Competition and Privacy in Web 2.0 and the Cloud

I have a new draft up on SSRN. The final version will appear as part of Northwestern's Colloquy and I expect this to be incorporated in a larger project that I am working on.

Somewhat surprisingly, it appears to be the first paper on SSRN to address cloud computing, at least in those terms. I suspect that we will quickly see more of those.

As noted, this is part of a larger project, so comments are especially welcome.

Abstract:    
With Web 2.0, we have once again changed how we use computers. That change has brought with it new intermediaries who sit at the crossroads of the matching and coordination that define how we use the Internet today. Those intermediaries - Google first and foremost - have access to extraordinarily detailed information about their customers. That information arises naturally from the very services provided. We will see a similar pattern as cloud computing becomes more important, and cloud service providers will also have available to them a rich datastream that arises from their customer's activities.

To date, these intermediaries have faced few limitations in how they use the information that they see. That information can be used to improve their core businesses - adding collective intelligence to search to increase relevance - and to finance - through advertising backed by rich databases that allows ads to be matched to individual customers - virtually any content or service that can be provided through a screen. To focus on Google as the largest player in this space, there is no obvious limit to its scale and an advertising-supported business adds revenue with each additional screen that is viewed.

In the past, we have regulated intermediaries at these transactional bottlenecks - banks, cable companies, phone companies and the like - and limited the ways in which they can use the information that they see. Presumably the same forces that animated those rules - fundamental concerns about customer privacy - need to be assessed for our new information intermediaries. In doing that, we need to be acutely aware of how our choices influence competition. An uneven playing field - allowing one firm to use the information that it sees while blocking others from doing the same thing - creates market power through limiting competition. We rarely want to do that. And privacy rules that limit how information can be used and shared across firms will artificially push towards greater consolidation, something which again usually works against maintaining robust competition.

Comments

[Kimball Corson]

This is like spyware, but its not on your computer. Its on those of others whose services you use. An undisclosed "fee," perhaps or a license give for passage?

[Michael F. Martin]

People have no idea how much control Google has over the Internet. Their PageRank algorithm literally controls the flow of traffic on the Internet. And the public has almost no transparency into it. How can we without opening the system up to fraud and abuse?

http://googlewebmastercentral.blogspot.com/2007/12/information-about-buying-and-selling.html

The thing that Google should really watch out for is adjusting PageRank in response to whether a website uses its ad network. That would pretty much be anticompetitive conduct.