A History Openness in Information Industries

Today, I heard Tim Wu, a professor at Columbia Law School, and the author The Master Switch, speak at DC’s public policy office at an event moderated by Pablo Chavez, managing policy counsel at Google. I found this topical, given today’s newspeg was filled occupied by the EU probe on Google’s possible antirust violations.

Wu found that, historically, information industries go thru a natural ebb and flow; where they enter, exit, and re-enter open and closed environments. Likewise, certain actors in the industry also has a tendency to go through periods of monopolistic behavior. Companies tend to sway between open and innovative, and closed and defensive of their positions in the market.

Think about the rise of the telephone in the early 1900s. The rise of radio in the ’20s. And, of course, the rise of the internet in the 1990s. Each began as an innovation that moved towards closed, insular environments. AT&T is an extreme example of this.

In its prime, Former chairman of AT&T, Theodore Newton Vail believed that American capitalism was best defined as a handful of powerful monopolies. The parallels between Google’s “do no evil” motto and 1920s-era AT&T’s purported stance are staggering. Both were charismatic players, and in the golden age of their monopoly. His philosophy of using closed systems, centralized power, and as much network control as possible, in order to maintain monopoly power, has been called Vailism.

“We are a public utility, and there are things more important than profit.”
–AT&T’s Theodore Vail call for the company to be a regulated, benign monopoly

Benign, enlightened monopolies are indeed possible. They act a bit like philosopher kings. In the short-term, the golden age of the monopoly, everything is good. But in the long-term, historically around the 20-year mark, the monopoly tends to lose its interest in innovation and instead focuses on defending it’s market innovation (often by stifling innovation of emerging firms). Wu also highlights that with time, monopolies become better and better at lobbying for legislation that projects their interest while eroding those of emerging firms.

As a monopoly leave it’s golden age, around the 20 year mark of controlling 70% or more of the market, the company tends to go ‘sour’. That is, the company spends maybe 80% of its effort defending the monopoly, and 20% of its focus goes towards innovation. Enter AT&T, which controlled the telephone market by also holding key shares of certain credit lenders. Rival companies just couldn’t get funding. Because of this, America didn’t see the rise of another long-distance phone company until 1970.

There is a notable difference between open systems and monopolies. It is as possible to have an open monopoly as it is to have a close one. But there are different consequences for closed systems, especially in the information industry, and it’s impact on freedom of speech. For starters, many of the actions of information monopolies fly counter to the tenants of the American experience, let alone First Amendment implications that arise.

Hence the emphasis on the Net Neutrality and a truly open internet. The measure makes it easier for emerging firms to challenge incumbents. By it’s nature, the internet is too large for an single entity to monopolize. Microsoft tried–and failed–to regulate emerging companies in the early days of the internet. Despite attempts, Microsoft failed to stop the rise of firms like eBay and Google. The net is too big to force people to go where you want them to go. Recent calls for data liberation further encourage accountability by allowing lay users to better enter or leave a web service at will by enabling the ability to import and export user data from the service. This freedom of movement from services like Gmail and Facebook (or the potential for freedom of movement) forces developers to continue to focus on innovation, rather than insular behavior since users can depart for emerging tech.

Academics recognize this as the theory of the firm: with open standards, one can merge technologies without formal deals between parties. Because of this, unified ownership of pipes and the dissemination of content is the slippery slope of the information industry. (See Comcast and NBC.) These actions fly counter to the ideals outlined in the First Amendment, and provide a conflict of interest to the monopoly.

“The government should ask itself, ‘Is what we’re doing making it easier or harder for companies to rise in the the marketplace?’”
–Tim Wu’s axiom for the federal government

Fortunately, any difficulty of government censorship is in part to due with the privatization and the (oft) compartmentalization of the information industry. Before his death, Fred Friendly, former president of CBS News and the creator, with Edward R. Murrow, of the documentary television program See It Now commented on the government relationship with the information industry and noted that “at stake is not the First Amendment, or even freedom of speech, but true control of the master switch.”

Though different government agencies interact with industry actors in different ways, in the period between 1910 and 1970, the federal government as a whole found that monopolies were a better way to run industry. In many ways, bigger and progress were seen as the same thing. For example, the Department of Defense found it easy to leverage AT&T’s robust infrastructure, and the FCC found working with a singular point of contact easier than trying to organize and regulate several smaller companies.

There are times when an innovator acquires a patent that allows them to weather the inevitable attack of the incumbent. Alexander Bell’s patent for the predecessor to the telephone, and the attempt to stifle or otherwise undermine the technology by Western Union, a telegraph company, is an excellent example of this.

The internet is more radical than we ever realized. No one escape the open nature of TCP/IP, and financing innovation in this field calls for completely new methods that have yet to be stifled and spurred by truly monopolistic behavior.