by Dana Blankenhorn
  Volume VII, No. XLIX

This Week's Clue: Balkanizing The Net

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This Week's Clue: Balkanizing The Net
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
Jan Is Back (And Jobs Has Got Him)
Republican Congress Legalizes Spam
Google's Plan To Make People Play Nice
Clued-in, Clueless

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For the Week of December 8, 2003

It's a myth that the Internet is stateless.

It's a myth we have chosen to believe for decades. But it's a myth government may no longer choose to accept.

The key to your state is your IP number. Those four blocks of three numbers each do not necessarily identify you personally, but they are handed out geographically.

Companies like IP2Location make money selling this kind of data to Web sites. And they do not just do it for convenience. One of the explicit promises is it will "filter access from countries you do not do business with."

And if private companies can control what you do using your IP number, then so can governments. Many do already.

As this increases over the next few years, the free and global Internet will disappear. If Germany wants to control when its shops are open, so online merchants don't get an "unfair advantage," it can simply order that they look at IP numbers, and don't fulfill orders if those numbers come in when the location in question is outside normal business hours.

There are many motives for governments to do this. The fear of competition is just one. But the motive that will prove most telling is taxes.

Last week the FCC held hearings on Voice Over IP , and behind the rhetoric was a simple fact that we used to love insulting countries like Panama over . Much of the savings from VOIP comes from tax evasion. (As phone companies switch more long distance traffic to IP, the percentage of savings from tax avoidance increases.)

For decades state governments, and most especially Third World governments, choked their local economies with taxation on telephone calls. In many countries the result was that calls cost dollars per minute to buy, even when they cost pennies per minute to supply. Telephony was the perfect scapegoat. "Don't tax you, don't tax me, tax that man behind the tree." Telephony was the man behind the tree.

What we laughing Americans failed to understand was that we were doing it too. Our calling volumes were higher, so our tax rates could be lower, and we made it up on volume, but we were doing it too. Billions of dollars flowed into state and local governments through taxes on phone calls.

As more traffic has moved to IP, the cost of having a line has risen. Both the phone company and the government are becoming increasingly dependent on basic line charges for their survival. When people drop second or third lines (as they have) the charges on that first line go up. I'm now paying $60 per month for a regular phone line that cost $30 a decade ago, just to maintain service. Switching to cellular doesn't work, the taxes follow. But, for many businesses, switching to IP for telephony does help, because "the Internet is stateless."

But it's not.

With the change in consumer behavior, a second constituency has emerged, determined to use IP identification against VOIP, namely carriers . They have been losing business to VOIP, and they mean to seize it back . By supporting taxation and regulation of VOIP, through FCC chairman Michael Powell, they can place a burden on smaller competitors that can't be borne, because the administrative costs can't be spread out among a relative handful of callers.

And remember, if VOIP can be regulated and taxed like regular telephony, then so can any Internet service. Increasingly that's what government and old-line businesses want. My guess is they will get it.

But fear not. What this really means, I think, is we're about to get a new arms race in "IP masking." Ipv4 does not include enough unique numbers for today's Internet. So increasingly IP numbers identify networks, not computers. The Linksys box under my desk creates IP numbers for the PCs on my network, and when my PC uses its DSL line a similar device over at Earthlink assigns me a temporary IP number. In such a conditional world it should be simple to "mask" the number, to give a gatekeeper an IP number it can live with, rather than an IP number that truly identifies you. That technology will appear when the mass market (or an elite market that wants to evade regulation) decides it is necessary.

If you thought the fight over Kazaa has been fierce, it will be a skirmish next to the fight over IP Masking.


Shameless Self-Promotion

I work as a business analyst with Progressive Strategies, a New York research firm that has the ear of the world's top technology companies.

My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know. Remember: it's journalism that keeps the Clues coming...


Shameless Promotion

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If you're serious about Internet Commerce, you need Whitehat Interactive . Get it today.


Takes on the News

Jan Is Back (And Jobs Has Got Him)

When Jan Johansen was 15 he created a nifty little program to crack the copy protection on DVDs, so that Linux-based computers could use them. The DeCSS controversy became the first case in which basic software was lumped in with child pornography, a forbidden good you could even be liable for linking with.

Many wondered at the time what Jan's dad thought of all this. Jan not only faced prosecution in the U.S., he still faces legal persecution in Norway. (He was acquitted, but the prosecution has appealed.) He still may go to jail there, if the Bush Administration and MPAA are able to convince a court he's a danger to society.

