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  • feedwordpress 14:20:01 on 2018/08/27 Permalink
    Tags: , , , , , policy, ,   

    The Accountable Capitalism Act: It’ll Never Happen, But At Least Now the Conversation Will 

    The past week or so has seen a surge in commentary on the role of corporations in society, a theme familiar to readers of this site. While it might be convenient to peg the trend to Senator Elizabeth Warren’s newly minted Accountable Capitalism Act (more on that in a second), I think it’s more likely that – finally – our collective will is turning to our most logical and obvious instrument of social change, namely, the instrument of business.

    We humans like to organize ourselves into social units. They range from the informal (pickup basketball games) to the elaborately structured (Senate hearings). Our ability to harness collective will is unsurpassed in the animal kingdom, it’s one of our key evolutionary adaptations, driving the success of our species across the globe.

    As I’ve argued elsewhere, one of our most sophisticated social structures is the corporation, which has co-evolved with our various systems of government over the past half millennium or so. The very first corporations were in fact formed (or chartered) by governments – the Dutch East India Company is the most common example of this. In the past century, however, corporations have largely sought to shake the yoke of government regulation – and nowhere have corporations won more freedoms than in the United States, where firms are now considered legal persons with an unrestrained right to “free speech” (IE, the ability to fund political positions).

    So this is where we are today: Large corporations have the legal right to exercise unlimited influence over our political sphere, and the commercial imperative to control (and profit from) nearly all our society’s data. That kind of power will necessarily produce a backlash, on that’s found an articulate, but highly unlikely, argument in Senator Warren’s proposed legislation. From the release announcing the Accountable Capitalism Act:

    For most of our country’s history, American corporations balanced their responsibilities to all of their stakeholders – employees, shareholders, communities – in corporate decisions. It worked: profits went up, productivity went up, wages went up, and America built a thriving middle class.

    But in the 1980s a new idea quickly took hold: American corporations should focus only on maximizing returns to their shareholders. That had a seismic impact on the American economy. In the early 1980s, America’s biggest companies dedicated less than half of their profits to shareholders and reinvested the rest in the company. But over the last decade, big American companies have dedicated 93% of earnings to shareholders – redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that booming corporate profits and rising worker productivity have not led to rising wages.

    Additionally, because the wealthiest top 10% of American households own 84% of all American – held shares-while more than 50% of American households own no stock at all – the dedication to “maximizing shareholder value” means that the multi-trillion dollar American corporate system is focused explicitly on making the richest Americans even richer. 

    Here are a few of the act’s key proposals:

    • Companies with more than $1 billion in revenues must register with, and agree to be regulated by, a new Federal oversight body known as the Office of United States Corporations.  By registering, firms are obliged to “consider the interests of all corporate stakeholders – including employees, customers, shareholders, and the communities in which the company operates.” This enshrines what is often called a “multi-stakeholder philosophy,” the underpinning of B Corps like Patagonia and Kickstarter, into federal law.
    • A corporations’ workers would be empowered to elect at least forty percent of their firms’ board of directors.
    • Long term restrictions on the sale of stock by board directors and corporate officers – three years for stock buy backs, and five years for everything else. This is to insure that a large firms’ managers plan for the long term.
    • A prohibition on political spending of any kind without approval from 75 percent of both directors and shareholders.

    There’s more, but I think you’ve got the point – this is a sweeping and presently impossible piece of legislation that radically rethinks the governance of our most powerful corporations. It guts corporate political spending, upends business’s current compensation structure (often based on stock grants), radically reshapes board governance (giving a near majority control to workers), and creates a massive conservative bogeyman in the form of yet another Federal government oversight entity. In today’s political environment, Warren’s legislation is DOA.

    But in tomorrow’s? Quite possibly not. Senator Warren is widely considered a front-runner for the Democratic nomination in 2020, and her initial opponent won’t be Trump – it’ll be Bernie Sanders, whose supporters likely will find plenty to love in Warren’s new plan.

    Regardless of whether the act has any chance of passing without a strong Democratic majority in both houses of Congress, Warren has smartly identified a central issue in our country’s political conversation, and declared it to be fundamental to the Democrats’ platform for 2020. It’s about time someone did.

    More recent reading on the role of capitalism in our society: 

    Louis Hyman: It’s Not Technology That’s Disrupting Our Jobs

    L.M. Sacasas: Technopoly and Anti-Humanism

    Tom Wheeler: Time to Fix It: Developing Rules for Internet Capitalism

    Neil Irwin: Are Superstar Firms and Amazon Effects Reshaping the Economy? 

     

     

     

     
  • feedwordpress 17:07:06 on 2018/08/01 Permalink
    Tags: , , geopolitics, , , , , policy, , ,   

    Google and China: Flip, Flop, Flap 

    Google’s Beijing offices in 2010, when the company decided to stop censoring its results and exit the market.

    I’ve been covering Google’s rather tortured relationship with China for more than 15 years now. The company’s off again, on again approach to the Internet’s largest “untapped” market has proven vexing, but as today’s Intercept scoop informs us, it looks like Google has yielded to its own growth imperative, and will once again stand up its search services for the Chinese market. To wit:

    GOOGLE IS PLANNING to launch a censored version of its search engine in China that will blacklist websites and search terms about human rights, democracy, religion, and peaceful protest, The Intercept can reveal.

    The project – code-named Dragonfly – has been underway since spring of last year, and accelerated following a December 2017 meeting between Google’s CEO Sundar Pichai and a top Chinese government official, according to internal Google documents and people familiar with the plans.

    If I’m reading story correctly, it looks like Google’s China plans, which were kept secret from nearly all of the company’s employees, were leaked to The Intercept by concerned members of Google’s internal “Dragonfly” team, one of whom was quoted:

    “I’m against large companies and governments collaborating in the oppression of their people, and feel like transparency around what’s being done is in the public interest,” the source said, adding that they feared “what is done in China will become a template for many other nations.”

