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I'm not sure I find this article all that compelling because I think it's founded on a faulty premise:

> Email is the "dumb pipe" version of communication technology, which is why it remains popular.

Email might be a dumb pipe. Gmail is anything but that.

Data mining personal emails is an advertiser's dream. The second I start sending emails to my spouse about purchasing a house, lo and behold Google can show me an ad for homeowner's insurance. Given correct semantic analysis, it's incredibly persuasive and highly targeted advertising.

It's arguably akin to wiretapping or spying on my text messages - and lest we forget, there was a huge class-action lawsuit against Google that argued just that.

> Carriers resist becoming "dumb pipes" because there's no money in it

There's a boatload of money to be made in email, even as a 'dumb pipe', if you're an advertiser targeting ads at people based on the contents of those e-mails.

Further, and this I could easily be wrong about, isn't the whole American telecom industry the complete antithesis to the argument "there's no money to be made as a dumb pipe"? Even if net neutrality is maintained, I don't see anyone realistically arguing that Comcast will become nigh-unprofitable in the near future.

Maybe there's no money to be made as a newcomer onto the scene, and competition can be fierce at the lower tiers, but Gmail is certainly an established player in the e-mail game.




To support the statement that dumb pipes can be incredibly profitable: Intelsat. They openly admit they are a commodity business focused on MHz and Mbps, and have no problem consistently hitting 70% margins.


Businesses like Intelsat's have high barriers to entry (literally!). If the business were easier to get into, competition would be fiercer, and the margins would be quickly erased.


I don't disagree that competition would destroy those margins, but isn't a barrier to entry just a barrier entry? And the telcos like ATT and Comcast will still have the good fortune of being on the other side of the barrier, no? Whether it's launch costs, thousands of mile of cable, or spectrum rights, fat margins are supported all the same.


It's well established that high barriers to entry reduce competitive pressures on margin. If nothing else, it discourages outsiders from trying out new business models that drive down prices, because it increases the amount of capital necessary to test out a new approach (and the capital is harder to raise if you're using a new strategy.)

Consider Uber vs taxis - if there were massive entry costs to the cab / private car category, a company like Uber would have trouble raising enough money to get launched. So the existing cabs wouldn't ever experience the competitive pressure from Uber, because it would never enter the market.




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