March 2012

I was astounded to see the misstatements and misapplication of math in a recent Atlantic blog post called “How Much Is Your Data Worth? Mmm, Somewhere Between Half a Cent and $1,200.”

For his back-of-envelope calculations about the value of personal data, Alexis Madrigal writes, “User profiles — slices of our digital selves — are sold in large chunks, i .e. at least 10,000 in a batch. On the high end, they go for $0.005 per profile, according to advertising-industry sources.”

The dollar value isn’t crazy—a CPM rate of about five cents is on the low end—but he has got the nature of the transaction precisely wrong. Advertisers place ads with content providers like Facebook, Google, and ad networks. The latter direct those ads to their visitors, trying to get ads to the people the advertiser wants to reach. They do not sell the information they use to guess at what interests consumers—consumers’ profiles, to whatever extent they exist.

If content providers sold data about their visitors to advertisers, this would undercut their own role in the advertising business. There wouldn’t be a second sale to make. And doing so would require a radical re-engineering of targeted advertising, which is largely cookie-based. The purchaser of the profile wouldn’t know how to find the subject of the profile in order to deliver an ad.

Madrigal repeats several times that “profiles” are “sold.” It’s a highly misleading characterization, creating the impression that dossiers of information about people are circulating the Internet on a strange black market. On the contrary, profiles are held—not sold—by content providers and advertising networks. There are privacy concerns enough with that business model. We don’t need it mis-described.

I probably would have let this pass. Madrigal isn’t the first to get the advertising business model wrong. (And he hasn’t repeated the error that I know of.) But then comes the bad math.

Writes Madrigal:

[L]et’s not forget the rest of the Internet advertising ecosystem either, which the Internet Advertising Bureau says supported $300 billion in economic activity last year. That’s more than $1,200 per Internet user and much of the online advertising industry’s success is predicated on the use of this kind of targeting data.

Personal information is one input into part of the online advertising. It makes no sense to assign all the value from the entire ecosystem to that one input. The auto industry is about a $400 billion industry, and there are about 250 million car tires sold in the U.S. each year. This does not mean that tires are worth over $2,000 each.

The idea, evidently, is to make the case that consumers are losing a lot in the advertising ecosystem today. That may or may not be true. I’d like to see it shown in the success of a company like Personal or others in the Personal Data Ecosystem, which could re-jigger the personal-data > free-content bargain. But I don’t think that misstating how advertising works and exploding the value of personal data is a good way to make the case for change.

On the podcast this week, Jason Mazzone, professor of law at Brooklyn Law School, discusses his new book, Copyfraud and Other Abuses of Intellectual Property Law. Copyfruad, according to Mazzone, occurs when intellectual property law is used in an abusive or overreaching manner. Mazzone believes the problem arises when content owners make false or fraudulent claims of intellectual property rights that are not recognized by the law. The discussion turns to the scope of harm that results from Copyfraud, and Mazzone proposes that the solution lies in legislative measures as well as education on the scope of intellectual property law.

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The Mercatus Center at George Mason University has just released my new white paper, “The Perils of Classifying Social Media Platforms as Public Utilities.” [PDF] I first presented a draft of this paper last November at a Michigan State University conference on “The Governance of Social Media.” [Video of my panel here.]

In this paper, I note that to the extent public utility-style regulation has been debated within the Internet policy arena over the past decade, the focus has been almost entirely on the physical layer of the Internet. The question has been whether Internet service providers should be considered “essential facilities” or “natural monopolies” and regulated as public utilities. The debate over “net neutrality” regulation has been animated by such concerns.

While that debate still rages, the rhetoric of public utilities and essential facilities is increasingly creeping into policy discussions about other layers of the Internet, such as the search layer. More recently, there have been rumblings within academic and public policy circles regarding whether social media platforms, especially social networking sites, might also possess public utility characteristics. Presumably, such a classification would entail greater regulation of those sites’ structures and business practices.

Proponents of treating social media platforms as public utilities offer a variety of justifications for regulation. Amorphous “fairness” concerns animate many of these calls, but privacy and reputational concerns are also frequently mentioned as rationales for regulation. Proponents of regulation also sometimes invoke “social utility” or “social commons” arguments in defense of increased government oversight, even though these notions lack clear definition.

Social media platforms do not resemble traditional public utilities, however, and there are good reasons why policymakers should avoid a rush to regulate them as such. Continue reading →

[From *The Hill* this weekend](http://thehill.com/blogs/hillicon-valley/technology/216519-alarming-rhetoric-used-in-push-for-cybersecurity-bills):

>But James Lewis, the director of the Technology and Public Policy Program at the Center for Strategic and International Studies, said “no serious analyst doubts the risk anymore” of a cyber attack.

