Early Indications October 2022: XXV

What began as a series of inter-office trip reports inspired by the work of our bluegrass-playing IT guy Rich Stillman turns 25 years old this month. Given that the 20th anniversary issue was a proud-papa overview of greatest hits and this is likely the last of this run of 337 issues, I’ll reflect back on the newsletter rather on the world it reported. 

The newsletter started life as research notes for the Wired for Profit multi-client consortium I ran for the Ernst & Young Center for Business Innovation. When that program shut down in 1999 — people were too busy doing online commerce to come talk about it — the newsletter became Networked Commerce Update for a few years. Best I can tell, it took on the Early Indications title in May 2003. After I moved to Penn State, publication remained under my rather than the business school’s auspices. Many newsletters were conference reports, and I often cut-and-pasted a lot of statistics from a wide range of sources. Eventually the essay format took hold as conferences got less interesting and relevant.

I was reviewing books before 1997 and continued to do so here. Apart from Clayton Christensen’s The Innovator’s Dilemma — which I mentioned often but never formally reviewed — it’s funny how short the shelf-life was of most of the books that were reviewed. I did try to assess what makes a great business book, and listed a handful of candidates, back in 2013. Of the list, I had reviewed only one — Cusumano and Gawer’s Platform Leadership — in the newsletter.

Speaking of books, there’s a telling relationship between the newsletter and my own publishing. The 2012 Wiley book — Information, Technology, and Innovation — drew heavily on past work. More recently, book-writing has slowed down the newsletter output: until about 2006, shortly after I moved to teach at Penn State, newsletters often came out twice a month. In 2018, when I was completing the 3D printing book, the newsletter missed several months entirely. The pattern also reversed: rather than using newsletter copy as book fodder, after 2012 I wrote the book copy first then summarized or riffed on that in the newsletter afterward. All the recent newsletter stuff about YouTube in 2019-22 will finally have its book version published next year. Newsletters have also been reprinted at Forbes, The Boston Globe, Investors’ Business Daily, the Wall Street Journal, and other publications that no longer exist.

The newsletter genre itself, along with so much in the tech sector, has come around in fashion. Just as cloud computing is a reincarnation of the ancient art of time-sharing, so too are newsletters now hotter than blogs (remember RSS?). There’s a lesson in there somewhere about the virtues of steadiness: stick with something long enough, whether bow ties, LP records, or handwritten thank-you notes, and eventually fashion will re-embrace you after years of being out of step.

What were the recurring themes (or rants, as some might say)? I was trained as a historian, so long arcs often drew my attention. This interest manifested itself in many newsletters noting elements of time, particularly crossover points: when did cable modems overtake dialup in the US? When did digital cameras outsell film? When did cellular adoption surpass wireline? More important than the “when” question was the issue of implications, which I spent a lot of time parsing. Some of these transitions were personalized, making the point that these momentous technology shifts are often invisible in the moment. When did you last have a newspaper delivered? Dial a rotary phone?  Buy plane tickets through a travel agent? Wrestle with a CRT monitor?

Another recurring theme in the newsletters that I found myself confronting more systematically in the online video book is the notion of human scale. When LinkedIn and Facebook automate and amplify our human connections with unprecedented reach, what are the consequences — for mental health, for democracy, for fraudsters, for emotional intimacy? When hidden hikes, fishing holes, or beachfronts get exposed to millions via the web, nature proves fragile in the face of way-beyond-local traffic and the accompanying externalities. When TikTok/YouTube personalities develop massive, international fan bases with mistaken feelings of interpersonal proximity, why is anyone surprised when said personalities sometimes go off the rails. 

In the 2001-2010 period, I made a lot of predictions. Several readers appreciated the subsequent scorecards in which I graded the previous year’s, or decade’s, efforts. (See examples here and here.) I won’t revisit those, and cannot remember making a conscious decision to stop that practice. The decline in predictions does coincide with increased focus on book-writing: titles came out in 2010 (2), 2012, and 2014. Looking back, the decline also coincides with a consolidation of the ad-supported software model and the lack of any big-news startups since 2009 or so when Airbnb and Uber came along. Cryptocurrency has never received much coverage here, and maybe time will show I should have paid more attention, but apart from that neighborhood, what noteworthy tech startups have launched in the last 10-12 years? How many people would clamor for Snowflake (2012) to be included, for example?

