Adam Thierer's Blog, page 152

Taking Down Techno-Panics

In case you missed it, Saturday Night Live recently mocked the news media's habit of inciting techno-panics (and any other panic they can).

Enjoy. After the fear-inspiring ad…

Alfred Kahn – An Appreciation

I was very sad to learn this morning of the death of Alfred Kahn, the brilliant economist known as "the father of airline deregulation."  He was 93.  He was a brilliant, gracious and gregarious man who never failed to have a smile on his face and make those around him smile even more.  He will be missed.

Kahn was been an inspiration to an entire generation of regulatory analysts and economists. His 2-volume masterwork, The Economics of Regulation, has served as our bible and provided us with a framework to critically analyze the efficacy of government regulation. I have cited in in more of my papers and essays than any other book or article. The book was that big of a game-changer, as was Kahn's time in government.  A self-described "good liberal Democrat," Kahn was appointed by President Jimmy Carter to serve as Chairman of the Civil Aeronautics Board in the mid-1970s and promptly set to work with other liberals, such as Sen. Ted Kennedy, Stephen Breyer, and Ralph Nader, to dismantle anti-consumer cartels that had been sustained by government regulation. These men understood that consumer welfare was better served by innovative, competitive markets than by captured regulators, who talked a big game about serving "the public interest" but who were typically busy stifling innovation and market entry.

His academic and policy achievements were significant, but what I will most remember about him is that, in a field not know for lively personalities or exciting discussions, Kahn was a consistent source of great wit and entertainment. He always managed to make even the most dreadfully boring of regulatory topics interesting and entertaining. Everyone would go away happy from a Fred Kahn talk.  Moreover, in a policy arena characterized by bitter intellectual bickering and endless bad-mouthing, Kahn always rose above the fray and held himself out to be a model of maturity and respectfulness. I have never heard a single person say a bad word about Alfred Kahn. Not one. That's saying something in the field of regulatory policy!

One quick story about one of my interactions with Fred.  Back in 1994, someone in DC was hosting a lunch on telecom and regulatory policy and Kahn was the guest of honor. Knowing this in advance, I brought along my copy of The Economics of Regulation hoping for an inscription from Fred.  I handed it to him — I think my hands were shaking as if I was a teenage girl meeting the Jonas Brothers — and asked Fred for a simple autograph. He took a close look at my well-worn book, with scribblings in every margin, Post It notes all over it, and every other page dog-eared for one reason or another.  The book was that important to me.  Seeing this, Fred flashed me one of his signature big grins and laughed as he wrote on the first page: "To a man of obviously impeccable taste!"  He handed it back to me and said, "I wish everyone cared enough about my book to deface it like that!"

We did, Fred. We did. Thank you for it, everything you taught us, and the example you set for all of us. You will not be forgotten.

Ben Kunz on 'Do Not Track' & Privacy Trade-Offs

I highly recommend this analysis of the Federal Trade Commission's (FTC) new "Do Not Track" proposal by Ben Kunz over at Bloomberg Businessweek.  In his essay, Kunz, the director of strategic planning at Mediassociates, a media planning and Internet strategy firm, hits many of the major themes we have developed here at the TLF when critiquing the FTC's plan and privacy regulation more generally. Namely, we live in a world of trade-offs and regulation can have unintended consequences.  Kunz argues that, "while the [FTC] may have consumers' best interests at heart… the idea has two huge problems":

1. It won't stop online ads. While Do Not Call lists kept telemarketers at bay, you'll still see tons of banners and videos everywhere online. They'll simply be less relevant.

2. Do Not Track will send billions of dollars to the big online publishers, hurting the little sites you might find most interesting.

The second point is painful. It could really harm you, too, dear consumer, if you read things online other than The New York Times, Bloomberg, or iVillage.com. Why? The "Long Tail" of niche content is going to get crushed. Let's follow the money. More than $25 billion was spent on U.S. online ads in 2010, according to eMarketer. About $1 billion of this went to behaviorally targeted ads tied closely to user data; nearly $8 billion overall is in some way related to online tracking.

That $8 billion has posed horrible problems for publishers of major websites, such as Bloomberg (this column's host, for which we don't work, so we'll be equally critical of it) or The New York Times. Before tracking came along, such publishers were the only means of reaching a known type of audience. Business people read Businessweek.com while moms read O magazine online and iVillage.com. Like the publications of the past century, a given website has always been a proxy for an audience target. Alas for the big publishers, good data on audiences has meant that smart marketers could leave big, expensive sites behind. So in perhaps the biggest revolution of Internet marketing, the more data you can collect about today's customers, the cheaper online advertising gets.

