ACT - Protecting Small Business Innovation

What happens to the art when the artist can’t make a living from his or her work?

Why do we choose the products we choose, when there are so many alternatives?  I watched the ITIF Forum: “Info-Communism:” A Progressive Path Forward or a Political and Intellectual Dead End? On ustream ustream today  ITIF and Jonathan Zuck, the president of ACT, raised this very fundamental question.   

Although the discussion that followed by the panel was interesting, I am not sure that the panelists ever really answered Jonathan’s question. 

It seems like an important one.  Certainly it is relevant for anyone who hopes to make a living off of their photos, poems, or code.   It is in fact a critical question for everyone who enjoys the products of these creative entrepreneurs.   

On today’s panel,  the discussion centered on intellectual and political movements that seek to level the playing field by opening up access to art to all, without fee, the creations of the few who toil to innovate.  By name alone, these movements--“free culture,” “openness movement,” and “extreme Net Neutrality”--sound inviting.  Who would be opposed to a level playing field?  Why would anyone want to pay more to enjoy what they could have for free?

There are lots of examples of how we share more in real time today than was ever possible before.  We trade quotes and pictures and lyrics with people we have never met before from all corners of the globe.  Sites like Flickr flickr show the amateur photographer in all of us what it means to aspire to great beauty.  This is all wonderful to be sure.  Free – looks like it works fine.  But, there is a rub.

Certainly these same folks that enjoy such art would likely think they are paying the artist a compliment if they share this shot with others.  They probably don’t spend much time pondering the fair use exception carved out by the Supreme Court in its 1984 decision in Sony Corporation of America v. Universal City Studios, Inc. 464 U.S. 417 (1984) when they use the pictures they downloaded as their wall photo.   But what of the photographer who hopes to make a living off of the sale of his or her work? 

There are, to be sure, some areas of grey in the current understanding of what fair use means in the digital economy.  Everyone understands what it means to give someone credit for work well done and talents well used – and even this simple courtesy is often overlooked.    

At one level there may be a qualitative difference between similar things:  one may have more artistry; be more elegant; or, more clearly capture the essence of efficiency.  Should the author, poet or developer who labored and honed his or her skills to create this artistry not be rewarded for the hours of training?

The real debate, however, probably has less to do with defining boundaries in the currently foggy areas of fair use, or imposing norms of civility and kindness, and more to do with human nature of striving for excellence and wanting to be rewarded for the effort.  How do you encourage investment and creativity?  

Jonathan’s question highlighted that people tend to gravitate towards the work of professionals.  In other words, people seem to like that work best.  Viewers gravitate to the music, movies and art of professionals so it behooves us to allow those professionals who simply work harder and for longer on their craft to enjoy the fruits of that labor. 

Jonathan raised the example of the “Hope” poster.  His point was that while there is a lot of debate over fair use surrounding that poster, he finds himself asking why when there were over 100,000 photos of Obama that could have been used for free up on Flickr, why did that person choose a professional image?   Jonathan suggested, and rightly so, that the user of this shot sought to profit from HIS art, shouldn’t the inspiration for that art profit as well?

What happens to the art when the artist can’t make a living from his or her work?  After all Free is great – until it isn’t.

 

The Googley-eyed Monster...Isn't it Awesome?

The Boston Globe has an op-ed today that paints a bleak, Orwellian picture of our future in Google’s Panopticon.  The piece begins with a quote from Orwell’s “1984”:

'THERE was of course no way of knowing whether you were being watched at any given moment . . . It was even conceivable that they watched everybody all the time."

The author, Peter Funt (TV producer and son of the creator of Candid Camera), argues that this line seems incredibly “prescient”’ given Google’s new Latitude service that allows users to monitor the whereabouts of friends and family, Street View which allows anyone to examine high resolution pictures of your home and property, and other “snooping” tools.  Funt argues that Google is essentially creating tools to enable a world-wide version of Bentham’s infamous prison and pontificates on some of the worst potential scenarios.

By the end of it, I was ready to cancel my Gmail account, and switch to Yahoo! Search and Live Maps. 

But, then I used the Google iPhone app with Voice Search. 

It is AWESOME (and would be AWESOMER if it could search emails too).  The voice recognition is great, and the integration with Internet and contact search make it a critical iPhone app for me.  The reality is that there is an immense amount of value here (as there is in Google Search and Gmail), but…is it enough the justify the cost?

