Q. Are the big tech companies guilty of antitrust violations? A. It doesn't matter, they will probably be punished anyway

In a previous post, I wrote about the big tech companies’ tin ear for public relations, and how that’s feeding mistrust of the whole industry (link). More than a year later, we’ve made little progress on public mistrust, and that’s feeding a legal and regulatory attack on the industry. Today I’ll talk about that attack, and why it should worry all of us, not just people who work in tech.

If you grew up in a democracy, you were probably taught that the rule of law is essential to a free society. It’s supposed to work like this:
     - The law describes clearly what's illegal
     - If you're accused of breaking the law, you'll be tried by an objective judge or jury who protect your rights
     - If you're innocent you'll go free
     - If you're guilty your punishment will be comparable to that of others who committed similar crimes
     - The law can't be changed after the fact to make you guilty

None of those principles apply to the antitrust actions being proposed against the big tech companies. For those companies, actions that were previously legal are now being made illegal. This change is being made without the enactment of new laws, but rather by reinterpreting existing laws to give them dramatically different meanings. Many of the people accusing the tech companies are not objective; they are also the ones who will judge them. And the punishments are being made up as we go along.

Don’t get me wrong, I'm not here to excuse the actions of the big tech companies. As I’ve said before many of them have done things that are morally reckless, stupid, and bad for society. You may think they deserve to be punished. In some cases I agree.

But let's all be clear about what’s going on right now: The crusade against the tech companies is much more about emotion than rationality, and it’s eroding the rule of law that protects us all from arbitrary action by populists.

If this doesn’t scare you, it should.

Here's why:


Fun and games with the federal government

In my career, I've had a lot more involvement with competitive law than I wanted. Specifically, I had a front row seat to four cases:
     - When Apple sued Microsoft for stealing parts of the Macintosh interface, I was working in Apple's competitive analysis team. I saw the runup to the suit, gave a deposition, had a lot of in-depth interaction with Apple's lawyers, and saw how the legal system worked.
     - When I worked in the Visual PC group at Silicon Graphics, I saw firsthand how Microsoft and Intel manipulated their products and licensees to keep control over the PC market.
     - While at Palm, our legal team had me travel to brief the Federal Trade Commission on what we believed were deceptive advertising practices by Microsoft. I saw up close how the government handled that case.
     - Also while at Palm, I was subpoenaed to testify in the states’ antitrust suit against Microsoft. That involved many more  trips to Washington that I wanted, a deeply unpleasant time in federal court, and another inside look at the system in action.

In all four cases, my side, the people and companies I thought were in the right, lost. My painful experiences being beaten up by big competitors ought to make me rabidly enthusiastic about the charges against today's tech titans. But I’m not, because there’s a double standard in play. The courts and government decided the behavior of the “Wintel” duopoly was generally legal, and those companies escaped serious punishment. I didn’t always agree with that outcome, but there was a logic to it, and it set out some fairly consistent rules for what tech companies could and could not do. Apple and Google and Amazon and even Facebook have generally followed those rules; their behavior wouldn’t have even gotten you charged in the 1990s, let alone punished. So why are we now talking about breaking them up?

How competitive law used to work. Traditionally, regulation of big companies has focused on one central principle: Are you hurting customers? If the answer was yes, the government would act aggressively against you, on the assumption that individual customers didn’t have the ability to defend themselves against a corporation. But if there was no customer harm – in particular, if prices weren’t being jacked up – the government left companies to duke it out in the market, with the idea that the public should be allowed to choose the winners and losers rather than a government bureaucrat. Here are a couple of examples of how it worked:

Example 1: Deceptive advertising. When I worked at Palm, Microsoft was late in focusing on mobile, and did a lot of misleading promotion for Windows CE (the mobile version of Windows). In particular, it made claims in ads that overstated its features outrageously. We were so mad about it that we complained to the Federal Trade Commission, which regulates advertising. The FTC asked us to give it a briefing. That seemed to go well, and we thought the government was going to protect the good guys (us) from unfair advertising by the beast in Redmond.

Imagine our surprise when, months later, the FTC accused both Palm and Microsoft of misleading advertising. Ads from both companies, we were told, had failed to disclose that if you bought a wireless device you'd need to pay for a service plan. We thought that was kind of obvious, but it was the early days of wireless data and the FTC said our ads might deceive customers. Palm and Microsoft were both forced to sign consent decrees, legal agreements with the government committing us to add text to every ad, for many years, saying that a service plan was required for wireless data.

It was a slap in the face for both companies, but we got the FTC's message: Don't come to us whining about your competitive problems; we're here to protect consumers. I was not happy at the time, but gradually I’ve come to respect the government’s behavior. Companies have lots of money and many different ways of defending themselves; they should not expect the government to do them favors. Individual consumers have much less power. So the priority is to protect consumers from predatory behavior by companies.

