Episode Transcript
Speaker 0 00:00:01 Hi, this is Josh person. Welcome to Research-Based Perspectives on the ever-changing World of work, leadership, learning, and HR with a heavy dose of insights on the exciting world of HR technology. Hey everyone. Today I want to talk about the big tech report that came out of Congress. It's a 559 page study. I've read the whole thing, cover to cover, you can read it marked up on my website, and it is really worth reading. There's a lot to learn in here. And I want to talk to you about sort of five big things that I took away. The first is that these four tech companies, apple, Amazon, Facebook, and Google have become enormous. They are now capturing 20% of the s and p 530% of the s and p 100 in market cap, over 5 trillion of value. And they have pretty much subsumed many, many other industries, the advertising industry, the publishing industry into their power.
Speaker 0 00:01:00 And this concentration of economic activity has a lot of implications and ramifications on our society and of course on other companies. But the big story to start with, number one, is that tech used to be a feature of our life. I mean, I remember when I first bought my first luggable computer from ibm, it was a cool thing to have at home, but, but these days you cannot live without technology. Your communication, your shopping, your travel, your commerce, your social life, it is all dependent on technology. So these companies have rapidly become institutions in our family and political and social lives in a way that they never plant. And I don't blame them for that. That's all sort of an artifact of how digital markets converge. But the executives of these companies probably don't understand the responsibility that they have. And this is why the government's involved.
Speaker 0 00:01:55 And you know, I've thought about business for many years and read Peter Drucker and many, many other people. And the reason that we have corporations in an economy like ours is because by combining effort firms, which are combinations of people, are more efficient and effective producers and deliverers of service than individuals. We used to have cottage industries of tiny little one man businesses buying and selling and growing things. We now have big con conglomerates. And the reason companies succeed is because they're in the business of solving problems. So I've always felt that business is actually a very noble profession. We don't do it just to make money. We make money as an outcome of a goal to solve a problem. Google's original goal was to organize the world's information. I don't know what selling advertisements on YouTube have to do with that. Really, not very much, but they've drifted a long way from their original goal.
Speaker 0 00:02:58 Amazon's original goal was to provide lower priced consumer services. In fact, Jeff Bezos's, one of his famous quotes was, your margin is my opportunity. And what he really set out to do with Amazon is to disrupt many, many businesses starting with books by providing much, much lower cost digital solutions to buy and sell and trade and exchange these products. Well today with Amazon Prime, the cost of products and goods on Amazon's actually higher than in most other places. It's more convenient. So he's now shifted that value proposition to one of convenience. But as you read through the report, it's shifted even more to one of dominance. In the case of Facebook, I really have no idea what problem Facebook is trying to solve, but we do know that we are not the customers of Facebook. Advertisers are the customers of Facebook. The problem they are solving is pinpointing advertising in a very, very unique and targeted way based on data that we provide.
Speaker 0 00:04:03 Oftentimes not really understanding that we're providing the data and oftentimes without our permission. So of course we all use Facebook, I don't, but a lot of people use Facebook and it's a very interesting and useful way to share information. But it wasn't really designed to help us. It was designed to help them. And then in the case of Apple, of course, Apple's entire business is around building wonderful ornaments of digital technology that we use for many important things and some unimportant things and charging premium prices. And they don't have any problem charging premium prices. That's always been their strategy. But as you read the report about Apple in particular, what you find is that 30% of all commerce going through the Apple App store is going to Apple, which is a massive, massive number. I think it's close to 16 billion in the estimates in the report are that it costs Apple about a hundred million dollars to run that.
Speaker 0 00:04:58 So Apple's got its own, um, slightly greedy issues too. So the question that sort of goes through your mind when you read the report is, have these companies drifted away from the core business of solving the problem that they set out to solve? And the answer is yes, they have. Which leads me to number two. Why? Why have these companies become problematic? Well, I don't think any of them are evil. They've all done lots of bad things. And you know, basically every company does bad things at times. But the problem is growth. When you become big and you go public, your stock price increases as a multiple of growth and it starts to become dependent on growth rate, not profitability. Now, recently Apple and to some degree Amazon, but certainly Google have focused on profitability, but they have to grow. They believe that if they're not growing, they're dying.
