Yesterday at Forbes, William Pentland had an interesting piece on possible disintermediation in the electricity market.

In New York and New England, the price of electricity is a function of the cost of natural gas plus the cost of the poles and wires that carry electrons from remotely-sited power plants to end users. It is not unusual for customers to spend two dollars on poles and wires for every dollar they spend on electrons. The poles and wires that once reduced the price of electricity for end users are now doing the opposite. To make matters worse, electricity supplied through the power grid is frequently less reliable than electricity generated onsite. In other words, rather than adding value in the form of enhanced reliability, the poles and wires diminish the reliability of electricity.

If two thirds of the cost of electricity is the distribution mechanism, then, as Pentland notes, there is a palpable opportunity to switch to at-home electricity generation. Some combination of solar power, batteries, and natural gas-fired backup generators could displace the grid entirely for some customers. And if I understand my electricity economics correctly, if a significant fraction of customers go off-grid, the fixed cost of maintaining the grid will be split over fewer remaining customers, making centrally-generated electricity even more expensive. The market for such electricity could quickly unravel.

While it remains to be seen whether electricity generation will indeed become decentralized, such disintermediation would be the continuation of a decades-long social trend. It all began (plausibly) in 1984. The Macintosh was released, and desktop computing became a thing. Desktop printers disintermediated printing departments, Kinkos, and the steno pool. The Internet has disintermediated telephone companies, music labels, television networks, newspapers, and much more. Online education is unbundling university courses.

What’s even more exciting is the next generation of disintermediating technologies. Bitcoin could displace some financial institutions—to varying degrees, banks, the Federal Reserve, Western Union, and credit card companies. Mesh networks could solve the last-mile problem of Internet service delivery, which tends to be monopolized or at least concentrated. 3D printers could disintermediate supply chains. 3D chemical printers could disintermediate drug companies and the FDA.

Delivery drones like Amazon Prime Air‘s arguably disrupt package delivery services, though not entirely because FedEx and UPS will still run drone-utilizing distribution networks. More importantly, delivery drones disintermediate the real estate market for small businesses. It will no longer be important, if you run a local business, to have a storefront in a prime location. Your customers can order online and items can be delivered to them in half an hour straight from the factory or artisanal workshop. It could be the Etsyfication of the economy.

If information, electricity, money, and production all get disintermediated, what is left? If these trends continue, the future will be one in which human interaction is unmediated, and to a surprising degree, unregulable. It will be difficult to stop a willing buyer and seller from transacting. Information about the proposed transaction might not be censorable. Payment via Bitcoin or other cryptocurrencies can’t be stopped. Production and delivery of the item may be difficult or impossible to detect and intercept.

Intermediaries are often used by governments as points of control. As we shed intermediaries, it may become possible to live one’s entire life without any particular authority even knowing that one exists. I doubt that we’ll ever get that far in the process, because using non-abusive intermediaries often makes economic sense. But for the next few decades, at least, I expect the trend to continue and the world to get a lot more interesting.

Originally posted at elidourado.com

I just finished Ken Auletta’s latest book, Googled: The End of the World As We Know It, and I highly recommend it. Auletta is an amazingly gifted journalist and knows how put together a hell of good story.  It helps in this case that he was granted unprecedented access to the Google team and their day-to-day workings at the Googleplex. I’m really shocked by the level of access he was granted to important meetings and officials–over 150 interviews with Googlers, including 11 with CEO Eric Schmidt and several with founders Sergey Brin and Larry Page.  That’s impressive.

The book shares much in common with Randall Stross’s excellent Planet Google: One Company’s Audacious Plan to Organize Everything We Know, which I reviewed here earlier this year.  Both books recount the history of Google from its early origins to present. And both survey a great deal of ground in terms of the challenges that Google faces as it matures and the policy issues that are relevant to the company (privacy, free speech, copyright law, etc).

What makes Auletta’s book unique is the way we taps his extensive “old media” world contacts and integrates such a diverse cast of characters into the narrative — Mel Karmazin (former Viacom, now Sirius XM), Bob Iger (Disney), Howard Stringer (Sony), Martin Sorrrell (WPP), Irwin Gotlieb (Group M), and even the Internet’s “inventor”–Al Gore!   Auletta interviews them or recounts stories about their interactions with Google to show the growing tensions being created by this disruptive company and its highly disruptive technologies.  There are some terrifically entertaining anecdotes in the book, but the bottom line is clear: Google has made a lot of enemies in a very short time.

