The Search, a popular new book by John Battelle about Google and the Web search-engine industry, provides a revealing look at how in its early years Google’s founders were unsure of how to channel their enviable position as intermediaries between Internet users and the search for Internet content into a viable business model.

The answer emerged, as advertisers’ willingness to pay for visibility in search results became the basis for the multi-billion-dollar paid search market.

Analysis of the Internet service provider business suggests that it has engaged in a similar decade-long search. Although providing connectivity is certainly a profitable enterprise, ISPs have understandably sought to identify how they can leverage their role as intermediaries to generate additional revenues.

In the 1990s, many ISPs focused on providing both connectivity and content. Large ISPs such as America Online developed exclusive content.

Meanwhile, companies such as BCE pursued convergence strategies, buying TV networks (CTV) and publishers (the Globe and Mail), aiming to combine connectivity and content. Recently, the industry has relied on bundling to cross-sell Web services with cable or satellite TV as well as with conventional phone and wireless services.

While some consumers resent bundling, there is a far more troubling strategy unfolding that involves the creation of a two-tiered Internet. This strategy threatens to upend the longstanding principle of network neutrality under which ISPs treat all data equally. It would enable ISPs to give priority to their own network traffic over that of competitors.

The neutrality principle has served ISPs, Internet companies, and Web users well. It enabled ISPs to argue that they function much like common carriers and that they should therefore be exempt from liability for the content that passes through their systems.

Websites, e-commerce firms, and other innovators have also relied on network neutrality, secure in the knowledge that the network treats all equally. That enables those with the best products and services, not the deepest pockets, to emerge as market winners.

Internet users have similarly benefited from the network neutrality principle. They enjoy access to greater choice in goods, services, and content regardless of which ISP they use. While ISPs may compete based on price, service, or speed, they have not significantly differentiated services based on availability of Web content or applications, which remains the same for all.

In short, network neutrality has enabled ISPs to invest heavily in new infrastructure, fostered greater competition and innovation, and provided all Canadians with equal access to a dizzying array of content.

Notwithstanding its benefits, ISPs recently have begun to chip away at the principle.

Internet telephony (also called Voice-over-Internet Protocol, or VoIP) provides an illustration of this trend. As each major ISP races to offer its own Internet telephony services, some have begun to use their network position to unfairly disadvantage the competition.

For example, Canadian cable provider Shaw now offers a premium VoIP service that promises to prioritize Internet telephony traffic for a monthly fee. The potential implications of such a service are obvious — the use of competing services will require a supplemental fee, while Shaw will be free to waive the charge for its own service.

Other ISPs have gone even further. Quebec-based Vidéotron has expressed great hostility toward third-party Internet telephony providers such as Skype, labelling them “parasitic” and foreshadowing potential future action. In the U.S., at least one ISP briefly blocked competing Internet telephony traffic until the Federal Communications Commission ordered it to cease the practice.

While ISPs once avoided content intervention, earlier this summer Telus blocked access to Voices For Change, a pro-union website. The company has since indicated it was a one-time event, though in the process it also blocked more than 600 additional websites hosted at the same IP address and cut off entire communities from the controversial content.

Most recently, customers of Rogers, Canada’s largest cable ISP, have speculated the company has begun to block access to peer-to-peer services such as BitTorrent and downloading of podcasts from services such as iTunes.

While Rogers initially denied the charges, it now says it uses “traffic shaping” to prioritize some online activity. As a result, applications that Rogers deems to be a lower priority may cease to function effectively.

Moreover, blocking services, websites, and certain applications may not be the end game. Some ISPs see the potential for greater revenue by charging websites or services for priority access to their customers.

In the U.S., BellSouth chief technology officer William L. Smith, recently mused about the potential to charge a premium to websites for prioritization downloading, noting that Yahoo could pay to load faster than Google. In fact, reports last week indicated that BellSouth and AT&T are now lobbying the U.S. Congress for the right to create a two-tiered Internet, where their own services would be transmitted faster and more efficiently than competitors.

These developments should send alarm bells to Internet companies, users, and regulators. While prioritizing websites or applications may hold some economic promise, the lack of broadband competition and insufficient transparency surrounding these actions will rightly lead to growing calls for regulatory reform that grants legal protection for the principle of network neutrality.

