone," Wired reports.

According to Hogan's attorney's statement, Hogan didn't see the lost iPhone until another patron at the Redwood City bar came up and asked him if it was his; Hogan apparently then asked a few other patrons if they'd lost the device before heading out, iPhone in hand, according to Wired.

Initial reports had it that the man who'd taken the iPhone tried repeatedly to call the Apple Care support line to return the phone, but according to the statement in the Wired story, Hogan never personally called Apple, although a friend of his offered to. The owners of the bar where the iPhone was lost also told Wired that Hogan never bothered to call them about the lost hardware, although the anguished Apple engineer who mislaid the iPhone "returned several times" to see if it had turned up.

Meanwhile, CNET is reporting that Hogan had help in finding a buyer for the lost iPhone. The "go-between," according to CNET: 27-year-old Sage Robert Wallower, a UC Berkeley student who "contacted technology sites" about the handset. Wallower told CNET that he "didn't see it or touch it in any manner" but knows "who found it," adding, "I need to speak to a lawyer ... I think I have said too much."

No one has been charged yet in the case of the lost iPhone, but a deputy district attorney for San Mateo County tells Wired that Hogan is "very definitely ... being looked at as a suspect in theft." (In California, finding a piece of lost property isn't a case of "finders keepers"; if you find a lost item and keep it without making "reasonable" efforts to find the real owner, you could be charged with a crime.)

Gizmodo's Jason Chen also has yet to be charged; law-enforcement officials have reportedly said they'll hold off on searching the computers and servers seized from Chen's house until they decide whether California's shield law for journalists applies to him.

Not so in touch

The iPad

(OK, it's not a person. But at least it has nothing to do with the election, so – onward.) It still has no camera; no USB port; no replaceable battery; too shiny a screen; too slippery a texture; no obvious advantage over a laptop, an iPhone; it doesn't support Flash; you still can't download apps accept from Apple; it costs $499 (£325) and sold 300,000 within hours of going on sale in the US. It took about 37½ seconds for the first complaints to come in. Hundreds of users reported difficulties connecting to Wi-Fi and are waiting to hear if this is owing to a software problem (easy-peasy fix) or hardware flaw (to the Apple store and fling-device-through-window fix). Those of us content to stay a safe distance from the bleeding edge of technology settle back and tell them we'll be along when they've got everything sorted out. Ta.

by Lucy Mangan

Google Buzz

(Facebook status: Concerned)

iPleasegivemeabreak!

Matt Kelly: digital content director, Mirror Group

Is that it then? A bloody great iPhone? If any newspaper publishers out hoped the iWhatsit would be the missing link between digital investment and reward, the sight of Steve Jobs lazily stroking his big touchscreen while muttering "awesome" and "incredible" and "wonderful" will have come as a blow.

Just like the Amazon Kindle (another touted saviour of newspapers) at first glance, the iPad is a little underwhelming. Unlike the Kindle (when we at the Mirror were presented it, the Amazon rep told us to "please stop prodding the screen. You might break it") this is at least a thing of beauty. But I see shortcomings.

The reason my laptop has a lid is so the screen doesn't get wrecked after a couple of months – like the screen of my, er, iPhone. I can stick my iPhone in my pocket when I leave the house. Where does one stick the iPad? What do you do when it rains?

There are certain parts of the UK where it's not best advised to prance about with 500 quids worth of shiny new tech. No one ever mugged anyone for a copy of the Mirror. Also, should you drop your Mirror in a puddle, or leave it on the bus, you can replace it at any number of locations for just 45p.

One more gripe. All those lovely Apps we've built – the Guardian's brilliant newspaper one and our forthcoming MirrorFootball.co.uk app to name but two – will need redesigning. Great! Yet another format to develop.

No. The iPad is no great leap forward for newspapers. But something inside it may be. Apple's great contribution to shining light on how we may start directly charging for content is their App Store.

Emulating their elegant, frictionless, payment solution is, to my mind, the single biggest challenge we face at the beginnings of our digital future. The challenge to turn millions of users into customers.