    This news raises any number of issues – for Google, certainly, but given the US/China trade war, for anyone concerned with the future of free trade and open markets. And it revives an age old question about where the line is between “respecting the rule of law in markets where we operate,” a standard tech company response to doing business on foreign soil, and “enabling authoritarian rule,” which is pretty much what Google will be doing should it actually launch the Dragonfly app.

    A bit of history. Google originally refused to play by China’s rules, and in my 2004 book, I reviewed the history, and gave the company props for taking a principled stand, and forsaking what could have been massive profits in the name of human rights. Then, in 2006, Google decided to enter the Chinese market, on government terms. Google took pains to explain its logic:

    We ultimately reached our decision by asking ourselves which course would most effectively further Google’s mission to organize the world’s information and make it universally useful and accessible. Or, put simply: how can we provide the greatest access to information to the greatest number of people?

    I didn’t buy that explanation then, and I don’t buy it now. Google is going into China for one reason, and one reason alone: Profits. As Google rolled out its service in 2006, I penned something of a rant, titled “Never Poke A Dragon While It’s Eating.” In it I wrote:

    The Chinese own a shitload of our debt, and are consuming a shitload of the world’s export base of oil. As they consolidate their power, do you really believe they’re also planning parades for us? I’m pretty sure they’ll be celebrating decades of US policy that looked the other way while the oligarchy used our technology (and that includes our routers, databases, and consulting services) to meticulously undermine the very values which allowed us to create companies like Google in the first place. But those are not the kind of celebrations I’m guessing we’d be invited to.

    So as I puzzle through this issue, understanding how in practical terms it’s really not sensible to expect that some GYMA pact is going to change the world (as much as I might wish it would), it really, honestly, comes down to one thing: The man in the White House.

    Until the person leading this country values human rights over appeasement, and decides to lead on this issue, we’re never going to make any progress. 

    Google pulled out of China in 2010, using a China-backed hacking incident as its main rationale (remember that?!).  The man in the White House was – well let’s just say he wasn’t Bush, nor Clinton, and he wasn’t Trump. In any case, the hacking incident inconveniently reminded Google that the Chinese government has no qualms about using data derived from Google services to target its own citizens.

    Has the company forgotten that fact? One wonders. Back in 2010, I praised the company for standing up to China:

    In this case, Google is again taking a leadership role, and the company is forcing China’s hand. While it’s a stretch to say the two things are directly connected, the seeming fact that China’s government was behind the intrusions has led Google to decide to stop censoring its results in China. This is politics at its finest, and it’s a very clear statement to China: We’re done playing the game your way.

    Seems Google’s not done after all. Which is both sad, and utterly predictable. Sad, because in today’s political environment, we need our companies to lead on moral and human rights issues. And predictable, because Android has a massive hold on China’s internet market, and Google’s lack of a strong search play there threatens not only the company’s future growth in its core market, but its ability to leverage Android across all its services, just as it has in Europe and the United States.

    Google so far has not made a statement on The Intercept’s story, though I imagine smoke is billowing out of some communications war room inside the company’s Mountain View headquarters.  Will the company attempt some modified version of its 2006 justifications? I certainly hope not. This time, I’d counsel, the company should just tell the truth: Google is a public company that feels compelled to grow, regardless of whether that growth comes at a price to its founding values. Period, end of story.

    I’ll end with another quote from that 2006 “Don’t Poke a Dragon” piece:

    …companies like Yahoo and Google don’t traffic in sneakers, they traffic in the most powerful forces in human culture – expression. Knowledge. Ideas. The freedom of which we take as fundamental in this country, yet somehow, we seem to have forgotten its importance in the digital age – in China, one protesting email can land you in jail for 8 years, folks.

    …Congress can call hearings, and beat up Yahoo, Google and the others for doing what everyone else is doing, but in the end, it’s not (Google’s) fault, nor, as much as I wish they’d take it on, is it even their problem. It’s our government’s problem….Since when is China policy somehow the job of private industry?

    Until that government gives (the tech industry) a China policy it can align behind, well, they’ll never align, and the very foundation of our culture – free expression and privacy, will be imperiled.

    After all, the Chinese leaders must be thinking, as they snack on our intellectual property, we’re only protecting our citizens in the name of national security.

    Just like they do in the US, right?

     
  • feedwordpress 21:41:10 on 2018/07/28 Permalink
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    When Senators Ask Followup Questions, You Answer Them. 

    Following my Senate testimony last month, several Senators reached out with additional questions and clarification requests. As I understand it this is pretty standard. Given I published my testimony here earlier, I asked if I could do the same for my written followup. The committee agreed, the questions and my answers are below.

    Questions for the Record from Sen. Cortez Masto (D. Nevada)

    Facebook Audits

    On April 4, 2018, following the public controversy over Cambridge Analytica’s use of user data, Facebook announced several additional changes to its privacy policies. The changes include increased restrictions on apps’ ability to gather personal data from users and also a policy of restricting an app’s access to user data if that user has not used the app in the past three months. In addition, Facebook has committed to conducting a comprehensive review of all apps gathering data on Facebook, focusing particularly on apps that were permitted to collect data under previous privacy policies. Facebook will also notify any users affected by the Cambridge Analytica data leak.

    Question 1: What steps can the government take to ensure that there is proper oversight of these reviews and audits?

    John Battelle’s response:

    I think this is a simple answer: Make sure Facebook does what it says it will do, and make sure its response is a matter not only of public record, but also public comment. This should include a full and complete accounting of how the audit was done and the findings.

    Question 2: From a technical standpoint, how effective are forensic methods at ascertaining information related to what data was transferred in these cases?