Indeed, the book is as much about the decline of old media as it is about Google’s ascendancy.  What Auletta has done so brilliantly here is to tell their stories together and ask how much old media’s recent woes can be blamed on Google and digital disintermediation in general. “If Google is destroying or weakening old business models,” Auletta argues, “it is because the Internet inevitably destroys old ways of doing things, spurs ‘creative destruction.’ This does not mean that Google is not ambitious to grow, and will not grow at the expense of others. But the rewards, and the pain, are unavoidable,” he concludes. Google is essentially just the tip of a giant wave of digital disintermediation that is tearing through the media landscape, Auletta argues. But because it is the biggest and most visible part of this wave, it invites greater scrutiny and scorn.  And then there are more profound questions about Google and the digital disintermediators: “What we don’t know is whether the new digital distribution systems will generate sufficient revenue to adequately pay content providers.”  Auletta isn’t just talking about old media giants, but about content creators in general. It’s the “digital sharecropper” concern that Nick Carr has articulated in his book about cloud computing, The Big Switch. [reviewed here]  In the relentless pursuit of greater efficiencies, do digital disintermediators destroy the cross-subsidization methods that have traditionally funded the creation of news, information, and entertainment? If so, are we better off because older, “less efficient” ways of doing business are replaced with better ones. Or are we instead left with less high-quality journalism and entertainment because of funding streams are drying up or being siphoned off by the new digital disintermediators?

Those are heated question frequently debated by Internet optimists and pessimists. It’s a great debate, and one that will no doubt continue to rage for many years to come. The problem for Google — as the interviews Auletta conducts with others in the book makes clear — is that it will increasingly become the scapegoat for every problem under the digital sun. “To blame Google is to prescribe a cure from the wrong illness,” Auletta notes.  Nonetheless, as the biggest and most visible of the digital disruptors, it’s clear the company will have a target on its back for many years to come.

Worse yet for Google, Aulleta states, is that the company is “waking the government bear,” not just because of its growing size but also because of the sheer amount of information it collects and puts at the world’s disposal.  Privacy, child safety, defamation, and copyright are just a few of the concerns raised by Google’s mission “to organize the world’s information and make it universally accessible and useful.”  Google has gone to great pains to address these concerns, but it’s unlikely to ever be enough to satisfy government officials, who will be fielding increasing complaints from disgruntled competitors and activist groups at the same time.

These concerns could play into the hands of those who think antitrust action against Google is needed. Indeed, I fear that’s on the way given the myopia of Washington. As I pointed out in my lengthy review of Gary Reback’s ode to antitrust regulation, Free the Market: Why Only Government Can Keep the Marketplace Competitive, the static competition, fixed-pie mindset that rules Washington leads many to support antitrust crusades against the tech giants of the day.  In the 70s it was IBM. In the 90s it was Microsoft.  In the next decade it will likely be Google.

“Today, Google appears impregnable,” Auletta notes, “But a decade ago so did AOL, and so did the combination of AOL Time Warner.”  Indeed, I have written extensively about that deal and many others that critics predicted would bring on a techno-apocalypse.  Of course, we know how the story ended in those cases. Markets and technologies evolved while the old giants rested on their laurels. Dynamic competition and innovation are the rule; the static mindset crowd that pretends today’s giants are the end of the story just don’t have history on their side.

But that doesn’t mean Google will be able to avoid a massive regulatory onslaught. In fact, I have pending bets going right now with several friends that, before the Obama Administration leaves office, it will launch the biggest, most costly antitrust jihad in U.S. history against Google.  I can’t tell you how much I am hoping to lose those bets.

P.S. I have enjoyed many of Auletta’s earlier articles and books, especially Backstory: Inside the Business of News (2003),  but I highly recommend that you check out the latest essay he posted on his blog about “Media Maxims.”  Outstanding insights.

A few months ago, I penned a mega book review about the growing divide between “Internet optimists and pessimists.” I noted that the Internet optimists — people like Chris Anderson, Clay Shirky, Yochai Benkler, Kevin Kelly, and others — believe that the Internet is generally improving our culture, economy, and society for the better. They believe the Net has empowered and liberated the masses, sparked unparalleled human creativity and communication, provided greater personalization and customization of media content, and created greater diversity of thought and a more deliberative democracy. By contrast, the Internet pessimists — including Nick Carr, Andrew Keen, Lee Siegel, and others — argue that the Internet is destroying popular culture and professional media, calling “truth” and “authority” into question by over-glamorizing amateurism and user-generated content, and that increased personalization is damaging deliberative democracy by leading to homogenization, close-mindedness, and an online echo-chamber. Needless to say, it’s a very heated debate!