Cloud Computing

DO YOU have plans for next weekend? If not, don’t worry: perhaps a friend will be throwing a party to celebrate the launch of Windows 7, Microsoft’s new operating system, on October 22nd. You’ll get help installing the program and be shown how to use the new features. To maximise the fun, your friend will get tips from the “HostingYourParty” video on YouTube or go to the dedicated website, complete with downloadable party favours and a trivia quiz (sample question: “The Microsoft Pretzel Hunt is an annual pretzel hunt held at the Redmond campus. True or false?”).

This is not satire. It is a toe-curling attempt by Microsoft to create some buzz for its new software. Fortunately for the firm, it will hardly matter, because Microsoft dominates the market for operating systems. After the let-down that was its predecessor, Windows Vista, Windows 7 is certain to be a success. There is plenty of pent-up demand, because Vista’s aged predecessor, XP, is still widely used. Reviews of Windows 7 have been positive, some even glowing, although the software is sometimes hard to install.

Windows 7 is not just a sizeable step for Microsoft. It is also likely to mark the end of one era in information technology and the start of another. Much of computing will no longer be done on personal computers in homes and offices, but in the “cloud”: huge data centres housing vast storage systems and hundreds of thousands of servers, the powerful machines that dish up data over the internet. Web-based e-mail, social networking and online games are all examples of what are increasingly called cloud services, and are accessible through browsers, smart-phones or other “client” devices. Because so many services can be downloaded or are available online, Windows 7 is Microsoft’s first operating system to come with fewer features.

As one window closes…

The launch of Windows 7 coincides with the closing of the book, after more than a decade, on Microsoft’s antitrust woes. The company got into hot water in America and Europe mainly for abusing its dominance of PC operating systems to promote its web browser. On October 7th the European Commission said it had all but reached a settlement with Microsoft. The firm has agreed to give Windows users in Europe a “ballot screen” that allows them to choose a rival browser in place of its own Internet Explorer.

Windows is not going to disappear soon, but cloud computing means it is no longer so important. Other products, some being launched this autumn with less fanfare than Windows 7, represent Microsoft’s future. Last month the company opened two data centres that between them will contain more than half a million servers. This month it released a new version of Windows for smart-phones. And next month it will launch Azure, a platform for developers on which they can write and run cloud services.

The rise of cloud computing is not just shifting Microsoft’s centre of gravity. It is changing the nature of competition within the computer industry. Technological developments have hitherto pushed computing power away from central hubs: first from mainframes to minicomputers, and then to PCs. Now a combination of ever cheaper and more powerful processors, and ever faster and more ubiquitous networks, is pushing power back to the centre in some respects, and even further away in others. The cloud’s data centres are, in effect, outsize public mainframes. At the same time, the PC is being pushed aside by a host of smaller, often wireless devices, such as smart-phones, netbooks (small laptops) and, perhaps soon, tablets (touch-screen computers the size of books).

Although Windows still runs 90% of PCs, the fading importance of the PC means that Microsoft is no longer an all-powerful monopolist. Others are also building big clouds, including Google, a giant of the internet, and Apple, renowned as a maker of hardware, with a market capitalisation that now exceeds those of both Google and IBM, its original arch-rival (see chart above).

Granted, there are hundreds if not thousands of firms offering cloud services—web-based applications living in data centres, such as music sites or social networks. But Microsoft, Google and Apple play in a different league. Each has its own global network of data centres. They intend to offer not just one or two services, but whole suites of them, with services including e-mail, address books, storage, collaboration tools and business applications. They are also vying to dominate the periphery, either by developing software for smart-phones and other small devices or by making such devices themselves.

These three giants (for their vital statistics, see table) are already preparing for battle. In July Google mounted a direct attack on Windows by promising to launch a free PC operating system, Chrome OS. Rumour has it that a basic version may hit the market on the same day as Windows 7, or soon after. Microsoft’s new operating system for smart-phones represents its latest effort to catch up with Apple’s iPhone and Google’s operating system for handsets, called Android. On October 12th Apple and Google severed a tie when Arthur Levinson, a member of both boards, resigned from Google’s. In August Eric Schmidt, Google’s chief executive, had quit Apple’s board because “Google is entering more of Apple’s core businesses,” in the words of Steve Jobs, the gadget-maker’s boss.

