Silicon Valley drops the ball on censorship once more

Yet another set of ill-considered censorship decisions by Silicon Valley has illustrated once more the impossible position they are in.

Google has announced it will now ‘elevate original reporting in search’. On one level this is totally laudable. Modern journalism has been severely corrupted by the wholesale shift in advertising spend from print to journalism and thus put in the hands of the digital advertising platforms, of which the biggest is Google itself.

The move to digital has squeezed media margins, with advertisers looking for demonstrable ROI where once the circulation and brand of a publication was sufficient reassurance of ad money well spent. As a result the total number of journalists employed has dropped dramatically which, in combination with the explosion of digital publications, has meant each remaining hack has to produce much more content than previously.

Digital ad spend also directly rewards direct traffic in a way print never did, which means media are incentivised to publish a high volume of ‘click bait’ journalism, which is typically of a low standard and designed more to provoke than inform. Of all the companies in the world Google is easily the most directly culpable for this trend and now it’s belatedly trying to correct it.

“While we typically show the latest and most comprehensive version of a story in news results, we’ve made changes to our products globally to highlight articles that we identify as significant original reporting,” said Richard Gringras, head of Google News. “Such articles may stay in a highly visible position longer.”

There’s a lot to like about this. Prominence in Google news equals more clicks, which equals more revenue. If follows, therefore, that any tweaks to the algorithm that promote proper reporting (which is much more expensive than opinion or re-reporting) are a step in the right direction. But Gringras himself acknowledged the complexity of the situation this puts Google in, in his next paragraph.

“There is no absolute definition of original reporting, nor is there an absolute standard for establishing how original a given article is,” said Gringras. “It can mean different things to different newsrooms and publishers at different times, so our efforts will constantly evolve as we work to understand the life cycle of a story.”

In other words Google decides what news is worthy of delivering to the public. Even if we assume those decisions will always be made in good faith and that the associated algorithms will somehow be furnished, in real time, with the most exhaustive context, this is still a lot power to be put in the hands of one commercial entity.

On top of that Gringras himself was the head of digital publisher Salon before moving to Google in 2011. Salon is widely recognised to be significantly biased in favour of perspectives and issues considered to be left wing and you have to assume its long time boss is also that way inclined. How can we be sure his own political positions don’t influence the decision-making of his team? US President Donald Trump will doubtless be asking that very question before long.

What media spend hasn’t shifted to Google has been mostly hoovered up by fellow Silicon Valley giant Facebook. As a social media platform it faces an even greater censorship challenge than Google (if you just focus on the search bit, not YouTube) and has been even less consistent and coherent in its approach, leaving it open to extensive accusations of bias.

Facebook’s latest attempt to clarify its censorship policies offers little clarity or reassurance to its users. Here are the new criteria, as copied from the official announcement.

  • Authenticity: We want to make sure the content people are seeing on Facebook is authentic. We believe that authenticity creates a better environment for sharing, and that’s why we don’t want people using Facebook to misrepresent who they are or what they’re doing.
  • Safety: We are committed to making Facebook a safe place. Expression that threatens people has the potential to intimidate, exclude or silence others and isn’t allowed on Facebook.
  • Privacy: We are committed to protecting personal privacy and information. Privacy gives people the freedom to be themselves, and to choose how and when to share on Facebook and to connect more easily.
  • Dignity: We believe that all people are equal in dignity and rights. We expect that people will respect the dignity of others and not harass or degrade others. 

While privacy seems relatively easy to determine and thus police, authenticity, safety and dignity are very subjective, ill-defined concepts. Facebook could arbitrarily determine almost anything to be inauthentic or undignified, so all this announcement really does is assert Facebook’s right to unilaterally censor its platform.

The Facebook announcement comes the day after reports of it censoring a piece of content published on it that challenged the claims made in another piece concerning abortion. This isn’t the place to examine the relative merits of the positions stated, but since abortion is one of the most polarising issues out there, and that balancing the rights of the mother and infant is a uniquely challenging ethical dilemma, for Facebook to apparently pick a side in this case has inevitably led to accusations of bias.

Lastly even crowdfunding service Kickstarter is under pressure to censor projects on its platform. A comic titled ‘Always Punch Nazis’ was taken down after claims that it violated Kickstarter’s community guidelines. Slate reports that many Kickstarter employees objected to this decision, which resulted in it being reversed but also claims of recriminations against some prominent protesters. This in turn has led to moves to unionize among Kickstart staff.

Once more we see that it’s impossible for a digital platform to issue watertight ‘community guidelines’ and that arbitrary censorship decisions will always be vulnerable to accusations of bias. The comic claimed to be satirical, which should offer at least some protection, but it still falls on someone to assess that claim.

Prior to the internet there were very few opportunities for regular punters to be published, let alone to a global audience. Social media especially has revolutionised the public dissemination of information and opinion, while concentrating the policing of it in the hands of a few democratically unaccountable companies. They will continue to try to perfect their censorship policies and they will continue to fail.

50 US Attorney Generals sign-up to Google antitrust investigation

Usually, when you put 50 lawyers in a room together, it’s a bloodbath, but Google has seemingly done the impossible; united them all behind a single cause.