Speaker 0 00:05:52 And there's a certain amount of business philosophy behind that. You could, you could argue that that's flawed. There are lots of great companies that don't grow at 25 to 30% a year. They're profitable, they're well established brands, they solve great problems, and we use them every day. And those are the kinds of companies that Warren Buffet invests in. These four companies believe they have to grow at extremely high rates. And so every manager, product manager, business manager, sales manager in the company is constantly scratching for revenue. And that creates behaviors that cross the red lines. Which leads me to number three, the impact of these companies on the economy. When you read the report, there's lots of statistics in there, and I suppose some people will think it's partisan. It didn't feel partisan to me. But there's a lot of statistics about parts of the economy that have been negatively affected by the growth of these four companies.
Speaker 0 00:06:49 For example, news, the news industry is extremely important right now. We all have a really hard time finding accurate news, and it's very easy to lie and exaggerate fake news. And frankly, it's very unclear whether the New York Times or the Fox News is telling the truth half the time. Well, it turns out, if you look at the data in the report, the number of actual reporters has almost been cut in half because the news industry as a business has declined significantly due to the impact of Google. Google and Facebook together collect somewhere around 75% of the advertising revenue in the United States now. And so if you want to sell a newspaper or a magazine or articles in a blog, whatever it may be, and you decide you wanna sell advertising, that's all well and good. But most of the advertising revenue that you create is going to go to Google or another vendor like Facebook, and they're going to use that data against you.
Speaker 0 00:07:51 One of the things that you read about in the report is how Google in particular takes advertising traffic and puts their own products in front of the advertiser's products, which feels illegal, but I guess it isn't. But it's monopoly power. And that's why the federal government is involved in other industries like bookstores have obviously disappeared. There's very few left, many small merchants are dependent upon Amazon for distribution. And as you read about in the report, Amazon has this funny way of accidentally using information from their partners to build competing products. And Bezos has basically admitted that that happens. Although he doesn't like it to happen, it does happen and the Congress is not happy about that. And other industries have been affected as well. In my particular case, I've spent the last 20 years doing research and selling information and intellectual property, and I realized pretty early on that if we were dependent on Google or any other ad platform for advertising revenue, we would quickly race to the bottom and start selling clickbait.
Speaker 0 00:08:59 So we decided never to do that, and we developed a premium service. Other companies don't have that option. So you can read in the report the the impact, but it's virtually impossible to sell anything on the internet without directly partnering with one or more of these four companies. And that means you have to understand them, you have to play by their rules, you have to pay their prices, and you have to give them lots of detailed information about your company. Interestingly enough, these companies are not as meticulously managed as you think. Google's a great company, but it's got a million little business units doing different things. You can put a business advertisement in Google and it'll appear in the wrong place and they'll fix it eventually. But they're just busy. They're, they're consumed with lots and lots of incoming activities. So they aren't this highly efficient machine for disrupting the economy.
Speaker 0 00:09:53 They're just big and they just touch a lot of things. The third issue that I wanna talk about is ethics and trust. And my experience in that area goes back to my days in the 1970s and the 1980s when I worked at ibm. I entered the tech industry in 1981, the year that the IBM PC was launched. And at that point in time, I was in the IBM sales organization. IBM owned the IT market much, much more dominant in fact than Google or even Microsoft is today. You could not run a company without IBM computers, and you could not buy IBM computers without IBM software, and you could not buy IBM software without IBM service. So it was sort of a monopoly. And a few years earlier, about a decade earlier, the Department of Justice had filed a consent decree against IBM and forced IBM to unbundle its hardware from its other offerings.