I am currently working on a greatly expanded version of my “Net optimists vs. pessimists” essay for a magazine in which I will draw out more of these distinctions and weigh the arguments made by those in both camps. I plan on concluding that article by arguing that the optimists generally have the better of the argument, but that the pessimists make some fair points about the downsides of the Net’s radically disintermediating role on culture and economy.

So, this got me thinking that I needed to come up with some sort of a label for my middle-of-the-road position as well as a statement of my personal beliefs. As far as labels go, I guess I would call myself a “pragmatic optimist” since I generally side with the optimists in most of these debates, but not without some occasional reservations. Specifically, I don’t always subscribe to the Pollyanna-ish, rose-colored view of the world that some optimists seem to adopt. But the outright Chicken Little-like Ludditism of some Internet pessimists is even more over-the-top at times. Anyway, what follows is my “Pragmatic (Internet) Optimist’s Creed” which better explains my views. (Again, read my old essay first for some context about the relevant battle lines in this intellectual war).

The Pragmatic (Internet) Optimist’s Creed

I believe that the Internet is reshaping our culture, economy, and society – in most ways for the better, but not without some heartburn along the way.

I believe that the world of information abundance that has dawned is vastly superior to the world of information poverty that we just left. But I also understand that not all information is equal and that that the rise of abundance raises concerns about information overload, objectionable content, and the role of “authority” and “truth.”

I believe the era of traditional Mass Media is coming to an end, but “professional” media institutions and creators continue to play a vital role in the creation, aggregation, and dissemination of news, information, culture, and entertainment. The Internet, however, will force gut-wrenching changes on traditional media institutions and some of the more vital ones (ex: daily local newspapers) will struggle to re-invent themselves, or may wither away entirely.

I believe that “professional” journalism faces very serious challenges from the rise of the Internet and user-generated content, but I also believe that hybrid forms of news-gathering and reporting are offering society exciting new ways to learn about the world around them.

I believe Wikipedia is an amazing example of collection action / intelligence at work, but I also understand it is not without flaws and limitations. I believe Wikipedia is a wonderful complement, but not a complete substitute, for other media and information sources and inputs.

I believe that free and open source software (FOSS) has offered society enormous benefits, but I do not believe that FOSS (or “wiki” models) will replace all proprietary business models or methods. Each model or mode of production has its place and purpose and they will continue to co-exist going forward, albeit in serious tension at times.

I believe the Long Tail is a powerful phenomenon, but not “the future of all business.” It is now a more important part of the future of business, but not the entirety of it.

I believe there is a difference between “remix culture” and “ripoff culture.” Remixing (including mash-ups of all sorts) generally enhances and extends culture and creativity. Blatant content piracy, on the other hand, can discourage the creative efforts of the masses. Likewise, hacking, circumvention, and reverse-engineering all play an important and legitimate role in our new digital economy, but one need not accept the legitimacy of those activities when conducted for nefarious purposes (think identity theft or chip modding to facilitate video game piracy.)

I believe that the Internet has empowered the masses and created a world of “pro-sumers” that gives every man, woman, and child a soapbox on which to speak to the world. But that does not mean that all of them will have something interesting to say, and I won’t praise user-generated content as a good in and of itself. It’s quality, not volume, that counts.

I believe that the Internet’s empowering nature has changed much about society and culture, but I do not believe in the romanticism espoused by some about how the Net “remaking man” or changing human nature in a fundamental way. The Internet does not liberate us from all earthly constraints and it cannot magically solve all of humanity’s problems.

I believe that the Internet is reinvigorating deliberative democracy and giving us increased exposure to a breathtaking diversity of views that were previously inaccessible, at least for most of us. On the other hand, I understand that some Netizens will often seek out only those views that reinforce their pre-existing biases.

I believe in the power of freedom of speech and expression, and appreciate that the Internet and the rise of user-generated content has given us a world of unprecedented information and cultural riches. I also understand, however, that unrestricted freedom of speech and expression permits an increase in the prevalence of objectionable, even harmful, speech and content. On net, however, (excuse the pun) the Internet is the most important medium of human communication and expression that the world has ever known.

In sum, I believe there are more reasons to be optimistic than pessimistic about the Internet and its role in shaping our lives, culture, economy, and society. But that doesn’t mean it will be all roses going forward.