Recently, Noah Smith explored an emerging question in tech. Is there a kill zone where new and innovative upstarts are being throttled by the biggest players? He explains,
Facebook commissioned a study by consultant Oliver Wyman that concluded that venture investment in the technology sector wasn’t lower than in other sectors, which led Wyman to conclude that there was no kill zone.
But economist Ian Hathaway noted that looking at the overall technology industry was too broad. Examining three specific industry categories — internet retail, internet software and social/platform software, corresponding to the industries dominated by Amazon, Google and Facebook, respectively — Hathaway found that initial venture-capital financings have declined by much more in the past few years than in comparable industries. That suggests the kill zone is real.
A recent paper by economists Wen Wen and Feng Zhu reaches a similar conclusion. Observing that Google has tended to follow Apple in deciding which mobile-app markets to enter, they assessed whether the threat of potential entry by Google (as measured by Apple’s actions) deters innovation by startups making apps for Google’s Android platform. They conclude that when the threat of the platform owner’s entry is higher, fewer app makers will be interested in offering a product for that particular niche. A 2014 paper by the same authors found similar results for Amazon and third-party merchants using its platform.
So, are American tech companies making it difficult for startups? Perhaps, but there are some other reasons to be skeptical. Continue reading →
In recent essays and papers, I have discussed the growth of “innovation arbitrage,” which I defined as, “The movement of ideas, innovations, or operations to those jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity.” A new Economist article about “Why startups are leaving Silicon Valley,” discusses innovation arbitrage without calling it such. The article notes that, for a variety of reasons, Valley innovators and investors are looking elsewhere to set up shop or put money into new ventures. The article continues:
Other cities are rising in relative importance as a result. The Kauffman Foundation, a non-profit group that tracks entrepreneurship, now ranks the Miami-Fort Lauderdale area first for startup activity in America, based on the density of startups and new entrepreneurs. Mr Thiel is moving to Los Angeles, which has a vibrant tech scene. Phoenix and Pittsburgh have become hubs for autonomous vehicles; New York for media startups; London for fintech; Shenzhen for hardware. None of these places can match the Valley on its own; between them, they point to a world in which innovation is more distributed.
If great ideas can bubble up in more places, that has to be welcome. There are some reasons to think the playing-field for innovation is indeed being levelled up. Capital is becoming more widely available to bright sparks everywhere: tech investors increasingly trawl the world, not just California, for hot ideas. There is less reason than ever for a single region to be the epicentre of technology. Thanks to the tools that the Valley’s own firms have produced, from smartphones to video calls to messaging apps, teams can work effectively from different offices and places.
What happens when technological innovation outpaces the ability of laws and regulations to keep up?
This phenomenon is known as “the pacing problem,” and it has profound ramifications for the governance of emerging technologies. Indeed, the pacing problem is becoming the great equalizer in debates over technological governance because it forces governments to rethink their approach to the regulation of many sectors and technologies.
The Innovation Cornucopia
Had Rip Van Winkle woken up his famous nap today, he’d be shocked by all the changes around him. At-home genetics tests, personal drones, driverless cars, lab-grown meats, and 3D-printed prosthetic limbs are just some of the amazing innovations that would boggle his mind. New devices and services are flying at us so rapidly that we sometimes forget that most did not even exist a short time ago. Continue reading →
In cleaning up my desk this weekend, I chanced upon an old notebook and like many times before I began to transcribe the notes. It was short, so I got to the end within a couple of minutes. The last page was scribbled with the German term Öffentlichkeit (public sphere), a couple sentences on Hannah Arendt, and a paragraph about Norberto Bobbio’s view of public and private.
Serendipitously, a couple of hours later, William Freeland alerted me to Franklin Foer’s newest piece in The Atlantic titled “The Death of the Public Square.” Foer is the author of “World Without Mind: The Existential Threat of Big Tech,” and if you want a good take on that book, check out Adam Thierer’s review in Reason.