>”There are people who are naturally skeptical about anything the government says and there are the ones who are paid to be skeptical,” Lewis said, but he claimed almost everyone else has accepted the seriousness of the situation.

Since I’m the only other person quoted in the story–making the case that the threat of a catastrophic cyberattack has been exaggerated–that statement can be read as applying to me. I’m certainly naturally skeptical of government (for good reason, I think), and to the extent my organization is also generally skeptical of government, I guess I am paid to be skeptical of government. But the implication that I wouldn’t advocate skepticism of government but for payment is insulting. And it also has nothing to do with whether the cyber threat has been blown out of proportion and whether we should be skeptical of such threat inflation.

On that front, I’d like to quote at length from a fantastic 2006 *San Francisco Chronicle* piece entitled, “[The War on Hype](http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/02/19/INGDDH8E2V1.DTL),” that might as well have been written by me. It is by a certain James A. Lewis:
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I’m puzzled by Harold Feld’s latest post. Last month, Harold laid out his argument that society faces a tradeoff between allocating the wireless spectrum to the highest bidder and maintaining competition in wireless services. I responded by showing geometrically that in most cases, efficient production is much more important than maximal competition; in economics, trapezoids are bigger than triangles.

Harold seemed to get it. My argument was only an intuitive one, but he admitted that he needed to be more rigorous to show that competition in the wireless industry is more important than lowering the cost of producing wireless services.



Today, Harold reprised nearly the same post, without additional economic rigor, and at greater length. So maybe you can see why I’m puzzled.

I continue to believe that trapezoids are bigger than triangles. But for this post, let’s put that issue to the side to focus on duopoly, of which Harold seems to have a visceral fear. He’s probably not alone.

Duopoly sounds really bad, because it’s 1 away from monopoly. But modern economists tend not to place too much emphasis on the number of competitors in an industry, at least not in isolation from other factors. For instance, it is well understood that under what is known as a Bertrand duopoly, economic profits to the firms are zero, and the price to consumers is as low as it is when there are many firms. That does not sound too scary, does it?

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tumblr_m04g8byWGw1qdu5t4o1_500The cover story of this week’s *The New Republic* is [a review by Evgeny Morozov](http://www.tnr.com/print/article/books-and-arts/magazine/100978/form-fortune-steve-jobs-philosopher) of Walter Isaacson’s [biography of Steve Jobs](http://www.amazon.com/exec/obidos/ASIN/1451648537/jerrybritocom/ref=nosim/). In 10,000 words it is more illuminating about what made Steve Jobs tick than Isaacson’s 656 pages of warmed-over anecdotes and Wikipedia glosses. Morozov gets it right when he draws the connection between Bauhaus and Apple–functionalism and simplicity über alles. But he doesn’t seem to like where this takes Apple or Jobs.

He calls Jobs’s adherence to the Bauhaus ideal “a kind of industrial Platonism” in which products have a true form or essence that must be discovered and revealed by a designer. What consumers *think* they want is irrelevant; they will know what they want when it is presented to them. That’s true as far as it goes, but Morozov is the real Platonist here.

Morozov’s ultimate indictment of Apple is that it refuses to consider the externalities its technologies impose on “society.” One may love one’s Apple products and how they have improved one’s life, but, Morozov says,

>We need to identify the other moral instructions that may be embedded in a technology, which it promotes directly or indirectly. And this fuller analysis requires going beyond studying the immediate impact on the user and engaging with the broader–let us call it the “ecological”–impact of a device. (“Ecological” here has no environmental connotations; it simply indicates that a technology may affect not only its producer and its user, but also the values and the habits of the community in which they live.)

What is this negative externality Apple’s technology is inflicting on the value and habits of our communities? It’s that apps will kill the open Internet, except not for the reasons we think. Morozov cites and dismisses Jonathan Zittrain’s ["generativity" critique](http://www.amazon.com/exec/obidos/ASIN/0300124872/jerrybritocom/ref=nosim/) saying that Zittrain is concerned only with the threat to innovation. Morozov, on the other hand, is concerned with loftier “ethical and aesthetic considerations.” Namely, that Apple’s app paradigm “may be destroying the Internet in much the same way that the automobile destroyed the sidewalks and the playgrounds.”

>The point is not that we should forever cling to the shape and the format of the Internet as it exists today. It is that we should (to borrow Apple’s favorite phrase) “think different” and pay attention to the aesthetic and civic externalities of the app economy. Our choice is between erecting a virtual Portland or sleepwalking into a virtual Dallas. But Apple under Steve Jobs consistently refused to recognize that there is something valuable to the Web that it may be destroying.

