Articles by Adam Thierer

Adam ThiererSenior Fellow in Technology & Innovation at the R Street Institute in Washington, DC. Formerly a senior research fellow at the Mercatus Center at George Mason University, President of the Progress & Freedom Foundation, Director of Telecommunications Studies at the Cato Institute, and a Fellow in Economic Policy at the Heritage Foundation.


Antitrust & Innovation in the New Economy: The Problem with the Static Equilibrium Mindset

by on April 16, 2012 · 0 comments

In this new Money Morning article, “The Antitrust Curse: What Apple Can Learn From Microsoft, IBM,”  David Zeiler wonders whether the antitrust lawsuit filed against Apple and several book publishers by the U.S. Department of Justice last week could open the door to a broader case against Apple or, at a minimum, simply become a major distraction to the firm and it’s ability to innovate going forward. He uses IBM and Microsoft as case studies in this regard and notes that, “the problem with being in the DOJ’s gunsight is that it distracts management, makes the company hesitant to innovate, and blemishes the company’s public image.  While antitrust woes may not have been entirely responsible for Microsoft and IBM ceding their dominant positions in tech, they were clearly a major factor,” he says. “And worse for Apple, the e-book case could be just the beginning.”

Quite right. I raised the same concern in my recent Forbes column,”Regulatory, Antitrust and Disruptive Risks Threaten Apple’s Empire,” which Zeiler was kind enough to quote in his essay. In that piece, I argued:

Even if Apple beats back [the eBooks] investigation, broader questions are being raised about the company’s power that could invite a much broader investigation. The danger for Apple is that antitrust becomes an omnipresent threat that must be factored into all ongoing business decisions. Antitrust is a particular danger to Apple because the firm is highly vertically integrated and that integration is the source of many of their innovations.  As earlier tech titans like IBM and Microsoft learned, when antitrust hangs like the Sword of Damocles, every decision about how to evolve and innovate becomes a calculated gamble.

Regarding the earlier impact that antitrust Sword of Damocles had on Microsoft, Zeiler unearthed this terrific 2005 quote from Mark Kroese, a general manager of information services at the Microsoft Network, who described the impact of the MS antitrust case on innovation at the firm as follows: “Working at Microsoft today vs. five years ago is different,” Kroese said. “If anyone thinks the antitrust case hasn’t slowed us down, you’re wrong. If I want to meet with a products manager for Windows, there needs to be three lawyers in the room. We have to be so careful, we err on the side of caution. We are on such a fine line of conduct.” Regarding how antitrust chilled IBM, Zeiler cites veteran tech journalist Steve Wildstrom of Tech.pinions who noted,  “Twelve years of litigation were an enormous distraction in a time of rapid technological and business change. IBM management became cautious and over-lawyered, constantly looking over its shoulder-a condition that persisted for years after the case ended. The antitrust case was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s,” Wildstrom said.

Of course, it is impossible to scientifically determine to what degree antitrust harassment contributed to either IBM or Microsoft’s inability to innovate and adapt to the rapidly changing market conditions. And let’s be clear: both IBM and MS have found ways to rebound and innovate in other ways. But one wonders what was lost in the process as the threat of antitrust constantly loomed and potentially chilled innovative efforts that could have kept both firms on the cutting-edge. Continue reading →

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Smartphones & Schumpeter

by on April 12, 2012 · 0 comments

Two weeks ago, I penned a column for Forbes about the astonishing rise and fall of BlackBerry (“Bye Bye BlackBerry. How Long Will Apple Last?”), which somehow became the most widely-read and retweeted thing I’ve ever written in my life. I argued that BlackBerry’s story — indeed, the story of the entire U.S. smartphone sector — is the living embodiment of Schumpeterian creative destruction. Joseph Schumpeter’s “perennial gales of creative destruction” are blowing harder than ever in today’s tech economy and laying waste to those who don’t innovate fast enough, I argued, and nowhere is that more true than in the smartphone sector. I noted how, just five years ago, “BlackBerry” was virtually synonymous with “smartphones” and was considered one of the tech titans that seemed destined to dominate for many years to come. But now the BlackBerry’s days appear numbered and its parent company Research In Motion Ltd. is struggling for its very survival.

