Raising the Cost of Innovation

By Tom Lenard
February 9th, 2012

Google stirred up a hornet’s nest when it announced its new privacy policy, including questions from Congress, a request from the EU for Google to delay implementing the new policy pending an investigation and, yesterday, a Complaint for Injunctive Relief filed by EPIC alleging that the new policy violates the FTC’s Consent Order.

Google’s new privacy policy appears to represent a relatively small change that is also pro-consumer.  The company is proposing to consolidate privacy policies across its various products, such as Gmail, Maps and YouTube.  Google says it is not collecting any new or additional data, is not changing the visibility of any information it stores (i.e., private information remains private), and is leaving users’ existing privacy settings as they are now.

Google has indicated it will merge user data from its various products, and this is what has riled up critics, who apparently believe that combining information on users, even within a company, is harmful. Yet, combining the data Google already has will increase the value of those data, both for the company and its users.  As its understanding of users increases, Google will be able to provide more personalized services, such as more relevant search results. And, of course, if it can serve users more useful ads then it can charge advertisers more for those ads.

It is important to note that the new policy has not actually been implemented.  No actual users of Google products have experienced how the policy will affect their user experience or had a chance to react to it. If users feel the change negatively impacts their experience, they will presumably let Google know.

Not being a lawyer, I’m not going to opine on whether this policy is or is not consistent with the FTC Consent Order.  But the episode is troubling if one thinks about its potential effect on innovation on the Internet, which largely depends on the use of information—either to develop and improve products or to fund them.  It seems now that the cost of making even a modest innovation has ratcheted up.

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