Protocols and Power

The AI Frontiers article (reproduced below) builds on a previous Asimov Addendum article written by Tim O’Reilly, entitled: “Disclosures. I do not think that word means what you think it means.” I (Ilan) think it’s important to first very briefly go through parts of Tim’s original piece to help recap why we—at the AI Disclosures Project—care about protocols in AI markets:

At the AI Disclosures Project, we are increasingly coming to see disclosures through the lens of networking protocols and standards. Every networking protocol can also be thought of as a system of disclosures. But these disclosures are far more than just a warning label, or a mandated set of reports. They are a form of structured communication that enables independent, decentralized action.

Tim then notes why this matters for AI’s “market structure”:

The race for first mover advantage by the large centralized AI providers like OpenAI and their business model of providing AI access through metered API subscriptions suggests a hub and spoke railroad design, while a world of open weight AI models connected by new modes of standardized communication could look more like a road system, or today’s World Wide Web.

…

If we want a world where everyone, not just AI model developers and those building on top of their centralized networks, is able to innovate and to offer their work to others without paying a tax to access centralized networks, we need a system of disclosures that enables interoperability and discovery.

In this approach, protocols, as a type of disclosure, can architect healthier AI markets, not after things are already too far gone, but through it operating as foundational “rules of the road… that enable interoperability”:

In short, we need to stop thinking of disclosures as some kind of mandated transparency that acts as an inhibition to innovation. Instead, we should understand them as an enabler. The more control rests with systems whose ownership is limited, and whose behavior is self interested and opaque, the more permission is required to innovate. The more we have built “the rule of law” (i.e. standards) into our systems, the more distributed innovation can flourish.

Now, on to the main course!

Protocols and Power

As AI models become commodities, tech giants are racing to lock in users by hoarding their data. Open protocols, backed by open APIs, can facilitate broad data sharing and healthier AI markets.

Originally published in AI Frontiers: https://ai-frontiers.org/articles/open-protocols-prevent-ai-monopolies

Can we head off AI monopolies before they harden? As AI models become commoditized, incumbent Big Tech platforms are racing to rebuild their moats at the application layer, around context: the sticky user- and project-level data that makes AI applications genuinely useful. With the right context-aware AI applications, each additional user-chatbot conversation, file upload, or coding interaction improves results; better results attract more users; and more users mean more data. This context flywheel—a rich, structured user- and project-data layer—can drive up switching costs, creating a lock-in effect when accumulated data is trapped within the platform.

Protocols prevent lock-in. We argue that open protocols—exemplified by Anthropic’s Model Context Protocol (MCP)—serve as a powerful rulebook, helping to keep API-exposed context fluid and to prevent Big Tech from using data lock-in to extend their monopoly power. However, as an API wrapper, MCP can access only what a particular service (such as GitHub or Slack) happens to expose through its API.

To fully enable open, healthy, and competitive AI markets, we need complementary measures that ensure protocols can access the full spectrum of user context, including through:

1. Guaranteed access, for authorized developers, to user-owned data, through open APIs at major platforms.
2. Portable memory that separates a user’s agentic memory from specific applications.
3. Data usage guardrails governing how AI services can leverage user data.

Drawing on the example of open-banking regulations, we show that security and data standards are required for any of these proposals to be realized.

Architecting an open, interoperable AI stack through the protocol layer is about supporting broad value creation rather than value capture by a few firms. Policy efforts such as the EU’s General-Purpose AI Code of Practice do matter; but, ultimately, it is software architecture that most immediately and decisively shapes market outcomes.

Protocols—the shared standards that let different systems communicate with one another—function as a deeper de facto law, enabling independent, decentralized, and secure action in digital markets.

From Commoditized Models to Context-Rich Applications

From models to services. In a fevered race to blitzscale its way to AI dominance, OpenAI took an early lead. ChatGPT became the fastest-growing application in history, and it was easy to assume that the next step was to turn it into a platform. OpenAI attempted to become a developer platform, first with plugins and then with its GPT Store.