Much like the book, this Atlantic piece wades into techno ruin porn but focuses instead on the public sphere: Continue reading →
In preparation for a Federalist Society teleforum call that I participated in today about the compliance costs of the EU’s General Data Protection Regulation (GDPR), I gathered together some helpful recent articles on the topic and put together some talking points. I thought I would post them here and try to update this list in coming months as I find new material. (My thanks to Andrea O’Sullivan for a major assist on coming up with all this.)
Key Points:
GDPR is no free lunch; compliance is very costly
All regulation entails trade-offs, no matter how well-intentioned rules are
$7.8 billion estimated compliance cost for U.S. firms already
Punitive fees can range from €20 million to 4 percent of global firm revenue
Vagueness of language leads to considerable regulatory uncertainty — no one knows what “compliance” looks like
Even EU member states do not know what compliance looks like: 17 of 24 regulatory bodies polled by Reuters said they were unprepared for GDPR
GDPR will hurt competition & innovation; favors big players over small
Google, Facebook & others beefing up compliance departments. (“ EU official, Vera Jourova: “They have the money, an army of lawyers, an army of technicians and so on.”)
Smaller firms exiting or dumping data that could be used to provide better, more tailored services
PwC survey found that 88% of companies surveyed spent more than $1 million on GDPR preparations, and 40% more than $10 million.
Before GDPR, half of all EU ad spend went to Google. The first day after it took effect, an astounding 95 percent went to Google.
In essence, with the GDPR, the EU is surrendering on the idea of competition being possible going forward
The law will actually benefit the same big companies that the EU has been going after on antitrust grounds. Meanwhile, the smaller innovators and innovations will suffer.
The Supreme Court is winding down for the year and last week put out a much awaited decision in Ohio v. American Express. Some have rung the alarm with this case, but I think caution is worthwhile. In short, the Court’s analysis wasn’t expansive like some have claimed, but incomplete. There are a lot of important details to this case and the guideposts it has provided will likely be fought over in future litigation over platform regulation. To narrow the scope of this post, I am going to focus on the market definition question and the issue of two-sided platforms in light of the developments in the industrial organization (IO) literature in the past two decades. Continue reading →
On March 19th, I had the chance to debate Franklin Foer at a Patrick Henry College event focused on the question, “Is Big Tech Big Brother?” It was billed as a debate over the role of technology in American society and whether government should be regulating media and technology platforms more generally. [The full event video is here.] Foer is the author of the new book, World Without Mind: The Existential Threat of Big Tech, in which he advocates a fairly expansive regulatory regime for modern information technology platforms. He is open to building on regulatory ideas from the past, including broadcast-esque licensing regimes, “Fairness Doctrine”-like mandates for digital intermediaries, “fiduciary” responsibilities, beefed-up antitrust intervention, and other types of controls. In a review of the book for Reason, and then again during the debate at Patrick Henry University, I offered some reflections on what we can learn from history about how well ideas like those worked out in practice.
My closing statement of the debate, which lasted just a little over three minutes, offers a concise summation of what that history teaches us and why it would be so dangerous to repeat the mistakes of the past by wandering down that disastrous path again. That 3-minute clip is posted below. (The audience was polled before and after the event and asked the same question each time: “Do large tech companies wield too much power in our economy, media and personal lives and if so, should government(s) intervene?” Apparently at the beginning, the poll was roughly Yes – 70% and No – 30%, but after the debated ended it has reversed, with only 30% in favor of intervention and 70% against. Glad to turn around some minds on this one!)
Two weeks ago, as Facebook CEO Mark Zuckerberg was getting grilled by Congress during a two-day media circus set of hearings, I wrote a counterintuitive essay about how it could end up being Facebook’s greatest moment. How could that be? As I argued in the piece, with an avalanche of new rules looming, “Facebook is potentially poised to score its greatest victory ever as it begins the transition to regulated monopoly status, solidifying its market power, and limiting threats from new rivals.”
With the exception of probably only Google, no firm other than Facebook likely has enough lawyers, lobbyists, and money to deal with layers of red tape and corresponding regulatory compliance headaches that lie ahead. That’s true both here and especially abroad in Europe, which continues to pile on new privacy and “data protection” regulations. While such rules come wrapped in the very best of intentions, there’s just no getting around the fact that
regulation has costs. In this case, the unintended consequence of well-intentioned data privacy rules is that the emerging regulatory regime will likely discourage (or potentially even destroy) the chances of getting the new types of innovation and competition that we so desperately need right now.
