Companies as Actors | rheacock | December 10, 2013

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Companies as Actors

Robert Faris and Urs Gasser

Companies form the functional core of the Internet. The private sector owns a vast proportion of the physical infrastructure, produces the hardware and software that light up the network, develops innovative services and applications, acts as gateways for residential and business access to the Internet, and hosts the lion’s share of content and information. Companies act as merchants, aggregate data and knowledge, serve as media outlets, and house the data and networks that digitally link communities around the globe. In contrast to the pre-Internet commercial world, a prime source of value for much of this activity is based on promoting and leveraging the pro-social urges and voluntary participation of users.

And while the constellation of businesses that participate in the Internet economy is vast and diverse, a modest number of very large firms dominate the action. Much, if not all, of this can be explained by economies of scale and network effects. Internet enterprises are bolstered by scale. For social networks, search algorithms, social media, content aggregation, advertising, physical infrastructure, and hardware and software development, there are inherent self-reinforcing advantages to being big. And with size comes power, responsibility, and scrutiny. Private companies are caught up in the midst of the most challenging and consequential policy questions facing the Internet: freedom of expression, privacy, surveillance, security, civil liberties online, net neutrality, access to broadband, cybercrime, and law enforcement. As the intermediaries between individuals, civil society, governments, and other companies, technology companies not only provide the playing field but are increasingly being called upon to referee the match. In countries that filter the Internet, ISPs are enlisted to implement the blocking. When governments seek information on Internet users, whether for legitimate law enforcement or to pursue political opposition, they turn to ISPs, cell phone carriers, social media platforms, and content hosts. And when civil society feels that online liberties, privacy protections, and security are not being upheld, they lobby the companies; at times with the support of sympathetic governments and at times demanding that companies provide a layer of protection from governments that are seen as predatory.

While there are segments of the Internet operated by public and non-profit entities—for example municipally-owned networks, government infrastructure, and systems run by schools and universities—these comprise a small portion of Internet traffic. A majority of Internet capacity and data flows are sustained by private owners and operators, and are shaped and maintained by a small number of commercial business models.

Subscription-based models support ISPs that connect businesses and residences to the Internet, as well as commercial software and many media and entertainment services, including news sites (e.g., the New York Times and Wall Street Journal) and video distributors (e.g., Netflix and digital access to cable channels). Online sales of merchandise, for example through Amazon and eBay, constitute a different model. A third model based on advertising revenue supports search engines, a wide range of online media, social media platforms, and other online content hosting services, including many of the biggest players (e.g., Google/YouTube, Yahoo!, Facebook, and Twitter).

While these business models are structurally different, they all rely on access to important personal data about their users. Data collection, aggregation, analysis, and sale is a key part of many companies’ value proposition, whether to sell the data to other companies, to increase advertising revenue by better targeting of advertisements, or to provide better services to their customers. These business models, supported by user data and economies of scale, have combined to fuel the rapid growth of the Internet and the many benefits of digital activity, and in doing have also contributed to the tensions and unresolved conflicts that have arisen related to privacy, surveillance, security, and freedom of expression. In each of these areas, companies are brought into the fray. As intermediaries between governments and citizens, and between citizens and citizens, technology companies are drawn into serving several, sometimes competing functions: cooperating with law enforcement, protecting users against security breaches and the excessive prying by governments and others, and setting behavioral and content standards on their platforms (in effect creating their own laws).

In the realm of privacy, persistent unresolved tensions exist between website hosts, social media and social networking companies, and their users. This stems from data that is willingly shared by users—their location; love life; preferences in film, music, or food; and so on—and information that is gathered surreptitiously, for example by quietly tracking a user’s web browsing habits. This jumps into the area of state surveillance when governments come looking for this same data. For governments, the cooperation of companies in pursuing criminal activity online is instrumental in their ability to govern digital activity. Companies then find themselves in the awkward position of balancing user privacy against the demands of law enforcement agents. For technology companies that live or die based on the continued participation of users, maintaining trust among their user base is critical. Pointing out to users that their privacy information might be shared with the government has never been a popular option for the marketing department. Pretending this doesn’t exist is not viable either. A longstanding strategy for some companies has been to restrict cooperation to requests made with clear and specific legal authority. A more recent strategy is to make the entire process more transparent by publishing the type and quantity of law enforcement requests along with company responses.

Companies have been lauded as protectors of free speech when pushing back against government content restrictions, criticized for enacting terms of service agreements that prohibit legally protected speech on their sites, faulted for too easily removing content at the request of others, and condemned for not going far enough to eliminate harmful speech from their platforms. Given the range and quantity of discussion on these platforms related to matters of political and social relevance, these private companies are acting as hosts for the networked public sphere. This newfound power instilled in intermediaries has the effect of transferring to them authority that has traditionally resided in the judiciary.

In the area of security, most Internet users rely on a handful of technology companies that provide them with connectivity, serve their email, and host their content to also provide them with protection against online attacks, in an arrangement that Bruce Schneier describes as feudal.

Governments will continue to seek more effective control over cyberspace by enlisting help from companies, whether through coercion or voluntary action. A prime example is the makers of filtering and surveillance tools that have stepped forward to sell their products to governments around the world. Another set of smaller companies occupy the opposite end of the spectrum, developing products meant to prevent governments from accessing user information and helping users circumvent filtering.

In this quasi-borderless world, the importance of the physical location of technology companies’ personnel and servers is only growing over time. The social media monitoring apparatus of China is made possible only by having direct jurisdiction over the social media companies that do business there. Subject to filtering that prevents building a meaningful share of the market, foreign-hosted competitors are no longer viable alternatives in China. The United States government enjoys a similarly strong position for law enforcement agencies and regulators given the number of influential technology firms based there. Other countries such as India, Iran, and Vietnam have long pushed for greater control over foreign-based platforms that serve their citizens. For companies, this constitutes a momentous decision: whether to risk being shut out of growing markets or forced into making decisions that infringe on the civil liberties of their users.

There are many other contentious issues in the digital world that we do not take up in this report, some of which pit companies against one another. The debate over the future of copyright protections and digital media is far from resolved. Those that rely on the traditional content licensing and distribution industries are in conflict with online platforms that host user generated content and web-native services whose business models are built not on content licensing but rather on search, indexing, and aggregation. The patent wars continue to rage, touching all corners of the Internet and drawing in device and hardware makers as well as retailers, online platforms, software developers, and others. Interoperability is an ongoing concern as companies and governments continue to wrangle over technology standards. Another set of debates revolves around broadband markets and investments in physical infrastructure. In residential markets, entrants argue for access to last mile infrastructure controlled by incumbent telecommunication providers; the net neutrality debates generally divide broadband providers and content distributors.

The privately controlled core of the Internet generally co-exists amicably with the vast and growing stocks of public knowledge and social capital that reside online. This uneasy equilibrium may not last, particularly as political pressures mount for governments to be more proactive in addressing digital matters.

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December 10, 2013

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