Internet empires – their rise and decline?

Has the American Empire simply moved online? That’s the argument made in an enjoyable polemic by Sean Ennis, World War 3.0: The Hidden Internet War. It’s a book with two strands. One about wars and empires through history: what motivates conflict, how empires grab territory when the economic advantages outweigh the costs of maintinaing the colonies, why empires either collapse or survive.

This is braided with an account of how the US (and, thanks to protection of its domestic market, China) won near-global dominance of the internet and the money to be made from the internet for its own companies. Marvellous technology, an economic system favouring enterprise and investment, and active policy support from successive US governments have created the market-dominant players who shape modern life.

Hence, “The core thesis of this book is that the modern-day internet structure is economically equivalent to what, in prior times, would have been an empire acquired through aggression into new territories.” The aggression this time has involved weapons such as effective lobbying/political blackmail over tax and trade policies, control of domain names, non-enforcement of antitrust policies to enable the giants to grow, and so on. It’s an interesting analogy although I’m not persuaded that commercial and actual conflict/conquest are really similar.

The US succeeded where France’s earlier Minitel system did not, the book argues, because Minitel was a closed interface system run by a state-owned incumbent telco – whereas in the US, AOL tried this approach in the early internet days but dropped this when the attractions of the open internet to users became both evident and available through browsers and the web. “The unquestionable French lead in the release of digital technology was squandered by the country.”

This prompts two reflections. One is that the book – in asking with Europe has no internet giants – ignores the advantage of scale. When there are high fixed costs and netwrok effects, the bigger the addressable market the better.

The other is that if open beats closed in the end, are the current internet giants undermining their own success? For what they are trying to do is tie users in ever-more tightly, and exploiting this captive market to degrade their services – just think how much search results have deteriorated on Google or Amazon. Meanwhile Mr Musk is similarly degrading the attractiveness of Twitter. The width of the open goal they are presenting to newcomers with their own great technology is increasing by the day. Regulators and competition authorities can help by mandating more, much more, open data and interoperability – as the Bundeskartellamt seems to be doing.

Still, as the book concludes, we can all do something. It ends with a list of To Dos: use multiple platforms – click away from Google. Buy direct from sellers even if it’s a bit less convenient. Go to the local high street to shop. Pay for a newspaper. In short, give up just a bit of the convenience and cost-saving to keep the digital giants on their toes and maybe open the way for new ones to come along. I’m sceptical individual action will make a big difference although happy to encourage the use of Hirschman’s Exit and Voice disciplines. It’s going to take policy choices, and almost certainly by the EU, to reshape digital markets.91D594otuiL._AC_UY436_QL65_

 

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Spending our time, the ultimate scarce resource

On the face of it, The Internet Is Not What You Think It Is: A History, A Philosophy, A Warning by Justin Smith and Four Thousand Weeks: Time Management for Mortals by Oliver Burkeman are pretty different. The former a philosophical disquisition on the parallels (and differences) between historical communication networks and today’s internet of disinformation. The latter a self-help guide to being less busy and happier.

What they have in common is identifying digital platforms as the cuplrit gobbling up our time and attention through addictive design – that familiar ‘swipe down to refresh’ for a dopamine hit – and a business model that requires human fodder. One travels by way of classical Indian philosophers and the Enlightenment, the other via useful advice from popular psychology. Both have at their heart a concern with the manipulation of how we spend our time. I read them one after the other and enjoyed both – and both with more useful insight than the much-hyped Surveillance Capital doorstop.

Have I stopped scrolling so much? Not yet. I will be trying to take some of Burkeman’s advice in the hope of stopping feeling constant pressure to empty that inbox, tick off the whole to do list. As we’re stuck with the internet, it makes sense to resist the way it manages us humans. I don’t think Smith would reckon much for my chances. Wish me luck.

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The business of digital disruption

It has taken me a shamefully long time to read Will Page’s excellent book Tarzan Economics. Will was Spotify’s economist and before his move into the music business had worked for the Scottish Government. So he has the distinct advantage of being able to wear two pairs of spectacles to look at digital disruption, the policy lens and the lens of the disruptor. The term ‘Tarzan Economics’ refers to the leap businesses need to make from one vine in the business jungle as it descends, to another vine, in order not to crash to the ground. The book combines economic analysis of digitalisation with business advice, and carries off the combination. It isn’t in quite the same league as Shapiro and Varian’s now old classic (1998) Information Rules, but on the other hand is far more up to date and gives us a front row seat for what has happened in the music business.

It was always astonishing to me (see Sex, Drugs and Economics) that the music business reacted to the Napster et al threat by deciding it would be a good idea to prosecute their biggest fans (rather than responding to the demand for unbundling). As Will writes, “If piracy of a particular artist was increasing, the lawyers would be getting worried about intellectual property being stolen, whereas the promotion departments would recognise they had a hit on their hands.” The book identifies the real threat to any content business being the limited amount of time and attention we all have. There are nice examples of more sensible ways of responding (other thany trying to put your customers in prison). One is the Atlanta Falcons having made their stadium a pleasant environment with good, reasonably priced food and no rip-offs. Elasticity of demand is such that revenues per attendee have risen substantially, attending the game winning out for enough people over watching on TV from the La-Z-Boy recliner at home.

