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antoine-roquentin · 8 years ago

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Q: How did you get to thinking about the role concentration among digital platforms plays outside of the music business?

A lot of the new businesses, kind of like the old media business, are advertiser-supported. Very quickly, it became clear to me that there are two dominant forces in the advertising business: Google, the most dominant, and Facebook, the second-most dominant. What was happening—not just in the music business but in the journalism business and everywhere—is that these companies were raking off all the cream of the advertising money.

Last year, between Facebook and Google, they took about 80 percent of all new advertising on the internet. That’s shocking. The local newspaper couldn’t make any money from advertising, and the New York Times couldn’t make any money from advertising. Take, for instance, something like YouTube. A musician with a big, successful song, if they could sell a million downloads on iTunes they could make $900,000. If they’d get a million views on YouTube they’d make $900. So it just became obvious that’s where the problem was.

When I began to write the book, I got to see that Amazon was doing the same in the book business. It wasn’t a monopoly, but a monopsony—it could force book sellers to push their prices down, down, down.

I kept coming back to these three—Google, Facebook, and Amazon. All have extraordinary market shares. Google has an 88 percent market share in search advertising and an 80-plus percent market share in Android. Amazon has a 74 percent market share in e-books, and Facebook controls 70-plus percent of mobile social media when you add Instagram, Messenger, and WhatsApp. What more empirical evidence does one need to prove concentration?

Q: In the book, you define Google, Amazon, and Facebook as “classic rent-seeking enterprises.” Can you explain why? And does this definition not apply to the two other major tech firms, Apple and Microsoft, as well?

I do not believe that Apple and Microsoft are monopolies, as they are competing in markets with many players. Google, Facebook, and Amazon are clearly monopolies.

I my view, a rent-seeking enterprise is someone who has control of a specific asset—1.9 billion people, in Facebook’s case—and they extract rent from that in the form of advertising premiums for access to the data that they have. The same thing happens with Google. They have data, and they extract advertising premiums for marketers to get access to this specific asset that they have.

In the case of Amazon, it is a monopsony, so their ability to extract rents is not as simple as it is with Facebook and Google and has more to do with their control of their specific market, which is access to the online book market, whether through e-books or regular books.

Q: You have an entire chapter in the book dedicated to the subject of Google’s regulatory capture. How does regulatory capture fit into the story of the rise of digital platforms?

Well, the strange thing is that Democrats were just as bad as Republicans, maybe worse. Look at the Obama administration—Eric Schmidt was basically Obama’s chief of staff. They’d say “You need someone to run the Patent Office? We have the perfect person,” and so they put the Google person there. “You’re looking for an assistant attorney general for antitrust? We got the perfect person. You want someone at the Federal Trade Commission? Here’s a perfect candidate.”

They were everywhere. According to the Google Transparency Project, hundreds of positions in the Obama administration were filled by Google. And now it’s no different. I hear the new FTC chair will probably be the person Google wants. I think it’s inevitably built in.

Q: Do you think that without regulatory capture, antitrust charges would have been brought against Google?

Oh yeah. An 88 percent market share in search advertising? That is by definition a monopoly.

Q: You propose a number of solutions in the book, such as regulating Google and the other digital giants like they were public utilities. But it also seems that no solution is possible without first addressing regulatory capture.

I agree, but only in so far that perhaps it could come out of the state regulators. State attorney generals could actually bring an antitrust suit if they wanted to, especially ones from big states. Whether California would ever sue Google or Facebook is an open question, but certainly there are other states that might consider it.

Q: At the Stigler Center conference on concentration, you called Google “the closest thing to a natural monopoly I’ve seen in my lifetime.” Can you elaborate?

I would say Google is as close to a natural monopoly as the Bell System was in 1956. If you came to me and said “Hey, I want to start a company to compete with Google in search,” I would say you’re out of your mind and don’t waste your energy or your time or your money, there’s just no way. Classic economics would say that if there’s a business in which there are 35 percent net margins, that would attract a huge amount of new capital to capture some of that, and none of that has happened. That tells you there’s something wrong.

The way the Bell System had to give up all its patents in return for being named a natural monopoly, that to me is a potential solution.

Q: As you point out yourself in the book, natural monopoly can also be a positive thing. For instance, in the cases of the telephone and the telegraph. What is the difference between those natural monopolies and digital platforms?

That was kind of a tragedy of the commons, with competing inoperable telephone networks. It didn’t make sense. Now we’re just in a situation where the amount of capital that would be needed to start a new Google competitor would be so huge or so onerous in terms of competition that it would be very hard to raise that capital. So we’re just dealing with the fact that it’s a de-facto monopoly. Even Microsoft couldn’t get past a 5 percent global market share.

Q: Some, like Peter Thiel, argue that bigness is an essential part of the digital economy, that network effects are key to providing better services.

If Snapchat could really compete on an equal basis with Facebook that would be okay, but every time Snapchat introduces some new innovation, Facebook knocks it off shortly thereafter so that they won’t have any differentiation. And clearly no one has been able to compete with Google.

I’ve talked to venture capitalists and entrepreneurs, and the notion that anyone would finance a new search engine is just laughed at by the venture capital community. Nobody would invest in it.

Even investments that have gone into competing with Facebook have not turned out so well. I would say that the people who are investors today in Snapchat are a little worried. They are getting killed. It truly is winner take all. If Facebook keeps at it, that will discourage more venture capital from going into competitors.

Q: But we do have social networks other than Facebook, just not very successful ones. There are other search engines besides Google. Some could argue that Google and Facebook just have the best product.

Facebook wins now because all your friends are on Facebook. That is the classic network effect. As far as Google is concerned, it wins because that’s where all the advertising money wants to go, so it has the advantage of having such huge cash flows that it is constantly able to improve the product. I would also argue that because the audience is so huge, that has the natural effect of improving the product, meaning the search results.

Q: One of the standard arguments against regulating digital platforms today is that they could be easily usurped by a hypothetical competitor with a much better product. In his book, Thiel calls Google a monopoly, but says that it presents itself as “just another tech company” in order to avoid scrutiny.