A taxonomy of giants

Despite the growing similarities among the three, each is a unique beast, says Michael Cusumano, a professor at Massachusetts Institute of Technology’s Sloan School of Management. They can be classified according to how they approach the cloud, how they make money and how openly they approach the development of intellectual property.

Google, you might say, has been a cloud company since its birth in 1998. It is best known for its search service, but now offers all sorts of other products and services, too. It has built a global network of three dozen data centres with 2m servers, say some estimates. Among other things, it offers a suite of web-based applications, such as word processing and spreadsheets. Lately it has branched out, releasing Android for phones, and its Chrome web-browser and operating system for PCs.

It took Google a while to come up with a way of making money, but it found one in advertising, its main source of revenue. It handles more than 75% of search-related ads in America. Worldwide its share is even higher. Google is also trying to make money from selling services to companies. On October 12th it said that Rentokil Initial, a pest-control-to-parcel-delivery group, would roll out Google’s online applications to its 35,000 employees, making it the biggest company to do so.

Google’s reliance on advertising explains its open approach to intellectual property. Giving Android and Chrome OS away as open-source software not only makes life difficult for rivals’ paid-for products but also increases demand for Google’s services and the reach of its ads. Its openness has limits: Google says little about the architecture of its data centres and search algorithms, because they give the company its competitive edge. The way it organises R&D internally is open and decentralised: self-organising teams come up with ideas for most new services.

If Google was born in the sky, Microsoft started on the ground. Office, its bestselling suite of PC programs, is almost as ubiquitous as Windows. But the company is less a stranger to cloud computing than it may seem. It has built a network of data centres, and is starting to gain traction after losing billions developing online services. Its Xbox games console has powerful online features. Bing, its new search engine, has gained a shade in market share (though it is still miles behind Google). It is even preparing a stripped-down web-based version of Office, and it now offers much of its business software as online services.

However, most of Microsoft’s revenue and all of its profit still come from conventional shrink-wrapped software. But the company cannot leave online advertising to Google, because consumers expect cloud services to be free, financed by ads. Hence Microsoft’s efforts to convince Yahoo!, another online giant, to merge its search and part of its advertising business with Microsoft’s. The deal, sealed in July, means that Microsoft will handle 10% of searches, against Google’s 83%, says Net Applications, a market-research firm.

Given Microsoft’s history, it is hardly surprising that its treatment of intellectual property differs from Google’s. It gives other software firms the technical information they need to write programs that run on, say, Windows. Otherwise, it guards the underlying recipes of its software jealously. That said, the firm now supports many open standards and has even started using bits of open-source software. Internally, its R&D is somewhat more centralised than Google, at least in its online division: teams are bigger, work with more co-ordination and get more guidance from above.

Apple, too, came from outside the cloud. Online services have always been a bit of an afterthought to what the company excels at: pricey but highly innovative bundles of hardware and software, of which the iPhone is only the latest example. Its online offerings—the iTunes store for music and video, the App Store for mobile applications, and MobileMe, a suite of online services—were all originally meant to drive demand for Apple’s hardware, but the firm’s interest in the cloud has grown. It is building a $1 billion data centre, possibly the world’s largest, in North Carolina.

Still, Apple’s financial health thus far has depended mainly on selling hardware. Gadgets generate most of the firm’s revenue and profit. The firm does not reveal its revenue from services separately, but it is not to be sneezed at. Apple accounts for 69% of online music sales in America and 35% of all sales, more than Wal-Mart, reckons NPD Group, a market-research firm. Apple has so far forgone advertising revenue: its services are ad-free, but most of them require payment. Apple’s services are aimed at consumers, not businesses.