Led by Ken Paxton, the Attorney General representing the State of Texas, the coalition brings all except two State Attorney General’s on board, California and Alabama, as well as the legal minds representing Washington DC and Puerto Rico.

“Now, more than ever, information is power, and the most important source of information in Americans’ day-to-day lives is the internet,” said Paxton. “When most Americans think of the internet, they no doubt think of Google.

“There is nothing wrong with a business becoming the biggest game in town if it does so through free market competition, but we have seen evidence that Google’s business practices may have undermined consumer choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and dissemination of online information. We intend to closely follow the facts we discover in this case and proceed as necessary.”

Paxton has pointed out in the statements that the Government and its agencies does not have an issue with a dominant market player (we don’t believe this however), but it must maintain this dominance by playing within the rules. This is where Paxton believes Google has become non-compliant with US law; it is stifling competition and the choice for consumers.

The difficulty the legal coalition will face in this investigation to start with is the reason behind Google’s market domination; it offers the best search service on the web. Some might disagree, but we believe it is the most effective and accurate internet search engine available. This will be one of the reasons behind the continued dominance, though there are of course others; these other factors will determine whether Google is abusing this position of dominance.

One area which might become of interest to the Attorney Generals is the roll of acquisitions in maintaining this leadership position. Of course, M&A is a perfectly valid means of growing a business, though should such transactions be deemed as a means for Google to kill off any competition which could potentially emerge, this would be a violation of antitrust laws.

This is where the probes will find it very difficult to fight against Google and the other giants of Silicon Valley; can anything be done against potentially anti-competitive acquisitions? In the Google case, some might suggest it shouldn’t have been allowed to acquire both Android and YouTube to supplement its PC search advertising business. This suggestion is of course made with hindsight, though there will be some who will attempt to do something about it.

Elizabeth Warren, the Democrat Senator for Massachusetts and potential opponent for President Trump in the 2020 Elections, has already promised to break-up the tech giants. FTC Chairman Joe Simons is another who has the divestment ambition, though he has stated it would have to be done sooner rather than later, as Big Tech is manoeuvring assets and operations in an attempt to make any divestments almost impossible.

What this investigation does offer is another layer of scrutiny placed on the internet giants. This investigation might well be directed at Google, but any precedent which is set could be applied to the other residents of Silicon Valley.

When you actually stand back and look at the investigations which are on-going, the US Government is creating a swiss cheese model of legal nightmares for the internet giants. The more layers which are applied, the less likely Big Tech can squeeze through the legal loopholes and come out unscathed on the other end. The likes of Google will have the finest legal minds on the payroll, but the legal assaults are coming quickly, and from all angles.

Aside from this investigation, Google has also recently confirmed it is at the centre of a Department of Justice probe and is also facing the House Judiciary Committee’s examination into big tech antitrust. And then it will have to consider the potential implications of other enquiries.

Facebook is being investigated by the FTC for its acquisitions of WhatsApp and Instagram, as is the House Judiciary Committee. New York Attorney General Letitia James is asking whether the social media giant has damaged the consumers lives through its operations. Finally, the House Financial Services Committee as well as the Senate Banking Committee is investigating the Facebook push into cryptocurrency.

At Amazon, the FTC is investigating how the eCommerce giant competes against and aids third-party sellers on its platform, while at Apple, the House Judiciary Committee probe is attempting to understand whether the commission it takes from developers through the App Store is anti-competitive.

Each of these investigations will create precedent which can be applied to others in the Silicon Valley fraternity. It also gives any failed attempts to limit the potential of Big Tech another opportunity. There are plenty of irons in the fire and Silicon Valley will do well to avoid a branding altogether.

With the sheer volume, breadth and depth of investigations scrutinising the business models of the internet giants, it is starting to become impossible to believe the regulatory status quo will be maintained. The sun might be setting on the Wild West Web.

To date, Silicon Valley has enjoyed what should be considered a very light-touch regulatory environment. For us, there are two reasons for this.

Firstly, regulators and legislators simply could not keep up with the progress being made by the technology industry, or perhaps did not foresee the influence these giants might be able to wield. Whether it is a shortage of bodies, skilled workers being snapped up by private industry or simply too many different segments to regulate, the progress of technology leapt ahead of the rules which were supposed to govern it. The internet giants have been profiting greatly off this regulatory and legislative void.

Secondly, you have to wonder whether regulators and legislators actually wanted to put the reigns on the digital economy and the power houses normalising it in the eyes of the consumer. These companies are driving economic growth and creating jobs. The US is at the forefront of an industry which will dominate the world for decades to come; why would the Government want to stifle the industry which is keeping the US economy at the head of the international community.

With both of these explanations, perhaps it has gotten to a point where excess is being realised. The technology industry has become too powerful and it needs to be reigned in. Some might argue that Silicon Valley has more influence than Washington, which will make some in Government feel very uneasy.

Google confirms it is in the DoJ crosshairs

The technology industry is facing regulatory and legislative assaults from all angles, and Google has confirmed it is attempting to help the Department of Justice with its own investigation.

It should perhaps be considered second-nature for Google to be dealing with some sort of investigation. It has been the subject of dozens of probes over the last few years, though there are some weighty ones on the horizon.