He continues on to argue that:

If Do Not Track moves forward, you'll still see banner ads everywhere. They'll be untargeted, with more off-kilter offers because no data about your preferences will be deployed to give you a golf ad, say, if you've been reading a lot of golfing articles. You'll feel better about your privacy, despite the fact that website marketers could never track you individually, but rather could make wild approximations of the type of person you are. Thousands of small websites may disappear as dollars flow to consolidated publishing centers.

Is this too extreme? Surely, hobbyists will continue to write blogs and build sites out of love. But with $8 billion or more moving to the ivory towers of mainstream content, you'll have fewer choices. There will be less innovation online. The Mashables and Huffington Posts of tomorrow may never get off the ground. Add video and soon the Web will be like turning on TV—perhaps with a few major networks, just like the 1960s.

Go ahead with Do Not Track if you must. It will stop marketers from serving up ads for products you may actually want. If you don't like what's left, you can always buy an online subscription.

Again, that's the key point I've tried to stress in my recent essays here. Namely, something's gotta give, and it could be that paywalls will go up and subscriptions will be required to access content that we now enjoy free of charge thanks to advertising and data collection.

Anyway, read Kunz's entire piece here.  I hope policymakers take it seriously and stop pretending that regulation is a free lunch.

op-ed: "Privacy Regulation and the 'Free' Internet"

[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.

Nonetheless, calls for regulation persist, especially as advertising grows more sophisticated.  More targeted forms of online advertising hold the promise of better ads more closely tailored to consumers' interests.  But that also raises anxieties among some Web surfers who fear their privacy might be undermined by increased data collection or "tracking."

To address those concerns, the Federal Trade Commission (FTC) and the Department of Commerce have stepped-up activity in this arena and has suggested that new rules may be needed. Earlier this month, the FTC released a report endorsing a new regulatory framework, including a so-called "Do Not Track" mechanism to allow easier consumer opt-outs of online data collection and advertising.  Last Thursday, the Commerce Department followed suit with a new report calling for expanded oversight and a new Privacy Policy Office within Commerce.  Meanwhile, discussion continues in Congress about a new "baseline" privacy law.

The stakes in the debate are significant since regulation could fundamentally alter the nature of online commerce and the future of how digital content and services are provided.  Curtailing data collection and online advertising could be killing the goose that lays the Internet's golden eggs.  Such regulation will likely have a particularly deleterious impact on small publishers and service providers, who depend almost entirely upon online advertising.  In turn, this could curtail new entry and innovation—and new forms of speech and culture.

Some regulatory advocates don't hide their desire to move the U.S. in the direction the European Union has charted with its "data directives" and more stringent forms of privacy regulation.  But America's refusal thus far to walk down that more regulatory path offers scholars the chance to evaluate Europe's more restrictive approach and study whether America's lead in the global digital marketplace might be tied to its more "hands-off" approach to online regulation. A recent study by Avi Goldfarb and Catherine Tucker found that "after the [European Union's] Privacy Directive was passed [in 2002], advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world." They argue that because regulation decreases ad effectiveness, "this may change the number and types of businesses sustained by the advertising-supporting Internet." Regulation of advertising and data collection for privacy purposes, it seems, can affect the global competitiveness of online firms.

Regulatory efforts will be complicated by the fact that privacy is a highly subjective condition and definitions of consumer "harm" vary widely.  Many of us don't much worry about data collection or advertising online; we merrily go along our way surfing free sites, services, and content.  But a handful of vocal pro-regulatory privacy advocates and organizations have successfully convinced many policymakers that the hyper-sensitive concerns of a small minority should trump all other considerations.

Ironically, many of those privacy advocates bash copyright law and claim it is an information control regime, yet privacy regulation would constitute a stronger information control regime by creating the equivalent of copyright for personal information (which would, in turn, conflict mightily with the First Amendment).  In essence, privacy regulations limit the right of people to talk about other people, or communicate facts about them.  This raises serious free speech concerns and has particularly troubling ramifications for press freedoms.  Restrictions on advertising could also have an effect on non-commercial speech, such as political ads or non-profit communication.

Some proposed privacy regulations, such as a "Do Not Track" mandate, would also require a re-architecting of the Internet and the potential regulation of every Web browser to ensure compliance.  If our experience with attempting to eradicate email spam through regulation proves anything, it's that such schemes are unlikely to work given the Net's borderless nature.

There is a better path to balancing privacy interests and economic growth than through an onerous privacy regulatory regime. Educating and empowering consumers with more, and better, privacy-enhancing tools can help alleviate much of the concern about data collection or advertising intrusiveness.  The most-downloaded add-on for both the Firefox and Chrome web browsers is AdBlock Plus, which blocks advertising on most sites. A host of other tools are available to block or limit various types of data collection, and every major browser has privacy control tools and anonymous surfing modes to help users limit data collection.

