Society: Host To Markets

Outside of the market for software and the private layer of governance owned by gatekeepers is a public layer of governance. The market, the business and their intellectual properties, the consumer all interact with public governance in various ways. Some notable examples are data privacy regulation, anti-piracy laws and antitrust law.

Data privacy is perhaps a familiar concern for most readers as much of the internet requires an account to access most digital products. There are multiple reasons why accounts exist. One is to make it more difficult for malicious actors who may be interested in creating a gridlock to disrupt digital services. Another is in service of building a relationship between customers and a business - this is where data comes in. A business that wants to sell products to you will probably have more success if they understand what your needs and wants are. This principle is also the engine that has created digital markets for advertising - third-parties that have an interest in user data.

It doesn't end there.

When the infrastructure that supports the delivery of these services is compromised by a malicious actor, any data provided either directly or indirectly by the user throughout their relationship with the business associated with that service could be obtained. And so it is that the issue of data privacy has come under increasing scrutiny as governments seek to protect individuals, and to some extent businesses from themselves. Europe introduced the GDPR legislation almost a decade ago, and businesses that are required to be compliant (such as those that serve European users) face restrictions on their technology choices which flows on to shape their digital factories.

Anti-piracy laws exist to dissuade participation in black markets for software. How exactly piracy affects software varies depending on its division of labour. If the software is an online service with a fee for access, piracy would increase the running costs of the project by increasing demand while contributing no revenue - growing pains without the rewards.

There are other ways in which piracy does harm. Some digital games support competitive online play, and in many of these games there are players who with the aid of modified versions of software obtained through black markets, are able to cheat to win. This is not only a problem for a particular digital product, or a single project, or a particular business. These are ways that entire markets for software lose confidence.

I personally find the subject of antitrust really interesting. For the benefit of anyone who is not aware, antitrust law seeks to promote competition for the sake of positive outcomes for consumers as producers compete on quality and cost effectiveness. Over the last few years there have been a number of relatively high-profile antitrust cases underway in the United States, and a couple of them relate to storefronts for software on mobile platforms as Epic Games (of Fortnite fame) sued both Apple and Google. The point of contention was that these storefronts charge a commission on transactions for digital goods, and they have also forced these transactions to be processed through them rather than another provider that may have a comparable technical capability to do so.

There are a couple of issues at play. One is that this payment processing generates enormous amounts of revenue that the storefronts would like to keep receiving. Another is that there are a number of liabilities associated with allowing other payment processors on their platform. Not all users may be so discerning as to understand in the moment or perfectly recall later whether a particular payment on their iPhone was made through Apple or through an alternate provider.

Consider a scenario where a software company has chosen an alternate payment processor (let's call them "Bpple") with a lower commission rate of 15% as opposed to the typical 30%. Bpple has observed that their custom checkout design, intended to differentiate them from Apple, churns users much more frequently than an alternate design that looks almost identical to the one that Apple uses. Naturally interested in increasing their revenue, they use the alternate design. Now Apple's customers are much less able to discern who processed their payments. If Bpple has any technical issues processing transactions, it may be Apple that bears the loss in confidence unless it just so happens there is some kind of visual difference and that the user is discerning enough to see it.

Until next time.