Speaker 0 00:10:48 And that created an enormous industry of other things. Software companies plug compatible mainframe companies later, companies like digital equipment, sun Microsystems, Cisco, Oracle, most of them really grew out of the shadow of ibm. And the reason they were able to grow is IBM was forced to let go of its monopoly power. Believe it or not, in my early days at ibm, the relational database every major company used was a proprietary relational database developed by ibm. They ran on IBM mainframes. Oracle built a huge, highly successful business competing with that, as did Microsoft and many others. So the breakup of IBM turned out to be very good for the tech industry, and IBM recovered and adapted and is a totally different place. Now, second example that took place during my career was Microsoft. In my early days at ibm, we partnered with Microsoft and then later competed with Microsoft.
Speaker 0 00:11:48 And Microsoft was a brutally competitive company. Not only did the company bundle its software into hardware and force hardware manufacturers to use Microsoft software or threaten to take them out of the channel, but they then bundled the internet browser. Most of you probably don't remember this, but there was quite a big deal when Netscape built the Integr internet browser. And we started to realize how big the internet was going to be. And Netscape became a pretty high valued company, although not a very big company. And Microsoft decided they were going to compete with this. This was a little bit before Google had really caught hold, and the internet explorer was bundled into Windows. And that's really what forced the feds to take on Microsoft. And very similar to ibm, there was a consent decree to break up and force Microsoft to unbundle certain things. And Bill Gates even had to testify in Congress, and it was actually caught lying in Congress.
Speaker 0 00:12:42 It's sort of a funny video to watch, but it was essentially a wake up call. So if you look at other mature older tech companies, to some degree Apple is like this, Cisco, these are companies that have been around at and t for example. They've been around a long time. They've had dominant market share in different parts of their marketplace and they've run into federal government and sometimes had to adjust their business practices. But what comes out of that are better companies, more ethical companies, companies that think about the marketplace they serve and think about their competitors and think about their stakeholders and think about their ecosystems. And that's where these four companies are. They are beginning to be forced to think that way. And when you look at the testimony from the CEOs, uh, none of them are evil or in any way lying or trying to do bad things to anybody, but they're a little bit unhappy or upset or in denial about the fact that these issues are being raised.
Speaker 0 00:13:40 And there was an interesting interview with Steve Bomber just this last week, and he sort of laughed and said, Hey, you guys, you just better get with the program fast because the feds aren't gonna let up. And the sooner you comply, the better for everybody including you. So this is a stage of maturity for these large companies and it's happened in different ways for each one. When you read my article and you read the report, you'll see each of the four companies has behaved anti-competitive or they've lied, or they've used data in an unfair way, or they've used marketplaces against their partners in the different ways. But there's similarities to all of them, all driven by growth and to some degree just beginning to realize that they are not just companies anymore, they are institutions. And when they reach this stage of growth where they have institutional impact on our lives, they either have to be broken up or they really have to behave in a different way.
Speaker 0 00:14:36 The fourth thing I want to talk about is the issue of trust. And for me as a 64 year old analyst consultant, I've been through a lot in my life and I am really shocked at how little we can trust businesses and the politics and the media at the moment. The Pew Research and Edelman Research both studied trust extensively. And the last study I just saw showed that fewer than 15% of Americans trust the US federal government, for example, to do the right thing in the pandemic that is just shockingly low. A similarly low percentage of Americans trust the federal government to solve income inequality and a slightly higher, but also low percentage trust the US federal government to do anything about global warming. But these are really the three biggest things in our lives, the pandemic, our wages, and our careers and our environment and our daily lives.
Speaker 0 00:15:36 If you live in California, you've been through days of smoke where you were locked in the house. If you live in Louisiana, you've been worrying about a hurricane. If you live in the Midwest, you've been worried about tornadoes. So all of these things are real and they're really impacting our lives. So where do we go for trust? We go to the private sector. And one of the interesting studies done by Edelman just this last two weeks is that the expectations of trust in the private sector have skyrocketed. Buyers are very, buyers are very critical of the trust of the products and the companies behind those products. If you buy Clorox bleach, you trust that it is going to disinfect your life and make your house a healthy place. You also trust that the company is not going to pollute the environment and that the company will pay fair wages.
