The New Innovation Battlegrounds Are City Hall And The State House

http://www.forbes.com/sites/ciocentral/2013/08/06/the-new-innovation-battlegrounds-are-city-hall-and-the-state-house/

by pg • 13 years ago

61 53 13 years ago

rayiner2• 13 years ago

I don't like the phrase "sharing economy" because I think that's a misdescription of what's actually happening. There is no sharing, in the sense of concurrent use. What's happening, instead, is that technology is enabling more fine grained transactions in property. If you imagine a set of property rights as a multi-dimensional space, technology lowers the transaction costs involved in splitting up and transacting in sub-spaces of the larger set, and so makes such transactions practical. See: Coase's "The Nature of the Firm."

Sharing is something different. Sharing involves concurrent use of resources mediated by tort-like systems, rather than property-like systems. A real "sharing economy" in cars might be what you end up when cars become self-driving. You won't own a car, but will use whichever car is nearby, and the law will punish various relevant anti-social behaviors instead of violations of property rights.

This distinction is very relevant to things like Uber or AirBnB, because the regulatory challenges there are various issues attached to property rights (e.g. zoning restrictions attached to houses, monopoly privileges attached to taxi medallions).

I agree with Genachowski that state and local governments are a battleground for innovation, but he makes it seem simpler than it is. It's not just a matter of preventing local governments from enacting laws that restrict innovation. It's more basic: renegotiating various privileges that have been negotiated into and priced into property rights. E.g. for better or worse, those who own cab medallions bargained for the monopoly they have, and gave up certain things in the process. Municipalities bargained to create telephone monopolies to serve rural areas instead of building infrastructure themselves. People who bought houses in residential neighborhoods did so pricing in the fact that those neighborhoods would not host hotels. Everyone thought these were reasonable policies at the time. Upsetting those settled expectations in property rights is going to be a very complicated process.

E.g. my personal regulatory interest is in spectrum sharing technology (http://en.wikipedia.org/wiki/Open_spectrum). Technology is getting close to the point where real "sharing" should be possible in radio spectrum. Not just fine-grained subdivision of property rights, but concurrent use mediated by tort-like mechanisms of enforcing "sociable" behavior. I think that technology needs to be rolled out all over the TV bands and the cellular bands. But it's not just a simple matter of flipping a switch. Verizon and AT&T paid billions for their spectrum, under the assumption that there would be nobody else playing in it. You have to kind of see their point of view in opposition to measures to enable sharing on their property. Same for all of the TV companies. They didn't pay for their spectrum, but they made tremendous investments based on certain assumptions, and they've got a right to question changes to those settled expectations.

Incidentally, this is not a new problem. The whole point of property rights is to settle expectations. When the situation changes dramatically, either because of technological or sociological changes, it is a political challenge to accommodate that change without trampling over those settled expectations.

malandrew• 13 years ago

I too don't like that term. It papers over the basic economic motivations of self interested agents. My GF did a documentary on couchsurfing and she's always "sharing economy this.. sharing economy that". It's a useful simplification for non technical people who don't want to delve into the economics of the situation, but it also limits the level of discourse we have as a society.

VladRussian23• 13 years ago

People who bought houses in residential neighborhoods did so pricing in the fact that those neighborhoods would not host hotels.

but they didn't price in the risk of technological innovation like AirBNB.

the corner stone in your logic (and in modern economy) is property rights. With my background (USSR), i'm used to think of property rights not of as something God given, instead as of something that was invented at some point and has been very useful so far in the development of our civilization. The property rights itself has evolved, from slavery societies to the modern day, from people as a property to ideas and RF spectrum being considered as property. The property rights will continue to evolve, and probably, God forbid - my townhouse is well over-water now, real estate rights disappear, while rights for DNA or human soul(mental footprint, dreams, etc..), something like this will come, or one day property rights, as exclusive license on something, will just stop being useful for human civilization at all.

wavefunction• 13 years ago

>but they didn't price in the risk of technological innovation like AirBNB

Actually that's what they did, since residential usage like AirBNB is generally against zoning in these areas.