Now most parents would spank the little brat, try and get him into a good school, and urge that he sin no more. Jan's dad isn't like that apparently, because now the kid is back, with a new program that cracks the "protections" (anti-copying regime) built into Apple's iTunes service . This time, while the author (Jan) is an adult, dad is very much in the picture.

While most reporters are covering Jan, in other words, I want to hear more from his dad. The dad may or may not be a programmer, but he is most definitely (now) a political activist. This is no longer merely a technology story, in other words. It's a political story, and a family story. I wonder when the press will figure that out?


Republican Congress Legalizes Spam

It's called an act "against spam," , but the new U.S. anti-spam bill actually legalizes spam.

The bill, as passed, puts some minor roadblocks in front of "e-mail marketers," but if they "promise" to respect unsubscribes, if the offer is legal, and if they capture names through a "legitimate" transaction (which could be with a third party "list broker") they're free to spam all they want.

We're already seeing major companies become much more aggressive about "harvesting" your e-mail address. Kinko's sent me a spam recently, offering a discount if I gave them the e-mail address they already had. My credit card company (which prides itself on being ethical) just sent me a spam allowing me to "view my statement" and even pay online. (No, they didn't ask for prior permission.) Companies are asking for (and will soon demand) your e-mail address whenever you do business with them.

Consumers can fight this abuse easily with cheap software like Mailwasher . Just add the corporate spammers to your personal blacklist, and make sure you wash all your mail before allowing it into your inbox.

The bigger problem is faced by the Internet infrastructure. While "normal" hoser spam (fake addresses, fake offers) was made illegal (guaranteeing it will simply move beyond the reach of U.S. law) there are hundreds of big companies, sending spam without permission, who will be able to take spam blocklists to court for stopping their "legal" e-mail. The flood of "marketing" to be unleashed will also further delay the delivery of regular (one-on-one) mail. It will dramatically raise the bandwidth costs of every ISP and their customers, meaning higher prices for basic Internet service and web hosting (even if you never use e-mail marketing). One result may be that you will be charged an extra fee (call it the Bush Tax) for having an e-mail address, as opposed to mere HTTP access.

E-mail, as a legitimate marketing vehicle, has been dealt a fatal blow. My guess is this newsletter will be forced into becoming a blog, perhaps sooner rather than later.

Google's Plan To Make People Play Nice

The "business" of search engine optimization (SEO) is being dealt a hard blow by Google , which has begun dumping sites from its listings if they over-use meta-tags and other SEO "techniques" .

Retailers who have been relying on SEO are shocked, shocked! Seth Finkelstein (one of the good guys) has some more legitimate theories as to what is happening .

Basically, SEO is a spammer's trick, and Google is trying to run a legitimate business that doesn't do business with spammers. The game between Google and what it calls "Google-Spam" has been going on for months now, and it will only escalate with time.

In the latest twist, Finkelstein writes, Google has begun using the Bayesian filter approaches long-used by many anti-spam programs. If a search based on simple keywords delivers too many spam-related games, you dump the site from the index.

Innocent bystanders are drilled by this kind of thing, because the line between a clever, legitimate business and a thief isn't bright and clear. As Finkelstein notes, "technical solutions may have unintended consequences." It's a delayed result of the transition from a human-delivered index (Yahoo) to something done entirely by computers (Google). Some human intelligence must be applied to override bad computer decisions, but the volume of intelligence necessary to provide a fair result may exceed Google's ability to pay. Thus, it will do everything it can with algorithms, and I wish them luck, even if the risk to my traffic remains high.

Everyone pays a price for policing. Part of that price is that police will catch us instead of the crooks. We trust that this will all get sorted out through some sort of adjudication system, but that does not always happen. This is a risk we all deal with in our daily lives. We must now deal with it online as well as off. And to those complaining about all this, I have one question. Who would you rather trust, Sergey Brin or John Ashcroft?


Clued-in, Clueless

Clued-in (unfortunately) is a new New York Times program that forces full-page ads on unregistered users coming from "partner sites" (like Google). Note the detailed URL.

Clueless was the small amount of publicity given Dell's move of support calls from India to the U.S. Price isn't the only factor in making business decisions, and the price advantages of East Asia are not as great as advertised.


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