But it hasn’t all gone according to plan. OpenAI’s models don’t seem so special anymore. Open-source models like Kimi K2 (by Moonshot AI) have competitive capabilities and are free to use. Sensing the turning tide, application-specific companies like Perplexity struck gold by taking off-the-shelf models from multiple providers, scaffolding them for specific uses, and charging for premium access while avoiding vendor lock-in. Cursor, an AI‑first code editor, went from $0 to over $100 million ARR in 18 months, proof that context‑driven retrieval-augmented generation (RAG), with a native AI design, can beat incumbents sitting on more user data. Front-end users can now easily choose their preferred model within these applications. And, using platforms like OpenRouter, developers can even switch models dynamically in response to pricing or features.

Context rising. As foundation models commoditize, competition is shifting up the stack, to the application layer, where proprietary user and project data—known as context—is the secret sauce. Tech giants are racing to enclose and own this context exclusively: conversation histories, memory stores, workspaces, codebases, documents, and anything else that helps their agents predict and assist better. OpenAI, Google, and other model vendors lean on chatbot interaction logs as sources of persistent memory, while application specialists like Anysphere (which makes Cursor) and Perplexity similarly harness project and user data to boost their models’ usefulness.

This forces a crucial decision on the market: will AI applications grow based on closed standards that let a few gatekeepers dictate terms and extract outsized rents, or on open standards that keep context portable and architecture permissionless?

The early open web. The stakes are high. Born on open protocols, the web evolved into ecosystems of applications dominated by Amazon, Google, and Meta. At first, they beat rivals simply by working better. Google was the best at matching searchers with information and ads; Amazon surfaced the best products at low prices; and Facebook matched its users with a unique feed crafted only from content shared by their friends and people they chose to follow.

From innovation to extraction. But success conferred durable power that was abused. As growth slowed, the winning companies shifted from creating value to extracting it. In our past work, we described this process using the language of economic rents: winners first gain “Schumpeterian rents” for innovation, but, once markets mature, these turn into extractive rents aimed at preserving dominance and squeezing users and developers. Cory Doctorow frames this process vividly as “enshittification.” AI’s enshittification could involve weaker safety guardrails, higher prices, less user privacy, and lower-quality information or agentic assistance. In short, when commercial incentives go unchecked, models get tuned to serve providers’ interests over those of users.

Attempts by OpenAI to build a platform by locking in developers and users resemble Facebook’s failed attempt to build a platform. But, as Bill Gates is said to have commented: “This isn’t a platform. A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it. Then it’s a platform.” That kind of platform is almost always enabled by open standards. By contrast, when a company blocks others from linking compatible products to its ecosystem, it incentivizes customers to use several services at once (`multi-homing’), and invites extra scrutiny from regulators.

The promise of protocols. Anthropic has taken a different route, developing MCP as an open protocol, a shared set of rules that anyone can use for free. MCP standardizes how AI applications request information and actions from external services, thereby facilitating equitable developer access to external tools and data context. This is how networked markets grow: by enabling an architecture of participation through which every new entrant makes the market more valuable for everyone else.

MCP’s take-up has been explosive. Today there are well over 5,000 MCP servers that can connect to the hundreds of AI apps that have integrated MCP. Faced with rapid adoption by third-party developers, AI model developers like OpenAI and Google have announced that they too will support MCP. But these same incumbents are already pushing back.

How User Context Is Powering a New Era of Tech Monopolies—and Competition

Context creates value. AI systems thrive on context: the user data that lets an AI system tailor its behavior to users, their requests, and the tasks at hand. When properly mined, this user data allows for personalized and efficient predictions. Think of a context-free, factory-settings AI model as a borrowed phone: the hardware is powerful, but, without your contacts, messages, location, and logins, it can’t really help you.

Context has many layers: across time, as a living “state,” such that each user prompt builds on what came before; and across people, as a multi-user setting (say, in a Slack thread or collaborative document). We emphasize two layers: micro-context captures whom the system is helping right now (associated with their preferences, language, and current query). On the other hand, macro-context covers the task environment, as the external frame that shapes what a sensible answer looks like. This includes project files and live data feeds.

