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  • feedwordpress 22:01:00 on 2020/04/19 Permalink
    Tags: , , , , , , , privacy, , , , ,   

    New Research Shows Why and How Zoom Could Become an Advertising Driven Business 


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    As the coronavirus crisis built to pandemic levels in early March, a relatively unknown tech company confronted a defining opportunity. Zoom Video Communications, a fast-growing enterprise videoconferencing platform with roots in both Silicon Valley and China, had already seen its market cap grow from under $10 billion to nearly double that. As the coronavirus began dominating news reports in the western press, Zoom announced its first full fiscal year results as a public company. The company logged $622.7 million in revenue, up 88% from the year before. Zoom’s high growth rate and “software as a service” business model guaranteed fantastic future profits, and investors rewarded the company by driving its stock up even further. On March 5th, the day after Zoom announced its earnings, the company’s stock jumped to $125, more than double its price on the day of its public offering eleven months before. Market analysts began issuing bullish guidance, and company executives noted that as the coronavirus spread, more and more customers were sampling Zoom’s easy-to-use video conferencing platform.

    But as anyone paying attention to business news for the past month knows, it’s been a tumultuous ride for Zoom ever since. As the virus forced the world inside, demand for Zoom’s services skyrocketed, and the company became a household name nearly overnight. Zoom’s “freemium” model – which offers a basic version of its platform for free, with more robust features available for a modest monthly subscription fee – allowed tens of millions of new users to sample the company’s wares. Initially, Zoom was a hit with its new user base – stories of Zoom seders, Zoom cocktail parties, and even Zoom weddings gave the company a consumer-friendly vibe. Here, again, was the story of a scrappy Valley startup with just the right product at just the right time. According to the company, Zoom’s monthly users  leapt from a high of 10 million to more than 200 million – an unimaginable increase of 2,000 percent in just one month.

    Just as quickly, however, Zoom became the subject of controversy. Like Google and Facebook before it, Zoom’s success as a product comes from an unwavering focus on convenience. Zoom makes it as easy as possible to use its platform. Employing invisible technical tricks, Zoom engineers made the platform easy to install, easy to share, and … easy to hack. Press reports about “Zoom bombing” began dominating the headlines, and as reporters dug in, so did reports of significant (and long ignored) security failings. Large corporations, state governments, and school districts banned the company’s products. Media outlets began to investigate the company’s Chinese roots – only to discover that the young firm had mistakenly routed user sessions through its servers in mainland China. Zoom responded quickly, freezing product development and focusing entirely on responding to critical security issues. The company then updated its privacy policies, in response to criticism that it might use user data in the same ways that Google and Facebook currently do (more on that below).

    But with China and the United States entering a third year of an increasingly heated trade war, and now blaming each other for the origin of the novel coronavirus, Zoom finds itself in an extraordinary position that no amount of crisis communications can overcome.  Zoom’s founder and CEO, Eric Yuan, is a Chinese ex-pat and naturalized American citizen. More than 700 of his 2,500+ employees live and work in China. Until March of this year, Yuan was held up as an example of the best that global capitalism can offer – an ingenious immigrant who bootstrapped his way to America and leveraged hard work, smarts, and venture financing into a multi-billion dollar fortune.

    Now Zoom’s brand – and its future – live under storm clouds of suspicion. In just four weeks, the company has inherited the full force of the American “techlash.” And the companies previously at the center of that storm – in particular the “Big Four” of Apple, Facebook, Google and Amazon – are  happy to pass along that unpleasant mantle. What might it do next?

    * * *

    As some readers know, I’ve been a student of the “Big Four” for more than two decades. For the past 18 months, that work has focused on the terms of service and privacy policies of the Big Four. Thanks to the work of researchers and faculty at Columbia’s School of International Public Affairs and Graduate School of Journalism, we’ve published a study of the underlying architecture of the Big Four’s core policies, a visualization we call “Mapping Data Flows.” This tool breaks down and compares each company’s core privacy and data use policies, with a goal of giving both ordinary consumers and academic researchers insight into the architecture of control currently dominating our economy’s relationship to data.

