Tech Heavyweights in Battle to Control the Internet Economy?

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The Internet is universally lauded for the openness that lets virtually anyone launch a website or a Web services business. It’s a model that lets companies like Facebook grow to over 500 million users in a few short years and Google (NASDAQ: GOOG) build a multi-billion dollar search empire.

While the Web remains largely open, two highly regarded observers of the Internet scene, see a growing battle among the bigger players to lock in their dominant positions as the Web enters its next phase of growth. It’s a battle that they say could result in upstart successes, unexpected alliances and failures as new technologies and strategies emerge and users switch to whatever sites and services are the hottest and most useful.

“In the Internet economy, you look at mobile and it’s about iPhone versus Android. Each represents a point of control,” said Tim O’Reilly, a co-host of next month’s Web 2.0 Summit.

O’Reilly and fellow Web 2.0 Summit host John Battelle, spoke during a webcast Wednesday on the event’s theme: Points of Control: The Battle for the Network Economy.

While Google (NASDAQ: GOOG) originally supported and continues to partner with Apple (NASAQ: APPL) on the iPhone, O’Reilly said the search giant was forced to develop the Android platform because it viewed the iPhone as a relatively closed system.

“They foresaw the possibility of not having applications on the iPhone and realized they had to have an open platform or risk getting shut out by Apple, Microsoft or someone else,” said O’Reilly.

But O’Reilly said the points of control are a moving target. “[Apple] reinvented the mobile landscape, but they don’t do search very well and they’re going to have to figure that out … or ask where they can get that capability,” he said, adding that an alliance with rival Microsoft for its Bing search service isn’t out of the question because both companies want to defeat Google.

Battelle and his team developed an interactive Points of Control map designed to represent the key areas of control across the Internet landscape. For example, the “Land of Search” is dominated by Google, while the “Kingdom of Ecommerce” is ruled over by Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY).

There’s also a small “Enterprise Island” which Battelle admits is a very important segment of the Internet landscape and could easily be its own map. “A lot of structured content in the enterprise will start to inform consumers going forward,” he said.

At the other end of the spectrum, Battelle noted that gaming has emerged as another control point, with the phenomenal rise of Zynga, publisher of the popular game Farmville on Facebook. “Zynga can be seen as a point of identity control and ecommerce,” said Battelle.

Microsoft and new approaches to privacy

O’Reilly took note of a recent treatise by Microsoft’s (NASDAQ: MSFT) outgoing chief software architect Ray Ozzie as a sign of the challenges the software giant faces in trying to establish more points of control.

“I think Ray probably wanted Microsoft to place a bigger bet on an unknown future than known, but Microsoft, as primarily an enterprise company, is in a very different place than a pure consumer company,” he said.

O’Reilly also said he believes the current, most widely-used approaches to online privacy are “doomed to fail.”

“Consumers will make tradeoffs of privacy for services,” he said. “I guarantee you that Google knows where I live. We are leaking so much data that it’s impossible to hide.”

O’Reilly said new approaches he’s seen in labs and broader use of existing technology, such as two-factor authentication, are needed more than ever to ensure privacy and security, particularly with the rising popularity of mobile devices.

“We’re still driven by the idea of typing something, but there are ways in which the device just recognizes you; even by how you walk, your gait,” he said. “There’s a lot of interesting innovation waiting to happen.”

David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.