[Yahoo] grew rapidly in the late 1990s, riding the crest of the first internet boom and metamorphosing into a “portal” – a gateway to the web. By 1999, Yahoo had 4,000 employees, 250 million users and $590m in annual revenues – much of it from advertising by dotcom firms. In March 2000 its market cap peaked at $128bn.
And then came the crash. The dot-com bubble burst, the laws of economic gravity reasserted themselves and ever since then Yahoo has been struggling to find its raison d’etre. The question that has always bedevilled it is the classic one from children’s books: Mummy, what is that company for? For its competitors, the answer is generally straightforward: Google is for search; Facebook is for social networking; Amazon is for online retail, and possibly world domination; Microsoft is for Office and desktop computers. But nobody really knows what Yahoo is for – what its unique selling proposition is.
This USP-deficit is largely a product of the company’s history. Its co-founders are genial hippie types who weren’t even sure they wanted to found a company…
Archive for the 'Capitalism' Category
My Observer essay on the implications of Uber:
In a way, the name of the company – Uber – gives the game away. It has connotations of elevation, superiority, authority – as in Nietzsche’s coinage, Übermensch, to describe the higher state to which men might aspire. Although it’s only been around since 2009, Uber, the smartphone-enabled minicab company, is probably the only startup of recent times to have achieved the same level of name recognition as the established internet giants.
This is partly because Uber is arguably the most aggressive tech startup in recent history and partly because it has attracted a lot of bad press. But mainly it’s because a colossal pile of American venture capital is riding on it. Its most recent investment round valued the company at about $40bn, which is why every MBA graduate in California is currently clutching a PowerPoint presentation arguing that his/her daft idea is “Uber for X” – where X is any industry you care to mention.
What lies behind the frenzy is a conviction that Uber is the Next Big Thing, fuelled by the belief that it is the embodiment of what Silicon Valley values most, namely “disruptive innovation” – as in disruption of established, old-economy ways of doing things…
Om Malik has a very thoughtful essay which starts with a meditation on a conversation he had with an Uber driver, and then moves into a meditation on the apps economy.
Keith [Malik's Uber driver], who aspires to be in the fashion business was pretty ruthless in his assessment of the company and brought up many questions that have coursed through my mind. He appreciates the financial flexibility Uber has provided him — his luxury car rental business wasn’t enough and he has benefitted from this augmented income. He isn’t the first one who felt that Uber look some pressure off their back — the other day I met a $12-an-hour bouncer at a Tenderloin music venue who is happy dealing with traffic rather than drunks and strung out addicts. “It was worth $19 billion three months ago and now it is worth $41 billion,” says Keith, “isn’t that something. And yet they don’t care about their contractors.”
Still, like many others Keith is befuddled by Uber’s treatment of its contractors. Many of the rule changes seem arbitrary and he too is confused by the tone-deafness of the company. He laments the recent directive (later modified) by Uber to classify all cars before 2010 as a UberX and thus relegated them to lower money making tier. When I point out that as a customer if I am paying premium prices, why shouldn’t I get a premium experience. Today, you end up riding in “black cars” who are a pale imitation of their real self. Shouldn’t the car upgrades result in better cars and through process of elimination bring fewer, but better drivers on the road? Like most drivers, Keith agrees, but points out that logic and reality of being a contract driver are two different things.
It is very hard for people to understand that it isn’t easy to upgrade your car, especially when you are trying to make a living driving an Uber in an intensely competitive marketplace where there are more cars on the road and the pie is getting sliced into thinner and thinner slices. Still, Keith said that he was planning to upgrade, though he didn’t care much for Uber’s financial plans or deals with car companies — he is going to get a Mercedes as part of the upgrade. During our conversation, Keith points out that Uber is good for helping him and others make money in the near term, but the current model doesn’t allow much optimism for the future, thanks to too many cars, too many rules and demand which isn’t rising as fast as the cars.
LATER STILL: this:
Dan Sperling, Founding Director of the Institute of Transportation Studies at UC Davis, says that while Uber “will continue to do battle with local and state authorities, it’s pretty clear that they’ve got a very good business model, they’ve got a lot of momentum, and they’ve got a very good product that people love. They’ll figure out a way around the challenges because it’s clear they provide a valuable service. And that’ll force regulators to reassess their rules, some of which were written up years ago and make absolutely no sense today.’’
As Sperling sees it, “while it’s true that taxis are way over-regulated, the answer is not to smother all the babies competing with them; the answer is to regulate the Ubers of the world better while you deregulate the taxi industry.’’
