February 2010

photo credit: Flickr user HarshLight

Mike Kirkwood of ReadWriteWeb recently wrote a piece asking the question “Will One Company Become the Dominant Player in Cloud Computing?” Kirkwood offered a series of arguments both for and against the idea of the market being one where a “natural monopoly” might occur and a few of his arguments are worth exploring in greater depth.

Addressing the potential for vendor lock-in (think Outlook .PST files), Kirkwood points out that cloud customers may demand data portability:

If customers demand solutions where they can move from vendor to vendor freely, it will impact the landscape. Companies with cloud solutions in the marketplace could be required by these customers to remove barriers to moving data and services between different entities.

Kirkwood should know that this is already happening.  CRM solutions like HighRise by 37Signals and cloud-based office solutions like Google Apps already have these features built in.  One of the biggest reasons that many companies are moving to cloud-based applications is because they’re weary of being locked-in to solutions that hold their data hostage.  It’s doubtful that these exit doors will disappear when things like office suites, CRMs, accounting software, and other software categories are almost exclusively offered as cloud applications or web apps.  Customers already expect and will continue to demand the freedom to move their data around—a new culture of data portability is being created as a part of the shift to the cloud and that consumer expectations may be permanently altered because of it.

Continue reading →

So, do I need to remind everyone of my ongoing rants about Jonathan Zittrain’s misguided theory about the death of digital generativity because of the supposed rise of “sterile, tethered” devices? I hope not, because even I am getting sick of hearing myself talk about it. But here again anyway is the obligatory listing of all my tirades: 1, 2, 3, 4, 5, 6, 7, 8 + video and my 2-part debate with Lessig and him last year.

You will recall that the central villain in Zittrain’s drama The Future of the Internet and How to Stop It is big bad Steve Jobs and his wicked little iPhone. And then, more recently, Jonathan has fretted over those supposed fiends at Facebook. Zittrain’s worries that “we can get locked into these platforms” and that “markets [will] coalesce [around] these tamer gated communities,” making it easier for both corporations and governments to control us.  More generally, Zittrain just doesn’t seem to like that some people don’t always opt for the same wide open general purpose PC experience that he exalts as the ideal. As I noted in my original review of his book, Jonathan doesn’t seem to appreciate that it may be perfectly rational for some people to seek stability and security in digital devices and their networking experiences—even if they find those solutions in the form of “tethered appliances” or “sterile” networks, to use his parlance.

Every once and awhile I find a sharp piece by someone out there who is willing to admit that they see nothing wrong with such “closed” platforms or devices, or they even argue that those approaches can be superior to the more “open” devices and platforms out there. That’s the case with this Harry McCracken rant over at Technologizer today with the entertaining title, “The Verizon Droid is a Loaf of Day-Old Bread.” McCracken goes really hard on the Droid — which hurts because I own one! — and I’m not sure I entirely agree with his complaint about it, but what’s striking is how it represents the antithesis of Zittrainianism:  Continue reading →

Every Tuesday, Washington, DC’s local NPR station (88.5 WAMU) carries a “Tech Tuesdays” program as a regular part of The Kojo Nnamdi Show.  This week’s show, which was guest hosted by Marc Fisher of the Washington Post, was on “Regulating the World Wide Web: A View from Abroad.” It was a wide-ranging and very interesting discussion about the future of Internet governance and regulation, featuring:

  • Evgeny Morozov: Yahoo! Fellow at the Institute for the Study of Diplomacy at Georgetown University; Fellow, Open Society Institute; and author “Net Effect” blog on ForeignPolicy.com
  • John Morris: General Counsel, Director of the Internet Standards, Technology and Policy Project, Center for Democracy and Technology
  • Olivier Tesquet: Reporter, Slate.fr (France)

Listen here. It’s worth your time.

Governments are exercising more and more control over individuals using financial systems and communications systems.

