Home > Digitalizacija > Rana Foroohar: Don’t Be Evil; The Case Against Big Tech
Big tech and data

Data economy and Big Tech

How did we get here? How did we get from a world where “information wants to be free” to one in which data exists to be monitored? Don’t be evil is a famous first line of Google’s original Code of Conduct. Google has been the pioneer of big data, targeted advertising and the type of surveillance capitalism that this book will cover. It was following the “move fast and break things” ethos long before Facebook.

TV will ultimately be disintermediated by Big Tech just the way print media has been.

Soros is one of the financers of studies of influence of Big Tech. He said that it takes a real effort to assert and defend what John Stuart Mill called “the freedom of mind”. He is afraid of cooperation of authoritarian states and large, data-rich IT monopolies. Some of the examples are already here, like Amazon selling data to police, Palantir works with LAPD to target citizens in an alarming way. Big Tech is also strong in lobbying, right after Pharma.

Big Tech is redefining what is real and what is of value in our economy and nothing is more valuable to these companies than our personal data, acquired invisibly from virtually every keystroke we make online, as well as from increasing number of the moves we make in the physical world. With rise of digital assistants, voice importance in data gathering is becoming more and more important.

AI is another important area; majority of CEO’s are saying it yields 10 to 30 percent returns.

The network effect is one way the big get bigger. The other is that they simply intimidate smaller players and stealing their intellectual property. Not only that they have almost monopoly in certain market and then they use power to move into others.

Wealth generated by the mining of personal data is about 76 Billion USD yearly. In the age of Big Tech, advertisers and businesses that purchase the data analytics and eyeballs are the customers. People are the product.

Many platforms are designed to prolong consumption, making it seamless to go from one place of media to another – endless playlists on Spotify, articles on Quartz, episode streaming at Netflix, video auto play on Facebook.

Being liberal in the Valley is more about identity and less about technology. There is one faction in Silicon Valley whose status exceeds even that of the engineer-kings. VC’s.

Google’s way is that it is better to ask for forgiveness than to beg for permission. Section 230 of the Communication and Decency Act of 1996 (CDA), gives tech firms permission not to be responsible for almost everything that goes on their platforms. Telecommunication Act of 1996 and other pro-Big Tech laws allowed Internet firms to avoid pesky regulations that other companies had to deal with.

Data mining and hyper-targeted advertising business model is all about algorithms. They have aura of science – they are based on math and quantitative information, after all. And yet, they are all too human, in that they reflect the particular ideas and biases of the people who program them.

Dot.com

Author joined Antfactory, company which goal was to became Idealab of Europe. London was at that time Silicon Valley of Europe. People like Rob Hershow, owner of Sportal or Laurel Touby, owner of mediabistro.com, were part of important network at that time. It was time when money was pouring into dot.com companies. Antfactory was such a company. It was time when financial world, technology hubs and politics were coming together to make a quick buck.

Reagan administration legalized stock buybacks in 1982 and it became very popular way of giving back to shareholders. Stock options was another way how companies used cap-deductible options to pour money into executive’s pockets. Performance pays was all about improving stock price.

When FED raise interest rates, money dry out. Dot.com bubble burst. Is now any different. Is internet really fabric of our society and business there is different, more business oriented. Digital economy has conveniences and economies of scale where before there were none. Maybe because of that bubble is even more dangerous and big. As long as investors are willing to accept growth as a metric for value, the music can keep playing. Unicorns are mythical beasts. This is how John Zysman and Martin Kenney are describing start-up mentality.

Big are getting bigger

Corporate world is a lot about taking ideas from others and develop them better. Eric Schmidt has been on Apple’s board, before Google introduced Android. Facebook bought Onavo, company that represent a legal form of corporate spying.

For Big Tech to keep their advantage in data-controlling race, they needed to control politics and regulation. Lobbying money as expense category was growing. Google used Peter Harter, top lobbyist for Silicon Valley. One of the changes that can be seen working in favor of big corporations is that US Patent System is changing. Before it was about protecting new ideas, now it is about money and power. Companies that don’t have either of them, will have hard time defend their IP. Big companies started not only to monetize their data and IP, but also data and IP of others, using their money and power shield to make it hard for smaller companies to defend their assets.

Another area where power of money is coming into play is content sharing. Big Tech is well protected under Digital Millennium Copyright Act signed by Bill Clinton on 1998, that protected them from prosecution over copyright infringement.

Putting things online for free largely benefits the platforms, not the content creators, because it means more traffic, which means more revenue. Free, user-generated data and content is the lifeblood of platform technology companies.

Big are getting bigger. Google has purchased more than 120 companies in last decade. Facebook and Amazon 79 and 89. Those companies made a pact not to take others employees. They are so strong that nobody wants to enter into business field, where they would run into them, if they are not in it for the creation of talent pool that could be sold to them.

Captology

Sandford Persuasive Technology Lab that was founded by B.J. Fogg was building simple behavioral models of B.F. Skinner to something more sweeping. Skinner talked about intermittent variable rewards as the best way to create behavioral change. Tristan Harris was one of Fogg’s student. He learned that social pressure seemed to be highly affective technique for hijacking our attention. In 2011 he joined Google.

Herbert Simon once said: “What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.”[1]

Technology is hampering the ability of an entire generation to concentrate enough to truly learn. Harris left Google in 2015 after he realized that Google didn’t see a problem in their behavior about catching people’s attention.

Big companies have no incentive to change their business models, start-ups can maybe do it, but they don’t have scale. Network effect is strong factor.