    Given its very recent and extraordinary rise as a consumer tool, we decided to apply this approach to Zoom’s terms of service and privacy policy as well. You can find our initial findings here.

    As with every research project, our study of Zoom’s policies began with a working hypothesis. One of the most interesting findings from our initial study of the Big Four was how similar their policies were – they all collect vast sums of data, and their terms of service allow them nearly unlimited usage of that data. And of course, all four granted themselves the right to collect, process, and employ user data for the purpose of pursuing advertising businesses – a multi-hundred billion dollar industry driving what Harvard scholar Shoshana Zuboff calls “surveillance capitalism.” We therefore asked ourselves two questions: First, would Zoom’s current terms of service and privacy policies allow them to join the Big Four in the pursuit of an advertising business? And second, given Zoom is (or was) an enterprise facing (focused on business users), as opposed to a consumer facing platform, would its privacy policies and terms of use be markedly different from the Big Four?

    The short answer to that first question is yes. And for the second? That’d be a no. As the first image below demonstrates, Zoom collects a ton of data, and its policies are quite similar to those of its Big Four cousins.

    Figure 1 – Zoom’s Data Collection visualized

    But exploring that first question – whether Zoom might become an advertising-driven business – yielded even more interesting insights:

    Figure 2 – Zoom’s data collection for purposes of Advertising.

    As the illustration from our new visualization above demonstrates, our research shows that nearly all data collected from Zoom user sessions may be used for the purpose of advertising. Despite the clarification of Zoom’s privacy policies posted on March 29th around usage of data from user sessions, nothing material changed in its actual policies. Indeed, the company writes that “We are not changing any of our practices. We are updating our privacy policy to be more clear, explicit, and transparent.”

    To be clear, Zoom does not currently run an advertising business along the lines of Facebook, Google, Apple, or Amazon’s (and yes, both Apple and Amazon have significant data-driven advertising businesses, they just don’t like to talk about them). So why, in their own policies, do they reserve the right to use all collected data for the purpose of “advertising”?

    As any lawyer will tell you, words are slippery things. Certainly in the context of Zoom’s current business, the word “advertising” covers the company’s role as an advertiser – as a brand that uses data to market to current and potential customers using platforms like Google or Facebook. But a careful reading of the company’s policies reveal how easily the same words could allow the company to pivot from advertiser to provider of advertising, should the company wish to. In other words, there’s nothing stopping the company from joining the Big Four as a major player in the provision of advertising services, should it wish.

    How might Zoom do such a thing? And  given its current privacy backlash, why would Zoom ever consider such a move?

    Let’s start with the How, then we’ll cover the Why.

    As I mentioned at the start of this piece, Zoom’s current business is based on what folks in the tech industry call a freemium SaaS (software as a service) model. The company makes a version of its platform available to anyone for free, and then “upsells” those free users to a paid version that has more bells and whistles, like the ability to record, larger numbers of participants on a videoconference, and so on. Pricing starts at $15/month, scaling up to thousands a month for large customers. This model is most often employed for enterprise customers (Slack is a good example), but it’s also found success in consumer-facing applications, where more often than not users pay to get rid of ads (think YouTube or Hulu). Regardless of whether the service is enterprise or consumer focused, free users always outnumber paying ones by an order of magnitude or more.

    One of the most difficult elements of a freemium SaaS model is luring those free users “down the funnel” into paying for a monthly subscription. So how might Zoom convince its bumper crop of roughly 190 million new consumers to start paying up?

    By now you’ve probably figured out where I’m going with all this. Zoom could implement a free service that’s supported by advertising, then encourage users to pay for a version that’s ad free. Doing so would be ridiculously simple: Just as with YouTube, Zoom could force its users to watch a “skippable” pre-roll video ad before the start of each videoconference (and it could use its data trove to make those ads extremely targeted).  Well aware that such an interruption would be an annoyance at best, Zoom could then offer to strip the ads out for customers who paid a small subscription service of, say, $5 a month. If just one quarter of its customer base decided to do so, Zoom’s revenues would jump by $250 million a month – adding a cool $3 billion a year to its top line revenue, nearly all of which would be pure profit. The resulting advertising business could easily add hundreds of millions, if not billions more. That’s five times more revenue than the company reported in its last fiscal year.