We spend most of our time here on communications. Here’s a look at how things are shaping up in the financial area:

I posted a rant here over the weekend about those who were engaging in what I believed was excessive whining about Apple’s moves to restrict pornographic content in the Apple Apps Store. (see: “Apple’s App Store, Porn & ‘Censorship‘”) It received a surprising number of comments and featured a back and forth between me and our old TLF blogging colleague Tim Lee. Tim has continued the discussion over on his personal blog and argued that:

[T]he key thing to focus on isn’t the abstract question of whether porn on iPhones is good or bad. The key thing to recognize is how fundamentally broken the process itself is. “Overtly sexual content” is a concept that seems clear in the abstract but gets leaky once you have to actually classify tens of thousands of applications. Apple is going to make mistakes, and when they do hapless developers are going to find their apps blocked, often with little explanation or recourse. Also, Apple is going to change its mind periodically, and when they do the affected developers are going to find their hard-earned apps rendered worthless overnight. This is no way to run a technology platform. It’s unfair to developers and it doesn’t scale. And this is precisely why it would be better for everyone if Apple could come up with an application distribution scheme that didn’t require so much central planning.

I followed up with a comment over there, but just thought I would repost it here, in which I argue that Tim is underestimating how difficult this task of defining acceptable content is and that he is also downplaying Apple’s legitimate editorial discretion to establish standards for the community platform they provide. I’m also uncomfortable with Tim’s constant use of “central planning” rhetoric to describe almost any private, proprietary model of institutional governance or platform development he doesn’t seem to agree with, but I have not elaborated on that point here. Anyway, here’s how I responded over on his blog: Continue reading →

Fellow TLFer Julian Sanchez has written (twice) at Cato@Liberty on the big school-using-laptops-to-spy-on-kids case.

Indulging my contrarian habit, I’m taking a little bit of a different view, though not necessarily an inconsistent one. While it seems error to me that the school district issued laptops with a potentially invasive security system, failing to fully inform parents, I think a lot more facts have to come out before we reach legal conclusions.

I started to feel some contrary comin’ on when I read the lengthy commentary of a parent at the school, posted on a privacy colleague’s Facebook wall. Among other things, she said:

The minor in question is a truly bad kid. [cites supporting facts] He had broken two laptop computers and had been issued a loaner computer with the explicit instructions not to take it off school property. It disappeared from the school and when questioned he told the school it had been stolen from him. There is quite a bit of theft and laptops had been a target. The kids seemed to know about the security system in place, I didn’t know about it which I think was wrong — the school has apologized for this. The school activated the security system realized the computer was in use and the webcam took a still shot. The minor in question was sitting in front of the webcam, the rumor is with drugs. The photo was sent to the police which apparently was standard procedure for stolen property and not related to anything else.

Maybe the “drugs” were Mike & Ike’s candies. The plaintiff’s lawyer says so. (Consider the veracity of a kid explaining things to his parents and their counsel, though, and of a trial lawyer seeking to lead a class action.)

Sugar pills or not, if the laptop is AWOL from school—presumptively stolen—I don’t see that it would be unreasonable to use the security system to discover its location, and the camera to capture images of who is using it. If there are statutes that would prevent that, I think a court would find a way to avoid applying them, be it on the theory that the putative thief assumed the risk of being surveilled, unclean hands, or some other basis.

The reporting and commentary has been a little overwrought. Better facts will determine what law should apply. Parents at the school have started a Facebook group to discuss this and share the rest of the story given that the school district has, well, lawyered up.

I tipped a reporter at an outlet I respect about this parent’s version of events. The reporter was alternately dismissive of sources that weren’t “official” and highly defensive when I suggested that her writing and reporting appeared to be preserving controversy rather than getting to the bottom of things. So much for relying on media—even new media—for getting information out.

Maybe spun-up outrage will cause better policies in this area than would otherwise result. Maybe we’ll learn that the security system was used for routine, inappropriate spying on kids. But as a legal case, there’s a lot more to be learned before we should draw conclusions.

Debate over the regulatory status of broadband heated up this week as trade associations and major broadband companies sent a letter to the Federal Communications Commission arguing strenuously against reclassification of broadband as “telecommunications service” subject to regulation under Title II of the Communications Act. One implication of Title II regulation is that broadband could be regulated like a public utility. Comparisons of broadband to services like electricity or railroads, which I discussed last week, also raise the prospect of public utility regulation. 

Classic public utility regulation restricts entry and regulates prices to prevent firms from charging excessive prices.  It’s typically used in situations where competition is believed to be impossible (or, where pre-existing policy decisions have created monopolies that aren’t going to go away very soon).