For most Web2.0 advertising-supported services (Street View probably falls outside this category because communities are not opting-in),that is the real question.  We are trading a stream of information about ourselves (and our willingness to click on ads from time to time), for services.  We need to judge each of these services based on cost vs. value – the same way we do with services that have monetary costs.  For some people, being able to find their friends and family around the world at any time might be worth giving their location information 24/7 to advertisers (and potentially governments).  For others it may not.  These calculations will likely be different for each service and each person.

We can and should have high level debates about the large scale privacy implications of new technologies (as Funt is trying to spark), but it seems that empowering users to make informed choices is both more important and more pressing in today's environment.

Regulatory Models that Promote and Prevent Business Models (Or, Don't *Only* Believe the Public Interest Hype!)

“Don’t Believe the Hype”  -- Chuck D, Public Enemy

De Tocqueville is famous for discussing the American way of enlightened self-interest, in which there are mixed elements of private and public goods involved. But when it comes to self-interested lobbying by the tech industry, it’s the words of an American rapper, not a French rapporteur, that I'd like to discuss.

"Innovation!" - "openness" - "jobs" - "choice."  There's a lot of buzzword hype thrown out by IT companies. Policymakers hear these buzzwords all the time, which are usually connected to how certain regulatory polices can benefit the public interest the most.

So, what does it all mean? Well, a recently released paper of mine and ACT's President, Jonathan Zuck, tells you absolutely nothing about which IT polices are better than others. That's right, nada. Zilch. Zippo. 

Instead, the paper -- Understanding the IT Lobby: An Insider's Guide -- is an explanatory of business models in the Information Technology industry, and the public policies that can help or harm companies over their competitors. It's not a Scott McClellan tell-all - rather it connects the dots between public policy rhetoric and licensing, service, and ad-based business models.

The gist: the pursuit of one public policy can disadvantage not just one company, but an entire business model.

Of course, there’s nothing new about an industry lobbying governments in self-interested ways. What is new is that there’s no single “self” among tech companies. Thanks to new technologies & the Internet, the tech industry is full of divergent yet competing ways to attract consumers.

Things can get complicated, though, when IT industry groups approach policymakers about a common concern, because they’ll often advocate for different solutions. And in the process, IT companies—even when they differ on policy—are increasingly attempting to show how their position benefits the public interest.

But when you peel back the rhetoric, most of the policy differences among IT companies are the result of competing ways of doing business. To fully understand the policy motive, you need to be able to identify the business model.

Business Models - the 4 P's

A business model is just a term for how a company does business, how it makes money. You can breakdown a business model based on how a company prices, promotes, and places its product. In marketing class, they call this the 4 P’s Marketing Mix.

In the paper we identify 4 main business models in the IT industry.

1. License Software or Sell Subscriptions for Software Use (Microsoft, SAP)
2. Give Away Software to Help Sell Hardware (IBM, Apple)
3. Give Away Software to Generate Services (IBM, Red Hat, Sun)
4. Give Away Software to Sell Ads and Collect User Data (Google, Yahoo)

So, for instance, Microsoft clearly falls within the first as it depends on licensing revenue from Windows and Office products. Google, with its search and contextual ad network, is clearly pursuing an ad-based model. There's also some overlap, as Microsoft (among others) is also pursuing ad-based models.  

Note that business models compete. These companies are all competitors at some level, and these business models will change over time.

The 5th P -- Public Policy

Over the past few years, we’ve seen the emergence of a “5^th P” – Public Policy – as part of the marketing mix.

When a companies pursue a 5th P strategy, they attempt to use the legislative and regulatory system to create policies that help their business model or harm competitive business models.

There are two important distinctions to make.

1. There clearly are policies that help certain business models more than others. For instance, if our public interest goal is increased law enforcement of intellectual property, this clearly helps IP owners and companies that rely on copyrights and patents as their core product.

2. There are public policies that can promote one business model and at the same time exclude others. For instance, a law that mandates the use of open standards clearly will help some companies who build products around these standards, but it also has the effect of excluding competing business models.

It is this second form that is more pernicious, because it doesn’t just favor one or more companies -- instead, scenario #2 comes across as being specifically designed to disadvantage competitive business models.

And while using public interest advocacy to gain a competitive advantage is not new to Washington, in the IT industry we’re seeing more of it, it’s more sophisticated and it’s becoming more focused on competing business models, not just businesses.