Example 2: Tying products together. At several places where I worked, one of our biggest complaints against Microsoft and Intel was that they manipulated the Windows-Intel standard to protect their other businesses. For example,
     - Microsoft threatened to withhold its Basic programming software from Apple unless it licensed the Mac interface to Microsoft
     - When Silicon Graphics tried to enter the personal computer market with a computer that had supercharged graphics, Intel withheld its latest processors from SGI until Intel’s own competing graphics accelerators reached the market
     - When Palm had its most momentum in the market, Microsoft threatened and manipulated our ability to sync Palm handhelds with MS Office, in order to discourage IT managers from standardizing on us

I complained bitterly to our lawyers about this "tying" together of unrelated products. But I was told blandly, "the courts don't view tying as illegal unless you can show that it's increasing prices to consumers." Once again, the standard was not complete fairness between companies, but avoiding predatory behavior against consumers.


Today’s tech leaders are not breaking traditional competitive law

The big tech companies are being threatened with all sorts of new regulations and lawsuits, but by the standards of previous decades, it's almost impossible to make a case that they've broken the law.

Has Amazon's e-commerce business hurt consumers? It’s hard to find the damage. Amazon has almost certainly lowered prices and increased availability of goods, especially for people outside the big cities. Yes, it has taken money from a lot of other retailers, but there’s a long tradition of competitive change in retail. What’s happening in online commerce is just a continuation of a trend that’s been going on at least since the first mail-order catalogs took on general stores in the 1840s (link). More recently, in the late 20th century Walmart devastated the shopping districts of small towns across America (link), and nobody broke them up. On the contrary, Sam Walton (founder of Walmart) was a folk hero.

Has Google increased prices on anything? Considering that it gives away most of its software, it's really hard to make that argument. Even the things Google charges for are usually cheaper than the alternatives. For example, Android is incredibly less costly to license compared to Microsoft’s old OS pricing, and Google Docs is far more economical than traditional Microsoft Office was. Google has definitely hurt the advertising industry, and other tech companies, but remember that hasn't been illegal in the past unless it raised consumer prices.

What about Apple? They definitely charge a premium for their products. But nobody I know of is being coerced into buying an iPhone. There are very good, lower-priced alternatives in the market. People choose to buy the iPhone and Macintosh because they like the brand, because of peer pressure, and because they admire their design and features. Nothing about that is illegal. The App Store is definitely a monopoly, but having a monopoly isn’t illegal unless you use it to raise prices, and the way Apple manages the store has driven down app prices, not raised them. The one time Apple did conspire to raise prices, in ebooks, the feds slapped them down promptly (link).

Meanwhile, Apple’s tight control over iOS applications has kept many viruses out of its phones. All those controls suck for software developers, and I don’t really like them, but they haven’t been predatory against consumers.

Then there’s Facebook. It’s an arrogant and reckless company that’s pathetic at public relations. But that’s not illegal, it’s just stupid. The time Facebook did break the law is when it failed to protect consumers’ privacy after promising to do so. For this it has paid huge fines and agreed to a consent decree that puts its privacy policies under an external monitor (link). Good. To me, that showed the system was working – when Facebook broke the law, it was punished, and it’ll be punished a lot more severely if it does so again.


The real motivation behind the attack is emotion

There are many more charges against the big tech companies, and I don’t want to go through all of them here. But in my opinion, none of the situations would have, in the past, justified the extreme act of breaking up or deeply regulating a company. So the people who are advocating heavy regulation are trying to reinterpret the law.

There was an article about the process in the NY Times last year, headlined “To Take Down Big Tech, They First Need to Reinvent the Law” (link). The article explains many of the arguments being made by the re-interpreters, and it makes the point that there’s a history of antitrust law evolving. (If you want to read a much more detailed article on that subject that covers both sides of the issue, check out the article here).

But that’s not the most important part of the article. I think the key phrase in it is this one near the start:

“Big technology companies work on artificial intelligence that threatens to create a world where human beings are eternal losers.”

Think about that for a second. It’s an amazingly sweeping assertion. I know the reporter is trying to summarize the public mood, but the fact that the paper put it in a news article without any attribution or supporting evidence is shocking to me. Unfortunately, this is a common pattern in much of the recent coverage of the tech industry. At its heart, the campaign against the tech companies isn’t really about antitrust law, it’s about fear of the future and distrust of the people running tech. We’re making decisions emotionally, and then trying to rationalize them by cherry-picking the evidence.

The legal system (and the professional press) is supposed to protect us from this sort of hysteria. If you're reporting on an issue, you're supposed to cover it in a balanced way, and to fact-check every assumption. If you want to change the law, you’re supposed to propose a bill, debate it, pass it through Congress, and get the president to sign. It’s an intentionally complex process, designed to force us to pause, think about what’s happening, and listen to arguments on all sides of the issue.

Re-interpreting the law bypasses all of that process, and puts us at risk of creating new rules that do more harm than good. To give you a couple of examples:
     - One proposal is to prohibit tech companies that have marketplaces, like Amazon, from selling their own branded goods. But if you make that a rule, what’s to stop it from eventually applying to Trader Joe’s, or to the discount house-branded products in every grocery and drug store in the country?
     - Another proposal says tech companies should be prevented from buying startups that might threaten them. But if you cut off the possibility of selling a startup to a big company, you reduce the incentive for VCs to fund those startups. You could end up crippling the creation of startups rather than increasing it.

