My Other Notes - The Future

The technology of radio frequence identification, RFID, is probably one of the most interesting examples of how the future of a technology is affected by the interplay between media and law. RFID has the potential to change transportation, shipping, identification of products and other supply chain processes for the better, creating more efficient systems and better economics. But - and this is no small but - it faces massive opposition in the form of media reporting.

The result is of course that the industry is reluctant to implement the solutions, and it tries to find ways to create consumer acceptance for these new technologies. Both the Electronic Privacy Information Center and the Center for Democracy and Technology have adopted the issue as a profile policy question.

Other organisations - like the American Library Association and The Ontario Privacy Commissioner have looked at adopting guidelines for RFID use that they recommend.

All this for a technology that has yet to be implemented. And of course, we can soon expect legislators to like into the possibility of adopting regulations on RFID as a part of their agenda for privacy at large. Even thought advocacy organisations like the CDT currently do not recommend this, there is nothing to stop a cunning politician from turning this into an signalling issue showing the he or she cares about privacy.

This technology adoption pattern - a risk focused adoption pattern (RFAP) - is becoming more and more common. We see it in RFID, we see it in nanotechnology and it is sure to spread to biotech, genomics and other technologies.

This is a fairly new phenomenon. The Internet was not preceded by discussions of online porn, personal computers were not preceded by discussions on obesity, nuclear power (for crying out loud) was not preceded by discussions of profilation issues. These technologies were invented, tried out and adverse effects were handled as they emerged.

Risk focused adoption patterns are complex social phenomena. They seem to arise in societies that are aware of their own technological development, and they indicate a certain level of future shock (to speak with Alvin Toffler). They are detrimental to innovation systems and their economic impact, considering how these issues affect investment and market allocation of resources, may well lead to a slow-down in technological development.

Above all they signal that technology development has become a politically charged issue. Once the comcern only of technologists and engineers, the innovation system is now at the core of the modern information society.

The first meetings today were about network economics and future vertical integration. A simple example would be access providers moving into content to leverage their infrastructure investments (för example cable companies buying baseball teams or basketball teams and rights to their matches).

A few years back the general consensus was that "content is not king" and that telecommunication companies should stay with what they know. Andrew Odlyzko's celebrated paper - with that title - even discouraged (according to informed observers) Swedish telco Telia from at all considering deals with content companies of different kinds. I asked one of the regulatory economic experts we met today if Odlyzko´s thesis is as true today as it was perceived to be back in the early 00's.

His answer was interesting: he said that in a market that is highly or fairly competitive it is reasonable to expect that content will not be king, because in such a market vertical integration may divert energies from your core industries and competencies. But in a concentrated market with low competition, vertical integration in fact becomes a sound strategy to safe-guard against new entrants and optimize gains.

Vertical integration attempts thus can be used as a diagnostic of the level of competition on a certain market. He also pointed out that vertical integration today can be driven by completely different forces, one of them actually consumer benefits.

In the past, when Standard Oil would buy refineries, for example, the vertical integration was in a sense opaque to the consumer. They had no benefits from integration. In considering for example software this no longer seems as obvious: the operating system provider who vertically integrates with word processing or media player functionality does so with a unique knowledge about the operating systems functionality, thus guaranteeing a better consumer benefit. The network effects then makes it easier for consumers to share content if a certain standard or application becomes dominant.

Sure, the natural counter-argument would be that this vertical integration stifles innovation and that it thus imposes a cost on the consumer. Well, that is an empirical question. Is there any evidence that attempts at antitrust litigation have ensured consumer benefits?

Dr Robert Crandall, at Brookings Institute, denies this. He told us that he has published findings that show that there is no empirical evidence whatsoever that antitrust cases won by the government have, in fact, increased consumer benefits. (See "Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence," with Clifford Winston, Journal of Economic Perspectives (Fall 2003)) This is a truly revolutionary - and controversial - result.

What, then, is the answer? Are we in fact moving into the golden age of the benign monopoly? Is this the end of competition? Surely not, but one possible answer to this question is that competition is truly Schumpeterian: competition about a market rather than in or on a market.

Vertical integration remains one of the trickiest issues for emerging internet business models, and it seems that it is no less tricky for regulators. One interesting take away is that the companies that are the most apt at vertical integration are the winners of the future: what do you integrate, how and what cost?

Is integration the new innovation?