17 Conference Report #techonomy17

Reckoning With the New Hegemonists

1/1

  • From left: Mark Mahaney of RBC Capital Markets, Dave Morgan from Simulmedia, and The University of Alabama's Joyce Vance in conversation with David Kirkpatrick. Photo Credit: Paul Sakuma Photography

Speaker

Mark Mahaney
Managing Director, Internet, RBC Capital Markets

Dave Morgan
Chief Executive Officer, Simulmedia, Inc.

Joyce Vance
Distinguished Visiting Lecturer in Law, The University of Alabama

Moderator

David Kirkpatrick
Founder and CEO, Techonomy


Session Description: Amazon, Facebook, and Google are a new breed of global giant, with extraordinary social, political, and economic weight, now coming under rapidly growing scrutiny. Silicon Valley has set itself a high bar claiming it improves the world, presuming trust from consumers and regulators. In this climate, can that last? Do tech giants face an existential crisis?

See below for an excerpt of the conversation, with a full transcript available here.

Kirkpatrick: Reckoning with the new hegemonists is the topic here, which we did intend to deliberately to flag at our opening video. If you looked at our new magazine, which actually has touched on several of the issues that have been discussed here today. I wrote a big piece myself, which was somewhat for me surprisingly critical of the net giants. Joyce Vance is an attorney who’s currently teaching at the University of Alabama, was the U.S. Attorney for the northern district of Alabama for a long time.

Vance: I should say, [I] resigned the night before the inauguration of the current president, just so you know my politics.

Kirkpatrick: That’s what I was going to say. But thank you for saying it even more forcefully than I would’ve. We met on the set of MSNBC talking about this very issue, and she has such interesting things to say. Dave Morgan, who is one of Techonomy’s very oldest friends, in fact, maybe our oldest friend, so thank you. We actually located our company in Dave’s office, which is Simulmedia in New York, for three years, which was really good free rent. But anyway, Dave is one of New York’s great tech entrepreneurs, and is now running his third advertising-related company. And you’ll see that that’s very relevant to his thoughts about some of the hegemonists. ‘

Finally, Mark Mahaney who is a very long-time, over 20-year security analyst in the technology and internet area, follows Facebook, Google, Amazon, and all the rest at RBC Capital Markets. He’s been onstage at Techonomy before, as has Dave, so he’s got an investor’s view. Maybe the way to start is just to ask all three of you quickly—and we can talk about Facebook, Amazon, and Google, or throw in Microsoft as you see fit. In general, I see the first three as a little more interesting to discuss, but let’s just say Amazon, Facebook, and Google—is there any world in which they can escape regulation in some form, in the relatively near future? We’ll start with you, Joyce.

Vance: One issue that really permeates the environment here is that technology has really outstripped the law. When I say that I mean the laws that we use to govern issues like political advertising, those laws and those cases were established, probably ten years before any of the companies that Dave mentioned were really even a glimmer in somebody’s mind. So we have an issue here, sort of like an industrial revolution, where the law needs to catch up with the technology. The risk that we face is that we’ll come up with slipshod, quick solutions to problems in order to, I think, feed the political beastmaster, right? The folks on the Hill, the folks in the White House feel a lot of pressure right now, as this entire idea that the 2016 election, probably earlier elections, were inhibited by what was going on within the net giants, as those sort of ideas become more widely accepted. So what I would suggest is everybody in this room needs to be concerned about is finding solutions that are based on a realistic understanding of what the problems are, not doing it too quickly, and remembering that you can go fast alone but far together. When you go far together, that’s when we get real solutions.

Kirkpatrick: But that is another way of saying you don’t see any way they can avoid some sort of regulation.

Vance: I think it’s unlikely politically. And so the question is, “Do we get good solutions or bad ones?”

Kirkpatrick: Okay, good. Dave.

Morgan: Well, I think to your actual question, whether they can avoid it, I don’t think that’s mutually exclusive to whether there is regulation. I think there clearly is going to be regulation coming in that will be targeted at some of these businesses. I think they may be in some cases quite able to avoid an impact of that regulation, because it will be poorly tailored. Their own lobbying powers will be quite effective, and it’s just going to be difficult given the nature of their businesses.

Kirkpatrick: Interestingly, Zuckerberg at the earnings release, just as Mark knows just the other day, specifically said, “It will cost us money, and affect our profits to address these issues of electoral interference.” He didn’t really quite clearly say what he was talking about, or how much money was involved, but it’s interesting to me and if that’s the sole answer, I’ll go to Mark and we’ll get back to you. But Mark, wasn’t it interesting that statement really got him a lot of mileage didn’t it?