Again, because privacy is a subjective condition, not everyone takes advantage of these empowerment tools.  The crucial point, however, is that the tools exist and they need not be perfect to be preferable to government regulation, which, in this case, could decimate the "free" Internet as we know it.

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University where he works with the Technology Policy Program. Thierer covers technology, media, Internet, and free speech policy issues with a particular focus in online child safety and digital privacy policy issues. The views expressed are his own.

Is Watching "Spying"?

I was struck by the absurd title of a New York Post story from yesterday: Is Your Restaurant Spying on You? Some restaurants are—shocker—making note of your preferences and your qualities as a customer, for good or bad. That's "spying"?

Of course, headlines are meant to catch attention. The story illustrates a phenomenon that will continue to proliferate, and that will probably continue to raise hackles, classed as "spying", "privacy invasion", "dossier building", and such. People and businesses are more able to capture information about each other than they were before. (It is a two-way street. We consumers know more about businesses, and businesses know more about us.)

That's a big change from the recent past. Over the past century or so, people got more mobile and thus less amenable to consistent observation—which means less amenable to being affixed with a reputation. Now information systems are catching up. What kind of person you are—a good tipper, a brusque faux gastronome—that information might precede you to a restaurant. Object to it. Call it what you want. But you might also consider getting used to it, tipping better, and being polite.

None of this is a comment on what our public policies should be. They should neither favor this cultural change nor fight it. People need to understand what happens with information about them, and they should be able to withhold information if they want, though that may be hard for privacy outliers to do.

As a student of information, I find it hard to accept that a restaurant noting the information you've made available to it is "spying."

The Internet, "Openness" & Commercialization

I'm always entertained by the talk among the Twitterati — especially those who seem to permanently reside in the #NetNeutrality and #FCC hashtags — about how the Internet's "openness" is at risk, and that steps must be taken to preserve it.  Regulatory regimes are often birthed by myths, and this one is no different.  Contrary to what the regulation-happy worry-warts suggest, the Internet has never been more "open" than it is today. After all, as Geert Lovink reminded us in his 2008 critique of Jonathan Zittrain's thinking about the decline of online openness:

[In] [t]he first decades[,] the Internet was a closed world, only accessible to (Western) academics and the U.S. military. In order to access the Internet one had to be an academic computer scientist or a physicist. Until the early nineties it was not possible for ordinary citizens, artists, business[es] or activists, in the USA or elsewhere, to obtain an email address and make use of the rudimentary UNIX-based applications. … It was a network of networks—but still a closed one.

And even though it will probably make the folks at Free Press and Public Knowledge have an aneurysm, it's abundantly clear what shook-up this sleepy, closed model: commercialization.  That's right, those evil folks who had the audacity to want to make a dollar online were the ones who brought us the "open" Internet we know and love today! 

Ironically, it was only because the so-called "walled garden" providers of that era — AOL and CompuServe, for example — came along that many average folk were even able to experience and enjoy this strange new world called the Internet. "The fact that millions of Americans for the first time experienced the Internet through services like AOL (and continue to do so) is a reality that Zittrain simply overlooks," notes Lovink.

It's true, of course, that services like AOL and CompuServe held our hands to some extent and gave many new Netizens a guided tour of cyberspace. Thus, many would push back against the suggestion that those companies actually helped promote "openness."  Regardless, that's all ancient history now because the walls around those particular gardens came crashing down after users became more comfortable navigating the Internet on their own. As a result, CompuServe faded from the scene and AOL lost all 25 million of its $20/month-paying subscribers as they were overtaken by the search and social networking paradigms they never saw coming.

But commercialization promoted openness in a more profound way with the rise of online commerce and the need to expand markets for goods and services, attract audiences, and grow advertising budgets. "Closed" business models just haven't had much luck online.  Businesses of all flavors aren't going to make more money online by "blocking" or foreclosing opportunities.

So, getting back to Net neutrality.. should we trust the claims of those who say the FCC will give us a more "open" Internet through a top-down regulatory regime?  I'll let the brilliant Jack Shafer of Slate answer that question:

So the basic question here is who will set the Internet's priorities, the government or the providers. That I have an innate distrust for government should surprise no regular readers. Traditionally, the state censors and marginalizes voices while private businesses tend to remain tolerant. Even at the height of the rebellions of the 1960s and early 1970s, political radicals and social radicals could always find printers to publish their most sordid, seditious, and sensational material. But that's only because there was no FCC control over who could own and operate a printing press, no control over what prices they could charge for their services, and no state commandment that they had to accept any print job. The only times the FCC has spurred debate and commentary have been when it has stepped out of the way.

