October 31, 2013

ePrivacy, data privacy, is taken very seriously in Windland. Dark periods of past dictatorships deter its citizens from sharing too much about themselves with organizations they tend to see as sneaky snoopers. Still not all is well in Windland.

To say we have entered the Information Age does not mean we no longer need energy, the force which powered the previous era. Having decided to rely on windmills and solar panels, Windland has discovered it cannot distribute electricity from suppliers to customers as of old. The former are now subject to the same climatic fickleness which has long afflicted the latter. Hence, since one cannot so easily store electricity, the distribution network must absorb the peaks and troughs of the supply side as well as those on the demand side (1).

Under those circumstances, the ability to monitor the demand at all times by installing so-called intelligent meters (*) appears a very positive development. Real time information leads to better demand forecast. Local intelligence enables better energy consumption management. Who would object to heat a hot water balloon at night when total energy demand decreases rather than at its daytime peak? And if customers' natural inertia is too great, real time pricing can be a powerful incentive.

The bright side of real time pricing is its almost limitless flexibility. While it brings about complexity, this is all a matter of information processing and, if customers feel a bit overwhelmed, they can always rely on the ever increasing power of their local meters. Indeed the more they tell their meters about their needs and their plans, the more efficient the service they will receive.

In fact every side will be a winner as a given distribution network optimizes its load by harvesting the intelligence of the meters and "sharing" it with the suppliers. Even better, on top of the data declared by the customers and its historical records, the intelligent meter can be programmed to derive or infer even more information and be ready to advise the customer on how to optimize private consumption.

Perhaps consumers will not comply with these detailed prescriptions. But with ever more precise information, what prevents intelligent meters to guide them by varying price according the purpose of the demand? Shouldn't consumers who take too many hot showers a day pay for the privilege?

Most of what we do today draw electricity from the network. Though they run on batteries, mustn't one recharge one's mobile appliances? Why not use this time to pass on usage information to the intelligent meter? Shouldn't watching too many Sopranos episodes carry an energy premium too?

To say we need energy for all we do does not mean energy companies are not living in the Information Age. Indeed let progress flow unimpeded and they will soon gather more information on every Windland resident than Google (**) and the NSA (***) taken together, ePrivacy be damned.

Who cares about Halloween scares? As long as no more Snowden blows new steam, Windland citizens can fantasize they have eprivacy and avoid implementing it for good. After all, it is for their own good that it is raped by service providers. Wouldn't the whole digital economy crater in the face of true privacy? This is the true scare, the explicit if unfounded blackmail people has to endure and not just for one night, every day all year round.

Six months after I abandoned the format for shorter epigrams, I partly pen this fillip for the license offered by Halloween to foreshorten the future. What will span decades can be freely depicted as the apocalyptic consequences of present blindness. Lessons however go well beyond Windland.

The roll out of the federal site designed to support the new US health insurance laws has been a major fiasco. IT experts have had an easy job of pinpointing the many errors made by ObamaScare, so glaring in hindsight. In particular the US administration forbade anonymous browsing (****).

This decision however is a logical consequence of the shift from price markets to what I call value markets. What lies in the future for electricity suppliers is a reality today for health insurance, this mishmash of traditional insurance and social solidarity. Price and volume on this market are no longer the main drivers. Unless a consumer first fills up a detailed profile, no serious quote can be given on any policy.

This reality ensured the federal site was going to be overloaded at the very beginning if it aimed to be useful. When some critics compare it unfavorably to other commercial sites which feature anonymous browsing, they themselves mix apples and oranges. Online booksellers have the luxury to personalize user interactions over time. Insurers and loan brokers give nothing but marketing drivel to anonymous visitors.

An architecture which guarantees user privacy would have shifted the processing load to each user's computer but society has so far refused to adopt it. Can the administration be blamed? Not in principle, only for having as reported made up its mind at the last minute and failed to meter entry and spread access over three months, using for instance the state of residency and the first letter of the consumer's name.

As in our Information Age all markets are moving toward value markets, this move is accompanied by the partial destruction of one of the tenets of capitalism, i.e. market fairness. As we witness with electricity and healthcare, markets are no longer so much a place for trading goods and services as for exchanging information. Tomorrow's markets then will fall into two classes, either two-sided or one-sided (2).

To understand the difference, think of what would financial markets become if buyers of securities had to fill up a detailed questionnaire about their means and their goals, whose information would then be conveyed to the sellers. Wouldn't this transfer of information enable sellers to "better serve" their counterparts by formulating a "personalized offer"?

If professional raiders and proprietary traders had to declare themselves in advance and pay a premium over ordinary small investors for the very first share they bought, fewer companies would have to resort to poison pills. High-speed traders could be made to slow down or be bled.

Dream on. Only markets addressing consumers will be allowed to become so totally one-sided that the added-value they generate is captured by either the suppliers, or more often than not the market organizer. Without privacy, the future does not belong to markets so much as to rackets.

Investors understand that. Why else would they bet on Amazon and Twitter? Will they bet too on Windlander electricity distribution networks?

Philippe Coueignoux

• (*) ....... Les réseaux électriques vont devenir intelligents, by Christian Scherer (Cawa.fr) - October 18, 2013
• (**) ..... Google and Facebook in privacy win, by James Fontanella-Khan (Financial Times) - October 26, 2013
• (***) ... Obama May Ban Spying On Heads of Allied States, by Mark Landler and David E. Sanger (New York Times) - October 29, 2013
• (****) . Problems That Have Crippled HealthCare.gov, by Larry Buchanan, Haeyoun Park and Alicia Parlapiano (New York Times) - October 26, 2013
• (1) while one should carefully distinguish wholesale transport from retail distribution of electricity, it would not alter the thesis behind this fillip
• (2) economists use "two-sided" and "one-sided" for rather different purposes. These terms happen to nicely fit the polemical intent of this fillip