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The Next Step towards an Open Internet

April 1, 2011 by

Now that the FCC has finally acted to safeguard network neutrality, the time has come to take the next step toward creating a level playing field on the rest of the Information Superhighway. Network neutrality rules are designed to ensure that large telecommunications companies do not squelch free speech and online innovation. However, it is increasingly evident that broadband companies are not the only threat to the open Internet. In short, federal regulators need to act now to safeguard social network neutrality.

The time to examine this issue could not be better. Facebook is the dominant social network in countries other than Brazil, where everybody uses Friendster or something. Facebook has achieved near-monopoly status in the social networking market. It now dominates the web, permeating all aspects of the information landscape. More than 2.5 million websites have integrated with Facebook. Indeed, there is evidence that people are turning to social networks instead of faceless search engines for many types of queries.

Social networks will soon be the primary gatekeepers standing between average Internet users and the web’s promise of information utopia. But can we trust them with this new-found power? Friends are unlikely to be an unbiased or complete source of information on most topics, creating silos of ignorance among the disparate components of the social graph. Meanwhile, social networks will have the power to make or break Internet businesses built atop the enormous quantity of referral traffic they will be able to generate. What will become of these businesses when friendships and tastes change? For example, there is recent evidence that social networks are hastening the decline of the music industry by promoting unknown artists who provide their music and streaming videos for free.

Social network usage patterns reflect deep divisions of race and class. Unregulated social networks could rapidly become virtual gated communities, with users cut off from others who could provide them with a diversity of perspectives. Right now, there’s no regulation of the immense decision-influencing power that friends have, and there are no measures in place to ensure that friends provide a neutral and balanced set of viewpoints. Fortunately, policy-makers have a rare opportunity to preempt the dangerous consequences of leaving this new technology to develop unchecked.

The time has come to create a Federal Friendship Commission to ensure that the immense power of social networks is not abused. For example, social network users who have their friend requests denied currently have no legal recourse. Users should have the option to appeal friend rejections to the FFC to verify that they don’t violate social network neutrality. Unregulated social networks will give many users a distorted view of the world dominated by the partisan, religious, and cultural prejudices of their immediate neighbors in the social graph. The FFC can correct this by requiring social networks to give equal time to any biased wall post.

However, others have suggested lighter-touch regulation, simply requiring each person to have friends of many races, religions, and political persuasions. Still others have suggested allowing information harms to be remedied through direct litigation—perhaps via tort reform that recognizes a new private right of action against violations of the “duty to friend.” As social networking software will soon be found throughout all aspects of society, urgent intervention is needed to forestall “The Tyranny of The Farmville.”

Of course, social network neutrality is just one of the policy tools regulators should use to ensure a level playing field. For example, the Department of Justice may need to more aggressively employ its antitrust powers to combat the recent dangerous concentration of social networking market share on popular micro-blogging services. But enacting formal social network neutrality rules is an important first step towards a more open web.

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iPad: The Disneyland of Computers

April 8, 2010 by

Tech commentators have a love/hate relationship with Apple’s new iPad. Those who try it tend to like it, but many dislike its locked-down App Store which only allows Apple-approved apps. Some people even see the iPad as the dawn of a new relationship between people and computers.

To me, the iPad is Disneyland.

I like Disneyland. It’s clean, safe, and efficient. There are lots of entertaining things to do. Kids can drive cars; adults can wear goofy hats with impunity. There’s a parade every afternoon, and an underground medical center in case you get sick.

All of this is possible because of central planning. Every restaurant and store on Disneyland’s Main Street is approved in advance by Disney. Every employee is vetted by Disney. Disneyland wouldn’t be Disneyland without central planning.

I like to visit Disneyland, but I wouldn’t want to live there.

There’s a reason the restaurants in Disneyland are bland and stodgy. It’s not just that centralized decision processes like Disney’s have trouble coping with creative, nimble, and edgy ideas. It’s also that customers know who’s in charge, so any bad dining experience will be blamed on Disney, making Disney wary of culinary innovation. In Disneyland the trains run on time, but they take you to a station just like the one you left.

I like living in a place where anybody can open a restaurant or store. I like living in a place where anybody can open a bookstore and sell whatever books they want. Here in New Jersey, the trains don’t always run on time, but they take you to lots of interesting places.

The richness of our cultural opportunities, and the creative dynamism of our economy, are only possible because of a lack of central planning. Even the best central planning process couldn’t hope to keep up with the flow of new ideas.

The same is true of Apple’s app store bureaucracy: there’s no way it can keep up with the flow of new ideas — no way it can offer the scope and variety of apps that a less controlled environment can provide. And like the restaurants of Disneyland, the apps in Apple’s store will be blander because customers will blame the central planner for anything offensive they might say.