    Which brings us to the “Why” of this admittedly speculative (but nevertheless quite reasonable) exercise. And that why comes down to capitalism. Zoom is a public company with a massive valuation – more than $40 billion at the time of this writing. That gives it an unsustainable price to earnings ratio of roughly 1,750 – 76 times larger than the S&P average. The pressure to “grow into” those outsized expectations is enormous. Zoom is staring at a multi-billion dollar business model just begging to be implemented. For its shareholders, board, and senior executives, the question isn’t why it should be adopting the business model that made Facebook, Google, Apple, and Amazon the most valuable companies in the world. Instead, the question is simply this: Why shouldn’t it?

    In another post, we’ll explore answers to that question (and how Zoom, if it’s thoughtful, could help reimagine the core architecture of surveillance capitalism). For now, take a spin around our newest visualization, give us input in the comments below. Thanks for reading, and take care of yourself – and others – out there.

    ###

    The Mapping Data Flows project is seated at Columbia SIPA – we are grateful for the support of Dean Merit Janow, as well as the support of the Brown Institute at Columbia’s Graduate School of Journalism, the Omidyar Network, and faculty and staff including Mark Hansen, Juan Francisco Saldarriaga, Zoe Martin, Matthew Albasi, Natasha Bhuta, and Veronica Penney. Hat tip as well to Doc, who’s been focused on these issues for decades as well. 

     
  • feedwordpress 22:01:00 on 2020/04/19 Permalink
    Tags: , , , , , , , privacy, , , , ,   

    New Research Shows Why and How Zoom Could Become an Advertising Driven Business 


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    As the coronavirus crisis built to pandemic levels in early March, a relatively unknown tech company confronted a defining opportunity. Zoom Video Communications, a fast-growing enterprise videoconferencing platform with roots in both Silicon Valley and China, had already seen its market cap grow from under $10 billion to nearly double that. As the coronavirus began dominating news reports in the western press, Zoom announced its first full fiscal year results as a public company. The company logged $622.7 million in revenue, up 88% from the year before. Zoom’s high growth rate and “software as a service” business model guaranteed fantastic future profits, and investors rewarded the company by driving its stock up even further. On March 5th, the day after Zoom announced its earnings, the company’s stock jumped to $125, more than double its price on the day of its public offering eleven months before. Market analysts began issuing bullish guidance, and company executives noted that as the coronavirus spread, more and more customers were sampling Zoom’s easy-to-use video conferencing platform.

    But as anyone paying attention to business news for the past month knows, it’s been a tumultuous ride for Zoom ever since. As the virus forced the world inside, demand for Zoom’s services skyrocketed, and the company became a household name nearly overnight. Zoom’s “freemium” model – which offers a basic version of its platform for free, with more robust features available for a modest monthly subscription fee – allowed tens of millions of new users to sample the company’s wares. Initially, Zoom was a hit with its new user base – stories of Zoom seders, Zoom cocktail parties, and even Zoom weddings gave the company a consumer-friendly vibe. Here, again, was the story of a scrappy Valley startup with just the right product at just the right time. According to the company, Zoom’s monthly users  leapt from a high of 10 million to more than 200 million – an unimaginable increase of 2,000 percent in just one month.

    Just as quickly, however, Zoom became the subject of controversy. Like Google and Facebook before it, Zoom’s success as a product comes from an unwavering focus on convenience. Zoom makes it as easy as possible to use its platform. Employing invisible technical tricks, Zoom engineers made the platform easy to install, easy to share, and … easy to hack. Press reports about “Zoom bombing” began dominating the headlines, and as reporters dug in, so did reports of significant (and long ignored) security failings. Large corporations, state governments, and school districts banned the company’s products. Media outlets began to investigate the company’s Chinese roots – only to discover that the young firm had mistakenly routed user sessions through its servers in mainland China. Zoom responded quickly, freezing product development and focusing entirely on responding to critical security issues. The company then updated its privacy policies, in response to criticism that it might use user data in the same ways that Google and Facebook currently do (more on that below).