And what about that $40 billion price tag? Uber and its rivals “are entering a marketplace that has seen almost no innovation in many decades,’’ according to Sperling, who says adding courier and food-delivery services could make Uber even more of a behemoth. “There’s a lot of pent-up demand for real-time, on-demand-type services, so there’s huge upside potential here.’’
DEADLINE: How could this have happened, that terrorists achieved their aim of cancelling a major studio film? We watched it unfold, but how many people realized that Sony legitimately was under attack?
GEORGE CLOONEY: A good portion of the press abdicated its real duty. They played the fiddle while Rome burned. There was a real story going on. With just a little bit of work, you could have found out that it wasn’t just probably North Korea; it was North Korea. The Guardians of Peace is a phrase that Nixon used when he visited China. When asked why he was helping South Korea, he said it was because we are the Guardians of Peace. Here, we’re talking about an actual country deciding what content we’re going to have. This affects not just movies, this affects every part of business that we have. That’s the truth. What happens if a newsroom decides to go with a story, and a country or an individual or corporation decides they don’t like it? Forget the hacking part of it. You have someone threaten to blow up buildings, and all of a sudden everybody has to bow down. Sony didn’t pull the movie because they were scared; they pulled the movie because all the theaters said they were not going to run it. And they said they were not going to run it because they talked to their lawyers and those lawyers said if somebody dies in one of these, then you’re going to be responsible.
This is interesting because it suggests a promising new line for real and would-be ‘terrorists’: simply issue vague threats about nameless horrors to be visited upon public venues in the US and corporate lawyers will do the rest.
Technically hegemony is “is the political, economic, or military predominance or control of one state over others” and in the world of realpolitik (e.g. Ukraine at the moment; or the cringe-making UK-US ‘special relationship’) it’s a grim reality. But it’s also a phenomenon in intellectual life, where it signifies that a particular ideology has become so pervasive and dominant that it renders alternative viewpoints/ideologies literally unthinkable. Since the 1970s, neoliberalism (aka “capitalism with the gloves off”) has increasingly acquired that hegemonic status, to the point where it now infects every aspect of public policy.
I came up against this yesterday when I had a conversation with someone who described the BBC as an “intervention in media markets”. I balked at this: the BBC, it seems to me, is a public service which existed long before there were media markets of any recognisable kind, and it was therefore not designed to be an “intervention” in anything other than the public sphere. And even now, when there are global media markets with which the BBC co-exists, it’s misleading — even for those who approve of the BBC and public service broadcasting services generally — to view it as an “intervention” to remedy market ‘failure’. The fact that the commercial media market doesn’t provide publicly-valuable services isn’t a ‘failure’ of that market. Commercial markets exist to make profits, and media markets are doing just fine at that. Any societal benefits they happen to provide — unbiased current affairs coverage, employment — are side effects of the core business.
But after the conversation I fell to brooding on the dominance of market ideology in the thinking of the policy-makers I meet — which is where the idea of hegemony came from. Since the 1970s we have all become like one-club golfers: whenever a policy issue arises we tend to think about it in terms of markets. We’ve seen that in the National Health Service in the UK; and in the 1980s and 1990s we saw it in the way the Birt regime that ran the BBC conceptualised the corporation’s alleged inefficiencies in terms of the absence of an “internal market”, which it then implemented under the banner of “Producer Choice”. (Which in turn led to celebrated absurdities, like the “£100 black tie” — of which more later.)
The truth is that markets are good at some things and hopeless at others. If you think about them in functional terms, they are self-organising systems which operate by transmitting price signals to their participants. These signals tell participants whether their strategy/tactics are working or not, and indicate the direction of change needed to rectify things. But when policy-makers reach for marketised solutions to operational or administrative malfunction in non-market institutions they have to distort the institution so that they ape market affordances. And since the only signals that markets send are prices, marketised non-market institutions have to invent pseudo-prices in order to function. Which often leads to absurd outcomes, and usually means that organisations that need to harness the synergies that come from departments working together become less than the sum of their parts, because the parts are now ‘trading’ with or against one another.