On the other hand, when we look at handset makers, for instance, we see that companies that were dominant 10 years ago—Nokia, Motorola—are not even around anymore. Couldn’t something like this conceivably happen to digital platforms as well?

That would mean that in five years Google would not be the dominant search engine, or that Facebook would not be the dominant social network. I wouldn’t make that bet.

Right before he died, Google had Robert Bork write a paper that basically said consumers can switch from Google to Bing at no cost,2) but that’s not true. If I am really the average Google customer, I have Gmail, I have Google Calendar, Google Maps. I have all these applications that I invested data into which I can’t leave. All my contacts are in Gmail. It’s not costless, the cost of switch is quite expensive. That’s a fallacious argument, since it’s not just a search engine. It’s an ecosystem.

Q: One solution you don’t explore in the book is breaking up digital giants like Google. Why is that?

This just goes to show how quickly the ground is shifting. I now have a piece coming out in the New York Times that explores the idea of breaking them up, but when writing the book, I tried to be reasonable. I thought no one would buy the idea of breaking them up. And now people are raising that idea.

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android-for-life · 5 years ago

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"Sundar Pichai’s testimony to the U.S. House Judiciary Subcommittee on Antitrust"

Editor’s Note: Today the CEOs of Google, Apple, Amazon and Facebook are testifying before the U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law. Read our CEO Sundar Pichai’s opening testimony below, describing how Google’s free products are helpful to people and small businesses, and how competition inspires us to innovate and create better products for everyone.

Thank you, Mr. Chairman, Ranking Member Sensenbrenner, and members of the Subcommittee. Before I start, I know this hearing was delayed because of the ceremonies to honor the life of your colleague, Representative John Lewis. Because of his courage, this world is a better place. He’ll be deeply missed.

At its heart, a discussion about competition is a discussion about opportunity. This has never been more important, as the global pandemic poses dual challenges to our health and our economy.

Expanding access to opportunity through technology is personal to me. I didn’t have much access to a computer growing up in India. So you can imagine my amazement when I arrived in the U.S. for graduate school and saw an entire lab of computers to use whenever I wanted.

Accessing the internet for the first time set me on a path to bring technology to as many people as possible. It inspired me to build Google’s first browser, Chrome. I’m proud that 11 years later, so many people experience the web through Chrome, for free.

Google takes pride in the number of people who choose our products; we’re even prouder of what they do with them … from the 140 million students and teachers using G Suite for Education to stay connected during the pandemic ... to the 5 million Americans gaining digital skills through Grow with Google … to all the people who turn to Google for help, from finding the fastest route home to learning how to cook a new dish on YouTube.

Google’s work would not be possible without the long tradition of American innovation, and we’re proud to contribute to its future. We employ more than 75,000 people in the U.S. across 26 states. The Progressive Policy Institute estimated that in 2018 we invested more than $20 billion in the U.S., citing us as the largest capital investor in America that year, and one of the top five for the last three years.

One way we contribute is by building helpful products. Research found that free services like Search, Gmail, Maps, and Photos provide thousands of dollars a year in value to the average American. Many are small businesses using our digital tools to grow:

Stone Dimensions, a family-owned stone company in Pewaukee, Wisconsin, uses Google My Business to draw new customers.

Gil’s Appliances—a family-owned appliance store in Bristol, Rhode Island—credits Google Analytics with helping them reach customers online during the pandemic. Nearly one-third of small business owners say that without digital tools they would have had to close all or part of their business during COVID.

Another way we contribute is by being among the world’s biggest investors in research and development. At the end of 2019, our R&D spend had increased tenfold over 10 years, from $2.8 billion to $26 billion, and we’ve invested over $90 billion over the last five years. Our engineers are helping America remain a global leader in emerging technologies like artificial intelligence, self-driving cars, and quantum computing.

Just as America’s technology leadership is not inevitable, Google’s continued success is not guaranteed. New competitors emerge every day, and today users have more access to information than ever before. Competition drives us to innovate, and it also leads to better products, lower prices and more choices for everyone. For example, competition helped lower online advertising costs by 40 percent over the last decade, with savings passed down to consumers.

Open platforms like Android also support the innovation of others. Using Android, thousands of mobile operators build and sell their own devices, without paying any licensing fees to us. This has enabled billions of consumers to afford cutting-edge smartphones, some for less than $50. Whether building tools for small businesses or platforms like Android, Google succeeds when others succeed.

Competition also sets higher standards for privacy and security. I’ve always believed that privacy is a universal right, and Google is committed to keeping your information safe, treating it responsibly, and putting you in control, and we’ve long supported the creation of comprehensive federal privacy laws.

I’ve never forgotten how access to technology and innovation changed the course of my life. Google aims to build products that increase access to opportunity for everyone—no matter where you live, what you believe, or how much money you earn.

We are committed to doing this responsibly—in partnership with lawmakers—to ensure every American has access to the incredible opportunity technology creates.

Thank you.

Source : The Official Google Blog via Source information

#jeprog

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velmaemyers88 · 6 years ago

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Google: Why More Regulation Could Help Alphabet Shareholders

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” — Warren Buffett, Fortune, 1999

Alphabet, Google’s parent company, is trading so cheaply even after Thursday’s strong earnings report that only three things can explain it:

The government will soon force Alphabet to materially alter its business model or break up entirely;

The company has lost its competitive fire and resembles a think tank more than a profit-maximizing enterprise;

The stock is misunderstood and misvalued.

I believe it’s Door #3 – and Alphabet is my fund’s second-largest position, so I’d better. In fact, I believe that Alphabet is one of the most widely misunderstood and most undervalued companies in the world. It’s a classic early-21st-century value stock, one whose core search business is a dominant franchise with years of growth ahead that’s selling for roughly the same multiple as General Motors.

‘Headline risk’ at Alphabet

Let’s begin with the headlines. Earlier this year the Trump Administration lined up the nation’s major tech platforms, including Google, for regulatory scrutiny. This has pleased both economic populists and some free marketeers, who have formed an odd coalition asserting that the Big Four are this century’s equivalent of the meatpacking, railroad, tobacco and oil monopolies of Teddy Roosevelt’s time a hundred years ago. The arguments both pro and con are complicated and somewhat impenetrable; from an investment perspective, however, they are largely and thankfully irrelevant.

