Innovation & Entrepreneurship

The Deadweight Costs of Antitrust Scrutiny: Distracted Management

by Berin Szoka on July 30, 2009 · 15 comments

Nick Wingfield has a great piece in today’s WSJ: Yahoo Tie-Up Is Latest Sign Tide Turning for Microsoft’s Ballmer (subscription required but can be found through a Google News search) about how Microsoft’s fortunes may be looking up across the board—especially with yesterday’s Yahoo!/Microsoft search/advertising partnership. The most interesting passage is this one:

For [Microsoft CEO Steve] Ballmer, the agreement provides some redemption in an area he has stressed is critical to Microsoft’s future. In an interview, he says the Yahoo deal received “more of my personal attention over the last 18 months than anything else we’re involved with,” including focusing on its most important new product in years, Windows 7. “It’s a big deal,” he says.

Of course, complex partnerships always require lots of time from senior management, but in this case, Ballmer’s quip speaks directly to the costs of antitrust scrutiny in terms of one of the most valuable resources available to any company: the time and attention of senior management. The “attentional cost” can of this deal for Microsoft could be broken into four parts beyond the normal costs of structuring any deal to make the most business sense:

How to structure the a Microsoft/Yahoo! deal so that it would be approved by regulators (defensive);
How to block a Google/Yahoo! deal (offensive);
Nursing the deal through the regulatory approval process over the coming months; and
The possibility that all of these costs could be wasted, to varying degrees, if antitrust regulators decide to block or restrict the deal.

These are all “deadweight losses” on the economy pure and simple—and ultimately costs to consumers.

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Music as Technology, Innovation & Part of Human Evolution

by Berin Szoka on July 3, 2009 · 5 comments

Check out “Magic Flute: Primal Find Sings of Music’s Mystery” in yesterday’s WSJ. The article describes the development of music as a central part of what Jacob Bronowski called the “Ascent of Man“:

“I believe that before we evolved language, our communication was more musical than it is now,” says cognitive archaeologist Steven Mithen at the University of Reading in England, author of “The Singing Neanderthals: The Origins of Music, Language, Mind and Body.” Unlike Darwin, Dr. Mithen is convinced that music was crucial to human survival. “Using music to express emotion or build a sense of group belonging would have been essential to the function of human society, especially before language evolved prior to modern humans.”

The discovery of the world’s oldest musical instrument—a 35,000-year-old flute made from a wing bone—highlights a prehistoric moment when the mind learned to soar on flights of melody and rhythm.

Researchers announced last week in Nature that they had unearthed the flute from the Ice Age rubbish of cave bear bones, reindeer horn and stone tools discarded in a cavern called Hohle Fels near Ulm, Germany. No one knows the melodies that were played in this primordial concert hall, which sheltered the humans who first settled Europe. The delicate wind instrument, though, offers evidence of how music pervaded daily life eons before iTunes, satellite radio and Muzak.

…the ability to create musical instruments reflects a profound mental awakening that gave these early humans a crucial edge over the more primitive Neanderthal people who lived in the same epoch. “The expansion of modern humans hinged in part on new ways of storing symbolic information that seemed to confer an advantage on these people in competition with Neanderthals,” Dr. Conard says.

To Dr. Patel, music-making was a conscious innovation, like the invention of writing or the control of fire. “It is something that we humans invented that then transformed human life,” he says. “It has a profound impact on how individual humans experience the world, by connecting us through space and time to other minds.”

If even something as central to our daily lives as music is, in fact the result of technological innovation over time and if technology can, as with music, change the way we think, communicate and build communities, I can’t help but wonder: What will our descendants think thousands of years from now as they look back on the rise of today’s web and social networking technologies? If nothing else, this sense of perspective should make us better appreciate how important the development of communications media really is to the future of the human species.

Impossible as it is to predict how that staggeringly complex process will unfold—e.g., will Google make us smarter or stupider?—I’ll just humbly suggest that, rather than try to tinker with the future course of the species by trying to fine-tune public policy today to produce the “right” outcome, we would do better to follow the same principle that has guided the medical profession for 24 centuries: First, Do No Harm. In other words, if we don’t know what the effects of regulatory intervention in new media will be in the long-term, we’d be better off to leave well enough alone.

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On Measuring Technology Diffusion Rates

by Adam Thierer on May 28, 2009 · 27 comments

Via Kevin Kelly I see that at some point Forbes magazine produced this chart measuring technology diffusion rates for various media and communications technologies since their year of inception.

