Tag Archives: Microsoft

Free-market, Small Government and Regulations

Posted on by

The free-market has been used to argue against regulations and for small government for years. However, I believe that the major supporters of using the free-market argument are disingenuous in their application of the argument. In addition, the free-market is a flawed theory which needs to be revisited by neoclassical scholars and adjusted.

The free-market theory comes from the idea that there is an invisible hand that guides the market towards equilibrium between supply and demand. This assumes that once the equilibrium is hit it will stay at that point until there is some shock to the system which would find a new equilibrium. Each time that there is a shock, the invisible hand would push the market into a new equilibrium. This idea came as a side comment in the Wealth of Nations. This idea has become enshrined in the minds of neoclassical economics in a manner that Newtonian Physics was presumed to be accurate. In both cases the theory is incorrect. Relativistic Physics has replaced Newtonian, but in Economics the free-market is still the prevailing mechanism for policy creation. There has been no evidence for an invisible hand at all. In fact Metcalf created the theory of a networked economy which argues that the value of a good becomes more valuable as more people use it. I’ve mentioned this in the past. Essentially, this will prevent any equilibrium from every being found as the price can increase and people will still adopt the networked item because it’s becoming more valuable to the user. Or the price can remain constant even when it should drop for other factors such as a reduction in cost of production. A perfect example is the iPhone. According to research Apple has a whopping 72% margins on the iPhone, even if production was moved to the US Apple would still make 42% margin on the iPhone. There also is an over production of the iPhone and strong competition, which would indicate that the iPhone should drop prices as they are capable with that large of a margin. This market has a great deal of competition and has a large number of companies producing, which indicates that it Apple should be under pressure to drop prices. However this isn’t happening because of the networked value of the iPhone. There are a huge number of apps for the phone, the apps are high quality and the product works well with other iPhones. The market has had no impact on the cost of the iPhone.

However, free-market champions would look at any effort to change the labor practices of Apple as wrong headed and regulation that isn’t required. The Market isn’t demanding any change to labor practices because the market can bear the current prices and the demand indicates that people don’t care about labor practices. However, it’s well known that there are no alternatives to Apple’s iPhone that are produced in an ethical manner. So voting with your money wouldn’t actually work here. The problem arises because there is something of a monopoly in the manufacturing of the smart phones in FoxConn. In this case there is a market failure. Which is something that neoclassical theorists argue cannot occur. The market cannot send a signal to firms because there is no mechanism in which the market could send a signal. This is can be understood if you view this industry as a networked economy. Where you see the ties between manufacturers and handset companies, which would show a massive connection to FoxConn.

Efforts to regulate the manufacturing of devices have been argued as the reason for moving the manufacturing to other countries. However, this is not the case in the case of Apple, as they would still have huge margins. It’s because the company is attempting to maximize profits, not reduce costs to be profitable. The same arguments have been used to argue for smaller government. Saying that since there are no market failures the government should not intervene in the industry.

The unfortunate thing is that these arguments immediately disappear when it comes to protecting the profits of record industries. The same free-market advocates then move to argue that intellectual property must be protected. Essentially, creating protection for a specific product through IP causes a market failure and prevents the market from operating at its most efficient because there are not other competitors in the market. Creating IP requires a huge regulatory framework from the mechanisms of registering, logging complaints and prosecuting actors that infringe on the IP.

This type of industrial policy is typically derided by the small government fans, as it is a type of regulation that selects a “winner” (IP owners) over “losers” (non IP owners). Which may be fine. However, whenever this selection pushes our government to select a winner (Music) over the fastest growing, possibly only growing, part of our economy (internet based companies) there is a serious risk to the future. As I’ve mentioned before these laws represent huge risks for innovation.

These laws are SOPA and PIPA, which I’ve discussed extensively. However, the next round of internet regulations come in the form of CISPA. This bill, which requires allows companies to share extensively with government agencies. This type of sharing of user data and information about the activities going on at the company would not go over very well from the the free-market advocates if this was a request for data about customer data for car dealerships or steel mills. Essentially, this is going to increase the cost of doing business in the US. This may prevent companies from working in the US and prevent innovation. If I was to create a company that dealt with social data I would not want to do so after the passing of this bill. It would be likely that I would be blackmailed into giving the government data about my users that I had no desire to give them.