But there’s another company that I ignored in that essay that was also perched atop the mobile handset hill for a long time: Nokia. Here’s the horrifying opening lines from a Wall Street Journal story today about the company (“Nokia Crisis Deepens, Shares Plunge“):

Nokia Corp., long the biggest name in the cellphone business, is scrambling to stay relevant in the smartphone age. On Wednesday the company warned things will get worse before they get better, saying that competitors are rapidly eating into its sales in emerging markets such as China and India. Nokia also said its newest phone in the U.S. had a software glitch that is preventing some users from connecting to the Internet, marring its attempt to fight into the world’s most important smartphone market. The company’s American depositary shares slid 16% to a 15-year low of $4.24 in New York. Its market capitalization now stands at $16 billion, down from $90 billion five years ago.

It gets worse from there. The article continues on to document Nokia’s gradual slide and notes that, “like BlackBerry maker Research In Motion Ltd., Nokia is trying to re-establish its relevance in a market dominated by Apple Inc.’s iPhone and Google-powered devices. Both Nokia and RIM are working on new devices they hope will make a splash, even as Apple and Android work on improvements of their own.”

To put into context how remarkable this rapid reversal of fortunes is, you need to try remember what life was like just five years ago: Continue reading →

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Apple, eBooks, Antitrust, Consolidation & Copyright

by on April 11, 2012 · 17 comments

So, the Department of Justice has formally filed suit against Apple and several major book publishers claiming collusion over eBook pricing. Let’s say Apple and the publishers are guilty as charged and in violation of our nation’s antitrust laws. Here’s my opinion on that: So what? What Apple and the publishers are doing here is trying to find a way to sustain creative works in an era when copyright law is slowly dying. As I noted here in a post yesterday, I take no joy in reporting the fact that property rights for intellectual creations no longer function effectively. I wish they did still work, but they are failing rather miserably in an age of highly decentralized digital dissemination. Moreover, I am not prepared to see government go to absurd enforcement extremes in an attempt to make intellectual property rights work. But, that being said, something needs to sustain and cross-subsidize cultural creations in an age of mass piracy. I have increasingly come to believe that consolidation of content and conduit (or devices) is a big part of the answer. Alternatively, some sort of informal collusion among cultural creators and information distributors may be the answer.

Apple and the publishers have figured that out and come up with a plan that keeps intellectual works flowing while making sure that the creators behind them get paid. At a time when copyright critics always say “just find a better business model” Apple and the publishers did just that. But now Department of Justice officials say that business model should be forbidden. That’s crazy.  If we’re going to let copyright die, we should at least grant more pricing and deal-making flexibility to the creative community to structure business arrangements that might give them a lifeline.

But won’t such deals give publishers and other creative artists and industries more pricing power that will help them keep prices up artificially? Yes, of course! That is the whole point! God forbid we actually have to pay something to cultural creators. Ain’t that a scandal. But here’s a news flash: That’s what copyright law was all about, too. It was about helping creators put some fences around their “property” to help them maintain some degree of pricing power for goods with zero marginal cost. The scheme worked brilliantly for many years. It spawned a vibrant marketplace of ideas and helped America become the leading exporter of expressive works on the planet. But now the effectiveness of traditional copyright is fading rapidly. Industry consolidation, cross-promotions, pricing deals, and so on, will increasingly be the “better business model” some will turn to.  So, are we going to allow it? Or will critics just keep mouthing “go find a better business model” and have the government step in every time they don’t like the one industry chooses?  I say let experimentation continue.

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New Heritage Foundation Study on Internet Tax Policy

by on April 10, 2012 · 1 comment

Heritage Foundation released a new study this week arguing that “Congress Should Not Authorize States to Expand Collection of Taxes on Internet and Mail Order Sales.” It’s a good contribution to the ongoing debate over Internet tax policy. In the paper, David S. Addington, the Vice President for Domestic and Economic Policy at Heritage, takes a close look at the constitutional considerations in play in this debate. Specifically, he examines the wisdom of S. 1832, “The Marketplace Fairness Act.” Addington argues that, “enactment of S. 1832 would discourage free market competition” and raise a host of other issues:

