regulation

iphone drawing, BBC
My blog on Rhizomicon details the issues behind the antitrust probe of Apple, although there is some degree of overlap. If you’re interested, feel free to read that blog post first.

Currently, the US Department of Justice {DOJ} and the Federal Trade Commission {FTC} are determining if Apple should be investigated for antitrust activities. The issues are::
  1. Apple announced it will not allow Adobe’s Flash middleware on its iPhone platform
  2. Apple’s current software development kit for the iPhone limits the use of third-party technologies
  3. Steve Jobs wrote a blog explaining why Flash was an inferior technology
  4. The DOJ & FTC are reported to be looking into antitrust actions by Apple
  5. Some economists and strategists are claiming that antitrust is unwinnable because of Apple’s relatively small share in iPhone handsets

In the US, antitrust law and the Sherman Antitrust Act are focused on fostering competition and the competitive landscape, not protecting competitors. A monopolist is one seller and many buyers and their profit comes from a lack of competition and a manipulation of supply. Regulating monopolies and enforcing antitrust often {ideally} considers the “welfare” of the consumer, particularly in terms of pricing. Generally speaking, antitrust cases involve the following, often within the context of fairness::

  • Market definition, in order to determine if a firm has market power
  • Market power, i.e., the ability of a firm to charge a very high price, relative to {marginal} cost
  • Barriers-to-entry, i.e., the ability of an incumbent firm to limit competition or secure resources or advantages that others cannot
Examining the Apple decision to dump Flash may appear to be a non-sequitur when it comes to antitrust. Many have analyzed the situation in the following fashion:
  • Apple operates in defined market of smartphones
  • Apple’s market share in smartphones is relatively small, hence has little market power
  • Apple is fostering more competition by embracing open technologies, rather than the middleware of Flash {middleware allows a program to operate across platforms}

The problem here is the narrow definition of what Apple does. The focus here is on the single market of the hardware, i.e., handsets. In reality, Apple not only sells handsets, but has created a platform that incorporates both hardware and software {apps}, which are interrelated. The more apps, the more attractive the platform. The more attractive the platform, the more incentive there is to develop apps.

In order to address the analysis of platforms in antitrust, multi-sided markets, which are characteristic of platforms with more than one distinct set of clients/consumers, offers useful insights. Apple’s set of interrelated multi-sided markets are::

  1. iPhone hardware {smartphone}/iPad hardware {tablet} sold to consumers
  2. Apps and digital content sold to consumers on the web/mobile web
  3. Platform for smartphone/tablet apps for developers
These intertwined sides of Apple’s market help to properly define it. Examining Apple’s “market power” in terms of smartphone market share is woefully misguided. Let’s assess Apple’s market power in the above three areas::
  1. 15% of the smartphone market, 33% of touchscreen smartphone market [1]; tablet share-??? developing {Apple has relatively low market power in hardware}
  2. 99.4% of mobile apps {$4.2B market-2009} [2]; 25% of all music, 69% of digital [3] {other content types ???} {Apple has moderate to strong market power in software}
  3. See #2 {Apple is a monopolist in apps, but the dynamics of the market are very fluid}
The unknowns {???} are evolving stories or issues I haven’t researched yet. In light of Flash, the most damning market share figure is not the sales of hardware, but the share of apps that’s over 99%, which includes free apps. Apple dominates in this rapidly growing category and by thwarting the middleware of Flash, its market power forces developers to prioritize Apple and obliterates the possibility of a single build that can be used across platforms and devices.
I believe that the platform needs to be examined in its entirety, not just the market share of hardware, and that care should be taken to determine the effects of Apple’s conduct.While Adobe may be worse off due to the fact that developers are likely to channel development towards the dominant iPhone platform that doesn’t use Flash, the acid test will be if developers are worse off. The following table does a rough assessment of Apple’s market sides in smartphones::
Market Sides\Antitrust Dimensions Market Definition Market Power Barriers-to-Entry
Hardware Smartphone handsets & tablets for consumers Low Low
Apps Software for iPhone-based hardware Very high Very High
Platform for Apps Marketplace to sell apps to consumers Very high Very High

In terms of hardware, Apple is profiting from its relationship with AT&T, which is subsidizing the price of the iPhone. Teardowns of the iPad show that margins are relatively slim, but the strategy is to increase the number of users to attract developers. In terms of software, Apple controls the app game.

How I see it is that by forcing Flash off of the iPhone platform, it’s giving developers fewer degrees of freedom for technologies that use Flash. Rather than develop one build for an app that uses Flash middleware, developers will have to create several builds using HTML5. Given the dominance of Apple’s App Store, there are strong incentives to develop for that platform crowding out resources to develop for others, such as Android. Apple’s justification is that it needs to preserve the quality of the user experience, but will that be good enough for the DOJ or the FTC under the Obama administration? Technology is full of uncertainty and fortunes can change overnight. Scrutiny of Apple should consider multi-sided markets and address the health of the competitive environment.