This will be a continued focus of mine. In the meantime, it's not that you shouldn't believe the public interest hype -- just don't only believe the hype! (there just may be a business model preference lurking there somewhere).

The CFI Microsoft Decision - Affirming European Antitrust Activism

I want Microsoft's market share to diminish to significantly less than 95%. I can't say that it has to be precisely 50% or whatever number, but it has to be significantly less than 95. 

- Neelie Kroes, European Commissioner for Competition Policy 

Today’s decision from the European Court of First Instance affirms the broad role that competition policy has in Europe. You can slug through the lengthy court opinion, but these press conference Q&A comments of Neelie Kroes (including the above quote) are revealing. They show the true intent of the European Commission’s competition policy regulators: competition policy is about micromanaging software development and dictating market evolution.

Here’s the largest buzzword from both Kroes and the EC’s press statement: interoperability. Again, a quote from Kroes, this time from her prepared statement: 

In confirming the interoperability part of the Commission’s decision, the Court has confirmed the importance of interoperability for consumer choice and innovation in high tech industries. If competitors are unable to make their products "talk to" or work properly with a dominant company's products, they are prevented from bringing new innovative products onto the market, and customers are locked into the products of the existing provider.

Sure, interoperability is often an important feature of IT -- if it’s market-driven. Otherwise, it smacks of the sort of “infrastructure socialism” that Adam Thierer and Wayne Crews have cataloged in their book. It also smacks of political rent seeking by competitors. As Crews recently articulated in a CEI C:\Spin, “subjecting Europe's technology sector to political predation via aggressive antitrust regulation and involuntary licensing is less about protecting consumers than about competitors' regarding themselves as entitled to someone else's customers.” 

Paragraph 454 of the CFI decision has this precautionary nugget: "The Commission asserts that the applicant’s refusal creates a risk that all effective competition on the secondary market for work group server operating systems will be eliminated." A “risk”? Come on! EC antitrust regulators are now a pre-crime unit, using the force of law to intervene in precautionary ways. 

So are we at the dawn of a new antitrust era in the EU, where a precautionary principle applies to antitrust, and the refusal to supply or license intellectual property to a competitor violates competition policy? Maybe…but maybe not. 

The court affirmed that competition policy regulators have the legal power to engage in strong antitrust regulation. But whether as a matter of sound public policy the Commission should involve itself in certain competition policy matters is a different story. 

Regulators tout the way trust-busting promotes competition, but they rarely talk about the costs of antitrust interventions on the overall climate for innovation. Even Commissioner Kroes said in her remarks that “investment and innovation require a stable, fair and restrained regulatory environment. I remain committed to delivering just that.” 

Let’s hold Kroes to her word, and hope that a victorious European Commission isn’t a recklessly emboldened regulator. Competition policy is a blunt instrument to remedy perceived anti-competitive acts – nothing more. It shouldn’t be an expanded tool to enforce market shares, dictate prices, and resolve competitor disputes that are best left to the marketplace.

[Update: Check out this hilarious post at the Secret Diaries of Steve Jobs (here's a snippet):

We've proposed a great way for Europe to accomplish this and I'm happy to say that so far they seem to be listening to us. Which is more than I can say for the U.S. government which is still stuck with this quaint idea that governments shouldn't decide how much market share any one company should have in any one market.]

Neelie Kroes Press Conference Transcript (Unofficial)

ACT had a few folks at today's press conference where Neelie Kroes spoke regarding the Court of First Instance decision. As there's no official transcript yet available, and in light of a clarifying statement to some of Kroes' remarks, here's a rough transcript of the Q & A that occurred (translated into English when needed):

Q: Are you expecting a rush of dominant companies to your door to discuss implications of the judgment for them?
A. No.

Q: Are you now going to impose hefty fines on Microsoft for non-compliance?
A: Too early to tell.

Q: Do you expect this judgment can be used by the Commission as a precedent to move more quickly on other cases?
A: Yes, I hope that my services will be in a position to speed up work on other cases.

Q: Will you look into the legitimacy of access to information by the Trustee?
A: No

Q (in Dutch): How will consumers notice the difference after this judgment?
A (in Dutch): The interests of consumers are central. They will notice that the market is going to be opened up in different ways: 1. more choice; 2. lower prices; 3. more research and innovation.

