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The Net Neutrality Fight Goes on…and on

by on January 7, 2011 · 1 comment

I published an article for CNET late last night on a spirited debate at CES yesterday over the FCC’s recently-enacted “open Internet” rules, aka net neutrality.  Panelists from the FCC, Congress, AT&T, Verizon, Google and the Center for Democracy and Technology actually agreed on one point, which is that the neutrality saga has only completed its first chapter.

(The session was the most popular of the day.  Several people were turned away from the packed room, and former Congressman Rick Boucher and FCC Commissioner Mignon Clyburn almost didn’t get in!)

While some panelists believe the next step is more regulation, others promised Congressional and perhaps court challenges aimed at undoing the Commission’s “Christmas Surprise.”  As I note in the piece, the new Congress, with its Republican majority in the House, has already taken up reversing the rulemaking as a priority.  Rep. Marsha Blackburn has introduced legislation, signed by 60 other members including at least one Democrat, that would make clear the FCC’s lack of authority over broadband access. Continue reading →

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op-ed: “Privacy Regulation and the ‘Free’ Internet”

by on December 24, 2010 · 2 comments

[Here’s an oped of mine that recently ran on Reuters.  Readers will recognize many of these themes and arguments since I have developed them here on the TLF many times before.]

Privacy Regulation and the “Free” Internet

by Adam Thierer, Mercatus Center at George Mason University

Would you like to pay $20 a month for Facebook, or a dime every time you did a search on Google or Bing?  That’s potentially what is at stake if the Obama administration and advocates of stepped-up regulation of online advertising get their way.

The Internet feels like the ultimate free lunch.  Once we pay for basic access, a cornucopia of seemingly free services and content is at our fingertips.  But those services don’t just fall to Earth like manna from heaven.  What powers the “free” Internet are data collection and advertising. In essence, the relationship between consumers and online content and service providers isn’t governed by any formal contract, but rather by an unwritten  quid pro quo: tolerate some ads or we’ll be forced to charge you for service.  Most consumers gladly take that deal—even if many of them gripe about annoying or intrusive ads, at times. Continue reading →

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Browsers Go After ‘Tracking’

by on December 19, 2010 · 4 comments

Advocates of regulation will credit regulators for the fact that major browser providers Microsoft and Mozilla are going after online “tracking.” In forthcoming versions of their browsers, they will provide controls that protect against unwanted monitoring even better than the controls that now exist.

When consumer advocates cluster in Washington, D.C., asking federal agencies to solve consumer issues, of course, any progress on the issues will be credited to the threat of coercion. But experiments like these have no controls.

Decisions about the qualities of goods and services are made out at the leading edge of consumer demand, where producers work to anticipate developing public interests. Meeting demand after it has been realized is a recipe for business failure because competitors getting there before the others win market share and profits. Laggards are losers.

You can tell when regulators push for something that does not match up with consumer demand as perceived in the business sector. The regulators get nowhere. That would be the FTC’s call a decade ago for a suite of regulations requiring “notice, choice, access, and security.” The current push for “tracking” controls does appear to meet up with consumer demand, and, again, the browser providers are working on it years ahead of what any regulation would have required.

I’ve put “tracking” in scare quotes because the open question is just what anyone means by the word. The report linked above notes a comment from Google, provider of the Chrome browser:

“The idea of ‘Do Not Track’ is interesting, but there doesn’t seem to be consensus on what ‘tracking’ really means, nor how new proposals could be implemented in a way that respects people’s current privacy controls,” said the company…

Maybe Google will be the laggard and loser for not moving on “tracking” as fast as its competitors. That’s one approach, while Microsoft and Mozilla will each take a different tack to the problem. The result will be an experiment that does have controls. The browser provider that meets up with consumer interests, in the consumer-friendliest way, wins. Such would not be the case if a federal regulation—yes, one-size-fits-all—determined what “tracking” was and how browsers or others would provide protection against it.

