Matt Ranen: GROWING PAINS FOR THE INTERNET ECONOMY

The debate over what the FCC should do in regards to net neutrality is getting a lot of coverage these days. It’s no wonder, since where the policy lands will have immediate impact on profits and strategies in the media industry. But more generally, this is also a debate over our assumptions about and aspirations for what we want the Internet to be, and whose values are most important to respect. Is “open” more important than “speed” and “innovation”? And which type of innovation is most valuable given today’s economic and social context—one very different from the late 90’s boom time.

Turns out, this is just one of a number of more broadly impacting policy issues that are about to come under the microscope of public debate and government action (or, inaction…which itself is also a choice), as the Internet and the “online” economy of digital goods and services re-integrates with the “offline” or “real” economy.

One of those issues will be about data—big and small—and the property rights assigned to it. There is no need to repeat the hype about how big data is changing everything. Everything from the mundane (cost effective 1 hour delivery!) to the profound (our understanding of climate change impacts!) will look to use data—about individuals, groups, places and things—to find patterns that suggest ways to improve services or deepen our understanding of how our world really works. And as with most technological revolutions, the ability to use data most effectively will lead to changes in who has the potential to hold power within an industry.

But because most of the applications for big data so far have resided in either niche areas or beyond the public’s view, we have not yet seen what happens when the promise of ‘better with data’ rubs up against real human lives and emotions on a large scale. As data-enabled business models grow in their reach and have more economic impact, more questions loom and will have to be addressed by the consuming public, regulating agencies, or the courts. For example: is your refrigerator or car or any other high end consumer good a natural monopoly when it comes to the data it collects?  Who should have access to your consumption patterns—just the company that made the product?  To what extent is targeted pricing—which some would label as simple a highly efficient market clearing mechanism—discriminatory?  When is it okay to essentially make public information about someones’ private life  through commercial behavior(e.g. Target and its infamous promotion of pregnancy products)?

Another related area is security. What are the responsibilities of different stakeholders in protecting information gathered about others, especially consumers, but also partners and prospects?  A potential early sign for where this is heading: a drop of almost 4% of sales Target during the holiday season as consumers let the retailer know that if they were going to hold their private payment information, they will also hold them liable for not letting it get into other people’s hands.The pressure is quickly building on policy makers in the US to further protect consumers.  Europe has already drawn a much stronger line.

And now, the EU Court of Justice has also taken a strong stance on yet another up for grabs policy issue, by upholding the idea that Google data must be ‘forgotten’ upon request. This shows that national, cultural and regional values may have a lot to say about what a profitable business model built around data will need to act like. In this case, the distinctively European idea of ‘dignity’ may have won out over the distinctively American idea of free speech.  (Thanks to Professors Marc Rotenberg of the Georgetown University Law Center and Jeffrey Rosen of George Washington University Law School for pointing this out on a recent podcast.)  This is a big deal for Google, as it calls into question its business model as a neutral platform pointing to content, as opposed to a party responsible for validating the data it helps its users find. Accommodating all the exceptions could not only be expensive, but limit the amount of content available.  It may be that Google is losing some of its most valuable asset, ‘free’ content.

What all of these examples show is that society is now starting to understand how Internet technology works, or at least that people are having much more personal experiences with the outcomes of disruption. And as such, they are more able and interested in interrogating the rules and intent embedded in Internet-enabled goods and service. In other words, they realize that algorithms, platforms and disruptive technology applications have implied values and now have enough experience to start making sure these align to the kinds of norms they want in their lives.  It’s taken almost 15 years but what Larry Lessig preached about in his 1999 Code and Other Laws of Cyberspace is now central to business strategy:  the Internet is not a policy free zone, a wild frontier, or a world unto itself where the rules don’t apply.

Internet business norms are not explicit definitions with sharp clear lines. And the answer to what the dominant value driving policy decisions should be will differ depending on what part of the world you live in or the ‘tribe’ you belong to. It may take years to sort these questions out. Some of the policies will be blunt instruments—usually easier to enforce—and some more refined, making it even more complex to navigate. What is clear for sure is that Net Neutrality is just one battle of many we are about to see more of regarding who should control the new engines of the economy.