Q (in Dutch): What does this judgment mean for the future of Commission policy?
A (in Dutch): It confirms that our policy is right to place the consumer as our priority no. 1 and innovation as our priority no. 2.

Q: How will you know if your action against Microsoft really succeeded? Will you measure sales of other products competing with Window? Will there be some kind of benchmark?

A: I'm not the one to take decisions [to buy a different product from Windows]. That's the consumer's decision. But for the consumer to take that decision, it is a must that there is a choice. Let's wait and see.

Q: Do you expect Microsoft will appeal?
A: No, this judgment was very clear.

Q: Will the Commission now take further actions against Microsoft in other product areas ?
A. I hope not. I hope it's clear now to Microsoft that we stick to our point to have competition.

Q: A similar ruling was rendered in the  U.S. against Microsoft in the past, but Microsoft's market shares have still not diminished.

A: Microsoft should comply. And when they do, market shares will change. In addition, competitors will also be stimulated by today's judgment.

Q: Interoperability is very important in many areas. Do you think this judgment is going to cause big waves in other segments as well (such as MP3 players for example) ?

A: In any sector where interoperability is important it makes sense to change a situation in which there is no interoperability, and to open other markets too.

Q: Microsoft also a partner of the Commission in many other fields. How will the Commission now behave with Microsoft after the judgment?

A. The Commission will be consistent. It depends on what type of joint activity it is.

Q: In how far is this judgment a precedent ? Will the Commission now take action with respect to Microsoft Office?

A: That's not the way we deal with this. Let me say with a smile that it's very simple: if Microsoft is not in line with our policy, we take action; if it is, then excellent.

Q (in Dutch): What was the importance of this judgment for the Commission?

A (in Dutch): We have been strengthened in our approach, and in our belief that the consumer and innovation are the most important. We have also been confirmed in our approach to what competition entails.

Q: With respect to the bundling of Windows and Media Player. Very few people have bought the unbundled version. The remedy has clearly failed. Will you change the remedy ?

A: No.

Q: Most of the Commission's evidence regarding Microsoft's non-compliance came from evidence held by the Trustee. How is this affected by the judgment ?

A: We will study that section of the judgment very carefully. We note that the Court does not question the legality of an independent trustee appointed by the Commission from a list reviewed by Microsoft.

Q: What are the Commission's costs ?
A: I don't have an exact figure.

Q: You seem to be certain that Microsoft's market share will diminish. What share would you be satisfied with ?
A: I'm not able to say precisely how much. It depends on a couple of issues. But obviously the path Microsoft took until today is far too much. It will have to diminish by more than a couple of %. We want the market to be open, so that competitors can do their job.

Q: What's the influence of this judgment on the Intel case ?
A: It's too early to say. We will study this carefully. Obviously, the background of this case must be respected.

Q: What is the Commission going to do about  Vista?
A: it is too early too say, but you will be informed soon.

Q: Did you talk about Microsoft with the Chinese officials when you were in China?
A: No

Q (in French): In the USA  a settlement was reached with Microsoft, but now the procedure is ongoing in the US too as Microsoft is not complying. Is there going to be a dialogue with the US authorities ? Do you think the judgment today will have an influence over what happens in the US and will you discuss that with them?

A: Yes, we are definitely talking with our US   colleagues. I will be visiting the  US in a week, and Microsoft will certainly be "on the menu".

Q (in Dutch): Are you taking into account that Microsoft may appeal and the Commission may lose on appeal?
A (in Dutch): No.

Q (in Dutch): Really ?
A (in Dutch): I am a) a democrat and b) an optimist. Today the Court reached some very clear conclusions. I am not going to worry about problems that do not exist yet and that may never exist.

Q: Vesterdorf gave a rare interview to a German newspaper, in which he gives his personal view that fines are not enough to deter cartels and that there should be personal liability for cartel leaders, such as for example jail times. Would you be in favor of this ?

A: I have read the interview with Vesterdorf. It's highly interesting. We have started a discussion on these subjects at the Commission. I do not agree with his view that fines do not work, or that the consumer ends up paying for the fine. I know the US have a system of personal liability; so do some of our Member States but they have been using it only very rarely. I am not in favor of that at the moment. I believe the system of fines is working quite well, even if we still need to fight like hell against cartels. That's the reason why I re-organized DG Competition and created a special cartel unit to fight them.

