Silos and Lock-In Problems
Reputation is usually built within a certain
environment, beyond which it might have different values. This seems to be true
for online reputation. I cannot carry my reputation across different platforms,
which means that everytime I start to use a new platform, I have to build my reputation from scratch. To respond to this, a
number of scholars have carried out studies and proposed a global
reputation system,[1] which I refer to as
online reputation portability. But why is it so important to have
online reputation portable?
Until today, creating a reputation system in an
online platform is like building a silo. Each platform has its own system that
is not compatible with any other platform. The way my reputation is computed
and valued in a platform is likely different from how it is done in other
platforms. Gaining a reputation, on the other hand, is also not a trivial
matter. It requires continuous practice in a certain period of time, in which
other users upon their experiences in interacting with me may (or may not – it
is up to them) give their reviews either negative, positive, or even neutral.
Thus, starting from scratch everytime I move to another platform would be time
consuming. It also depends on the users in the new platform, if they would give
me the same reviews like those in the previous platform or not. If I want to
continue building up my reputation, it would be easier if I stay with the
previous platform than moving to any other new one. However, it means that it
will create and increase my dependence on the platform, where my reputation has
been established. The longer I stay, the more I use the platform, the more my
reputation is established there, the higher will be my dependence. And since
the reputation cannot be used elsewhere, I am practically locked in the
platform I am using: the silo. If suddenly the
platform applies new terms and conditions that bring disadvantages to me or
that I simply would have disagreed, I would not be able to freely refuse and
abandon the platform because of my dependence on the platform. Here, I need my reputation to be portable.
Online Reputation Portability and Data Protection
Issues
Online reputation involves different types of data
that involve different users. Reviewers provide raw data, for instance by posting
a review, report, evaluation, recommendation, or giving a rate. In the next
step, the raw data is processed and based on the valuation
system, it is transformed into reputation (aggregated data). This reputation is
attached to the reviewee, not the individual reviewers. Would all those types
of data are subject to data protection?
Until today, legal studies have been barely
touching upon the issue of online reputation portability. In the EU, for
instance, although data portability has started to gain more attention and the
right to data portability has been included in the EU General Data Protection Regulation (GDPR) Draft,[2] question
remains, whether and in how far online reputation would be tackled under
the new regulation later on.
Taking a look at Indonesian ICT Law, Law No. 11 of
2011 Art. 26 par. (1) provides that ‘… use of any information through
electronic media that involves personal data of a Person must be made with the
consent of the Person concerned.’ The Law does not define the term ‘personal
data’, but the Commentary of the Law might shed a light to understand the scope
of the term. While it does not mention the definition of ‘personal data’, the Commentary
tries to clarify that personal data is part of privacy rights. Further,
according to the Commentary, privacy rights cover the following rights:
‘the right to enjoy private life and be free from any type of disturbances’;
‘the right to be able to communicate with other people without being spied; and
‘the right to monitor access to information about private life and data of a
person.’[3] However,
the Commentary itself does not help answer the question on
how data implicated in online reputation system shall be treated under Art.
26 par. (1) of Law No. 11 of 2008, i.e. whether user reviews and reputation
could be qualified as personal data and whether users are
entitled to have their online reputation portable if reputation
qualifies as personal data which users have the right to. As regards online reputation portability, the Law does not impose any
obligation to online providers to enable portability.
In the attempt to understand the nature of data
concerned in online reputation system, it is also important to take the
viewpoint of seeing user reviews as public information. Because the nature of a
review is to provide or publish information to others about a certain object,
it makes sense that user reviews are given with the intention to be made public.
However, the nature of being public only concerns the right to access, which
means that it is a type of information that is publicly accessible. The right
to access is a separate entity from other rights such as the right to alter, move, and remove. These issues are still open for further studies.
Why Should Competition Law Bother?
While the discussion on the legal status of the
data involved in online reputation system has just started, in the absence of
regulations, competition law might intervene and plays a role
under certain circumstances. As online reputation gains more importance in
digital environment, it is also regarded as an asset. As discussed above, user
lock-in might create dependence on the platform being used and while this limits the possibility of the respective user to switch to any other platform or
even use multi platforms at the same time, it might also create entry barriers
to the market.
Imagine eBay that relies heavily on user reviews to
make the auction service work. A new platform that intends to compete with eBay might either build a similar online
reputation system to that of eBay or develop a
completely new system that has not been recognized before. However, user reputation remains one of the essential elements that makes the
auction system work because it contains crucial information based on which
other users will decide whether they will take part in the auction processes or
not, apart from other elements like the product itself and market demand. Such
information includes for instance a seller track record concerning his past
performance in providing accurate information on his products, in responding to
relevant questions or remarks from buyers, or in delivering the products or
otherwise making them easily available for the pick-up. Free movement of reviews from eBay to a new platform
would be akin to feeding the new competitor with the most valuable asset.