    But with China and the United States entering a third year of an increasingly heated trade war, and now blaming each other for the origin of the novel coronavirus, Zoom finds itself in an extraordinary position that no amount of crisis communications can overcome.  Zoom’s founder and CEO, Eric Yuan, is a Chinese ex-pat and naturalized American citizen. More than 700 of his 2,500+ employees live and work in China. Until March of this year, Yuan was held up as an example of the best that global capitalism can offer – an ingenious immigrant who bootstrapped his way to America and leveraged hard work, smarts, and venture financing into a multi-billion dollar fortune.

    Now Zoom’s brand – and its future – live under storm clouds of suspicion. In just four weeks, the company has inherited the full force of the American “techlash.” And the companies previously at the center of that storm – in particular the “Big Four” of Apple, Facebook, Google and Amazon – are  happy to pass along that unpleasant mantle. What might it do next?

    * * *

    As some readers know, I’ve been a student of the “Big Four” for more than two decades. For the past 18 months, that work has focused on the terms of service and privacy policies of the Big Four. Thanks to the work of researchers and faculty at Columbia’s School of International Public Affairs and Graduate School of Journalism, we’ve published a study of the underlying architecture of the Big Four’s core policies, a visualization we call “Mapping Data Flows.” This tool breaks down and compares each company’s core privacy and data use policies, with a goal of giving both ordinary consumers and academic researchers insight into the architecture of control currently dominating our economy’s relationship to data.

    Given its very recent and extraordinary rise as a consumer tool, we decided to apply this approach to Zoom’s terms of service and privacy policy as well. You can find our initial findings here.

    As with every research project, our study of Zoom’s policies began with a working hypothesis. One of the most interesting findings from our initial study of the Big Four was how similar their policies were – they all collect vast sums of data, and their terms of service allow them nearly unlimited usage of that data. And of course, all four granted themselves the right to collect, process, and employ user data for the purpose of pursuing advertising businesses – a multi-hundred billion dollar industry driving what Harvard scholar Shoshana Zuboff calls “surveillance capitalism.” We therefore asked ourselves two questions: First, would Zoom’s current terms of service and privacy policies allow them to join the Big Four in the pursuit of an advertising business? And second, given Zoom is (or was) an enterprise facing (focused on business users), as opposed to a consumer facing platform, would its privacy policies and terms of use be markedly different from the Big Four?

    The short answer to that first question is yes. And for the second? That’d be a no. As the first image below demonstrates, Zoom collects a ton of data, and its policies are quite similar to those of its Big Four cousins.

    Figure 1 – Zoom’s Data Collection visualized

    But exploring that first question – whether Zoom might become an advertising-driven business – yielded even more interesting insights:

    Figure 2 – Zoom’s data collection for purposes of Advertising.

    As the illustration from our new visualization above demonstrates, our research shows that nearly all data collected from Zoom user sessions may be used for the purpose of advertising. Despite the clarification of Zoom’s privacy policies posted on March 29th around usage of data from user sessions, nothing material changed in its actual policies. Indeed, the company writes that “We are not changing any of our practices. We are updating our privacy policy to be more clear, explicit, and transparent.”

    To be clear, Zoom does not currently run an advertising business along the lines of Facebook, Google, Apple, or Amazon’s (and yes, both Apple and Amazon have significant data-driven advertising businesses, they just don’t like to talk about them). So why, in their own policies, do they reserve the right to use all collected data for the purpose of “advertising”?

    As any lawyer will tell you, words are slippery things. Certainly in the context of Zoom’s current business, the word “advertising” covers the company’s role as an advertiser – as a brand that uses data to market to current and potential customers using platforms like Google or Facebook. But a careful reading of the company’s policies reveal how easily the same words could allow the company to pivot from advertiser to provider of advertising, should the company wish to. In other words, there’s nothing stopping the company from joining the Big Four as a major player in the provision of advertising services, should it wish.

    How might Zoom do such a thing? And  given its current privacy backlash, why would Zoom ever consider such a move?

