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The evolution of the Web (Part II: The driving forces)
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The evolution of the Web (Part II: The driving forces)

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Slides from two lessons on Evolution of the Internet, given at Urbeur doctorate - University of Milano Bicocca (prof.R.Polillo). May 19,2014

Slides from two lessons on Evolution of the Internet, given at Urbeur doctorate - University of Milano Bicocca (prof.R.Polillo). May 19,2014

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  • Great Slides! Thank you.
    Just on slides 47 I'm a bit more optimist than you: filters are data and so they can be personalized and even shared. In the future web of data I can imagine a search engine (a semantic search engine) where the ranking algorithm is just an user configurable parameter. The 'filter bubble', IMHO, is a business model, not a net architectural issue.
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  • La distinzione fra prodotti “stand-alone” e prodotti “sistemici” è di Alvin Toffler <br />
  • L’esempio è tratto dal libro di Brian Arthur e Kenneth Arrow, Increasing Returns and Path Dependence in the Economy. <br /> Rappresenta l’orologio della cattedrale di Firenze, disegnato da Paolo Uccello. <br /> Presenta un quadrante di 24 ore in senso antiorario. <br />

The evolution of the Web (Part II: The driving forces) The evolution of the Web (Part II: The driving forces) Presentation Transcript

  • May 12, 2014 University of Milano Bicocca URBEUR-QUASI PhD Programme The evolution of the Web Part II: The driving forces Roberto Polillo Department of Informatics, Systems and Communications University of Milano Bicocca www.rpolillo.it
  • The paradox of Free "People are making lots of money charching nothing. Not nothing for everything, but nothing for enough that we have essentially created an economy as big as a good-sized country around the price of $0.00. How did this happen and where is it going?" Chris Anderson, Free – The future of a radical price (2009) R.Polillo - Maggio 2014 3
  • "Lots of money?" R.Polillo - Maggio 2014 4 (born1975) Devices, Apps & content (born 1998) Ads (born 1975) Software (born 1994) e- commerce ( born 2004) Ads ←main business (but things are not so simple…) 12 months ending March 2014, according to WolframAlpha Billion USD 344 83 23 483 174 37 381 60 13 160 8 1,5 157 66 0
  • What we will try to do today  Understand some of the driving forces which are shaping the economics of the Web ecosystem…  …and their impact on us R.Polillo - Maggio 2014 5
  • We will do it in 6 steps 1. One, two and multi-sided markets 2. Network esternalities 3. The new technologies adoption cycle 4. The drift to monopolies 5. Customer lock-in 6. The problem of the net neutrality … and will discuss some important consequences R.Polillo - Maggio 2014 6
  • One, two, multi-sided markets7 R.Polillo - Maggio 2014
  • One-side market R.Polillo - Maggio 2014 8 Buyer Seller Product / Service $ "You pay money, you see camel" Anonymous (probably from circus)
  • Two-sided market R.Polillo - Maggio 2014 9 Cliente (tipo 1) Cliente (tipo 2) Fornitore Credit-card companies Venditori Titolari di carta di credito SubscribersAdvertisers Media companies Night clubs Men Women S ervizio 2 S ervizio 1 $1 $2 Not everybody must pay with money
  • Example R.Polillo - Maggio 2014 10 Audience "pays" with his/her attention Audience "pays" with his/her attention Large, “subsidized” user base Large, “subsidized” user base Small, profitable customer base Small, profitable customer base Product / service , [$]
  • Example R.Polillo - Maggio 2014 11 Product / service Google, Facebook, … Google, Facebook, … User info Subscriber s Targeted ads Online service s
  • OTT subscriber OTT content / service provider Internet N-sided market: example R.Polillo - Maggio 2014 12 Internet Service Provider 1 $1 Internet Service Provider 2 Connectivity service 1 $2 $3 Connectivity service 2 Connectivity service 3
  • There is no free lunch The question is how you are paying it and if you are willing to do it Anonymous 13 R.Polillo - Maggio 2014