A leitmotif of this column will be that what’s in the news almost never correlates with what’s critical to the drivers of long-term value. Because it’s front-and-center, the chatter is always loud, but rarely material – noise rather than signal. Investors have a term for this – “headline risk” – and when an otherwise healthy, long-dated enterprise is facing headline risk it’s often an ideal time to buy.

I believe that the government’s current antitrust scrutiny of Google is the very definition of headline risk, for two reasons. First, if the government’s remedy is more regulation, the historical record is clear: More regulation merely entrenches incumbents. This is because every new rule and restriction raises the barrier to entry for potential disruptors. Major banks, for example, are thriving today under the 850-page Dodd Frank Act, which according to law firm Davis Polk & Wardwell required that federal agencies promulgate more than 300 new rules, studies and periodic reviews. How can fintech disruptors hope to navigate such a regulatory thicket?

The same is true in tech, as Google itself found out last summer when the European Union introduced new privacy laws intended to protect consumers. Smaller sites found they couldn’t comply with the new standards, so Google’s market share increased. De-regulation is what big business fears, and rightly so, because it lowers barriers. When rules governing the airline and stock-brokerage industries came down decades ago, innovators like Charles Schwab and Herb Kelleher of Southwest Airlines were free to compete against fat oligopolists like Smith Barney and Trans World Airlines.

Should the government decide that regulation is too moderate a course and a more radical breakup is required, this too represents a “throw me in the briar patch” moment for Alphabet. The company suffers from a conglomerate discount, with its parts worth more than the whole is currently trading for — and much of this is Alphabet’s own fault.

The benefits of a breakup

The crux of it is that Google’s core search business is so profitable that the rest of Alphabet’s many subsidiaries are freeloading off it. Everyone knows that the company’s “other bets” is a collection of money-losing moonshots. What’s less well-understood is that ex-search, all of Alphabet’s other businesses taken together lose money. These losses aren’t apparent because powerful emerging platforms like YouTube, Android/Google Play, Cloud, Waymo and Assistant are grouped in the company’s financial statements under the general Google umbrella. This obscures any insight into their profitability. However, I and other analysts have concluded that if you assume reasonable profit margins for core Google search, these other emerging businesses collectively lose $5 billion a year. That’s a huge number, equivalent to the annual profits of Adobe and Intuit combined.

Despite Alphabet’s attempts to obfuscate, the market is catching on, as markets tend to do. Even after Friday’s 10% upward move following a solid earnings report, Alphabet’s stock is down from where it stood a year ago, badly trailing both the broader market and the shares of the other tech giants teed up for regulatory review.

If the government mandates that Alphabet break up, the company’s many freeloading children would have to take care of themselves. Forced to generate profits, they would flourish, and the value of Alphabet’s parts would multiply. Here again, there are historical antecedents. After Standard Oil’s 1911 breakup, the antitrust headline risk risked ebbed away, and investors got a clearer picture of the asset-rich nature of Standard’s various parts. Standard Oil of New York more than doubled in value over the following year, and Standard of Indiana nearly tripled. Taken together, according to Ron Chernow’s excellent Rockefeller biography, Titan, the broken-up entities quintupled in value in the decade after the breakup.

Many argue that Google search is so good, and so profitable, that it does more than subsidize Alphabet’s money-losing ventures: It enables a dysfunctional “cool first, execution second” culture. Amazon, these critics say, focuses ruthlessly on dominating a few, large markets – e-commerce and back-end web services. Apple has sold an iPhone to about everyone who can afford one; now it sells high-margin services on this platform and uses every dollar of profits to buy back stock. Alphabet, by contrast, spends money like a new-age drunken sailor. It has no timetable for commercializing anything but search, and it retains more than $120 billion of cash on its balance sheet. Many of the company’s endeavors seem like glorified science-fair entries; take the aptly named Project Loon, whose mission is to deliver universal internet connectivity via a network of high-altitude balloons. “Too much R, not enough D” – “Bell Labs without the transistor to show for it” — these are the kind of complaints now being thrown around on Wall Street about Alphabet, especially in the hedge-fund community, where performance is measured on a 12-month scale.

Search reigns supreme

I am sympathetic to these arguments, which is why I think a breakup would yield a higher valuation. In the end, however, it is Google’s core search engine that represents the alpha and omega of both understanding and valuing Alphabet. Yes, the company spends money like a drunken sailor. Yes, its culture is not nearly as mercenary as the dread pirate Bezos and his band of Amazonians. But Google search is possibly the best business ever invented, and that outweighs all other concerns. It reminds me of what Lincoln is reported to have said after taking an informal vote among his cabinet in which he cast the only vote in favor: “Seven nays, one aye – the ayes have it.”

Why is Google perhaps the best business ever invented? Most importantly, it is virtually impossible to replicate its search engine, which people around the world use roughly four million times per minute. Microsoft lost billions trying to challenge it with Bing. Amazon also tried to compete in web search, giving up after the project leader left to join Google. “Treat Google like a mountain,” Bezos is quoted as saying in The Everything Store. “You can climb the mountain, but you can’t move it.”

Because of this, Google is synonymous with search and has a more than 90% market share. Any service business that wants to advertise online must pay Google for access to potential customers. A 2017 Bloomberg Businessweek article brought Google’s power home through an in-depth look at a single niche of the US economy, drug-treatment centers. The article described how shady clinics paid high prices for Google keywords to lure addicts into questionable facilities. The bidding for terms like “top drug rehab center” became so competitive that one rehab executive estimated that his industry was spending $1 billion a year on Google search advertising.

Google has since taken steps to curb abuses in rehab-center search, but the point holds: Every company in every service industry, from rehab centers to veterinary clinics to divorce lawyers, will continue to bid up critical keywords until these businesses barely earn their cost of capital. It’s therefore not surprising that industry analysts estimate that Google search has 5%-10% annual pricing power, far in excess of the overall economy’s 2% inflation rate. There is room for Google to grow volumes as well. While many people intuitively believe that Google search is somehow mature because it’s already so big, the fact is that online today captures only 20% of total global advertising and marketing spend. Add to this the fact that Google search is a software enterprise that requires little incremental capital and little incremental operating expenditure to grow and you have a true 21stcentury juggernaut.

