Master Switch

1. The Cycle: Information Industries' Pattern of Openness and Control

History shows a typical progression of information technologies: from somebody's hobby to somebody's industry; from jury-rigged contraption to slick production marvel; from a freely accessible channel to one strictly controlled by a single corporation or cartel—from open to closed system.

The Cycle explained. This pattern, dubbed "the Cycle" by the author, is a recurring phenomenon in the history of information industries. It begins with a period of openness and innovation, often led by amateur enthusiasts and small-scale entrepreneurs. As the technology matures and its commercial potential becomes apparent, larger corporations move in, consolidating control and creating closed systems.

Examples throughout history:

• Telephone: from Bell's invention to AT&T's monopoly
• Radio: from amateur broadcasters to network dominance
• Film: from independent producers to studio system control
• Internet: from open academic project to increasing corporate influence

The Cycle demonstrates how industries transition from decentralized, innovative periods to centralized, controlled phases, often at the expense of creativity and consumer choice.

2. Disruptive Founders: Outsiders Who Challenge Established Systems

Inventors we remember are significant not so much as inventors, but as founders of "disruptive" industries, ones that shake up the technological status quo.

Characteristics of disruptive founders:

• Often outsiders to the established industry
• Possess a unique perspective on the problem at hand
• Willing to challenge conventional wisdom and take risks

Examples of disruptive founders:

• Alexander Graham Bell (telephone)
• Edwin Armstrong (FM radio)
• Steve Wozniak (personal computing)

These individuals not only invent new technologies but also create entirely new industries, often in the face of resistance from established players. Their success often depends on a combination of technical innovation and the ability to navigate complex business and regulatory environments.

3. The Power of Patents: Protecting Innovation and Fostering Monopolies

In the hands of an outside inventor, a patent serves as sort of corporate shield that can prevent a large industrial power from killing you off or seizing control of your company and the industry.

Dual nature of patents. Patents serve as both a protection for innovators and a tool for monopolistic control. They can:

1. Safeguard small inventors from being overwhelmed by larger competitors
2. Allow established companies to maintain dominance and stifle competition

Historical examples:

• Bell's telephone patent enabling the creation of AT&T
• Edison's film patents leading to the Motion Picture Patents Company (Edison Trust)

Patents play a crucial role in shaping information industries, often determining whether an industry remains open and competitive or becomes closed and monopolistic. The strategic use of patents can make the difference between a disruptive technology succeeding or being suppressed by established players.

4. Government's Role: Regulation, Deregulation, and Industry Shaping

The FCC and Congress saw fit to bless not the open system that had given birth to radio, but the closed system that was trying to throttle it.

Government influence on information industries:

• Regulatory decisions can determine industry structure
• Antitrust actions can break up monopolies or allow them to persist
• Policy choices often favor established players over newcomers

Key historical interventions:

• Creation of AT&T's regulated monopoly
• FCC's role in shaping radio and television broadcasting
• Breakup of AT&T in 1984
• Telecommunications Act of 1996

The government's role in information industries is complex and often contradictory. While sometimes acting to promote competition and innovation, it has also frequently supported the creation and maintenance of powerful monopolies. Understanding this dynamic is crucial for predicting and influencing the future of information industries.

5. Vertical Integration: The Double-Edged Sword of Media Empires

A strong stake in more than one layer of the industry leaves a firm in a position of inherent conflict of interest. You cannot serve two masters, and the objectives of creating information are often at odds with those of disseminating it.

Benefits of vertical integration:

• Economies of scale and scope
• Control over entire production and distribution chain
• Ability to cross-promote and leverage assets

Drawbacks of vertical integration:

• Stifling of innovation and competition
• Conflicts of interest between content creation and distribution
• Potential for censorship and control of information flow

Historical examples:

• Hollywood studio system's control of production, distribution, and exhibition
• AOL Time Warner merger and its ultimate failure
• Apple's integrated hardware, software, and content ecosystem

Vertical integration in media and information industries can lead to powerful, efficient corporations but also poses risks to innovation, competition, and free expression. The tension between these benefits and drawbacks continues to shape the information landscape.

6. The Internet: A Radical Departure or the Next Cycle Victim?

The Internet with its uniquely open design has led to a moment when all other information networks have converged upon it as the one "superhighway," to use the 1990s term.

The Internet's revolutionary aspects:

• Decentralized, open architecture
• Low barriers to entry for new services and content
• Global reach and interconnectedness

Challenges to the Internet's openness:

• Net neutrality debates
• Increasing consolidation of major tech companies
• Government surveillance and censorship efforts

The Internet represents a potentially radical break from previous information technologies, embodying principles of openness and decentralization. However, it faces increasing pressure from both corporate and governmental forces that could lead to a more closed, controlled system. The question remains whether the Internet will maintain its open character or succumb to the historical pattern of centralization and control.

7. The Separations Principle: A Framework for Information Freedom

What I propose is not a regulatory approach but rather a constitutional approach to the information economy. By that I mean a regime whose goal is to constrain and divide all power that derives from the control of information.

Key components of the Separations Principle:

1. Separation of content creation from distribution
2. Separation of information infrastructure from services
3. Government's role as a check on private power, not an aid to it

Implementation strategies:

• Antitrust enforcement to prevent excessive vertical integration
• Common carrier rules for information infrastructure
• Fostering a culture of openness and information ethics

The Separations Principle offers a framework for maintaining openness and innovation in information industries. By preventing excessive concentration of power and maintaining clear boundaries between different layers of the information economy, this approach aims to preserve the benefits of both open and closed systems while mitigating their respective drawbacks.

Last updated: July 21, 2024