The FCC's track record of encouraging innovation or "openness" has just not been a pretty one. Regulatory capture is one culprit here, obviously, but even when the agency's heart is in the right spot, bureaucratic bungling usually derails the best of intentions with mounds of red tape and years of legal wrangling.

Again, the good news is that almost all signs point in the direction of things growing even more open over time — so long, that is, as the FCC doesn't screw things up.

[p.s. I will have much more to say about my views on "openness" and Net optimism in a chapter for Berin Szoka's terrific upcoming book, The Next Digital Decade.  I built my chapter around this Concurring Opinions debate I had with Jonathan Zittrain earlier this year.]

Two Scathing Dissents on the FCC's Illegal, Unnecessary & Harmful Net Neutrality Order

The FCC's order still isn't out (just a news release in .DOC form), but the Commissioner's accompanying statements are. Anyone interested in net neutrality regulation or the coming political, legal and constitutional fights over it must read the scathing dissents by Commissioners Rob McDowell and Meredith Baker.

Commissioner McDowell's jeremiad about "one of the darkest days in recent FCC history" makes clear the utter impossibility of reaching a "compromise," as Chairman Genachowski insists he wanted. Commissioner McDowell summarizes his dissent beautifully:

Nothing is broken in the Internet access market that needs fixing;
The FCC does not have the legal authority to issue these rules;
The proposed rules are likely to cause irreparable harm; and
Existing law and Internet governance structures provide  ample consumer protection in the event a systemic market failure occurs.

The dissent runs just over 9 pages, but he includes a long appendix of his legal analysis. Here are Commissioner Baker's key points:

The importance of regulatory certainty
There is no factual basis to support government intervention
Consumers will not benefit from net neutrality
The order may inhibit the development of tomorrow's internet
The Commission is miscast as the internet's referee
The Commission lacks authority to adopt net neutrality rules
The Commission acts improperly as a quasi-legislative body
The Commission has strayed from a pro-jobs consensus agenda.

Also check out statements from Chairman Genachowski, Commissioner Copps and Commissioner Clyburn. In the end, as Adam Thierer and I have warned, the FCC is heading down path towards "mutually assured destruction," opening the door to endless regulatory battles among the Internet's many players.

Preserving the Open Internet by Changing Everything

Citing nefarious, and completely imaginative, examples of "Big Mobile" and "Big Cable" shutting down access to the Internet, the FCC voted today to move towards greater regulatory oversight of Broadband Internet through Net Neutrality principles. (indeed, even the HuffPo is saying in the most hyperbolic way that this is "The Most Important Free Speech Issue of Our Time")

For a primer of Net Neutrality, visit here or here.

The public is still waiting for the specific language of the regulatory order (FCC Commissioners only recevied it themselves just before midnight last night), so I cannot comment on the language that lawyers are sure to argue over for years to come. However, based on the comments of the FCC Commissioners, both pro and con, on the order I have come to some preliminary conclusions:

1) Those who think this regulatory framework "preserves" the openness of the Internet are wrong. This fundamentally changes many aspects of the infrastructure of the Internet, even if it is below the radar. My foremost concern is that paid prioritized access will be barred. So, count Level3 among the winners here today. How is paid prioritized access a bad thing? If I want a quality experience with Netflix or Amazon or Hulu, I need access to a network that prioritizes video over someone's email, who won't be harmed if their message is delayed by less than a second. If my video is delayed less than a second, guess what, jitter occurs. And if too much jitter occurs then I'm turning off my video. How is that good?

2) The legal framework on which the majority of FCC Commissioners are basing this argument is void of reasoning. The DC Appellete Court struck down the Commission's authority in this matter and the FCC's response is to thumb their noses to the Court and move forward unilaterally when members of Congress in both parties recognize the FCC's overreach. Chairman Genachowski needs a rulemaking 101 refresher course. As Commissioner Attwell-Baker points out, the Commission is NOT given an affirmative grant of authority to regulate in this area by the Telecom Act of 1996. Therefore, there is no basis on which the FCC can stand on to make these rules.

It doesn't matter how well-meaning these rules may be, but as a non-legislative body, the FCC must have been granted the authority to regulate in this area specifically from a legislative body (Congress) and it has not received such authority. As Commissioner McDowell pointed out, why would have Congress introduced legislation just a few months ago addressing this very issue if the FCC already had direct regulatory authority in this manner?