But my biggest concern is that if we give in to hysteria in this situation, what’s to stop us from doing it again and again, every time a group or an industry becomes unpopular?

Who’s to say the next reinterpretation of the law won’t be used against you?

In an age of general fear and populism, eroding the rule of law is the last thing we should be doing. If you really believe that tech needs to be reined in, write a bill and let’s debate it. That’s how democracy is supposed to work.

That’s my take on the legal situation; I welcome your comments, including disagreements. There’s also an underlying issue we should be discussing: Why have we all become so angry and afraid that we’re willing to sacrifice the law this way? Until we’ve dealt with that underlying situation, society will continue to be at risk from hysteria and the bad decisions it produces. I think the tech industry bears some of the blame for this mess, and also can help to help fix it. I’ll cover that next time.

Here Comes the Hammer: The Tech Industry's Three Crises

The next few years are going to be extremely uncomfortable, and maybe disastrous, for the tech industry. Political opposition to the big tech companies is coming to a head, and the industry lacks allies who could protect it. On the contrary, one of the few areas where many politicians on the left and right agree is that they want to see the tech industry punished (even if they're not completely sure what it should be punished for).

I think many people in tech are in denial about the situation. They think any punishment will apply only to a few firms, or they believe companies that have good intentions and haven't broken laws will be protected. Even big publications like the Wall Street Journal have indulged in this hope (link). That article is behind a paywall, so here's the key section:

"A growing number of critics think these tech giants need to be broken up or regulated as Standard Oil and AT&T once were...But antitrust regulators have a narrow test: Does their size leave consumers worse off? By that standard, there isn’t a clear case for going after big tech—at least for now. They are driving down prices and rolling out new and often improved products and services every week."

The reality is that the usual standards don't matter. Antitrust and regulatory law are incredibly vague, and their enforcement is driven by political attitudes more than by the rule of law. If enough politicians and pressure groups want to hurt tech companies, they can find many ways to do it.

Although the focus of public discussion is on the big American tech companies, that's not the real danger. The big companies will face some new regulations, but they have enough money and momentum to weather almost any storm, at least in the short term. I think the much larger danger is the collateral damage that may be inflicted on the leaders of the future, the next generation of tech companies that are just getting started now and can't survive adversity. Reckless regulation could disrupt their ability to create new markets, and changes in antitrust enforcement could dry up the flow of funding to new companies.

Ironically, careless regulations could easily strengthen the current tech dominators rather than weaken them, by stopping the growth of the new companies that would displace today's leaders. It could also shift tech leadership out of the democratic world by enabling firms in other parts of the world, where the government doesn't put the same restrictions on their business practices, to dominate the next wave of technology (link).

The challenge to tech is especially daunting because the industry doesn't actually have just one problem, it has three: a PR problem, a legal problem, and a political problem. They're all coming to a head at once, and they all interact to reinforce each other. I'm going to write a few posts exploring the problems, what caused them, and what we can do about them.

Let's start with the PR problem: the tech industry's mishandling of its own image.


How we hurt ourselves

I won't say the tech industry deserves what's happening, but part of it is our own fault. As a group, we don't communicate well with the rest of the world. We've created a distinct culture, language, and set of business practices that don't make intuitive sense to people outside the industry.

Because we're living in our own little bubble, we are profoundly tone deaf about the way we come across to the rest of the world. We assume people will understand our good intentions, but they don't. What we think is playful they see as arrogant. We celebrate a cool new technology and they see a threat to yet another segment of the economy. Our idea of good aggressive business tactics comes across like careless brutality.

There are so many examples of this that they could fill a book. But here are three recent incidents:

1. Elon Musk's decision to sell flamethrowers. What in the name of God is he thinking? Democracy is in trouble, nukes are proliferating, there's Ebola in Africa -- and Elon and his buddies play with fire guns. If you want to convince people that you're an unstable man-child unworthy to plan the future, I can think of no better way to do it. Elon's poor judgment and lack of self-control is especially troubling because he's running businesses that rely on public trust: trust me not to kill you with my car, trust me not to blow up your astronauts, trust that my tunnels under Los Angeles won't collapse in an earthquake, etc.

I care deeply about what Elon's doing with SpaceX. It's the sort of bold game-changing initiative that the tech industry ought to be driving. Why distract from it with self-indulgent trivia?

(Speaking of SpaceX, I loved the photos of the Tesla in space, but how much better would it have been to send into orbit something that was a symbol of peace and hopefulness rather than a commercial for your cars? Such a wasted opportunity.)

2. Google bamboozles an innocent hair-dresser. Technologically, one of the most interesting demos at Google's recent I/O conference was Duplex, the AI-driven appointment scheduler (link). It made a voice call to a hairdresser and set up a haircut appointment. To folks in the tech industry, it was a cool (if very limited) effort to pass a Turing test. But to everyone in the normal world, it came across as Google using its technology to trick a poor woman in a hair salon into thinking she was talking to a human being – while tech insiders laughed at her.

Sure enough, there were immediate calls for regulation of the technology. Way to go, Google – in one demo you made yourself feel good and simultaneously creeped out everyone else on the planet.

