Technology and the new social contract
And other signals of change this week: Turbulences in the digital world. TikTok and more news from Cold War II. Infrastructure as Big Tech's "invisible advantage"
Technology will be the engine, but culture will determine our future
The COVID crisis has revealed weaknesses in the way we live. There is wide agreement that some changes that were already under way will be accelerated, and that technology should play a critical role in the reconstruction. But it may be useful to first have a look at what needs to be rebuilt. An article this week by two professors from the Santa Fe Institute (including the brilliant Geoffrey West) calls this “the first complexity crisis in history”, and discusses seven typical tradeoffs of complex systems that can help us identify what we need to do from now on. They include advice on how to deal with the epidemic itself (e.g. focusing on super-spreading events, or adding delays to the information feedback loops about contagion rates) but also some more structural changes to help us better anticipate and prevent the next one, like new urban infrastructures or alternative sources of protein for some populations (Story)
This could be an interregnum between two socio-economic models: Many people, including the economist Carlota Pérez (mentioned here some weeks ago), see this crisis as the final stage in a transition to a new period of economic growth, driven by a different technology paradigm (this time around digital tools) and enabled by a new social and regulatory framework. This week the FT has published a series of articles about “The new social contract”, discussing precisely this. In one of them, the newspaper’s chief economics commentator (Martin Wolf) supports the same idea of the virus as an accelerator of change, reflects on how it is exacerbating some inequalities (e.g. young vs. old, women vs. men, unskilled vs. skilled), and proposes a new framework that would focus on protecting citizens’ welfare without sacrificing free movement of ideas, people and capital, and promoting international cooperation in issues like environmental protection (Story)
In the next phase, technology could even drive a transformation of our species: An article at Wired magazine claims that the combination of massive biological data that we are now able to collect (e.g. through genome sequencing) with Artificial Intelligence tools could open huge opportunities to transform our species and make it more robust against accidents like the current pandemic. In their view, gene editing technologies that look scary for many of us today could actually become “human rights” in the next 10 to 40 years. But again, they think that culture, more than pure technology, will determine our future, as these kind of changes will only happen if we abandon our “Paleolithic emotions” and “medieval institutions” (Story)
Political turbulences agitate the digital world
The case of Facebook shows that the transition is also affecting Big Tech companies: It has already been said (many times) that leading tech companies are not doing bad in the crisis, and the stock market also seems to support this idea. But looking at Facebook in the last two months, no one can say that their life has been easy. The company has dealt with employee protests, an advertiser boycott, and (more recently) a civil rights audit that accuses the app of deepening social polarization. This conversation between two NY Times reporters discusses what can Facebook do, and what could be the next crisis. Behind all this, again, the need of new political frameworks for a time in which people no longer access news and decide on political options in the way they used to do (Story)
After trying to remain neutral in the political debates, they are now taking some steps: On Wednesday, Facebook announced that they had removed a network of more than 100 pages and accounts linked to Roger Stone, a friend of Donald Trump who was convicted last year on charges of lying to Congress and obstructing a congressional proceeding. Some of the affected Facebook and Instagram accounts had been used in the past to distribute material from hacked Democratic Party emails (Story)
But a recent civil-rights audit says that the company is not doing enough: An audit commissioned by Facebook has found “continued problems” with how the company controls “hate speech” on its platform, and concludes that Facebook’s approach to civil rights is “too reactive and piecemeal”. The company has reacted constructively, claiming that the findings have helped them learn how they can do better (Story)
A problem is that identifying and removing toxic content is not so easy: The audit report urges the company to improve the AI tools used to identify problematic content. Facebook claims that the tools are improving fast and are now able to find 89% of hate speech, +24pp vs. last year. They are also working on more sophisticated algorithms, incorporating some degree of “common sense” that is expected to improve effectiveness. But an additional challenge is that hate groups are also developing skills to understand and circumvent the company’s controls (Story)