Others now appear to be coming around to this view. On April 23, both the
New York Times and The Wall Street Journal ran feature articles with remarkably similar titles and themes. The New York Times article by Daisuke Wakabayashi and Adam Satariano was titled, “How Looming Privacy Regulations May Strengthen Facebook and Google,” and The Wall Street Journal’s piece, “Google and Facebook Likely to Benefit From Europe’s Privacy Crackdown,” was penned by Sam Schechner and Nick Kostov.
“In Europe and the United States, the conventional wisdom is that regulation is needed to force Silicon Valley’s digital giants to respect people’s online privacy. But new rules may instead serve to strengthen Facebook’s and Google’s hegemony and extend their lead on the internet,” note Wakabayashi and Satariano in the
NYT essay. They continue on to note how “past attempts at privacy regulation have done little to mitigate the power of tech firms.” This includes regulations like Europe’s “right to be forgotten” requirement, which has essentially put Google in a privileged position as the “chief arbiter of what information is kept online in Europe.”
Continue reading →
Whatever you want to call them–autonomous vehicles, driverless cars, automated systems, unmanned systems, connected cars, piloteless vehicles, etc.–the life-saving potential of this new class of technologies has been shown to be potentially enormous. I’ve spent a lot of time researching and writing about these issues, and I have yet to see any study forecast the opposite (i.e., a net loss of lives due to these technologies.) While the estimated life savings vary, the numbers are uniformly positive across the board, and not just in terms of lives saved, but also for reductions in other injuries, property damage, and aggregate social costs associated with vehicular accidents more generally.
To highlight these important and consistent findings, I asked my research assistant Melody Calkins to help me compile a list of recent studies on this issue and summarize the key takeaways of each one regarding at least the potential for lives saved. The studies and findings are listed below in reverse chronological order of publication. I may try to add to this over time, so please feel free to shoot me suggested updates as they become available.
Needless to say, these findings would hopefully have some bearing on public policy toward these technologies. Namely, we should be taking steps to accelerate this transition and removing roadblocks to the driverless car revolution because we could be talking about the biggest public health success story of our lifetime if we get policy right here. Every day matters because each day we delay this transition is another day during which 90 people die in car crashes and more than 6,500 will be injured. And sadly, those numbers are going up, not down. According to the National Highway Traffic Safety Administration (NHTSA), auto crashes and the roadway death toll is climbing for the first time in decades. Meanwhile, the agency estimated that 94 percent of all crashes are attributable to human error. We have the potential to do something about this tragedy, but we have to get public policy right. Delay is not an option.
Today marks the 10th anniversary of the launch of the Apple iPhone. With all the headlines being written today about how the device changed the world forever, it is easy to forget that before its launch, plenty of experts scoffed at the idea that Steve Jobs and Apple had any chance of successfully breaking into the seemingly mature mobile phone market.
After all, those were the days when BlackBerry, Palm, Motorola, and Microsoft were on everyone’s minds. Perhaps, then, it wasn’t so surprising to hear predictions like these leading up to and following the launch of the iPhone:
In December 2006, Palm CEO Ed Colligan summarily dismissed the idea that a traditional personal computing company could compete in the smartphone business. “We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.”
In January 2007, Microsoft CEO Steve Ballmer laughed off the prospect of an expensive smartphone without a keyboard having a chance in the marketplace as follows: “Five hundred dollars? Fully subsidized? With a plan? I said that’s the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good e-mail machine.”
In March 2007, computing industry pundit John C. Dvorak argued that “Apple should pull the plug on the iPhone” since “There is no likelihood that Apple can be successful in a business this competitive.” Dvorak believed the mobile handset business was already locked up by the era’s major players. “This is not an emerging business. In fact it’s gone so far that it’s in the process of consolidation with probably two players dominating everything, Nokia Corp. and Motorola Inc.”
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology. Learn more about TLF →
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.