Antitrust and Privacy Part 1: The Market for Privacy on Mobile Platforms

It’s often said that privacy means different things to different people. But increasingly, policymakers, courts—and most importantly, consumers—are seeing privacy, in its shifting forms, as a tangible benefit with real value. For example, mobile software platforms (app store / operating system combinations) recently introduced additional controls for smartphone owners, enabling them to limit the ability for one app to track their activities across other apps. Apple’s version of the feature is called App Tracking Transparency (ATT), which has been available for about a year—and Android’s, called the Privacy Sandbox, was announced in February.

Controls like ATT and the Privacy Sandbox address a notoriously intractable information asymmetry problem with online services—that the behavioral advertisers building profiles on people know a lot more about what they’re doing than consumers themselves. The information asymmetry problem is a common form of “market failure,” if it leads to consumers not understanding an economic bargain and, therefore, a distortion in the market. But in this case, the market itself has produced solutions that consumers seem to use, as statistics indicate that 75 to 90 percent of consumers are opting out of cross-app tracking. For consumer groups and privacy experts, ATT and Privacy Sandbox are a good start, but they’d say that we still need a federal privacy law—and that controls like this should be available in other marketplaces, not just on smartphones.

Antitrust reformers, however, are eliding this context when they characterize cross-app tracking controls as a pretext for software platforms to harm competition. The bills they are pushing, the American Innovation and Choice Online Act (S. 2992 / H.R. 3816) and the Open App Markets Act (S. 2710 / H.R. 7030), would essentially prohibit these controls. The fact that these measures would not just minimize but eliminate one of the most significant market-produced privacy features in recent memory should give any policymaker serious pause.

Certainly, free online services and ad-supported apps are important options. Some of our member companies offer ad-supported apps and many of them benefit from knowing whether an ad they’ve purchased was successful. However, an ecosystem in which that overarching model is the only choice—and that unshackles abuses in data collection—obviously fails to serve most consumers, at least the large majority who have opted out of cross-app tracking. And advertising is not valueless, nor is it inherently less effective, with the introduction of more effective consent mechanisms. Of course, the corollary to the notion that consumers care about privacy is that they are willing to pay for it. For example, one white paper found a 0.3 percent increase in the likelihood that an iOS app would be paid or offer in-app payments after Apple rolled out ATT. Even so, the fact that this effect is infinitesimal pokes a hole in inflated rhetoric around ATT’s competition foreclosure effects, and it also suggests the direct costs of privacy controls are, thus far, insubstantial (even if consumers are willing to pay more for privacy).

Serendipitously, John Oliver’s recent stunt in which he tracked DC-area clicks on a set of cringe-worthy ads—implying that some of the clickers might be Members of Congress (he targeted white males of a certain age)—exposes the exact privacy problems cross-app tracking controls help address. Brandishing a prop sealed envelope, Oliver called on Congress to pass a federal privacy law, or else have their clandestine clicks exposed. Supporters of S. 2992 and S. 2710 must have held their breath and hoped nobody noticed the connection between the creepy capability Oliver was demonstrating and their bills: namely, that S. 2992 and S. 2710 would snatch away smartphone users’ ability to opt out of exactly that kind of ad profile building.

If Congress wants to improve the competitive prospects of nascent and smaller competitors in the app economy, diminishing the value of the app stores by steamrolling their privacy features is not a welcome solution. Rather, Congress should take John Oliver’s advice and think about uplifting the value of all the other distribution options, including the open internet, by enacting a federal privacy law. That way, consumers think about digital goods and services as privacy protective whether they are obtained through a mobile software platform or on an HTML website. We would prefer the route of enhancing the value of all the competitive alternatives rather than destroying one of them.