    Let’s start with the How, then we’ll cover the Why.

    As I mentioned at the start of this piece, Zoom’s current business is based on what folks in the tech industry call a freemium SaaS (software as a service) model. The company makes a version of its platform available to anyone for free, and then “upsells” those free users to a paid version that has more bells and whistles, like the ability to record, larger numbers of participants on a videoconference, and so on. Pricing starts at $15/month, scaling up to thousands a month for large customers. This model is most often employed for enterprise customers (Slack is a good example), but it’s also found success in consumer-facing applications, where more often than not users pay to get rid of ads (think YouTube or Hulu). Regardless of whether the service is enterprise or consumer focused, free users always outnumber paying ones by an order of magnitude or more.

    One of the most difficult elements of a freemium SaaS model is luring those free users “down the funnel” into paying for a monthly subscription. So how might Zoom convince its bumper crop of roughly 190 million new consumers to start paying up?

    By now you’ve probably figured out where I’m going with all this. Zoom could implement a free service that’s supported by advertising, then encourage users to pay for a version that’s ad free. Doing so would be ridiculously simple: Just as with YouTube, Zoom could force its users to watch a “skippable” pre-roll video ad before the start of each videoconference (and it could use its data trove to make those ads extremely targeted).  Well aware that such an interruption would be an annoyance at best, Zoom could then offer to strip the ads out for customers who paid a small subscription service of, say, $5 a month. If just one quarter of its customer base decided to do so, Zoom’s revenues would jump by $250 million a month – adding a cool $3 billion a year to its top line revenue, nearly all of which would be pure profit. The resulting advertising business could easily add hundreds of millions, if not billions more. That’s five times more revenue than the company reported in its last fiscal year.

    Which brings us to the “Why” of this admittedly speculative (but nevertheless quite reasonable) exercise. And that why comes down to capitalism. Zoom is a public company with a massive valuation – more than $40 billion at the time of this writing. That gives it an unsustainable price to earnings ratio of roughly 1,750 – 76 times larger than the S&P average. The pressure to “grow into” those outsized expectations is enormous. Zoom is staring at a multi-billion dollar business model just begging to be implemented. For its shareholders, board, and senior executives, the question isn’t why it should be adopting the business model that made Facebook, Google, Apple, and Amazon the most valuable companies in the world. Instead, the question is simply this: Why shouldn’t it?

    In another post, we’ll explore answers to that question (and how Zoom, if it’s thoughtful, could help reimagine the core architecture of surveillance capitalism). For now, take a spin around our newest visualization, give us input in the comments below. Thanks for reading, and take care of yourself – and others – out there.

    ###

    The Mapping Data Flows project is seated at Columbia SIPA – we are grateful for the support of Dean Merit Janow, as well as the support of the Brown Institute at Columbia’s Graduate School of Journalism, the Omidyar Network, and faculty and staff including Mark Hansen, Juan Francisco Saldarriaga, Zoe Martin, Matthew Albasi, Natasha Bhuta, and Veronica Penney. Hat tip as well to Doc, who’s been focused on these issues for decades as well. 

     
  • feedwordpress 01:20:42 on 2019/10/15 Permalink
    Tags: , , , , , , privacy, , tik tok,   

    Tik Tok, Tick Tock…Boom. 


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    Something’s been bugging me about Tik Tok. I’ve almost downloaded it about a dozen times over the past few months. But I always stop short. I don’t have a ton of time (here’s why) so forgive me as I resort to some short form tricks here. To wit:

    1. China employs a breathtaking model of state-driven surveillance.
    2. The US employs a breathtaking model of capitalist surveillance.

    We on the same page so far? OK, great.

    Now let’s consider Tik Tok, which is a robust combination of the two. Don’t know Tik Tok? Come on, you read Searchblog for God’s sake. Ok, well, fortunately for you, there’s the New York Times. Or…maybe not. I almost threw up in my mouth as I watched the paper of record run through its decades long practice of “Gee, Golly, Isn’t This Shiny New Tech Thing Culturally Significant, and Aren’t We Woke for Noticing It” journalism last weekend. Read it if you must.

