Thursday, June 27, 2013

Economics of Evil

Back in March Google announced that this weekend is the end of Google Reader, the service many bloggers and journalists used to use to read online content via RSS. This wasn't the first service Google killed, but because the people who used the service write for the Web, the announcement sparked a lively discussion. Because many people believe that commercial content platforms and storage services will preserve digital content for the long term, the discussion below the fold should be of interest here.

Paul Krugman commented:
Google’s decision to shut down Google Reader has ... provoked a lot of discussion about the future of web-based services. The most interesting discussion, I think, comes from Ryan Avent, who argues that Google has been providing crucial public infrastructure — but doesn’t seem to have an interest in maintaining that infrastructure.
The Ryan Avent post at The Economist's Free Exchange blog that Krugman linked to pointed out that dependence on Google's services has a big impact on the real world:
Once we all become comfortable with [Google's services] we quickly begin optimising the physical and digital resources around us. Encyclopaedias? Antiques. Book shelves and file cabinets? Who needs them? And once we all become comfortable with that, we begin rearranging our mental architecture. We stop memorising key data points and start learning how to ask the right questions. We begin to think differently. About lots of things. We stop keeping a mental model of the physical geography of the world around us, because why bother? We can call up an incredibly detailed and accurate map of the world, complete with satellite and street-level images, whenever we want. ... The bottom line is that the more we all participate in this world, the more we come to depend on it. The more it becomes the world.
Avent described Google's motivation for providing the infrastructure:
Google has asked us to build our lives around it: to use its e-mail system ..., its search engines, its maps, its calendars, its cloud-based apps and storage services, its video- and photo-hosting services, ... It hasn't done this because we're its customers, it's worth remembering. We aren't; we're the products Google sells to its customers, the advertisers. Google wants us to use its services in ways that provide it with interesting and valuable information, and eyeballs.
So, Google may have good reasons for killing some services:
It's a big company, but even big companies have finite resources, and devoting those precious resources to something that isn't making money and isn't judged to have much in the way of development potential is not an attractive option. ... Someone else will come along to provide the service and, if they give it their full attention, to improve it.
And indeed alternate services such as Feedly are taking over. The only push-back for Google is weak:
But that makes it increasingly difficult for Google to have success with new services. Why commit to using and coming to rely on something new if it might be yanked away at some future date?
Google only partially mitigates this through their Data Liberation Front, whose role is to ensure that users of their services can extract their data in a re-usable form. But there remains a problem for society:
That's a lot of power to put in the hands of a company that now seems interested, mostly, in identifying core mass-market services it can use to maximise its return on investment.
What this implies is that Google is becoming an essential utility:
the history of modern urbanisation is littered with examples of privately provided goods and services that became the domain of the government once everyone realised that this new life and new us couldn't work without them.
Paul Krugman described the economics underlying this:
even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.

What Avent adds is network externalities, in which the value of the good to each individual user depends on how many others are using it. ... they mean that if the monopolist still doesn’t find it worthwhile to provide the good, the consumer losses are substantially larger than in a conventional monopoly-pricing analysis.

So what’s the answer? As Avent says, historical examples with these characteristics — like urban transport networks — have been resolved through public provision. It seems hard at this point to envision search and related functions as public utilities, but that’s arguably where the logic will eventually lead us.
It is indeed hard to envision these services as public utilities; they are world-wide rather than national or local, and the communication infrastructure on which they rely, despite being utility-like, is provided by for-profit, lightly regulated companies.

