More on Anti-competitive Uses of Technology

5 Jan ’06

Jack Kapica writes on profound changes in recent years – since the DMCA – on the way technology is manufactured. He cites an example that had escaped my notice – cars are increasingly being manufactured with sealed computers, the data in which is protected by proprietary “u-code” encryption. The entire enterprise seems designed by the same folks who brought you DMCA-protected (or so they thought) Storagetek tape cartridge libraries and Lexmark toner cartidges. Bottom line:

Some of the data in those boxes is encrypted by an “underlining code,” or u-code, that automobile makers install to protect trade secrets. As a result, your local mechanic can’t get at that information to fix your car. … A Mercedes will have to go to Mercedes repair shop, a VW Beetle to a Volkswagen shop and a Honda Civic to a Honda shop. … [T]he auto industry can now corner the market on both parts and labour, and — here’s the kicker — set its own rates with little pressure from competitors.

Unbelievable. But a point to note – this problem doesn’t start with the DMCA – it ends there. It starts with the increasing technological complexity of all products and services – complexity that opens up myriad opportunities to specialize and differentiate. This opportunity is then exploited by manufacturers who believe that the optimal business model is built on the back of a captive customer – at heart, this model is about fear – the fear that once you’ve set the customer up for a fleecing (for example, with a cheap printer and expensive consumables, or non-standard accessory connections), a competitor will come along with a better offering (for example, cheaper toner or a universal accessory). Hence the VoIP silos that Om describes today, hence the annoyingly closed nature of Microsoft Outlook’s data file, hence the closed handset model in CDMA cel technology, etc. etc. ad infinitum. Manufacturers seem to work together on standards only when there is no opportunity for survival unless they do.

Of course, it’s at this point that Jack’s concern about DMCA-type protections comes in; despite the closed nature of these protected technologies and the barrier to competition they present, there are some hardy souls – the DVD Jon’s, Static Controls and Skylinks of the world – who will obstinately refuse to be cowed by these barriers and pick away at them until the market is opened up again.

Is it a sign of something more that the three largest mobile operators in South Korea have decided that all their phones should have standardized sync and charge ports? I would hope so – as creative as we’ve been, I can’t help but imagine how much better off we’d be if manufacturers would focus their creative efforts on improving their products, rather than handcuffing their customers.

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