Big AI companies are using context to grow their moats and lock in users through at least two approaches. The first is through product bundling. Examples include OpenAI’s push into search, research, and coding (including through acquisitions); Google’s threading Gemini into Workspace; Microsoft’s embedding Copilot across its 365 productivity apps. Bundling aggregates the data surface and raises switching costs.

The second is through building context as a central product feature. OpenAI now offers persistent memory that stores personal details (e.g., “has a child” or “diagnosed with ADHD”) to shape future replies. Meta has announced it will collect cross-site user data to personalize its AI assistants. Google now remembers your writing style, so it can tune its AI-generated Gmail replies. By binding the app and its context to the model, companies lock in users and starve rivals. Such bundling is fertile ground for enshittification.

Importantly, this process relies on Big AI companies’ gathering explicit user signals—their prompts, docs, API calls—and distilling them into an inferred, implicit preferences profile that lets their model deliver more relevant, efficient predictions inside each user’s unique workspace.

Can Protocols Create a Level Playing Field?

The MCP pipeline. Anthropic’s MCP standardizes how AI applications request tools, data, and actions from external services through a universal adapter. Instead of custom integrations for each pairing (Cursor → GitHub; Claude → Google Drive), any AI app (each one an MCP client) can use any MCP-compatible service (or MCP server), making models more interchangeable. MCP also creates an agentic interface that allows an AI agent to decide what to do, based on the language of tasks, not endpoints. This reduces the MxN integration tax, allows small firms to rent rather than build tooling, and weakens vertical exclusives.

Because MCP is client-agnostic, any AI app can use any external service, which in turn makes switching between models far easier — either by switching between model service providers that support MCP, or by building an independent MCP client and using any model service. When an AI app’s context is portable, models become more interchangeable.

MCP is the ultimate unbundler of context: any compatible AI app can reach any service that exposes an MCP server, allowing an enriched prompt to then be sent to the model. But services must still opt in, by making their content available through APIs.

This shifts the competitive gravity “up the stack,” away from the model developers and to the application that develops the winning context flywheel. App-level data portability and governance—including pricing, permissioning, and any preferential access into Big Tech–controlled data sources—then becomes the new battleground.

Although MCP reduces integration friction, interoperability alone doesn’t ensure market competition. We’ve seen this before: open protocols like HTTP (for web browsing) and SMTP (for email) enabled permissionless entry of new applications, yet markets still tipped. Google is now the dominant email and browser provider because of its superior products and cross-app integrations.

MCP’s Impact on the AI Market So Far

Incumbents have rushed to insert AI into every legacy product: the quickest go-to-market strategy with the shallowest integration. Meta surfaces an assistant in nearly every app. This has only made building cleaner, MCP-enabled applications far more attractive. AI-native tools like Perplexity offer further encouragement to developers, showing that users will pick a customized experience over a retrofitted one (like the AI-layered Google Search).

Unsurprisingly, the number of new MCP servers has rocketed, as we noted earlier. However, such integrations may also be boosting usage of incumbent model developers’ chatbots as they gain access to more tools. MCP’s impact has been impeded by its weak security. MCP servers’ external authentication and authorization remain a stubborn MxN integration problem. Moreover, for repeated production workflows, code-based frameworks may be more efficient than an inference‑only workflow.

Lastly, there are early signs that AI model developers may resist interoperability more broadly, despite the increased usage it generates for them, if it ends up reinforcing the context moats for application developers. Anthropic temporarily cut off the coding application Windsurf’s direct (first-party) access to its high-performing Claude models. Windsurf was growing too popular and was set to be acquired by OpenAI, a direct competitor to Anthropic.

MCP Versus Walled Gardens: The API Gatekeeping Problem

APIs are the gateway through which an MCP client—the AI applications—can access third-party data and tools, thereby breaking down a platform’s “walled garden” of proprietary services and datasets. But MCP can liberate context only when a third-party service offers a sufficiently rich API (and keeps it open). Because platform owners control those APIs, they have an incentive to constrain what MCP can touch, to protect their competitive edge. This manifests in two ways:

1. Access risk. Services can simply shut off API access entirely, or they can greatly degrade access. Recent API paywalls and shutdowns at Reddit, Twitter, and Meta show how access can vanish overnight. Enterprise services like Salesforce (which owns Slack), Atlassian, and Notion are now limiting API access by Glean (a context platform) even as they launch competing products. Meanwhile, Slack’s new API changes (supposedly to limit how LLMs are able to access the app) will harm developers in general.
   