Google’s YouTube could have a better position to eliminate hate speech: The reason is that the company is sharing advertising money with many of its video creators, which is a good incentive to bring them to the platform and keep them engaged, but also a potential lever to pressure them to eliminate problematic content, e.g. by threatening to shut off the money. Facebook wouldn’t be able to do this so much, as they typically don’t share ad revenues with users uploading content (Story)
Facebook has also met with civil-rights groups, but unsuccessfully for now: In a meeting last Tuesday, M Zuckerberg argued that the company has invested billions of dollars in content moderation and removed hundreds of “hate speech” messages, but the civil-rights advocates said that they didn’t make progress in their demands for better content control, and accused Facebook of “expecting an A for (just) attendance” (Story)
Advertising boycotts continue, but their impact is not clear yet: In an opinion piece, the FT agrees with what has been rumored to be Facebook’s internal view about the current ad boycott from some large brands: that this could be a temporary problem, linked to the advertisers’ own liquidity problems, which would be affecting marketing budgets anyway. According to this view, ad revenue could recover after the crisis. The author concludes that other things are needed to control the power of Big Tech companies, including new regulation to enforce transparency on how they traffic in information (Story)
Just like for newspapers, the ad-subsidized business model is also under question for apps: In social networks, this week we’ve learned that Twitter could be developing a digital subscription service, under a team code-named Gryphon, apparently under pressure from the aggressive activist investor Elliot Management (Story). In search engines, a company called Neeva, formed by an ex-Google engineer, is also trying to create a subscription-based business model (good luck with that) (Story)
Meanwhile, the regulatory “techlash” is a reality in Europe: In an interview this week, the EU’s head of digital policy and antitrust, M Verstager, said that they’re preparing a “full complex of legislation” to set new legal boundaries for tech companies, justified by their view that competition-law enforcement is not enough, so ex-ante regulation needs to be applied. The areas under scope include the platforms’ responsibility on illegal content (a hot topic these days…), the ambition to make them pay more taxes and the prevention of anticompetitive behavior in digital markets (Story)
However, Europe’s previous moves against Big Tech firms have not succeeded: A good example is the case of Google, which received a $5bn fine two years ago and was compelled to stop some practices that were considered anticompetitive. Now the company still controls 97% of the European mobile search market, so it’s power basically remains the same. A company offering a rival search service, DuckDuckGo, has publicly asked the US Justice Dept, which is considering an antitrust demand, not to follow the European model, as “it’s fundamentally flawed” (Story)
Amazon and Google starting to suffer pressure in India, too: India is preparing an e-commerce regulation that would look to help local startups and to create limitations on how Big Tech companies can handle data about Indian users. To ensure transparency, the proposed new rules would also mandate government access to companies’ source codes and algorithms (Story)
TikTok: a new victim of Cold War II?
TikTok, a trivial app turned into an instrument for political activism: The only reason why TikTok used to appear in the business press was to advice parents to monitor their kids’ activities with the app, as (supposed to be) funny videos for teens were often too explicit for some tastes. But this has changed. Maybe because it has become so massive, now TikTok is being used by teenagers as a vehicle for political action. In the US, videos of the recent protests, including controversial scenes of the police, have been distributed through the app. And some users have also organized boycotts to Trump’s rallies (Story)
Their links with China offer a good excuse for the US government to act against them: The problem with TikTok having become part of the “anti-Trump” ecosystem in the US is that, being owned by the Chinese group ByteDance, it is relatively easy for the Trump administration to justify actions against them. So TikTok could become a new victim of the Tech Cold War we’re living. Indeed, this week the US Secretary of State has suggested that they could ban TikTok in the US, and this has pushed up the share price of Snap (the most direct competitor) (Story)
TikTok is reacting with signs of decoupling from China, to protect their international business: Threats in the US come after another ban in India, triggered by political tension between the Indians and the Chinese. So this is starting to look dangerous for TikTok’s growth perspectives, which had drastically improved recently (it was the second most downloaded app in the US market during 1H2020). Trying to control the political pressure, they have just announced they will pull the app out of Hong Kong, on concerns about the new national security law that mainland China is imposing (Story) And rumors are that ByteDance (the Chinese owner) could also be considering the creation of a TikTok headquarters outside of China (Story)