Marketplace competition will do better than any other known method for determining what “tracking” means to consumers and what to do about it. There is no privacy advocate, there is no technologist, no advocacy group, nor academic who knows what to do here.

The one thing I recommend is that do-not-track efforts should control the content of the header and the domains the browser communicates with. Simply putting a “do-not-track” signal in the header would punt the problem back to regulators and the cadre that surrounds them. This group would come up with something that satisfies itself, the regulatory community, but that does not digest and reconcile actual consumers’ competing interests in privacy, convenience, access to content, and so on.

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Correcting Herb Kohl (& Kayak & Bing Travel) on Google/ITA

by on December 2, 2010 · 1 comment

Today comes news that Senator Kohl has sent a letter to the DOJ urging “careful review” of the proposed Google/ITA merger. Underlying his concerns (or rather the “concerns raised by a number of industry participants and consumer advocates that I believe warrant careful review”) is this:

Many of ITA’s customers believe that access to ITA’s technology is critical to competition in online air travel search because it cannot be matched by other players in the travel search industry. They claim that ITA’s superior access to information and superior technology enables it to provide faster and better results to consumers. As a result, some of these industry participants and independent experts fear that the current high level of competition among online travel agents and metasearch providers could be undermined if Google were to acquire ITA and start its own OTA or metasearch service. If this were to happen, they argue, consumers would lose the benefits of a robustly competitive online air travel market.

For several reasons, these complaints are without merit and a challenge to the Google/ITA merger would be premature at best—and a costly mistake at worst. Continue reading →

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The EU tightens the noose around Google

by on December 1, 2010 · 2 comments

[Cross-posted at Truth on the Market]

Here we go again.  The European Commission is after Google more formally than a few months ago (but not yet having issued a Statement of Objections).

For background on the single-firm antitrust issues surrounding Google I modestly recommend my paper with Josh Wright, Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google (forthcoming soon in the Harvard Journal of Law & Public Policy, by the way).

According to one article on the investigation (from Ars Technica):

The allegations of anticompetitive behavior come as Google has acquired a large array of online services in the last couple of years. Since the company holds around three-quarters of the online search and online advertising markets, it is relatively easy to leverage that dominance to promote its other services over the competition.

(As a not-so-irrelevant aside, I would just point out that I found that article by running a search on Google and clicking on the first item to come up.  Somehow I imagine that a real manipulative monopolist Google would do a better job of white-washing the coverage if its ability to tinker with its search results is so complete.)

More to the point, these sorts of leveraging of dominance claims are premature at best and most likely woefully off-base.  As I noted in commenting on the Google/Ad-Mob merger investigation and similar claims from such antitrust luminaries as Herb Kohl:

If mobile application advertising competes with other forms of advertising offered by Google, then it represents a small fraction of a larger market and this transaction is competitively insignificant.  Moreover, acknowledging that mobile advertising competes with online search advertising does more to expand the size of the relevant market beyond the narrow boundaries it is usually claimed to occupy than it does to increase Google’s share of the combined market (although critics would doubtless argue that the relevant market is still “too concentrated”).  If it is a different market, on the other hand, then critics need to make clear how Google’s “dominance” in the “PC-based search advertising market” actually affects the prospects for competition in this one.  Merely using the words “leverage” and “dominance” to describe the transaction is hardly sufficient.  To the extent that this is just a breathless way of saying Google wants to build its business in a growing market that offers economies of scale and/or scope with its existing business, it’s identifying a feature and not a bug.  If instead it’s meant to refer to some sort of anticompetitive tying or “cross-subsidy” (see below), the claim is speculative and unsupported.