And you're focused on the selfish aspects of property rights without considering the benefits towards the commons they can confer, like keeping quiet residential areas quiet residential areas rather than high-traffic transient areas just because someone threw up a website.

rayiner2• 13 years ago

I'm not saying that the property rights must absolutely take precedence. I'm saying that you can't just derisively chalk it all up to lobbying. Zoning restrictions shouldn't categorically override things like AirBnB, but you can't just flip a switch and upend everything. People have legitimate settled expectations and you have to deal with those while moving forward.

noonespecial• 13 years ago

We were having a rather similar discussion around here just the other day. It boiled down to:

What if property rights were "packet switched" instead of "circuit switched"? (1)

We're still at the stage where our modems whistle at each other when it comes to "property". The future is going to be positively sci-fi.

(1) http://en.wikipedia.org/wiki/Circuit_switching#Compared_to_d...

rubidium• 13 years ago

To whom would ownership revert if one didn't pay?

That seems to be the preventing mechanism of "packet switched", unless people have liquid capital to be able to buy and sell large properties.

cgshaw4• 13 years ago

Much of this has to do with the systemic aging of our elected officials.

Look at the federal level, where the average age of a Rep is 59 and Sen is 63. These are folks who not only don't empathize with modern technology, they've got established connections to big industries that are threatened by innovation.

I'm not meaning to come off like a ideologue, it's just economics and incentives. Until younger folks get more involved, it likely won't improve much. (like SOPA/PIPA, but more consistent in advocacy and running for office).

Clinton ran for congress in his 20's, lost, but was elected Governor in his early 30's. Joe Biden was a U.S. Senator at the age of 30. People in their late 20's and early 30's just aren't positioned to run for office in our generation. Debt, schooling, careers, etc prevent many from being able to do it, even if they wanted to.

cgshaw4• 13 years ago

Put another way, people like Zuckerberg, Chesky, Houston, etc. are having an amazing impact in business, but there isn't anyone close in the political world.

Sadly, even if "veterans" like Dorsey, Page, Brin were to run for federal office, they would be amongst the youngest to serve.

_delirium3• 13 years ago

There is no world in which someone who first started a web company in the late 1990s is a "veteran", though, not even in tech. JWZ is more of a veteran than Sergey Brin is.

Even if you arbitrarily want to restrict your scope to Googlers: Peter Norvig, Rob Pike, and Ken Thompson are decent examples of veteran technologists who've seen a few changes of both technical and business environments, and have some basis for comparison. Brin, Zuckerberg, and Page don't really have that kind of experience.

tptacek• 13 years ago

It's interesting how ageism is repellent when we're discussing development jobs, but natural when we talk about politics. There are in fact many 60 year old developers. They were in the primes of their careers in the 80s. They're probably better than you at assembly language.

Perhaps a better line to draw is between lawyers and other kinds of professionals, lawyers being overrepresented in Congress. But the track record of nonlawyers (doctors, for instance) in Congress isn't all that great either.

mratzloff2• 13 years ago

A 60-year-old software developer is still a software developer. In the general population, older people are less technically savvy than younger people (on average). Most politicians are not software developers, therefore it stands to reason that politicians tend not to be technically savvy.

nostromo2• 13 years ago

Sounds like a good theory, but I'm not sure the data backs you up. Obama is the 5th youngest president at 47. Clinton was the 3rd at 46.

Take a look at the average age of...

Republican congressmen in 1949: 54.9

Republican congressmen in 2011: 54.9

Democratic congressmen in 1949: 50.4

Democratic congressmen in 2011: 60.2

The democrats have gotten older, but not by much more than the general population. The senate has gotten older, but not dramatically so.

http://online.wsj.com/public/resources/documents/info-CONGRE...

saraid2162• 13 years ago

I am honestly a little shocked that the two numbers for Republicans are identical to 3 significant digits.

Also, your numbers are for House Representatives, not congressmen.

cgshaw4• 13 years ago

Great data, thanks for sharing.

I think one of the "problems" is that innovation is actually picking up speed dramatically. So even if the politicians aren't older, they are more likely to be removed from relevant business and innovation cycles and also more beholden to entrenched businesses.

Average term length has continued to rise as well. (see http://www.fas.org/sgp/crs/misc/R41545.pdf page 6)

In 1949, a Senator on average served just 1 term (6 years), and a Representative served 3 terms (6 years).

Now, in 2013, a Senator serves nearly two terms (12 years), and a Representative serves nearly 5 terms (10 years).

microcolonel3• 13 years ago

Does anyone pick up on how fundamentally insane this whole deal is? Why exactly do we have to submit to this nonsense?