The Constitution of the United States has set the legal baseline—the level playing field—around which the American free-market economy has built itself. The Constitution, as reflected in the Quill decision, is the source of the present arrangement regarding collection of state sales and use taxes by remote sellers. Ever since the Supreme Court decided Quill in 1992, American businesses have made millions of business decisions in the competitive marketplace based in part on settled expectations regarding state taxation affecting their sales transactions. The states and businesses advocating S. 1832 seek to change the current, constitutionally prescribed playing field. They seek to use governmental power to intervene in the economy to help in-state, store-based businesses by imposing a new tax-collection burden on out-of-state competitors who sell over the Internet, through mail order catalogs, or by telephone. Free-market principles generally discourage such government intervention in the economy to pick winners and losers based on legislative policy preferences.

Veronique de Rugy and I raised similar concerns in both a recent Mercatus white paper (“The Internet, Sales Taxes, and Tax Competition“) and an earlier 2003 Cato white paper, (“The Internet Tax Solution: Tax Competition, Not Tax Collusion”). We argued that there are better ways to achieve “tax fairness” without sacrificing tax competition or opening the doors to unjust, unconstitutional, and burdensome state-based taxation of interstate sales. Specifically, we point out that an “origin-based” sourcing rule would be the cleanest, most pro-constitutional, and pro-competitive alternative. I also discussed these issues at a recent Cato event. [Video follows.]

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Copyright, Privacy, Property Rights & Information Control: Common Themes, Common Challenges

by on April 10, 2012 · 616 comments

Andrew Orlowski of The Register (U.K.) recently posted a very interesting essay making the case for treating online copyright and privacy as essentially the same problem in need of the same solution: increased property rights. In his essay (“‘Don’t break the internet’: How an idiot’s slogan stole your privacy“), he argues that, “The absence of permissions on our personal data and the absence of permissions on digital copyright objects are two sides of the same coin. Economically and legally they’re an absence of property rights – and an insistence on preserving the internet as a childlike, utopian world, where nobody owns anything, or ever turns a request down. But as we’ve seen, you can build things like libraries with permissions too – and create new markets.” He argues that “no matter what law you pass, it won’t work unless there’s ownership attached to data, and you, as the individual, are the ultimate owner. From the basis of ownership, we can then agree what kind of rights are associated with the data – eg, the right to exclude people from it, the right to sell it or exchange it – and then build a permission-based world on top of that.”

And so, he concludes, we should set aside concerns about Internet regulation and information control and get down to the business of engineering solutions that would help us property-tize both intangible creations and intangible facts about ourselves to better shield our intellectual creations and our privacy in the information age. He builds on the thoughts of Mark Bide, a tech consultant:

For Bide, privacy and content markets are just a technical challenges that need to be addressed intelligently.”You can take two views,” he told me. “One is that every piece of information flowing around a network is a good thing, and we should know everything about everybody, and have no constraints on access to it all.” People who believe this, he added, tend to be inflexible – there is no half-way house. “The alternative view is that we can take the technology to make privacy and intellectual property work on the network. The function of copyright is to allow creators and people who invest in creation to define how it can be used. That’s the purpose of it. “So which way do we want to do it?” he asks. “Do we want to throw up our hands and do nothing? The workings of a civilised society need both privacy and creator’s rights.”  But this a new way of thinking about things: it will be met with cognitive dissonance. Copyright activists who fight property rights on the internet and have never seen a copyright law they like, generally do like their privacy. They want to preserve it, and will support laws that do. But to succeed, they’ll need to argue for stronger property rights. They have yet to realise that their opponents in the copyright wars have been arguing for those too, for years. Both sides of the copyright “fight” actually need the same thing. This is odd, I said to Bide. How can he account for this irony? “Ah,” says Bide. “Privacy and copyright are two things nobody cares about unless it’s their own privacy, and their own copyright.”

These are important insights that get at a fundamental truth that all too many people ignore today: At root, most information control efforts are related and solutions for one problem can often be used to address others. But there’s another insight that Orlowski ignores: Whether we are discussing copyright, privacy, online speech and child safety, or cybersecurity, all these efforts to control the free flow of digitized bits over decentralized global networks will be increasingly complex, costly, and riddled with myriad unintended consequences. Importantly, that is true whether you seek to control information flows through top-down administrative regulation or by assigning and enforcing property rights in intellectual creations or private information.