    John Battelle’s response:

    I’m not a technologist, I’m an entrepreneur, author, analyst and commentator. I’d defer to someone who has more knowledge than myself on issues of forensic data analysis.  

    Technology for Consumer Protection

    Question 1: Are there any technological solutions being developed that can help address some of the issues of consumers’ privacy being violated online?

    John Battelle’s response:

    Yes, there are many, likely too many to mention. Instead, what I’d like to highlight is the importance of the architecture of how data flows in our society. We should be creating a framework that allows data to flow ethically, securely, and with key controls around permissioning, editing, validation, revocation, and value exchange. Blockchains hold great promise here, but are still underdeveloped (but they’re evolving rapidly).

    Data Retention

    Question 1: What should we, as legislators, be thinking about to verify that – when Americans are told that their data has been destroyed – that deletion can actually be confirmed?

    John Battelle’s response:

    Independent third party auditing services that services such as Facebook must employ seems the most straightforward response. “Trust us” is not enough, we must trust and verify.

    Law Enforcement

    During the hearing we had a brief discussion on the balance between privacy and sharing data with law enforcement.

    Question 1: What should companies keep in mind to ensure that they can appropriately assist in law enforcement investigations?

    John Battelle’s response:

    This is a delicate balance, as evinced in the varied responses to these kind of cases from companies like Apple, Twitter, Yahoo, and others. Valid search warrants, not fishing expeditions, should be the rule. We’ve got the framework for this already. The issue of how governments and law enforcement deal with encryption is unresolved. However, I fall on the side of enabling strong encryption, as I believe all citizens have the right to privacy. Lose that, and we lose democracy.  

    Questions 2: As lawmakers, what should we be aware of as we try to strike the right balance between privacy and safety in this area?

    John Battelle’s response:

    Democracy is open, messy, transparent, and has many failures. But it’s the best system yet devised (in my humble opinion) and privacy lies at its core. That means criminals will be able to abuse its benefits. That is a tradeoff we have to accept and work around. Sure, it’d be great if law enforcement had access to all the data created by its citizens. Until it’s abused, and cases of this kind of abuse by government are easy to find.

    Senator Richard Blumenthal (D. Conn) Questions for the Record 

    Privacy Legislation

    Across hearings and questions for the record, members of Congress have raised concerns about the data collection tactics used by Facebook that are not made clear to its users. As I stated during the hearing, I am interested in putting into place rules of the road for online privacy, taking into consideration the European General Data Protection Regulation. During the hearing Mr. Battelle and others offered support for the intent of GDPR, but expressed reservations about the implementation and unintended consequences. I look forward to any further thoughts from the panelists regarding how to implement data privacy rules in the United States.

     Question for All Panelists:

    Question 1. In addition to any recommendations or comments on what types of legislation or other measures could help protect consumer privacy, what lessons and principles of the California Consumer Privacy Act and the GDPR should Congress consider in privacy legislation?

     John Battelle’s response:

    Implementation of sweeping legislation like those mentioned above is extremely onerous for small business. Instead of using that as an excuse to avoid legislation, the policy should incorporate remedies for smaller business (IE, enabling federation of resources and response/compliance, enabling trusted intermediaries).

    The principle of empowering the consumer is embodied in both GDPR and CCPA. While well intentioned, neither envision how that empowerment will truly be effective in a modern digital marketplace. Take the principle of data portability. It’s one thing to allow consumers to download a copy of their data from a platform or service. But for that data to drive innovation, it must be easily uploaded, in a defined, well-governed, machine-readable format, so that new kinds of services can flourish. Watch how large tech platforms chip away at CCPA and attempt to subvert that ecosystem from taking root. Consider how best to ensure that ecosystem will in fact exist. I’m not a legislative analyst, but there must be an enlightened way to encourage a class of data brokers (and yes, they’re not all bad) who enable re-aggregation of consumer data, replete with permissions, revocation, validation, editing, and value exchange. Happy to talk more about this.

    Questions for Mr. Battelle:

    Question 2. You have written at length about the influence of Facebook and Google on the advertising and third party data market. In your experience, has Facebook driven the ad market as a sector to more invasively collect data about people? What other changes in the ad market can be attributed to the dominance of Google and Facebook?

    John Battelle’s response:

    Yes, without question, Facebook has driven what you describe in your initial question. But not for entirely negative reasons. Because Facebook has so much information on its users, larger advertisers feel at a disadvantage. This is also true of publishers who use Facebook for distribution (another important aspect of the platform, especially as it relates to speech and democratic discourse). Both advertisers and publishers wish to have a direct, one to one dialog with their customers, and should be able to do so on any platform. Facebook, however, has forced their business model into the middle of this dialog – you must purchase access to your followers and your readers. A natural response is for advertisers and publishers to build their own sophisticated databases of their customers and potential customers. This is to be expected, and if the data is managed ethically and transparently, should not be considered an evil.

    As for other changes in the ad market that might be attributed to FB and GOOG, let’s start with the venture funding of media startups, or advertising-dependent startups of any kind. Given the duopoly’s dominance of the market, it’s become extremely hard for any entrepreneur to find financing for ideas driven by an advertising revenue stream. Venture capitalists will say “Well, that’s a great (idea, service, product), but no way am I going to fund a company that has to compete with Google or Facebook.” This naturally encourages a downward spiral in innovation.

    Another major problem in ad markets is the lack of portable data and insights between Facebook and Google. If I’m an advertiser or publisher on Facebook, I’d like a safe, ethical, and practical way to know who has responded to my messaging on that platform, and to take that information across platforms, say to Google’s YouTube or Adwords. This is currently far too hard to do, if not impossible in many cases. This also challenges innovation across the business ecosystem.