2. Context-depth risk (the “personalization gap”). Platform APIs expose posts and files but rarely the behavioral profiles that power their own personalization, leaving newcomers with a cold‑start handicap. Meta, for example, personalizes its own chatbot with Facebook and Instagram history, but it offers third parties neither its Graph API to fetch that full profile nor access to detailed aspects of users’ explicit and implicit (inferred) profiles. Similarly, OpenAI’s “memory” feature is confined to ChatGPT. OpenAI does not allow developers to access a user’s “memories” via an API, even with the user’s prior consent.

To Save AI from Enshittification, Support Protocol-Level Interventions

Improving protocols for the AI age. To break API gatekeeping in AI markets, we need an architecture that supports user-sanctioned data portability in order to enhance third-party developer access. Here, portability means end users’ ability to read and transfer their data across platforms—or to allow other developers to do so on their behalf. When portability is universal, developers can access the same context (through MCP or any API) without negotiating bespoke deals. To operationalize this approach for AI markets, we recommend:

1. Open API access for major platforms. If the data comes from the user, the user—and any developer the user authorizes—should be able to take it elsewhere. We recommend requiring that, with user consent, major platforms expose this user-owned contextual data through APIs to accredited developers at zero cost. We propose starting with the platforms that control the most user context: “gatekeepers” designated by EU criteria, plus major AI model providers.
   
   Such an approach could draw inspiration from the EU’s open-banking law (specifically, its Second Payment Services Directive, or PSD2), which holds that banks must provide licensed fintechs with free, real-time access to core account data and payment functions. Authorized developers must first obtain a license by showing proper security and data standards. Unlike banking’s standardized records, though, AI context spans code repositories, conversations, behavioral patterns, and preferences. In the case of AI, markets and regulators would need to come up with a way of defining “core user context” for these various data types and platforms.
   
2. Memory as a portable service. Users’ AI “memory” should be accessible across platforms via APIs, with market-driven security standards embedded in the technical architecture. Such MCP servers already exist, even if AI applications don’t support it.
   
   The challenge is less technical than socio-economic. Memory is deeply personal and requires secure data-handling, yet AI markets currently lack standards and accreditation in these areas.
   
   A market-driven approach would be to embed these security standards into technical architecture, as is done with the FDX API standard for US open banking. Such embedding allows for secure and standardized sharing of financial data between banks and third-party developers. Security requirements like end-to-end encryption, OAuth-controlled access to client-side keys, and granular topic-by-topic permissions are currently beyond MCP’s scope. But FDX’s secure and universal API shows what is possible.



3. Safe personalization, without data exploitation. Open APIs depend on users’ trusting developers to handle shared context responsibly. Industry-specific data usage rules would also weaken incumbents’ advantages while creating safer technologies. Such usage rules could start with:

• Data firewalls. We recommend protecting intimate user conversations from commercial targeting. An AI application leveraging a known user preference like “is vegetarian” for restaurant recommendations is beneficial; but exploiting therapy-like conversations for manipulative advertising must be prevented.
• Erasure rights. Users should be able to review, edit, or delete their preference profiles and memories at any time. ChatGPT already largely offers this.
• Privacy defaults. For sensitive queries, we recommend that AI services default to a private mode, without long-term memory enabled or ad targeting, unless users explicitly opt in to these settings for such queries.

Ultimately, control over user context—not raw model power—will decide who wins the AI commercial race. Open protocols can keep context fluid between competitors, but they are only as effective as the data (and tools) that they can securely access. The choice is ours: design competitive AI markets around open principles, or accept a new generation of platform monopolies.

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Thanks to Alex Komoroske, Chris Riley, David Soria Parra, Guangya Liu, Benjamin Mathes, and Andrew Trask for reading and/or commenting on this article. Any errors are ours.

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