    Ok. Time for more shorthand.

    1. Tik Tok is owned by a Chinese company.
    2. Tik Tok is addictive, seductive, you can’t look away.
    3. Tik Tok has a Terms of Service and Privacy Policy that reads, for all intents and purposes, a lot like Google, Facebook, Apple, or Amazon’s terms of service (I’m studying these over at Columbia, FWIW). In other words, Tik Tok has standard clickwrap that gives it permission to do pretty much whatever it wants with the information it collects on its users.
    4. Since they’re modeled on the policies of American surveillance capitalism, Tik Tok’s TOS and Privacy Policies state that the company may collect your: Location, email, phone number, browsing history, device information, app and file names on your device, messaging content, full list of your social network connections (should you let it use your Facebook, Twitter, Insta to find your friends, and most do), content preferences, and a shit ton of other information, not to mention any and all third-party information Tik Tok chooses to acquire and append to your profile (that’d be another shit ton, in case you were wondering).
    5. There’s nothing in Tik Tok’s TOS or Privacy Policy that stops it from sending all the information it collects to the Chinese government. In fact, if you read the policies closely, you’ll see this line: “We may disclose information to respond to subpoenas, court orders, legal process, law enforcement requests, legal claims or government inquiries.”
    6. Tik Tok is clearly concerned about anyone noticing any of this – it’s nearly impossible to find stats on how many people use it in the US (though Ad Age leaked a pitch deck recently saying it was “more than 32 million”), and you won’t find the word “China” or “Chinese” in its TOS or Privacy Policy (it used to be there, but…the company wised up).
    7. Just in case you weren’t paying attention, I refer you to #1 above. If you think Tik Tok isn’t sending information to the Chinese government, you’re sweet, but you should stay inside and stick to rotary phones.
    8. Tik Tok is spending hundreds of millions of dollars on US social networks convincing US consumers, in particular kids, to download and use the app. This is fucking brilliant, by the way.
    9. China and the US are in a pitched battle for economic and geopolitical power, and that battle will be won, in large part, based on which country has access to and dominion over consumer data at scale, which will feed machine learning and artificial intelligence systems that will most certainly be weaponized, both economically and geopolitically (there’s simply not time to explain what I mean by that now, but…let’s just say Russian interference in the 2016 election was a hack job compared to what’s afoot now).

    So, I just thought I’d point that out. But those videos, they sure are cute, no?

     
  • feedwordpress 17:48:09 on 2019/03/12 Permalink
    Tags: , , , , , , , privacy,   

    With Privacy as Its Shield, Facebook Hopes To Conquer the Entire Internet. 


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    Never mind that man behind the privacy curtain.

    I’ll never forget a meal I had with a senior executive at Facebook many years ago, back when I was just starting to question the motives of the burgeoning startup’s ambition. I asked whether the company would ever support publishers across the “rest of the web” – perhaps through an advertising system competitive with Google’s AdSense. The executive’s response was startling and immediate. Everything anyone ever needs to do – including publishing – can and should be done on Facebook. The rest of the Internet was a sideshow. It’s just easier if everything is on one platform, I was told. And Facebook’s goal was to be that platform.

    Those words still ring in my ears as we celebrate the 30th anniversary of the web today. And they certainly should inform our perspective as we continue to digest Facebook’s latest self-involved epiphany.

    Last week Mark Zuckerberg declared privacy the new black, and committed his multi-hundred-billion dollar company wholeheartedly in favor of it. Employing the now familiar trope that “people I’ve been talking to have been saying privacy’s a thing they care about,” Facebook’s monarch appeared to be pivoting his entire company around this newfound insight, and much of the press seemed to buy it.

    But this isn’t a pivot, it’s a panic born of crisis. Facebook’s core business model has plateaued, and absent new channels into which the company might stuff toxic algorithmic advertising, Zuck and crew have had to find a new cash cow. After all, those record-breaking Wall St. earnings won’t keep writing themselves – not with users leaving the service and regulators sharpening their swords for battle.