The internet is the perfect example of a networked economy. Facebook’s value comes from the fact that it has a huge user base. This is true for Google, Amazon and Instagram (List of companies that support CISPA). Without the users the services is literally worthless. With the users a company without any revenues can be worth $1 Billion (Instagram). The difference between this bill and other bills like SOPA and PIPA is that the agreement is bidirectional. The government will likely help Facebook and Google fight Chinese attacks and give information to each other about the activities of online hacktivist groups like Anonymous. It is likely that 4chan will end up giving over IP data and other information related to anonymous and Anonymous users.

This is regulation that the internet doesn’t need and will stifle innovation. The government already has these powers, which maybe why the Obama administration is opposed to CISPA. It is also ironic that Obama plans on sanctioning countries that use Tech to abuse human rights specifically committing genocide. A whistle blower has recently announced that the NSA has intercepted 20 TRILLION emails and likely has copies of all of these stored somewhere. The passing of CISPA and any other law of similar persuasion  would likely protect companies like AT&T from future lawsuits for being complicit with these activities.

For devotes of the Free-Market these laws create market distortions and will cause serious harm to innovation on the internet. For people that understand networked economies, this will greatly undermine the value of these networks as users will likely change their behavior to mitigate the amount of information the Government can compile on them. CISPA and its sister laws SOPA and PIPA represent big government actions attempting to control and regulate industries that do not need to be regulated. In this case there is no market failure that needs to be addressed. Privacy is something that the users have been pushing for and Facebook and Google have steadily improved on those accounts. Surprisingly industry is doing a decent job at regulating itself. Finally, regulations being pushed by advocates of small government and free-market smack of hypocrisy and a lack of understanding. These laws require a deep understanding of the internet and how the market of the internet works. Without this understanding terrible laws will be passed that will damage our privacy and freedoms. For the issues that this law would protect from there are other methods that could be employed to gain the desired results without passing laws.

Contact your congressional members to fight against this bill.

CISPA and the problem with volunteering data

Posted on by
So, CISPA, Cyber Information Sharing and Protection Act, is the newest cyber bill on the block. There is a difference between this and the other laws though. In SOPA and PIPA the laws were mandatory, and the government could simply act. In CISPA companies can willingly filter material and this may be based upon information the government provides as a threat. This was a bad situation and internet companies seem to like this law. Facebook and Microsoft are straight up supporting the law. There is uncertainty in the public if Google is or not.

So, in this law the government and internet companies can voluntarily share information about cyber threats and suspicious activities online. However, the problem with voluntary sharing programs is that they can turn into “voluntary” programs. What do I mean? Well, if the government is not required to give the information to all parties that could be affected in some sort of terrorist act the government could decide to give information to companies that are sharing information with the government. Additionally, the government could punish companies, like Twitter, that fight the government over privacy issues by not sharing information.

These are pretty obvious problems with this type of law. It assumes that each event is independent and previous actions have no consequent. This is a faulty premise. If this is viewed as a multi-turn prisoner’s dilemma, it’s obvious that with repeat interactions the best actions will always be to share. This will likely lead to sharing when there are cases of doubt over if the company should share or not. Companies will fault on the side of security over privacy, because the future benefits outweigh any punishment the users can enact on the companies.

These types of pseudo quid pro quo is impacting the US government in other ways including lobbying. It is likely that this information exchange will be used by companies whenever there are negotiations for future laws. They will be able to say, “you need to respect our rights to X, look how friendly we’ve been with the government” and then show a list of times they voluntarily gave data to the government. This was a tactic that Ma Bell used to keep their monopoly as long as they did. Because the company was providing the government with extra public goods (military research), the government was willing to over look the fact that the company was a monopoly and perhaps should be broken up.

CISPA is a dangerous law that we need to carefully weigh accepting. We need to pressure internet companies to step away from the law. We also need, if it passes, better understanding of when companies hand over data willingly and for what reasons. We should also be notified any time a company hands over our data about us to the government for any reason.

Social network patent war?

Posted on by

Today the first salvo has been launched in what will likely be a brutal and bloody patent war in the social networking world. Yahoo! has decided to go after Facebook with several patents which were bought from Friendster a now long defunct social networking site. As I’ve mentioned in previous posts companies that start suing over patents likely have lost their competitive edge. However, I think this is going to have long reaching impacts.