How much is it worth? A lot. Alphabet’s reported operating margins are just under 25%, which clearly understates search’s profitability. Facebook and Alibaba, two other Internet giants with scalable software businesses like Google, report margins in the 40%-50% range. If we add back $3 billion of Alphabet’s “other bets” losses, the company’s margins rise to 35%. If we add back the $5 billion of estimated losses from emerging platforms like YouTube and Google Cloud, search margins fall out at 40%-45%, much more in line with its peers.

Using these adjusted margins, when you buy Alphabet at $1,250 a share you are getting core Google search for less than 20 times its 2019 earnings. This is an absurdly low price for a business of its quality. Things become even more nonsensical when you contemplate that this analysis gives zero value either to the $120 billion of cash on Alphabet’s balance sheet or the value of emerging platforms like Waymo, YouTube and Google Cloud. While these businesses are breakeven or loss-making now, that won’t last forever. If one assigns reasonable valuations to each of these currently profitless enterprises, investors can buy core Google search for eight times this year’s earnings. That’s about the same price you’d have to pay for General Motors, a cyclical, capital-intensive, commodity businesses whose best days are fast receding in the rearview mirror.

As time goes by, I think we’ll look back on mid-2019 as a great entry point for owning Alphabet. Fear of increased regulation is giving us headline risk. Headline risk, combined with Alphabet’s lackadaisical approach to everything but search, is giving us a depressed valuation. The price is so cheap relative to the quality of Alphabet’s businesses that any scenario — more regulation, an outright breakup or simply better execution on Alphabet’s part – should almost certainly generate excellent long-term results.

Adam Seessel is founder and CEO of Gravity Capital Management. Alphabet is his fund’s second-largest position. His column, “Valuation,” appears monthly on Fortune.com.

More opinion in Fortune:

—How Japan became a model for economic revival

—Bernie Sanders: America is drowning in student debt. Here’s my plan to end it

—Ex-Apple CEO John Sculley: Why sensors are the future of health care tech

—Most states still enforce noncompete agreements—and it’s stifling innovation

—Why recent antitrust regulation isn’t really about consumer protectionListen to our new audio briefing, Fortune 500 Daily

Credit: Source link

The post Google: Why More Regulation Could Help Alphabet Shareholders appeared first on WeeklyReviewer.

from WeeklyReviewer https://weeklyreviewer.com/google-why-more-regulation-could-help-alphabet-shareholders/?utm_source=rss&utm_medium=rss&utm_campaign=google-why-more-regulation-could-help-alphabet-shareholders from WeeklyReviewer https://weeklyreviewer.tumblr.com/post/186569784132

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reneeacaseyfl · 6 years ago

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Google: Why More Regulation Could Help Alphabet Shareholders

Alphabet, Google’s parent company, is trading so cheaply even after Thursday’s strong earnings report that only three things can explain it:

The government will soon force Alphabet to materially alter its business model or break up entirely;

The company has lost its competitive fire and resembles a think tank more than a profit-maximizing enterprise;

The stock is misunderstood and misvalued.

‘Headline risk’ at Alphabet

The benefits of a breakup

Search reigns supreme

Adam Seessel is founder and CEO of Gravity Capital Management. Alphabet is his fund’s second-largest position. His column, “Valuation,” appears monthly on Fortune.com.

More opinion in Fortune:

—How Japan became a model for economic revival

—Bernie Sanders: America is drowning in student debt. Here’s my plan to end it

—Ex-Apple CEO John Sculley: Why sensors are the future of health care tech

—Most states still enforce noncompete agreements—and it’s stifling innovation

—Why recent antitrust regulation isn’t really about consumer protectionListen to our new audio briefing, Fortune 500 Daily

Credit: Source link

The post Google: Why More Regulation Could Help Alphabet Shareholders appeared first on WeeklyReviewer.

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weeklyreviewer · 6 years ago

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Google: Why More Regulation Could Help Alphabet Shareholders

Alphabet, Google’s parent company, is trading so cheaply even after Thursday’s strong earnings report that only three things can explain it:

The government will soon force Alphabet to materially alter its business model or break up entirely;

The company has lost its competitive fire and resembles a think tank more than a profit-maximizing enterprise;

The stock is misunderstood and misvalued.

‘Headline risk’ at Alphabet

The benefits of a breakup

Search reigns supreme

Adam Seessel is founder and CEO of Gravity Capital Management. Alphabet is his fund’s second-largest position. His column, “Valuation,” appears monthly on Fortune.com.

More opinion in Fortune:

—How Japan became a model for economic revival

—Bernie Sanders: America is drowning in student debt. Here’s my plan to end it

—Ex-Apple CEO John Sculley: Why sensors are the future of health care tech

—Most states still enforce noncompete agreements—and it’s stifling innovation

—Why recent antitrust regulation isn’t really about consumer protectionListen to our new audio briefing, Fortune 500 Daily

Credit: Source link

The post Google: Why More Regulation Could Help Alphabet Shareholders appeared first on WeeklyReviewer.

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nicholemhearn · 7 years ago

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You Can’t Understand Big Tech Without Understanding Network Effects. Here’s a Road Map.

Platforms are unique businesses — their purpose is more often to bring customers together to interact or make exchanges with each other than it is to sell something directly to the customers. The service being provided is that of a matchmaker, finding two people who could profitably trade or communicate but haven’t done so yet because transaction costs were too high without a trusted intermediary.

The platform business model also leverages one of the more powerful forces in the economy — network effects — to scale quickly and maintain momentum behind the entire ecosystem. Network effects mean the product or service increases in value with the total number of customers. The classic example is the telephone: The more people who have one, the more useful each phone is.

Platforms that serve multiple customer groups can also have indirect network effects, meaning that when one user group grows, the platform becomes more valuable to a complementary user group. Operating systems are a case in point: Developers’ demand for adopting a particular operating system depends on the number of users, and users’ demand depends on the number of developers creating applications.

