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Book Review: The Master Switch

May 07, 2014
Barel Karsan

Barel Karsan

17 followers

The internet age that's upon us actually has many parallels with the introduction of other information media of previous eras. For example, at the advent of the radio, there were thousands of home-based radio stations, as hobbyists would broadcast to whoever would listen, much like bloggers today. At the advent of the telephone, hobbyists would link up entire communities in order to communicate with their neighbours.

Radio, telephones and other information media like television and cinema have all gone through "open" periods, much like where the internet is today, where it was relatively easy for anyone to participate and contribute to the growth and innovation of the medium. But these media have gone in cycles that have tended to become closed over time. Monopolists, in concert with government agencies they captured, have managed to "close" these media, raising barriers to entry that have resulted in monopolies or oligopolies. (For example, it's now a felony to broadcast a radio station without a license; nobody could have guessed this would occur at the advent of radio.) Tim Wu describes these forces, and their implications for the future of the internet, inThe Master Switch.

I was blown away with how open some media (which I have just taken for granted as being "closed") used to be. But there are a number of procedures monopolists have used to close them up. One method involves the use of patents. This was employed by the producers of film to keep out unwanted content competition. Another method involves trying to abuse the market power of the distribution mechanism. In radio, RCA provides an example of this as they issued radios that would only play their own certified stations. Another method involved invoking the hand of the government in the name of the "public good". Bell managed to pull this off, becoming a regulated monopoly.

In pretty much every case, the transition to a closed system resulted in stagnation. The lack of competition resulted in an innovation dead-end. Not only that, large monopolistic companies and governments feed off each other. The companies get market protections from the government, and the government gets to spy (sometimes illegally) on its citizens, using the technology and secrecy of the monopolies.

All of these methods can be seen at work today in the internet space. Companies employ patents to force more traffic through their devices/software. Companies try to push their content using the power of distribution, the failed AOL/Time-Warner merger being an example of this. (One reason the internet has remained relatively open thus far is that its content doesn't depend on the medium, whether phone line, cable, wireless, which makes it much harder for one group to monopolize distribution. AOL became pretty useless when dial-up went out of style.)

Tim Wu does a masterful job demonstrating these parallels. Using a ton of examples throughout the information age, the reader ends up with a greater understanding of how these media tend to start-up, and how they end up closed, and sometimes re-opened (as the cable industry did to television, which was otherwise enjoying a government-protected oligopoly). I learnt a lot from this book, and I highly recommend it to anyone interested in the subject.

Enjoy!

About the author:

Barel Karsan
GuruFocus - Stock Picks and Market Insight of Gurus

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