Facebook will likely try to find something they can use to counter-sue Yahoo! Which I believe will open a huge can of worms. A large number of companies have put forth effort into creating social networks and there are companies that are built on top of those networks. Essentially, this is an entire ecosystems of companies and products that interconnect and work together. Until now, it has been rather peaceful except for a few angry words tossed back and forth.

I’m not really aware of what patents are out there for these types of sites, however, it is likely that all the major companies are going to be scrambling for patents. Some of the companies involved have already been in patents wars, Google for example. I don’t think Google is going to sit by and allow other companies to attack them the way that Apple has gone after Android. This would be an extremely foolish business move so, I think it makes sense for Google to actively defend (attack) competing firms by acquiring patents and aggressively targeting firms that may be infringing.

Apple has also tried to get into the social networking side of things with their Ping network. Based on their previous patenting strategies, it seems likely that they have built their own war chest of patents and we know how Apple likes to use them.

Yes, much of this is simply speculation. However, as the entire ecosystem of social media and networks have developed into a huge new area of business and marketing, we need to be aware of how these could impact us. Systems that allow access to multiple different social media accounts could be shut down using patents to enforce the use of each platform. I use tweetdeck and I know other people that use Hootsuite they essentially work in the same way (results may vary), but could a patent derail their use? I don’t know at this point, but i’m not happy about the prospect. I’ve mentioned before my distrust of Facebook, which is why I use tweet deck and sign in using Incognito. An all-out patent war could seriously disrupt this growing environment and reshape the way we use these networks.

Enabling Technological Convergences

Posted on by

In my last post I discussed technological convergences. I didn’t really discuss anything ground breaking or earth shattering. We all know these things happen. Even if we never really make a note of it. What’s a more interesting question though is why do some companies, like Apple and Blackberry, succeed and others like Microsoft and Rio (early MP3 maker) fail, either in creating technologies that converge or create technologies that then fail.

One of the first reasons is the culture of the company. To create a totally different product that will shake the core business firms may have to do something called “corporate venturing.” This is where a company decides they are going to take people that normally work on the major product and put them into a different area and seclude them and allow them to create a new product. Whatever sort of leadership structure develops, develops. It really doesn’t matter if this matches the rest of the firm. Essentially, these people are put into a position where they are starting a new company. Apple famously did this with the original Macintosh program. It was called a skunk works area. Of course recombining the two portions of a company creates huge problems, but good management can figure out how to deal with this.

Another piece required for a firm to successfully move into a new product space is the ability to identify the market need. This one is pretty obvious, but it still needs mentioning. In many cases it’s really obvious that there’s a product space and that some one should fill it. When companies don’t move into it there must be some sort of reason.

One of those reasons comes down to firm capabilities. Every firm has something at its core that it’s best at. I would argue that Microsoft is best at taking advantage of a virtual monopoly of a platform and moving into new directions within that platform. Internet Explorer and the Office Suite are the best example of this. Microsoft has also tried to do this with servers and other peripheries. Which is why Microsoft has had difficulty moving into other platform positions. They have failed (or mixed results at best) over and over again with phone OSes because it doesn’t rely on their dominate platform.

Another company that is an R&D powerhouse in energy but has failed at anything outside of their major focus is Shell. As a major energy company you’d expect Shell to be moving into other types of energy production to make massive amounts of money in the transition from fossil fuels to renewables. You’d actually be right. They have tired and failed. Aside from having a failed solar industry Shell has a moderately successful Wind program. Between the two it actually makes sense why solar failed and wind is doing well.

First, wind is closer to extracting material from the ground than making energy from the sun is. Now hang on, I know, but Shell has to maintain offshore oil rigs in tough conditions. Understanding how to build a wind farm out in the ocean has some similarities. Shell doesn’t actually make the windmills themselves, they buy the windmills and put them together to harvest energy. Shell was trying to make solar panels. Intel would be a significantly better solar panel producer than Shell. Why? Because solar panels are semiconductors. You make them with similar machines the technologies are adjacent to each other.

What’s technological adjacency? It’s whenever you are able to use your current skills and apply them with some research to a related technological field. I’ll discuss this more in my next blog.