Just to take the BBC as an example. Pre-Birt, the BBC had a fabulous research library which was available — free — to every employee of the corporation. Similarly, it had a wonderful Wardrobe department, also available free to every producer. After the introduction of ‘producer choice’, these services were no longer free, so producers and researchers had to make a decision about whether the budget could afford a lot of library research, or whether to experiment with a range of costumes. As told to me by a BBC insider, the legendary £100 black tie episode arose as follows. The News and Current Affairs department used to periodically rehearse plans for covering the death of the then Queen Mother. To be realistic, these rehearsals had obviously to be unannounced in advance: staff would have to drop what they were doing and go into Queen-Mother-dead routine. This required the (all-male) News anchors to wear black ties. On one such occasion, none of them had a black tie, so a request was sent to Wardrobe. Wardrobe quoted an internal price that the producer regarded as exorbitant. So a production assistant was dispatched to M&S in a taxi in order to procure said ties. The cost, including taxi fares, came to £100 per tie.
I’ve no idea if this story is true or not. It does, however, illustrate something that I believe to be true, namely that phoney internal markets are an absurdly inefficient way of organising the feedback signals needed to make departments responsive to failure or inefficient performance. But a signalling system is essential to avoid the kind of stasis, complacency and conservatism that often characterises non-market institutions. The good news is that with computing and networking technology we now have lots of ways of signalling satisfaction/dissatisfaction — e.g. by means of online and instantaneous rating systems. They’re not magic bullets (witness the ways in which customer ratings of Uber drivers can be dysfunctional), but compared with the absurdities implicit in distorting non-market institutions to make them mimic markets, they’re likely to be much less damaging.
Emil Michael can say stupid things at a dinner, and garner exceptional attention because Uber is a $30 billion company in the brightest spotlight. And they’ll be there for a while longer. But the Uber attitude and behavior permeates our entire industry: an industry of new money, enormous power…and little accountability. Silicon Valley often criticizes Wall Street for its culture, and yet here we are. I want to be proud to work in tech, and this week I’m not.
Snippet from a thoughtful essay by Patrick Bateson:
At the turn of the 20th century an exiled Russian aristocrat and anarchist, Peter Kropotkin, wrote a classic book called Mutual Aid. He complained that, in the widespread acceptance of Darwin’s ideas, heavy emphasis had been laid on the cleansing role of social conflict and far too little attention given to the remarkable examples of cooperation. Even now, biological knowledge of symbiosis, reciprocity and mutualism has not yet percolated extensively into public discussions of human social behaviour.
As things stand, the appeal to biology is not to the coherent body of scientific thought that does exist but to a confused myth. It is a travesty of Darwinism to suggest that all that matters in social life is conflict. One individual may be more likely to survive because it is better suited to making its way about its environment and not because it is fiercer than others. Individuals may survive better when they join forces with others. By their joint actions they can frequently do things that one individual cannot do. Consequently, those that team up are more likely to survive than those that do not. Above all, social cohesion may become a critical condition for the survival of the society.
My Observer comment piece about Uber & Co.
The real lesson of the Uber exposé, though, is that it’s time to discard the rose-tinted spectacles with which we have hitherto viewed these Silicon Valley outfits. For too long, they have been allowed to trade fraudulently on the afterglow of the hippie libertarianism that supposedly infected the early days of the personal computer industry. The billionaire geeks who currently run the giant internet companies may look and talk like a new species of entrepreneur but it would be more prudent to view them as John D Rockefellers in hoodies.
And the economic philosophy that’s embedded in this new digital capitalism is neoliberalism red in tooth and claw, which is why they minimise the number of “ordinary” (ie non-geek) workers on their payrolls, outsource everything they can, despise trade unions, view regulators as barriers to “innovation” and are outraged by the temerity of European institutions that seek to curb their freedoms of action.
There’s a geopolitical angle to this too…
If you’re interested in the impact of digital capitalism, then the place to go is the work of Dan Schiller, particularly his new book, Digital Depression: Information Technology and Economic Crisis. If you’re pushed for time, here’s a useful short interview with him about the book, and an informative review by Richard Hill.
Bobbie Johnson has a terrific essay on Medium about why we are so steamed up about Uber. People use it because of its convenience, even though they are also aware of its disruptive impact on things we supposedly value.
The dick-swinging, the gluttony, the not-quite-lies and the full-on bullshit… All of these things, and in particular the spectacular combination of all of these things, are enough to dislike a company, and even to hate it. But it’s incredibly popular, too, because, man, if people vote with their feet — or in this case their fingers — then they keep voting, again and again, for Uber.
