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Vista, TC and Competition Policy

Vista, TC and Competition Policy. Ross Anderson Cambridge University and Foundation for Information Policy Research. Economics and Security. Over the last six years, we’ve started to apply economic analysis to information security Economic analysis often explains security failure better!

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Vista, TC and Competition Policy

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  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, we’ve 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 it’s 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. What’s 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 -> 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 can’t 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 we’ll 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’ isn’t necessarily better • More ‘Trust’ isn’t 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?

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