3. Amazon's headquarters competition. Jeff Bezos is an incredibly good businessman, probably the equal of Steve Jobs in his own way. But sometimes he lets his competitive instincts get in the way of good judgment. From Amazon's perspective, it makes perfect sense to have a big public competition for the location of its next headquarters: Amazon can play off all the cities against one-another, and it gets tons of free publicity in the process.

But politically the competition is awful. It positions Amazon as a colossus to which cities and states must genuflect, and it's generating dozens of communities that will be disappointed when Amazon turns them down. The politicians there will have to face voters asking why they lost the opportunity. Do you think those politicians will say "well, candidly, our business climate and incentives just weren't competitive"? No, they'll say Amazon was greedy and they'll blame it for jerking them around. Amazon is creating grass roots enemies for itself across the country.


Tech in the age of cynicism

The tech industry has always had these communication problems, dating back at least thirty years. But the problem was survivable in the past because we were kind of cute and dorky, and we weren't all that big a chunk of the economy. Huey Lewis told people it was hip to be square, and they gave us a pass.

But the dorky act doesn't come off well any more, for two reasons. First, the public mood has changed. The 1980s and 1990s were a time of optimism; many people were willing to trust that the benefits of our products would outweigh any disruption we caused.

But a series of shocks, starting with the terrorist attacks on 9/11, have systematically eroded public trust. Our institutions have repeatedly failed to keep us safe, and some huge companies have been revealed as corrupt at the highest levels. We've entered an age of cynicism and fear in which institutions are assumed to be dishonest and self-serving, and almost no one gets the benefit of the doubt.

For an industry that generates change and uncertainty, losing the benefit of the doubt is a severe problem.

Second, the tech industry has grown to be a much more prominent part of the economy. Tech companies are seven of the 10 most valuable companies in the world. That prominence has changed us. We used to be the outsiders who wanted to help destroy corruption. Apple sold the Macintosh as a tool to defeat dictators, and Google said it was going to break the monopoly of the wireless carriers. Today, in order to do business, we have to get along with those same entities. So Apple bans apps when the Chinese government tells it to, and Google cosponsors ads with the carriers it once wanted to destroy.

Somewhere along the line we became The Man. And in today's world, The Man isn't trusted.

Our rising profile and the loss of public trust alone would be enough to create a crisis for tech, but it's  actually the simplest of our problems. We're also in trouble legally and politically. Next time I'll talk about the legal situation.

I welcome your comments.

VR Cinema: Keep Trying

After two and a half nonstop hours of watching VR "cinema" this weekend, I reached two conclusions:
--My head hurt, and
--This stuff is not yet ready for prime time

The setting was Cinequest, Silicon Valley's quirky independent film festival. This year it added a VR "experience," with eight half-hour VR programs you could watch, at ten bucks a pop. I chose five of them. They were a diverse selection: Big-budget Hollywood movie excerpts done up in VR, independent animation, what appeared to be game trailers, and some live action shorts.

I came in with high expectations: I've always been fascinated by 3D computing, and my first experience with an Oculus Rift was close to a religious event. So I was excited to see Cinequest's "new and amazing worlds" in which "you don't just watch, you actually experience these movies all around you," as the program put it.

Cinequest is a cool organization and they put on a great show. They're a nonprofit, staffed heavily by volunteers, and I applaud them for trying this experiment. But mostly what the VR experience showed is that our technology, and VR cinema itself, isn't yet living up to the hype.

That's not too surprising – we're still in the very early days of this new platform, and my experience with every new platform is that you get a lot of weird experiments while people work out what they can do with it. Based on what I saw at Cinequest, VR cinema is still in the weird stage. Below I'll give you details on each of the shorts I experienced, but here's a summary:

The technology needs more work. When you came into the VR room, the staffers equipped you with a Samsung Gear VR headset with a Galaxy smartphone and a pair of wireless earphones, and told you how everything worked. So right off the bat, this wasn't a movie-like experience; you don't just sit down and watch. The staffers did a very good job of teaching people and maintaining the devices (more on that below), but it was still confusing. The most puzzling part was that there were volume controls on both the headset and the earphones, and you had to turn them both to max in order to hear the content.

The on-screen interface was familiar because I'd played with a Rift before, but as soon as I started my first program I had problems. The video was running at about five frames a second, and the sound seemed way out of sync with the images. After several minutes of futzing around with the controls, I gave up and called over one of the staffers. He explained that the Galaxy smartphones used in the headsets were getting overloaded by all the video files, and had to be restarted regularly. He rebooted my system, a procedure I had to do two more times in the two and a half hours.

Now the video was running at good speed, and I was very pleased that I didn't experience any lag when I moved my head. But the images were grainy, far more so than either a film or television show. The color palette seemed to be limited as well – the live action videos looked washed out, peoples' faces were monochrome, and in dark scenes there was noticeable pixelation. It reminded me of watching an old pre-hi-def color TV.

None of the programs were as immersive as a good movie. In movies we have almost a century of experience in how to tell a story visually. VR is different enough that we need a new set of best practices. For example:

--The camera was sometimes in odd positions. In one film, you appear to be sitting in the passenger seat of a car, but squashed down about a foot above the seat so you're looking up at the characters and can't see out of the front of the car. Instead you have a panoramic view of the world's largest car stereo.