Q (in Italian): Will this judgment not make political relations between the US and the EU even more difficult ?
A. We have a very close relationship with our US colleagues and communicate with them on a daily basis. But there are differences between us too, and we respect that. It is never an issue in our relationship. For some things we have a different culture. We found it important for example that the Chinese decided to base themselves largely on the EU system for their antimonopoly law. This is definitely not a black spot on our relations with the US. We are professionals and that's it.

Q (in Dutch): Microsoft's current market share is nearly 95%. To what extent can market share be a legal criterion to decide whether Microsoft is complying or not ?

A (in Dutch): We know that one single producer has a market share of 95%. This is clearly a monopoly and this is not acceptable. No competitor has an incentive to enter such a market. I want Microsoft's market share to diminish to significantly less than 95%. I can't say that it has to be precisely 50% or whatever number, but it has to be significantly less than 95%.

Q: Do you think Microsoft is going to start a new procedure ? Or are there going to be more complaints ?
A: We have a clear judgment from the Court that their dominance is preventing competition. Microsoft must now comply. No more excuses now.

Q (in Dutch): Do you think your reputation as an antitrust regulator was riding on this case ?
A (in Dutch): No, our reputation does not depend on one case. We do our job carefully, with good faith, and with arguments. We have not suffered any reputation damage. This does not depend on one case. In any event, I do not think losing a case now and then is bad for our reputation.

Q: In what timeframe do you expect or do you want Microsoft's market share to diminish ?
A: The sooner the better. Let them start this afternoon. 

Innovators are Happier in Malta :-) Miserable in Germany :-(

You can tell by the look on their faces.  Our friends over at Business Europe just released their "European Reform Barometer Spring 2007" this week and the result will be suprising to many.

They have even provided a handy chart of EU 25 and Accession Countries based on the categories of: Public Finance, Businessenvironment, Research & Innovation, Internal Market, Labour Market, and Education & training.

Just a quick glance reveals that Ireland and Malta have an awful lot of these smiley faces:

And Germany has way too many of these unhappy looking red faces:

Tech Policy Summit - Bringing Silicon Valley Together with Washington, DC

Today, I'm participating in the Technology Policy Summit in San Jose. It's a great event bringing together the biggest players from Silicon Valley and Washington, DC to discuss key technology policy issues. Disclaimer: ACT is a sponsor of the event, Jonathan Zuck is speaking at the event, and I'm on the Board of Advisors for TPS.

I'll be posting regularly over the next two days with news and analysis from the event. Also keep an eye on the 463 Communications blog, where Sean Garrett is also blogging from the event.

MLK -- Let [Technology Help] Freedom Ring

I spent this morning reading and listening to Martin Luther King Jr.'s speeches, and it got me a thinkin'...what if King had the power of the Internet to help spread his message? King was a gifted orator, and his impassioned yet precisely measured delivery hits at the most visceral of levels. Just think of the YouTube possibilities....

One doesn't have to have been alive in 1963 to understand King's "I Have a Dream" speech. It's about fundamental human dignity. King was dreaming back to 1776, when Jefferson wrote in the Declaration of Independence of certain unalienable rights - Life, Liberty and the Pursuit of Happiness. King was also dreaming back to 1863, when Lincoln's Gettysburg Address proclaimed that our country would have a second chance at freedom, "that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth."

It's enough to make a technology liberator think that compared to King's fight for basic human dignity, squabbling over "technology freedoms" - copyright and patent reform, restrictive FCC rules, and even King's estate's copyright suit against CBS, etc. - pales by comparison. And it would be ridiculous to say otherwise. But technology can help disseminate information more quickly - information about race-related police beatings, government abuse of civil liberties, and other violations of peoples' rights.

And as is often the case for those of us involved in fighting to keep technology free from burdensome regulation, King was mainly dreaming of the future:

<blockquote>I have a dream that one day on the red hills of Georgia the sons of former slaves and the sons of former slaveowners will be able to sit down together at a table of brotherhood. I have a dream that one day even the state of Mississippi, a desert state, sweltering with the heat of injustice and oppression, will be transformed into an oasis of freedom and justice. I have a dream that my four children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.</blockquote>

Freedom would have been ringing from Stone Mountain of Georgia and Lookout Mountain of Tennessee more quickly, I think, if the Web of today existed in the 1950s and 60s. But today's Internet is helping to bring the fight for freedom globally, and technology has the possibility to spread King's message in new ways to people in China and other authoritarian regimes.

Here's King's "I Have a Dream" speech: