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How to Regulate Big Tech

There’s been a fair amount of talk lately about proactively regulating — and maybe even breaking up — the “Big Tech” companies.

Full disclosure: this post discusses regulating large tech companies. I own shares in several of these both directly (in the case of Facebook and Microsoft) and indirectly (through ETFs that own stakes in large companies)

(Image Credit: MIT Sloan)

Like many, I have become increasingly uneasy over the fact that a small handful of companies, with few credible competitors, have amassed so much power over our personal data and what information we see. As a startup investor and former product executive at a social media startup, I can especially sympathize with concerns that these large tech companies have created an unfair playing field for smaller companies.

At the same time, though, I’m mindful of all the benefits that the tech industry — including the “tech giants” — have brought: amazing products and services, broader and cheaper access to markets and information, and a tremendous wave of job and wealth creation vital to may local economies. For that reason, despite my concerns of “big tech”‘s growing power, I am wary of reaching for “quick fixes” that might change that.

As a result, I’ve been disappointed that much of the discussion has centered on knee-jerk proposals like imposing blanket stringent privacy regulations and forcefully breaking up large tech companies. These are policies which I fear are not only self-defeating but will potentially put into jeopardy the benefits of having a flourishing tech industry.

The Challenges with Regulating Tech

Technology is hard to regulate. The ability of software developers to collaborate and build on each other’s innovations means the tech industry moves far faster than standard regulatory / legislative cycles. As a result, many of the key laws on the books today that apply to tech date back decades — before Facebook or the iPhone even existed, making it important to remember that even well-intentioned laws and regulations governing tech can cement in place rules which don’t keep up when the companies and the social & technological forces involved change.

Another factor which complicates tech policy is that the traditional “big is bad” mentality ignores the benefits to having large platforms. While Amazon’s growth has hurt many brick & mortar retailers and eCommerce competitors, its extensive reach and infrastructure enabled businesses like Anker and Instant Pot to get to market in a way which would’ve been virtually impossible before. While the dominance of Google’s Android platform in smartphones raised concerns from European regulators, its hard to argue that the companies which built millions of mobile apps and tens of thousands of different types of devices running on Android would have found it much more difficult to build their businesses without such a unified software platform. Policy aimed at “Big Tech” should be wary of dismantling the platforms that so many current and future businesses rely on.

Its also important to remember that poorly crafted regulation in tech can be self-defeating. The most effective way to deal with the excesses of “Big Tech”, historically, has been creating opportunities for new market entrants. After all, many tech companies previously thought to be dominant (like Nokia, IBM, and Microsoft) lost their positions, not because of regulation or antitrust, but because new technology paradigms (i.e. smartphones, cloud), business models (i.e. subscription software, ad-sponsored), and market entrants (i.e. Google, Amazon) had the opportunity to flourish. Because rules (i.e. Article 13/GDPR) aimed at big tech companies generally fall hardest on small companies (who are least able to afford the infrastructure / people to manage it), its important to keep in mind how solutions for “Big Tech” problems affect smaller companies and new concepts as well.

Framework for Regulating “Big Tech”

If only it were so easy… (Image credit: XKCD)

To be 100% clear, I’m not saying that the tech industry and big platforms should be given a pass on rules and regulation. If anything, I believe that laws and regulation play a vital role in creating flourishing markets.

But, instead of treating “Big Tech” as just a problem to kill, I think we’d be better served by laws / regulations that recognize the limits of regulation on tech and, instead, focus on making sure emerging companies / technologies can compete with the tech giants on a level playing field. To that end, I hope to see more ideas that embrace the following four pillars:

I. Tiering regulation based on size of the company

Regulations on tech companies should be tiered based on size with the most stringent rules falling on the largest companies. Size should include traditional metrics like revenue but also, in this age of marketplace platforms and freemium/ad-sponsored business models, account for the number of users (i.e. Monthly Active Users) and third party partners.

In this way, the companies with the greatest potential for harm and the greatest ability to bear the costs face the brunt of regulation, leaving smaller companies & startups with greater flexibility to innovate and iterate.

II. Championing data portability

One of the reasons it’s so difficult for competitors to challenge the tech giants is the user lock-in that comes from their massive data advantage. After all, how does a rival social network compete when a user’s photos and contacts are locked away inside Facebook?

While Facebook (and, to their credit, some of the other tech giants) does offer ways to export user data and to delete user data from their systems, these tend to be unwieldy, manual processes that make it difficult for a user to bring their data to a competing service. Requiring the largest tech platforms to make this functionality easier to use (i.e., letting others import your contact list and photos with the ease in which you can login to many apps today using Facebook) would give users the ability to hold tech companies accountable for bad behavior or not innovating (by being able to walk away) and fosters competition by letting new companies compete not on data lock-in but on features and business model.

III. Preventing platforms from playing unfairly

3rd party platform participants (i.e., websites listed on Google, Android/iOS apps like Spotify, sellers on Amazon) are understandably nervous when the platform owners compete with their own offerings (i.e., Google Places, Apple Music, Amazon first party sales). As a result, some have even called for banning platform owners from offering their own products and services.

I believe that is an overreaction. Platform owners offering attractive products and services (i.e., Google offering turn-by-turn navigation on Android phones) can be a great thing for users (after all, most prominent platforms started by providing compelling first-party offerings) and for 3rd party participants if these offerings improve the attractiveness of the platform overall.

What is hard to justify is when platform owners stack the deck in their favor using anti-competitive moves such as banning or reducing the visibility of competitors, crippling third party offerings, making excessive demands on 3rd parties, etc. Its these sorts of actions by the largest tech platforms that pose a risk to consumer choice and competition and should face regulatory scrutiny. Not just the fact that a large platform exists or that the platform owner chooses to participate in it.

IV. Modernizing how anti-trust thinks about defensive acquisitions

The rise of the tech giants has led to many calls to unwind some of the pivotal mergers and acquisitions in the space. As much as I believe that anti-trust regulators made the wrong calls on some of these transactions, I am not convinced, beyond just wanting to punish “Big Tech” for being big, that the Pandora’s Box of legal and financial issues (for the participants, employees, users, and for the tech industry more broadly) that would be opened would be worthwhile relative to pursuing other paths to regulate bad behavior directly.

That being said, its become clear that anti-trust needs to move beyond narrow revenue share and pricing-based definitions of anti-competitiveness (which do not always apply to freemium/ad-sponsored business models). Anti-trust prosecutors and regulators need to become much more thoughtful and assertive around how some acquisitions are done simply to avoid competition (i.e., Google’s acquisition of Waze and Facebook’s acquisition of WhatsApp are two examples of landmark acquisitions which probably should have been evaluated more closely).

Wrap-Up

(Image Credit: OECD Forum Network)

This is hardly a complete set of rules and policies needed to approach growing concerns about “Big Tech”. Even within this framework, there are many details (i.e., who the specific regulators are, what specific auditing powers they have, the details of their mandate, the specific thresholds and number of tiers to be set, whether pre-installing an app counts as unfair, etc.) that need to be defined which could make or break the effort. But, I believe this is a good set of principles that balances both the need to foster a tech industry that will continue to grow and drive innovation as well as the need to respond to growing concerns about “Big Tech”.

Special thanks to Derek Yang and Anthony Phan for reading earlier versions and giving me helpful feedback!

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Mr. Tseng Goes to SXSW

Apologies for the lack of blogging these past few weeks. Part of that (although I really have no excuse) is because I got to attend famed tech, music, and film convention South-by-Southwest (aka SXSW).

It was my very first time in Austin, and I had a blast hanging out at the various booths/panels during the day and on Austin’s famous 6th Street in the evening. Granted, I just barely missed the torrential rain of the first half of the conference (and, sadly, also had to miss out on the music and film part of the festivals), but I got to see a fair amount of the tech conference, and had a few observations I thought I’d share

  • A good majority of the companies paying big bucks to market there should spend their money elsewhere. This is not a ding on the conference. Nor am I even arguing that these companies are wasting time sending representatives to the conference. My two cents is that there were many companies there who were spending their money unwisely at best – whether it be on acts of branding heroism (i.e. paying to rebrand local establishments) or holding massive parties with open bars and no coherent message  conveyed to the attendees about who the company is or why they should use the product. I must’ve attended at least three of the latter – and, truth be told, I can’t even remember the names of the startups that held those parties. Bad way to spend marketing dollars, or terrible way?
  • With that said, there were a number of companies there who definitely spent wisely (although whether or not it works is a question I leave for the marketplace). SXSW is a great venue to try to attract the attention of early adopters of consumer internet/mobile products – and it makes great sense to try to blow out marketing there as part of some major product/marketing push. Here’s two companies that I think were smart to spend a lot of money at SXSW (and, in my humble opinion, executed well):
    • nikefuelI think Nike in pushing its digital initiatives like Nike Fuel (which I plan to write a review of :-)) spent quite wisely building its brand. They had an interesting panel on using the product, an outdoors area that looked like a mini-boot camp (no joke!), a digital billboard which alternated between a appropriately color themed and a room decked out like a club where Nike employees sold the fuel band and helped new users get them set up.
    • ncom-lumia-900-cyan-front-267x500-pngI think Nokia (yes, despite my previous post, I mean Nokia) did a great job as well – they set up a Nokia Labs party area which looked like three giant domes from the outside. Right next to the entrance there was a snow machine (I assume to recreate the Finland snow?). The Nokia folks on the inside were all dressed in labcoats (keeping with the “lab” theme) and, like with Nike, there was crazy club music being played. The bar was offering a drink made with Finnish vodka called “Lumia Liquified” (Lumia is the name of Nokia’s new high-end smartphone line). And with this hip backdrop in place, the Nokia party had multiple exhibits featuring the Lumia’s unique design (there was a great display full of the drab black phones we’re used to seeing and the Lumia’s brightly colored phone standing out), the Lumia’s Carl Zeiss lens/optics, and the Lumia’s Clear Black display technology (basically using layers of polarized glass so that the display looks black and readable under direct light). Enough for me to no longer be a Fandroid? Probably not, but I definitely left the party impressed.
  • Like most tech shows, there was a main exhibition floor which I had a chance to walk through. On these floors, companies assemble at booths attempting to attract customers, business partners, investors, and even just curious passerbys. One of the booths I attended was held by Norton, makers of the Symantec security software that might be running on your computer. The reason I point it out is that, through some marketing deal, they were able to capture the heart of this comic loving blogger by co-opting the branding from the coming Avengers movie. The concept was actually pretty creative, if a bit hokey: participants had to play a handful of Norton security-themed casual games (think quizzes and simple Flash games where you use Norton widgets/tools/powerups to defend a machine from attack) to collect a series of badges. At the end of the sequence, depending on how you did on the games, you are awarded a rank and given a prize. One very fun perk for me is the photo below – guess who’s now a superhero? 🙂

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    That picture alone made SXSW worth it :-).

(Image credit – Nike fuel band – Linkbuildr)(Image credit – Lumia – Nokia)

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Googorola

I would lose my tech commentator license if I didn’t weigh in on the news of Google’s acquisition of Motorola Mobility. So, without further ado, four quick thoughts on “Googorola”:

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  • This is a refreshingly bold move by Google. Frankly, I had expected Google to continue its fairly whiny, defensive path on this for some time as they and the rest of the Android ecosystem cobbled together a solution to the horrendous intellectual property situation they found themselves in. After all, while Android was strategically important to Google as a means of preventing another operating system (like Windows or iOS) from weakening their great influence on the mobile internet, one could argue that most of that strategic value came from just making Android available and keeping it updated. It wasn’t immediately obvious to me that it would make dollars-and-cents sense for Google to spend a lot of cash fighting battles that, frankly, Samsung, HTC, LG, and the others should have been prepared to fight on their own. That Google did this at all sends a powerful message to the ecosystem that the success of Android is critical to Google and that it will even go so far as to engage in “unnatural acts” (Google getting into the hardware business!?) to make it so.
  • It will be interesting to observe Google’s IP strategy going forward. Although its not perfect, Google has taken a fairly pro-open source stance when it comes to intellectual property. Case in point: after spending over $100M on video codec maker On2, Google moved to make On2’s VP8/WebM codec freely available for others to integrate as an alternative to the license-laden H.264 codec. Sadly, because of the importance of building up a patent armory in this business, I doubt Google will do something similar here – instead, Google will likely hold on to its patent arsenal and either use it as a legal deterrent to Microsoft/Apple/Nokia or find a smart way to license them to key partners to help bolster their legal cases. It will be interesting to see how Google changes its intellectual property practices and strategy now that its gone through this. I suspect we will see a shift away from the open-ness that so many of us loved about Google.
  • I don’t put much stock into speculation that Motorola’s hardware business will just be spun out again. This is true for a number of reasons:
    1. I’m unaware of any such precedent where a large company acquires another large one, strips it of its valuable intellectual property, and then spins it out. Not only do I think regulators/antitrust guys would not look too kindly on such a deal, but I think Google would have a miserable time trying to convince new investors/buyers that a company stripped of its most valuable assets could stand on its own.
    2. Having the Motorola business gives Google additional tools to build and influence the ecosystem. Other than the Google-designed Nexus devices and requirements Google imposes on its manufacturing partners to support the Android Market, Google actually has fairly little influence over the ecosystem and the specific product decisions that OEMs like Samsung and HTC make. Else, we wouldn’t see so many custom UI layers and bloatware bundled on new Android phones. Having Motorola in-house gives Google valuable hardware chops that it probably did not have before (which will be useful in building out new phones/tablets, new use cases like the Atrix’s (not very successful but still promising) webtop, its accessory development kit strategy, and Android@Home), and lets them always have a “backup option” to release a new service/feature if the other OEMs are not being cooperative.
    3. Motorola’s strong set-top box business is not to be underestimated. Its pretty commonly known that GoogleTV did not go the way that Google had hoped. While it was a bold vision and a true technical feat, I think this is another case of Google not focusing on the product management side of things. Post-acquisition, however, Google might be able leverage Motorola’s expertise in working with cable companies and content providers to create a GoogleTV that is more attuned to the interests/needs of both consumers and the cable/content guys. And, even if that is not in the cards, Motorola may be a powerful ally in helping to bring more internet video content, like the kind found on YouTube, to more TVs and devices.
  • There is a huge risk from Google mismanaging the ecosystem with this move. Although some of Google’s biggest partners have been quoted as being supportive of this deal, that could simply be politeness or relief that someone will be able to protect them from Apple/Microsoft that’s talking. Google has intelligently come out publicly to state that they intend to run Motorola as a separate business and don’t plan on making any changes to their Nexus phone strategy. But, while Google may believe that going into this (and I think they do), and while I believe that Android’s success will be in building a true horizontal platform rather than imitating Apple’s vertical model, the reality of the situation is that you can’t really maintain something as an independent business completely free of influence, and that the temptation will always be there to play favorites. My hope is that Google institutes some very real firewalls and processes to maintain that independence. As a “fandroid” and as someone who is a big believer in the big opportunities enabled by Android, I think the real potential lies in going beyond just what one company can do, even if its Google.

Regardless of what happens, we definitely live in interesting times :-).

(Image credits)

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Nokia beta-ing classifieds service in India

image A couple of weeks ago, I posted a long tract about what Nokia needs to do to turn its fortunes around. One of those things was focusing on the rapidly growing phone market in emerging markets like Brazil, India, and China with smart featurephones and valuable services. Thankfully, someone at Nokia is thinking along the same lines as this recent Register article calls out:

Nokia has started testing Nokia Listings in India – a service much like Craigslist, only without the internet.

Instead of expecting users to have computers, or even smartphones, Nokia Listings uses GPRS and runs on Series 40 handsets to provide information to the barely-connected. The service can even fall back on SMS connectivity when particularly network challenged.

Is Nokia Listings a sure-fire hit? No. For starters, there’s no clear profit move here which is sizable enough to change Nokia’s short-term prospects. Furthermore, foreign companies oftentimes find their moves into new markets get rapidly copied and beaten by local upstarts.

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With that said, this is exactly the sort of interesting business approach which takes advantage of Nokia’s key assets (wide distribution of very good feature phones in emerging markets and strong services foundation, experience with simple J2ME apps) to penetrate into a rapidly growing market with a clear use case and value for end-user.

(Images from Nokia Listings site)

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Nokia Conducting Search for a New CEO

Very provocative headline for an interesting WSJ piece:

“They are serious about making a change,” one person familiar with the matter said. Nokia board members are “supposed to make a decision by the end of the month,” that person said.

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They should be very serious about making a change – its been disappointment after disappointment at the former Finnish phone giant (and its stock price, see above). But, this gives me a great chance to play $100-armchair CEO. So, what would I do if I was in the big chair at Nokia? I’d be focusing on three things:

  • Change the OS approach: With Nokia’s next OS Symbian^3 delayed and widely perceived to be inadequate, you really need to question the ability of Nokia to keep up in the industry-shaking smartphone platform war. In particular, Nokia’s challenge is that its attempting to take a software platform built to enable carrier services and high reliability on lower-end phones that weren’t meant to run software and somehow force it into achieving the same high-end software functionality that Apple’s iOS and Google’s Android provide. While there’s nothing that says this is impossible, this is an order of magnitude more difficult than Apple/Google’s initial problem of just creating a software platform without the burden of any legacy constraints/approaches, and, in an industry as fast-moving and disruptive as the smartphone space, that’s two orders of magnitude too many, invites all sorts of risk with no clear reward, and discards Nokia’s traditional strengths in wireless communications R&D and solid hardware design. What does that mean? Three things:
    • Re-tool Symbian for the low-end to be more like Qualcomm’s BREW (or heck, maybe even adopt BREW?): an operating system focused on enabling carrier/simple software services on the many featurephones out there. That category is Nokia’s (and Symbian’s) traditional strength, and that’s where Symbian can still add a lot of value and find a lot of support.
    • image In the mid-market (high-end featurephone/low-end smartphones), I’d tell Nokia to bite the bullet and adopt Android. Not only is it free, but it immediately levels the software playing field between Nokia and the numerous  OEMs who are itching to adopt Android allowing Nokia’s traditional strength in hardware design to win over.
    • imageIn the high-end, Nokia should go all-in with Intel on their joint MeeGo platform. In that space, Nokia needs a killer platform to disrupt Google/Apple’s hold on the market, and MeeGo is probably the only operating system left which might contest Android and iOS and drive the convergence of mobile devices with traditional computers that this category is pushing towards.
    • Double-down on Qt to make it easier for developers to “develop for Nokia”. A few years ago, Nokia bought Trolltech which had created a programming framework called Qt (pronounced “cute”). Qt had gained significant traction with developres as it made it easier to make a graphical user interface which ran across multiple devices and operating systems. This is a key asset which Nokia has tried to use to make MeeGo and Symbian more attractive (and which is probably one of the main reasons both OS’s still have reasonable levels of developer interest; although, interestingly, there has been an effort to bring Qt over to Android), but it needs to be emphasized even more if Nokia wants to stay in the game.
  • Pick your battles wisely: It is entirely possible that Nokia has lost the high-end smartphone battle in the US and Europe (even despite the operating system approach laid out above). But, even if Nokia was forced to completely cede that market, its not the end of the war – its simply the loss of a few (albeit important) battlegrounds. Nokia is still well-positioned to win out in a number of other markets:
    • image The featurephone world: Many of us tech aficionados often forget that, despite all the buzz that the iPhone and the Droid devices generate, smartphones actually make up a very small unit base. Featurephones are still the vast majority of the volume (for cost reasons) and, as devices like the iPhone continue to capture mindshare, there will be significant value in helping featurephones imitate some of the functionality that smartphones have. While it is true that Moore’s Law makes it easier for high-end operating systems like iOS and Android to be run on tomorrow’s featurephones, the incentives of Apple and Google are to probably better aligned with taking their mobile operating systems up-market (towards higher-end devices and computers) rather than down-market (towards feature phones) to chase higher margins and to continue to build highly optimized performance machines. So, given Nokia/Symbian’s traditional strength in building good devices with good support for carrier services, its natural for Nokia to solidify its ownership of the feature phone market and to emulate some of the functionality of higher-end devices.
    • Emerging markets: This is related to the previous bullet point, but much of the developing world is now seeing vast value in simply adopting basic services and software on their (by Western standards) very low-end phones. As banking systems and computer availability are extremely limited in Africa and parts of Asia, this represents an enormous opportunity for someone like Nokia who has spent years making their phones capable of mobile payment, geolocation, and carrier-enabled services. Couple this with the fact that there is enormous growth waiting to happen in markets like India, China, and Africa (where cell phone penetration is nowhere near as high as in the US), and you have the makings of a potential end-game strategy which could offset short-term setbacks in the US/European smartphone market.
    • image Japan: While Europe and the US are eagerly adopting smartphones (as in phones with rich operating systems), Japan has been a laggard due to differences in the carrier/vendor/services environment. While its been difficult for foreign companies to break into Japan, the recent technology deal between Japanese semiconductor company Renesas and Nokia might provide an interesting “foot in the door” for Nokia to enter a large market where its weakness in software is not so much of a hindrance and its strengths in hardware/willingness to play nice with carriers are a big asset. This is in no way a slam-dunk, but its definitely worth considering.
  • Figure out the key ecosystem player(s) to partner with: The previous two bullet points were mainly tactical suggestions – what to do in the short-run and how to do it. This last bullet point is aimed at the strategic level – or, in other words, how does Nokia influence the creation of a market environment which leads to its long-term success. To do this, it needs to figure out who it wants to be and what it wants the mobile phone industry to look like when all is said and done. I don’t have a clear answer/vision here, but I’d say Nokia should think about partnering with:
    • Carriers: Although Apple/Android have had to play nice with the carriers to get their devices out, the carriers probably see the writing on the wall. If smartphone platforms continue to gain traction, there is significant risk that the carriers themselves will simply become the “dumb pipes” that the platforms run on (in the same way that  internet service providers like AOL rapidly became unimportant to the user experience and purchasing decision). Nokia has an opportunity to play against that and to help bring the carriers back to the table as a driving force by helping the carriers expose new revenue streams/services (which Nokia could take a cut of) and by building more carrier-friendly software/devices which help with coming bandwidth issues.
    • image Retailers/Mobile commerce intermediaries: One of the emerging application cases which is particularly interesting is the use of mobile phones for the buying and selling of goods. This is something which is extremely nascent but has a huge opportunity as mobile commerce can do something that traditional desktop-bound eCommerce can’t: it can bridge the gap between pixels on the screen and actual real-world shopping. It can be used as a mobile coupon/payment platform. It’s camera and GPS enables augmented reality functionality which can let shoppers look up information about a product without having to type in search-strings. It can be used to provide stores with more information about a shopper, letting them tailor new ad campaigns and marketing efforts. I haven’t run the math to build a forecast, but there’s good reason to believe that this could be the application for mobile phones. While Nokia may have to cede application/ad revenue to Google/Apple, it may be able to eke out a nice chunk of profit (maybe even bigger than the one Google/Apple can get) from focusing on this particular need case instead.

Obviously, none of these are guaranteed home-runs, but if I were a Nokia shareholder, I’d hope that the next Nokia CEO does something along the lines of this. And, yes, I’d be willing to accept $100 (and “some” stock) to be Nokia’s CEO and implement this :-).

(Image credit – Business Insider) (Image credit – Android logo) (Image credit – MeeGo logo) (Image credit – feature phone montage) (Image credit – Japanese phones) (Image credit – Mobile coupon)

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