--You don't know where to look. In some of the films I ended up looking in the wrong direction and missed important action.

--Whiplash. One of the films featured a tense discussion between two actors, one on your right and one on your left. You had to whip your head back and forth to follow their interaction. That got old really fast.

--The seams get in the way. Live action VR is filmed with multiple cameras pointing in different directions. The edges between the camera images are blended so you don't usually notice them. But occasionally a character would step into the border between them and his head or some other important body part would disappear.

--It's hard to do closeups. There's a very fine art to the way a film communicates human interaction, a subtle rhythm of closeups, reaction shots, etc. A VR film can't jump your perspective around that way – you'd feel like you're being teleported all over the room. So your perspective tends to stay in one or two places for the duration of a scene, which makes it feel a bit like watching surveillance camera footage. Instead of being in the story, you feel like you're spying on it.

Add these issues to the resolution and color problems, and often I found myself paying more attention to the technology than to the story.

The rules of storytelling still apply. In some of the films, the script and storytelling were awful. No amount of great technology can compensate for awkward dialog and a lack of conflict. Ironically, the worst offender in this area was one of the big-budget Hollywood productions. You'd think they would know better.

I doubt that cinema is the killer app for VR. Even if all of the problems above were solved, I came away doubting that cinema experiences will be the thing that pushes VR into the mainstream. For me, the thing that makes VR special is its eerie sense of presence, the feeling that you're actually in another place even though you know you're not. The VR films gave me almost no sense of presence, which surprised me. I felt like I was in a wraparound Imax theater (with bad image quality), rather than being transported to a different place.

I think the problem is that in a movie your point of view has to be controlled in order to tell you a story. The movie pushes you around – sometimes gently, sometimes forcefully, but almost always you have no control. I think the ability to move around is an important part of the sense of presence in VR. Without it, the whole experience was much less compelling. I think I'd prefer to watch a conventional movie; the resolution is better, and you don't get a headache from the headset shoving your glasses into your face.


What it means: Keep looking

VR today reminds me of the early days of multimedia: We're seeing some interesting bits and pieces, but they're more like curiosities than finished products. I think we'll need a lot more experimentation, and better hardware, before VR will be ready to take off in the mainstream.

Multimedia software came of age in 1993 when Cyan released Myst, the first software title to fluidly merge the large storage of CD-ROMs with high-quality graphics, sound, and interesting experiences. Along with a couple of other popular titles, it created a whole multimedia industry in the 1990s. If we've found the Myst-equivalent for VR, I didn't see it at Cinequest.


Details on the programs

Speed Kills. VR scenes from an upcoming movie starring John Travolta. A movie about speedboats and drug runners ought to be gripping in VR, but this was the weakest program of the bunch. The scenes (which didn't fit together into a narrative whole) were mostly tedious: Travolta feeding a horse, Travolta hitting on a waitress, Travolta talking to a guy in a restaurant. To make it worse, they inserted credits and titles between every scene. So the whole thing felt like a bad commercial.

La Camila. This is a cute animated story with lovely colors, and it was obviously a work of love for the people involved. Unfortunately, the character models were surprisingly primitive. My expectations have been skewed by Pixar, and it was jarring to see people and animals that look like a bunch of linked sausages bouncing like marionettes. Unfortunately, about 2/3 of the way through the program I accidently restarted it while adjusting my headset, and I couldn't get the video to fast forward to where I'd been. So I moved on.

The Humanity Bureau. More movie excerpts, these from an upcoming Nicolas Cage movie. Much better structured than Speed Kills, but I was distracted by some very strange camera angles. There were some good outdoor sequences, but when the story moved indoors I felt the surveillance camera effect very strongly.

The Recall. A VR experience based on a 2017 alien abduction film featuring Wesley Snipes. Stilted and confusing. It reminded me of the Geico commercial parodying horror films. This is the one where I missed a lot of the action because I was looking in the wrong direction, but the things I did see were unintentionally amusing rather than scary.

Boxes. Much better thought-out than the movie excerpts, this is a live action short in which a young man cleans out the home of his late parents, and reminisces about his childhood in a series of flashbacks. A nice story well told, but I don't think it gained much from the VR.

Volt: Chain City. A frantic four minute animated chase with Star Wars-style speeders plunging through a landscape of wreckage. Hello motion sickness.

Women on the Move. A sweet live-action story about a woman in Niger who has high hopes for her granddaughter. It was an interesting visit to a village in Africa, and the VR did give me a good view of the homes and streets of the village. But I didn't feel like I was there, probably because I couldn't move around on my own.

Doctor X: Pale Dawn. Dinosaurs chasing a dune buggy. Even more dizzying than Volt.

Hutong in Live. A love letter to the Hutong lifestyle in Beijing, this one was interesting because it mixed animation and video. Unfortunately, the animation was very limited – the models were low res, you could only move between predetermined spots, and your perspective jumped from place to place rather than moving smoothly. Other than the 3D, it reminded me of a QuickTime title from 1992. I think it would have been much more successful if it had recreated a hutong and allowed you to move through it freely.

