Data Portability Is One Way To Curb The Power Of The Tech Giants

Current trends indicate that the global economy will one day be controlled by companies like Google and Facebook. But politicians won’t let that happen.

A handful of large commercial entities — notably Apple, Facebook, Google, Amazon, Microsoft and a few others are emerging as super-heavyweight players who control most of the digital economy.

We can see a similar concentration of power taking hold in China where players like Alibaba, Xiaomi and Tencent are asserting themselves at the expense of rivals who are falling by the wayside or are being relegated to market niches.

It is a good time to ask whether this concentration of market power will get more intense in the future, and what it means for the global economy if it does.

Tech giants are challenging the global choreographers

For decades, the workings of the global economy have been controlled by a triptych of powerful actors: macroeconomists, politicians and banks.

But it is becoming clear that this cosy arrangement is being challenged by arrival of a fourth actor — technology companies (the usual suspects) — and their entrance onto the scene is not welcome.

One reason is the damage that too much disruption could do to the global economy, which is essentially an intellectual construct that only works because senior policy makers are focused on carefully managing systemic confidence.

This means that digital disruption is OK, provided it remains a microeconomic issue.

And so far, this is the case: in spite of their gargantuan size, the world’s most powerful technology companies have so far been operating at the microeconomic level — by disrupting isolated industries — like music, news, DVD, advertising and so on.

Up ahead, we can easily see more waves of disruption coming — the global auto industry, healthcare and finance, for example are all in line. But we’re still talking about microeconomic impacts.

Well, sort of: let’s think for a minute about how this could play out…

Sequential industrial disruption = macroeconomic disruption

It seems safe to say that some industries (like recorded music) will prove easier to disrupt than others (like banking):

For instance, taking on a handful of sleepy record labels like EMI, SonyBMG, Warner Music and Universal Music was one thing, but taking on the likes of JPMorgan, GoldmanSachs, plus the 100s of banks who together manage over $200 trillion of assets and have extremely strong political affiliations is another matter entirely.

Nevertheless, it seems safe to assume that the vast majority of industrial sectors will experience the effects of digital disruption at some point in the coming few decades, at least to some extent.

The only industries to escape the clutches of digital technology will be those where the products and services being delivered cannot be improved by the accumulation and analysis of large-scale data assets, and there are very of those.

If we stand back from this and try to objectively appraise what is happening we are left with at stark conclusion:

A handful of technology companies will disrupt the whole macroeconomy

Here is another way of coming to this conclusion:

Digital is bigger than policy makers realise, and it’s getting bigger

If we take a long-run view of the market — say 30 years — then it is plain that the commoditisation of certain aspects of human intelligence will not only further accelerate workplace automation (by dramatically increasing the capabilities of robots) but will enable entirely new categories of digital services.

For instance, the recent emergence of bots, the delivery of powerful machine learning algorithms as cloud services (e.g. Microsoft Azure Machine Learning, Google Tensor Flow) and the efforts of IBM to create and commercialise multiple, parallel instances of Watson — each optimised for a given domain of expertise — will enable services, business and whole industries that we cannot imagine today.

The debate so far has mostly focused on about how these technological trends will impact the job market, with the prevailing consensus being that about 30% of the G20 workforce will be disrupted.

But the more fundamental question is what proportion of economic growth in the future will be enabled by these new technologies?

In other words, will these new technologies become the engine that drives the economy, without which further progress will become impossible?

To get a grip on this deeper question we should first acknowledge the limitations of using GDP as a way of measuring the economy — which is a subject I’ve looked at before.

At the risk of over simplifying a complex question, GDP — as currently used by the macroeconomists, politicians and banks who manage the economy on our behalf — cannot be used to properly measure the current size of the digital economy, let alone how important it will become in the future.

In tacit acknowledgement of this problem, Christine Lagarde, head of the IMF, said in January 2016 at Davos “We have to go back to GDP, the calculation of productivity, the value of things — in order to assess, and probably change, the way we look at the economy.”

The uncomfortable fact is that in order to properly understand how digital disruption will impact the economy then we need to stop using GDP.

If we think instead in terms of intrinsic value delivery — for instance the total number of useful hours spent reading Wikipedia, or listening to music services like Spotify — then the digital economy might already be delivering as much as 20% of total economic value — rather than just 5%, which is the consensus view today.

The key point is that the digital economy is already a far more important component of the global macroeconomy that implied by using a GDP-based calculation.

Based on the fact that the actors controlling the technological assets that enable the digital economy — Apple, Google, Microsoft, plus others along with Silicon Valley — are not approaching a fundamental plateau then we should ask if digital economy represents 20% of total economic value delivery today then what might it represent in the future — 30%? 50%? 70%?

