In a short essay on Competition and Privacy in Web 2.0 and the Cloud, Randy Picker hones in on an issue that will be of huge commercial and regulatory importance in the not too distant future. The current architecture of mostly decentralized data storage is privacy-friendly in the sense that I control what happens to my data as long as it is in my physical control, e.g., on my hard drive or my server. Once functionality that is currently located at the end nodes of the network, where powerful CPUs reside (word processing, corporate document creation, etc.), moves “into the cloud,” factual control over my data moves from the periphery of the network toward the center. In the center, my privacy is no longer secured by the factual architecture of the world. The periphery is technologically more privacy-friendly than the center. As a result of weaker factual safeguards, legal rules will become increasingly important. In Picker’s words:

How we use the rich datastreams that have emerged under Web 2.0 and that may emerge under cloud computing is a point of design, both technical and legal design. … In the past, we have regulated intermediaries at these transactional bottlenecks—banks, cable companies, phone companies and the like—and limited the ways in which they can use the information that they see. Presumably the same forces that animated those rules—fundamental concerns about customer privacy—need to be assessed for our new information intermediaries. In doing that, we need to be acutely aware of how our choices influence competition. An uneven playing field—allowing one firm to use the information that it sees while blocking others from doing the same thing—creates market power through limiting competition. We rarely want to do that. And privacy rules that limit how information can be used and shared across firms will artificially push towards greater consolidation, something which again usually works against maintaining robust competition.

Picker’s argument seems to suggest (i) limitations on the use of private information, combined with (ii) interoperability requirements.

UPDATE: Here is a related discussion on TOTM.

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