Song:: Feist-‘We Can Work It Out’

Twitterversion:: Development of an #Apple  antitrust analysis framework. How competitive is ecosystem on iPhone platform #ThickCulture http://url.ie/621a @Prof_K

image:: outsourcing facility in India, from foreignpolicyblogs.com

In the Chronicle of Higher Education, an article on outsourced grading to India, Singapore, and Malaysia is causing controversy. Academics and others are chiming in on the issue, with many deriding the practice, some claiming that it’s a “scam” and others defending the practice.

Even if the “quality” issue were settled, I get a sense that many would still balk at the practice. In a sense, isn’t outsourcing grading and providing feedback on papers an outsourcing of what should be a core competency of an institution? Although, try this on. With the advent of assessment fever that can result in rubrics that specify (a) what is expected of the students, (b) the criteria with which they will be evaluated, and (c) the metrics that comprise a grade, isn’t the grading and feedback just a simple matter of execution? That is, the heavy lifting and the value-added is in the rubric, not the labour?

I’m not so sure. In some contexts, having someone very familiar with the material and the classroom interactions doing the grading makes a lot of sense. I will say that I think that in certain other contexts, the use of outsourced grading doesn’t compromise quality. In fact, it may actually increase quality in some settings, as I’ve seen shockingly bad feedback, memos, and letters—written not by grad. students, but by faculty. When I was a TA for an MBA Global Business course, I checked the math of students calculating exchange rate agios and applying various formulae. If this were outsourced, I don’t think this would be a travesty.

Here’s the experience at a rural California community college in the sparsely populated west San Joaquín Valley::

“Acceptance has been a little easier at West Hills Community College, in Coalinga, Calif., which turned to Virtual-TA to help some students in its online classes get more feedback than instructors for such classes have typically offered. The service is used for one section each of three online courses—criminal justice, sociology, and basic math. Instructors can use it for three to five assignments of their choice per student…The feedback from Virtual-TA seems to make the difference between a student’s remaining in an online course and dropping out.”

Should there be policies on who does what in higher education? Not just the grading, but on who does the teaching? I think there needs to be more transparency and more information provided about the delivery of education. What should be guiding these decisions from an institutional or policy perspective is how costs and efficiencies are being balanced with the value-added experience of higher education. I think distance learning and online programmes will test the limits of how the educational experience should be defined.

Those in higher education should watch how these issues evolve, as it’s showing how labour dynamics of skilled work are being addressed in a globalized world of supply, demand, cost efficiencies, and values.

Twitterversion:: Should outsourcing of higher education overseas be regulated? Cost efficiencies need to be contextualized in the value-added experience. @Prof_K

Song:: M.I.A.-‘Paper Planes’

Belgian activist Tania Derveaux posing for her net neutrality publicity stunt, 25 April 2008, Valleywag

In an interesting turn of events, Comcast won a court battle to thwart regulation that’s paving the way for the FCC to respond in a way to increase regulation. This all stems from a court case where in 2007, Comcast “throttled” its users by blocking access to filesharing service BitTorrent. Net neutrality, which is supported by companies who rely on the Internet for business, such as Google and Amazon, is the absence of such throttling. Wearetheweb is an activist group fighting for net neutrality. The FCC stepped in, using the doctrine of “common carriers”, i.e., networks used for the public good. The broadband providers argue that they’re the ones spending billions on the infrastructure and therefore should be able to manage their systems in a manner they see fit. Comcast argued that the FCC rules had no teeth and are not the same as law, therefore the FCC order to stop throttling was illegal. The FCC has two courses of action at its disposal::

  1. Request Congress to give it explicit authority to regulate broadband.
  2. Appeal today’s decision.

Ben Scott, policy director for the public interest group, Free Press, noted::

“Comcast swung an ax at the FCC to protest the BitTorrent order…And they sliced right through the FCC’s arm and plunged the ax into their own back.”

Companies and industries tend to bend over backwards to regulate themselves to some extent or another, in order to thwart regulation. I find Comcast’s war with the FCC to be poor strategy and adding fuel to the fire of consumer dissatisfaction with telcos and broadband providers. This court case paves the way for the FCC to up the ante and given the FCC and the Obama administration support net neutrality.

As for Derveaux, here’s more on her story.

Twitterversion:: FCC loses case on net neutrality against Comcast, but will this just cause them to reclassify broadband? Possible strategic Comcast #fail. @Prof_K

Song:: Manish-‘Series of Tubes {Net Neutrality Dance Mix}