Network effect

Network is where the value lives. Big Tech will do anything to keep it growing. The core motivation of Google is to be the middleman of all activity on the Internet. Sometimes doing that in very questionable way (Yelp, Foundem). Google represent 88 % of U.S. search engine market and 95 % of all mobile searches. Google understand power of network, they are looking nervously to Amazon. WPP spend 300 Million USD with Amazon. 75 % of that would go to Google.

Industries such as tech, pharma and finance which are based on data and IP that can move around and be monopolized are the most prone to concertation.

Auto industry is also changing. Currently 90% of car value is in hardware, Morgan Stanley estimates that this will change so that 40% will be hardware, 40 % software and 20 % content that car will stream. And tech companies will be on top of this new value chain. Network effects really kick in, when company reaches 30-40 % of market share.

Hal Varian economist that joined Google claims that everything rich people have access to today, will be accessible to poor later, due to price crunching. Varian team was responsible to create better business model for Google, where data can be monetized in the best possible way. Shoshana Zuboff is calling that new kind of invisible hand, algorithmic hand of Silicon Valley.

IBM and Apple are trying to build their competitive advantage by claiming they are protecting user privacy. But they are not all that perfect, they just have advantage to deal more with businesses and government than consumers.

Uber effect

Uber is disrupting more than just transport. It is also rewriting the contract between employees and labor. We are talking about “gig economy”. Companies allow people to monetize resources they already possess – a home, a car, their free time. But that is a slippery model. The pay of the worker can be fundamentally decoupled from what customers pay. What happened when everyone is, to a greater or lesser extent, a freelancer. With everyone working on demand, with no safety net, constantly graded up or down, the labor market starts to feel exhaustingly Darwinian.

In the absence of workers having collective power, digital technology, AI and cheap surveillance technology will combine to make information advantages that accrue to employers…at a scale and intensity we’ve never seen before.[2]

In 1998 48.3 % of investment went into new structures and industrial equipment and 30% went into technology. In 2018 that ratio was 28 % for structures and equipment and 52 % for technology. Investment in infrastructure creates jobs, into technology replace them sometimes. Education is the one really lacking behind in digital transformation. Finance industry is taking 25 % share of profit and creating only 4 % of jobs.

Employers that demand skilled workers and good infrastructure are the ones that are degrading the tax base that created them.

Things are really changing, Uber former CEO Kalanick is describing situation like driving in the fog, going too fast to see behind, but also not being able to see very far ahead.

Monopoly

Big Tech enjoys several natural advantages that breed monopoly power: information asymmetries, the network effect, the ability to easy copy the ideas of smaller competitors in an open-source environment, gatekeeper rents, owning a platform and doing commercial business on it and political and commercial muscles.

Amazon pushed its predators’ model in book’s business first and then they move into other categories. Amazon is like the house in a Vegas, it always wins. Main reason is their ownership of platform and competing on it. When company is competing in the market and owning it, it becomes problematic from competitive standpoint.

Makan Delrahim, the DOJ head of antitrust is claiming that price isn’t the only metric for consumer welfare, and that “data” is important asset. Google receives three forms of value: advertisement, geometrics value for better advertisement and new use cases for user data.

New world

The digital economy has a tendency to create superstars, since software and Internet services are so scalable and enjoy network effects. But according to Haskel and Westlake, it also seems to reduce investment across the economy as a whole. Banks are reluctant to lend to businesses whose intangible assets may simply disappear.

A lot of companies are burdening them-self up with high-yield debt to compete in this digital industry. Corporate bond market is those area of potential new crisis. The market grew 70 % over last decade to reach 10.17 trillion USD in 2018. So high-grade tech firms issued their own cheap bonds and buy high-yield bonds from other companies. Big Tech not Big Banks are new too-big-to-fail industry. Similarity of Big Finance and Big Tech can be seen in: mythology, opacity, complexity and size.

We are greedy generation. Maximizing shareholder value, consumer welfare instead of citizen welfare, a market society obsessed with profit maximization. We maximize time and monetize relationships. In the time of surveillance capitalism, we ourselves are maximized.

Tech companies are paying even less taxes than others. IP and data can be offshored, factories, stores and people not that much. Tech companies are becoming financial engineers of our day.

We need specific regulatory body for the technology industry.

Politics

Big Tech lobby around: net neutrality, telecoms and data standards. They are about issues like copyright, privacy rules and various digital regulations.

Google is building a machine that would be able to track data over whole internet activity.

US outsourcing of manufacturing left them in a bad position towards China in a race of unique skills development of manufacturing and they are also very vulnerable with their supply chain dependences. China, Europe and US they all have different perspective on Internet governance. When Geopolitics is changing, Internet will become battlefield.

5G is where China wants to be first. First country with 5G rollout was South Korea. China is building national champions that are clearly linked to state interests. Huawei is focused on 5G, US chip maker QUALCOMM was meanwhile tied into legal battle with Apple.

Many companies are using “us against China” rhetoric to fight against regulation, but it is monopoly situation that represents bigger risk.

Way forward with Big Tech

It is a commodity that is more valuable than data, that is time. In order to get thigs right, four stakeholder groups should be considered: citizen, consumers, workers and businesses. Industry self-regulation rarely works.

We should think about content protection, patent regulations, tax restructuring and digital dividend – payed by data collectors.

The history of technology is the history of transformation. And no transformation is ever complete.


[1] In the book on page 119

[2] David Silver in the book on page 162

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