The EU press release promotes a version of the “leveraged dominance” story by suggesting that

The Commission will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so-called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

The biggest problem I see with these claims is that, well, they make no sense. Continue reading →

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European Commission Should Leave Internet Search Alone

by on November 30, 2010 · 1 comment

By Ryan Radia and Wayne Crews

Today, the European Commission opened a formal antitrust investigation into Google to probe allegations that the firm rigged its search engine to discriminate against rivals. This intervention in the online search market, however, will distort the market’s evolution, discourage competitors from innovating, and ultimately hurt consumers.

Google isn’t a monopoly now, but the more it tries to become one, the better it will be for us all. When capitalist enterprises strive to earn a bigger market share, rival firms are forced to respond by trying to improve their offerings. Even if Google is delivering biased search results, it is only paving the way for competitors to break into the search market.

The European Commission is wrong to assume that Google possesses monopoly power. Google accounts for just 6 percent of all dollars spent on advertising in Europe. And even loyal Google users regularly find websites through competing search engines like Bing or through social websites like Facebook and Twitter.

Before resorting to tired old competition laws, European policy makers should remember that the Internet economy is hardly understood by anybody—including by regulators. We are in terra incognita; no one knows how information markets will evolve. But one thing is for sure: Online search technology cannot evolve properly if it is improperly regulated. Why make risky investments in hopes of revolutionizing Internet markets if marvelous success means regulation and confiscation?

The real threat to consumers is not from successful high-tech firms like Google, but from overreaching government interventions into competitive market processes. As economists have documented in scholarly journals, antitrust intervention is especially problematic in the information age, because it severely underestimates the critical role of innovation in dynamic high-tech markets. Continue reading →

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Thoughts on Wu’s Master Switch, Part 6 (His Audacious Information Industrial Policy)

by on November 2, 2010 · 602 comments

I’m going to close out my series of essays about Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires, by discussing his proposed solutions.  In the first five essays in the series, [1, 2, 3, 4, 5] I’ve critiqued Wu’s look at information history as well as his use of terms like “market failure,” “laissez-faire” and “open” vs. “closed.”  I argued there’s a great deal of over-simplification, even outright distortion, in his use of those terms throughout the book.

Anyway, let’s run through the basics of the book once more before getting to Wu’s proposed solutions.  By my reading of The Master Switch, Wu’s argument essentially goes something like this:

  • Information industries go through cycles. After a period of “openness” and competition, they tend to drift toward “closed,” corporate-controlled, anti-consumer models and outcomes.
  • The resulting “monopolists” then block much innovation, competition, and free speech.
  • Consequently, “the purely economic laissez-faire approach… is no longer feasible.”
  • Moreover, information industries are more important than all others (“information industries… can never be properly understood as ‘normal’ industries”) and even traditional forms of regulation, including antitrust, “are clearly inadequate for the regulation of information industries.” (p. 303).
  • Thus, special rules should apply to information-related sectors of our economy.

Again, I’ve challenged some of these assertions in my previous essays, specifically, Wu’s incomplete history of cycles and the fact that he greatly underplays the role of governments in “locking-in” sub-optimal market structures or, worse yet, creating those structures through misguided public policies or regulatory capture.  Wu discusses some of those factors in his book, but he tends to regard them as secondary to the inquiry, whereas I believe they are crucial to understanding how most “closed” or anti-competitive scenarios develop or endure. Instead, Wu simplistically suggests that “the purely economic laissez-faire approach… is no longer feasible,” even though no such state of affairs has ever existed within communications or media industries. They have been subjected to varying levels of indirect influence or direct control almost since their inception.

Regardless, what does Tim Wu want done about the problems he has (mis-)diagnosed? Continue reading →

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Thoughts on Tim Wu’s Master Switch, Part 2 (On “Cycles” & “Market Failure”)

by on October 26, 2010 · 10 comments

Tim Wu was kind enough to comment on my general overview and critique of his new book, The Master Switch: The Rise and Fall of Information Empires.  That essay will be the first of many I plan to pen about Wu’s important book.  I appreciate Prof. Wu being willing to engage me in a debate over some of these issues since I’m sure he has better things to do with his time. Some of the points he raised in his comment will be addressed in subsequent posts.