But there’s a bigger problem with the argument offered by central planning fanboys. To see what it is, we need to look more carefully at why Disneyland succeeded when so many centrally planned economies failed so dismally.

What makes Disneyland different is that it is an island of central planning, embedded in a free society. This means that Disneyland can seek its suppliers, employees, and customers in a free economy, even while it centrally plans its internal operations. This can work well, as long as Disneyland doesn’t get too big — as long as it doesn’t try to absorb the free society around it.

The same is true of Apple and the iPad. The whole iPad ecosystem, from the hardware to Apple’s software to the third-party app software, is only possible because of the robust free-market structures that create and organize knowledge, and mobilize workers, in the technology industry. If Apple somehow managed to absorb the tech industry into its centrally planned model, the result would be akin to Disneyland absorbing all of America. That would be enough to frighten even the most rabid fanboy, but fortunately it’s not at all likely. The iPad, like Disneyland, will continue to be an island of central planning in a sea of decentralized innovation.

So, iPad users, enjoy your trip to Disneyland. I understand why you’re going there, and I might go there one day myself. But don’t forget: there’s a big exciting world outside, and you don’t want to miss it.

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TV Everywhere: Collusion Anywhere?

January 7, 2010 by

FreePress and the National Cable and Telecom Association (NCTA) are talking past each other about TV Everywhere, a new initiative from the cable TV industry. FreePress says TV Everywhere is the cable industry’s collusive attempt to limit competition; the NCTA says it’s an exciting new product opportunity for consumers. Let’s unpack this issue and see who might have a point, and who is blowing smoke.

We’re at a critical point in the history of television. In recent years, most people have gotten TV shows from a traditional cable or satellite service. Now more and more people are getting shows on the Internet. Cable companies need to adapt, somehow, or become dinosaurs.

Which brings us to TV Everywhere. The idea, according to the NCTA, is for cable companies to offer their residential subscribers online access to the same shows they get at home. Existing consumers get more, at no extra charge — who would complain about that? — but only if they keep buying traditional cable service.

FreePress tells a different story, in which cable industry companies have agreed among themselves that this is their sole Internet distribution strategy. If such an agreement exists, it is problematic — it looks like a classic market division agreement, which is bad for consumers and (as I understand it) presumptively illegal.

To understand why this would be bad, consider an analogy. Suppose there are only two pizza restaurants in Princeton, Alice’s Pizza and Bob’s Pizza, and neither one offers home delivery. Customers want delivery, so both restaurants are considering how to provide it. Alice and Bob meet, and they agree that Alice’s will only deliver to customers east of Nassau Street, and Bob’s will only deliver to customers west of Nassau Street. Alice and Bob have divided the market. Customers suffer because of the lack of competition.

Now obviously Alice and Bob are free to set reasonable limits on where they will deliver. Some customers may be too far away, or too difficult to deliver to for some reason. But customers would rightly complain if Alice and Bob agreed to divide the market. Even if we didn’t have smoking-gun evidence of an agreement, there might be very strong circumstantial evidence, for example if Alice offered to deliver to places five miles away while refusing to deliver to homes directly across the street from her Nassau Street restaurant, or if Alice and Bob’s restaurants were right next to each other but had totally disjoint delivery areas.

Notice too that Alice and Bob can’t get off the hook by pointing out that they are offering a new service — delivery — that they had never offered before. The problem is not that they are offering a new service, but that they have agreed not to offer certain other services.

How does this analogy apply to cable TV? Alice and Bob are like the cable companies, which are considering expanding beyond their traditional service. Home delivery of pizza is like Internet delivery of TV shows. As the cable industry expands to offer TV shows on the Internet, are they open to competing against each other, or have they agreed not to do so? If the cable companies have made an agreement to offer online TV shows only to their own residential customers, that looks like an agreement to divide the market — each company will be offering its product only in the limited geographic areas where it has a cable TV license.

So the key question — really the only one that matters, as far as I can see — is whether the cable companies have agreed not to compete. FreePress says, or strongly implies, that there is such an agreement. NCTA says there is not.

Who is right? Unfortunately the publicly available facts are consistent with either theory. Maybe TV Everywhere is just the first step and the cable companies will soon enough be competing with each other to distribute shows to Internet customers wherever they may be. Or maybe the companies have decided as a group to restrict themselves to TV Everywhere style services within geographic limits (or to otherwise restrict business models or prices).

At this point we can’t tell who is right. FreePress offers indirect but suggestive circumstantial evidence that questionable discussions might have occurred within the cable industry. The NCTA mostly just changes the subject, talking about the complexity of their industry and praising cable companies for offering shows on the Internet at all.