Illustration by Ian Whadcock

Apple is also the odd one out when it comes to openness. The word does not appear in its vocabulary. It does not allow any other hardware-maker to build machines using its operating system. It blocks iPhone applications it does not approve of from appearing in the App Store. Apple is also secretive about the way it conducts its internal R&D. Mr Jobs clearly calls most of the shots. But insiders say that there is a system of teams that pitch projects to him.

How will this three-way contest play out? The last similar war was in the 1980s and early 1990s, when Apple, IBM and Microsoft fought for mastery of the PC. After much fire and smoke, Microsoft was victorious. Thanks to what economists call strong network effects, which allow winners to take almost all, Windows relegated its rival operating systems to mere sideshows, securing fat profits for its owner.

Such a lopsided result is unlikely this time. One reason is that the economics of the cloud may be different from those of the PC. Network effects are unlikely to be as strong. Much of the cloud is based on open standards, which should make it easier to switch providers. To underline this point and to counter arguments that it is trying to lock users in, Google has set up the Data Liberation Front, a team of engineers whose job is to devise ways of allowing people to transfer their data.

Unfortunately for Google, it is equally unclear whether the most open player will win, as Microsoft did last time. Many of Google’s new services have failed to take off. Having control over the software on the PC, smart-phones and other client devices, Microsoft can more easily create what it calls “seamless experiences”, for example by keeping a user’s address book and other personal information in step. Consumers may also prefer Apple’s tightly integrated, easy-to-use devices and services, despite the restrictions they impose. Lots of people buy iPods and download music from iTunes even though it is difficult to play the songs on other devices.

Second, all three giants have reliable sources of cash to sustain them. Windows may be under attack, not least because of the boom in cheap netbooks, which has forced Microsoft to reduce prices, says Matt Rosoff of Directions on Microsoft, a newsletter. Even so, the operating system will keep on giving for some time. Microsoft has other strong divisions too, including business and server software. Google may lose some market share in search (and some advertising) to the combination of Bing and Yahoo!, but it is unlikely to be dethroned. Apple is still able to command premium prices, although others make hardware just as slick.

Full war chests

This means that all three will have ample resources to spend in the main areas of the fight: data centres, cloud services and the periphery. In data centres, Google is ahead, but Microsoft is catching up in size and sophistication. Apple has most to learn, but this, too, seems only a question of time and money. Just as much of hardware has become a commodity, knowing how to build huge data centres may not be a big competitive advantage for long. And data centres can get only so big before scale ceases to be an advantage.

In services too, Google is ahead. But in Bing Microsoft may at last have created a worthy rival. The “decision engine”, to use the company’s term, does a good job of helping people choose a new camera or book a holiday. The big question is whether Apple can catch up. Its iTunes and App stores are successes, to be sure, but for now they are highly specialised. Its broader suite of cloud services, MobileMe, is nothing to write home about.

At the cloud’s periphery, however, Apple has a strong position, thanks to the success of the iPhone. More than 30m have been sold so far, 5.2m in the quarter ending in June. Its share of the American market is pushing 14%. The App Store now boasts 85,000 applications and a total of more than 2 billion downloads. But recently Google’s Android has gained momentum. Several handset-makers have released smart-phones based on it, or will do so in the next few months. In early October it received the backing of Verizon, America’s biggest mobile operator. At the end of 2012, predicts Gartner, a market-research firm, Android phones will have a bigger share of the market than iPhones.

Microsoft’s mobile strategy, though, is in disarray. This could prove to be a serious weakness, as people increasingly use mobile devices to reach online services. Plans to build smart-phones of its own seem to be going nowhere. Its music player, Zune, will remain just that, Steve Ballmer, Microsoft’s boss, said recently. Pink, a project to develop phones based on technology from Danger, a start-up acquired by Microsoft in 2008, is said to face death by cancellation—even more likely after Danger lost personal data belonging to tens of thousands of its customers earlier this month. And the latest version of Windows Mobile is no match for the iPhone and Android. Some handset-makers, including Motorola, have ditched the software.

