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Walled Gardens, Government Intervention And Innovation

By James Quintana Pearce - Tue 25 Sep 2007 06:41 PM PST

Thomas Hazlett, former chief economist of the FCC, has written an opinion piece for the Financial Times arguing that “walled gardens” promote innovation. “What works best for consumers is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing. When decision-makers compete for customers and answer to shareholders, a sophisticated balance obtains. The alternative proposition, business models voted on by regulators, is a recipe for stasis.” The main example given is Apple’s (NSDQ: AAPL) iPhone, the success of which “crushes the argument that mobile networks are closed and need to be prised open by government intervention” according to Hazlett.

The other example given by Hazlett is i-mode, which by “Rejecting neutrality” raised 35 million subscribers in Japan by mid-2003—although he has failed to mention its relative lack of success anywhere else. He mentions that i-mode has been called a walled garden, which is a nice way of avoiding the fact that many people consider that i-mode is not a walled garden. It’s true that sites that don’t fit within fairly tight parameters are banned from the service, but anyone can put up a site that fits the parameters and be included—a far cry from the walled gardens of operators where they specifically choose the content and if they decide not to include a particular game or video there’s simply no way to get it.

The main thrust of his argument seems to be against government regulating to promote openess, and the rules the FCC placed on the upcoming auction. While too much government regulation is probably a bad thing there’s also a case to be made for limited government intervention, the most touted being the Carterfone rules that paved the way for the fax machine and the internet. 

Posted in: Companies, Apple, Countries, Europe, Technologies



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4 Responses:
  • From Paul Tue 25 Sep 2007 10:02 PM

    That’s all well and good… but a walled garden coupled with the carriers desire to “own the the user-experience” does not create and environment in-which new and innovative services emerge, grab market share, and build sustainable businesses.

  • From Rich Wed 26 Sep 2007 06:59 AM

    Apple does not require you to purchase music from their store so they are by no means ‘walled’. Apple does not lock you into a 2 year agreement like the carriers do.

  • From Lars Wed 26 Sep 2007 06:35 PM

    Hi James:

    I noticed this article via msnbc the other day, glad you picked up on it. Since we have Wi-Fi access, and our flight departure is delayed, I thought a ‘quick’ comment would be in order.

    When i-mode launched here in ‘99, DoCoMo wanted - needed - to make sure there would be a healthy content offering available for their new service, not only by brand quality but also by the device specs. In effect they had to seed the garden! However, they also were very aware that as it matured CP’s and SP’s would develop business models, based on the mobile web gaining critical mass, that would in some way not fit within their tight parameters and therefore would be roll-out off the official menu. Not only did they make sure to allow any http:// address input (closed?), DoCoMo formed a JV with the countries largest ad agency Dentsu (D2C) in order to skim some of the predictable future revenues - beyond the packet data fees - from those players as well.

    As for i-modes failure to gain the same level of traction in other countries, it’s hardly a fair comparison. For starters the total lack of enabled handset offerings - let alone absurd data fees and revenue shares - is basically shameful. Combine that with operators meddling in content offerings and the proven formula has changed almost beyond recognition. Another point that most people miss when looking at the numbers.. is the numbers! For example, nobody really questions the demonstrated value and potential growth of v-live.. which is basically i-mode wearing a red tie. The difference of course is the size of the operators subscriber base. DoCoMo has over 50% market share here, while the i-mode partners overseas are generally #2 or #3 in their home markets.

    Now that we see 3G at over 75% and flat-rate data plan adoption growing rapidly in Japan, people are really beginning to search beyond the deck. While i-mode has grown to well over 8,000 official sites, best guess estimates upwards of 20x (formatted for mobile) that number is available via the open web. While I could go on (and on) this will have to do for now.

    Shameless plug below: **Pls. feel free to edit out if not acceptable?**

    We have recently released our ‘Japan Mobile Internet Report’ which has a free preview .pdf of 50 pages (from 202 pages in total) for those who are interested to see more visit: http://www.wirelesswatch.jp/reports/

  • From Maurice Thu 27 Sep 2007 07:47 PM

    I agree totally with Paul. Carriers are off the planet in trying to own a user experience. Its an intellectually bankrupt approach, the MNO customer’s are increasingly seeking the options to choose their choice of individual content, and be able to enjoy what they choose through a fixed price data plan. Currently many are screwed on freedom of choice, then penalised by rapacious data charges by electing to go off deck!

    Fortunately we are seeing progressive MNO’s deliver data plans that meet their customers wishes, although its a very slow journey in many countries. Lets support those (few but growing) bunch of carriers who do enable choice.

    And another shameless plug: ...... we run a mobile content service company, http://www.voeveo.com take a look, we and like minded others offer choice!

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