Washington's Techno-Confusion

Official Washington remains utterly baffled by what is happening in the nation's technology industry. Consider two recent developments: the imposition of net neutrality regulations on the Internet by Federal Communications Chairman Julius Genachowski; and the appointment of technology theorist Timothy Wu to the powerful Federal Trade Commission as a senior advisor. Wu popularized the term "net neutrality" and lobbied aggressively for Internet regulations. He has also advocated significant additional rules to shape the technology sector around his preferred vision.

Wu and Genachowski are smart, amiable, ambitious men. But they happen to inhabit a particular culture with a set of prejudices that color how they interpret changes taking place around them. These include biases in favor of rules from Washington to shape industries that are being transformed by new technologies and business models.

And so they witness everything swirling and churning in the tech world today and interpret that not as health and vigor; instead they see an industry that is perilously close to being rendered uncompetitive, threatened by corporate chokeholds that limit or restrict innovation and harm consumer welfare. This explains their support of federal rules to restrict the evolution of technology and media business models.

It's useful to take a step back for a moment and look at where the technology industry is today. It is hard to imagine a more dynamic sector. Consider just a few areas:

Mobile-There's astonishingly robust competition in this space with far too many players to list who are all competing and co-operating in myriad ways. The sector has been completely upended by Apple's iPhone, of course, with Google now a significant force and Microsoft producing an acclaimed mobile OS. There's ample competition among mobile providers. Yes, there are some leading players such as AT&T and Verizon, but consumers have several choices and even the largest players must constantly compete via innovation, pricing and customer service.

Search-Yes, Google is dominant now, but it is being tested amidst a crescendo of gripes about its service and the problems posed by content mills and other efforts to game their search results. And so it faces competitive and technological challenges from Facebook and Twitter, as well as Microsoft's innovative Bing, and new services like Blekko and Quora.

Operating systems-Microsoft, the Redmond giant, until only recently thought of as an unconquerable monopolist, has seen competitive pressures rise up from Apple, Google, Linux and others as the broader industry extends beyond the desktop to mobile computing.

Media and news-It's impossible to keep up with the changes happening in this sector. Companies continue to experiment with new products, from News Corp's The Daily tablet newspaper to AppleTV. Older businesses such as the New York Times experiment with new business models. AOL is reinventing itself with savvy acquisitions such as TechCruch and the Huffington Post and innovative platforms such as Patch.com. The union of Comcast and NBC will kickstart a new round of business model and service experimentation and competition.

Broadband-Consumers have more options for wired and wireless broadband than ever. Established players continue rolling out new products, such as Verizon's FiOS and 4G. Newer participants such as hedge fund manager Phil Falcone have designs on upending the industry.

Tablets-Almost overnight, thanks to Apple, tablet computing became the Next Big Thing in consumer IT. Already Apple is facing challenges from Google and myriad device makers. Microsoft is getting into the tablet space in a big way this year.

eCommerce-Obviously Amazon and eBay are huge players, but competition is robust with big retailers such as Wal-Mart scaling up their efforts. iTunes remains a critical platform with room to evolve.

Gaming-Sony, Microsoft and Nintendo are all at each other's throats, providing stable platforms for developers to build businesses and grow. Responding to the challenge from Nintendo Wii, Microsoft's Kinect became the fastest selling game console in history. And the mobile app and tablet spaces promise to reinvent gaming once more.

Browser-I feel as if I switch browsers ever two years. I used to use Netscape. Then IE. Now I use Firefox and IE, as well as Chrome and Safari, depending on my computing device. Just a few years ago critics were lamenting the absence of innovation in browsers after IE's rise. That was before Firefox and Chrome and Opera's penetration into the market. Again, innovation and competition remain robust.

Cloud-Here's a sector where you ain't seen nothing yet, and it's probably the most important development in IT in a generation. The advance of cloud computing will transform not just the IT sector but all industries large and small that rely heavily on IT for their operations. The efficiencies of cloud should usher in a new wave of entrepreneurial ventures as the high, up-front IT costs that make some start-ups impractical are driven down to manageable levels thanks to cloud economics. Already this space is competitive with Amazon, Microsoft, Google, IBM, VMWare and others developing business models, products and services.

Indeed, here's how fast things change in the tech industry. Back in the 1990s Microsoft was thought to be unstoppable. Then a resurgent Apple clawed back, Google emerged on the scene, mobile computing exploded and all of a sudden by the middle part of the 2000s the tech chattering class was wondering when Microsoft would have to pack it in. Now Microsoft stands poised to reinvent itself around cloud. Microsoft's great business genius has always been its customer-oriented business model which relies on its army of partners to ensure quality sales and service for satisfied buyers. That model will serve them well as cloud computing gains steam. Microsoft stands poised to reach new heights.

Amid all this, I haven't even touched on vigorous database competition, the reinvention of Netflix and the evolution of streaming media platforms, or the unrealized potential in social media.

The lessons for Washington should be clear. Yes, it's possible problems could arise at some point that undermine consumer welfare. And at that time there might be reason for Washington to act. But today, across technologies and platforms, competition and innovation are the order of the day.

All the rules that govern the technology sector are being rewritten by the industry's participants every six months or so. No other industrial sector comes close to that kind of dynamism. Does Washington really need to add new, top-down rules into that mix?

Nick Schulz is editor-in-chief of American.com and the DeWitt Wallace Fellow at AEI.

Photo Credit: iStockphoto/Wojtek Kryczka

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