I found this of great interest because, since the mid-90s, I have been putting together various charts and tables illustrating technological diffusion [most recently I did this in my “Media Metrics” report] and this particular chart is quite challenging since you are forced to pick a “Year 1” date to begin each of the “S curves.” For example, what is “Year 1” for electricity or telephony on one hand, or the PC or the Internet on the other? That’s not always easy to determine since it is unclear when certain technologies were “born.”

Regardless, no matter how you cut it, the more modern and the less regulated the technologies, the quicker they get to market. Here’s a couple of my recent charts illustrating that fact. The first shows how long it took before various technologies reached 50% household penetration. The second illustrates the extent of household diffusion over time.

However, as Kevin Kelly notes, we usually never see any technology hit 100% household penetration (although the boob tube got close!):
Continue reading →

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More on “Open vs. Closed” Technologies & Business Models

by Adam Thierer on May 10, 2009 · 20 comments

Over at the Verizon Policy Blog, Link Hoewing has a sharp piece up entitled, “Of Business Models and Innovation.” He makes a point that I have often stressed in my debates with Zittrain and Lessig, namely, that the whole “open vs. closed” debate is typically greatly overstated or misunderstood. Hoewing correctly argues that:

The point is not that open or managed models are always better or worse. The point is that there is no one “right” model for promoting innovation. There are examples of managed and open business models that have been both good for innovation and bad for it. There are also examples of managed and open models that have both succeeded and failed. The point is in a competitive market to let companies develop business models they believe will serve consumers best and see how things play out.

Exactly right. Moreover, the really important point here is that there exists a diverse spectrum of innovative digital alternatives from which to choose. Along the “open vs. closed” spectrum, the range of digital technologies and business models continues to grow and grow in both directions. Do you want wide-open, tinker-friendly devices, sites, or software? You got it. Do you want a more closed, simple, and safe online experience? You can have that, too. And there are plenty of choices in between.

This is called progress!

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The 3rd Annual Conference on the Law and Economics of Innovation

by Jim Harper on April 6, 2009 · 9 comments

. . . looks like a good event.

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Venture Capitalists Reject Bailout: An Inspiring Dose of Economic Sanity

by Berin Szoka on March 3, 2009 · 11 comments

Our readers may be interested in this excellent WSJ article, Too Risky for Venture Capitalists: Why proposals for a government bailout were roundly rejected. We should all take heart in the the fact that the venture capital community itself resoundingly opposed the notion of accepting a massive infusion of taxpayer money, especially Tom Friedman’s suggestion:

“You want to spend $20 billion of taxpayer money creating jobs?” Mr. Friedman wrote. “Fine. Call up the top 20 venture capital firms in America” and invest the money with them.

But I see three more reasons why those interested in technology policy should pay attention to this encouraging episode.

First, the groundswell of opposition seems to have been driven largely by the Internet, both as a vehicle for disseminating the bailout proposals and for voicing opposition to them:

Venture capitalists certainly agree that innovators and start-up companies, not bailed-out GMs or Chryslers, will create the new jobs. They rightly brag that almost 20% of U.S. gross domestic product is generated by companies built by venture capital, such as Intel, Apple and Google. Still, they almost universally panned the notion of taxpayer support. Their real-time rejection is an excellent example of how social media — here, the venture community dissecting a proposal online — can now quickly take down bad ideas.

Second, it should almost go without saying that venture capital is the fountainhead of innovation, especially the disruptive innovation that is constantly pushing the envelope of technology policy. A healthy VC sector is the bedrock of a dynamic, free and innovative economy. The VCs realize that this requires, more than anything else, avoiding the market distortions caused by government funding: Continue reading →

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Just How Far the Internet Has Come Since 1996

by Adam Thierer on February 24, 2009 · 28 comments

A classic piece here by Farhad Manjoo of Slate about how “the Internet of 1996 is almost unrecognizable compared with what we have today.” It’s a fun look back at just how far the Internet has come over the past 13 years. I love this passage:

We all know that the Internet has changed radically since the ’90s, but there’s something dizzying about going back to look at how people spent their time 13 years ago. Sifting through old Web pages today is a bit like playing video games from the 1970s; the fun is in considering how awesome people thought they were, despite all that was missing. In 1996, just 20 million American adults had access to the Internet, about as many as subscribe to satellite radio today. The dot-com boom had already begun on Wall Street– Netscape went public in 1995 — but what’s striking about the old Web is how unsure everyone seemed to be about what the new medium was for. Small innovations drove us wild: Look at those animated dancing cats! Hey, you can get the weather right from your computer! In an article ranking the best sites of ’96, Time gushed that Amazon.com let you search for books “by author, subject or title” and “read reviews written by other Amazon readers and even write your own.” Whoopee. The very fact that Time had to publish a list of top sites suggests lots of people were mystified by the Web. What was this place? What should you do here? Time recommended that in addition to buying books from Amazon, “cybernauts” should read Salon, search for recipes on Epicurious, visit the Library of Congress, and play the Kevin Bacon game.

