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How to fix the broken internet economy

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How can we begin to unpick the tangled mess that the technology and creative industries have created?

There’s certainly no shortage of blame to go around. In the past every new wave of technology has delivered healthy creative markets – but today this is no longer happening.

Just 20 years since the birth of the internet economy, with the advent of the worldwide web, it’s worth asking why. It’s time we looked afresh at where both industries went wrong, and how they can get on the right track again.

Much of what follows will highlight key mistakes made – but before we do that, we need to put them in some historical context. What worked in the past is a fairly reliable indication of what can work again in the future.

The current impasse between technology and copyright sectors is certainly an odd one. Historically, war is the greatest driver of technological innovation of all, but in peacetime it’s the demand for culture and entertainment that spurs the most innovation. People want to see and hear stuff, and are prepared to pay for it.

The cash generated is ploughed into more entertainment – even creating new art forms. (Recall how the first movie dramas were starchy, filmed theatrical plays.) This creates more investment in technology so people can enjoy the entertainment in a better way. Round and round it goes.

At the heart of this virtuous circle, copyright has been the obscure back-room business-to-business mechanism that keeps the players honest. Creators demanded that their industries engage with the new technologies to create new markets, which returned more money for their talent.

As a result technology innovators needed to attract talented creative people, and induce them to produce stuff for their kit: recording their music on long-players rather than shellac, or printing their movies in Technicolor™. So the two sides need each other. Technologists’ incentives were simple: create more amazing gear to deliver the best of other people’s stuff. And each wave of innovation grew the market, and ensured the creators and workers were richer. Remember: No innovation has ever made creative industries poorer.

Unfortunately, the truth of this historical mutual dependency gets forgotten today because the incentives aren’t lined up. Investment decisions in technology services are made without a thought for the health of the creative people who generate the demand for the goods. Creative investment decisions either don’t take advantage of the technology, or are hamstrung in a way that leaves the potential of the technology untapped. Things are also complicated by another factor we’ll call the Unicorn.

I’ll open the catalogue of errors at chapter one, the music industry.

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Shoreditch’s sparkle leaves BBC presenter ‘tech-struck’

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“I haven’t felt so good having spoken to a businessman for ten minutes in about 25 years. That’s not normally how I feel! So thanks very much!”

And thanks to you, BBC presenter Fi Glover, for sharing the feel-good factor with us.

Glover was bringing the miracle of Shoreditch’s internet companies into the nation’s living rooms as part of a mission for Radio 4’s One to One slot. She had vowed to find out, in her words, “what do these tech-enabled business zoomers do”.

We learned that “while the rest of this country hangs onto the cliff face of economic prosperity by its fingernails, it seems that many of these internet-savvy people are right on top of the cliff, planting a flag”.

We need more flags on cliffs.

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A short history of “Breaking the Internet”

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“I am the head of IT and I have it on good authority that if you type ‘Google’ into Google, you can break the Internet. So please, no one try it, even for a joke. It’s not a laughing matter. You can break the Internet”
– Jen, The IT Crowd

For 15 years internet companies have been waging a war against any kind of laws that establish properties and permissions for digital things. Every attempt to do so has been bitterly fought. It’s the one constant in Silicon Valley’s battles against the copyright industries. The fight has crippled the traditional, historical partnership between technology and creators that benefited everyone. But it has also had an awful unintended consequence: it has weakened our ability to establish the clear property rights we need to protect our privacy.

When, in February, the EU tentatively suggested rules based on the principle that people own their own data, and this property right includes exclusivity (“the right to be forgotten”) – guess who was firing all guns against it? Facebook and Google… At Davos, Google chairman Eric Schmidt said the EU proposal would “break the internet”.

Just this week the UK government caused a huge privacy storm when it floated the idea of making internet companies keep a record of all personal communications on the the internet. While it argued that it wanted to store “traffic” data, not the contents of communications, little would be exempt: emails, blog comments, Tweets and Facebook Likes.

And more alarmingly, this trove of information would be casually available to busybodies. In 2010 alone, public authorities submitted 552,000 requests for communications data under RIPA. We’ve already seen how local councils, for example, initiate surveillance operations using the Act.

RIPA is intended to prevent “serious crimes”, requiring necessity and proportionality. But councils have used it to tackle “serious crimes” such as smoking, and putting recycling in the wrong bag. Some even boast about it. The new store of electronic communications would add to the data available to them. It’s a huge intrusion by the state into business that isn’t its own.

At the same time, Facebook and Google operate their own global data collection systems, hoarding huge amounts of personal data. And this is merely the start. The regression models that Facebook and Google use to predict consumer behaviour for advertisers are exactly what law enforcement agencies dream can be put to use to predict crime or ‘deviant’ behaviour. In a 2012 rewrite of Philip K Dick’s Minority Report, the “Pre Crime Division” will not require mutants floating in tanks – just software.