- · Multi-Sided Platform and Network Effect
For the new entrant, it will be difficult to build up
user volume because of network effect. Most online platforms like eBay operate
as a multi-sided platform which means that one platform serves more than one
interdependent group of customers. Online dating such as OKCupid, search engine
like Google, social networking sites like Facebook or LinkedIn, AirBnb in the
accommodation market, Uber for transportation services, further exemplify such
platform. This type of business model has been traditionally used in newspaper
business: one side of their business caters the need of the readers and the
other side, the advertisers. The more the readers are, the more valuable the
newspaper to advertisers. Both the readers and advertisers are interdependent.
Back to the
example of eBay, the platform serves at least two groups of customers: sellers
and buyers. eBay can attract sellers if it has many buyers and the other way
around. It has to develop both sides and cannot boost only one side of the
platform. This is known as network effect. Only after it reaches a critical
mass, then the platform will start to be profitable. In order to do so,
businesses operating as MSP often charge each side of the platform differently.
For instance, while they provide the services for zero amount of money for one
side, they might charge certain fee to the other side. Buying products via eBay
doesn’t cost money, but eBay charges sellers with transaction fee subject to
certain terms and conditions. In addition, it gains revenues also for instance
form advertisers, which is again another side of the platform.
Jean Charles Rochet and Jean Tirole[4] were
the first scholars who identified two-sided platforms (other scholars later on,
such as David Evans, use the term multi-sided platform for the reason that such
platform often supports more than two interdependent groups of customers[5]). In
defining the term, they explain: ‘A market is two-sided if the platform can affect the volume of transactions
by charging more to one side of the market and reducing the price paid by the
other side by an equal amount; in other words, the price structure matters, and
platforms must design it so as to bring both sides on board.’[6]
It is important to take careful consideration of this characteristic in
competition law analysis in order to confuse it with discriminatory practices
that are under certain circumstances generally considered as anticompetitive
(subject to the rule of reason
assessment taking account of for instance the effect of harm to competition or
to consumers). Because a new entrant has to compete simultaneously in
multiple markets with market incumbent(s), especially if the incumbent has
strong market power, entering the market is particularly expensive which
amounts to entry barrier.
- · Silo, Monopolistic Market, and Consumer Choices
Silo might switch on alarms for competition law
enforcers because it has the tendency to create monopolistic market in which
consumers will have to deal with only one service provider in the relevant
market. This will give the service providers incentives to behave as a
monopolist because consumers (the users) cannot or at least cannot easily
switch to any other service provider due to the lock-in issue, or because there
is simply no competitor in the market.
For consumers, silo will lead to the limited choices
of services available for them in the market. In the dynamic competition, price
is no longer the most important indicator to assess market performance, i.e.
efficiency. Innovation becomes an
essential proxy along with other indicators such as the availability of
consumer choices, the introduction of new products, and increase of product
quality by means of the adoption of new technologies.[7]
This concept is useful to understand market development in cases when services are
provided for free of charge as commonly found in multi-sided platforms such as
social networking sites where zero prices in term of money cannot be used as a
major indicator that competition in the market works. Instead, other factors
such as the protection of consumer interests for example the protection of
consumer data and privacy and the legal remedy provided for when such interests
are impaired and market structure that provides for sufficient players and
choices for consumers are important to be taken into account. As online
platform market is divided into silos, the market becomes fragmented in smaller
markets each with its own monopolist. Since entering the market for potential
competitors is expensive enough, consumer choice is limited to services
provided by the monopolist or at least the dominant incumbent.
- · Reputation As A Tool to Compete
While it might be argued that not all businesses rely
strongly on an online reputation system, online reputation undoubtedly becomes
more important as user awareness grows about one essential function of
reputation to calculate and predict the risks of a certain transaction. Positive
reputation is hence a powerul tool for an online platform user to compete
depending on what they are offering on the platform. A study on ‘A
Trust-Based Consumer Decision-Making in Electronic Commerce: The Role of Trust,
Perceived Risk, and Their Antecedents’ discovered that a consumer’s trust positively influences the purchasing
intention.[8]
This research finding explains why giving a good review could be useful to
promote the selling of a certain product. The more good review being obtained,
the better reputation the reviewee has. For the online platform like eBay, this
means also a better selling of the merchandise offered by the platform and
thereby it is of their interest to have good reviews on each product. Thus, online
reputation system built by the platform is also auseful tool for them to compete in the
relevant market. The more reliable the reputation system, e.g. no fake rating,
the more likely they can attract users.
In general, competition law with its nature to
use ex-post approach imposes neither obligation to enable
reputation portability nor qualify the close system of online reputation as
anti competitive per se. Rather, it decides on case by case basis,
whether hindering reputation portability is a violation against competition law
or not.
Indonesian Competition Law Perspectives
There is no case law so far as regards online
reputation portability. However, under Indonesian Competition Law, Law No. 5 of 1999, the prohibition of market controlling[9] and
the prohibition of dominant abuse[10] might
come into play in this regard.
