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👓Tech, politics and privacy. Where next?👓

This week looks at the big technology firms, privacy and politics. Are we doomed to end up in nineteen eighty four?

As each year goes by, technology has both an increasing hold and greater power in society.

This has created huge benefits through increased quality of life, increased convenience and easy access to knowledge to name a few. It has also created problems with disruption due to innovation, increased danger to the world through increasingly powerful weapons and increasing loneliness thanks to social networks. Again to name a few.

Whilst there are increasing challenges today as a result of technology, I suspect this is no different to how the millers felt when industrialisation happened. The scale is bigger though.

The right to privacy

Nearly every country gives people a right to privacy in the home and to secrecy of communications though this can be bypassed in certain circumstances (sometimes unjustly of course).

Today encryption techniques can mean that it is impossible for governments to “listen in” on certain types of electronic communications. Right up until 1992, the US had a ban on the exporting of cryptographic technologies which has been gradually eased. The benefits of that softening in stance led to the growth of secure communications and ecommerce and arguably therefore the very success of the internet itself. This article has a good look at the ongoing battle between the FBI and cryptography.

The debate has not stopped and with increasing volatility in the world, politicians are calling more loudly for ways to break end-to–end encryption, which prevents anyone from listening in.

Theoretically you could ban the use of end to end encryption in communication platforms though this would just push end-to-end encrypted communications platforms underground. Does that make things easier or harder to law enforcement agencies?

The risk of backdoors in technology leaves it open to attack from unwanted parties and reduced encryption levels means both increased corporate espionage and a lack of trust in security itself, which would reduce its overall usage.

Increasing corporate power

Rewind to the mid 90s and you see a world dominated in the west by services like AOL and Compuserve. These were effectively mini-Internets owned by a single organisation. They were simple and easy to use and unlike the wild west of an open standards based Internet, which were difficult to access and use at the time.

These services though quickly stagnated, whilst the Internet continued to innovate, mostly as a result of the spread of email and the world wide web and its browser wars.

Today though, whilst the standards for accessing the internet are open, the services built on top of it are proprietary.

Search is controlled by Google and social networking and communication dominated by Facebook. With the exception of email, these are both critical to the way we use the Internet today.

Whilst this is no different in some ways to Microsoft controlling the interface to your computer or Google (or Apple) controlling your mobile interface, the opportunity for misinformation is much greater.

There have been plenty of calls to breakup Google over the years, though this would not solve the control it has over searching for content. Likewise with Facebook, how would you break it up in a way which didn’t demolish its very utility.

You could of course define both services as utilities and if a layer of the tool is mature and changing little, this could be done. But content continues to innovate so search will need to adapt. EU anti-trust is targeting Google though on services like product search and even its Android operating system where it believes Google has misused its power.

Digital communication is far from being mature but perhaps Facebook could be forced eventually to open up its network of people as a layer open to be used by anyone?

Monopolies can hinder innovation, but it is easy to argue that disruption within mobile has created a challenge to Google’s search proposition as less people use search on a mobile.

Voice assistants like Alexa are likely to be the next battleground for access to online knowledge and services, so it is no surprise to see Google battling it out on this front. Revenue-wise though Google’s search revenues remain unchecked.

At least today though, innovation does not seem to slowing down. If anything it seems to be accelerating.

Increasing misuse

All these platforms are tools and in an increasingly volatile world, they are being increasingly misused. This has been illustrated by fake news, the Russians manipulating the US elections and increasing access to extremist content.

Both Google and Facebook are reacting to these issues, both using artificial intelligence, though there is plenty of evidence that it displays the bias of its creators. Regardless, Google believes it does a better job than humans do.

Manual intervention is expensive at the scale of Facebook and Google though, but when automation is involved problems can and do occur. Facebook saw it recently with its ability advertising to target anti-Semitic groups. Its solution has been to take a sledgehammer to a nail and remove self-identifying information from being able to be targeted. Hopefully a more nuanced solution will appear.

Meanwhile, Theresa May last week demanded tech companies take down terror content within 2 hours or face the threat of fines. Currently the target is 24 hours, which they are struggling to consistently meet. This will require the tech companies to be more aggressive with their approach, which in turn will lead to more false positives.