After reading [a competing cover story about Portland](http://www.weeklystandard.com/articles/insufferable-portland_631919.html?nopager=1) in another newsweekly, I’m not sure the choice is as clear as Morozov thinks it is. But the message is clear: like Portland’s planners do about a “livable city,” Morozov has a vision of what is the Internet’s pure form, and it’s not one left to messy markets.

Morozov quotes a *Newsweek* interview with Jobs just a few years after the Web was invented. Jobs sees it as “the ultimate direct-to-customer distribution channel.” He essentially predicts that you’ll be able to buy books online and that the bookstore will know what you like.

>That the Web did become a shopping mall fifteen years after Jobs made his remark does not mean that he got the Web right. It means only that a powerful technology company that wants to change the Web as it pleases can currently do so with little or no resistance from anyone. If one day Apple decides to remove a built-in browser from the iPad, as the Web becomes less necessary in an apped world, it will not be because things took on a life of their own, but because Apple refused to investigate what other possible directions—or forms of life—“things” might have taken. For Jobs, with his pre-political mind, there was no other way to think about the Internet than to rely on the tired binary poles of supply and demand.

The notion that Apple turned the web into what it is today singlehandedly is laughable. Apple was moribund until 2000, didn’t introduce the iTunes Store until 2003, and has never had a strong presence on the web. The web has become what it is today because the convenience of getting any book you want, whenever you want it, and cheaply [beats little bookstores stocked by proprietor's whims](http://www.slate.com/articles/technology/technology/2011/12/independent_bookstores_vs_amazon_buying_books_online_is_better_for_authors_better_for_the_economy_and_better_for_you_.single.html), however aesthetically pleasing they may be–which they’re often not. And for the record, I hope we can all agree the web is more than a shopping mall.

More to the point, though, Jobs was not as much a Pied Piper as we’d like to think he was. Depite all his marketing moxie, he was constrained by the market. If Jobs ever thought there was a true essence of a computer, it was the Power Mac G4 Cube. As Isaacson says, “it was the pure expression of Jobs’s aesthetic.” And it was a flop. “Jobs later admitted that he had overdesigned and overpriced the Cube, just as he had the NeXT computer.” Remember the NeXT cube? How about the iPod Hi-Fi? The buttonless iPod shuffle? Ping? Those tired poles of supply and demand told Jobs “no” time after time, but we might just as easily dismiss gravity or entropy as tired.

If Apple were to remove the browser from the iPad today, there would be, shall we say, less demand for the tablet. If at some future date there is no more demand for a web browser, and Apple removes it to little fanfare, then what is the harm?

I guess it is some Platonic Internet that we’d lose. A *pure* internet that we don’t know we want. One that only philosopher-kings can see. One they will discuss at “Berlin-based think tanks” and in the pages of “quarterly magazines,” as Morozov praises Google for sponsoring. And it’s an Internet the philosopher-kings would plan for us the same way Neil Goldschmidt and his friends planned Portland.

No thanks. I prefer a Steve Jobs, pursuing a functionalist ideal with little care for the consequences, yet checked by those tired poles and the “perennial gale of creative destruction” that will someday catch up with Apple.

The DOJ’s recent press release on the Google/Motorola, Rockstar Bidco, and Apple/ Novell transactions struck me as a bit odd when I read it.  As I’ve now had a bit of time to digest it, I’ve grown to really dislike it.  For those who have not followed Jorge Contreras had an excellent summary of events at Patently-O.