A world where it's possible for people to ambiguously decide whether or not it's okay to simply organize taxi rides, or share a room you own and operate, because some government-sanctioned oligopoly doesn't like it… How did we get here?

I'd love it if people would venture to refute me on this rather than simply downvoting my posts.

woofyman2• 13 years ago

If you live in a Condo, you've agreed to the by laws of the association.

If you lease, you've signed a contract with your landlord.

microcolonel3• 13 years ago

Voluntarily at that, isn't that great?

Your landlords should not be encouraged to peek into my apartment.

asmithmd1• 13 years ago

This is only the most visible examples of how our representatives are actively acting not in the best interest of almost all of the population. There is waste and graft so vast it boggles the imagination. Seven of the 10 highest income counties are the counties surrounding Washington D.C. All these people making high incomes, and all producing exactly nothing that anyone in the rest of the country wants or can use. This year the US federal government will spend $38,000 per household ($9,000 of that spending is borrowed.) I imagine the three selectmen in my little town of 10,000 households could field a pretty good army for the $380,000,000 that will be spent on behalf of our town this year.

adventured• 13 years ago

I agree. The so called sharing economy is the market attempting to route around a hyper regulated and incumbent protected economy. Just take a look at the industries listed:

Automobiles (hyper regulated). Car dealerships (hyper regulated). Telecom (hyper regulated). Car rentals (incumbent protected; try competing with Enterprise and setting up shop in 400 airports). Taxis (hyper regulated and incumbent protected). Textbooks (protected cartel; shielded both by the establishment and politics of education). Lending and fundraising (nothing is more regulated than finance and banking). Restaurants (in every major city you'll have to bribe government officials to stay open or to set-up). Major event and city parking (try not to get whacked by the mafia while you're setting up competition, and then pray you can bribe your way into approvals to get started while the incumbents try to keep you out with denied permits). Condos / apartments / etc. (that's an easy one, it's a nightmare being a landlord in places like NYC due to the burden of government regulations and committees that can dictate every nuance for housing).

johnrob• 13 years ago

Lyft and Sidecar do a good job of vetting drivers. This helps prevent passengers from dying while using the service. The high quality of vetting is shielding you from seeing the real issue: what if they didn't vet drivers? Wouldn't that be a public hazard? A few examples of good behavior does not disprove the need for laws that prevent bad behavior.

temphn6• 13 years ago

If they didn't vet, people wouldn't use the service.

And the government demonstrably does not do a better job of vetting than private individuals. Some examples: has lower quality employees, it makes it impossible to "discriminate" on many different dimensions, and it certainly does not have a Canada-styled skilled immigration policy.

soneca• 13 years ago

I agree with the author in all points he made. But his advices sound to me like he is "preaching to the converted". I don't see a judge or a regulator reading this and considering it a new point of view that may change his analysis of future cases.

I imagine that these regulators already have "the focus on customers". And if they don't, it is not because they don't know they should have. Give the "benefit of the doubt" to innovation? Why? "Keep an open mind"? "Use the service"? I don't see any of these arguments as particularly relevant to anyone in power to regulate these markets.

I think we (those who stand with innovation) should pay more attention and think harder on our arguments in order to win those battelgrounds.

ojbyrne• 13 years ago

So essentially the "New Innovation Battlegrounds" can also be described as "Lobbying."

Which sounds more like the last gasping death throes of innovation. None of these businesses involve any kind of technological breakthrough that could really disrupt anything, they're basically my business model is better than your business model. Which leads to the obvious question - better for who?

JoshTriplett2• 13 years ago

That's exactly the point. When two businesses come up against each other, the correct response from government is to step back and let them fight it out, not to favor one over the other. Lobbying to curry favor for your business is abominable; lobbying to eliminate favors given to your competitor and level the playing field is completely reasonable.

sdrinf• 13 years ago

A thought experiment, at the risk of being downvoted to oblivion:

Imagine a new online service, which allows people to rent out their existing accounts at various other SAAS services to tenants, in exchange for a cut (specifically eg. you can share your seomoz account with 2 other people, tossing the $99 + cut inbetween them, each tenant taking one of the slots).

Consumers benefit from radically lowered prices, enabled by "more fine grained transaction in property".

Would you accomodate this sort of usage on your own sites? If not, what specific principle would you suggest, which still allows for AirBNB?

essayist• 13 years ago

Fair point.

If you own the condo or house that's being AirBNB'd, then we're ok (modulo pissing off the neighbors).