What does this mean for digital preservation?
  • "Free" services, such as Google Drive, in which the user is the product rather than the customer should never be depended upon. At any moment they may suffer the fate of Google Reader and many other Google services; because the user is not the customer there is essentially no recourse.
  • Over time any business model for extracting value from content will become less and less effective. There are several reasons. Competitors will arise and decrease the available margins. As content accumulates, the average age of an item will increase; it is easier to extract value from younger content. Thus the service is continually in a race between this decreasing effectiveness and the cost reduction from improving technology such as Kryder's Law for storage. Once the cost reduction fails to outpace the value reduction the service is probably doomed. So the slowing pace of storage cost reduction is likely to cause more casualties, especially among those services that accumulate content.
  • Because archived content is rarely accessed it generates little valuable information and lacks network effects, making it a poor business for the provider. This casts another shadow over the future of free or all-you-can-eat storage services.
  • Although the user of services such as Google Cloud Storage and S3 is a paying customer, digital preservation will be a very small part of the service's customer base. Thus the incentives for the service provider to continue or terminate those aspects of the service that make it suitable for digital preservation will not be greatly different from those of a free service.
  • Because digital preservation is a relatively small market, services tailored to its needs will lack the economies of scale of the kind of infrastructure services Avent and Krugman are discussing. Thus they will be more expensive. But the temptation will always be to implement them as a thin layer of customization over generic infrastructure services, as we see with Duracloud and Preservica, to capture as much of the economies of scale as possible. This leaves them vulnerable to the whims of the infrastructure provider. See also my comment on on-demand vs. base-load economics.


David. said...

Marco Arment convincingly tells the depressing story of why Google Reader had to die. It was distracting from the Google + vs. Facebook battle.

David. said...

Latitude is the latest casualty. again because it was not part of Google+.

David. said...

Scott Gilbertson at The Register writes about recovering from the death of Reader, riffing on the "If you're not paying for something, you're not the customer; you're the product being sold." quote. But he points out that "Just because you are paying companies like Google, Apple or Microsoft you might feel they are, some how, beholden to you." Dream on.

David. said...

Yet another Google service bites the dust, this time Helpout.

David. said...

Hugh Pickens at /. points me to Le Monde's Google Memorial, le petit musée des projets Google abandonnés. Who knew there were so many?

David. said...

And another one bites the dust.

David. said...

Google Plus isn't quite dead, but it is on life support.

David. said...

Google Talk is headed for the Google Memorial.

David. said...

"The link is very common on the web and was first launched by Google in 2009. However, the company announced today that it’s winding down the URL Shortener beginning next month, with a complete deprecation by next year." writes Abner Li at 9to5Google.

David. said...

Google Hangouts is headed for the Google Memorial.

David. said...

The Allo messaging service is the next to enter the Google Memorial.

David. said...

G+ is on its way to the Google Memorial, and Lauren Weinstein is not happy with the reasons:

"Google knows that as time goes on their traditional advertising revenue model will become decreasingly effective. This is obviously one reason why they’ve been pivoting toward paid service models aimed at businesses and other organizations. That doesn’t just include G Suite, but great products like their AI offerings, Google Cloud, and more.

But no matter how technically advanced those products, there’s a fundamental question that any potential paying user of them must ask themselves. Can I depend on these services still being available a year from now? Or in five years? How do I know that Google won’t treat business users the same ways as they’ve treated their consumer users?"

Nor is he happy with the process:

"We already know about Google’s incredible user trust failure in announcing dates for this process. First it was August. Then suddenly it was April. The G+ APIs (which vast numbers of web sites — including mine — made the mistake of deeply embedding into their sites, we’re told will start “intermittently failing” (whatever that actually means) later this month.

It gets much worse though. While Google has tools for users to download their own G+ postings for preservation, they have as far as I know provided nothing to help loyal G+ users maintain their social contacts — the array of other G+ followers and users with whom many of us have built up friendships on G+ over the years."

David. said...

Close behind G+ on the road to the Google Memorial is Hangouts and Ron Amadeo is skeptical:

"Google previously announced that its most popular messaging app, Google Hangouts, would be shutting down. In a post today on the GSuite Updates blog, Google detailed what the Hangouts shutdown will look like, and the company shared some of its plan to transition Hangouts users to "Hangouts Chat," a separate enterprise Slack clone."