Mahaney: Yes, actually, he did put out some numbers. They said they were going to double their capex from $7 billion to $14 billion, and increase their operating expenses by over $10 billion, partially in response to Russia manipulation. And he was very specific about who manipulated Facebook, partially in response to that. I thought it was the right thing for the company to do. Are these companies going to be regulated? They already are being regulated, in my humble opinion. The question is whether they will be excessively regulated. And I hope not, and I don’t think it’d be good for a lot of people if they were. I’m trying to think what exactly you want to overregulate Amazon for, or overregulate—Google is crossing lines I think, and companies like Yelp have been disadvantaged because of Google. I haven’t seen which company has been disadvantaged, or which consumer has been disadvantaged because of Amazon, other than straight-up competition. Or Facebook, show me that company. So I worry that they get excessively regulated; they’re already being regulated, and I think appropriately.

Kirkpatrick: But let’s continue, because you said to me that Google you saw facing more regulatory risk now than it ever has before. Quickly explain why with this one particular situation.

Mahaney: I think it’s Europe, I’m not sure why the Department of Justice didn’t do some things, but there have clearly been some actions that Google has taken in terms of prioritizing its own properties whether that’s Google shop comparison shopping, maps, travel, over that of other vendors, whether it’s TripAdvisor, Expedia, and Yelp. There are some questionable practices that should be investigated. As far as I can tell, the entity that has been most aggressive about this has been the European community. All of these companies have got an enormous amount of influence. Now there are other companies that have slightly more influence, that are somehow escaping this regulatory review right now. I think Microsoft would be one, I think Walmart, which is three times bigger than Amazon would be one. It just doesn’t seem to be fashionably correct to go after Walmart these days.

Kirkpatrick: But also mention the Android thing.

Mahaney: So Android is—when Google provides Android operating systems to carriers and OEMs; it usually bundles it, so the carrier or the OEM, the handset manufacturer, will get the free Android operating system, but are usually required to bundle with it, Google search, Google Maps, and YouTube. I’m not sure it’s a bad thing for those carriers or for the OEMs, but it’s certainly something that should be investigated, and it is.

Kirkpatrick: Let me just go back to the intro I neglected to give to the beginning of the panel, and then maybe this will turn into a question for Dave and Joyce, or any of you. The headline of the piece in the magazine says, “It’s a dilemma. These companies are too big to tolerate, but too big to stop,” and I believe their sheer scale is frightening, because there really is so much going on behind the covers that is so socially determinative at the global and national level in literally every company where they operate. And yet, there is no good idea really anywhere either on the part of regulators or even pundits, or certainly inside the companies themselves about how to give more genuine transparency to society so what we can be—even if it is true that Amazon is giving fundamental benefit to consumers, that we can be confident that we know how these systems are working. I mean, the quantity of data that Amazon has about my household, however much financial value I might get by buying products from them makes me nervous. So they may not be abusing it, but I would like guarantees that they are not, and that does not exist. So there is actually no guarantee about anything these companies are doing, except their good will at the moment. And yet, they are achieving a scale that I don’t think any commercial entity has ever achieved, so that’s why we have this discussion in the first place. To me, it just has to be had, and obviously the Russian electoral interference has raised the issue very prominently at the national debate level, and has got countries all over the world asking these same questions.

Mahaney: I think if you look at the history of the media industry, there are parallels to what we have now. Now it’s interesting, when the large tech companies are asked if they’re media companies. Yahoo used to do it, and everyone at AOL before, they would say, “We’re not a media company, we’re a tech company.” Well, it’s probably actually not much different than a newspaper publisher would’ve said in the 1800s. I mean, printing technologies were pretty innovative at that point. Early broadcast companies, they saw themselves at technology companies. Now in this case, 100 percent of the revenues are based on advertising. The business of media at least, as I see it, is the provisioning of consumer contact. That’s what they do.

Kirkpatrick: Contact?

Mahaney: Contact. That’s where the money is, and that’s clearly what Google does, and that’s clearly what Facebook does. I think Amazon is in quite a different business than that. In most of the cases, and virtually all of the cases of the history of media that we had before, there’s been a requirement for a real geographic nexus. The printing press was located in a place, your distribution was limited to where you could go to. You then started using government franchises, cable franchises to stream it, or broadcast licenses. And so that geographic nexus was fixed much closer to actual consumers, people, government, and you had a lot of regulation. And as we know, I mean, the newspaper industry has been terrible about trying to go beyond it. I mean, they bought broadcast companies until they were kicked out. They bought cable companies until they were kicked out, and a lot of the original antitrust cases, the core ones, came out of the newspaper industry. So it’s not unusual that we’ve had a problem because media companies tend to be highly profitable flywheel companies. The bigger they get, the faster they get, the more profits they get. We’ve typically been able to reign them in because of the geographic nexus, and because they were things that had a fair amount of government control. That will be a big issue here, I think.

Kirkpatrick: Because there’s no geographic nexus.

Mahaney: And it’s not just the regulatory things, it’s the way you run the business. I think it was interesting when they first started putting ads on the Kindle, Jeff Bezos personally reviewed every single ad. He seems very concerned about losing credibility with the consumer of the Kindle. Now, there may be something to it, the consumer side of Amazon businesses are largely run at a loss, whereas on the other side in the Facebook and the Google cases, there are massive margins.

Tags: , , , , ,