And that, in the end, is the real reason so many people hate Uber: Because whatever we do, we can’t stop ourselves from making it bigger and more successful and more terrifying and more necessary. Uber makes everything so easy, which means it shows us who, and what, we really are. It shows us how, whatever objections we might say we hold, we don’t actually care very much at all. We have our beliefs, our morals, our instincts. We have our dislike of douchebags, our mistrust of bad behavior. We have all that. But in the end, it turns out that if something’s 10 percent cheaper and 5 percent faster, we’ll give it all up quicker than we can order a sandwich.
This morning’s Observer column:
Earlier this year engineer Dr Craig Labovitz testified before the US House of Representatives judiciary subcommittee on regulatory reform, commercial and antitrust law. Labovitz is co-founder and chief executive of Deepfield, an outfit that sells software to enable companies to compile detailed analytics on traffic within their computer networks. The hearing was on the proposed merger of Comcast and Time Warner Cable and the impact it was likely to have on competition in the video and broadband market. In the landscape of dysfunctional, viciously partisan US politics, this hearing was the equivalent of rustling in the undergrowth, and yet in the course of his testimony Labovitz said something that laid bare the new realities of our networked world…
Wired had an interesting series about this shift, the first episode of which has a useful graphic illustrating the difference between most people’s mental model of the Internet, and the emerging reality.
Paul Krugman had an interesting column about Amazon the other day. He dives straight in:
Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.
O.K., I know that was kind of abrupt. But I wanted to get the central point out there right away, because discussions of Amazon tend, all too often, to get lost in side issues.
Among those ‘side issues’ are the fact that Amazon is good for book buyers and good at customer service (which it is). Krugman is a Prime subscriber, as am I. “The desirability of new technology”, he writes,
“or even Amazon’s effective use of that technology, is not the issue. After all, John D. Rockefeller and his associates were pretty good at the oil business too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential”.
Krugman sees Amazon’s tactics in its dispute with the publisher Hachette as an exact analogy to Standard Oil’s treatment of rail companies that refused to grant the company special discounts for shipping its oil. Amazon is delaying and impeding the sale of Hachette titles on its webssite, because Hachette won’t agree to give discounts to Amazon on the same scale as other publishers apparently do.
In economic jargon, Amazon is not acting like a monopolist (i.e. gouging customers) — not yet anyway. Instead it’s behaving like a monopsonist — i.e. a dominant buyer with the power to push down suppliers’ prices.
Way back in the 1920s, it was that kind of behaviour that triggered state action. “The robber baron era ended”, Krugman writes, “when we as a nation decided that some business tactics were out of line.” The question is whether analogous state action is now likely.
You only have to ask the question to know the answer. The neoliberal ideology has so entered our rulers’ souls that the concept of taking on Amazon is not only verboten, but unthinkable.
Good column by Will Hutton on why the notion of “shareholder control” is a myth. Sample:
Banks have grown this large, complex and profitable because, like all plcs in our times, they are not owned by a mass of responsible, long-term shareholders who care for their purpose, sustainability of business model or wider economic obligations. Their overriding concern is high returns on equity. Long-term investors such as Standard Life, which voted against Barclays bonus hikes, are now a tiny minority. The majority of shareholders are hedge funds or multitrillion global asset management groups. They don’t own companies: they either trade them like casino chips or use them as temporary ports of call for their money. A bank CEO such as Antony Jenkins at Barclays has to tread a path between appeasing these non-owners and creating a bank that builds long-term value: if he falls, be sure Barclays will be under enormous pressure to replace him with another Bob Diamond, who will go all out for short-term profits and sky-high bonuses come what may.
The emergence of the ownerless corporation seeking to maximise short-term profits is now the key feature of modern capitalism. But “unowned” banks, unlike other PLCs, engage in the unique business of creating money and credit, knowing that governments must ultimately stand behind them if anything goes wrong. This guarantee always meant there would be a bias to increase credit as a share of GDP: between 1950 and 2000, it doubled in the major industrialised countries.
But between 2000 and 2010, as short-term profit maximising banks became the norm, credit doubled again in scale. By the time of the banking crisis, returns on equity had more than doubled as all this lending had been supported with ever less capital – bankers trading on the implicit government guarantee but delivering the returns their shareholders wanted. Moreover, much of this credit has been directed to lend to property in every country, rather than risky new investment.
Modern banking, as Adair Turner pointed out in an important lecture at the Cass Business School last month, has become an engine for credit, leverage and property price inflation. Britain, with its companies uniquely “unowned”, uniquely focused on the share price and its economy uniquely organised to favour finance over industry, was inevitably going to be the most acute example of the trend.