    Questions for the Record

    Senator Margaret Wood Hassan (D. New Hampshire)

    Question 1. The internet has the potential to connect people with ideas that challenge their worldview, and early on many people were hopeful that the internet would have just that effect. But too often we have seen that social media sites like Facebook serve instead as an echo chamber that polarizes people instead of bringing them together, showing them content that they are more likely to agree with rather than exposing them to new perspectives. Do you agree this is a problem? And should we be taking steps to address this echo chamber effect?

    John Battelle’s response:

    Yes, this filter bubble problem is well defined and I agree it’s one of the major design challenges we face not only for Facebook, but for our public discourse as well. The public square, as it were, has become the domain of private companies, and private companies do not have to follow the same rules as, say, UC Berkeley must follow in its public spaces (Chancellor Carol Christ has been quite eloquent on this topic, see her interview at the NewCo Shift Forum earlier this year).

    As to steps that might be taken, this is a serious question that balances a private corporation’s right to conduct its business as it sees fit, and the rights and responsibilities of a public space/commons. I’d love to see those corporations adopt clear and consistent rules about speech, but they are floundering (see Mr. Zuckerberg’s recent comments on Holocaust deniers, for example). I’d support a multi-stakeholder commission on this issue, including policymakers, company representatives, legal scholars, and civic leaders to address the issue.

    Question 2. In your testimony you discuss the value of data. You stated that you think in some ways, QUOTE, “data is equal to – or possibly even more valuable than – monetary currency.” We in Congress are seeking to figure out the value of data as well to help us understand the costs and benefits of protecting this data. Can you expand on what value you think data has, and how we should be thinking about measuring that value – both as citizens and as legislators?

    John Battelle’s response:

    Just as we had no idea the value of oil when it first came into the marketplace (it was used for lamps and for paving streets, and no one could have imagined the automobile industry), we still have not conceived of the markets, products, and services that could be enabled by free flowing and ethically sourced and permissioned data in our society. It’s literally too early to know, and therefore, too early to legislate in sweeping fashions that might limit or retard innovation. However, one thing I am certain of is that data – which is really a proxy for human understanding and innovation – is the most fundamentally valuable resource in the world. All money is simply data, when you think about it, and therefore a subset of data.

    So how to measure its value? I think at this point it’s impossible – we must instead treat it as an infinitely valuable resource, and carefully govern its use. I’d like to add my response to another Senator’s question here, about new laws (GDPR and the California Ballot initiative) as added reference:

    Implementation of sweeping legislation like those mentioned above is extremely onerous for small business. Instead of using that as an excuse to avoid legislation, the policy should incorporate remedies for smaller business (IE, enabling federation of resources and response/compliance, enabling trusted intermediaries).

    The principle of empowering the consumer is embodied in both GDPR and CCPA. While well intentioned, neither envision how that empowerment will truly be effective in a modern digital marketplace. Take the principle of data portability. It’s one thing to allow consumers to download a copy of their data from a platform or service. But for that data to drive innovation, it must be easily uploaded, in a defined, well-governed, machine-readable format, so that new kinds of services can flourish. Watch how large tech platforms chip away at CCPA and attempt to subvert that ecosystem from taking root. Consider how best to ensure that ecosystem will in fact exist. I’m not a legislative analyst, but there must be an enlightened way to encourage a class of data brokers (and yes, they’re not all bad) who enable re-aggregation of consumer data, replete with permissions, revocation, validation, editing, and value exchange. Happy to talk more about this.

    Question 3. Mark Zuckerberg has said that he sees Facebook more as a government than a traditional company.  Among other things, governments need to be transparent and open about the decisions they make. Many large institutions have set up independent systems — such as offices of inspectors general or ombudsmen and ethics boards — to ensure transparency and internally check bad decisions.  Facebook has none of those controls. What kinds of independent systems should companies like Facebook have to publicly examine and explain their decision-making?

    John Battelle’s response:

    OK, this one is simple. Facebook is NOT a government. If it is, I don’t want to be a “citizen.” I think Mr. Zuckerberg is failing to truly understand what a government truly is. If indeed Facebook wishes to become a nation state, then first it must decide what kind of nation state it wishes to be. It needs a constitution, a clear statement of rights, roles, responsibilities, and processes. None of these things exist at the moment. A terms of service does not a government make.

    However, all of the ideas you mention make a ton of sense for Facebook at this juncture. I’d be supportive of them all.

     
  • feedwordpress 23:29:34 on 2018/06/19 Permalink
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    My Senate Testimony 

    (image) Today I had a chance to testify to the US Senate on the subject of Facebook, Cambridge Analytica, and data privacy. It was an honor, and a bit scary, but overall an experience I’ll never forget. Below is the written testimony I delivered to the Commerce committee on Sunday, released on its site today. If you’d like to watch, head right here, I think it’ll be up soon.  Forgive the way the links work, I had to consider that this would be printed and bound in the Congressional Record. I might post a shorter version that I read in as my verbal remarks next…we’ll see.


     

    Honorable Committee Members –

     

    My name is John Battelle, for more than thirty years, I’ve made my career reporting, writing, and starting companies at the intersection of technology, society, and business. I appreciate the opportunity to submit this written and verbal testimony to your committee.

    Over the years I’ve written extensively about the business models, strategies, and societal impact of technology companies, with a particular emphasis on the role of data, and the role of large, well-known firms. In the 1980s and 90s I focused on Apple and Microsoft, among others. In the late 90s I focused on the nascent Internet industry, the early 2000s brought my attention to Google, Amazon, and later, Twitter and Facebook. My writings tend to be observational, predictive, analytical, and opinionated.

    Concurrently I’ve been an entrepreneur, founding or co-founding and leading half a dozen companies in the media and technology industries. All of these companies, which span magazines, digital publishing tools, events, and advertising technology platforms, have been active participants in what is broadly understood to be the “technology industry” in the United States and, on several occasions, abroad as well. Over the years these companies have employed thousands of staff members, including hundreds of journalists, and helped to support tens of thousands of independent creators across the Internet. I also serve on the boards of several companies, all of which are deeply involved in the technology and data industries.

