Post Platform Competition

Why We Can’t Be Friends: We Need Interoperability in Digital Markets

February 23, 2021 , ,
paper titled "contact list" with numbers next to laptop

Pop quiz! What wireless phone network are most of your friends and family on? I don’t have a clue and it’s likely you don’t either. While today’s three major wireless carriers are far from paragons of competition, there’s one thing they do well: interoperability. We can seamlessly message or call anyone on another network, a feature we take for granted. Instead of competing on just who can get the most people to join their network, the carriers compete on price and quality. Interoperability works for phone networks, and it should work for dominant digital platforms too.

Think of interoperability as a necessary, but not sufficient, condition to help competition flourish. The current state of competition in tech markets is bleak. Massive firms like Google and Facebook have become gatekeepers to the wider internet economy. This gives them the ability to pick winners and losers in not just their own markets, but the wider internet economy as well. Interoperability is all about taking this power of strategic placement away from massive platforms, and allowing individuals to choose the best, not just the biggest options.

Perhaps the most potent competitive weapon in the arsenal of a digital platform is network effects. Network effects are where the usefulness of a product to someone goes up the more people use it. Google Search is able to further refine its search engine with each additional search, and the utility of Facebook to a user goes up for each additional user that joins. When your aunt joins Facebook, the utility of Facebook goes up for you (or down, depending on your relationship with your aunt), but also for all of her old high school friends that can now connect with her. This sort of exponential growth means that a network twice as big is far more than just twice as useful, and the big networks are likely to win out. Absent interoperability, one can expect people to gravitate toward the largest, already-established networks, or miss out on some benefits of interactive community building online.

The other inherent advantage that dominant digital platforms enjoy are high switching costs. Think about all the times you’ve thought about leaving Facebook but hesitated to click the final button. As a 27-year-old, I grew up on Facebook with an account since middle school. My Facebook account is the only thing keeping me in contact with people from the various phases of my life — high school, college, law school, several academic summer camps (yes, I was that cool). Not to mention the bevy of church elders and friends of my parents that I only know through Facebook. As of now, the only way I can maintain those connections is through continuing my relationship with Facebook. Under interoperability, I’d be able to move platforms without sacrificing my community of hard-won friends. As a result of the network effects, the high switching costs make markets tip towards monopoly. Competition can be more for the market than within the market.

It’s important to distinguish between interoperability and data portability. We define interoperability as the ability for different services and platforms to work together and interconnect, whereas data portability is a user’s ability to take their data from one platform to another. Currently, Facebook offers some level of data portability, but not interoperability, with the “Download Your Information” tool. Facebook will send you a zip folder of “all” of your data on Facebook, including things like the pictures you’ve uploaded or the statuses you’ve posted.

Is this data actually useful for platform competition? As you might have guessed from being halfway through a blog post pushing for legislative action on interoperability, the answer is no. Research from NYU’s Michael Weinberg and Gabriel Nicholas illustrates how this data is not that useful to a competitor. The real secret sauce to Facebook is its social graph — the connections you’ve made on the platform — and Facebook guards that like Smaug over his treasure hoard. If you could keep your friends list, and the real-time ability to communicate with the list, you’d be far likelier to ditch Facebook. You can’t expect Facebook to willingly share this essential data with potential competitors out of the kindness of their hearts: You have to make them through mandatory interoperability. If Facebook is left in control of interoperability, expect them to do what’s best for Facebook, not what’s best for you or competition writ large. That means extending interoperability to benign companies that increase engagement with Facebook while withholding the same from those in markets Facebook has set its sights on. If one of the previously benign companies begins to show competitive promise, Facebook can always cut them off.

It’s perhaps most intuitive to think of interoperability in the context of social networking. Currently, we have one dominant social network — Facebook. If any social network were to come on the scene, no matter the cool new innovative features they have, they’d probably need to interface with Facebook, at least initially. A coordinated Facebook walkout of your hundreds of friends is not really feasible. Even if the new social network is superior, it will take time for a critical mass of users to join. Interoperability buys you that time. When a user switches from Facebook to the new network, they could still communicate back with their Facebook friends. This lowers the costs of leaving Facebook and gives would-be competitors a boost to get closer to benefitting from their own network effects and being able to grow organically.

Interoperability is at its most intuitive when it comes to social networks, but applications for a strong interoperability rule go far beyond one market. Google could be forced to make its advertising technology tools interoperable with competitors, or online sellers could easily list their products on multiple marketplaces, not just Amazon, with a single click. Interoperability moves us closer to the halcyon days of the internet that had fewer walled gardens and much more open systems where the best, not the biggest, win out.

It’s also important to note that for interoperability requirements to most effectively open up these consolidated markets, there are tradeoffs and complexities that need to be ironed out. Interoperability often has privacy tradeoffs, and efforts must be made to safeguard user data so unscrupulous companies cannot use interoperability as a facade to collect and exploit said data. Interoperability can also be a tool to address concerns around content moderation, since it can promote competition in social networks, giving users a real choice of which social network to spend their time on. For that to work though, you want to protect a platform’s ability to moderate content — even the content that comes from other platforms — so interoperability does not become a tool to backdoor hate speech and misinformation onto platforms with better policies. While Congress can and should provide guidance on these questions in legislative text, the best path forward would be agency rulemaking. A great potential landing spot for such a power would be a new agency focused on digital platforms.

A key tenet in both the Federal Trade Commission and state attorneys general cases’ against Facebook is the firm’s strategic offering and withholding of interoperability. Facebook actively encouraged interoperability with services that increased engagement with the core Facebook product (i.e., Candy Crush) but then swiftly cut off companies that began to morph into rivals (i.e., Twitter’s Vine). Facebook even went so far as to cut off companies that worked with potential competitors. Since access to the Facebook platform was an absolute necessity for most companies, they were left with no choice but to agree to Facebook’s anticompetitive demands.

Thankfully, Congress appears to be utilizing interoperability as a remedy in these markets. Interoperability can come about through a bill Congress could pass tomorrow, unlike an antitrust remedy whose final implementation might be a decade away. Interoperability was a hallmark proposed remedy in last fall’s House Antitrust Subcommittee Report. Perhaps even more notably, the Republican response report listed interoperability as an area where there could be common ground. In the Senate, Senator Mark Warner has introduced the ACCESS Act which would be a major step forward in getting true interoperability in these markets.

The best way to think about interoperability is to imagine the competitive world it could create. A world where a “which social network are your friends on?” question leaves you as flat-footed as the phone network question does today. Right now, the incentive for platforms is to grow at all costs and to keep users engaged on their platforms. In following those lodestars, platforms have created a whole host of negative externalities — from rampant misinformation to stagnant markets. Interoperability can realign those incentives, forcing platforms to not just rest on their laurels and instead aggressively compete for their customers based on having the best possible product. That could mean better protecting user privacy or a whole host of yet-to-be created innovations in platform business models. Interoperability might not guarantee competition, but in many areas it’s not possible without it.

 

Image credit: Markus Winkler on Unsplash


About Alex Petros

Alex is a Policy Counsel at Public Knowledge, where he focuses on digital platform competition issues. Prior to joining Public Knowledge, Alex worked for Senator Amy Klobuchar, Senator Richard Blumenthal, the House Committee on Oversight and Reform, and Senator Joe Donnelly. Alex received his J.D., cum laude, from Georgetown University Law Center and his B.A. from Yale College in Economics and Political Science with distinction. He was born and raised in Lexington, KY and enjoys Kentucky basketball, trivia, fantasy football, and romantic comedies.