For those of us who have been following the telecom patent battles, something remarkable happened a couple of weeks ago.  On February 7, the Wall St. Journal reported that, back in November, Apple sent a letter[1] to the European Telecommunications Standards Institute (ETSI) setting forth Apple’s position regarding its commitment to license patents essential to ETSI standards.  In particular, Apple’s letter clarified its interpretation of the so-called “FRAND” (fair, reasonable and non-discriminatory) licensing terms that ETSI participants are required to use when licensing standards-essential patents.  As one might imagine, the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful.  The next day, on February 8, Google released a letter[2] that it sent to the Institute for Electrical and Electronics Engineers (IEEE), ETSI and several other standards organizations.  Like Apple, Google sought to clarify its position on FRAND licensing.  And just hours after Google’s announcement, Microsoft posted a statement of “Support for Industry Standards”[3] on its web site, laying out its own gloss on FRAND licensing.  For those who were left wondering what instigated this flurry of corporate “clarification”, the answer arrived a few days later when, on February 13, the Antitrust Division of the U.S. Department of Justice (DOJ) released its decision[4] to close the investigation of three significant patent-based transactions:  the acquisition of Motorola Mobility by Google, the acquisition of a large patent portfolio formerly held by Nortel Networks by “Rockstar Bidco” (a group including Microsoft, Apple, RIM and others), and the acquisition by Apple of certain Linux-related patents formerly held by Novell.  In its decision, the DOJ noted with approval the public statements by Apple and Microsoft, while expressing some concern with Google’s FRAND approach.  The European Commission approved Google’s acquisition of Motorola Mobility on the same day.
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On the podcast this week, Gabriella Coleman, anthropologist and the Wolfe Chair in Scientific and Technological Literacy in the Department of Art History & Communication Studies at McGill University, discusses hacktivist group Anonymous. Coleman begins with an overview of Anonymous originating with online pranks that eventually evolved into political activism. The group, according to Coleman, began seeking “lulz” on the message board 4chan. The pranks consisted of Internet memes and practical Internet jokes called trolling. She then discusses how the group moved into activism using denial of services attacks to shut down websites and how it issued a series of videos against the Church of Scientology. The discussion then turns to the recent arrest of several LulzSec members, including Sabu, the hacker turned FBI informant.

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Six months may not seem a great deal of time in the general business world, but in the Internet space it’s a lifetime as new websites, tools and features are introduced every day that change where and how users get and share information. The rise of Facebook is a great example: the social networking platform that didn’t exist in early 2004 filed paperwork last month to launch what is expected to be one of the largest IPOs in history. To put it in perspective, Ford Motor went public nearly forty years after it was founded.

This incredible pace of innovation is seen throughout the Internet, and since Google’s public disclosure of its Federal Trade Commission antitrust investigation just this past June, there have been many dynamic changes to the landscape of the Internet Search market. And as the needs and expectations of consumers continue to evolve, Internet search must adapt – and quickly – to shifting demand.

One noteworthy development was the release of Siri by Apple, which was introduced to the world in late 2011 on the most recent iPhone. Today, many consider it the best voice recognition application in history, but its potential really lies in its ability revolutionize the way we search the Internet, answer questions and consume information. As Eric Jackson of Forbes noted, in the future it may even be a “Google killer.”

Of this we can be certain: Siri is the latest (though certainly not the last) game changer in Internet search, and it has certainly begun to change people’s expectations about both the process and the results of search. The search box, once needed to connect us with information on the web, is dead or dying. In its place is an application that feels intuitive and personal. Siri has become a near-indispensible entry point, and search engines are merely the back-end. And while a new feature, Siri’s expansion is inevitable. In fact, it is rumored that Apple is diligently working on Siri-enabled televisions – an entirely new market for the company.

The past six months have also brought the convergence of social media and search engines, as first Bing and more recently Google have incorporated information from a social network into their search results. Again we see technology adapting and responding to the once-unimagined way individuals find, analyze and accept information. Instead of relying on traditional, mechanical search results and the opinions of strangers, this new convergence allows users to find data and receive input directly from people in their social world, offering results curated by friends and associates. Continue reading →

On Wednesday, administration and military officials [simulated a cyber attack](http://thehill.com/blogs/hillicon-valley/technology/214951-white-house-simulates-cyber-attack-for-senators-as-part-of-push-for-legislation) for a group of senators in an attempt to show a dire need for cybersecurity legislation. All 100 senators were invited to the simulation, which “demonstrated how the federal government would respond to an attack on the New York City electrical grid during a summer heat wave, according to Senate aides.” Around 30 Senators attended. Some [post-game reactions](http://www.politico.com/morningtech/0312/morningtech421.html):

>After the briefing, [Sen. Jay] Rockefeller spokesman Vincent Morris said: “We hope that seeing the catastrophic outcome of a power grid takedown by cyberterrorists encourages more senators to set aside Chamber of Commerce talking points and get on this bill.” [Sen. Mary] Landrieu said the simulation “just enhanced the view that I have about how important” cybersecurity is. She added: “The big takeaway is it’s urgent that we get this done now.”

So how catastrophic did the simulation get? How many casualties? What was the extent of the simulated damage? Did thousands die a la 9/11? A “cyber 9/11″ if you will? We’ll likely never know because such a simulation will be classified.

Yet as policymakers consider the cost-benefit of cybersecurity legislation, I hope they’ll remember that we’ve already had many a blackout in New York City in real life and, well, they didn’t lead to catastrophic loss of life, panic or terror. As Sean lawson [has explained](http://mercatus.org/publication/beyond-cyber-doom):

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