In this post, I want to respond briefly to his assertion that I was “missing the point of the book” which is “to describe the world we live in.” He says that his book, “suggests that we tend to go through open and closed cycles in the Information Industries, and that, roughly, both have their strengths and weaknesses, and both become popular at different times for various reasons.”  But he fears there are “greater risks in the closed periods.”

Contrary to what he suggests, I certainly understand that’s the point of his book, it’s just that I don’t fully agree with his analysis or conclusions. Let me be clear about a crucial point, however: I accept that almost every industry goes through “cycles” of some sort and that, typically, after a “Wild West” period of greater “openness” and more atomistic competition, some degree of “consolidation” or more “closed” (or proprietary) models often sets in.  (A somewhat different and far more descriptive interpretation of such cycles can be found in Deborah Spar’s 2001 book, Ruling the Waves: Cycles of Discovery, Chaos, and Wealth from Compass to the Internet. She outlines a more refined 4-part cycle of: Innovation, Commercialization, Creative Anarchy, and Rules.)

My primary beef with Prof. Wu is that, contrary to his assertion yesterday in commenting on my post, his book seems to regard the progression of “the Cycle” as mostly linear and one-directional: straight down toward a perfectly closed, corporate-controlled, anti-consumer Hell.  By my reading of his book – much like Lessig and Zittrain’s work – Wu is painting an overly pessimistic portrait of technologies being subjected to the “perfect control” of largely unfettered markets.

I believe history – especially recent history — teaches us something very different.  Continue reading →

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The Net Neutrality Sausage Factory Ramps up Production

by on September 28, 2010 · 0 comments

My article for CNET News.com this morning analyzes the “leaked” net neutrality bill from Rep. Henry Waxman, chair of the House Energy and Commerce Committee.  I put leaked in quotes because so many sources came up with this document yesterday that its escape from the secrecy of the legislative process hardly seems dramatic.  Reporters with sources inside Waxman’s office, including The Hill and The Washington Post, expect Waxman to introduce the bill sometime this week.

The CNET article goes through the bill in some detail, and I won’t duplicate the analysis here.  It is a relatively short piece of legislation that makes limited changes to Title I of the Communications Act, giving the FCC only the authority it needs to implement “core” regulations that would allow the agency to enforce violations of the open Internet principles. Continue reading →

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Competition

by on September 15, 2010 · 0 comments

I’m in front of a non-TiVo-enabled television this evening, which has permitted me to see ads for a search site called YP.com. It’s a rebranded YellowPages.com, affiliated with AT&T, and it’s organized to be a search engine for the things in your life—dining, travel nightlife—distinguished from Google’s utilitarian-tech web search. Meanwhile Microsoft’s Bing has overtaken Yahoo! as the number two search engine. I was surprised to learn that “undisputed search king” Google has only 65 percent of the search market. Google is doing well, of course, but it can’t be comfortable with all these well-funded rivals circling it.

This is good news for consumers. These competitors are driving Google to improve, and they can pull consumers away from Google by serving search niches such as lifestyle search (as YP does), more privacy protective search, and so on. Competitors will threaten and cut into Google’s advertising profits, too.

Television ads also remind us that HughesNet is offering broadband Internet via satellite. It’s mostly aimed at moving rural Internet users off of dial-up, but it’s an outlet for consumers anywhere who are unsatisfied with cable or DSL service. Critics will point out that it’s not very fast, kind of expensive, and includes daily usage caps. But this doesn’t deny HughesNet’s role as competition for cable and DSL.

Internet service provided badly enough by the major ISPs would make satellite broadband a viable competitor. If HughesNet’s investors were confident that they could sign up enough customers, they would make the investments that bring satellite broadband to the economy of scale it needs to be price-, speed-, and usage-competitive.

The spur of competition does not have to pierce the horse’s belly to have its effect.

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