If you're renting, then we're getting into the same territory as "unlimited bandwidth" subscriptions for ISPs or cellphones. Landlords -- reasonable, non-legalistic ones -- might then want to specify the maximum number of "person nights", etc., since all of a sudden "having a few friends spend the night" (taking the # of occupants over the lease maximum) becomes a permanent thing.

It's a little like a tenant who takes a dozen showers a day, every day for a year. Leases don't generally specify the maximum number of showers permitted, but they might begin to do so.

So, it could be workable, if the various contractual arrangements could be adjusted.

Disclaimer: I'm a (small-time) landlord.

quanticle• 13 years ago

"Imagine a new online service, which allows people to rent out their existing accounts at various other SAAS services to tenants, in exchange for a cut (specifically eg. you can share your seomoz account with 2 other people, tossing the $99 + cut inbetween them, each tenant taking one of the slots)."

Isn't that analogous to a sublet arrangement at an apartment? You take a, let's say, 3 bedroom apartment and sublet two of the bedrooms to room-mates. Many landlords allows and welcome subletting, as it allows them to more quickly find tenants for their larger units. At the same time, other landlords don't see the hassle and potential drama of subletting as worth the cost and prohibit the practice.

In the same way, I can see SAAS providers going two ways on this. Some might welcome your "sublet as a service" and explicitly take advantage of it as a way to broaden the market that they serve. Others might view it as a way to exploit their service and explicitly write anti-subletting terms into their terms of use.

zanny• 13 years ago

This is like sharing a college parking pass. Both usually have terms that state you can't share the lease, but fundamentally the problem is that mutual resources (parking spots, server bandwidth) are shared and hard to discretize to a consumer of them, and their "optimal" state is peak shared utilization, where licenses, accounts, and caps inhibit utilization intentionally to keep the saturation from degrading the system (see how public roads that don't get expanded in 30 years get).

I think it has been pretty consistently shown peak productivity gains are reaped when best-shared resources are made readily available with no barriers to utilization, but you need a pool of supporters to keep the infrastructure constantly expanding to meet demand. Throwing new servers in / paying the electric bill, building a new parking lot / maintaining the one that gets heavily treaded by saturation, or expanding / paving roads.

The most technologically functional way is to just announce traffic utilization, expansion costs, and play the wikipedia model - crowdfund your operating costs because the resources are not easily discretized into optimally-used per-consumer chunks. In public space, this is through taxes, but I don't think they have to be in the modern instant global information communication era. Or bill / meter for time used, rather than a constant subscription (which is, strangely, what mobile ISPs are doing now. The problem with that service is they use their metering to artificially depress demand so they don't need to invest in expanding their infrastructure).

You know, that is an interesting thought experiment - how would society organize if people were paying a bill for miles driven to cover road maintenance / expansion costs? (in some places this is already a partial funding source through petrol taxes, but since taxed funds usually end up in a giant pot that various organizations pull from the correlation of tax revenue from travel expenses to available funds to maintain / expand roads isn't a direct one). If we transitioned to more electric vehicles that might be harder, though.

temphn6• 13 years ago

Interesting thought experiment, but I think the case can be made that the software industry has already dealt with this.

1. Matlab and other expensive per-seat licenses are indeed shared, and there are license managers available

2. Other SAAS services are priced cheaply enough that it's not worth sharing vs. having it private

3. SAAS services are often customized enough to the individual that the utility of sharing them isn't that high

4. People already do share logins all the time within businesses and there are now services (like Meldium) that are set up to productize this

So actually it's an interesting thought experiment, but perhaps cuts in the opposite direction.

rubinelli• 13 years ago

This already happens to some degree; it's very common for web design companies to also handle hosting and mailing lists on behalf of their clients, and there are plans built specifically around this kind of need. Back to you example, you are doing the market segmentation and sales work for SEOMoz, so I don't see why they would mind. It's better for them to receive $299/month from three users than NOT receive the same amount from one user.

ballard• 13 years ago

A shining counter-example to this article's core argument is the city of SF. They release tons-and-tons of data in hopes more people make cool new apps with it in ways they didn't think of. http://sfpark.org/how-it-works/open-data-page/ https://data.sfgov.org/

In general though, NYC especially appears to leading an ultimately bankrupt, economically-ignorant policy of pandering to monopolies. Killing innovation hurts the economy and makes cities like NY less desirable. Disruption is competition, and these monopolies better adapt or die.

codex• 13 years ago

This article claims that some regulations exist to protect certain industries. The proof is the fact that these regulations are harmful to various new startups but not to existing industry. But that's not proof: that's correlation without causation. It is just as likely, if not more likely, that certain regulations were instituted to protect the public or to perform a public good, and the current industries have evolved, like an organism, to coexist with the regulations. Just because an industry has adapted to work within the law does not mean that the law was put in place to protect that industry.