If an operating system can reach critical mass — the point at which the value of the platform exceeds its cost for a large number of customers — it can engage a powerful flywheel effect where more users create more value for developers and vice versa. Research has shown that the social benefit from someone buying a new computer can exceed the private benefit due to these indirect network effects.

A successful platform can decrease search costs and reduce deadweight loss by brokering exchanges that never would have happened without it. But before a platform reaches that point, it must overcome a chicken-and-egg problem caused by the interdependence of demand between the customer groups. Who wants to join a two-sided market with no one on the other side? One way to solve this problem is for the platform operator to subsidize one side (usually the one with the higher elasticity of demand or the one that creates more value for the platform) by raising prices on what’s known as the “money side.”

Where the Network Effects Are: A Taxonomy

The charts below map the digital and analog markets with significant network effects. The vertical axis measures how strong their indirect network effects are, and the horizontal axis measures how strong their direct network effects are.

Communications networks have the strongest direct network effects — in which each user benefits when a similar user joins — of any platforms. Their raison d’être is to enable people to interact with others. WhatsApp, Facebook Messenger, Slack, iMessage, and Snapchat all serve this purpose, and collectively they have billions of users. In the pre-Internet age, the phone and fax machines were communications networks that also grew in value with their size.

Marketplaces facilitate transactions between two or more distinct groups and help minimize transaction costs, which results in more exchanges and an increase in social welfare. From the analog era, we have shopping malls that match retailers and shoppers; flea markets that match buyers and sellers; and nightclubs that match singles (n.b.: ladies’ night means that women are the subsidy side of the market and men are the money side). In the digital economy, there are eBay, Craigslist, and Amazon Marketplace for matching merchants and customers; Uber and Lyft for matching drivers and riders; Postmates and GrubHub for restaurants and eaters; and Airbnb for hosts and guests.

Social media networks like Facebook, Instagram, Twitter, Pinterest, Reddit, YouTube, and LinkedIn combine the direct network effects of communications networks (the “social” part of the name) with the matchmaking of marketplaces. Social media networks aggregate attention and then sell pieces of it to advertisers for targeted campaigns. Newspapers, magazines, television, and radio used to be the primary platforms for this latter function in the pre-Digital Era.

Platforms, such as operating systems and video game consoles, are ecosystems of users and developers and demonstrate both strong direct network effects (many apps that involve communication and collaboration become more useful with more users) and indirect network effects (app developers want more users and users want more apps), with the result that these markets tend toward oligopoly. Today, there are only three big personal computing platforms: Windows, which leads the desktop OS market with more than 88 percent market share, and Android and iOS, which together have almost 97 percent of the mobile and tablet OS market. Sony, Microsoft, and Nintendo control almost the entire video game console market.

Data networks are a new type of network that did not exist before the Internet made collecting, analyzing, and applying large datasets economical. Waze uses a driver’s speed and location to improve routing and navigation for other users of the app. Yelp and Netflix collect data and ratings to improve recommendations for users. AncestryDNA and 23andMe create databases of their customers’ genetic data, which are then used to improve genetic analysis for those same customers. All of these data networks have direct network effects, i.e., after each user’s data is added to the network, the value of the service provided by the network increases to every user.

Network Effects Aren’t What They Used To Be

Last century, all the action revolved around the desktop computer. This century, the multiplicity of devices and ease of direct communication means platforms can quickly find themselves cut out or replaced. Here are a few reasons why network effects may not be as strong in the 21st century as they were in the 20th century:

The proliferation of physical devices and digital platforms lowers switching costs.

Network effects have become highly localized, diminishing the advantage large networks have over small networks.

Network effects can be negative due to congestion, competition, advertising, and spam.

Users have an incentive to go off-platform for repeat business or high-value transactions.

In light of the empirical evidence, antitrust regulators should proceed on a case-by-case basis in markets with platform business models, identifying negative and positive network effects and determining if they are diminishing, increasing, or constant before making conclusions about market power.

Read the full comment we submitted to the FTC here.

The post You Can’t Understand Big Tech Without Understanding Network Effects. Here’s a Road Map. appeared first on Niskanen Center.

from nicholemhearn digest https://niskanencenter.org/blog/you-cant-understand-big-tech-without-understanding-network-effects-heres-a-road-map/

#nicholemhearn digest

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jakehglover · 7 years ago

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Google - One of the Largest Monopolies in the World

By Dr. Mercola

Google is undoubtedly one of the largest and clearest monopolies in the world. In fact, the company monopolizes several different markets, including search and advertising. Bing, its closest search competitor, has just 2 percent of the market — hardly a significant threat to Google’s 90 percent.1 Google also controls about 60 percent of the global advertising revenue on the internet.

One of the primary reasons smaller advertisers cannot compete is because they don’t have the user data Google has. As noted by digital media expert Jonathan Taplin, “They know who you are, where you are, what you just bought, what you might want to buy. And so, if I’m an advertiser and I say, ‘I want 24-year-old women in Nashville, Tennessee, who drive trucks and drink bourbon,’ I can do that on Google.”

Indeed, what many fail to realize is that Google’s primary business is the harvesting of user data, and this data gathering goes far beyond what most people realize was even possible. Google catches every single thing you do online if you’re using a Google-based feature, and this data is then used to build powerful personality profiles that are sold for profit and used in a variety of different ways.

Google Has You Pegged

As previously reported by Gawker:2

“Every word of every email sent through Gmail and every click made on a Chrome browser is watched by the company. ‘We don’t need you to type at all,’ [Google co-founder Eric] Schmidt once said. ‘We know where you are. We know where you’ve been. We can more or less know what you’re thinking about.��”

If that level of “mind reading” sounds far-fetched, it’s worth considering that Google also owns Deep Mind, the world’s greatest artificial intelligence (AI) company, which has more than 700 AI researchers in its employ. With all this AI power on the job, it is not hard for them to sort through all your data with their deep learning algorithms to detect patterns that can be exploited for profit.

As noted by Gary Reback, a prominent antitrust lawyer who has taken up the battle against Google’s monopoly, “People tell their search engine things they wouldn’t even tell their wives. It’s a very powerful and yet very intimate technology. And that gives the company that controls it a mind-boggling degree of control over our entire society.”

The Power of Google

Reback is featured in a recent 60 Minutes report focused on the power of Google — a company currently worth more than three-quarters of a trillion dollars — the power and wealth of which is built on its enormous data gathering capabilities. Alphabet, the holding company that owns Google, has over the past 14 years also acquired more than 200 other companies, further expanding and diversifying its monopoly over our everyday lives. This includes:

YouTube, the largest video platform on the web

Android, which operates about 80 percent of all smartphones

DoubleClick, one of the largest digital advertising companies

As noted by CBS News, these acquisitions barely raised an eyebrow with regulators in Washington. How come they were not more closely scrutinized by the Department of Justice’s antitrust division? According to Reback, “Some were investigated, but only superficially. The government just really isn’t enforcing our antitrust laws. And that’s what’s happened. None of these acquisitions have been challenged.”

Google Circumvented Antitrust Action in 2011

In 2011, the Federal Trade Commission (FTC) investigated antitrust complaints against Google. Yelp, Microsoft, Amazon, eBay, Expedia and Yahoo all said their business had suffered due to Google’s anticompetitive behavior.

A confidential memo leaked to the Wall Street Journal reveals FTC staff had recommended filing an antitrust suit against the company, noting that “Google is in the unique position of being able to 'make or break any web-based business' and has strengthened its monopolies over search and search advertising through anticompetitive means and forestalled competitors’ and would-be competitors' ability to challenge those monopolies."

According to CBS News, “It specifically cited Google for stealing competitors' content, and imposing restrictions on advertisers and other websites that limited their ability to utilize other search engines.” In the end, the recommendation to litigate was rejected and the case was closed. Reback and others suspect this illogical outcome was due to Google’s political clout.

The company spent more money on political lobbying in 2017 than any other corporation. It has no less than 25 different lobbying firms working on its behalf. Google is also funding 300 trade associations, think tanks and other important groups with influence over government policy. According to Reback, Google has “a seat at the table in every discussion … They know about developments that we never even hear about. So, their influence, from my perspective, is very, very difficult to challenge.”

FTC Urged to Investigate Android Data Collection Practices

Last month, Sen. Richard Blumenthal (D-Conn.) and Sen. Ed Markey (D-Mass.) urged the FTC to investigate the data collection practices of Google’s Android operating systems. Specifically, they want the FTC to ascertain “whether Google has deceptively collected location data on Android users, even when such services are disabled,” and to examine “the potential deceptive acts and practices used by Google to track and commoditize American consumers.”3

The call for an investigation appears to be in response to a November 2017 Quartz Media report,4 which discovered Android would circumvent a customer’s decision not to share location data by tracking the addresses of nearby cellular towers instead, and sharing that information with Google — a practice that appears to have begun in early 2017. According to The Hill:5

"’The result is that Google … has access to data about individuals’ locations and their movements that go far beyond a reasonable consumer expectation of privacy,’ the Quartz report says. The report said the inability to turn off the location services in Android poses a risk for individuals who want to conceal their location for security purposes, like law enforcement officials and victims of domestic abuse.”

Challenging Google’s Illegal Activities

One brave individual who has taken Google and other monopolies to task is Margrethe Vestager, competition commissioner for the European Union (EU), who during the last four years fined Facebook $122 million for a merger violation, ordered Apple to cough up $15 billion owed in Irish taxes, and fined Google $2.7 billion for illegal anticompetition activities.

Vestager says she wants Google to stop its illegal behavior, saying there’s proof the company is on the wrong side of the law. Using its proprietary search algorithms, Google promotes its own products and services while burying its competitors so far down the list that most people will never find them. According to Vestager, “It is … the algorithm that does it. Both the promotion of Google themselves and the demotion of others … And it is illegal.”

Chinese Tech Giants Dwarf All Others

In related news, The New York Times6 recently highlighted Tencent Holdings and Alibaba Group — two Chinese tech giants vying for title as Top Titan in an ever-growing number of areas of Chinese life, ranging from online education and bicycle rentals to brick-and-mortar supermarket chains.

According to the NYT, the two “have competed in messaging, microblogging and delivering takeout. They go head-to-head in video streaming and cloud computing. Today, their fiercest fight is over digital money kept on smartphones … [I]n the internet realm, China … offers a spooky potential vision of the future, one in which online behemoths like Tencent and Alibaba become the gatekeepers to the entire economy …”

Raj Rajgopal, president of digital business strategy at the consulting firm Virtusa Corporation, predicts the EU’s stricter new privacy laws might encourage the U.S. to follow, in which case Google and Facebook would have to find other ways of making money besides hoarding and selling user data. Once that happens, they may just decide to follow the playbook of China’s reigning duopoly, the primary goal of which is to lock as many people as possible into their respective payment systems.

What Kind of Data Does Google Really Have on You?

In a March 30 article for The Guardian,7 Dylan Curran took a deep dive into Google’s data harvesting, and the results are far more extensive than you might have suspected. Here’s a summary list of the kind of information Google collects, tracks and stores on each individual user:

Extremely detailed location tracking

If you have a Google-enabled device on your person that has location tracking turned on, it will store the exact details of where you are at any given moment, and this data accumulates from the first day you started using Google on the device. To review the details of your own data, see this Google Maps Timeline link.8

Complete search histories on all devices

Google keeps tabs on everything you’ve ever searched for, on any device, including search histories you’ve deleted from an individual device. To check your own search data, see Google’s MyActivity page.9

Personalized advertisement profile

Based on your data profile — location, gender, age, work and private interests, relationship status, income, health concerns, future plans and so on — Google creates personalized advertisements that might interest you. Have you ever done a search for a particular product or service and suddenly found yourself flooded with ads for that precise thing? That’s your data profile at work. To see your personalized ad profile, see Google’s Ads Settings.10

App usage

Do you use apps and extensions? If so, Google knows which ones you’re using, how often, when, where and with whom you’re interacting when you do. To see your app usage data, check out Google’s Security Permission Settings.11

YouTube history

Much can be gleaned from the types of videos you’re interested in, and Google keeps tabs on every single one you’ve ever searched for, watched and commented on. To review your own data, see your Youtube Feed History page.12

Clandestine microphone access

Disturbingly, Google (as well as Facebook) has the ability to access your microphone without your knowledge. If you suddenly find yourself on the receiving end of ads for products or services you just spoke about out loud, chances are one or more apps are linked into your microphone and are eavesdropping. Below is a video by Safer Tech describing how to disable the microphone on your device to prevent Facebook and Google apps from listening in.13

youtube

Clandestine webcam access

Your built-in webcam on your phone, tablet, laptop or computer can also be accessed by various apps. To learn more about app permissions, see “How to Master Your App Permissions So You Don’t Get Hacked — The Full Guide,” by Heimdal Security.14

As noted in this article, “For a long time, app permissions were something the regular PC user had no idea about. When installing new software on a computer, we were never asked if application X could access our web camera, our list of contacts, etc. … App permissions may seem like a nuisance, but the better you know how they work, the safer you can keep your data.”

Event tracking

By tracking your Google calendar entries, combined with your location data, Google knows what events you’ve attended, when and for how long.

Your fitness routine

If you use Google Fit, all the details about your fitness routine and workouts, down to how many steps you’ve taken on any given day, are recorded and stored.

A lifetime of photographic evidence

Twenty years ago, photos were a private matter, reminisced over in photo albums and displayed around the home. Today, people’s lives are on public display online, and Google captures it all. When combined with facial recognition software and other technological identification applications, including metadata detailing the time and place of each snap, your photos are a treasure trove of private information.

A lifetime of emails

Google also has every single email you’ve ever sent, received and deleted.

Deleted files and information

You probably delete files and information every now and then for the sake of safety, right? You might decide to delete that list of passwords from your phone, for example, in case you lose it or it gets hacked. Well, Google still has all of that information.

As noted by Curran, showing a screen shot of his downloaded Google data, “This is my Google Drive, which includes files I explicitly deleted, including my resume, my monthly budget and all the code, files and websites I’ve ever made, and even my PGP private key, which I deleted, that I use to encrypt emails.”

If you’ve done it or researched it, Google has a record of it

Google allows you to download a copy of the data they have stored on you. Curran’s personal data cache from Google was 5.5GB big, equal to about 3 million word documents. Essentially, your Google account contains a detailed diary of everything you’ve ever done or planned to do, and where you were when you did it. To download your own Google cache, see Google’s Takeout page.15

How Is Your Personal Information Used?

As noted by Curran, “This information has millions of nefarious uses. You say you’re not a terrorist. Then how come you were Googling Isis?” Indeed, the 2013 article, “What Surveillance Valley Knows About You,”16 is an eye-opening read that may be well worth your time, describing just how grossly invasive this data collection and distribution is, and how dangerous it can be if you end up on certain lists.

Unfortunately, many still fail to see the problem Google presents. Its services are useful and practical, making life easier in many ways, and more fun in others. Alas, the complete and utter loss of privacy is a high price to be paid for such conveniences. Who knows how a lifetime cache of personal data might one day be used against you? If you fall into this category, I ask you to give this issue some serious thought, because monopolies threaten our very way of life, and in more ways than one.

Google’s data harvesting is particularly concerning in light of its military connections,17 and the fact the company has repeatedly been caught infringing on privacy rights and misrepresenting the type and amount of data it collects and shares on its users. In April 2018, more than 3,100 Google employees signed a letter to CEO Sundar Pichai, urging him not to go ahead with plans to provide AI technology to the Pentagon’s drone program, known as Project Maven.

As reported by Fox News,18 “Google’s AI contribution could … improve the system’s ability [to] analyze video and potential be used to identify targets and civilians.” The letter also urges Pichai to establish a corporate policy that disallows it from participating in “warfare technology.” Others, including former White House deputy coordinator for international communications and information policy, Scott Cleland, have expressed deep concerns about the plan to combine Alphabet-Google’s data harvesting with a military 5G network.

“What could possibly go wrong with a nationalized, dual-use, military-civilian, secure 5G wireless network to centralize all military and civilian U.S. transportation traffic control and management with Alphabet-Google as the only commercial wireless ISP ‘financing/anchor tenant?’ Way too much,” Cleland writes.19

Protect Your Privacy by Avoiding Google

Alphabet, the rebranded parent company of Google and its many divisions, has tentacles reaching into government, food production, health care, education, military applications and the creation of AIs that may run more or less independently. A key component of many of these enterprises is incredibly detailed personal usage data.

Ultimately, your user data and personal details can be used for everything from creating personalized advertising to AI-equipped robotic warfare applications. As noted in previous articles, Google’s involvement in education and health care also has far-reaching ramifications, and in these settings your personal data could potentially be used to influence not only your personal lifestyle decisions but also to shape society at large.

Today, being a conscious consumer includes making wise, informed decisions about technology, and one of the greatest personal data leaks in your life is Google. Here’s a summary of action steps you can take right now, starting today, to protect your privacy. For more information, see Goopocalypse.com’s boycott Google page.

1. Sign the “Don’t be evil” petition aimed at Google, created by Citizens Against Monopoly

2. Avoid any and all Google products:

• Stop using Google search engines. So far, one of the best alternatives I’ve found is DuckDuckGo20

• Uninstall Google Chrome and use the Opera browser instead, available for all computers and mobile devices.21 From a security perspective, Opera is far superior to Chrome and offers a free VPN service (virtual private network) to further preserve your privacy

• If you have a Gmail account, close it and open an account with a non-Google affiliated email service such as ProtonMail,22 and encrypted email service based in Switzerland

• Stop using Google docs. Digital Trends has published an article suggesting a number of alternatives23

• If you’re a high school student, do not convert the Google accounts you created as a student into personal accounts

from HealthyLife via Jake Glover on Inoreader https://articles.mercola.com/sites/articles/archive/2018/06/16/google-one-of-the-largest-monopolies.aspx

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mintdiceofficial · 7 years ago

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GIFTO: Customization of Virtual Gifts for Content Creators

A new type of ‘fan economy’ is emerging with the massive popularity of live streaming and virtual gifts for fans to reward their favorite performers. To put this in perspective, the most popular show in the United States is NCIS, which pulled in an average of 14.6 million viewers in 2017. On the other hand, the most popular YouTube performer had more than 60 million followers throughout the year.

