Regulators need to rethink big tech regulation, expert says

Regulators around the globe are putting pressure on powerful tech companies and grappling with big tech regulation -- an area one expert argues could use some rethinking.

Marshall Van Alstyne, professor of information systems at the Boston University Questrom School of Business, said regulators can be too focused on traditional regulatory methods for large companies in today's digital economy and have proposed legislation that could do more harm than good. In the U.S., for example, six antitrust reform bills moving through Congress could break up companies that operate their own online marketplaces, such as Amazon and Apple; place heightened scrutiny on mergers and acquisitions; and require data portability, which allows consumers to move their data from one platform to another.

In this Q&A, Van Alstyne explains why breaking up tech companies and moving data from one place to another are not the answers. Rather, he argues, regulators should focus on data access to increase competition.

How effective could the six antitrust reform bills be if signed into law as they are written now?

Marshall Van Alstyne

Marshall Van Alstyne: If they were to go through, I think there are several practices that would change about the sharing of data, about the proscriptions for self-preferencing, and I think there might be some limitations on mergers and acquisitions. Let's pair that with a different question: whether or not those things are a good idea or not. Candidly, I think too many of the bills are grounded in traditional industrial-era economics and not internet-era economics. I think they need more refinement before they actually do what they're intended to do. Are there things that need to be addressed? On that I would concur; I think there are issues that do need to be addressed. But then there's this question of how should they be addressed.

Here is where I part company with some of the proposals that are on the table at present because I think some of the current proposals are not very good and, in some cases, could actually do harm. This is where I think we need more thoughtful discussion on how to solve this problem in the right way.

Why is it important regulators move away from traditional methods for big tech regulation?

Van Alstyne: The industrial era, almost all of these giant firms were driven by supply-side economies of scale. In every single one of those cases, it's a rival resource. Meaning, if you drive a car, I can't drive it, if you burn a barrel of oil, I can't burn it. We can't share that resource. By contrast, all these internet-era firms are driven by network effects, also known as demand economies of scale, and that's a non-rival resource. You and I can share the same network, we can share the same sets of ideas, we can share the same sets of data. The problem is, if you carved them up in order to create competition, what you're doing is denying different parties access to the same data from which they, too, can create value. So, they need a more sophisticated understanding of how value is created. They're asking the question 'how do we create competition,' assuming that competition is going to create value, and that's not true. They're portioning data sets, they are proposing breakups, they're putting in dividing lines and making it harder to create value. In contrast, what they should be doing is enabling third parties to gain access to the same non-rival resources so that third parties can also create much of that same value and compete in ways that give back to consumers. That is the more sophisticated approach to this problem.

Can you give an example of someone who is doing this right?

Van Alstyne: One of my favorites is European legislation, which is PSD2. It's Payment Services Directive 2, which is open banking legislation. What that does is, it requires banks to give you the power to let third parties access and manage your funds, so you could attach other payment systems to your bank account or [have apps] make investments on your behalf and you have control. I think that is the right way to do things, and I think what we want to do is expand this into an in situ data right. Literally, it means in location. What we would do is build on that, and we would grant all consumers in situ data rights. This stands [opposite] data portability … what's been proposed in the European Digital Markets Act and also something that's been proposed in the U.S.

What's the difference between data portability and in situ data rights?

Van Alstyne: The theory behind data portability is to increase competition. So if you're pulling your data out of Facebook or out of Amazon, it's your data, so presumably you then create value out of location, and it might create more competition and reduce lock-in. Those are the theories.

Data portability has at least three or four separate problems: First, it loses context. If you pull your data off of Facebook, it doesn't include your friends' posts. That's their data, you don't get it, so it doesn't have the context and you can't analyze it in the same way. Two, it tends to be a depreciating stock of capital. Once you pull it out, it doesn't have the most recent flows, and you want the most recent flows in order for it to be the most valuable. Three, it creates a separate location for data violation. If your data goes out into the wild or into the black market, it gets harder and harder for you to figure out which source exposed your data in the wrong way.

We're proposing this in situ data right in which businesses and consumers gain the right to bring the algorithm to the data, rather than take the [data] from the platform. First, all the context is there. If you bring Google's algorithm to your Facebook data or Amazon's algorithm to your Facebook data, Amazon can now make recommendations based on who your friends are. Facebook could recommend friends based on what you're reading. You have control, it's entirely up to you whether you grant permission or not. Now Facebook can compete with Amazon on Amazon's turf. Amazon can compete with Google on Google's turf. What this does is it causes them to compete and therefore share more of those benefits back with you. Fourth, suppose that Facebook is behaving badly and something like Cambridge Analytica happens? Now you can turn off the APIs and know they no longer have access to your data because they never had it. You don't have to take it back, and you don't have to trust them that they destroyed it.

They could do damage by carving data up in the wrong ways and by putting too many impediments to using data in important ways that could benefit consumers.

What is your top concern with current proposals for big tech regulation?

Van Alstyne: In too many cases, I believe the proposals are causing data fragmentation. You can't create network effects, you can't create cost-cutting ideas, you can't see broader patterns if you're carving up data resources. And again, it's not steel, it's not oil, it's not railroad tracks or electricity. This is a non-rival resource, and it's a sharable resource. Regulators need to be thinking differently about how to create competing governance models to put on data, as opposed to competing companies. That's the way to create value. They could do damage by carving data up in the wrong ways and by putting too many impediments to using data in important ways that could benefit consumers. They could actually retard the pace of innovation and harm competition inadvertently.

Editor's note: Responses have been edited for brevity and clarity.           

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.