“We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us,” said Kent Walker, SVP of Global Affairs at Google.

“The DOJ has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so.”

In July, the Department of Justice announced an antitrust investigation, though the subjects were not explicitly named. The probe will focus on how online platforms achieve market dominance and whether they are stifling competition and therefore innovation.

Aside from this probe, momentum is gathering to attack Silicon Valley. New York Attorney General Letitia James is looking into antitrust violations at Facebook, which could set some pretty damaging precedent. The House Judiciary Committee’s antitrust subcommittee is also conducting its own investigation, and soon enough Texas might be entering the fray.

Texas Attorney General Ken Paxton has asked the press to gather on the steps of the United States Supreme Court Building in Washington DC later on today to be briefed on yet another antitrust investigation. Details are thin here for the moment, however it is another headache for Silicon Valley to consider.

The next couple of weeks will offer much more colour to the investigations, however it is becoming increasingly obvious the technology industry is going to be very different in a few years’ time. It does appear the days of the Wild West Web are coming to a close.

30 Attorney Generals on verge of announcing Google probe – sources

Sources familiar with the matter have suggested an antitrust probe involving more than 30 State Attorney Generals could be launched as soon as next Monday.

Although the specifics of the investigation are yet to make it into the public domain, the threat is looming large for Google. Three separate sources have suggested Google is in the crosshairs, according to the Washington Post, another incremental step in the US as lawmakers look to dilute the power and influence of one of Silicon Valley’s poster boys.

Comments are difficult to come by, though lawyers are seemingly ready to down weapons and reach across the political divide to address a growing debate. Bickering politicians can usually be relied on to be lethargic and ineffective, though it seems Silicon Valley is antagonising Washington enough to force friendships in an increasingly hostile and partisan political climate.

That said, it would surprise few if the investigation is officially launched next week, as there have been various public offices stating their disapproval over the power and influence Google wields.

The crux of the issue is a simple one; should a company like Google be able to access such vast amounts of information. If data is the new oil, Silicon Valley is OPEC. Combining this potential gold mine with the already bulging bank accounts could create a worrying position.

One question which remains is how responsibly companies like Google are exerting this power. Are the internet giants fuelling campaigns of defensive acquisition, swallowing up potential competitors to prevent a dilution of market share? Are initiatives being implemented to prevent growth of these rivals and kill an idea before it can even consider scaling? These are areas which could be deemed monopolistic, an abuse of a dominant position, a big no-no in today’s world.

The monopolistic accusations are just a single element of the mix though. Conservative voices have suggested the left-leaning internet giants are demonstrating bias, offering prominence to some political commentary and hiding certain opinions.

“If big tech companies are not living up to their commitments and representations regarding being open to all political viewpoints and free of bias and restrictions on the basis of policy preference, then they should be held accountable for their false, misleading and deceptive trade practices,” said Texas First Assistant Attorney General Jeff Mateer.

Mateer and the Texas Attorney General office believe Google has been restricting the advertisement of some Republican political events, while Facebook has been censoring pro-Trump articles and Twitter limited the visibility of Republican politicians. These are unproven claims right now, but they demonstrate the ‘us’ and ‘them’ mentality which is a common theme though the relationship between Silicon Valley and Washington.

For the politicians, the perceived preference of the internet giants on political matters is another reason power and influence should be diluted. An antitrust investigation, gathering 30 Attorney Generals behind the same cause, could be one way to tackle the problem.

Another area which is unclear is the extent of such a probe. Google has been named as the party of interest in this report, though it would surprise few if the likes of Amazon, Twitter or Microsoft were dragged into the fray also; Silicon Valley is increasingly becoming Enemy Number One in Washington.

Silicon Valley’s ‘ask for forgiveness, not permission’ attitude is wearing thin

Silicon Valley has often pushed the boundaries in pursuit of progress, but the it deserves everything it gets if it continues to try the patience of consumers and regulators with privacy.

‘It is easier to ask for forgiveness, than beg for permission’ is a common, if largely unattributable, phrase which seems to apply very well to the on-going position of Silicon Valley. It is certainly easier to act and face the consequences later, but it should not be right or allowed. This is the approach the internet giants are taking on a weekly basis, and someone will have to find the stomach and muscle to stop this abuse of power, influence and trust.

The most recent chapter in this on-going tale of deceit and betrayal concerns the voice assistants which are becoming increasingly popular with consumers around the world.

Apple is the latest company to test the will of the general public as it has now officially ended an internal process which is known as ‘grading’. In short, humans listen to Siri interactions with customers, transcribing the interaction in certain cases, to help improve the accuracy of the digital assistant.

“We know that customers have been concerned by recent reports of people listening to audio Siri recordings as part of our Siri quality evaluation process — which we call grading,” Apple said in a blog entry. “We heard their concerns, immediately suspended human grading of Siri requests and began a thorough review of our practices and policies. We’ve decided to make some changes to Siri as a result.”

Of course, it is perfectly reasonable for Apple to want to improve the performance of Siri, though it must ask for permission. This is the vital step in the process which Apple decided to leave out.

The new process will seek consent from users through an ‘opt-in’ system, making it compliant, while the default position for all Siri interactions will be to not store information. For those consumers who do opt-in to aid Apple in training Siri, the audio will only be transcribed and reviewed by permanent Apple employees.