This trend with live streaming is gaining a head of steam in Asia, where thousands are quitting their day jobs to take their shot at becoming a live stream performer and going from rags to riches. And many are succeeding as an estimated 344 million people use live streaming apps in China, let alone the projections of 736 million across the continent.

Supporting this live streaming culture has sparked a new wave of virtual communities that are willing to pay performers by way of virtual gifts. Live streaming performers have found the secret to building online communities around their content, whether it’s music, videos, comedy, talk shows, game shows, etc. And the fan bases tend to be loyal supporters, spending real money to buy digital assets to gift to their favorite performers.

The fan economy built around virtual gifting is threatening to disrupt the revenue model for content producers and turn it into a highly profitable industry.

A broken model

Content producers primarily rely on ad revenue to support their endeavours in today’s online economy. And that’s before platforms like YouTube take their massive cut of 45% of ad revenue.

To demonstrate a typical scenario, YouTube content creators typically make between $1.50 and $4.00 per 1000 views. If a particular video goes viral and gathers 1 million views, it could bring in $4,000 in revenue for the creator, but again that’s before YouTube takes a cut.

When there are only about 0.3% of videos making it to the 1 million view mark, it’s a great model for YouTube, but content creators get the short end of the stick.

Why millennials prefer gifting

It’s no surprise that Millennials are driving the charge on virtual gifting. Millennials enjoy content that’s free of noisy advertisements, and the fan economy removes the ad revenue stream from the entire model.

Instead, fans purchase virtual gifts online and send them to the content creators they watch and enjoy. This can be anything from virtual flowers to virtual beer. Platforms like Uplive have gained incredible traction by offering virtual gifts for sale. Fans can use the platform’s currency to buy gifts, send to creators, or redeem for cash.

Fans are jumping onto the virtual gift trend because there is an emotional bond created with the content creator, as there’s usually some follow up interaction between the creator and the fan. Often, the creator will mention the fan on their live stream, creating further buzz for the community to send virtual gifts.

With live streaming in China alone becoming a $5 billion industry in 2017, there’s plenty of reason to start paying attention to this massive movement.

The main obstacle to success for a content platform like Uplive is that it’s a closed network. Virtual gifts and digital currency created for content creators is only relevant and usable on that content platform. So fans on Uplive aren’t able to send gifts to their favorite YouTube creators. On top of that, the issue of small fees for creators comes up again, where they only make about 25 to 40% of the revenue.

GIFTO Provides Ubiquitous Gifting

GIFTO - short for the gifting protocol - is a blockchain-based platform that aims to solve the main issues in the gifting model above. Seeing the huge gap with content creators, GIFTO’s platform looks to deliver a more fair and lucrative opportunity for content creators.

GIFTO allows users to create, curate, buy, sell and trade virtual gifts across any platform. The Ethereum-based ERC721 standard ensures that each virtual gift is unique, allowing content creators to make one-of-a-kind gifts for fans to purchase, sell and trade on the blockchain network.

For example, on Valentine’s Day, an artist created the Forever Rose using the GIFTO protocol. A group of 10 collectors paid $1 million to buy this virtual art piece. Even though the new owners aren’t able to touch the artwork or hang it in their home, their ownership interest is programmed in accessible blocks on the blockchain.

GIFTO Market Prospects

GIFTO sees itself in a unique market position as well, with a huge potential user base. Asia Innovations Group (AIG) is a backer of GIFTO, and already owns a series of live streaming platforms, including the previously mentioned Uplive. AIG currently sports a user base of 100 million users, bringing a lot of potential to the table for GIFTO.

Uplive, the incredibly popular platform, boasts 20 million users on its own, sending about 25 million transactions per month (more than 800,000 per day). Compare that to Ethereum’s blockchain network, which processes approximately 1 million transactions per day and has a $70 billion market cap. Uplive is currently in the process of transitioning their users from their internal currency over to GIFTO tokens.

GIFTO has been working with Uplive on testing a closed version of their system with the platform’s users. The next step is to introduce the open version on Uplive, and AIG eventually plans to leverage the GIFTO tokens across their 100 million users, on top of testing the token on major social media platforms like YouTube, Facebook and Instagram (totalling 4.3 billion users).

GIFTO’s Key Leadership

Andy Tian is the man behind the GIFTO blockchain project. Previously, he oversaw the roll out of Google’s Android software throughout China, built a popular gaming company in China that was bought by Zynga, then ran Zynga’s China operations for three years. Andy is skilled at driving usage and adoption of digital platforms.

In 2013 Andy left Zynga to start AIG, where he’s amassed over 100 million users and employs over 300 people around the world. Using the gamification concept, he’s been able to incorporate game-like features into something like a task to encourage engagement - i.e. the Facebook ‘like’ button. Now he’s bringing that concept to drive adoption of the GIFTO platform and token.

Andy has also formed a partnership with Changpeng Zhao, the CEO of leading crypto exchange Binance. This is crucial because Zhao used gamification marketing techniques to build a 6 million user base on the Binance exchange in six months. So Binance supporting the gamification marketing efforts of GIFTO could have notable effects on user adoption.

Final thoughts

GIFTO finds itself in a unique position with the fan economy building momentum throughout Asia. The man leading the charge has the background, experience and resources to make GIFTO a massive hit for the virtual gifting market.

The potential market is enormous for the gifting economy. Competing ideas and businesses have tried solving the problem through tipping content creators for their work. The primary hiccup in these solutions thus far has been getting users to change their regular habits like which live streaming platform they watch, or which browser they use.

GIFTO is becoming ubiquitous by testing their protocol on various platforms and becoming universally applicable and interoperable across content platforms. Fans find gifting much more rewarding than tipping, creating a meaningful experience with the content they are consuming. GIFTO appears to be on the edge of helping support the new wave of content Millennials we know and love.

#bitcoin #investing #finance #money #news #ico #crypto #gifts

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