    So Facebook needs to find a new revenue source, one that’s really, really big, and ideally, one that also manages to solve its lousy image as the lusty barker at the surveillance capitalism carnival.

    The company has found its answer in the form of WhatsApp, the famously privacy-loving messaging app which Facebook paid $19 billion to acquire five years ago.

    So why WhatsApp, and why now?

    • WhatsApp was built on entirely different DNA from Facebook. It’s end to end encryption practically screams privacy. Before Zuckerberg’s come to Jesus, Facebook had attempted to turn WhatsApp into another advertising play, which drove WhatsApp’s founders to leave in a very public huff. Since then, WhatsApp has failed to become an advertising channel of any significance. Leveraging WhatsApp’s brand sheen to polish Facebook’s privacy turd is a mad genius move.
    • Going five years without figuring out monetization for a $19 billion acquisition is…embarrassing. Now Facebook can answer Wall Street’s incessant questions about WhatsApp’s contribution to the company’s bottom line.
    • Of all the tech giants, Facebook is most likely to suffer regulators ire here in the United States, including very loud calls for antitrust action. But by pivoting to privacy first and claiming WhatsApp as its new cornerstone, Facebook now has an excuse to integrate Instagram, Messenger, and Facebook, making a breakup technically and socially challenging, if not impossible.
    • Most importantly, WhatsApp has the potential to realize Facebook’s long sought dream of *becoming* the Internet for billions of customers around the world.

    But how, exactly? To answer that question, Facebook had only look to China’s Tencent, which in two short years has turned its wildly popular WeChat service into a revenue geyser, a new kind of platform where advertising represents just a fraction of the business model.

    WeChat has become an ecosystem unto itself, an essential service used by nearly two billion customers to pay for just about everything in China. It features millions of “mini programs,” essentially apps built on top of the WeChat service. Tencent is making billions on top of this new ecosystem, taking a small cut of transactions inside its internal “Tenpay” system, nudging tens of millions of users to level up inside its gaming system, and yes, by offering advertising inside its popular “Moments” feed. Tencent even built a new search engine inside WeChat, a “walled garden” version of search that should prove insanely profitable if done right. Oh, and it gets all the data.

    Put simply, WeChat is a universe unto itself, a perfect mix of app store, commerce, social, payments, and search. It’s as if the entire Internet was shrunk into one app. Exactly the kind of world Facebook would like to see happen here in the United States.

    Only…WeChat evolved in China, where the concept of individual privacy is utterly foreign, where the state has complete control over the levers of the economy, and where Facebook has been banned for years. It’s a stretch to believe that Facebook could mimic Tencent’s meteoric rise here in the US (not to mention Western Europe and the rest of the world), but if there’s any conclusion to be drawn from Zuckerberg’s latest manifesto, it’s that his company is certainly going to try.

    Once Facebook has created an integrated WeChat-like platform reaching billions, it’d be a cinch to lure app developers – perhaps by undercutting Apple and Google’s 20-30 percent take rate, for starters. And anyone in the business of selling anything would also rush to the platform, posing an existential threat to Amazon’s portal-like model of e-commerce dominance. An obvious step would be to build search to unite it all, a necessary move that would dramatically undercut Google’s control of that market as well. The only safe place to be in this scenario seems to be Apple’s hardware business – except that company is itself in the midst of a pivot to services, exactly the kind of services that a Facebook WeChat clone will challenge.

    So, to summarize: By declaring “private conversations” as its new business model, Facebook can undermine the app store model driving all of mobile, unseat Amazon as the king of e-commerce, hollow out Google’s control of search, nip Apple’s transition to services in the bud, take a vig on every transaction across its ecosystem, and insinuate itself into the private, commercial, and public lives of every citizen on the Internet. If the company pulls this off – and yes, that’s a big if – we’ll look back on the past ten years, replete with all our fears of the social media’s dominance in our lives, as positively quaint in comparison.

    Never mind that man behind that curtain, folks.


     
  • feedwordpress 23:29:34 on 2018/06/19 Permalink
    Tags: , , , , , , , , privacy,   

    My Senate Testimony 


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    (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

     
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