This process should have been in-place prior to the ‘grading’ system being implemented. It is inconceivable that Apple did not realise this would break privacy regulations or breach the trust it has been offered by the customer. It decided not to tell the consumer or authorities this practice was in place. It muddied the waters to hide the practice. It lied to the user when it said it respects privacy principles and rights.

Apple acted irresponsibly, unethically and underhandedly. And there is almost no plausible explanation that it did so without knowledge and understanding of the potential impact of these actions. If it did not understand how or why this practice violated privacy principles or regulations, there must be an epidemic of incompetence spreading through the ranks at Cupertino.

What is worth noting is Apple is not alone; Google and Facebook are just as bad at misleading or lying to the user, breaking the trust which has been offered to these undeserving companies.

Google is currently under investigation for the same abuse of trust and privacy principles, this time for the Google Assistant.

“We have made it clear to Google’s representatives that essential requirements for the operation of the Google Assistant are currently not fulfilled,” said Johannes Caspar, Hamburg Commissioner for Data Protection and Freedom of Information. “This not only applies to the practice of transcribing, but to the overall processing of audio data generated by the operation of the language assistance system.”

The investigation from the Hamburg data protection authority has pressured Google into changing the way it trains its digital assistant. Earlier this month, Belgian news outlet VRT NWS revealed 0.2% of conversations with Google Assistant were being listened to by external contractors. At least one audio clip leaked to the news outlet included a couple’s address and personal information about their family.

Google has now said it has stopped the practice in the EU, but not necessarily elsewhere, and the Hamburg DPA has said it will have to seek permission from users before beginning anything remotely similar.

At the same regulator, Facebook has been dragged into the drama.

“In a special way, this also applies to Facebook Inc., where as part of the Facebook Messenger to improve the transcription function offered there a scheduled manual evaluation was not only the human-to-machine communication, but also the human-to-human communication,” said Caspar. “This is currently the subject of a separate investigation.”

Two weeks ago, reports emerged Facebook had hired external contractors to transcribe audio from calls made across the Messenger platform. Once again, users were not informed, while consent was not obtained, but what makes this incident even worse, is there does not appear to be any logical reason for Facebook to need this data.

The only reason we can see why Facebook would want this data to improve algorithms is to take the insight to feed the big-data, hyper-targeted advertising machine. However, this is a massive no-no and a significant (and illegal) breach of trust.

All of these examples are focused on transcription of audio data, though there are many other instances of privacy violations, and demonstrate the ‘easier to ask for forgiveness than permission attitude’ which has engulfed Silicon Valley.

We cannot believe there is any way these companies did not understand or comprehend these actions and practices were a breach of trust and potentially breaking privacy rules. These companies are run by incredibly smart and competent people. Recruitment drives are intense, offices and benefits are luxurious, and salaries are sky-high for a very good reason; Silicon Valley wants to attract the best and brightest talent around.

And it works. The likes of Google, Facebook and Apple have the most innovative engineers, data scientists who can spot the wood for the trees, the savviest businessmen, accountants who are hide-and-seek champions and the slipperiest lawyers. They consider and contemplate all potential gains and consequences from any initiative. We cannot believe there is any conceivable explanation as to why these incredibly intelligent people did not recognise these initiatives were either misleading, untransparent or non-compliant.

The days of appearing before a committee, cap in hand, begging for forgiveness with a promise it will never happen again cannot be allowed to continue. The judges, politicians and consumers who believe these privacy violations are done by accident are either incredibly naïve, absurdly short-sighted, woefully ill-informed or, quite frankly, moronic.

Silicon Valley must be forced to act responsible and ethically, because it clearly won’t do it on its own.

Macron softens digital tax stance after Trump lunch

The US has proved it can still throw its weight around the international community as French President Emmanuel Macron has taken a softer-stance on the country’s Digital Sales Tax.

Following lunch with President Donald Trump, Macron has stepped-down the aggressive moves against Silicon Valley and the creative accounting practices which has deprived countries around the world of valuable tax revenues. France took the brave step-forward to tackle the suspect status-quo, though it seems the threat of US tariffs was enough to ease the position of Macron.

“We’ve done a lot a work on the bilateral basis, we have a deal to overcome the difficulties between us,” Macron said to reporters following his meeting with Trump at the G7 Summit this weekend.

A lot has been said this weekend, though most of it avoided the technology, media and telco industry. This is perhaps the biggest news to emerge for our niche, though it does demonstrate the US still has some national leaders under the strain.

The 3% digital sales tax on companies which report more than €750 million worldwide, and also €25 million in revenue in France, will still be applied, though US companies could be entitled to a deduction when the OECD releases its own rules.

Following the G20 Summit in March, the OECD kicked-off a public consultation to address the tackle challenges in an increasingly digitally-defined society. After renewing the mandate of the Task Force on the Digital Economy (TFDE), the OECD has promised a draft proposal of the rules in 2020.

Should there be a difference in the definition of taxable monies or the amount which is due to France, the internet players will be granted to opportunity to deduct from the amount paid to the French Government. France’s 3% sales tax is to be applied from January 1 2019, though the question which remains is when the OECD will actually be able to propose a tax regime which all states can get on-board with.