The book is structured around (as the subtitle has it) ‘eight principles for pivoting through disruption’. These include for instance tactics for working the dynamics of the long tail and how to price discriminate: voluntary donations can raise more than conventional pricing, for instance, the famous Radiohead experiment in voluntary payment for their album (followed later by release of a special boxed set) being one of the examples here. I found the chapter on the use of data, including Spotify examples, fascinating. There’s a lovely anecdote about Will visiting Richard Thaler, who came up with the answer after the company’s data scientists had failed to discover – despite intense data mining – exactly why Discover Weekly was such a success; I won’t spoil the story.

Will is one of the band of enlightened economists who can think more broadly than many. He gives the specific example here of the limitations of the cost-benefit analysis – for example in deciding whether to invest in a museum; the inspiration and education it provides need to be in the mix along with the visitor numbers and entry fees. Not surprisingly given his Spotify role, he argues that the music industry held on to its damaging old vine for a decade too long but things are looking rosy now – I’m not sure all of the music industry buys into this cheerful, new vine outlook. Nevertheless, it was one of the earliest industries to face profound digital disruption and the lessons are well worth pondering. As Will says, the aim of the eight principles and the examples in the book is not to proclaim answers but to help readers ask the right questions about their situation and pick the most appropriate strategies and tactics.

Whether you are involved in a disrupted business or just interested in digital economics, Tarzan Economics is a terrific read, very nicely written, and with the economic analysis sweetened with plenty of examples. Will will be appearing at the Bristol Festival of Economics talking about it in November.

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Public policy & public interest

I enjoyed another short book I opted for this holiday weekend, Power to the Public: The promise of public interest technology by Tara Dawson McGuinness and Hana Schank. It’s about the process of making policy and implementing it, rather than the analysis, and that’s one of the key points: that delivery of outcomes is integrated with the design of policies and the data on which analysis is based. The three ‘Ds’ are all essential, and linked to each other. I was interested in this book because we also published one (Digital Transformation at Scale) on the UK (the focus here is the US) about the digital delivery of public services, by Public Digital, the team that originally set up the Government Digital Service.

There are some clear lessons from the experiences on both sides of the Atlantic. One is that talking to the service users and administrators is essential because they contribute information about outcomes and barriers that is otherwise unknowable. Another is that thinking about the data that is not there is as important as the data that’s available, and this is why diversity of experience is important in public service delivery – a somewhat broader point than data bias. A third lesson is that the project of digitising services opens the door to changing processes and even policies – it is not just a matter or replicating paper processes online. Automating a bad policy is not a good outcome. A fourth lesson is the way the decision to digitise helps to bring about policy co-ordination that never happens at the level of policy analysis, for delivery is impossible without tackling all the obstacles to success. This means – fifth lesson – that it can be difficult and slow, and requires building coalitions of support.

The book has lots of examples and convinced me. The rapidly-growing ‘govtech’ or public interest tech movement is encouraging – for instance the US has Code for America and now New America, which these authors lead, and the UK has Public Digital, and State Up. One advantage the US has over the UK is the federal system, meaning different states can provide many opportunities to reform, and natural experiments. As McGuinness and Schank note, successful projects do require consistent political support right from the top. Let’s hope that the imperatives of having to deliver better outcomes for political reasons and needing to restore some order to the public finances during the recovery will mean that support is there.

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Big Tech – the contrarian view

There’s a torrent of material to read about competition (lack of) in digital markets, which of course goes much wider than economics and law. Indeed, I’ve contributed to the many pages written, including in the form of being a member of the Furman Review team. The general theme is that Big Tech does indeed pose a challenge for competition policy, with the individual conclusions running from ‘some adjustment within current framework is needed’, all the way to ‘destroy them’.

What makes Big Tech and the Digital Economy by legal scholar Nicolas Petit so refreshing is its absolutely contrarian perspective. He has coined the phrase ‘moligopoly’ to describe Big Tech, and argues that while there has certainly been increasing competition in digital markets, there is also vigorous competition unremarked by all the commentators. I’d describe what he calls competition as oligopolistic rivalry, but the book does document the ways in which the GAFA and others compete with each other.

Some of the emprical evidence is rather interesting. For example, the book looks at what the big companies describe as the major risks facing them in their SEC filings and all but Facebook claim competition is their 1st or 2nd biggest threat – they would say that of course, but it intrigues me that Facebook doesn’t bother (number 4 or 5 in its ranking). The others do all see each other as their main rivals. Among the book’s other evidence is their high rate of spending on R&D – but I’d like to know about what it is they’re researching, though.

The ultimate question is not about current competitors, however, but about potential competitors. If you believe digital markets tend to winner-takes-all because of network effects, and you can live with concentration because of the large consumer benefits, then what matters is whether new rivals with great technology and products can take the current Big Tech markets. In that case, moligopolistic rivalry along various dimensions is not only fine but anyway inevitable.

The book didn’t win me over in the sense that I concluded there is no reason to be concerned about digital competition. Without intervention, it’s hard to see anybody rivalling Google in search, or Apple and Android in mobile operating systems. To be fair, the author doesn’t argue that there’s no cause for concern, quite. He is issuing a useful warning that we should think carefully and in detail about what harms we believe Big Tech is causing. This book is a distinctive corrective against the current tendency toward groupthink on this subject. As we said right at the start of the Furman Review, Big Tech has brought many benefits, and there is growing evidence about how much people value its products. Anyone certain they know Big Tech needs fixing should read this more nuanced argument with an open mind.

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