However, as with Bing, Microsoft has only recently been getting serious. It has put Windows Mobile under new management. Another version is expected by the end of 2010. Some analysts fancy Microsoft’s chances. According to iSuppli, a market-research firm, “Reports of Windows Mobile’s death are greatly exaggerated.”

What could disrupt the three-sided struggle? The antitrust authorities, possibly. Now that Microsoft has made peace, the other two are likelier targets. Most observers imagine Google would be first, pointing to the hullabaloo caused by a settlement with book publishers that allows Google to create a vast digital library. But Apple may beat Google to the dock. The firm’s tight control over its technology is no problem in markets where its share is small (in PCs, it is a mere 7.2%). But in mobile applications and digital music distribution Apple is by far the market leader. America’s Federal Communications Commission is looking into its refusal to carry Google Voice, a telephony and messaging application for the iPhone. Its bar on rivals’ devices connecting to iTunes may cause trouble too. Tellingly, Apple recently hired a lawyer with antitrust experience: Bruce Sewell, the former general counsel of Intel, the world’s biggest chipmaker, which the European Commission wants to pay a fine of more than €1 billion ($1.5 billion) for abusing its dominance.

Then there are market forces. One of the three may come up with something “insanely great”, an expression used at Apple in times past to describe the original Macintosh computer. Apple itself may do so with a tablet computer, rumoured to be ready for release as early as January. Others have built such a dream device, but none has yet overcome the problem of input: typing on a screen is difficult and handwriting recognition has never really worked. If Apple has cracked it, it could upend the PC industry, as the iPhone did the handset market. If the tablet is also a good substitute for paper, the publishing and newspaper industries could be in for more upheaval. The blogosphere is abuzz with rumours that Apple is talking to publishers about offering their content on its device.

The final possibility is for another contender to emerge. The obvious candidates are Amazon, the world’s biggest online retailer, and Facebook, the leading social network. Amazon already has a cloud of sorts. It offers cloud computing services to other online firms and has developed the Kindle, an electronic reader, which is due to be available worldwide from October 19th. Facebook runs what is arguably the most successful cloud service, with more than 300m registered users. It provides a platform for people to communicate, share information and collaborate online—all things that businesses want to do, too.

Only one thing seems sure about the future of the digital skies: the company or companies that dominate it will be American. European or Asian firms have yet to make much of an appearance in cloud computing. Nokia, the world’s biggest handset-maker, is trying to form a cloud with its set of online services called Ovi, but its efforts are still in their infancy. Governments outside America may harbour ambitious plans for state-funded clouds. They would do better simply to let their citizens make the most of the competition among the American colossi.

Google Today

Secrets of a nimble giant

Technology companies usually get slower as they get bigger - so why is Google as fast as ever? Co-founder Sergey Brin tells Jemima Kiss how size can make for innovation.

It was Rupert Murdoch who summed up success in the digital age when he said: "Big will not beat small any more - it will be the fast beating the slow." That might be inspiring for startups, but in the process-laden, corporate environment, how can big companies keep their edge by moving quickly and lightly? This has become something of an obsession for Google watchers, who have seen the college research project develop into a multi-billion-dollar phenomenon, stretching from mobile software and blogging to social networking and the ubiquitous search. How does a company with 20,000 staff manage to keep innovating?

Sergey Brin, Google's co-founder, thinks size should help. "It's important for people to realise that you should benefit from the scale - if you're not benefiting then you're doing something wrong, and might as well break up into lots of little things. Instead of having our employees in large buildings, we could have several thousand houses each with a garage - there's nothing stopping us from doing that. But the fact is that as we scale, we should be able to take advantage of that. Look at how many colleagues can you talk about a specific issue with, and how can you take advantage of a piece of infrastructure that the company already has."

Google's infrastructure - and those enviable facilities - are much reported, from the lavish, free canteen and commuter shuttles to the infinity pool at the Mountain View headquarters. The Sydney office has equally fine trimmings, with lava lamps and great views, which may or may not have contributed to the birth of its most recent tech toy, the communications tool Wave. Tapping several sweet spots in web development, Wave aggregates real-time Twitter-esque instant messaging with email, wiki-based collaboration features and social networking.