Let me elaborate a bit (and I apologize for the rambling mess of rant that follows).

Continue reading →

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How & Why the Press Sometimes “Sells Digital Fear”

by on April 8, 2012 · 3 comments

Yesterday on TechCrunch, Josh Constine posted an interesting essay about how some in the press were “Selling Digital Fear” on the privacy front. His specific target was The Wall Street Journal, which has been running an ongoing investigation of online privacy issues with a particular focus on online apps. Much of the reporting in their “What They Know” series has been valuable in that it has helped shine light on some data collection practices and privacy concerns that deserve more scrutiny. But as Constine notes, sometimes the articles in the WSJ series lack sufficient context, fail to discuss trade-offs, or do not identify any concrete harm or risk to users. In other words, some of it is just simple fear-mongering. Constine argues:

Reality has yet to stop media outlets from yelling about privacy, and because the WSJ writers were on assignment, they wrote the “Selling You On Facebook” hit piece despite thin findings. These kind of articles can make mainstream users so worried about the worst-case scenario of what could happen to their data, they don’t see the value they get in exchange for it. “Selling You On Facebook” does bring up the important topic of how apps can utilize personal data granted to them by their users, but it overstates the risks. Yes, the business models of Facebook and the apps on its platform depend on your personal information, but so do the services they provide. That means each user needs to decide what information to grant to who, and Facebook has spent years making the terms of this value exchange as clear as possible.

“While sensationalizing the dangers of online privacy sure drives page views and ad revenue,” Constine also noted, “it also impedes innovation and harms the business of honest software developers.” These trade-offs are important because, to the extent policymakers get more interested in pursing privacy regulations based on these fears, they could force higher prices or less innovation upon us with very little benefit in exchange.

Of course, the press generating hypothetical fears or greatly inflating dangers is nothing new. We have seen it happen many times in the past and it can be seen at work in many other fields today (online child safety is a good example). In my recent 80-page paper on “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle,” I discussed how and why the press and other players inflate threats and sell fear. Here’s a passage from my paper: Continue reading →

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Continuing Confusion in the Debate over Retrans & Video Marketplace Deregulation

by on March 29, 2012 · 3 comments

Imagine the following scenario. The government passes a law that includes regulations governing “transactional consent” for retail commerce. These regulations stipulate how buyers and sellers of various goods shall do business. Some of the rules give the sellers special rights to demand that the stores carry some of their goods as well as rules stipulating that stores not carry the goods of competing sellers from other markets. On the flip side, other preexisting rules give buyers the right to demand that certain sellers deal their goods to them at regulated rates.

Now, it’s true that a contractual negotiation takes place in this “marketplace” governed by “transactional consent” regulations, but does this sound like a truly free market to you? Most of us would say No.

Regrettably, that’s the essential error that the American Conservative Union (ACU) makes in a letter they sent to members of Congress this week in which they made the case against H.R. 3675 and S. 2008, “The Next Generation Television Marketplace Act.” That bill, which is sponsored by Senator Jim DeMint (R-SC) and Rep. Steve Scalise (R-LA), represents a comprehensive attempt to deregulate America’s heavily regulated video marketplace. In a recent Forbes oped, I argued that the DeMint-Scalise effort would take us “Toward a True Free Market in Television Programming” by eliminating a litany of archaic media regulations that should have never been on the books to begin with. The measure would:

  • eliminate: “retransmission consent” regulations (rules governing contractual negotiations for content);
  • end “must carry” mandates (the requirement that video distributors carry broadcast signals even if they don’t want to);
  • repeal “network non-duplication” and “syndicated exclusivity” regulations (rules that prohibit distributors from striking deals with broadcasters outside their local communities);
  • end various media ownership regulations; and
  • end the compulsory licensing requirements of the Copyright Act of 1976, which essentially forced a “duty to deal” upon content owners to the benefit of video distributors.