    In the past few years my work has focused on the role of the corporation in society, with a particular emphasis on the role technology plays in transforming that role. Given this focus, a natural subject of my work has been on companies that are the most visible exemplars of technology’s impact on business and society. Of these, Facebook has been perhaps my most frequent subject in the past year or two.

    Given the focus of this hearing, the remainder of my written testimony will focus on a number of observations related generally to Facebook, and specifically to the impact of the Cambridge Analytica story. For purposes of brevity, I will summarize many of my points here, and provide links to longer form writings that can be found on the open Internet.

    Facebook broke through the traditional Valley startup company noise in the mid 2000s, a typical founder-driven success story backed by all the right venture capital, replete with a narrative of early intrigue between partners, an ambitious mission (“to make the world more open and connected”), a sky-high private valuation, and any number of controversial decisions around its relationship to its initial customers, the users of its service (later in its life, Facebook’s core customers bifurcated to include advertisers). I was initially skeptical about the service, but when Sheryl Sandberg, a respected Google executive, moved to Facebook to run its advertising business, I became certain it would grow to be one of the most important companies in technology. I was convinced Facebook would challenge Google for supremacy in the hyper-growth world of personalized advertising. In those early days, I often made the point that while Google’s early corporate culture sprang from the open, interconnected world wide web, Facebook was built on the precept of an insular walled garden, where a user’s experience was entirely controlled by the Facebook service itself. This approach to creating a digital service not only threatened the core business model of Google (which was based on indexing and creating value from open web pages), it also raised a significant question of what kind of public commons we wanted to inhabit as we migrated our attention and our social relationships to the web. (Examples: https://battellemedia.com/archives/2012/02/its-not-whether-googles-threatened-its-asking-ourselves-what-commons-do-we-wish-for ; https://battellemedia.com/archives/2012/03/why-hath-google-forsaken-us-a-meditation)

    In the past five or so years, of course, Facebook has come to dominate what is colloquially known as the public square – the metaphorical space where our society comes together to communicate with itself, to debate matters of public interest, and to privately and publicly converse on any number of topics. Since the dawn of the American republic, independent publishers (often referred to as the Fourth Estate – from pamphleteers to journalists to bloggers) have always been important actors in the center of this space. As a publisher myself, I became increasingly concerned that Facebook’s appropriation of public discourse would imperil the viability of independent publishers. This of course has come to pass.

    As is well understood by members of this committee, Facebook employed two crucial strategies to grow its service in its early days. The first was what is universally known as the News Feed, which mixed personal news from “friends” with public stories from independent publishers. The second strategy was the Facebook “Platform,” which encouraged developers to create useful (and sometimes not so useful) products and services inside Facebook’s walled garden service. During the rise of both News Feed and Platform, I repeatedly warned independent publishers to avoid committing themselves and their future viability to either News Feed or the Platform, as Facebook would likely change its policies in the future, leaving publishers without recourse. (Examples: https://battellemedia.com/archives/2012/01/put-your-taproot-into-the-independent-web ; https://battellemedia.com/archives/2012/11/facebook-is-now-making-its-own-weather ; https://shift.newco.co/we-can-fix-this-f-cking-mess-bf6595ac6ccd ; https://shift.newco.co/ads-blocking-and-tackling-18129db3c352)

    Of course, the potent mix of News Feed and a subset of independent publishers combined to deliver us the Cambridge Analytica scandal, and we are still grappling with the implications of this incident on our democracy. But it is important to remember that while the Cambridge Analytica breach seems unusual, it is in fact not – it represents business as usual for Facebook. Facebook’s business model is driven by its role as a data broker. Early in its history, Facebook realized it could grow faster if it allowed third parties, often referred to as developers, to access its burgeoning trove of user data, then manipulate that data to create services on Facebook’s platform that increased a Facebook user’s engagement on the platform. Indeed, in his early years as CEO of Facebook, Mark Zuckerberg was enamored with the “platform business model,” and hoped to emulate such icons as Bill Gates (who built the Windows platform) or Steve Jobs (who later built the iOS/app store platform).

    However, Facebook’s core business model of advertising, driven as it is by the brokerage of its users’ personal information, stood in conflict with Zuckerberg’s stated goal of creating a world-beating platform. By their nature, platforms are places where third parties can create value. They do so by leveraging the structure, assets, and distribution inherent to the platform. In the case of Windows, for example, developers capitalized on Microsoft’s well-understood user interface, its core code base, and its massive adoption by hundreds of millions of computer users. Bill Gates famously defined a successful platform as one that creates more value for the ecosystem that gathers around it than for the platform itself. By this test – known as the Gates Line – Facebook’s early platform fell far short. Developers who leveraged access to Facebook’s core asset – its user data – failed to make enough advertising revenue to be viable, because Facebook (and its advertisers) would always preference Facebook’s own advertising inventory over that of its developer partners. In retrospect, it’s now commonly understood in the Valley that Facebook’s platform efforts were a failure in terms of creating a true ecosystem of value, but a success in terms of driving ever more engagement through Facebook’s service.

    For an advertising-based business model, engagement trumps all other possible metrics. As it grew into one of the most successful public companies in the history of business, Facebook nimbly identified the most engaging portions of its developer ecosystem, incorporated those ideas into its core services, and became a ruthlessly efficient acquirer and manipulator of its users’ engagement. It then processed that engagement into advertising opportunities, leveraging its extraordinary data assets in the process. Those advertising opportunities drew millions of advertisers large and small, and built the business whose impact we now struggle to understand.