For example, NYC regs which are harmful to AirBnB exist to protect other tenants from the insecurities that stem from a revolving door of transients in their buildings. Simliarly, taxi cab medallions restrict supply in order to prevent a tragedy of the commons whereby too many cabs fight for fares in congested city cores, taking up all available road space.

In this respect, these startups are not innovative--just stupid enough to operate extra-legally. Just because something can be done more easily with technology does not mean it should be done.

larsonf3• 13 years ago

I read this and kept thinking whether the hotel lobby is really the reason why Airbnb runs into trouble. Or, for that matter, even whether the Taxi Lobby is what is really hitting Uber.

Yes, hotel owners and taxi drivers are not exactly pleased about the disruption. And, yes, they have lobbyists to further their causes. But don't think for one second that these people wanted the regulation to begin with. Absolutely not. The regulators wanted to protect the public and put in zoning, licensing, etc. The initial regulation had very little, if anything, to do with turn-of-the-century lobbyists.

For the most part it seems these new companies are facing not some nuanced part of the law, but like basic, prehistoric regulation that is practically universal in the Western world, designed to protect people from surpassingly likely horrible practices--like getting kidnapped by an unlicensed driver. Something not that unimaginable -- at least according to London public service posters everywhere. Some laws have very murky reasoning, I'll give you that. But zoning and licensing in these cases do not. So to say that Cities are stifling innovation by enforcing some of the most basic laws of the modern state, then it's a bit glib.

Incumbents are mad because they are following the rules and some of these new firms are clearly not. But the incumbents aren't the biggest problem, which the article more or less hints as the culprit. No, the problem for 'innovation' is convincing people why they should let the other half of their duplex run a youth hostel without a license. And no, saying your K-nearest neighbor algorithm's got it covered is not going to be enough.

Some might compare this to copyright. And this is where they'd be right. It's not very obvious who copyright protects. No one has ever had a GB of songs cause them to wonder whether their neighborhood is safe anymore. You might even make the same case for fin services. Why regulate those? Well, I'd grant you there too. How many people died from the fin crisis again? Perhaps we are pushing it. Either way, in the land of the physical universe, the universe where Uber and Airbnb are so clearly inhabiting, the reasoning behind the laws is remarkably obvious.

temphn6• 13 years ago

And no, saying your K-nearest neighbor algorithm's got it covered is not going to be enough.

This is sheer assertion. What do you think is better? Uber - where you can see your driver's name and photo, know that he has a five star rating with 47/50 positive recommendations, and know that a third party is tracking your GPS location at all times...or the city government's antiquated taxi medallion service? Ditto for Airbnb.

designed to protect people

Let's be real here, city government regulations "protect people" in the same way the TSA "protects people". Which is to say they don't and pretend that they do. You're responsible for protecting yourself. The police can't protect you from wandering into a bad neighborhood or even stop you from getting mugged; they can only clean up the mess after the fact. And no cab driver license will replace exercising your judgment before you enter a cab. Moreover, to be "kidnapped by a cabby" is a rare event. It's like soiling our pants over the threat from terrorists, which we've done quite a lot of over the last decade. Enough already.

larsonf3• 13 years ago

100% to all of these things.

But do you see how the conversation we are having is now about simply the regulations and whether they are really protecting people and not about how there are some incumbents trying to protect their turf?

The two concepts are mixed, often, and should not be.

_delirium3• 13 years ago

I trust the city government to keep the neighboring landlord from turning his apartment buiding into a ghetto hotel without the proper noise-mitigation measures, more than I trust AirBnB to do it.

In many areas AirBnB isn't a problem, mainly when it's being used as a way for regular people to rent out spare rooms or their apartment. But in NYC and London, people are starting to run larger-scale traditional hotel operations, only without following any of the regulations for traditional hotels. There, AirBnB's failure to implement any kind of replacement for municipal regulation is most noticeable, especially in its impact on other people's property.

The New Innovation Battlegrounds Are City Hall And The State House

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