Vote with their feet — Ostrom and data interoperability
In the data market we have lost the essential freedom of voting with our feet. What to do next? Fractal´s Chief Economist Aurel Stenzel talks about it.
“Vote with their feet” or Foot Voting is a concept that got picked up by different scholars throughout the last century. Personal preferences play an important role in economics. When preferences are expressed by their actions, people vote with their feet. For example, if they withdraw from an action or leave a certain group etc. It assumes that if you disagree with a certain condition you can move to a different state (which can be a physical move or also just a switch of service providers). For example, if you highly value your data privacy and disagree with how Facebook treats your data, you would delete your account and not further use their service.
Originally, Foot Voting was considered as a political tool that gives people the ability to choose the political regime under which they wish to live. Charles TIebout published an article in the 1950s explaining this idea: If different municipalities offer different government services with different levels of taxes, people with different personal preferences would just move to the local community that fits their preferences best. The idea to have local competition as governance instead of political intervention always attracted liberal thinkers. Hayek once stated that he is “inclined to give local authorities power which I would deny to the central government, because people can vote with their feet against what the local governments can do.”
In the 1960s, Elinor Ostrom conducted multiple analyses of water industry performances and identified that multiple groups found productive ways of organizing water resources at multiple scales. The groups did not use traditional hierarchies but let citizens who were dissatisfied to vote with their feet and move to other jurisdictions. This very simple governance rule had significant disciplining effects on the group. Each member was treated as good as the group could, leading to an efficient water resource management.
Foot Voting in the platform economy
Let us take this concept and transport it into today’s digital world. Do we have the possibility to vote with our feet? Can we choose the digital platform which we want to use? Probably not.
Same-side platform (or network) effects describe the increased value add of a high user number: the more Instagram connections you have, the more interesting and relevant content there is for you and the more likely you are to attract additional users or find new friends in your friend’s connections. Additionally, the cross-side effects describe how two different groups attract each other: for example, restaurants and people ordering food in Wolt or Uber drivers and riders etc. Finally, in times of AI and machine learning, the more user data a platform owns, the better its services: Google can give better search results and Amazon better recommendations.
Let us stick to Amazon for a moment: their marketplace lets merchants sell all kinds of different goods while they keep the customer relationship. In 2020, The Wall Street Journal revealed that Amazon used their sellers’ data to develop competing products. This data is obviously an unfair advantage: it can be used for pricing decisions, which features to copy and what product segments to enter. As a reminder, all data is produced by the sellers themselves. Why do they not just leave the platform? Why do they not just vote by their feet? Because the lock-in factor is too high — the global reach of the platform is too important for them. In the current platform economy, we either have to accept the terms of conditions of the platforms or not use their service at all. In a self-experiment, I tried not to use Google anymore during the last months. The result was disappointing: as being (one of) the first search engines at scale, Google built such a sophisticated service that all other services will never catch up. The head start that Google has based on our data is too big. I tried to vote with my feet, but went back after a few weeks.
Data interoperability as a crucial step
What do we need in order to enable Foot Voting in the digital world, in order to move beyond platforms? We need decentralised data ownership (with corresponding governance) and interoperability. Based on a EU regulation definition, interoperability describes the ability of two or more services
- to exchange information and to use the information exchanged for the correct execution of a specific function without changing the content of the data and / or
- to communicate with each other and / or
- to work together as intended.
Currently, platforms have data ownership and determine data usage. If I delete my Facebook account, I lose all my connections and friends. Imagine a Facebook user changing to another social network taking all of his/her data to the new service. First, the user needs to be able to take his/her data (decentralised data ownership), and second, the new service needs to be able to execute on the data (interoperability). This would have a very strong disciplining effect on the platform itself.
About Fractal Protocol
Built on Polkadot, Fractal Protocol is an open-source, zero-margin protocol that defines a basic standard to exchange user information in a fair and open way, ensuring a high-quality version of the free internet. In its first version, it is designed to replace the ad cookie and give users back control over their data.
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