“Don’t Believe the Hype” — Chuck D, Public Enemy
De Tocqueville is famous for discussing the American way of enlightened self-interest, in which there are mixed elements of private and public goods involved. But when it comes to self-interested lobbying by the tech industry, it’s the words of an American rapper, not a French rapporteur, that I’d like to discuss.
“Innovation!” – “openness” – “jobs” – “choice.” There’s a lot of buzzword hype thrown out by IT companies. Policymakers hear these buzzwords all the time, which are usually connected to how certain regulatory polices can benefit the public interest the most.
So, what does it all mean? Well, a recently released paper of mine tells you absolutely nothing about which IT polices are better than others. That’s right, nada. Zilch. Zippo.
Instead, the paper — Understanding the IT Lobby: An Insider’s Guide — is an explanatory of business models in the Information Technology industry, and the public policies that can help or harm companies over their competitors. It’s not a Scott McClellan tell-all – rather it connects the dots between public policy rhetoric and licensing, service, and ad-based business models.
The gist: the pursuit of one public policy can disadvantage not just one company, but an entire business model.
Of course, there’s nothing new about an industry lobbying governments in self-interested ways. What is new is that there’s no single “self” among tech companies. Thanks to new technologies & the Internet, the tech industry is full of divergent yet competing ways to attract consumers.
Things can get complicated, though, when IT industry groups approach policymakers about a common concern, because they’ll often advocate for different solutions. And in the process, IT companies—even when they differ on policy—are increasingly attempting to show how their position benefits the public interest.
But when you peel back the rhetoric, most of the policy differences among IT companies are the result of competing ways of doing business. To fully understand the policy motive, you need to be able to identify the business model.
Business Models – the 4 P’s
A business model is just a term for how a company does business, how it makes money. You can breakdown a business model based on how a company prices, promotes, and places its product. In marketing class, they call this the 4 P’s Marketing Mix.
In the paper we identify 4 main business models in the IT industry.
- License Software or Sell Subscriptions for Software Use (Microsoft, SAP)
- Give Away Software to Help Sell Hardware (IBM, Apple)
- Give Away Software to Generate Services (IBM, Red Hat, Sun)
- Give Away Software to Sell Ads and Collect User Data (Google, Yahoo)
So, for instance, Microsoft clearly falls within the first as it depends on licensing revenue from Windows and Office products. Google, with its search and contextual ad network, is clearly pursuing an ad-based model. There’s also some overlap, as Microsoft (among others) is also pursuing ad-based models.
Note that business models compete. These companies are all competitors at some level, and these business models will change over time.
The 5th P — Public Policy
Over the past few years, we’ve seen the emergence of a “5th P” – Public Policy – as part of the marketing mix.
When a companies pursue a 5th P strategy, they attempt to use the legislative and regulatory system to create policies that help their business model or harm competitive business models.
There are two important distinctions to make.
1. There clearly are policies that help certain business models more than others. For instance, if our public interest goal is increased law enforcement of intellectual property, this clearly helps IP owners and companies that rely on copyrights and patents as their core product.
2. There are public policies that can promote one business model and at the same time exclude others. For instance, a law that mandates the use of open standards clearly will help some companies who build products around these standards, but it also has the effect of excluding competing business models.
It is this second form that is more pernicious, because it doesn’t just favor one or more companies — instead, scenario #2 comes across as being specifically designed to disadvantage competitive business models.
There are a lot of issue areas involved here. At an ACT event last month on the Hill, Jim Harper discussed ways in which privacy laws can help and hurt certain business models.
While using public interest advocacy to gain a competitive advantage is not new to Washington, in the IT industry we’re seeing more of it, it’s more sophisticated and it’s becoming more focused on competing business models, not just businesses.
This will be a continued focus of mine. In the meantime, it’s not that you shouldn’t believe the public interest hype — just don’t only believe the hype! (there just may be a business model aspect lurking there somewhere).