In other Cold War II news, the pressure on Huawei grows out of the US: Last Sunday the British press published news about the UK government plans to completely ban Huawei from the country’s new 5G networks, which they would justify by new risks introduced by the recent US sanctions against the company (Story)
Understandably, Huawei is trying to gain time: Meanwhile, Huawei says that it will take them “months” to accurately evaluate the potential impact of US sanctions on their supply commitments to UK customers like BT or Vodafone, and they’re asking the British government “not to rush” their decision (Story)
But they could be starting to lose the public opinion battle: An opinion article by an ex-MI6 chief at the FT this week says there are now “technical reasons” to be more aggressive against Huawei, and (in the context of this discussion) asks all western democracies to “unite in standing firm against China’s more aggressive approach” (Story)
Hong Kong is seen as a first trial of a global division in two blocks: As we discussed last week, the new security law imposed by China has started to push western tech companies out of Hong Kong. And this has started with the rejection by Google, Facebook and Twitter to accept the government’s requests for user information included in the new law (Story). This week the FT published an editorial about this, which explains that this is a serious problem for companies like Facebook or Twitter, which will have to choose between leaving, and losing a lucrative business in the city, or sacrificing privacy. The article sees this as a “microcosm of a global trend” (Story)
In parallel with all this, Google is cancelling its project to offer Cloud services in China: The company was planning to create an “Isolated Region” for the Chinese market, that would implement the stringent local data regulation policies, but they have now said they don’t have plans to enter the market anymore. China is the second largest market for cloud services, and it is growing fast ($10.7bn in 2019, +64% vs. 2018), but the geopolitical context is making it increasingly difficult for western companies to compete (Story)
Infrastructure as Big Tech’s “invisible” advantage
Massive investments in technology infrastructure are creating a competitive advantage for Big Tech companies: This week there were two main references to this trend in the news. First, Facebook presented three studies that calculate the economic impact of their investments in LatAm, Sub-Saharan Africa and South East Asia, which support the improvement of connectivity in those emerging regions. Then, Google presented the application of their “Project Loon” (using high-altitude balloons) to provide internet access in Kenya. Tech companies justify these investments by the positive impact on their businesses from having more connected “eyeballs” that can use their apps. But, as discussed in this NY Times analysis, “the superpowers’ command of the invisible infrastructure of the digital world gives them an untouchable advantage” (Story)
A good example of this advantage is being shown in the European cloud: In Europe, where some policymakers are trying to push for a Regional cloud infrastructure that would give the Continent some independence from American Big Tech firms, we continue to see new contracts where European companies buy cloud services from the “usual suspects”. This week, two examples with Google, one in France (Renault) (Story) and another one in Germany (Deutsche Bank) (Story)
And the next frontier could be revolutionary access technologies, like Satellite: An Amazon subsidiary called Kuiper Systems is planning to launch a fleet of 3,236 communications satellites to “provide high speed broadband to consumers in the US and around the world”, focused on “many communities where internet access is unreliable or prohibitively expensive”. This week the chairman of the US telecom regulator (FCC) said he supported the project, and that he had asked the commission to approve it. Kuiper competes with a similar initiative from Elon Musk’s SpaceX (Story)
Other news: e-commerce becoming the only commerce
Walmart announced this week a direct competitor to Amazon Prime: This made their shares rise most in just one day than in the previous three months, so expectations look high (Story)
The transition to digital money is accelerating: And China is a key driver. Two examples this week. First, Airwallex, a Hong Kong based Fintech startup has just closed a funding round at a $1.8bn valuation, to build an international digital payments infrastructure targeted at small and medium enterprises globally (Story). Second, Didi, China’s leading taxi-hailing app, has just started tests of a new digital currency supported by the Chinese government. The new currency, still without a name, is supposed to share some features with bitcoin, but (of course) won’t be fully decentralized… (Story)
Uber confirmed its bet on the food delivery business: The company just confirmed the acquisition of Postmates (a food delivery startup) for $2.65bn in stock, and will now proceed to merge it into Uber Eats, to become the second largest restaurant delivery service in the US. The business has proliferated during the pandemic, but many people expect that it will keep growing in the “new normal” way of life. Uber’s shares rose after the announcement (Story)