Controlling digital giants: new ideas wanted

This morning’s Observer column:

The five biggest companies in the world are now all digital giants, each wielding monopolistic power in their markets. We are increasingly aware that some of their activities are socially damaging: they are deepening inequality, avoiding taxation, undermining democratic processes, creating addictive products, eroding privacy and so on. And yet, with the odd exception (mostly represented by the European commission), our societies seem transfixed by them, like rabbits paralysed in the tractor’s headlights. Politicians bleat about the need to do something about the digital giants, but so far it’s been all talk and no action.

This is strange because democracies have extensive legal toolkits for dealing with overweening corporate power. We have antitrust and competition laws, monopolies and merger commissions and federal trade commissions coming out of our ears. And yet – again with the single exception of the European commission – they seem unable to deal with the digital giants. Why?

The answer is partly historical and partly ideological…

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So are the Democrats ready to unfriend Facebook?

Nice Observer piece by Thomas Frank, reminding us of how Obama & Co drank the Facebook Kool-Aid:

Seated with a panel of entrepreneurs from around the world, the president [Obama] lobbed his friend Zuckerberg an easy question about Facebook “creating this platform for entrepreneurship around the world”. In batting it out of the park, the Facebook CEO, clad in his humble costume of jeans, T-shirt and sneakers, took pains to inform everyone that what animated him were high-minded ideals. “When I was getting started,” he burbled, “I cared deeply about giving everyone a voice, and giving people the tools to share everything that they cared about, and bringing a community together …”

No rude senator spoke up to interrupt this propaganda. Instead, Zuckerberg went on to describe his efforts to connect everyone to the internet as a sort of wager on human goodness itself.

“It’s this deep belief that you’re trying to make a change, you’re trying to connect people in the world, and I really do believe that if you do something good and if you help people out, then eventually some portion of that good will come back to you. And you may not know up front what it’s going to be, but that’s just been the guiding principle for me in the work that we’ve done …”

That’s how it works, all right. Gigantic corporate investments are acts of generosity, and when making them, kind-hearted CEOs routinely count on Karma to reward them. That’s the “guiding principle”.

Reader, here is what the president could be heard to say as Zuckerberg ended this self-serving homily: “Excellent.”

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The best question Zuckerberg was asked was the one he couldn’t answer

I agree with Dave Winer:

Senator Lindsey Graham asked Zuck the right question on Tuesday. Who are your competitors? The answer is they have none, though Zuck wouldn’t say that. That is the big problem. Solve it and all the others go away.

Zuck tried to laugh off the question, but the answer was as clear as day and he knew it. In the social-networking business, Facebook is the monopoly to end all monopolies.

Facebook meets irresistible force

Terrific blog post by Josh Marshall:

I believe what we’re seeing here is a convergence of two separate but highly charged news streams and political moments. On the one hand, you have the Russia probe, with all that is tied to that investigation. On another, you have the rising public backlash against Big Tech, the various threats it arguably poses and its outsized power in the American economy and American public life. A couple weeks ago, I wrote that after working with Google in various capacities for more than a decade I’d observed that Google is, institutionally, so accustomed to its customers actually being its products that when it gets into lines of business where its customers are really customers it really doesn’t know how to deal with them. There’s something comparable with Facebook.

Facebook is so accustomed to treating its ‘internal policies’ as though they were something like laws that they appear to have a sort of blind spot that prevents them from seeing how ridiculous their resistance sounds. To use the cliche, it feels like a real shark jumping moment. As someone recently observed, Facebook’s ‘internal policies’ are crafted to create the appearance of civic concerns for privacy, free speech, and other similar concerns. But they’re actually just a business model. Facebook’s ‘internal policies’ amount to a kind of Stepford Wives version of civic liberalism and speech and privacy rights, the outward form of the things preserved while the innards have been gutted and replaced by something entirely different, an aggressive and totalizing business model which in many ways turns these norms and values on their heads. More to the point, most people have the experience of Facebook’s ‘internal policies’ being meaningless in terms of protecting their speech or privacy or whatever as soon as they bump up against Facebook’s business model.

Spot on. Especially the Stepford Wives metaphor.

How things change

The €2.4B fine on Google handed down by the European Commission stemmed originally from complaints by shopping-comparison sites that changes in Google Shopping that the company introduced in 2008 had amounted to an abuse of its dominance in search. But 2008 was a long time ago in this racket, and shopping-comparison sites have become relatively small beer because Internet users researching possible purchases don’t start with a search engine any more. (Many of them start with Amazon, for example.)

This is deployed (by the Internet giants) as an argument for the futility of trying to regulate behaviour by dominant firms: the legal process of investigation takes so long that the eventual ruling is so out of date as to be meaningless.

This is a convenient argument, but the conclusion isn’t that we shouldn’t regulate these monsters. Nevertheless it is interesting to see how the product search scene has changed over time, as this chart shows.

