Broad portability over infrastructural assets allows cloud customers to maintain their decision rights over relevant data assets in data governance structures. The following explores this as an argument to justify mandatory portability in a regulatory framework.
Last Update: 24.10.23
In traditional IT, commercial exchanges were straightforward: components are created in-house or, when outsourced, services are provided against remuneration. Here, competition through prices or quality played a role in the markets. Being that case, the information in relation to the services prior to the provision of the services was of utmost importance to avoid lock-in situations. Commercial cloud, however, developed the capability to take advantage of two different components: a) The services (computing power, etc) and b) A Data component, as they are produced directly by the customer’s core activity and, in addition, the use of the cloud environment. These data become part of the firms’ infrastructural assets and underpin the firms’ operations, services, applications, etc. In this case, one should ask: is the bringing of information gaps enough to avoid lock-in?
Firms will have an interest in benefiting (i.e. access and further use of data) from the data assets created by the environment while remaining full claimants over the benefits generated by each firm’s core activity. Moreover, the ‘value’ of the data increases based on the ability of firms to derive relevant information from those data assets effectively. But, if the assets are specific and interdependent enough, concerned firms will have a strong incentive to secure their control over the most relevant ones. This leads to data lock-in. The problem becomes even more complex when not only the interests of customers and main cloud providers conflict but also those of complementors, who add to the value network.
In economic terms, market players will seek to benefit from these ‘shared investments’ to adapt to changes in the market. These adaptations cannot be performed solely through the price mechanism or hierarchies, i.e., autonomous, and even competing firms would prefer to organize a subset of their activities through ‘hybrid’ forms rather than relying on markets or full integration to obtain these data. This means some form of governance will need to arise for the firms to cooperate while keeping some discretionary decision rights over data assets. However, the specific way in which data governance is determined in these constellations affects the ability of new and competing constellations to attract customers thereby, competition is being affected. When one considers that market failures are not absolute, but sees the broader category, that of transaction costs, which, in general, impede the formation of markets, (Arrow, 1969), one can extend the reasoning to see the impediments in the formation of the se ‘hybrid’ forms.
The introduction of a regulatory framework with broad portability over the totality of these assets creates safeguards against opportunistic behavior in these configurations. It allows cloud customers to maintain their rights to decide where to direct their investments and switch when they deem necessary. New ‘hybrid’ forms are formed, and competition is maintained.
Jeniffer Rodriguez
Prof. Dr. Matthias Leistner, LL.M. (Cambridge)
II.3 Vernetzte Datenwirtschaft