3) The FCC is putting the onus on the ISPs of the world to prove that their network management practices do not harm the consumer. This is backwards. Companies need the freedom to innovate and if they go too far in the harming of the consumer than we must revist the question "are there adequate enforcement or consumer protection mechanisms in place to curtail infringement of the rights of consumers?" This new regulatory regime is analagous to a digital "precautionary princinple" and has the potential to open up myriad and frivolous claims by consumer groups who wont be happy until the Commission IS the ISP, or at least a highly regulated public utility. 

This is just the end of the beginning though, as it looks as if both sides (industry and the consumer leftist groups) are lawyering up to take this fight to the courts. So it appears that the only folks happy with this vote are those that will wrack up billable hours duking out the definition of "reasonable network management," among other opaque language in the forthcoming order. 

The Era of Internet Regulation Begins

FCC Chairman Julius Genachowski can now strike "Get Net Neutrality Done" from his 2010 to-do list.

The rules enacted today represent something of a compromise with the industry and are better than the sweeping regulation the FCC proposed last year—if you consider a club to the knee better than a sharp stick in the eye.

The FCC gave the most ground on the so-called "fifth principle," which, in original form, would have placed strict rules on the way service providers could manage their networks, even if the aim was to make certain applications, particularly video, work for users the way they were intended. The new rules appear to allow wireline ISPs to takes steps that are not "unreasonable." Wireless networks are pretty much exempt from this rule – good thing, too – as the engineering wireless carriers did to support smartphones such as the iPhone and those using the Droid operating system would likely be immediate neutrality violations under such rules.

And, as the owner of any of these devices can tell you, it's pretty easy to see that wireless is where broadband access is going. This will present a quandary for the commission a few years down the line as they try to do backflips to rationalize separate sets of rules for data that travels by wires and data that travels by radio. For myself, I was following Cecilia Kang's tweets from the FCC all morning, and have her Washington Post story open on my phone as I write this. So much for the paucity of access that the FCC seems to think requires neutrality regulations.

Most troublesome about these regulations, however, is that the FCC seemed to go out of its way to warn ISPs about creating tiers where application and content companies "pay for priority," that is, charge more for content to be delivered at a guaranteed bit rate or with special handling. This is especially relevant now that Level 3 Communications, which services Netflix's on-demand video rental service, has complained that Comcast has asked for higher fees to handle the increased volume of data traffic Netflix will generate. Strip away the Internet jargon and what you have is basic supply-and-demand issue covered in Economics 101. Level 3 wants more access to a limited resource, yet doesn't want to pay. The FCC would be unwise to interfere here with what would likely be thinly-disguised price-controls, but the neutrality rules it adopted today compel it to so. Yes, there is a lot of bandwidth out there. It's also true that video consumes a great deal of it. In the end, the TANSTAAFL principle will play; and despite what the FCC says about "no pay for priority," someone will have to bear the cost Level 3 will place on Internet capacity. Rightfully, it should be Netflix and Level3. Under network neutrality, it will default to you and me.

In the end, as Adam notes below, the new network neutrality rules stand to create a boatload of legal issues about what constitutes proper network management, adequate quality of service and fair pricing. Last week, I wrote about this as regulation for regulation's sake—the need to "do something" even though there is no fault that needs to be corrected. The availability of Internet access is not shrinking and no web sites and services are routinely being blocked. Quite the opposite, the unregulated market environment has delivered competition and choice among access methods, along with innovation that makes use of the open nature of the Web, has ballooned in the six years this issue has been debated.

Yet even toned down, net neutrality regulation can't help but get the FCC involved in quagmire after quagmire of technicalities, which as they add up will have toll on investment, service and development.

Now back to the National Broadband Plan…

I recorded a commentary today  for KQED–NPR in the Bay Area–on the importance of the National Broadband Plan.  In the wake of tumult over net neutrality, Title II, and other regulatory gibberish, the important goals of the NBP, published in March of 2010, have been lost.  That's unfortunate, because the authors did a great job of setting out ambitious goals essential to maintain U.S. competitiveness.  The plan also relies for funding on private investment and incentives, giving it a realistic chance of success.

While recent polls indicate that few Americans want the government involved in encouraging adoption of broadband, I believe this is one example where intervention–if only of the cheerleading and goal-setting variety–is appropriate.  As I've written extensively elsewhere, the Internet's success is a function of network effects, as succinctly described by Metcalfe's Law.  The more people who have broadband access, the more valuable the network is for everyone.  And the better the chances for serendipitous new uses and applications to flourish.

Those of us who already have broadband access, in other words, would benefit just as much from getting non-users online as those users themselves.

Perhaps even more.