Privacy is not a luxury, or an optional extra – a world without privacy raises all kinds of ethical issues, and everyday judgements made about us.

So how can we halt this slide to Panopticon, where everything we do online is dipped into?

Well, no matter what law you pass, it won’t work unless there’s ownership attached to data, and you, as the individual, are the ultimate owner. From the basis of ownership, we can then agree what kind of rights are associated with the data – eg, the right to exclude people from it, the right to sell it or exchange it – and then build a permission-based world on top of that. None of this is possible without the fundamental recognition that it’s the individual – you or me – who ultimately owns it, and ultimately decides what’s then done with it, and by whom. Without properties and permissions on digital “things”, there will be no digital privacy.

I’ll illustrate this with a short story that you probably haven’t heard before – about this great phrase.

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Cameron’s ‘Google Review’ sparked by killer quote that never was

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Prime Minister David Cameron launched a sweeping review of UK intellectual property law based on an assertion – that the founders of Google believed they could "never have started their company in Britain" – he can’t support, from a source nobody can find. We know this because new information released by No 10 in response to FOIA requests has ruled out private conversations as the possible source.

This is truly a strange story, and it starts in November 2010.

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BT’s gift to Google: A patent war over ads and Android

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It’s open season now. BT is the latest company to sue Google, alleging patent infringement, but this latest barrage extends beyond Google’s Android software – it touches to other Google services too. These include maps, music, social networking and its advertising services, including Adwords, claims BT.

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Oops: Public supports web-blocking in Google-funded poll

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Talk about an inconvenient fact. A survey into US attitudes to internet piracy shows strong public support for blocking access to websites guilty of serial copyright infringement. No fewer than 58 per cent support the idea of ISPs blocking the pirate sites, and 36 per cent disagree with this. Of the respondents, 61 per cent want sites like Facebook to take more action to screen for infringing material.

This may not be what the corporate sponsor Google, which benefits from internet piracy and fights enforcement proposals, had in mind when it funded the research. Google is currently leading the opposition to the new SOPA legislation in the US, which obliges service providers to take greater responsibility.

Perhaps, as in Brecht’s poem, Google wishes “to dissolve the people and elect another”, until they get the answer they want.

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‘Google is fantastic and should be applauded’ – competition regulator

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What happens when competition watchdogs lose their teeth – and roll over to have their tummies tickled? Via the influential chair of the Commons Culture Media and Sport Select Committee, John Whittingdale MP, comes a very interesting story today. Whittingdale relates a conversation with John Fingleton, the head of the Office of Fair Trading. The MP asked if the agency had looked at the question of Google’s power in the marketplace.

Google has a dominant market share of paid search advertising, effectively setting the price of doing business on the internet for small companies. The conversation took place at around the time it became known that the European Commission began to probe the company, and its customers, in response to a series of complaints. The FTC opened its own investigation this summer.

“The head of the OFT told me that Google was a fantastic organisation, a fast developing company, and should be applauded,” the MP said.

The job of a business regulator, we hardly need point out, is not to swoon like a gushing schoolgirl delighted that a boy band star has swept into town. Fingleton had also offered his views – although a little more circumspectly – to The Guardian newspaper, in November 2009.

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Panic in The Chocolate Factory

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Is Google’s acquisition of Motorola Mobility is good for Android, or an expensive mistake for Google, made in a moment of irrational panic. Columnist Matt Asay thinks it “spells iPhone doom“, and he’s not alone. John C Dvorak thinks it’s “pure genius“. This supposes that Google performed a cost-benefit analysis and calculated that the cost of not buying Motorola’s phone and set-top box division was greater than $12.5bn.

I beg to differ. Not all business decisions, made in the pressure cooker, are as rational as they should be.

On Monday, I explained that Google hadn’t bought what it thinks it has bought. Since then some very interesting new detail has come to light. This suggests that the Chocolate Factory really doesn’t understand the value of its proposed acquisition, and snapped up Motorola not merely in a hurry, but a blind panic. Pulling out of the deal may now be sensible – but also costly for Google. The deal carries a $2.5bn break-up penalty, which is smaller than AT&T’s penalty for failing to complete its acquisition of T-Mobile US, but is still a hefty sum of money. Should this happen, Google will have paid almost as much to buy nothing as it did to buy Doubleclick, its largest ever acquisition.

Let’s look at some evidence.

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Google hands millions to ‘independent’ watchdogs

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What do you do when a global corporation pays out millions to the watchdogs that we expect to protect us against it? It’s a fair question to ask in light of the Chocolate Factory’s legal settlement this week, over Google Buzz. The privacy class action suit has landed a windfall of millions of dollars to “privacy” groups – but not a cent to ordinary citizens, users of Google Gmail’s service whose privacy was compromised.

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