Meeting Rembrandt: Master of Reality. An animated interaction with Rembrandt. Nice idea but not very engaging. It felt like an explanatory video you'd see in a museum.

Ultraman Zero VR. Campy but fun: A guy in a monster suit attacks a scale model of Tokyo, and is defeated by a guy in a superhero suit. It was kind of fun to be between the monster and giant superhero, with both of them towering over me. But they still looked like a couple of guys in suits, and the novelty wore off quickly. If I were an Ultraman aficionado I probably would have been more charmed.


What do you think? Have I missed the point? Is there a killer title I should have watched? I'm interested in your comments.


Amazon, Whole Foods, and the Shopping Experience

There's already been a lot written about Amazon's offer to buy Whole Foods, and what it means for the retail industry. The LA Times says it's all about home delivery of groceries (link) and the NY Times focused on efficiency (link). Ben Thompson wrote an excellent analysis pointing out the logistical advantages for Amazon of buying a food distribution network along with the stores that give it critical mass (link). The article is worth reading if you haven't done so already.

I don't disagree with any of the above, but I find myself thinking back on a conversation I had recently with a former Amazon employee, and I wonder if there might not be a second motivation for the purchase, focused on what Amazon can learn from Whole Foods rather than what the company does for Amazon's infrastructure. The former Amazonian I spoke with was very careful not to discuss company confidential information, but he was happy to talk about the company's philosophy, and he said Amazon is often misunderstood.

I started off our conversation praising Amazon for its outstanding logistics, the relentless focus on efficiency that drives its dominance. The former employee gave me a funny look and said that's exactly what people don't understand about Amazon. The company's senior management isn't focused first and foremost on logistics, he said. It's focused on customer experience: How do you solve customers' problems and how do you make them happy?

What the company is relentless about, he said, is its willingness to pick away at customer problems, running experiment after experiment to find new ways to satisfy people. That's the motivation behind many of Amazon's new products, he said. Kindle? An experiment in instant delivery of digital goods. Drones? Faster delivery of physical goods. The thread tying them together is that Amazon has realized instant gratification is a very powerful benefit, and anything that moves in that direction is worth exploring.*

Usually when the tech industry talks about customer experience we think of Apple, with its focus on design and elegance. The experience of using the product becomes the product itself. Amazon's customer experience is more transactional. Nobody I know would call the Amazon website elegant in the Apple sense. If Apple ran Amazon, there would be only a single product on the Amazon home page, but it would be presented so compellingly that you'd feel driven to buy it, and you'd feel good afterward because the mere act of owning it validated your taste and intelligence.

Amazon is more about efficiency as an experience: the way you feel when you can find what you want effortlessly and get it quickly. Viewed in that light, the Echo is an extension of that effortless experience.

So then, why buy Whole Foods? The grocery industry is under chronic financial stress. Amazon could have its pick of grocery chains and logistics centers. Why pick this particular one?

I got an interesting perspective on Amazon from the speakers at Etail West, a big retail conference I attended last year. Retail and ecommerce companies get together at the conference, drink heavily, brag about their accomplishments and complain about their challenges. One of the central topics is always Amazon and what to do about it.

To many retailers, Amazon is the grim reaper: unstoppable, lurking in the background and preparing to harvest them all. For a long time retailers hoped to learn from Amazon and become as efficient as it is, to compete toe-to-toe on price. Lately many seem to be giving up on that, realizing that they'll never match Amazon's scale and efficiency. "Amazon is an algorithm," one retailer said. "You can't win by being a better algorithm than they are."

Instead, many of them are focusing on the customer relationship: Connect with people about their values and interests, give them a great in-store experience that reinforces that connection, and they'll buy from you even if it's not quite as cheap or convenient as buying from Amazon. At least that's the theory, and faced with extinction on the logistics front, that's what many retailers are trying to do.

Viewed in that light, what does Whole Foods bring to Amazon?

Whole Foods connects with its customers around values. Whole Foods has one of the best, most differentiated in-store experiences in all of retail. In many ways, Whole Foods is like the Apple of grocery shopping. It's everything that people say Amazon isn't.

Maybe the outcome of the purchase is that, as many critics predict, Whole Foods will become a soulless place where robots replace friendly clerks. Or maybe the culture clash will disrupt both companies, like a mini AOL/TimeWarner. In that case you'll eventually see Whole Foods dismembered and digested by Amazon, its stores closed down and its house brands just another line item in the Amazon store.

But what could Amazon learn from Whole Foods about in-store experience and connecting with customers around values? How much better can the Whole Foods experience become when paired with Amazon's instant gratification engine? And if Amazon can combine Whole Foods' sort of experience with Amazon's, how much more powerful will the resulting company be?

And what in the world could the other retailers do next?

__________
*I asked him what explains the Fire Phone. He grimaced and said he wasn't involved in that one, and besides it was designed by a team in California that didn't understand the Amazon way. I know some folks who close to that team, and they tell a different story that centers on a meddling Jeff Bezos who forced bad ideas into the product. But that's another story.


