Trade-offs in action: Internet privacy vs. tech competition

When activists push this or that policy, trade-offs typically get scant mention or are even neglected altogether. Take the issue of internet privacy. In the wake of the Facebook-Cambridge Analytica data leak, there have been numerous calls for tougher restrictions on how technology firms gather and use the data generated by users. This was also a big focus of the recent congressional grilling of Facebook boss Mark Zuckerberg.

Facebook’s CEO Mark Zuckerberg answers questions about the improper use of millions of users’ data by a political consultancy, at the European Parliament in Brussels, Belgium May 22, 2018. REUTERS/ReutersTV

But there has been far less attention paid to the trade-offs from tougher privacy rules. And there are, obviously. For instance: Many folks who are concerned about privacy also think large technology companies are too big and powerful, and are squashing competition. But locking down user data may actually strengthen the competitive positions of tech titans such as Facebook and Google. As tech analyst Ben Thompson has argued:

First, it is even more unlikely that a challenger to either will arise without meaningful access to their proprietary data. This, to be fair, was already quite unlikely: the entire industry learned from Instagram’s piggy-backing on Twitter’s social graph that sharing data with a potential competitor was a bad idea from a business perspective. Second, Google and Facebook will increasingly be the only source of innovations that leverage their data; it will be too politically risky for either to share anything with third parties. That means new features that rely on user data must be built by one of the two giants, or, as is always the case in a centrally-planned system relative to a market, not built at all. Third, Google and Facebook’s advertising advantage, already massive, is going to become overwhelming. Both companies generate the majority of their user data on their own platforms, which is to say their data collection and advertising business are integrated. Most of their competitors for digital advertising, on the other hand, are modular: some companies collect data, and other collect ads; such a model, in a society demanding ever more privacy, will be increasingly untenable.

Indeed, the EU’s new data rules known as the General Data Protection Rule would seem to play right into these concerns. Here is computer scientist Pedro Domingos, author of “The Master Algorithm” in a blog post:

And perversely, given the growing concerns about the concentration of power in the hands of a few large tech companies, the GDPR will be disproportionately burdensome for small ones, making it harder for startups to survive and grow until they can challenge the Googles and Facebooks. Europe, for one, could really use more of them. Europeans like to think of Americans as cowboys who shoot first and ask questions later. But when it comes to the digital economy, European regulators are the trigger-happy ones, and with the GDPR they have shot themselves in the foot. America should offer its condolences and give GDPR-like regulation a wide berth.

This issue also came up in a recent University of Chicago conference about antitrust and Big Tech. At the event, Matt Perault, Facebook’s director of public policy, said the following:

I think the decisions we are making in this moment have real trade-offs . . . in terms of future innovation and we need to be sensitive to that. . . . There is a trade-off between openness and data protection. The more information you make available in an API, the more robust that information is, particularly about the social graph . . . which is information not just about you but also about the connections you have with friends. And that means if that data is really easily shareable, you could instantly take it to any service you want. But there’s also more opportunity of misuse, not only of your own data but also the data of your friends. . . . “One thing that would be really useful is for the antitrust community to talk in more detail about interoperability and talk about the tradeoffs with privacy so at least those discussions can be more balanced. . . .

Policymakers both here and in Europe seem either unaware of this trade-off or have yet to really make the connection that privacy and competition can work at cross purposes against each other. Certainly after watching the Zuckerberg hearings, I would not be surprised if there was, for instance, little awareness of how Instagram used Twitter user data to build its own user base, although Twitter eventually shut off that feature via its API. Good for privacy maybe, but not so much for competition. Indeed, at the UC conference, venture capitalist Albert Wenger — not a fan of Big Tech apparently — stated, “The current privacy push will ensconce Facebook’s position and Google’s position much more firmly than ever before. The EU is completely at odds with each other with its privacy policies and its competition policies.”