How to Dethrone a King: Regulation and Innovation in the Age of Big Tech
Of decentralization (in the spirit of Net Neutrality) and re-centralization (in the hands of central governments)
Of course, the free and open web is prone to beg, borrow, and steal your attention. Reading blogs, news, and research has always been an inefficient user experience — like finding needles in haystacks — but now Annotote is the antidote, so check it out: Don’t waste time or attention; get straight to the point.
Riti —
Everyone should read your well-researched piece. Albeit nuanced, I’m generally pro-Net Neutrality, but I have to level some of your inferences and prescriptions.
To start, ISPs are different than water and electric utilities. For example:
[S]ewers and electricity are far more static markets than broadband. You don’t shit 10x as much every 3 yrs.
— Marc Andreessen (@pmarca) 2014.02.03
Like I said, my stance is nuanced: You can be pro-Net Neutrality and pro-internet decentralization while also being anti-Title II.
On one hand, as you alluded to, there are a lot of ways around Title II that still enable discrimination (e.g. zero rating), so the existing regulation is porous at best. Plus, as the above tweet describes, I don’t think the internet is done yet — by which I mean there’s a lot of growth and innovation yet to come, like faster speeds, higher bandwidth, etc. That growth and innovation require research, development, and infrastructure that still need investment which still needs funding. That money will likely come from some combination of the public purse (e.g. grants) and consumers (higher rates), but I don’t think we want to put such critical, capital-intensive, high-growth infrastructure entirely in the hands of a government — as fallible as any other person or entity — to be regulated as a utility.
On the other hand, there are more organic means of re-decentralizing the internet in the spirit of Net Neutrality…
When the gods wish to punish us they answer our prayers
That’s my first contention for you, your audience, and the public. The solution to the problem of ‘the internet falling into the hands of a government’ surely cannot be ‘putting the internet in the hand of the government’. But, that’s literally what you suggest doing (emphasis mine):
If you do nothing, we will lose the war for the open internet. The greatest tool for communication and creativity in human history will fall into the hands of a few powerful corporations and governments…
The good news is that our great grandparents reined in similar monopolies. At the beginning of the 20th century, Americans faced abusive oil, railroad, and meat industry monopolies. We prevailed over them by raising awareness through brave journalism, and by compelling the government to act.
I’m not a libertarian, but giving a government sovereignty over the internet would entirely defy the decentralized promise of the internet, as you yourself describe:
The open internet is distributed. It’s owned in part by everyone and in whole by no one. It exists largely outside of the boundaries of governments. And it’s this way by design.
The adventures of Title II alone should be a lesson in federal government stewardship — or the travails thereof. (And Title II had rather narrow scope, so I shudder at the thought of broader, heavier touch.) In fact, we can look at the adventures of Title I to establish an empirical base case expectation for such regulation. Back in the early-naughts, unregulated cable broadband growth doubled that of highly-regulated DSL broadband. But, after FCC deregulation of DSL in 2003, the laggard almost entirely closed-the-gap on cable — ultimately paving-the-way for the proliferation of fiber networks. Crucially, in Canada, where DSL remained deregulated throughout the US experience, DSL maintained a steeper linear growth trajectory throughout this period — providing a control group that establishes a causal link between US regulation and US DSL’s stop/start adoption rate.
We’re already on the brink of progress akin to DSL overcoming cable and fiber optics overcoming DSL. There are sustaining innovations like 5G wireless that have already arrived. There are also possibilities for new market disruptions like mesh networking.
That is a good segue to your points about monopolies…
History merely rhymes
I fully understand the problems with walled gardens — and I’d caution everyone to reconsider the false flags therein — but what makes you think that today’s incumbents will fare any differently than their predecessors from your “brief history of walled gardens”? AOL and Yahoo are shadows of their former selves. Going even further back in history, Microsoft and IBM went from first to worst.
Sure, market leaders with vice grips like these rarely get dethroned by endogenous market forces like traditional competition from within their industry.
And, sure, Big Tech companies today are different than anything this world has ever seen — they’re far more powerful and unassailable due to the virtuous cycle of network effects and zero marginal costs to scale:
Aggregation Theory states that by developing a differentiated experience an aggregator can secure a critical mass of consumers that gives them power over suppliers; suppliers are then incentivized to deliver their product to the aggregator’s specifications which improves the overall experience, allowing the aggregator to further increase their consumer base, which further strengthens their bargaining position relative to suppliers. To be fair, this is another way of describing a two-sided market, but what makes aggregators unique is the zero marginal distribution costs enabled by the Internet and the zero marginal transaction costs enabled by computers, which means such companies can scale to basically the entire world.