There is plenty of danger here then.

Who defines terror content. It seems pretty straightforward today but there are always grey areas and it can be very easy to broaden the definition until before you know it, we are censoring things that we never thought would be.

Cloudflare recently decided to stop protecting the Daily Stormer, a neo-Nazi website. Its CEO, Matthew Prince wrote very well about why he felt uncomfortable doing this here.

These are difficult conversations and it is good to see the tech companies working with the governments to resolve them.

However, there is a clear need for transparency when it comes to censorship of any kind and an opportunity to challenge it in a transparent way. Something our politicians do not seem keen to deliver on.

Do tech and politics mix?

Church and state. Two spheres of influence that should stay separate. With the power of business and the media, should these be included?

Theoretically, when you take political office you are supposed to relinquish control over assets that can influence you. Trump has obviously been running rings around this with his vast empire still under his control via his children.

There are plenty of rumours that Mark Zuckerberg’s tour of the US this year has been a precursor to him running for president in 2020. He vehemently denies it today but even Republicans think he would be a formidable opponent.

One political strategist believes he is more powerful than the publisher of the New York Times, which if he were allowed to manipulate Facebook’s algorithms for his own gain or his opponent’s detriment would certainly be true given its vast reach into not just the US population but also globally.

The risk of that alone means that any presidential bid would require Zuckerberg to relinquish his control over Facebook at the start of the race not the end – unless he has Trump’s ability to manage a huge swathe of opinion in the midst of media outrage.

Facebook and the other tech giants should work with governments without being in their pockets (and vice versa). But a technology company should never be in politics.

Mark Zuckerberg was keen to retain control of Facebook even after he had sold the majority of his stock for his foundation. This aim only got withdrawn when the value of the stock shot up meaning he no longer needed to sell as many shares. Would he be able to give up Facebook in order to run for office?

Overall though, if disruption to jobs increases (whether due to artificial intelligence or some other technology) or if technology is not serving the majority of people, a public backlash against technology will only slow innovation in the western world.

Today, technology means social media and the internet. It does not equate to improvements to healthcare, education or a better quality of life etc. Maybe we should give a more powerful voice to innovation happening there.

💰The big five report. Amazon in depth. The differing paths to success.

The big four (Facebook, Google, Amazon and Apple) as the media refer to them, or big five as Microsoft should really be included have all released their numbers in the last week or so bar Apple, who release this week.

I spoke briefly on the BBC (video below) on the Amazon results but with so much happening at Amazon I’ve expanded on it further.
No one expected the disappointment in the results (which showed Amazon beat revenues but miss earnings).

In the lead up to Amazon’s results, the analysts were super positive. But like Google, Amazon has never really respected the stock market’s quarterly results cycle and this quarter’s results was a reminder of this. The investment over the quarter meant that earnings were 0.40c per share, instead of an average $1.41 per share. They didn’t just miss expectations, they completely ignored them. Why were we surprised?

The money is being invested predominantly in three major areas – expansion into Asia, delivery and their video service in advance of the key Christmas period. This was Amazon for the most part making a bet on their next quarter’s numbers and beyond.

Warp speed

In the US, maintaining Amazon Prime membership is now a critical way of shutting out the competition. More than 50% of US households are a member and Amazon’s competitors do not have their heads in the sand and are trying to compete.. slowly. Amazon though is not stopping at next day or even some same day delivery. It is pushing for broader and faster capabilities.

In the same way as Google changed the game with Gmail’s vast amount of storage, Amazon has done the same with Prime. Even more impressively they have done so for a fee. Amazon clearly believes that delivery speed will continue to be a key differentiator. Their recent Prime Day sale, exclusive to members was their biggest to date.

Behind the scenes
The margins at Amazon are thin but when you look underneath the covers, Amazon Web Services, their cloud server platform used by companies globally to host apps, websites etc. are performing extremely well and are increasingly profitable. It is a $10bn business and grew a healthy 42%. They completely disrupted the provision of servers to businesses and are continuing to lead the market. Microsoft’s presence here is starting to be felt now – they previously grew over 50% and whilst they are still far and away the leader, Microsoft has the arsenal to go toe to toe with Amazon.

