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.