And, finally, sure, I myself don’t hand-wave at market power — there certainly are legitimate antitrust violations that warrant regulatory scrutiny. In fact, most of what you describe regarding the pitfalls of walled-gardens are just platform risks, single-point-of-failure centralization issues that I wrote-the-book on.
But…
The importance of being earnest
Nevertheless, most of the other cases anyone can make/has made against these businesses fail to qualify them as monopolies. It’s important the understand all of this and hone the debate, for two reasons…
First, light-touch regulation is necessary and overdue for both ISPs and Big Tech. However, public naivete and false narratives about each of these industries has set the sights of popular consensus on straw men. Part-and-parcel, policymakers have continually misfired, expending resources on lost causes. (e.g. Policy that’s actually been implemented, like GDPR, has served to paradoxically strengthen incumbents’ vice grip over their respective markets — at the expense of small/mid-sized constituents’ relative standing.) So, understanding the idiosyncrasies at hand is tantamount to enacting effective legislation with the kind of precision required to minimize externalities.
Second, I’ll reiterate a point I’ve made many times over the years: This widespread ignorance of aggregator economics and antitrust applicability is a bigger inhibitor of much-needed innovation than Big Tech’s own bear hugs. From “The Carrot and the Stick”:
Big Tech’s gameplan is centralization, in which they are increasingly concentrating the open web in their respective walled-gardens. I personally say it’s not entirely conscious or nefarious; rather, it’s often easily explained as inertial and altruistic. After all, benevolent dictatorship — however fallible — is the optimal approach to competing against the corporate bureaucracies that this epoch’s Bezoses and Zuckerbergs supplanted: End-to-end, technocratic control of a product such that it continually evolves toward that requisite more-perfect user experience — an invisible asymptote demanded by divinely discontent stakeholders.
Regardless of intent, there are obviously negative consequences to this trend toward centralization [as mentioned above]…
New entrants can only sustain were they to aim for “new market disruption” in which they occupy incumbents’ blindspots — completely new vectors where incumbents can’t squash upstarts for fear of cannibalizing their own, preexisting cash cows. Think in terms of Google disrupting Microsoft by organizing the chaotic web — as opposed to Firefox just building a better browser than Internet Explorer. Don’t build a better mouse-trap; build a waterwheel the mouse can spin to produce hydroelectricity.
This is the aforementioned concept of “sustaining innovations” vs “new market disruption”. Whether IBM, Microsoft, AOL, or Yahoo, the agents responsible for dethroning the kings of tech’s past were neither endogenous industry rivals nor exogenous regulation. It was new market disruption that did the job — that almost always does the job.
You can be sure that such disruption is incubating in someone’s garage or lab right now. Perhaps it’ll take the form of AI or mesh networks or crypto networks — although it’s by definition almost impossible to ascertain in advance. (This uncertainty is always the predicate of popular panic.)
While bullish on mainstream adoption and innovation, I’ve registered my consternation about the naiveté of crypto’s means to those ends. Though I’m not a crypto-maximalist, I am as confident as you are that a reversion to decentralization will be the “vector” of this inevitable, self-correcting, new market disruption. Continuing that last excerpt from “The Carrot and the Stick” above:
While Big Tech structurally cannot (and will not) decentralize, incremental decentralization is obviously desirable for both the supply-side and the demand-side of tech’s various marketplaces. Decentralization is theoretically the vector for new market disruption — that aforementioned “blindspot… where incumbents can’t squash upstarts for fear of cannibalizing their own, preexisting cash cows.”
In sum, there are pockets of abuse-of-power that deserve surgical government regulation, but there’s a far greater surface area that doesn’t register as abuse and is at greater risk of greater centralization in the hands of unwitting governments.
In the same vein as “The Cycle” that you reference, this quote from “The Killer App and the App Killer” is a good place to conclude, because it encapsulates “inevitable, self-correcting, new market disruption” that acts like gravity for business’ life cycles:
[T]his reminds me of the bundling/unbundling underway in cable television… the pendulum swinging from one extreme to another (i.e. a new medium unbundles an integrated incumbent then eventually rebundles the disintegrated landscape that results)…
The more air an industry-killer sucks out of the room, the more vulnerable it becomes to disruption.
On the topic of disruption
Be the signal, not the noise:
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