Despite these clearly deregulatory provisions, in its letter to Capitol Hill, the ACU argues that the DeMint-Scalise bill would somehow interfere with what they regard as a free market in video programming. The ACU writes: Continue reading →

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danah boyd’s “Culture of Fear” Talk

by on March 26, 2012 · 0 comments

I want to highly recommend everyone watch this interesting new talk by danah boyd on “Culture of Fear + Attention Economy = ?!?!” In her talk, danah discusses “how fear gets people into a frenzy” or panic about new technologies and new forms of culture. “The culture of fear is the idea that fear can be employed by marketers, politicians, the media, and the public to really regulate the public… such that they can be controlled,” she argues. “Fear isn’t simply the product of natural forces. It can systematically be generated to entice, motivate, or suppress. It can be leveraged as a political tool and those in power have long used fear for precisely these goals.”  I discuss many of these issues in my new 80-page white paper, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle.”

Webstock ’12: danah boyd – Culture of Fear + Attention Economy = ?!?! from Webstock on Vimeo.

danah points out that new media is often leveraged to generate fear and so we should not be surprised when the Internet and digital technologies are used in much the same way. She also correctly notes that our cluttered, cacophonous information age might also be causing an escalation of fear-based tactics. “The more there are stimuli competing for your attention, the more likely it is that fear is going to be the thing that will drive your attention” to the things that some want you to notice or worry about.

I spent some time in my technopanics paper discussing this point in Section III.C (“Bad News Sells: The Role of the Media, Advocates, and the Listener.”) Here’s the relevant passage: Continue reading →

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Initial Thoughts on FTC’s Final Privacy Report

by on March 26, 2012 · 2 comments

The Federal Trade Commission (FTC) has just released its final privacy framework proposal, “Protecting Consumer Privacy in an Era of Rapid Change.” The agency released a draft report with the same title back in late 2010 and then asked for comments. [Here were my comments to the agency.] The FTC’s final report comes just a month after the Obama Administration released its 50-page privacy framework, Consumer Data Privacy in a Networked World, which included a privacy “bill of rights.” That report was primarily driven by the Department of Commerce. [I penned a Forbes column about that report the day it was released.]  The new FTC report is fairly consistent with the earlier Commerce Department report.  Here are some of the key themes or recommendations from the final FTC report:

  • rooted in a set of baseline privacy principles with a strong push for “privacy by design,” more consumer choice, and better transparency.
  • along with Dept of Commerce, the agency will work with industry to develop privacy codes of conduct and then give them teeth with possibility of FTC enforcement.
  • pushes for industry to pursue voluntary “Do Not Track” mechanism, which to the agency apparently means “do not collect” any info.
  • calls on Congress to pass data security legislation and legislation “to provide greater transparency for, and control over, the practices of information brokers.” Also, “to further increase transparency, the Commission calls on data brokers that compile data for marketing purposes to explore creating a centralized website where data brokers could (1) identify themselves to consumers and describe how they collect and use consumer data and (2) detail the access rights and other choices they provide with respect to the consumer data they maintain.”
  • the agency will host a workshop later this year to discuss privacy withing “large platform providers.” The report notes: “To the extent that large platforms, such as Internet Service Providers, operating systems, browsers, and social media, seek to comprehensively track consumers’ online activities, it raises heightened privacy concerns.”
  • the agency is also stepping up oversight on mobile privacy issues.
  • the agency says it “generally supports the exploration of efforts to develop additional mechanisms, such as the ‘eraser button’ for social media,” but stops short of saying it should be mandated at this time.

Some of my initial random thoughts about the FTC report: Continue reading →

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Video from Internet Tax Policy Event

by on March 22, 2012 · 0 comments

On Monday it was my great pleasure to participate in a Cato Institute briefing on Capitol Hill about “Internet Taxation: Should States Be Allowed to Tax outside Their Borders?” Also speaking was my old friend Dan Mitchell, a senior fellow with Cato. From the event description: “State officials have spent the last 15 years attempting to devise a regime so they can force out-of-state vendors to collect sales taxes, but the Supreme Court has ruled that such a cartel is not permissible without congressional approval. Congress is currently considering the Main Street Fairness Act, a bill that would authorize a multistate tax compact and force many Internet retailers to collect sales taxes for the first time. Is this sensible? Are there alternative ways to address tax “fairness” concerns in this context?”

Watch the video for our answers. Also, here’s the big Cato paper that Veronique de Rugy and I penned for Cato on this back in 2003 and here’s a shorter recent piece we did for Mercatus.

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