  • Network esternalities14 R.Polillo - Maggio 2014
  • Externalities (network effects) R.Polillo - Maggio 2014 15 Buyer Seller Product / Service $ We have an externality when the value of a product or service for its user depends on the number of its users Positive externality: when I buy a product or services, I generate a benefit to the other users E.g.: telephone, fax, sjype, social network, … Negative externality: in this case I generate a damage to the other users E.g.: when I connect to an Internet access point
  • Externalities (network effects) R.Polillo - Maggio 2014 16 Customer (type 1) Customer (type 2) Supplier S ervice 2 S ervice 1 1 2 3 4$1 $2 4 types (each can be positiva or negative)
  • Positive externalities: consequences 17  The number of subscribers of services based on networks can grow extremely fast  When there are many subscribers, they may accept to pay an higher price for the service  Typical example: a service is initially free to grow the user base, then paid R.Polillo - Maggio 2014
  • The new technologies adoption cycle18 R.Polillo - Maggio 2014
  • New technologies adoption curve R.Polillo - Maggio 2014 19 100 % 50% 0% S-shaped curve ("logistic function") Innovators Early adopters Early Majority Late Majority Laggards "entusiasts" "visionaries""pragmatists" "conservatives""skeptics" Bell curve (incremental growth: S-curve derivative) "chasm" Cfr: G.A.Moore, Inside the Tornado, 1995 Here the process may stop
  • Example: penetration of fixed telephony in the USA 20 Wall Street crash (1929) R.Polillo - Maggio 2014
  • http://bit.ly/VIIoX1 Product with positive externalities Product without externalities R.Polillo - Maggio 201421
  • Example R.Polillo - Maggio 2014 22 http://b.qr.ae/10CAuAB Instagra m (approx)
  • Facebook R.Polillo - Maggio 2014 23 http://thinksocialmedia.com/tag/growth/
  • The drift to monopolies24 R.Polillo - Maggio 2014
  • Positive feedback If a product / service with positive externalities gains a larger market share with respect to its competitor, it will obtain larger and larger market shares, toward the 100% market share 25 R.Polillo - Maggio 2014 W.Brian Arthur, “Increasing Returns and Path Dependence in the Economy”, 1994 « For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them. » Matthew, 25- 29 Positive feedback, "Law of increasing returns", "Winner takes all"
  • Consequences 26  First mover advantage: he who gains market shares before his competitor has a very large competitive advantage  Butterfly effect: the success of a technology may depend on fortuitous facts which afford small advantages at the beginning, which start an "avalanche effect" which may have nothing to do with its technical qualities  Standard de facto: computer industry is dominated by de-facto standards dictated by first movers (de-iure standards aften fail) R.Polillo - Maggio 2014
  • Example: Facebook vs Myspace R.Polillo - Maggio 2014 27
  • Typical market shares… In traditional markets: n.1: 60% n.2: 30% n.3: 5%. In markets dominated by network effects: n.1: 95% n.2: 4% n.3: 1%. 28 R.Polillo - Maggio 2014
  • Customer lock-in29 R.Polillo - Maggio 2014
  • Two product categories  Non-systemic products Can be used independently from other products E.g.:: umbrella; Coca Cola; banana “Law of decreasing returns”: negative feedback  Systemic products To be used, they need other products E.g.: Car (needs gas stations, roads, …); Software (needs a complex ecosystem …) “Law of increasing returns”: positive feedback (“winner takes all”) R.Polillo - Maggio 2014 30
  • Example: QWERTY keyboard R.Polillo - Maggio 2014 31 Christopher Sholes, circa 1870 Other “rational” layout were never accepted
  • Example: why all clock hands turn “clockwise”? 32 Firenze, 1443 (turn anti- clockwise) R.Polillo - Maggio 2014
  • Example: MS-Dos/Office and the Microsoft growth Revenues(BnUSD) 33 R.Polillo - Maggio 2014
  • The problem of the net neutrality34 R.Polillo - Maggio 2014
  • What is “Net Neutrality” (NN)  It is the principle by which all data get carried with the criterium of "best effort”  I.e. data are all treated equally, and the network does not discriminate on the basis of their origin or destination, of their content, and the platform used  It is (more or less) the basic Internet design principle  This principle is now strongly debated R.Polillo - Marzo 2014 35
  • Internet protocol hierarchy R.Polillo - Marzo 2014 36 HOST HOSTROUTER ROUTER Applicazione Trasporto Internet Network Internet Network Internet Network Applicazione Trasporto Internet Network The transport network is “stupid” Here all the application intelligence
  • "Net neutrality means an Internet that enables and protect free speech. It means that Internet service providers should provide us with open networks – and should not touch any apps or content that ride over those networks." www.savetheinternet.com R.Polillo - Marzo 2014 37
  • ISP positions  Bandwidth requirements are continuously growing → the infrastructure must grow  This entails large investments by ISPs, but now the big money goes only to the CSPs (content service providers)  → we need new pricing mechanims to remunerate these investments  → we need to be free to explore new business models  → avoid restrictive rules, let the free market get its equilibrium R.Polillo - Marzo 2014 38
  • ISP: some possibilities to increase revenues CSP tiering: Commercial agreements between ISP andCSP to prioritize their traffic User tiering:  "Walled gardens"  Paid “Quality of Service” on specific services R.Polillo - Marzo 2014 39
  • In synthesis R.Polillo - Marzo 2014 40 Source: Net Neutrality - EDRI Papers Issue 08
  • The risks CSP tiering:  Traffic from competitor CSP is degraded → major CSPs monopoly  Startups are left out User tiering:  Low quality for non paying users  Walled gardens: access to information and expression is limited  In both cases: large ISP have a large influencing power on our access to information and possibility of expression R.Polillo - Marzo 2014 41
  • R.Polillo - Marzo 2014 42
  • R.Polillo - Marzo 2014 43 "Allowing broadband carriers to control what people see and do online would fundamentally undermine the principles that have made the Internet such a success" Vint Cerf
  • Some conclusions44 R.Polillo - Maggio 2014 Where are we now and where are we going?
  • The two sides of the net R.Polillo - Maggio 2014 45
  • The two sides of the net - 1 R.Polillo - Maggio 2014 46 Free services The end of the privacy” We stop paying in cash, but in information about ourselves The citizen as a consumer
  • The two sides of the net - 2 R.Polillo - Maggio 2014 47 Every information at our fingertips …. but unreliable” “The distinction between trained experts and uninformed amateurs becomes dangerously blurred, truth becomes a commodity to be bought, sold, packaged and reinvented “ (A.Keen)
  • The two sides of the net - 3 R.Polillo - Maggio 2014 48 Individualized assistance The “filter bubble”” The variety of information is reduced by filtering algorithms, which filter away what we and our social network do not "like” “Imagine a world where you never discover new ideas” (E.Parisier)
  • The two sides of the net - 4 R.Polillo - Maggio 2014 49 Freedom of expression Ease of control” Our opinions can be easily monitored E.g. E.Snowden case
  • The two sides of the net - 5 R.Polillo - Maggio 2014 50 Augmented socialization Social interaction overload 300 ml photos shared daily on Facebook The “dictatorship” of notification systems ”
  • The two sides of the net - 6 R.Polillo - Maggio 2014 51 Powerful cognitive augmentation Unknown cognitive reshaping ” “Is Google making us stupid?” (N.Carr)
  • The two sides of the net - 7 R.Polillo - Maggio 2014 52 The quality of access The end of the “net neutrality”” What we access online is regulated and filtered by complex, multi-sided market agreements
  • The two sides of the net - 8 R.Polillo - Maggio 2014 53 The rapid growth of technological innovation Job loss “The effect of today’s technology on tomorrow’s jobs will be immense – and no country is ready for it” (The Economist, Jan 2014)
  • R.Polillo - Maggio 2014 54 It is a difficult world, take care of it!
  • R.Polillo - Maggio 201455 Thank you! www.rpolillo.it