It seems that we can again conclude that:

A handful of technology companies will disrupt the whole macroeconomy

For those who remain unconvinced, here is a third way of coming to this conclusion:

Eventually, the only way to make progress will be to use digital technology

In its purest form economic growth arises when people try to solve real problems.

Economic growth — which should correlate 100% with value delivery (but does not because the economy is not perfectly efficient) — is a convolution of the difficulty of the problem being solved (e.g. cancer) and the number of people affected by that problem (everybody).

For most of the past decades economic activity has been mostly focused on solving problems that required the manufacture of tangible products (e.g. sanitation infrastructure, fresh water supplies, washing machines, electric lighting systems, telephony networks, automobiles, clear glass etc.). These are examples of major innovations that each enabled dramatic improvements in the standard of living of billions of people.

But once the standard of living reaches a certain level — which is the case for many in the G20 economies — further gains come more from fixing problems that require intangible solutions (e.g. online retail, genomics, online education etc.).

As the economy moves farther ahead the problems we’ll need to solve will become progressively harder and increasingly virtual in nature — and this will require more advanced enabling technologies, more advanced science, more powerful computation and vastly more data.

In the far future, the collective intelligence needed to solve the problems of the time will outstrip the capacity of human intellect, which is why we will need to use artificially intelligent systems to magnify and multiply human intelligence.

In other words, the economy is moving from a phase where human intelligence solved easy problems with physical products to a phase where machine-enhanced human intelligence will solve hard problems with virtual solutions.

Not only is this is a deeply profound shift but the technological elements that will drive it will be controlled by a handful of companies, which leads us once again to the conclusion that:

A handful of technology companies will disrupt the whole macroeconomy

Would it be OK for the macroeconomy to one day be controlled by a few large commercial entities?

If current trends continue then this would indeed be the conclusion, but the following evidence pattern suggests this it is unlikely:

  • For the reasons expressed above it is hard to escape the conclusion that economic progress will become increasingly dependent on the technologies that are controlled by a small number of commercial entities.
  • Perhaps sensing their time has come, companies like Google, Facebook and Apple and others are becoming increasingly political, both in terms of active lobbying of Congress, blatant expansion programs that passed off as philanthropic initiatives and overt involvement in politics.
  • But opposing this is the realisation that there is no possibility that those who control the macroeconomy — macroeconomists, politicians and banks — will simply roll over and let companies like Google, Apple, Facebook and others into the driving seat. These powerful interest groups are closing ranks and standing firm against what they see as a threat to the way things are;
  • As evidence of push back, politicians and regulators are beginning to test the waters: the EU has accused Google of illegally manipulating search results to the disadvantage of competitors and has sent a €13 billion bill to Apple for unpaid tax.

No matter how you look at this it is hard to escape the conclusion that we are watching a car crash in slow motion.

While it seems impossible to imagine today it is at least possible that one policy response to these growing tensions will be for policy makers to define regulations that strike at the strategic hearts of these gargantuan players, which is the ‘platform lock-in’ model:

The more engaged a user becomes with a platform like Facebook, Google or Apple the harder it is to switch: the sheer hassle and complexity of having to transfer emails, pictures, videos, address books, calendars and so on to a rival platform becomes so enormous that the vast majority of users simply can’t be bothered — even if a rival platform offered better features.

Some would argue that this is bad for competition.

This is similar problem to a problem faced by telecoms regulators when they were worried about how competition was developing within the mobile phone industry.

In this case, the requirement for users to change their numbers when they moved between operators proved to be such a severe barrier that most users preferred to stay with their current operators, even if their services were inferior — which is why media and telecoms regulators decided to introduce number portability.

Today, when we want to change mobile networks, we simply assume that we will be able to take our phone number with us to our new network.

In the case of the digital economy, if it is determined that the data a user uploads onto a given platform is their property (copyright infringing material aside) then it could be that, one day, regulators will require that digital platform operators — like Facebook — allow users to easily transfer their data to a rival platform.

Such a ’data portability’ regime would be far more complex to implement than was the case with number portability in telecoms industry but would not be impossibly so (for companies that are selling artificial intelligence as a cloud service, that is).

Data portability is one example of a policy tool could at a stroke result in a flood of competition into the digital platform markets, and reduce the market power of the tech giants.

The affected parties would surely detest the idea and actively lobby against it but users would be unlikely to object, and nor would the entrepreneurs and venture capitalists who would like to complete with the tech giants, but cannot even get a toehold in the market.

For sure, the current trajectory of the tech giants is not sustainable without a major rupture in the market landscape. Data portability might be the tool that causes that rupture.


Originally published at blog.nakono.com.

Andrew Sheehy is Chief Analyst at Nakono, an industry research firm focusing on how digital technology and the Internet are transforming media, consumer devices and communications. Read more from Andrew Sheehy and Nakono at http://nakono.com

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