Wave of confidence

Brin doesn't get his hands dirty with quite as many of Google's tech projects as he'd like, so he says he's "trying to take time to do more of that". But when Lars and Jens Rasmussen came to him with the idea for Wave, it was their track record that gave him confidence in the project. The pair joined Google with the acquisition of their mapping startup Where 2 Technologies in October 2004; that grew into the first incarnation of Google Maps.

"We have been gradually embracing the idea that once you're successful, we give you much more latitude," says Brin. "Somebody who has a success under their belt has really demonstrated accomplishment and in that case we will give them generally more liberty. When they came and proposed this idea they said, 'We want to do something new and revolutionary, but we're not even going to tell you what it is. And we want to go back to Australia, hire a bunch of people and just work on it.' That was a crazy proposal," Brin says, and not one many businesses would have supported. "But, having seen their success with Maps, I felt that it actually was pretty reasonable." It was two years ago that Brin agreed to support the project, and the full version of Wave will be released later this year.

Google was one firm rumoured to be looking at acquiring Twitter, and the two are known to be talking about a possible real-time search collaboration. But despite the real-time elements of Wave, the project was conceived before Twitter had achieved momentum. Brin says the team wasn't aware of Twitter at the beginning, but wanted to create something timeless. "The very first demo that they showed me had, for example, character-by-character typing, which actually made me nostalgic because the old Linux systems all did that with Talk."

Mainstream manifesto

As well as organisational structure and the track record of engineers, Brin talks about intuition around projects that might translate to something more mainstream. "That essentially takes taste, I would call it, and a certain kind of intuition. People may or may not have that kind of intuition - that's why for something like Wave the prior success on a mass consumer scale is what gave me confidence that these guys can do that again in another field."

With that $131bn market value, Google is in an unusually powerful financial and strategic position to give its engineers this kind of latitude. The downturn has barely dented Google's research and development budget, which was reduced to $641m (£392m) for the first quarter of this year from $673m in 2008. Around 36% of its staff work in R&D in total, and the entire 2008 R&D budget was a staggering $2.79bn.

Despite appearing to suffer mildly from the economic climate, Brin has previously said that tough times bring out the best of the Valley because when there's too much money around, "you get a lot of noise mixed in with the real innovation and entrepreneurship".

Companies can traditionally buy in innovative products, as happened with Where 2, or develop in-house. The most well-known Google initiative for encouraging innovation in-house is its "20% time" strategy, which has almost become an innovation cliché. The idea that 80% of an engineer's time is spent on the day job and 20% pursuing a personal project is a mathematician's solution to innovation, Brin says. Some staff secretly admit their 20% time is spent catching up with the day job, but the firm insists the strategy has led to Google News, Gmail and the mighty AdSense system, among other things.

New priorities

What could established media companies learn from Google's approach to innovation? Given the perfect storm of economic meltdown and once-in-a-generation collapse of their business model, innovation may well have slipped off the priority list for old media. Perhaps it is time to rephrase the challenge, says Brin. "Any conversation I have about innovation starts with the ultimate goal - in this case what the reader is trying to accomplish, and what would make that better. Somebody reading up on the news wants to be kept up to date, and quickly." News sites offer some useful content, but there's a lot of duplication. "I don't have a solution for you - I'm just saying that I think posing the problem correctly is perhaps more important than defining the solution. People want to have good, engaging, high-quality information about things going on right now in the world."

In-house, Google uses a project database and an ideas mailing list to manage new projects. While noting ideas on the mailing list is important, it is less significant than the project database, says Brin, which lists weekly updates on who is working on what, their goals, progress and links to documentation. That distinction has to be instilled in the company culture.

"It's important not to overstate the benefits of ideas," he says. "Quite frankly, I know it's kind of a romantic notion that you're just going to have this one brilliant idea and then everything is going to be great. But the fact is that coming up with an idea is the least important part of creating something great. It has to be the right idea and have good taste, but the execution and delivery are what's key."