This is the challenge which the OECD will face. There will not only be lobbyists in place from the internet giants, but also from the nation states which have an interest in maintaining the status quo. Ireland, for example, has benefitted from undercutting other countries, and without a surge of interest from the technology industry, who knows what state its economy would be in today.

One does have to wonder what Trump to Macron over Le Big Mac this weekend.

Alongside the UK, France was the first to take a tough stance against the creative accounting strategies of the internet giants. Few in Silicon Valley would have been happy with developments, as it would have held them accountable to fair and reasonable tax payments. The vast majority have been managing to avoid paying back the societies which have fuelled such extravagant bonus cheques for years.

Silicon Valley has been promising to help the development of society for years, though apparently this only counts when the revenues are directed towards its own bank accounts. When it comes to helping to build hospitals, buy school books, care for the elderly, fund fire departments and fill in pot-holes on roads, it has little interest.

Prior to the discussions over lunch, Trump had promised to hit back against France.

“France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA,” Trump tweeted in July. “We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine.”

Firstly, each country around the world should be entitled to tax companies when they reap financial benefits from its citizens; this is fair and reasonable, but Silicon Valley was better than most traditional industries of hiding profits from the tax man. Secondly, this tweet gave us some insight into the retaliation from the White House.

Following the tweet, the United States Trade Representative (USTR) opened an investigation under Section 301 of the Trade Act of 1974. This is the same first-step of the strategy which kicked-off tariffs against the Chinese and the subsequent trade-war. Wine, cheese and striped t-shirts were presumably being eyed-up, and it seems this was too much for Macron.

Although the digital taxation remains in place, this is a softened stance from the French President. The White House will certainly be happy with this outcome, although not completely satisfied, as it proves it can still act as a bully in international politics, throwing its monstrous weight around.

However, it is not as satisfactory an outcome as many in Silicon Valley would have wanted; they will still have to pay tax in France.

“Unfortunately, the enactment of France’s Digital Services Tax threatens to undermine the OECD process,” Google said in a statement to the USTR during the early stages of its investigation. “It is a sharp departure from long-established tax rules and uniquely targets a subset of businesses.”

The current tax rules are dated and allow the internet players to abuse the grey areas which are present in the law, or language which does not account for digital services. Of course, these companies are not happy, they will have to pay more tax.

As mentioned above, the companies will still have to pay the French tax. If Macron has been persuaded to drop the tax completely, there would have been plenty of time to bank an extra couple of hundred million and delay the implementation of the OECD rules. It would have been additional grace period.

What remains to be seen is what impact this will have on the approach to digital tax across the rest of the bloc. France was leading the charge, and this might well dent the confidence of other nations to follow suit, especially smaller ones which might be more susceptible to threats from the White House.

The tax is still going ahead, though Trump has proved he can still flex and make the French flinch.

FTC Chair kicks off race to tackle big tech before it’s too late

A race seems to be heating up in the US. On one side, government officials are looking to tackle the influence of big tech, and on the other, Silicon Valley is trying to make it as difficult as possible.

Speaking to the Financial Times, Chairman of the FTC Joseph Simons has stated he believes efforts from Facebook CEO Mark Zuckerberg to more intrinsically integrate the different platforms could seriously complicate his own investigation. Back in July, it was unveiled the FTC was conducting a probe to understand whether competition has been negatively impacted by the social media giant.

However, Facebook has gone on the offensive and Simons is clearly not thrilled about it.

“If they’re maintaining separate business structures and infrastructure, it’s much easier to have a divestiture in that circumstance than in where they’re completely enmeshed, and all the eggs are scrambled,” said Simons.

This is the issue which the FTC is facing; Facebook is more closely integrating the separate brands. From a commercial perspective, this will allow the social media giant to cross-pollinate the platforms, potentially increasing revenues and enhancing the data-analytics machine, though it will also make divestments much more difficult to enforce.

Looking across the big names in Silicon Valley, this is a common business practice. The commercial benefits are of course very obvious, but it could be viewed as a defensive strategy in preparation for any snooping from government agencies.

At Google, with the benefit of hindsight, some regulators and politicians might have wanted to have block the acquisitions of Android, YouTube or artificial intelligence firm DeepMind. These acquisitions have led Google to become one of the most influential companies on the planet, though it does appear regulators at the time did not have the vision to understand the long-term impact. Now the services are so deeply embedded and inter-twined it is perhaps unfeasible to consider divestments.

Amazon is another company some of these politicians would love to tackle, but how do you go about breaking-up such a complex business, where the moving parts are becoming increasingly reliant on each-other?

Going back almost two decades, this is not the first-time regulators have attempted to tackle an overly influential player. Thanks to dominance in the PC arena, Microsoft was deemed to be negatively influencing competition when it came to software and applications. Despite Microsoft being forced to settle the case with the Department of Justice in 2001, the concessions stopped far short of a company break-up.

As part of the settlement, Microsoft agreed to make it easier competitors to get their software more closely integrated with the Windows OS, by breaking the company into two separate units, one to produce the operating system, and one to produce other software components. This was a tough pill for Microsoft to swallow, but it was a favourable outcome for the internet giant.