The Search, a popular new book by John Battelle about Google and the Web search-engine industry, provides a revealing look at how in its early years Google’s founders were unsure of how to channel their enviable position as intermediaries between Internet users and the search for Internet content into a viable business model.

The answer emerged, as advertisers’ willingness to pay for visibility in search results became the basis for the multi-billion-dollar paid search market.

Analysis of the Internet service provider business suggests that it has engaged in a similar decade-long search. Although providing connectivity is certainly a profitable enterprise, ISPs have understandably sought to identify how they can leverage their role as intermediaries to generate additional revenues.

In the 1990s, many ISPs focused on providing both connectivity and content. Large ISPs such as America Online developed exclusive content.

Meanwhile, companies such as BCE pursued convergence strategies, buying TV networks (CTV) and publishers (the Globe and Mail), aiming to combine connectivity and content. Recently, the industry has relied on bundling to cross-sell Web services with cable or satellite TV as well as with conventional phone and wireless services.

While some consumers resent bundling, there is a far more troubling strategy unfolding that involves the creation of a two-tiered Internet. This strategy threatens to upend the longstanding principle of network neutrality under which ISPs treat all data equally. It would enable ISPs to give priority to their own network traffic over that of competitors.

The neutrality principle has served ISPs, Internet companies, and Web users well. It enabled ISPs to argue that they function much like common carriers and that they should therefore be exempt from liability for the content that passes through their systems.

Websites, e-commerce firms, and other innovators have also relied on network neutrality, secure in the knowledge that the network treats all equally. That enables those with the best products and services, not the deepest pockets, to emerge as market winners.

Internet users have similarly benefited from the network neutrality principle. They enjoy access to greater choice in goods, services, and content regardless of which ISP they use. While ISPs may compete based on price, service, or speed, they have not significantly differentiated services based on availability of Web content or applications, which remains the same for all.

In short, network neutrality has enabled ISPs to invest heavily in new infrastructure, fostered greater competition and innovation, and provided all Canadians with equal access to a dizzying array of content.

Notwithstanding its benefits, ISPs recently have begun to chip away at the principle.

Internet telephony (also called Voice-over-Internet Protocol, or VoIP) provides an illustration of this trend. As each major ISP races to offer its own Internet telephony services, some have begun to use their network position to unfairly disadvantage the competition.

For example, Canadian cable provider Shaw now offers a premium VoIP service that promises to prioritize Internet telephony traffic for a monthly fee. The potential implications of such a service are obvious — the use of competing services will require a supplemental fee, while Shaw will be free to waive the charge for its own service.

Other ISPs have gone even further. Quebec-based Vidéotron has expressed great hostility toward third-party Internet telephony providers such as Skype, labelling them “parasitic” and foreshadowing potential future action. In the U.S., at least one ISP briefly blocked competing Internet telephony traffic until the Federal Communications Commission ordered it to cease the practice.

While ISPs once avoided content intervention, earlier this summer Telus blocked access to Voices For Change, a pro-union website. The company has since indicated it was a one-time event, though in the process it also blocked more than 600 additional websites hosted at the same IP address and cut off entire communities from the controversial content.

Most recently, customers of Rogers, Canada’s largest cable ISP, have speculated the company has begun to block access to peer-to-peer services such as BitTorrent and downloading of podcasts from services such as iTunes.

While Rogers initially denied the charges, it now says it uses “traffic shaping” to prioritize some online activity. As a result, applications that Rogers deems to be a lower priority may cease to function effectively.

Moreover, blocking services, websites, and certain applications may not be the end game. Some ISPs see the potential for greater revenue by charging websites or services for priority access to their customers.

In the U.S., BellSouth chief technology officer William L. Smith, recently mused about the potential to charge a premium to websites for prioritization downloading, noting that Yahoo could pay to load faster than Google. In fact, reports last week indicated that BellSouth and AT&T are now lobbying the U.S. Congress for the right to create a two-tiered Internet, where their own services would be transmitted faster and more efficiently than competitors.

These developments should send alarm bells to Internet companies, users, and regulators. While prioritizing websites or applications may hold some economic promise, the lack of broadband competition and insufficient transparency surrounding these actions will rightly lead to growing calls for regulatory reform that grants legal protection for the principle of network neutrality.