Surprised That Big Tech Failed Us? Here Is How We Could Have Known.
By: Sebastian Mueller
Tags: Society, Economy, Business, Ethics, Technology

Surprised That Big Tech Failed Us? Here Is How We Could Have Known.

While the recent headlines about Facebook, Google, and other tech giants seem to cause outrage, their ethical failings were predictable from their business models. Long time ago.

Show me your business model, and I tell you about your ethics. It is often literally that simple. According to Milton Friedman and his school of economics, a firm’s purpose is to use its resources to increase its profits. With the kind addition, that it does so without deception and while staying within the boundaries of the law.

That is what companies do — and what we usually expect of them. No one would assume Exxon to be after anything else than higher profits. Yet, for some reason, technology companies in the more recent decades have been seen in a different light. There seemed to be something revolutionary about these geeks starting companies in Silicon Valley. They seemed to be more innocent; they appeared to be following values.

Photo by Mitchell Luo on Unsplash

From Google’s “Don’t Be Evil” to Facebook’s “Bring The World Closer Together,” these companies seemed to build around purpose. They wanted to sort the world’s information and make it accessible. They wanted to connect people. Those were higher dreams than money, and people believed the techies who peddled them.

Yet beneath the surface, there were always more ambitions lurking — not necessarily money per se, but a desire to shape the world. Latest since Steve Jobs wanted to “put a dent in the universe,” tech folks were high on their Kool-Aid, thinking they could cure the world. The kind of Silicon Valley libertarianism expressed publicly by its prophets, is way more dogmatic and absolutist than anyone should be comfortable with.

While many of the founders of these companies earnestly believe that they live in the future and that they can help bring that future to the world as a good deed, they are also entirely trapped in their bubble. Within their friend circle, investor circle, and companies, there is little diversity to speak of. The people whom they claim to want to be helping are mostly not represented at all. Other than in purpose statements.

And then comes Wall Street

While those idealistic founders can sustain their loss-making endeavors through the support of equally idealistic Venture Capitalists for a long time, at some point, that becomes unsustainable. Ever-larger rounds of money are needed, early VCs are pushing for exits, and early employees want to see returns as well. So eventually, they do an IPO.

And when they start to consider going public, the rules of the game change. They are advised to speak to Goldman Sachs and Morgan Stanley about helping them with the listing and start to hear about what investors want to see. And that is a sustainable business model, stellar revenue growth, and ideally profitability.

Hence,1–2 years before the IPO, many revenue mechanisms have been tried, and the strongest ones are doubled down on and ramped up. The game demands it.

At that point, even the most idealistic founders are confronted with Friedman’s logic (or face the choice of being replaced). So, they compromise — in the name of the mission, they must monetize as much as possible. And so, the same geniuses who created the core product to change the world, now put their brains to work to make the most money possible. Of course, in the name of making the world a better place.

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Hence the revenue model before IPO, which they start doubling down on, becomes the fate of the company. It becomes what everyone optimizes around. And this to the extent, as Friedman described, that the law permits. Which, in the very underregulated digital world, is quite a sizeable gray area. A gray area that has been really exploited.

The Insidious Attention Economy

A lot has been talked about, that when the product is free, the user is the product. In the context of Facebook or Google, who monetize through advertising, this is often read as the user trading their data for services. These companies are hoarding data, collecting it on their sites and across the web, and getting rich off of that.

Yet that is not true. They are not getting rich off of the data itself. The user’s data is not being sold. That would be the least of their interests. They are hoarding the data only to make the actual product more valuable — which is the user’s attention itself.

The time people spent on the services, where they get exposed to targeted advertising based on that data, that is the product, which is much more insidious.

If they were selling off the user’s data, it would be enough to collect a good quantity of it through various interactions. According to one study, with 300 likes, Facebook knows you better than your spouse. So, they could make just the data collection a key part of their activity, and not care about the time you spent on the service. At some point, the amount of data also has diminishing returns, and won’t improve the price.

Your attention, though, does not have diminishing returns. They can sell as much of that as there is a demand for — which is enormous. And the better information they have on you, the higher they can sell your attention. Hence the service is not optimized for data collection per se, but human engagement. Spend as much time as possible.

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Therefore, key algorithms that are now being criticized, such as the algorithm curating the news feed, are fundamental revenue mechanisms. As such, it is very predictable what their fitness function is, hence what they are being optimized for and what the likely outcome is. Engagement at all (human) cost. All it takes is thinking through the business model, to understand to what lengths, within the boundaries of the law, Facebook would go.

Look At The Income Streams

If you would be concerned about which products to use, because of all the headlines — have a look at the companies’ business models.

When a business is over 80% dependent on advertising revenue — your attention is the product, and your data makes it valuable. That is most likely not a trustworthy technology provider to deal with.

When a business sells products or services at considerable premiums, and that is their primary income stream, they would be hell-bent on earning and retaining customer trust.

Especially when free or low-cost alternatives, who monetize differently, are available, premium players are in the trust and security game. Those are better bets.

The recent branding emphasis of Apple, going all-in on Security and Privacy, is hence both honest and brilliant. In the age of surveillance capitalism, in which everyone is after your data and attention to sell you more stuff, the company selling their products in a classy environment and at a premium, has a niche to claim in being different.

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Similarly, Microsoft has relevant messages around security and privacy, which resonate with many businesses. With their diversified income streams, which are dependent on them selling software and hardware, they are in a position to play that game well. Additionally, their focus is selling to enterprise customers primarily, who are highly concerned about security at all levels, and have no problems paying a premium for technology. Hence the business model can fully unfold around those needs and requirements.

It is, to my mind, no surprise, that we are ending the last decade with Apple and Microsoft as trillion-dollar companies, while the rest of tech is trailing behind. I see their positioning as being highly relevant for the decade to come and foresee substantial challenges for Facebook and Google. While there are antitrust and regulatory probes into them, Apple and Microsoft seem to be out of the line of fire for now. For a good reason.

In Summary

While technology companies have been seen in a different light for a long time, as founders claimed higher motives and groomed their image well, it has become clear that they are slaves to the profit motive as well. Just like any other corporation, especially in the lead up to and after a public listing, they are subject to the forces of Wall Street.

These forces are looking for them to monetize to the highest degree possible — stellar revenue growth and profitability. Hence, they put their smartest teams to work on doubling down on the revenue streams they have figured out up until then. And they will exploit them as much as possible, within the confines of the law. Within a legal and regulatory environment, which for much of new technology is still to be defined. There are whole host of gray areas being exploited to the maximum.

Therefore, we can predict how a company will act not by the prophetic words of the founders, but by its business model.

In the case of advertising, this model is selling the user’s attention and making that more valuable through collecting tons of data to better target. Hence, they will go to the limits on gathering information about people across the web and optimizing their services for time spent, not value created.

If we want to see technology companies act more ethically, we therefore either need to tighten up regulations, which has to happen, or as consumers need to be prepared to pay for services currently free to us. We all have the choice to leave companies’ services, which turn our attention to the product being sold.

We need to start choosing.