One view on this outcome is that Microsoft managed to structure its business in such a way it became almost impossible to split-up. If the technology giants of today can learn some lessons from Microsoft, they might well be able to circumnavigate any aggression from the US government.

Although the FTC is stealing the headlines here, it is not the only party looking to tackle the influence of Silicon Valley.

The House Judiciary Committee’s subcommittee that deals with antitrust has already summoned Apple, Amazon, Facebook and Google to testify. This investigation is also looking at the potential negative impact these monstrously large companies are having on competition. A couple of weeks later, the Department of Justice also opened its own probe.

Of course, there are also posturing politicians who are aiming to plug for PR points by slamming Silicon Valley. This is a very popular strategy, with the likes of Virginia Senator Mark Warner and Presidential hopeful Elizabeth Warren taking a firm stance. President Trump has rarely been a friend of Silicon Valley either.

Another interest element to consider are the lawyers. Reports have emerged this morning to suggest as many as 20 State Attorney Generals will also be launching their own investigation. The threat of legal action could be very worrying for Silicon Valley, with a number of the lawyers already suggesting they do not like the way the digital economy is evolving, with the concentration of power one of the biggest problems.

The US has generally tolerated monopolies or an unreasonable concentration of power in economic verticals to a point, generally until infrastructure has been sorted, though the pain threshold might be getting to close. This has been seen with a break-up of Standard Oil’s monopoly, as well as splitting the Bell System, a corporation which was a monopoly in some regions for more than a century, into the Baby Bells across North America in the 1980s.

The internet giants will never publicly state they are participating in strategies which in-effect act as a hindrance to government agencies, but it must be a pleasant by-product. First and foremost, the internet giants will want to integrate different products and services for commercial reasons, operational efficiencies or increased revenues for example, however one eye will be cast on these investigations.

It does appear there is an arms race emerging. Government agencies and ambitious politicians are collecting ammunition for an assault on Silicon Valley, and the internet giants are shoring up defences to ensure a continuation of the status quo. This is a battle for power, and its one the US Government could very feasibly lose.

FTC warns of break-up of big tech

The technology industry has often been a political punching bag over the last 18-24 months, and now the Federal Trade Commission (FTC) is adding to the misery.

In an interview with Bloomberg, FTC Chairman Joe Simons has suggested his agency would be prepared to break-up big tech, undoing previous acquisitions, should it prove to be the best means to prevent anti-competitive activities. This would be a monumental task, though it seems the tides of favour have turned against Silicon Valley.

This is not the first time the internet giants have faced criticism, and it won’t be the last, but what is worth noting is the industry has not endeared itself to friendly comments from political offices around the world. Recent events and scandals, as well as the exploitation of grey areas in the law, have hindered the relationship between Silicon Valley and ambitious politicians.

In this instance, the FTC is currently undertaking an investigation to understand the impact the internet giants are having on competition and the creation of new businesses. Let’s not forget, supporting the little man and small businesses is a key component of the political armoury, and with a Presidential Election around the corner, PR plugs will be popping up all over the place.

Looking at one of those plugs, Democrat candidate-hopeful Elizabeth Warren has already made this promise. Back in March, Warren launched her own Presidential ambitions with the promise to hold the internet giants accountable to the rules. Not only does this mean adding bills to the legislative chalkboard, but potentially breaking up those companies which are deemed ‘monopolistic’.

This has of course been an issue for years in Europe. The European Commission has stopped short of pushing for a break-up, though Google constantly seems to be in the antitrust spotlight for one reason or another. Whether it is default applications through Android or preferential treatment for shopping algorithms, it is under investigation. The latest investigation has seen job recruiters moaning over anti-competitive activities for job sites.

What is also worth noting is that the US has a habit of diluting the concentration of power in certain segments throughout its history. The US Government seems to be tolerant of monopolies while the industry is being normalised and infrastructure is being deployed, before opening-up the segment.

During the early 1910s, Standard Oil was being attacked as a monopoly, though this was only after it has finished establishing the rail network to efficiently transport products throughout the US. In the 1980s, the Bell System was broken-up into the regional ‘Baby Bells’ to increase competition throughout the US telco market.

The internet could be said to have reached this point also. A concentration of power might have been accepted as a necessary evil to ensure economy of scale, to accelerate the development and normalisation of the internet economy, though it might have reached the tipping point.

That said, despite the intentions of US politicians, this might be a task which is much more difficult to complete. It has been suggested Facebook has been restructuring its business and processes to make it more difficult to break-up. It also allegedly backed out of the acquisition of video-focused social network Houseparty for fears it would raise an antitrust red-flag and prompt deeper investigations.

You have to wonder whether the other internet giants are making the same efforts. For example, IBM’s Watson, its AI flagship, has been integrated throughout its entire portfolio, DeepMind has been equally entwined throughout Google, while the Amazon video business is heavily linked to the eCommerce platform. These companies could argue the removal of certain aspect would be overly damaging to the prospects of the business and also a bureaucratic nightmare to untangle.

The more deeply embedded some of these acquisitions are throughout all elements of the business, the more difficult it becomes to separate them. It creates a position where the internet giants can fight back against any new regulation, as these politicians would not want to harm the overarching global leadership position. Evening competition is one thing but sacrificing a global leadership position in the technology industry defending the consumer would be unthinkable.