The Tech Industry and the Return of the Zero-Sum Game

Summary. In the tech industry we worship “disruption,” but to most people it’s a dirty word. In a world where insecurity and mistrust in institutions are on the rise, tech is increasingly out of step with the values of the public. This puts our companies at risk of hostile regulation and customer backlashes. We need to change our attitude and our behavior, or our industry may be seriously damaged in the years to come.


The situation: No more win-win.

Across many countries, and across the political spectrum, we are seeing a dramatic erosion in peoples' faith in win-win situations. Compared to the past couple of decades, there's less willingness to believe that the benefits of any change will outweigh the costs. Along with that, there's a general feeling of mistrust in institutions. Many people on both ends of the political spectrum believe the political and economic system is being gamed by insiders to the detriment of everyone else.

Those feelings have always been present in our culture to some extent, but today the feelings are very strong, and what's especially unusual is that fear of the future and mistrust in institutions are rising together. People are simultaneously afraid of change and unwilling to trust those who are supposed to protect them from its problems.

That's what gave us President Trump (link). People call him a businessman, but he actually practices a very particular type of business: He's a deal-maker from the real estate industry. If you've ever dealt with real estate developers (and I have) you know they live in a world dominated by zero-sum negotiations in which one side gains and the other one loses -- the taller your building gets, the more shade it casts on the neighbors. For one person to win, the other has to lose.

Mr. Trump is a perfect embodiment of the zero-sum attitude that's rising in society today. The attitude is showing up more and more frequently even in the supposedly-liberal press, but most of us in tech don't see it. We still believe in win-win situations. We have faith that the world will be better for the changes we create, and we expect that to be obvious to everyone else.

Silicon Valley is like a hothouse full of orchids in the middle of a blizzard. Warmed by our stock options and VC pitches, and insulated by the buzz of our fans on social media, we often fail to listen to the people out in the cold.

For at least a year I've seen a trend in the general press toward skeptical, if not downright hostile, coverage of leading tech companies. Airbnb and Uber/Lyft are prime examples. They're poster children for disruptive change, and increasingly I think the general press is covering the damage they cause far more than the benefits.

That's understandable. Among all the industries being disrupted at the moment, traditional journalism is one of the hardest hit. When reporters see their own careers threatened, can you really blame them when they show sympathy for other people in the same boat?

For example, in the Los Angeles Times, coverage of Uber and Lyft has focused very heavily on their damage to traditional taxi companies, with much less attention on their benefits for the average citizen.

An article in April 2016, headlined "Uber and Lyft have devastated L.A.'s taxi industry," (link) did a pretty thorough job of highlighting the economic pain being felt by taxi drivers in Los Angeles, but said next to nothing about the benefits of ride-hailing.

The taxi drivers' pain is real, and I don't want to dismiss it. But anyone who's lived in LA can tell you that taxi service there has always been dysfunctional: notoriously unreliable, slow, and expensive. If ever an industry deserved to be disrupted, the LA taxi industry is it.

Part of the challenge for the ride-hailing companies is that their benefits are very diffuse -- they make it a bit more convenient for lots of people to get around the city -- but the pain they cause is very localized and visible: Working class taxi drivers who can't make ends meet. Balanced coverage would talk about the costs and benefits of ride-hailing, and would explore ways to offset the pain for those who are on the losing side. But that balance is often missing.

A couple of other examples:

--A column in the NY Times detailed government efforts to regulate what it called the "frightful five:" Apple, Amazon, Facebook, Microsoft, and Google/Alphabet (link). The fact that the Times' tech columnist chose the word "frightful" to describe the nation's most successful consumer tech companies says a lot, but the column added to the problem by quoting academics who fear the companies' power. Did you know Amazon is about to destroy the nation-state? Dang! There was zero effort to describe the benefits those companies produce, or the consumer harm that could be caused by regulation of them.

--A ferocious column in the Guardian declared that the tech industry is destroying democracy (link)

--In a similar vein, a column in the NY Times credited tech with creating Donald Trump (link).

--This graphic on the front page of BBC.com summed it up nicely:


The most disturbing thing to me is that the articles are becoming more and more shrill as time goes on. This is creating a toxic atmosphere for technology companies. Our industry is all about the benefits of change. For us, "disruption" is a positive thing. We welcome competition, because we assume that when a company or industry is destroyed, the new one that replaces it will be even better.

Our attitude is out of sync with the rest of the world. Our optimism makes us sound callous and arrogant. When we preach the benefits of something new, many people are reluctant to believe us, and some search avidly for any potential downside. The next step will be for them to actively oppose us, as is already happening to Uber and Airbnb.

In other words, tech companies no longer get the benefit of the doubt. Instead, any disruption we cause is likely to be assumed guilty until proven innocent.


What to do: It's time to eat humble pie

Om Malik recently wrote a commentary in the New Yorker suggesting that we in tech need to get outside the latte bubble and talk with normal people (link). That's a great beginning, but there's a lot more we need to do:

First step: Think. We should take these criticisms to heart. As a start, it you haven't done so already, read the Guardian article I linked above and think about it. In my opinion, the author is mistaking a transition for a collapse, but the important thing is for you to decide what you think, and then for all of us to have a rational conversation about it.

That sort of sober, logical discussion is very hard to do when everyone's frightened and reacting emotionally. So we need to drain some of the emotion out of the discussion of tech:

Shut up about destroying things. The tech industry thrives on negative energy; we love to brag about the brain-dead products and  industries that we're going to destroy. It's an old habit we picked up from Steve Jobs, and it doesn't serve us well in the new era. That sort of talk needs to stop. The only person who thinks disruption is sexy is your VC, and the only place for discussing it is a private presentation to investors.

Don't be a jerk. The culture in many successful tech companies isn't exactly compassionate. We tend to compete hard and talk bluntly, and sometimes we celebrate companies that will do anything to win. That leads to arrogant exec comments in public and employee behavior that skirts the edges of legality. When everyone loved the tech industry, that sort of behavior was often forgiven. But today it's more likely to get a company permanently branded as untrustworthy, and therefore in need of regulation. And it hurts the rest of us because it puts the whole industry in a bad light.

Don't overpromise. Hype is another long-time tech industry tradition, born of our own enthusiasm for our products. We sell the vision we're trying to build rather than its implementation today. But in the current environment, that comes across as lying. Every time we do it, there's damage to not just the company that exaggerates, but to the trustability of the tech industry in general.

Case in point: the term "artificial intelligence," which our industry applies to a technology that, when you strip away all the hype, basically consists of high-speed pattern matching. Are there potential job losses created by that pattern matching? Yes indeed. But the same thing happened with every technology breakthrough since the steam engine. You'll need to make a really strong case that this time is any different from the others. So far I have yet to see that case. But the term "AI" makes regular people think that we're about to create malevolent super-intelligent Skynet robots that crush humanity underfoot. That's not possible within the practical planning horizon of anyone who's not a singularity honk – and if Moore's Law continues to decelerate, it might not be possible ever. Meanwhile, our language terrorizes people and interferes with the real, rational discussion we need to have about productivity vs. job loss.

If you want a simpler example, consider the damage done when Tesla named its driver assist feature "Autopilot." That term has a very specific meaning to the public, and Tesla didn't deliver on that meaning. Every time we do something like that, we say to the public (and government) that we can't be trusted and need to be regulated.

Speaking of regulations, we need to make friends in the government(s). As a small-government guy, I dream of a world where companies are free to innovate, and the market alone chooses winners and losers. We don't live in that world. Government regulation is a fact of life in modern society, and in the current atmosphere, the more we disrupt things, the more we're going to be regulated.

So we have two choices: We can either partner with government, and get regulations we can live with; or we can ignore government and get rolled. That doesn't mean we all need to turn into influence-buying pond scum. Engaging with the government means being up front with regulators about any problems you create, and being willing to engage with them on solutions. I know from personal experience that most government regulators mean well and are just trying to enforce the law. They usually don't have a deep understanding of tech, though. So getting to them early, being honest, and sharing information freely can help them understand the difference between reasonable and unreasonable regulation.

This takes time and commitment, a price that most tech companies, especially startups, are not willing to pay. This is a case where the investment community should step in. The safety of your investments depends on good relations with the right regulators. You should be cultivating contacts in the government (national and local), and you should be teaching your portfolio companies how to use them, just the same as you teach them how to do Facebook advertising or agile product development.

There's a separate issue of lobbying politicians (as opposed to regulators). Some industries have become so enmeshed in government that they see political influence-peddling as a primary means of competing (aerospace, telecom, etc). I am not suggesting that we join that group. The thing that motivates all politicians is getting re-elected. If you're not going to fund their election campaigns, the key to influencing them is to have a lot of public support. You don't have to make huge campaign contributions if you have a lot of customers who love you and will speak up for you. That brings us to the next issue...

Measure and document your benefits to society. It may be obvious to you that your company produces a net benefit to society, but you should always assume that it's not obvious to anyone else. The press will focus on easily found victims: the mom-and-pop retail store put out of business by an online competitor, rather than the benefits of lower prices for everyone else in society. It's your job to document and communicate the good you do for society, preferably with charismatic examples of happy customers you've helped. If you can't find those, you need to get a better marketing team, and in the meantime you should hire a consultant to do a good economic analysis of the your benefits to society as a whole.

Take responsibility for the problems you cause. If there is a group that's hurt by your disruption, be sympathetic to them. Can you do something to ease their transition? Are there ways society can help them? Get out in front of the problem and help to solve it. If nothing else, don't act in denial of the downside; instead, make clear that the upside is better.


When we've done all of this – when we've calmed the panic and taken responsibility for the messes we create – then we can start rationally crafting a system in which we're allowed to innovate because the world trusts that we won't be irresponsible about it. That probably sounds like a tall order, but really I don't think we have any other choice. It's possible the public mood will improve dramatically on its own in the near future, but I doubt it. Big public swings between pessimism and optimism tend to last a decade or two, longer than the lifetime of most tech companies. For safety's sake, we should view the current situation as permanent and adapt ourselves to it, rather than huddling in the greenhouse and hoping the storm will pass.


What do you think? Am I overstating the problem? Am I wrong to believe that innovation is generally a force for good? Does the tech industry need to change in other ways? I welcome your comments.