Source

The obvious solution to the time-lag problem is — as the Financial Times reported on January 3 — for regulators to have “powers to impose so-called “interim measures” that would order companies to stop suspected anti-competitive behaviour before a formal finding of wrongdoing had been reached.” At the moment the European Commission does have powers to impose such measures, but only if it can prove that a company is causing “irrevocable harm” — a pretty high threshold. The solution: lower the threshold.

Amazon and the long game

This morning’s Observer column:

The news that Amazon had acquired Whole Foods Market for $13.7bn sent shivers down the spine of every retailer in America. Shares in Walmart fell 7%, and rival Kroger by 17%. Amazon’s market capitalisation, in contrast, went up by $11bn. So why the fuss? At first sight it seemed straightforward: Amazon wanted to get into food sales, and it fancied having a network of 400 urban stores; and Whole Foods (which some of my American friends call “whole wallet” because of the cost of its products) was ailing. There was also a small political angle: John Mackey, co-founder of Whole Foods, had been enmeshed in a row with an activist investor that threatened to drive him from power; by selling to Amazon, he gets to keep his job. So: small earthquake in food retailing, not many dead?

Er, not quite, and only if you avoid taking the long view. And, with Amazon, the long view is the only one that makes sense…

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If the EU doesn’t take on Google, who will?

Last Sunday’s Observer column:

Last week, the European commission, that bete noire of Messrs Gove, Johnson & co, resumed its attack on Google. On Wednesday, Eurocrats filed formal charges against the company, accusing it of abusing its dominance of the Android operating system, which is currently the world’s most-used mobile operating system software. This new charge comes on top of an earlier case in which the commission accused Google of abusing its overwhelming dominance of the web-search market in Europe in order to favour its own enterprises over those of competitors.

This could be a big deal. If the commission decides that Google has indeed broken European competition law, then it can levy fines of up to 10% of the company’s annual global revenue for each of the charges. Given that Google’s global sales last year came to nearly $75bn, we’re talking about a possible fine of $15bn (£10.5bn). Even by Google standards, that’s serious money. And it’s not exactly an idle threat: in the past, the Eurocrats have taken more than a billion dollars off both Microsoft and Intel for such violations.

To those of us who follow these things, there’s a whiff of Back to the Future here.

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Amazon’s Cloud Nine

This morning’s Observer column:

In 1999, Andy Grove, then the CEO of Intel, was widely ridiculed for declaring that “in five years’ time there won’t be any internet companies. All companies will be internet companies or they will be dead.” What he meant was that anybody who aspired to be in business in 2004 would have to deal with the internet in one way or another, just as they relied on electricity. And he was right; that’s what a GPT is like: it’s pervasive.

But digital technology differs in four significant ways from earlier GPTs. First of all, it is characterised by zero – or near-zero – marginal costs: once you’ve made the investment needed to create a digital good, it costs next to nothing to roll out and distribute a million (or indeed a billion) copies. Second, digital technology can exploit network effects at much greater speeds than the GPTs of the past. Third, almost everything that goes on in digital networks is governed by so-called power law distributions, in which a small number of actors (sites, companies, publishers…) get most of the action, while everyone else languishes in a “long tail”. Finally, digital technology sometimes gives rise to technological “lock-in”, where the proprietary standards of one company become the de facto standards for an entire industry. Thus, Microsoft once had that kind of lock-in on the desktop computer market: if you wanted to be in business you could have any kind of computer you wanted – so long as it ran Windows…

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LATER Just came on this — which makes the same point about Amazon’s AWS, only more forcefully.

Microsoft: obituaries are premature

This morning’s Observer column:

One of my favourite cartoons shows a team of scientists in a Nasa control room clustered around a big screen. Their spacecraft has just landed on a very distant planet and has begun transmitting data back to base. A guy in overalls is saying to his assembled colleagues: “Now all we have to do is figure out how to install Windows 95.”

Ah yes, Windows 95… I remember it well. It signified the moment when Microsoft finally managed to implement the user interface invented by Xerox in the early 70s. It was launched with the biggest hype-storm that the computer industry – or indeed any other industry – had ever seen. Microsoft paid the Rolling Stones an unconscionable amount of money (we never found out how much) to use Start Me Up as the musical backdrop for the launch. The first internet boom, triggered by the web and the Netscape browser, was just beginning to roll and Windows 95 was the first Microsoft operating system to have a TCP/IP stack (needed to connect to the internet) baked in.

Back then, the PC was the sun in the computing universe around which everything else revolved. And Microsoft controlled well over 90% of the PC software market. So Windows 95 really was a big deal.

Last week, 20 years on, Microsoft launched Windows 10 with the kind of faded hoopla that accompanies 60s discos…

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And then, of course, there is the fact that Microsoft is one of the very few large corporations that is still doing serious, high-quality, long-term research.