Unfortunately, public discourse about industry structure often confuses issues like this. We often say things like “the cable industry is worried about X” or “the cable industry wants Y”. That could be a kind of shorthand, meaning that the individual companies in the industry, facing competitive pressures, generally tend to worry about X or to want Y — perfectly reasonable market behavior. Or it could reflect an assumption that the industry acts as a unit, which of course is problematic. This ambiguity is especially common in political/policy debates, to our detriment. We’d be better off talking saying things like “cable companies worry about X” or “cable companies want Y”, just to remind ourselves that these are supposed to be independent actors who decide independently what they want.

For now, I’d say the cable companies bear watching. As the companies lay out their Internet strategies and products, I hope the antitrust authorities are watching closely. If the cable companies are really acting as competing companies, this will be obvious from their actions.

Filed Under: Uncategorized Tagged With: , ,

New York AG Files Antitrust Suit Against Intel

November 5, 2009 by

Yesterday, New York’s state Attorney General filed what could turn out to be a major antitrust suit against Intel. The suit accuses Intel of taking illegal steps to exclude a competitor, AMD, from the market.

All we have so far is the NYAG’s complaint, which tells one side of the case. Intel will have ample opportunity to respond, and the NYAG will ultimately have the burden of backing up its allegations with proof — so caution is in order at this point. Still, the complaint lays out the shape of the NYAG’s case.

The case concerns the market for x86-compatible microprocessors, which are the “brains” of most personal computers. Intel dominates this market but a rival company, AMD, has long been trying to build market share. The complaint offers a long narrative of Intel’s (and AMD’s) relationships with major PC makers (“OEMs”, in the jargon) such as Dell, HP, and IBM — the customers who buy x86 processors from Intel and AMD.

The crux of the case is the allegation that Intel paid OEMs to not buy from AMD. This is reminiscent of one aspect of the big Microsoft antitrust case of 1998, in which one of the DOJ’s claims was that Microsoft had paid people not to do business with Netscape.

I’ll leave it to the experts to debate the economic niceties, but as I understand it there is a distinction between paying someone to buy more of your product (e.g. giving a volume discount) as opposed to paying someone to buy less of your rival’s product. The former is generally fine, but if you have monopoly power the latter is suspect.

As the NYAG tells it, Intel tried to pretend the payments were for something else, but the participants knew what was really going on: that the payments would stop if an OEM started buying more from AMD. The evidence on this point could turn out to be important. Does the NYAG have “smoking gun” emails in which Intel made this explicit? Does the evidence show that OEMs understood the arrangement as the NYAG claims? I assume there’s a huge trove of email evidence that both sides will be digesting.

It will be interesting to watch this case develop. Thanks to tools like RECAP, many of the case documents will be available to the public. Stay tuned for more improvements to RECAP that will provide even better access.

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iPhone Apps: Apple Picks a Little, Talks a Little

May 27, 2009 by

Last week Apple, in an incident destined for the textbooks, rejected an iPhone app called Eucalyptus, which lets you download and read classic public-domain books from Project Gutenberg. The rejection meant that nobody could download or use the app (without jailbreaking their phone). Apple’s rationale? Some of the books, in Apple’s view, were inappropriate.

Apple’s behavior put me in mind of the Pick-a-Little Ladies from the classic musical The Music Man. These women, named for their signature song “Pick a Little, Talk a Little,” condemn Marian the Librarian for having inappropriate books in her library:

Maud: Professor, her kind of woman doesn’t belong on any committee. Of course, I shouldn’t tell you this but she advocates dirty books.

Harold: Dirty books?!

Alma: Chaucer!

Ethel: Rabelais!

Eulalie: Balzac!

This is pretty much the scene we saw last week, with the Eucalyptus app in the role of Marian — providing works by Chaucer, Rabelais, and Balzac — and Apple in the role of the Pick-a-Little Ladies. Visualize Steve Jobs, in his black turtleneck and jeans, transported back to 1912 Iowa and singing along with these frumpy busybodies.

Later in The Music Man, the Pick-a-Little Ladies decide that Marian is all right after all, and they praise her for offering great literature. (“The Professor told us to read those books, and we simply adored them all!”) In the same way, Apple, after the outcry over its muzzling of Eucalyptus, reverse course and un-rejected Eucalyptus. Now we can all get Chaucer! Rabelais! Balzac! on our iPhones.

But there is one important difference between Apple and the Pick-a-Little Ladies. Apple had the power to veto Eucalyptus, but the Ladies couldn’t stop Marian from offering dirty books. The Ladies were powerless because Old Man Mason had cleverly bequeathed the library building to the town but the books to Marian. In today’s terms, Mason had jailbroken the library.

All of this highlights the downside of Apple’s controlling strategy. It’s one thing to block apps that are fraudulent or malicious, but Apple has gone beyond this to set itself up as the arbiter of good taste in iPhone apps. If you were Apple, would you rather be the Pick-a-Little Ladies, pretending to sit in judgement over the town, or Old Man Mason, letting people make their own choices?

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