- · Prohibition of Market Controlling under Article 19 lit. (a) of Law No. 5 of 1999
Under Art. 19 lit. (a) of Law No. 5 of 1999, firms
are prohibited to refuse or impede certain firms from conducting the same type
of business in the relevant market that can result in monopoly practices and/or
unfair business competition.
Hindering users to move or carry their online
reputation to any other platform, according to the general prohibition above,
is only prohibited when it qualifies as a refusal or impediment for the other
platform(s) to conduct the same type of business in the relevant market and
when it has the potential to result in monopoly practices and/or unfair
business competition. The effect of harm in the prohibition does not require
that the harm has occurred. It is sufficient, that the harm is likely to take
place when the element of refusal or the obstruction to compete is satisfied.
- · Prohibition of Dominant Abuse under Article 25 of law No. 5 of 1999
Art. 25 par. (1) of Law No. 5 of 1999 prohibits
firms to take advantage of their dominant position in order to restrict the
market and technology development[11] or
hinder other firms from having the potential to become their competitors.[12] The
benchmark for dominant position are 50% of market share for one firm or firms
group and 75% market share for two or three firms or firms groups.[13]
By refusing to enable users to move or carry their
reputation to any other online platform, the concerned online platform might
hinder other platforms to enter the same market and hold them back from
developing technology to make their platforms compatible for the transfer and
process of data concerned and the use of the data for a better reputation
system provided to users. However, as mentioned above, for the application of
the dominance prohibition, the platform in question shall meet the benchmark
for the qualification of dominance.
Conclusion
Online reputation portability is a new issue that
has not received sufficient attention it deserves. Despite the absence of legal
case on this subject, it seems that there are already several key issues that
need clarification and further legal studies. As technology and business models
are vastly developed, legal clarity is required as an incentive for market
players to innovate.
[1] Such
as. Benyoucef, H. Li, & G.v. Bochmann, ‘A System for Centralizing Online
Reputation’ (2011) 3(3) Journal of Emerging Technologies in Web Intelligence,
179; H. Li, M. Benyoucef, & G.v. Bochmann, ‘Towards a Global Online Reputation’
(2009) Proceedings, ACM MEDES, Lyon, France, 377; S.S. Kumar, & P. Koster, ‘Portable
Reputation: Proving Ownership of Reputations Across Portals‘, Information and System
Security Group, Philips Research Laboratories, Eindhoven, The Netherlands; and
Aroyo, L., De Meo, P., and Ursion, D., ‘Trust and
reputation in Internetworking Systems’.
[2] Article
18 par. (2) of the GDPR draft. In June 2015, the European Council approved the
GDPR draft, after the
amendment of the draft in March 2014 by the European Parliament. The final approval by
the European Commission, European Parliament, and European Council is expected
to reach by December 2015. See Marcus Evans’ post in Data
Protection Report on 15 June 2015.
[3] Commentary
of Law No. 11 of 2011 Art. 26 par. (1). The first category is too broadly
formulated. While it does not help to understand what private life means under
the Law, the term ‘free from any types of disturbances’ do not have either a
clear meaning or a clear purpose why it needs to be included in the context of
privacy rights. The last category is also vague and problematic, because it
does not explain whose private life and data of a person is concerned, whether
it is one’s own private life and data, or of others. If it is about one’s own
private life and data, it is also not clear, why it does not cover the right to
access information, rather than the right to monitor the access.
[4] J.C. Rochet & J. Tirole, ‘Platform Competition in Two-Sided Markets’ (2003) 1(4) Journal
of European Economic Association 990, 990.
[5] D.S. Evans, (Ed.), 'Platform Economics: Essays on Multi-Sided
Businesses' (2011) Competition Policy International, vi.
[6] J.C. Rochet and J. Tirole, 'Two-Sided Markets: A Progress Report'
(2006) 37 The RAND Journal of
Economics 645, 645.
[7] See M.O. Mackenrodt, ‘Assessing the Effects of Intellectual
Property Rights in Networks Standards’ in J. Drexl, (Ed.), Research Handbook
on Competition Law and Intellectual Property (Edward Elgar, Cheltenham
2008), p. 81-82; M. Bijlsma, P. De Bijl, & V. Kocsis,
‘Competition, Innovation and Intellectual Property Rights in Software Markets’
(2009) 181CPB Document.
[8] D.J. Kim, D.L. Ferrin, D.L., & H.R. Rao, ‘A Trust-Based
Consumer Decision-Making in Electronic Commerce: The Role of Trust, Perceived
Risk, and Their Antecedents (2008) 44 Decision Support Systems 544, 556.
[9] Law
No. 5 of 1999 Art. 19 lit. (a).
[10] Law
No. 5 of 1999 Art. 25 par. (1).
[11] Law
No. 5 of 1999 Art. 25 par. (1) lit. (b).
[12] Law
No. 5 of 1999 Art. 25 par. (1) lit. (c).
[13] Law No. 5 of 1999 Art. 25 par. (2).
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