Calling Alexa

The most exciting opportunity amongst Amazon’s portfolio is the Alexa ecosystem. This is not an area that Amazon has typically succeeded in. Their previous foray into hardware was their Fire phone which flopped. Alexa though is the clear leader in the smart virtual assistant space right now.

This gives it a unique opportunity to change the way we interact with technology in a similar way to how Microsoft did the same with the launch of Windows 3 and the adoption of the mouse. Back then, Microsoft used the success of Windows to build multi-billion dollar businesses in office and server software. Alexa could allow Amazon to do the same.

Amazon is placing communication as its bet on the key feature alongside the assistant itself. It launched the Echo Show in the US recently which disrupts the videophone.

The rumour is they are also going to launch a messaging platform to compete with Facebook and WhatsApp. This will work on the desktop and phone but if it isn’t tied directly into Alexa it will be a missed opportunity in my view. Even then, I am not convinced we need yet another messaging platform. Google has tried to compete in this space for years with little success. Whilst Excel truly transformed the way you used a spreadsheet vs Lotus 1-2-3, I am not seeing anything different about Amazon’s messenger vs Facebook’s.

Maybe Facebook will misstep when they monetise their messaging platform later this year. I wouldn’t bet on it.

The righteous path

What interests me the most is how, despite the very differing cores of each company, we are seeing the big five attack the same opportunity from their home turf.

In the short term, the bet is on smart virtual assistants. All of the five except Facebook has one.

Amazon being the most open (and Microsoft-like in strategy) by opening up the platform and building strong partnerships to extend the ecosystem. Their approach tightly integrates with its ecommerce engine of course. As previously mentioned, social is the piece it also wants to own itself.

Apple is focusing on music, which given the strength of iTunes should be of no surprise, though I suspect it will overhaul Siri every year until it is a really strong competitor again albeit within its closed Apple ecosystem. One for the fanboys 😉

Google is focused on its assistant being the best at providing information, building on its historic search capabilities. This should mean that it has the most helpful assistant over time but can it provide the breadth of services that the others are building?

Finally there is Microsoft, which under Nadella has the clearest vision it has had for a long time. They are focused on productivity. This potentially makes it a strong player in the business space but the consumer space is where the growth is today. Can it succeed here? I’m sure it will find a dozen or so hardware partners and flood the market but it needs to deliver on partnerships like Amazon has done to succeed. It could equally succeed as a business though without the hardware piece and just deliver its productivity capabilities through the other platforms.

What about Facebook? Well I am sure there will be addons across all the platforms for Facebook and WhatsApp. That is one reason I don’t believe Amazon’s messaging platform can succeed without more significant capabilities.

The smart assistant devices are also just a version one technology. They’ll integrate into everything and be everywhere. In your car, phone, TV and laptop. Probably even your fridge. To truly work though, they need to not just wait for our question but need to understand what is happening around us. The research Facebook is doing into augmented and virtual reality will deliver the next leap in smart assistant technology. The market may have passed Facebook by then though.

(This post originally featured in the Connected Paths newsletter, which you can sign up for here.)

Sponsored Stories driving mobile revenues

“Sponsored Stories.. are on a $1 million a day annual run-rate (so $365 million a year), around half of which is mobile. Sponsored stories and newsfeed are the cornerstone of our mobile monetization strategy”
Sheryl Sandberg, COO, Facebook.

Most talk about Facebook’s revenues focus on its ads on the right hand side inside Facebook. Social advertising I suppose you could call it but this is really just standard targeted advertising which has been around for over a decade, albeit thanks to the nature of the social network the targeting is not bad. Like all fixed position advertising though, users train themselves to mostly screen out these ads. Not bad for branding, poor for direct response.

Sponsored Stories is the real innovation though. In stream, it is in the stream of information that users are actively scanning. Much better for brand impact and also better direct response. Even better for Facebook, this can work in mobile as well – and shows up in its most recent results – 50% of revenue from Sponsored stories came from mobile.

Like all interruptive advertising though, getting the balance right is key – with complete control of the platform though, Facebook can easily identify the right balance and quickly. Facebook could also potentially alter the frequency by geography and device as well – I am sure both these factors have an impact on how many ads you are willing to endure.