Monday, May 21, 2012

Can there be a market for unpaid search results and could Google be classified as a public utility? Comments of Adam Thierer

Posted by Adam Thierer (George Mason)

If you blink your eyes in the Information Age you can miss revolutions. Let’s take a quick walk back through our turbulent recent history:

• Just five years ago, MySpace dominated social networking and had The Guardian wondering, “Will MySpace Ever Lose Its Monopoly?” A short time later, MySpace lost its early lead and became a major liability for owner Rupert Murdoch. Murdoch paid $580 million for MySpace in 2005 only to sell it for $35 million in June 2011.

• Just six to eight years ago, the mobile landscape was ruled by Palm, BlackBerry, Nokia, and Motorola. Palm is now all but dead and BlackBerry is trying to stay afloat while Nokia and Motorola had to cut deals with Microsoft and Google respectively in order to survive.

• Just 10 years ago, AOL’s hegemony in online services was thought to be unassailable, especially after its merger with Time Warner. But the merger quickly went off the rails and AOL’s online “dominance” quickly evaporated. Losses grew to over $100 billion and the entire deal unraveled within just a few years as AOL’s old dial-up, walled-garden business model had been completely superseded by broadband and the new Web 2.0 world.

• Just 12 years ago, Yahoo! and AltaVista were the go-to companies for online search. No one turns to them first today when they go looking for information online.

• And just 15 years ago, Microsoft was on everyone’s mind. Today, the firm is struggling to remain part of cocktail party chatter when the topic of modern Tech Titans is discussed. For example, a recent Fast Company cover story on “The Great Tech War of 2012” only mentioned Microsoft in passing. The rise of search, social media, and cloud computing represented disruptive shifts that Microsoft wasn’t prepared for.

The graveyard of tech titans is littered with the names of many other once-mighty giants. Schumpeter’s “gales of creative destruction” have rarely blown harder through any sector of our modern economy.

And so now we come to the question of Google’s dominance in the field of search. Should we be worried? Some say yes, and the rhetoric of public utilities and essential facilities is increasingly creeping into policy discussions about the Internet, including the search layer. A growing cabal of cyberlaw experts—Tim Wu, Dawn Nunziato, Frank Pasquale, among many others—argue that some sort of regulation is needed.

But the recent history I recounted above makes it clear that patience and humility are the more sensible policy prescriptions. Calls for regulation or public utility classification are particularly premature and problematic. As I argued in my recent white paper, “The Perils of Classifying Social Media Platforms as Public Utilities,” search and social media platforms do not resemble traditional public utilities and there are good reasons why policymakers should avoid a rush to regulate them as such.

First, there has not been any serious showing of monopoly power in the search or social media sectors in which Google operates. It’s also impossible to find any way in which consumer welfare is currently being harmed by Google. All their products are free and constantly evolving. New technologies and rivals continue to emerge. DuckDuckGo, for example, differentiates itself in search by stressing privacy above all else. Meanwhile, the contours of these markets are constantly evolving in a dynamic way, making market definition challenging. Is Facebook a search company? Signs are good that it soon could soon become a formidable one.

These market-definition considerations are especially important because of how long it takes to formulate regulations or impose antitrust remedies. In a market that changes this rapidly, taking several months or even years to complete rulemakings or litigate remedies will almost certainly mean that most rules will be completely out of date by the time they are implemented. And once implemented, there will be very little incentive to rework them as rapidly as the market contours change. Regulation could retard innovation in search and social media markets by denying firms the ability to evolve or innovate across pre-established, artificial market boundaries. Second, treating these digital services as regulated utilities would harm consumer welfare because public utility regulation has traditionally been the archenemy of innovation and competition. Public utility regulation has a long, lamentable history that has been well-documented by economists and political scientists. That’s why it is usually considered the last resort, not the first option. Moreover, the traditional goals of public utility regulation -- universal service, price competition, and quality service -- are already being achieved without intervention. And as Marvin Ammori and Luke Pelican outline in a new study, all the proposed antitrust remedies to deal with Google in particular also have serious downsides. Almost all the cures would be worse than whatever disease it is critics hope to solve with antitrust intervention.

Third, treating today’s leading search and social media providers as digital essential facilities threatens to convert “natural monopoly” or “essential facility” claims into self-fulfilling prophecies. The very act of imposing utility obligations on a particular platform or company tends to lock it in as the preferred or only choice in its sector. Public utility regulation also shelters a utility from competition once it is enshrined as such. Also, by forcing standardization or a common platform, regulation can erect de jure or de facto barriers to entry that restrict beneficial innovation and the disruption of market leaders.

Fourth, because social media are fundamentally tied up with the production and dissemination of speech and expression, First Amendment values are at stake, warranting heightened constitutional scrutiny of proposals for regulation. As Eugene Volokh noted in a recent white paper, social media providers should possess the editorial discretion to determine how their platforms are configured and what can appear on them.

Will Google meet the same fate as earlier Tech Titans? It’s impossible to know. But with the wrecking ball of creative digital destruction doing such a fine job of keeping competition and innovation thriving, we’d be smart to reject heavy-handed, top-down regulation of such a dynamic segment of our economy at this time.

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