This is where you have to take these claims from the FTC and ambitious politicians with a pinch-of-salt. These might be very intelligent people, but they will have other jobs aside from breaking-up big tech. The internet giants will have incredibly intelligent people who will have the sole-task of making it impossible to achieve these aims.

Would you pay $500 a year to use your apps?

With Silicon Valley facing a barrage of fire and fury over data practices, some might question whether it would be more beneficial to ban hyper-targeted advertising models and move back to a fee-based economy.

One of the most notable and disruption trends driven by the rapid growth and adoption of the internet is data-driven insights and the hyper-targeted advertising business model. The idea of how to make money was revolutionised, with companies like Facebook and Google offering ‘free’ services to the consumer in exchange for the right to analyse personal information and table contextually relevant ads, promotions, entertainment and content.

The idea of ‘free’ quickly caught on. Numerous companies started springing up all over society, offering services for no-charge, but monetizing personal information in some way or form. But the tides of public opinion might be shifting slightly. Thanks to numerous data scandals over the last 18-24 months, the Cambridge Analytica saga being the most significant, some are questioning whether this is a sensible and/or sustainable way to do business.

Over in the US, marketing agency McGuffin Creative Group has been asking some interesting questions to consumers; assuming the free option was removed from the app economy, how much would you pay for your favourite apps?

App How many would pay? How much on average?
YouTube 72% $4.20
Google Maps 78% $3.84
Google Drive 79% $3.31
Facebook 64% $2.92
LinkedIn 79% $2.84
FaceTime 79% $2.78
Reddit 77% $2.74
Venmo 66% $2.73
Instagram 70% $2.56
Facebook Messenger 66% $2.52
WhatsApp 89% $2.38
Twitter 72% $2.35
Google Translate 78% $2.29
Pinterest 74% $2.11
Snapchat 77% $1.89
Yelp 73% $1.87

The survey results above are interesting, though should be taken with a pinch of salt. Theoretical questions are all well and good, though we suspect the number of people who would pay when asked to actually put their hand in their wallet would be considerably less.

What the numbers do demonstrate is there is an opportunity for these services to make money through a subscription-based model, though it would only work if the entire app economy embraces such a vision. If an alternative app offers a free service, the proposition would be undermined and fall down on itself.

Of course, what is worth noting is that there are companies who are trying to swim against the tide and make the subscription model work. Gaming companies have stuck to the fee-based model, while Google is reportedly trialling a $5 a month service for its app service, Play.

What is also bearing in mind is that without the ‘free’ model employed by the app economy, it is unlikely growth would have materialised in such dramatic fashion.

Firstly, lets have a look at the astronomical growth which has been experienced in this segment. Facebook was founded in 2004, Google 1998, Pinterest in 2009, Twitter in 2006 and Reddit in 2005. This is just a small selection of embryonic businesses which have grown to form a collective which is perhaps the most powerful and influential alliance in today’s global society. These companies are discussed everyday in the news, used by billions around the world, cultivating opinion and prejudices, yet most are still effectively teenagers.

However, without the concept of ‘free’ being implanted in the mind of the consumer, it is unlikely such broad and universal scale could have been achieved. If the consumer was forced to pay for these apps and services, choices would have had to have been made. Consumers sign-up for everything and anything today because they can, and it does not cost them anything from a monetary perspective. Ask people to pay for something and they may become a lot more selective.

This is the issue with shifting back towards a fee-based economy; it will limit potential.

Just looking at the list above, your correspondent would have to pay $28.85 a month, or $346.2 a year. However, this does not include other apps and services which are also installed. For example, your correspondent also has the MeetUp, Google Podcasts, Play Store, Gmail, Spotify, Clash of Clans and ESPNcricinfo apps. Presumably, if the apps above were to start charging, these would also have to. All of sudden, the annual bill for app subscriptions could be north of $500.

This is where it becomes unrealistic. Your correspondent wouldn’t be prepared to pay that much and would begin to cull some services. We suspect numerous other users would be making some hard choices also. This is where the scale of the app economy could become under threat; the everyone and anyone attitude of the app economy would soon dwindle, and growth would diminish.

Another interesting impact might be in areas few associate with the ‘free’ movement. This is the ‘law of unintended consequences’ and it could be quite far ranging. Let’s take media as an example.

If you were to ban the internet giants from monetizing data for profits, surely the same ban would have to be passed onto the media industry. How pleased would the consumer be paying for news was reintroduced? What about price comparison websites, credit rating services, online gaming, dating, fitness trackers and financial planning services. All of these areas make use of data to generate profits, should they be allowed to do so?

Of course, what is worth bearing in mind is that Silicon Valley probably already knows this. There will have been people much smarter than you or I balancing equations, adjusting risk and estimating monetary potential of all different business models. The fact the internet economy persists with this approach to making money demonstrates it is the most viable and potentially lucrative of options.

Criticism against the internet giants and app economy has largely been directed towards an inability to manage user data (security and privacy) and well as a lack of engagement to educate the user on what the concept of ‘free’ actually means. These companies have been monetizing data for more than a decade, yet it is only in the last 12-18 months the consumer has become aware of how the ‘free’ concept actually works.

