Vista, TC and Competition Policy

1
Vista, TC and Competition Policy

• Ross Anderson
• Cambridge University and Foundation for
  Information Policy Research

2
Economics and Security

• Over the last six years, weve started to apply
  economic analysis to information security
• Economic analysis often explains security failure
  better!
• People who can protect a system are often not the
  people who suffer when its hacked
• And information security mechanisms are used
  increasingly to support business models rather
  than to manage risk

3
New Uses of Infosec

• Xerox started using authentication in ink
  cartridges to tie them to the printer. Followed
  by HP, Lexmark and others
• Motorola started authenticating batteries to
  mobile phones
• Increasingly crypto is used to lock customers in,
  tie products, bundle services, enforce
  cross-subsidies and rig markets
• Vista will deepen this

4
Whats Software Worth?

• The value of a software company is the total
  switching costs of all its customers
• E.g., law firm with 100 fee earners paying 800 a
  seat for Office -gt it would cost 80K to retrain
  staff on OpenOffice, convert files etc
• In software, lock-in market power
• The same holds for many online services

5
Rights Management and Competition

• IRM Information Rights Management changes
  ownership of a file from the machine owner to the
  file creator
• Files are encrypted and associated with rights
  management information
• The file creator can specify that a file can only
  be read by Mr. X, and only till date Y
• Shipping in Office since 2003
• What will be the effect on the typical business
  that uses PCs?

6
Why is Microsoft so Keen?

• At present, a company with 100 PCs pays maybe
  800 per seat for Office
• Remember value of software company total
  switching costs
• So cost of retraining everyone to use Linux,
  OpenTC etc is maybe 80,000
• Once documents cant be converted without
  creators permission, switching cost is higher
• Bill we came to this thinking about music but
  then realized documents and email were much more
  interesting (NB works with OpenTC too!)

7
Strategic Issues

• Who will control users data?
• Microsoft view everything will be on an MS
  platform (your WP files, presentations, address
  book, pictures, movies, music)
• DG Comp view illegal! ordered MS to unbundle
  WMP
• Google view all your data on our server
• Apple view buy all your music through our
  channel

8
Software Industry Issues

• At present, there are petabytes of free data
  for new apps to use (I.e., your data)
• Future apps can use TC (Vista or Open) to lock in
  users by locking down their data
• The software industry will become less dynamic,
  more like a normal industry
• Maybe well see software subsidizing hardware, as
  in games consoles
• Effects on innovation, growth, choice

9
Rights Management and the Content Industry

• What happens when you link a concentrated
  industry (platforms) with a less concentrated
  industry (music / movies)?
• Varian (Jan 2005) most of the resulting surplus
  goes to the platform owner
• Music industry was scornful but by October were
  worried and in 2006 started panicking
• Musicians saw fee per single fall from 34p to 3p
  and are now cutting out the majors
• Gutmann argues that Vista tries to do for HDTV
  what Apple did for music downloads

10
The Information Society

• More and more goods contain software
• More and more industries are starting to become
  like the software industry
• The good flexibility, rapid response
• The bad frustration, poor service
• The ugly monopolies
• How will the law evolve to cope and who gets to
  write it?

11
Specific Policy Issues

• More Security isnt necessarily better
• More Trust isnt necessarily better
• Need to stop firms dumping liability and onus of
  proof
• Think ATMs, phishing. Vista and CC nos?
• Need for private action
• Fruit of the poisoned tree provisions

12
Conclusions

• Will the Commission get more involved in
  information goods and services markets?
• Very probably but at present, policy is ad-hoc,
  a patchwork
• What are the goals? (Kroes global competition
  culture? Sovereignty?)
• The mechanisms? (interoperability?)
• Paradigms / metaphors? (cars? drugs?)
• Tech versus app regulation?