Note that this is another instance of Google moving up a previously announced shutdown date. And, like Weinstein, Amadeo sees impacts on the Google brand:

"Google's argument seems to be that the transition plan makes everything OK. But clumsy shutdowns like this are damaging to the Google brand, and they undermine confidence in all of Google's other products and services."

David. said...

Ron Amadeo takes Google to the woodshed in Google’s constant product shutdowns are damaging its brand:

"It's only April, and 2019 has already been an absolutely brutal year for Google's product portfolio. The Chromecast Audio was discontinued January 11. YouTube annotations were removed and deleted January 15. Google Fiber packed up and left a Fiber city on February 8. Android Things dropped IoT support on February 13. Google's laptop and tablet division was reportedly slashed on March 12. Google Allo shut down on March 13. The "Spotlight Stories" VR studio closed its doors on March 14. The URL shortener was cut off from new users on March 30. Gmail's IFTTT support stopped working March 31.

And today, April 2, we're having a Google Funeral double-header: both Google+ (for consumers) and Google Inbox are being laid to rest. Later this year, Google Hangouts "Classic" will start to wind down, and somehow also scheduled for 2019 is Google Music's "migration" to YouTube Music, with the Google service being put on death row sometime afterward.

We are 91 days into the year, and so far, Google is racking up an unprecedented body count. If we just take the official shutdown dates that have already occurred in 2019, a Google-branded product, feature, or service has died, on average, about every nine days."

David. said...

Of course, other companies shutter services too, just somewhat less irresponsibly. Cory Doctorow's Microsoft announces it will shut down ebook program and confiscate its customers' libraries reports:

"Microsoft has a DRM-locked ebook store that isn't making enough money, so they're shutting it down and taking away every book that every one of its customers acquired effective July 1.

Customers will receive refunds."

David. said...

And the next entrant for le petit musée des projets Google abandonnés is YouTube Gaming. Ron Amadeo reports:

"YouTube Gaming is more or less shutting down this week. Google launched the standalone YouTube gaming vertical almost four years ago as a response to Amazon's purchase of Twitch, and on May 30, Google will shut down the standalone YouTube Gaming app and the standalone website."

David. said...

Take a number! Ron Amadeo reports that This week’s dead Google product is Google Trips, may it rest in peace:

"Google's wild ride of service shutdowns never stops. Next up on the chopping block is Google Trips, a trip organization app that is popular with frequent travelers. Recently Google started notifying users of the pending shutdown directly in the Trips app; a splash screen now pops up before the app starts, saying "We're saying goodbye to Google Trips Aug 5," along with a link to a now all-to-familiar Google shutdown support document."

David. said...

Another product joins the queue of Google products waiting to get into le petit musée des projets Google abandonnés. Ron Amadeo reports:

"Another day, another dead or dying Google product. This time, Google has decided to shut down "Hangouts on Air," a fairly popular service for broadcasting a group video call live over the Internet. Notices saying the service is "going away later this year" have started to pop up for users when they start a Hangout on Air. Hangouts on Air, by the way, is a totally different and unrelated service from "Google Hangouts," which is also shutting down sometime in the future."

David. said...

Lina M. Khan's The Separation of Platforms and Commerce discusses (Page 1071) one of last year's acquisitions by le petit musée:

"The Justice Department’s remedies in the Google–ITA merger illustrate one instance of imposing an information firewall in a digital market. ITA developed and licensed a software product known as “QPX,” a “mini-search engine” that airlines and online travel agents used to provide users with customized flight search functionality. Because the merger would put Google in the position of supplying QPX to its rival travel-search websites, the Justice Department required as a condition of the merger that Google establish internal firewalls to avoid misappropriation of rivals’ information. Although one commentator highlighted the risks and inherent difficulties associated with designing a comprehensive behavioral remedy, the court approved the order.

Whether the information firewall was successful in preventing Google from accessing rivals’ business information is not publicly known. A year after the remedy expired, Google shut down its QPX API."