Speaker 0 00:16:28 So these issues of trust in how businesses go to market, how well their products work, how ethical and fair they are, and how well they listen to the input from their stakeholders, including communities, employees, and customers are becoming central to buyers' needs for the products they buy. So when you think about these four companies, Google, Facebook, apple, and Amazon, they are all teetering on a world that may not trust them. And what's the implication of that? Well, obviously Facebook has had plenty of hits for that and uh, hundreds of millions of dollars of advertisers have left Facebook. Many of them have come back, but I was visiting, a guy I know at Google a couple years ago won't mention anything about who he is or where he is, but he told me that Google has all of the data in Facebook, LinkedIn, and every employee profile in the public internet.
Speaker 0 00:17:27 They just don't tell everybody it's there. And they use it for all sorts of things internally. But did you give them your permission to access all that data? I certainly don't remember doing that. And the CEO of Google defended this kind of behavior in Congress saying, well, we give people all sorts of privacy permissions, but you know, who has time to futz with all that stuff? Apple is now getting a lot of heat about the price they charge for the app store. I do believe Apple at a, at its core is the most mature of these four companies and really does try to do the right thing. But they're chasing services revenue in a very aggressive way now. And, but that's what happened to the App Store and they've gotten in trouble with Fortnite. So we'll see where that goes. And in the case of Amazon, everybody loves Amazon.
Speaker 0 00:18:12 Everybody loves the fact they can order things and get them in five minutes, and you know, there'll be a drone that flies over your house and drops it into your porch. I don't know if that will last when you find out that Amazon is taking pictures of your kids and putting them online for other people to see perhaps misusing the information on Alexa. I have no evidence that that's true, but as you read through the report, you can see that the internal decisions being made in Amazon are not carefully scrutinized. And so it is not a company that I would trust with that kind of data, even though obviously we spend as much money on Amazon as anybody else. So this is the fourth reason that I think this report is important. The final thing I want to talk about is culture. You know, we could sit around and I've seen articles written that say, this is a left wing committee that is partisan, and it's the Democrats trying to break up these four companies.
Speaker 0 00:19:07 I, I don't believe that's true. I think if you read it, you'll see there's plenty of nonpartisan evidence of behavior that's harmful to companies, the society and us as individuals. These are not evil companies. They are well-meaning companies, but their size and their impact on society has made it harder and harder for them to operate in a completely ethical and fair way. It is not their fault, it is a result of their size. And that is the issue of culture. And I think one of the things that we're going to see over the next, maybe administration, is some serious discussion of our culture as a country and what we can do to reestablish a sense of trust in our society. And these companies don't want to be part of the problem. And I think what will happen is there will be some recommendations and a lot of yelling and screaming about whether they're good or bad.
Speaker 0 00:20:00 And then these companies are gonna realize that this is actually a good thing. It's a good thing for us as a business. It's a good thing for us as executives and is a good thing for us as society. If you look at companies like Johnson and Johnson or Sanofi or Genentech or Roche, the big pharmaceutical companies, and you meet with their executives, they firmly believe that the reason they exist is to make life better for human beings. The core of their companies, even though they may charge high prices, but the core culture they're built around is helping people. I had a conversation with Sainsbury about their recovery from their pandemic. And the core business they're in is feeding the uk, feeding the nation. Deutsche Telecom culture is built around connecting people all the time for everything that they need. And these are, these are cultures that take decades to build.
Speaker 0 00:20:58 And I think in the case of these four tech companies, they're either gonna go back to their roots or they're gonna have a cultural renaissance. And the best example of that is Microsoft. Microsoft was a brutally competitive growth at all costs. At any cost competitor, they're not that way anymore. They are growing, they are very healthy. But this is a company that really has a social mission. It is focused on the growth mindset. It is focused on listening and learning. It is focused on making work better for people, creating more productive experiences and tools. Yes, they're competitive. Yes, they have competitors, but I don't hear the angry competition at Microsoft the way I used to. I hear a relentless focus on solving the needs of their customers in a positive and constructive way. And I think the four companies discussed in this report are going to go through the same awakening. And I just think it's worth any of you in business that like to read, to read through the report, take away some lessons for your own career, your own job, or your own company. Thank you.