Silicon Valley is currently facing a major threat. It has not shown itself to be mature or willing enough to operate in a semi-self-regulatory environment, therefore changes are on the horizon. New regulations such as GDPR have tightened controls around data management and permissions, while there have been investigations launched to decide whether these giants should be broken-up for the greater good.

We agree there need to be changes to drive more accountability in the internet economy, and regulatory upheaval should be an objective, however it needs to be managed very carefully.

Some might suggest a transition back to a fee-based economy would be a sensible path to take, though we cannot imagine this ever being a realistic option. Firstly, opposition to such a move would be incredibly aggressive, though this is not necessarily a reason not to do it. Secondly, the disruption would be too great to manage. Finally, such a move would cripple growth prospects in a segment which is one of the biggest contributors to economic success in many nations around the world.

The companies which operate in the field of data analysis and monetization are the ones who are hiring. They are providing direct economic benefit to employees and societies, as well as indirect by stimulating economic growth in adjacent segments. A heavy-handed approach could be incredibly detrimental.

Some might want to take data analysis off the table when it comes to making money, but when you look at the bigger picture, you have to wonder whether it is a sensible idea. Change is needed, but we think this would be a short-sighted route.

G20 gets tough on tech tax as trade war gets agenda nod

20 bean-counters walk into a bar and ask for a tonic water. The barman asks who picking up the bill, and all fingers are pointed towards Silicon Valley.

In southern Japan, finance ministers and representatives of the central banking organizations have gathered to discuss the world of international and domestic finance. Of course, G20 is about much more than spreadsheets and calculators, but this weekend saw the accountants gather, while in the next room, ministers for trade and the digital economy were setting the world to rights.

Starting with the accountants, Silicon Valley is to remain the political punching bag of 2019.

“Specifically, in the area of international taxation, we will continue to have discussions on a review of the existing tax framework triggered by digitalization, in addition to fighting against tax avoidance and evasion,” Japanese Finance Minister Taro Aso said in a statement.

Of course, these politicians are savvy enough not to target a specific segment or highlight companies who are abusing the grey areas in the system. There are numerous different organizations outside of the tech sector who are mistreating globalisation trends for tax benefits, though the tech giants are the ones in the limelight right now.

In the G20 Finance Ministers and Central Bank Governors meeting, new ideas have been tabled suggesting governments around the world will be cracking down on the creative accounting techniques which are becoming ever-so-more common.

According to a communique seen by Reuters, the newly proposed rules would not only make it more difficult for the tech giants to make use of low-tax countries for their benefit, it would also work the other direction. Countries like Ireland, who have benefitted from offering loopholes to the tech giants, would have their freedoms curbed in the pursuit of fairness and a more level global approach.

The new rules would propose two different approaches to taxation. Firstly, companies would have to pay fair tax on the revenues which are derived in the country, and secondly, should the accountants find a way around these rules, a global minimum tax rate could also be introduced. It is the tax version of the Swiss Cheese model; the more layers which are incorporated, the more difficult it is to effectively create a tax evasion model for these organizations to follow.

For countries like the UK and France, this is a win, though the likes of Ireland, Luxembourg and the US will find the outcome frustrating. While the UK and France have been pushing for more stringent tax rules, Ireland and Luxembourg are attempting to protect the light-touch regulatory environments which benefits their own societies but screws everyone else.

The US has suggested any change to taxes was discriminatory to its own companies, effectively a raid on the US economy. Although US Treasury Secretary Steven Mnuchin has seemed relatively cordial in reaction to developments, it remains to see whether any further strain is placed on international relationships. The US is already struggling to maintain strong links with certain governments, and this presents another risk to stress relationships.

Mnuchin has also found himself in the news regarding the Huawei conundrum.

The US finance chief has said in Fukuoka that a trade deal between the US and China could ease the firm stance which is threatening to provide collateral damage all around the world. The statement quotes President Donald Trump, who made the suggestion over Twitter a few months back.

For those firms impacted by the ban, the reiteration of this statement might come as some relief, though critics will become increasingly frustrated. It seems the White House has little concern for collateral damage as long as its own ambitions are fulfilled. For the firms who supply products to Huawei or investors who have been left short by such a ban, the ease in which their livelihoods can be used by the White House as a disposable bargaining chip must be incredibly worrying.

This of course was a topic of conversation at the Ministerial Meeting on Trade and Digital Economy also.

“We continued our dialogue to mitigate risks and enhance confidence among exporters and investors, as we committed to do in Mar del Plata last year,” a briefing document states. “We affirmed the need to handle trade tensions and to foster mutually beneficial trade relations.”

While it might seem like a throw-away comment, perhaps we should appreciate the significance of recognising the situation. In most circumstances, governments would steer clear and allow the bickering duo to continue their chest-beating, however in recognising the circumstances perhaps we are closer to someone stepping in and de-escalating the situation.

Clearly neither the US or China can be trusted to be mature and manage the saga for a net-gain, so it might need a third-party to step in. As it stands, no-one is benefiting, and everyone is losing. The winner of this trade war will be the one which can be the least negatively impacted; that should not be considered an effective way to manage international relations.