Setting The Record Straight: Data Is Not The New Oil & Other Misconceptions
Last week, Martin Giles published a piece in the MIT Technology Review, “It’s Time To Rein In The Data Barons.” In making his case, Giles fails to note that consumers would have be paid $17,500 a year to give up search, $8,400 a year for maps, and more than $3,600 a year for social media. He also fails to mention that unlike monopolies of old, leading tech services are the biggest spenders on research and development, increasing innovation, while driving down prices. The U.S. continues to be the global leader in technology, with the most unicorn startups last year in the world (continental Europe had zero).
Below are four additional analytical errors in the piece.
#1 Giles mischaracterizes the current antitrust approach as only focused on prices: “Before the shift, antitrust enforcers were wary of any deals that reinforced a company’s dominant position. After it, they became more tolerant of such combinations, as long as prices for consumers didn’t rise.”
—Assistant Attorney General Makan Delrahim recently explained that federal appellate law says otherwise. “The D.C. Circuit described the breadth of the consumer welfare standard last year: … ‘[P]roduct variety, quality, innovation, and efficient market allocation—all increased through competition—are … protected forms of consumer welfare.’” (Makan Delrahim, “Stand By Me: The Consumer Welfare Standard and the First Amendment,” Remarks, June 12, 2018).
#2 Giles argues leading tech companies face little competition: “A bit later, the senator came back to the theme when he asked if the social network’s CEO thought Facebook was a monopoly. ‘It certainly doesn’t feel like that to me,’ said Zuckerberg. But to many people, it does.”
—Economist David Evans finds tech leaders compete across 27 different categories and face competition from disruptive innovation do low entry costs, reversible network effects. “Online platforms face dynamic competition as a result of: disruptive innovation that provides opportunities for entry; competition from online platforms that have secured a toehold in one area but compete across multiple areas; the fragility of category leadership resulting from the fact that network effects are reversible and entry costs are low; and the prevalence of ad-supported models, which result in seemingly disparate firms competing for consumer attention and advertiser dollars.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
#3 Giles makes the common mistake of comparing data to oil: “Like the oil barons at the turn of the 20th century, the data barons are determined to extract as much as possible of a resource that’s central to the economy of their time.”
—Center for Data Innovation Policy Analyst Joshua New points out that unlike oil, data is non-rivalrous and abundant. “The first and perhaps most important difference is that oil, like other tangible goods, is rivalrous. When one party uses a barrel of oil, it is no longer available for anyone else. Data, on the other hand, is non-rivalrous: Multiple companies can collect, share, and use the same data simultaneously. That goes for consumers, too: When consumers ‘pay with data’ to access a website, they still have the same amount of data after the transaction as before. Moreover, as big data strategist Paul Sonderegger of Oracle describes it, data is non-fungible; one piece of data cannot necessarily be substituted for another the way barrels of oil can.” (Joshua New, “Why Do People Still Think Data Is The New Oil?” Center For Data Innovation, 1/16/18)
#4 Giles argues network effects only entrench incumbents: “Part of the answer involves one of Silicon Valley’s favorite buzz phrases: ‘network effects.’…The US internet giants have been particularly skilled at harnessing these effects, as have Chinese firms like Alibaba and Tencent, which have become similarly dominant in their home market.”
—MIT’s Catherine Tucker’s research finds network effects for digital platforms are not always positive, creating more instability than stability. “Shifts in the nature of technology away from hardware towards purely digital platforms reduce the likelihood of a positive feedback loop that can reinforce incumbency. Network effects no longer imply entrenchment but instead can lead to instability…Network effects may not always be positive. In some cases, having a large network may even act as a detriment, enabling differentiated competition from entrants.” (Catherine Tucker, “What Have We Learned In the Last Decade? Network Effects and Market Power,” Antitrust, 2018)