    To truly understand the impact of Facebook on our culture, we must first understand the business model it employs. Interested observers of Facebook will draw ill-informed conclusions about the company absent a deep comprehension of its core driver – the business of personalized advertising. I have written extensively on this subject, but a core takeaway is this: The technology infrastructure that allows companies like Facebook to identify exactly the right message to put in front of exactly the right person at exactly the right time are, in all aspects of the word, marvelous. But the externalities of manufacturing attention and selling it to the highest bidder have not been fully examined by our society. (Examples: https://shift.newco.co/its-the-advertising-model-stupid-b843cd7edbe9 ; https://shift.newco.co/its-the-advertising-model-stupid-b843cd7edbe9 ; https://shift.newco.co/lost-context-how-did-we-end-up-here-fd680c0cb6da ; https://battellemedia.com/archives/2013/11/why-the-banner-ad-is-heroic-and-adtech-is-our-greatest-technology-artifact ; https://shift.newco.co/do-big-advertisers-even-matter-to-the-platforms-9c8ccfe6d3dc )

    The Cambridge Analytica scandal has finally focused our attention on these externalities, and we should use this opportunity to go beyond the specifics of that incident, and consider the broader implications. The “failure” of Facebook’s Platform initiative is not a failure of the concept of an open platform. It is instead a failure by an immature, blinkered company (Facebook) to properly govern its own platform, as well as a failure of our own regulatory oversight to govern the environment in which Facebook operates. Truly open platforms are regulated by the platform creator in a way that allows for explosive innovation (see the Gates Line) and shared value creation. (Examples: https://shift.newco.co/its-not-the-platforms-that-need-regulation-2f55177a2297 ; https://shift.newco.co/memo-to-techs-titans-please-remember-what-it-was-like-to-be-small-d6668a8fa630)

    The absolutely wrong conclusion to draw from the Cambridge Analytica scandal is that entities like Facebook must build ever-higher walls around their services and their data. In fact, the conclusion should be the opposite. A truly open society should allow individuals and properly governed third parties to share their data so as to create a society of what Nobel laureate Edmond Phelps calls “mass flourishing.” My own work now centers on how our society might shift what I call the “social architecture of data” from one where the control, processing and value exchange around data is managed entirely by massive, closed entities like Facebook, to one where individuals and their contracted agents manage that process themselves. (Examples: https://shift.newco.co/are-we-dumb-terminals-86f1e1315a63 ; https://shift.newco.co/facebook-tear-down-this-wall-400385b7475d ; https://shift.newco.co/how-facebook-google-amazon-and-their-peers-could-change-techs-awful-narrative-9a758516210a ; https://shift.newco.co/on-facebook-a156710f2679 ; https://battellemedia.com/archives/2014/03/branded-data-preferences )

    Another mistaken belief to emerge from the Cambridge Analytica scandal is that any company, no matter how powerful, well intentioned, or intelligent, can by itself “fix” the problems the scandal has revealed. Facebook has grown to a size, scope, and impact on our society that outstrips its ability to manage the externalities it has created. To presume otherwise is to succumb to arrogance, ignorance, or worse. The bald truth is this: Not even Mark Zuckerberg understands how Facebook works, nor does he comprehend its impact on our society. (Examples: https://shift.newco.co/we-allowed-this-to-happen-were-sorry-we-need-your-help-e26ed0bc87ac ; https://shift.newco.co/i-apologize-d5c831ce0690 ; https://shift.newco.co/facebooks-data-trove-may-well-determine-trump-s-fate-71047fd86921 ; https://shift.newco.co/its-time-to-ask-ourselves-how-tech-is-changing-our-kids-and-our-future-2ce1d0e59c3c )

    Another misconception: Facebook does not “sell” its data to any third parties. While Facebook may not sell copies of its data to these third parties, it certainly sells leases to that data, and this distinction bears significant scrutiny. The company may not wish to be understood as such, but it is most certainly the largest data broker in the history of the data industry.

    Lastly, the Cambridge Analytica scandal may seem to be entirely about a violation of privacy, but to truly understand its impact, we must consider the implications relating to future economic innovation. Facebook has used the scandal as an excuse to limit third party data sharing across and outside its platform. While this seems logical on first glance, it is in fact destructive to long term economic value creation.

    So what might be done about all of this? While I understand the lure of sweeping legislation that attempts to “cure” the ills of technological progress, such approaches often have their own unexpected consequences. For example, the EU’s adoption of GDPR, drafted to limit the power of companies like Facebook, may in fact only strengthen that company’s grip on its market, while severely limiting entrepreneurial innovation in the process (Example: https://shift.newco.co/how-gdpr-kills-the-innovation-economy-844570b70a7a )

    As policy makers and informed citizens, we should strive to create a flexible, secure, and innovation friendly approach to data governance that allows for maximum innovation while also insuring maximum control over the data by all effected parties, including individuals, and importantly, the beneficiaries of future innovation yet conceived and created. To play forward the current architecture of data in our society – where most of the valuable information is controlled by an increasingly small oligarchy of massive corporations – is to imagine a sterile landscape hostile to new ideas and mass flourishing.

    Instead, we must explore a world governed by an enlightened regulatory framework that encourages data sharing, high standards of governance, and maximum value creation, with the individual at the center of that value exchange. As I recently wrote: “Imagine … you can download your own Facebook or Amazon “token,” a magic data coin containing not only all the useful data and insights about you, but a control panel that allows you to set and revoke permissions around that data for any context. You might pass your Amazon token to Walmart, set its permissions to “view purchase history” and ask Walmart to determine how much money it might have saved you had you purchased those items on Walmart’s service instead of Amazon. You might pass your Facebook token to Google, set the permissions to compare your social graph with others across Google’s network, and then ask Google to show you search results based on your social relationships. You might pass your Google token to a startup that already has your genome and your health history, and ask it to munge the two in case your 20-year history of searching might infer some insights into your health outcomes. This might seem like a parlor game, but this is the kind of parlor game that could unleash an explosion of new use cases for data, new startups, new jobs, and new economic value.”