Broadband is not a monopoly; it is an oligopoly. Contrary to popular perception, that is not synonymous with “evil.” Although both monopoly and oligopoly end in “-opoly,” that doesn’t mean broadband competitors will charge monopoly prices, or even somewhat excessive prices.  The only firm conclusion that emerges from economic literature on oligopoly is, “anything’s possible, depending on the specific facts and circumstances.”

But there are also firm conclusions that emerge from economic literature on public utility regulation.  Just about every time the federal government has tried to impose public utility regulation on an oligopoly, it has ended up enforcing a cartel.  This is what happened in the past with railroads, trucking, airlines, and brokerage firms. There are a few times federal price regulation did not enforce cartels in oligopolistic or competitive industries. In those cases, it usually created shortages  — most notably gasoline and natural gas in the 1970s.

Title II regulation is not necessarily synonymous with public utility regulation. Title II could be used to impose some “nondiscrimination” requirements, without necessarily directly regulating broadband providers’ prices or profits.

But anyone who actually wants the FCC to regulate broadband providers’ prices and profits needs to read the peer-reviewed economics literature on the actual effects of public utility regulation in practice on the federal level. (More literature is cited here.) Then they need to explain why the results in broadband would be different.  And the explanation needs to be better than “We know better now, we’re smart, and we promise.”

Tim Wu: Not Looking Happy about Being So Wrong

Three years ago this month, Columbia University Law School professor Tim Wu released a controversial white paper in conjunction with the New America Foundation entitled, “Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband.” It contained a litany of accusations regarding supposed corporate shenanigans in the mobile marketplace, including: intentional crippling of features and functionality; refusal to allow 3rd party attachments or intentional curtailment of a market for 3rd party application developers; and various concerns about “discrimination” of one sort or another.

Here at the TLF, we responded quite forcefully. I think every one of us piled on this study in one way or another. (ex: Hance, Jerry, James, Tim Lee, me x 2, + a podcast).  I called his proposal “a declaration of surrender” since Prof. Wu was essential calling the game early and raising the white flag on mobile competition. Further, I argued he was essentially asking for “the forced commoditization of cellular networks” which “would necessitate at return to the rate-of-return regulatory methods of the past.”  Others were a bit more kind to him, but we were all pretty skeptical of his gloomy claims. However, each of us here also argued that the wireless market (especially the applications side of the market) was still developing and that we’d have to check back in a few years to see how well the hands-off approach worked out.

Well, thankfully, we now know for certain that Tim Wu’s was much too lugubrious in his outlook and far too quick to call for regulatory intervention to solve a non-crisis. On the occasion of the 3rd anniversary of the release of Prof. Wu’s paper, CTIA-The Wireless Association filed a short paper with the FCC taking stock of just how far the mobile marketplace has come in just three short years. The results are really quite remarkable, as CTIA’s letter notes: Continue reading →

Competition and patience

by on February 22, 2010 · 2 comments

Until recently, Amazon and its Kindle were the only real e-reader game in town. This allowed them to force on publishers an arguably arbitrary (and low) price of $9.99 for bestsellers. With the introduction of Apple’s iPad, however, publishers now have a viable competitor to which they can defect. The result will likely be higher e-book prices in the near term, and this has prompted some point out that this is a case where more competition resulted in higher prices for consumers.

The key phrase in the previous paragraph, however, is “near term.” It’s interesting to see that five years after it began offering video in the iTunes store, Apple is apparently pushing TV producers to lower their prices by half from $1.99 an episode to 99¢. Market processes–especially those surrounding new technology and distribution channels–can be less than instantaneous, but they have a way of ultimately conforming to economic reality.

Reporting on the ongoing negotiations with Apple, the New York Times says, “Television production is expensive, and the networks are wary of selling shows for less.” But the economic reality they’re missing is that TV production is a fixed cost, and as my friend Tim Lee has pointed out many times, the marginal cost of digital distribution is basically zero. As a result, I wouldn’t be surprised if five years from now, we’ll see Apple badgering book publishers to cut their prices in half.

Good new video up over at ReasonTV about the perils of Net Neutrality regulation. Worth watching: