February 2005

Y’all should check out chapter 6 of the annual report of the Council of Economic Advisors, which is on Innovation and the Information Economy. The CEA issued the report this month, but I haven’t read much on it, other than a recent PFF blog posting.

The report has a good discussion on contestability theory in telecom:

However, natural monopoly does not necessarily mean economic regulation is needed to protect consumers from monopoly prices. While natural monopoly means that competition in the field is unlikely to arise, there could still be vigorous competition for the field–that is, competition among firms to attain the position of monopolist.

I’ve never thought there was anything “natural” about having one company be the phone service provider for the entire country.

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Choosing the Greater Evil

by on February 22, 2005

Isn’t it great to see that there are so many people looking out for us?

Maybe not. Maybe that’s why we call those folks busybodies.

Leading lights of the technorati are calling a feature in Google’s new Toolbar a “strategic mistake” and a “bet the company decision.” Others, more simply, call it “evil” (well, he works for Microsoft) and directly opposed to Google’s code of conduct.

They bemoan a new Toolbar feature, AutoLink, that turns unlinked but standardized data–such as addresses, ISBNs, package tracking numbers, and VINs–into hyperlinks that point to Google-affiliated services. When you use the new Toolbar, plain-text addresses, for example, link directly to (the excellent) Google Maps.

Critics are saying this is too reminiscent of Microsoft’s stillborn smart tags concept, which would have, for example, linked ticker symbols to MSN finance. Internet protestors got Microsoft to back down from offering the feature.

One critic, a tech entrepreneur, wrote that he could only live with Google’s AutoLink “If this was an open tool, where the data sets I was using to tag the content were advertising free and not tied to the tool vendor.”

In other words, he could only accept it if it included difficult-to-implement functionality that would be lost on the vast majority of users. And many are even less accepting.

To their credit, most critics this time around aren’t crying “antitrust,” but that’s only because it’s not Microsoft. Some, however, do imply that there may be a role for the government here:

Google is to the Web what Microsoft is to PCs–the operating system everyone uses to search. It has nearly the same lock on consumers’ share of mind…And millions use the Google Toolbar. They shouldn’t get away with what Microsoft was unable to.

The truth is, this sort of functionality has been around for years, but only to the tech elite. For someone in the know, it’s not too hard to install a filtering proxy like Privoxy, write and debug a few regex matching rules, and modify (just on their own computers) any page on the Web in any way.

Now regular users who couldn’t tell a regex pattern from gibberish have a choice, too: install the new Google Toolbar.

This week’s busybody pushback is the same sort of reaction we’ve seen in response to every half-innovative feature that Google’s offered in recent years, from its Adwords advertising program to advertising-supported Gmail. Oddly enough, the tech elite still seem to respect the company’s technological prowess and innovation. They’re wary, however, that Google intends to profit from these services, no matter how much upside they offer users in the process. For too many, the idea of government intervention is only a step or two away, users be damned.

But here’s the thing: wrongheaded as they are, the critics are right to seize on the idea of regulation. There is simply no other way to keep a user from exercising the freedom that he now has to modify any data on his own computer. Web browsers have always made it trivially easy to change the color of all hyperlinks or enlarge text a bit. Newer browsers can, effectively, rewrite pages to block pop-ups or halt Flash animations. Hyperlinking regimented data isn’t too much of a step forward, really.

So what’s next? Expect the argument to heat up in the coming months, as the same tech-elite busybodies are in a preemptive snit over RSS news aggregators displaying ads beside bloggers’ entries and their fear may become a reality soon. Maybe the Toolbar episode is just a warm up for that inevitable fight.

In the end, though, isn’t it bizarre that so many  paranoid souls would campaign for government restrictions on what you can do with data that’s on your own computer?

(Thanks to James and Adam for inviting me to post and to PJ for setting things up.)

Update: After days of linking to others’ criticisms, Dave Winer weighs in. His chief complaint:

In 2005, adding links to a page is not different from adding to or changing the words on the page. It’s as if a machine editor had license to change our meaning or intent, without our permission, without disclosing to the reader that it was doing so, because it’s impossible to know which links were added by the author and which were added by Google.

And it’s even worse than it appears. AutoLink “opens the door for Microsoft,” worries Winer.

But if AutoLink is what users want, isn’t that a good thing?

Digital rights management is technical term for digital packaging. It is also a digital contract. An article I published earlier this week talks about the future of digital content that draws from both property and contract law. We should not be scared by contract law’s growing role in copyright. Nor should we attempt to provide affirmative consumer rights as a sort of public policy exception to certain contractual provisions. I write:

Most consumers would welcome the benefit of a DRM contractual bargain, but only if they perceive that the agreement is fair. What is a fair bargain in the marketplace and what is “fair use” according to copyright law are much different, though not necessarily conflicting, concepts. The legal conception of fair use is a loose definition that is a defense to infringement, often associated with free speech such as for criticism or parody. Fair use, in a colloquial sense, is often used as a proxy for consumer expectations and preferences–the desirability for backup copies, transfer to different hardware devices, etc.

Consumer expectations of “fair use” that extend beyond criticism, news reporting, etc. should also be defined by contract, not property law. Competition in the digital content market will dictate that consumer preferences be met.

Adam’s entry indicates that the market is working to utilize DRM with P2P and that the result will be pro-consumer. After all, a government that is big enough to provide affirmative content rights is big enough to restrict content (see the entry by James on broadcast censorship).

VoIP provider Vonage is up in arms about a certain telecom carrier apparently attempting to block customer access to their services. See this Washington Post article for the details.

Before everyone runs to the FCC asking for broadband regulation, let me offer a few thoughts on this matter…

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New Cato study on DRM & P2P

by on February 16, 2005

Last August I posted big rant about “Is DRM the Devil? The Debate over Digital Rights Management, Trusted Computing and Fair Use in Copyright Law.” In it, I mentioned a forthcoming Cato Institute study by Michael Einhorn and Bill Rosenblatt entitled, “Peer-to-Peer Networking and Digital Rights Management: How Market Tools Can Solve Copyright Problems.” Well, I’m happy to say that it’s finally out!

In this paper, Einhorn and Rosenblatt demonstrate that DRM and P2P can be quite complementary and that innovative market mechanisms that can help alleviate many copyright concerns are currently blossoming.
Einhorn and Rosenblatt argue that “Government should protect the copyrights of content owners but simultaneously allow the free market to determine potential synergies, responses, and outcomes that tap different P2P and DRM business models. In particular, market operations are greatly preferable to government technology controls,” they note.

Their paper outlines the many innovative business models and technological solutions already being deployed in the marketplace proving that, contrary to what many critics on both sides of this debate argue, a well-functioning marketplace is currently at work.

I encourage you to download and read this important new study:

There’s been a lot of hand-wringing going on in the media and in Washington this week over the announced mergers of SBC-AT&T and Verizon-MCI. The Chicken Little crowd is out in force with their claims that the sky is going to fall on consumers should these mergers go forward.

The problem here is that too many people are still thinking about telecommunications in 1980s terms. We still talk about “local” versus “long-distance” providers as if they are distinct sectors. This is just silly. We have been witnessing the rapid death of what we used to call the long-distance sector. The rise of the wireless industry long ago decimated the long-term viability of long-distance sector. Consumers have always desired simple, flat-rate pricing for all their communications services and that’s what wireless gives them. With everyone now thinking in terms of buckets of minutes, it was only a matter of time before long distance was shown the door by most customers.

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Congress is voting this week on increasing penalties for indecency on the airwaves. Heritage has just released this paper on why its a bad idea.

The conclusion: “Ultimately, the solution to offensive programming lies not with policymakers but with individual consumers and families. Parents and others unhappy with what they see on the television have available to them weapons more powerful than has any congressman. Like other businesses, broadcasters respond to their customers. Complaints to broadcasters and to the advertisers that support them can be effective. But the most powerful weapons consumers wield are their own remote controls. As conservatives know well, the best regulation comes not from government but from individuals making choices for themselves. Rather than look to Washington for answers, we should look to our own thumbs.”

On Capitol Hill and at the FCC’s headquarters in SW Washington, a debate is still going on as to whether cell phones are a substitute for old-fashioned landline service. But at American University in NW Washington that debate is just about over: the university has announced that there would be no landlines in dorm rooms starting this fall. The Washington Post has a good story on this, detailing the triumph of wireless at AU and other college campuses around the country. AU’s experience also says a lot about why AT&T and MCI are being folded up. According the the Post story, while AU made hundreds of thousands on long-distance service five years ago, the school last semester made… $1,109.

The timing was eerily reminiscent of the SBC-AT&T merger announcement two weeks ago. A weekend of speculation and negotiation, followed by an early morning announcement of the merger. This time, the happy couple was Verizon and MCI, with MCI being purchased for $6.7 billion. Its still early to gauge the reaction, but so far the news has been met with a loud yawn. The stock markets barely moved, and the political reaction has so far been muted. That’s for good reason–although the merger looks to be a good one for consumers, as well as the firms involved, it really just confirms changes long underway in telecom, rather than setting any radically new direction.

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Is there an “e-waste” crisis? WIth tens of millions of PCs becoming obsolete each year, there’s been a lot of hand-wringing about where they (and other obsolete electronics) are going to end up. Under pressure from environmental groups, policymakers from Europe to California have passed (or are considering) laws to solve the supposed problem: ranging from consumer recycling fees, to “green design” mandates, to “extended producer liabiity” laws requiring manufacturers to collect and recycle their used equipment.

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