    It is our responsibility to examine our current body of legislation as it relates to how corporations such as Facebook impact the lives of consumers and the norms of our society overall. Much of the argument around this issue turns on the definition of “consumer harm” under current policy. Given that data is non-rivalrous and services such as Facebook are free of charge, it is often presumed there is no harm to consumers (or by extension, to society) in its use. This also applies to arguments about antitrust enforcement. I think our society will look back on this line of reasoning as deeply flawed once we evolve to an understanding of data as equal to – or possibly even more valuable than – monetary currency.

    Most observers of technology agree that data is a new class of currency in society, yet we continue to struggle to understand its impact, and how best to govern it. The manufacturing of data into currency is the main business of Facebook and countless other information age businesses. Currently the only participatory right in this value creation for a user of these services is to A/engage with the services offered and B/purchase the stock of the company offering the services. Neither of these options affords the user – or society – compensation commensurate with the value created for the firm. We can and must do better as a society, and we can and must expect more of our business leaders.

    (More: https://shift.newco.co/its-time-for-platforms-to-come-clean-on-political-advertising-69311f582955 ; https://shift.newco.co/come-on-what-did-you-think-they-do-with-your-data-396fd855e7e1 ; https://shift.newco.co/tech-is-public-enemy-1-so-now-what-dee0c0cc40fe ; https://shift.newco.co/why-is-amazons-go-not-bodega-2-0-6f148075afd5 ; https://shift.newco.co/predictions-2017-cfe0806bed84 ; https://shift.newco.co/the-automatic-weapons-of-social-media-3ccce92553ad )

    Respectfully submitted,

    John Battelle

    Ross, California

    June 17, 2018

     
  • feedwordpress 23:59:30 on 2018/06/01 Permalink
    Tags: , , , , crypto, , , , , , , , , policy, , , world wide web   

    Do We Want A Society Built On The Architecture of Dumb Terminals? 

    The post Do We Want A Society Built On The Architecture of Dumb Terminals? appeared first on John Battelle's Search Blog.

    God, “innovation.” First banalized by undereducated entrepreneurs in the oughts, then ground to pablum by corporate grammarians over the past decade, “innovation” – at least when applied to business – deserves an unheralded etymological death.

    But.

    This will be a post about innovation. However, whenever I feel the need to peck that insipid word into my keyboard, I’m going to use some variant of the verb “to flourish” instead. Blame Nobel laureate Edmond Phelps for this: I recently read his Mass Flourishing, which outlines the decline of western capitalism, and I find its titular terminology far less annoying.

    So flourishing it will be.

    In his 2013 work, Phelps (who received the 2006 Nobel in economics) credits mass participation in a process of innovation (sorry, there’s that word again) as central to mass flourishing, and further argues – with plenty of economic statistics to back him up – that it’s been more than a full generation since we’ve seen mass flourishing in any society. He writes:

    …prosperity on a national scale—mass flourishing—comes from broad involvement of people in the processes of innovation: the conception, development, and spread of new methods and products—indigenous innovation down to the grassroots. This dynamism may be narrowed or weakened by institutions arising from imperfect understanding or competing objectives. But institutions alone cannot create it. Broad dynamism must be fueled by the right values and not too diluted by other values.

    Phelps argues the last “mass flourishing” economy was the 1960s in the United States (with a brief but doomed resurgence during the first years of the open web…but that promise went unfulfilled). And he warns that “nations unaware of how their prosperity is generated may take steps that cost them much of their dynamism.” Phelps further warns of a new kind of corporatism, a “techno nationalism” that blends state actors with corporate interests eager to collude with the state to cement market advantage (think Double Irish with a Dutch Sandwich).

    These warnings were proffered largely before our current debate about the role of the tech giants now so dominant in our society. But it sets an interesting context and raises important questions. What happens, for instance, when large corporations capture the regulatory framework of a nation and lock in their current market dominance (and, in the case of Big Tech, their policies around data use?).

    I began this post with Phelps to make a point: The rise of massive data monopolies in nearly every aspect of our society is not only choking off shared prosperity, it’s also blinkered our shared vision for the kind of future we could possibly inhabit, if only we architect our society to enable it. But to imagine a different kind of future, we first have to examine the present we inhabit.

    The Social Architecture of Data 

    I use the term “architecture” intentionally, it’s been front of mind for several reasons. Perhaps the most difficult thing for any society to do is to share a vision of the future, one that a majority might agree upon. Envisioning the future of a complex living system – a city, a corporation, a nation – is challenging work, work we usually outsource to trusted institutions like government, religions, or McKinsey (half joking…).

    But in the past few decades, something has changed when it comes to society’s future vision. Digital technology became synonymous with “the future,” and along the way, we outsourced that future to the most successful corporations creating digital technology. Everything of value in our society is being transformed into data, and extraordinary corporations have risen which refine that data into insight, knowledge, and ultimately economic power. Driven as they are by this core commodity of data, these companies have acted to cement their control over it.

    This is not unusual economic behavior, in fact, it’s quite predictable. So predictable, in fact, that it’s developed its own structure – an architecture, if you will, of how data is managed in today’s information society. I’ve a hypothesis about this architecture – unproven at this point (as all are) – but one I strongly suspect is accurate. Here’s how it might look on a whiteboard:

    We “users” deliver raw data to a service provider, like Facebook or Google, which then captures, refines, processes, and delivers that data back as services to us. The social contract we make is captured in these services’ Terms of Services – we may “own” the data, but for all intents and purposes, the power over that information rests with the platform. The user doesn’t have a lot of creative license to do much with that data he or she “owns” – it lives on the platform, and the platform controls what can be done with it.