God, do you remember those days? I sure do. I penned a piece last month about the amazing technological progress we have witnessed over the past decade.

Meanwhile, we have a whole town full of clowns here in DC looking to regulate the Internet and digital technology for one reason or another. All these would-be regulators need to step back and appreciate just how well markets have been working and why regulation would be a disaster for technological progress. Viva la (Technology) Revolution!

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Dan Mitchell and Video Innovation: The Persuade-o-Meter

by Jim Harper on February 18, 2009 · 3 comments

Here’s a great new video on economic growth from my friend and colleague Dan Mitchell of the Cato Institute and the Center for Freedom and Prosperity.

One of the innovations in this video that I love is the real-time score that it provides on how intelligent and persuasive Dan is being. The needle visible over his right shoulder indicates zero in the due north position (12:00). Improvements in Dan’s work are reflected by the movement of the needle clockwise around to the 9:00 position, which equals 100% informative and persuasive. So take a look at the video and watch how Dan does as he makes his case!

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Technology Liberation: What’s It All About?

by Berin Szoka on February 16, 2009 · 14 comments

I often ponder what the TLF is all about. Of course, our official mission is “keeping politicians’ hands off the ‘net and everything else related to technology.” You can read more on our “About Us” page. But this quote from Robert Heinlein‘s 1973 classic Time Enough for Love (among my top five favorite novels) really hits the nail on the head for me:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.”

“Man is the measure of all things,” said Protagoras of Abdera (c. 480-410 B.C.). So it is for me: technology is ultimately a means—indeed, the means—by which the condition of humanity is improved. By “liberating technology”—i.e., defending the freedom to innovate and to profit from bringing innovation to the marketplace—we’re all doing our small part to prevent “right-thinking people” from squelching the creative minority whose toils will sometday take the species to the stars.

I can’t wait to see what the coming decades will bring. In the words of the immortal 1970s rock band, Bachman-Turner Overdrive: You ain’t seen nothing yet!

(The full version of the video—not the embedded player—includes an ad to buy the song, a new YouTube feature. Heinlein would be proud.)

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Targeted Online Advertising: What’s the Harm & Where Are We Heading?

by Berin Szoka on February 13, 2009 · 25 comments

This sculpture, one of a pair found outside of the Federal Trade Commission Building, is entitled "Man Controlling Trade" and was completed for the FTC Building in 1942 by New York sculptor Michael Lantz.

Statue at FTC Headquarters: “Man Controlling Trade” (We’re rooting for the horse!)

Adam Thierer and I have just released a new PFF paper entitled “Targeted Online Advertising: What’s the Harm & Where Are We Heading?” (PDF) about the FTC’s new “Self-Regulatory Principles for Online Behavioral Advertising.” Adam lampooned some of the attitudes at play in this debate in a great rant yesterday.

But we give the FTC credit for resisting calls to abandon self-regulation, and for its thoughtful consideration of the danger in stifling advertising-the economic engine that has supported a flowering of creative expression and innovation online content and services. That said, we continue to have our doubts about the FTC’s approach, however-well intentioned:

Where is this approach heading? Will a good faith effort to suggest best practices eventually morph into outright government regulation of the online advertising marketplace?
What, concretely, is the harm we’re trying to address? We have asked this question several times before and have yet to see a compelling answer.
What will creeping “co-regulation” mean for the future of “free” Internet services? Is the mother’s milk of the Internet-advertising-about to be choked off by onerous privacy mandates?

We stand at an important crossroads in the debate over the online marketplace and the future of a “free and open” Internet. Many of those who celebrate that goal focus on concepts like “net neutrality” at the distribution layer, but what really keeps the Internet so “free and open” is the economic engine of online advertising at the applications and content layers. If misguided government regulation chokes off the Internet’s growth or evolution, we would be killing the goose that laid the golden eggs.

The dangers of regulation to the health of the Internet are real, but the ease with which government could disrupt the economic motor of the Internet (advertising) is not widely understood-and therein lies the true danger in this debate. The advocates of regulation pay lip service to the importance of advertising in funding online content and services but don’t seem to understand that this quid pro quo is a fragile one: Tipping the balance, even slightly, could have major consequences for continued online creativity and innovation.

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