    Now, if this sounds familiar, you’re likely a student of early computing architectures. Back before the PC revolution, most data, refined or not, lived on a centralized platform known as a mainframe. Nearly all data storage and compute processing occurred on the mainframe. Applications and services were broadcast from the mainframe back to “dumb terminals,” in front of which early knowledge workers toiled. Here’s a graph of that early mainframe architecture:

     

    This mainframe architecture had many drawbacks – a central point of failure chief among them, but perhaps its most damning characteristic was its hierarchical, top down architecture. From an user’s point of view, all the power resided at the center. This was great if you ran IT at a large corporation, but suffice to say the mainframe architecture didn’t encourage creativity or a flourishing culture.

    The mainframe architecture was supplanted over time with a “client server” architecture, where processing power migrated from the center to the edge, or node. This was due in large part to the rise the networked personal computer (servers were used  for storing services or databases of information too large to fit on PCs). Because they put processing power and data storage into the hands of the user, PCs became synonymous with a massive increase in productivity and creativity (Steve Jobs called them “bicycles for the mind.”) With the PC revolution power transferred from the “platform” to the user – a major architectural shift.

    The rise of networked personal computers became the seedbed for the world wide web, which had its own revolutionary architecture. I won’t trace it here (many good books exist on the topic), but suffice to say the core principle of the early web’s architecture was its distributed nature. Data was packetized and distributed independent of where (or how) it might be processed. As more and more “web servers” came online, each capable of processing data as well as distributing it, the web became a tangled, hot mess of interoperable computing resources. What mattered wasn’t the pipes or the journey of the data, but the service created or experienced by the user at the point of that service delivery, which in the early days was of course a browser window (later on, those points of delivery became smartphone apps and more).

    If you were to attempt to map the social architecture of data in the early web, your map would look a lot like the night sky – hundreds of millions of dots scattered in various constellations across the sky, each representing a node where data might be shared, processed, and distributed. In those early days the ethos of the web was that data should be widely shared between consenting parties so it might be “mixed and mashed” so as to create new products and services. There was no “mainframe in the sky” anymore – it seemed everyone on the web had equal and open opportunities to create and exchange value.

    This is why the late 1990s through mid oughts were a heady time in the web world – nearly any idea could be tried out, and as the web evolved into a more robust set of standards, one could be forgiven for presuming that the open, distributed nature of the web would inform its essential social architecture.

    But as web-based companies began to understand the true value of controlling vast amounts of data, that dream began to fade. As we grew addicted to some of the most revelatory web services – first Google search, then Amazon commerce, then Facebook’s social dopamine – those companies began to centralize their data and processing policies, to the point where we are now: Fearing these giants’ power over us, even as we love their products and services.

    An Argument for Mass Flourishing

    So where does that leave us if we wish to heed the concerns of Professor Phelps? Well, let’s not forget his admonition: “nations unaware of how their prosperity is generated may take steps that cost them much of their dynamism.” My hypothesis is simply this: Adopting a mainframe architecture for our most important data – our intentions (Google), our purchases (Amazon), our communications and social relationships (Facebook) – is not only insane, it’s also massively deprecative of future innovation (damn, sorry, but sometimes the word fits). In Facebook, Tear Down This Wall, I argued:

    … it’s impossible for one company to fabricate reality for billions of individuals independent of the interconnected experiences and relationships that exist outside of that fabricated reality. It’s an utterly brittle product model, and it’s doomed to fail. Banning third party agents from engaging with Facebook’s platform insures that the only information that will inform Facebook will be derived from and/or controlled by Facebook itself. That kind of ecosystem will ultimately collapse on itself. No single entity can manage such complexity. It presumes a God complex.

    So what might be a better architecture? I hinted at it in the same post:

    Facebook should commit itself to being an open and neutral platform for the exchange of value across not only its own services, but every service in the world.

    In other words, free the data, and let the user decide what do to with it. I know how utterly ridiculous this sounds, in particular to anyone reading from Facebook proper, but I am convinced that this is the only architecture for data that will allow a massively flourishing society.

    Now this concept has its own terminology: Data portability.  And this very concept is enshrined in the EU’s GDPR legislation, which took effect one week ago. However, there’s data portability, and then there’s flourishing data portability – and the difference between the two really matters. The GDPR applies only to data that a user *gives* to a service, not data *co-created* with that service. You also can’t gather any insights the service may have inferred about you based on the data you either gave or co-created with it. Not to mention, none of that data is exported in a machine readable fashion, essentially limiting its utility.

    But imagine if that weren’t the case. Imagine instead you can download your own Facebook or Amazon “token,” a magic data coin containing not only all the useful data and insights about you, but a control panel that allows you to set and revoke permissions around that data for any context. You might pass your Amazon token to Walmart, set its permissions to “view purchase history” and ask Walmart to determine how much money it might have saved you had you purchased those items on Walmart’s service instead of Amazon. You might pass your Facebook token to Google, set the permissions to compare your social graph with others across Google’s network, and then ask Google to show you search results based on your social relationships. You might pass your Google token to a startup that already has your genome and your health history, and ask it to munge the two in case your 20-year history of searching might infer some insights into your health outcomes.

    This might seem like a parlor game, but this is the kind of parlor game that could unleash an explosion of new use cases for data, new startups, new jobs, and new economic value. Tokens would (and must) have auditing, trust, value exchange, and the like built in (I tried to write this entire post without mentioned blockchain, but there, I just did it), but presuming they did, imagine what might be built if we truly set the data free, and instead of outsourcing its power and control to massive platforms, we took that power and control and, just like we did with the PC and the web, pushed it to the edge, to the node…to ourselves?

    I rather like the sound of that, and I suspect Mssr. Phelps would as well. Now, how might we get there? I’ve no idea, but exploring possible paths certainly sounds like an interesting project…

    The post Do We Want A Society Built On The Architecture of Dumb Terminals? appeared first on John Battelle's Search Blog.

     
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