What were other areas of interest? Music is both a personal passion and an area of important business model change. Innovation as ideology, practice, and economic engine shows up with some regularity. The triangle of economics, organizations, and people, all connected via evolving technologies, gets a lot of attention. One frequent topic is the notion of infrastructure: if people can work from home via digital connections, what happens to the roads, housing stock, and airports? I first asked that question in March 2002 and returned to the idea of distributed work several times thereafter. Another theme relates to what a services-centric “digital economy” actually means. As we are seeing on a weekly basis, making things, whether vaccines, lithium batteries, or microprocessors, is still important for lots of reasons, and moving them to where they need to be is getting more attention than ever, post-Covid. 

Regarding infrastructure, we still don’t know what a battery-accommodating power grid will look like. How will car-centric US cities make bicycle-commuting safe: many European cities weren’t built for cars in the first place, so reverting to pedal and foot traffic fits the architecture. (I’m excited to see the transition Paris is making, and the bike-centricity of the Netherlands.) Where will apartment-dwellers charge their cars without garage parking? Airports, for a variety of reasons, stopped working reliably for much of 2022. And so on.

Quick snippets from the early years before the newsletters were saved in the Blogspot archive:

-A conference speaker in 1998 asked “what would a VCR designed by Microsoft look like?”

-In 1999 the Iridium satellite phone was under-appreciated: 6/10 of a watt of transmitting power sent a signal 485 miles into the sky to intercept a satellite moving at 17,000 miles per hour. That’s non-trivial, but few people noticed, or cared.

-I first saw what became the ubiquitous and annoying Internet-connected gas pumps demonstrated in 1999.

-Customer acquisition at Petstore.com cost $300 per head in 2000. If said customer spent $30 a month, it would take five years for the business to break even, assuming extreme loyalty. How funders and management signed up for such a business remains puzzling.

-In 2002, Netflix added an east coast distribution center. Customers in the Boston-DC metroplex no longer had to wait a week or so between mailing a DVD — the format was still novel, having launched in 1997 — to Silicon Valley and getting the next one in the queue.

-I noted something called Amazon Web Services, not yet the cloud business at that point, in 2002.

-Keyhole (2002), later Google Earth, remains the best tech demo I’ve ever seen live.

-In 2003 a conference speaker argued that the “view source” command in early web browsers accelerated the adoption of the web by a significant margin, and I agree. There’s really nothing comparable that I can name.

Swag:

-One of my first tech t-shirts — from the Netscape Developers Conference — is still prized, if a bit rough around the edges.

-I still have my Digital Equipment AltaVista t-shirt after the guy in the booth told me it might be collectible. DEC shut the operations down a few months later.

-Nokia convened a bunch of us in Monterey in 2010 for an “Ideas Camp” that was a wonderful yet unproductive experience: Apple’s momentum was unstoppable. Still, I had never seen a portable sauna until that time, and I still have the Belgian Chimay beer goblets. My teenaged son also got a behind-the-scenes tour of Electronic Arts out of the connections I made there.

-General Magic was so far ahead of its time, but couldn’t get the execution right. Here’s a good documentary. I gave away the lovely sweatshirt that I outgrew — if I remember, the reception was on a boat and I had my palm read, rather too convincingly.

-A toy racing car is still on my bookshelf, a souvenir of the weekend I spent at the 24 Hours of Daytona, courtesy of a vendor.

What next?

As of May, I’ll be responsible for 35 mid-career doctoral students making their way through thesis-writing and -defending. Parents are getting older, as are adult offspring in a mixed household: family time is a new proposition at this stage. There may be a book project in the newsletter archive. And I may do occasional updates if the insights arrive and readership permits.

That’s all down the line. For now, it’s time to thank the many people — funders, readers, accomplices, many of you known only by email handle — who made the ride possible: 

Tim Andrews

Bob Bauer

Lawrence Baxter

Stew Bloom

Gary Bolles

Al Boris

Geoff Cohen

Karina Funk

Denny Gioia

Ellen Glazerman

Lesley Livingstone

Tom McLaughlin

Chris Meyer

Andy Mulholland

Ralph Oliva

John Parkinson

Arvind Rangaswamy

Steve Sawyer

Chris Shipley

Tim Simcoe

Jamie Taylor

Richard Weddle

Early Indications September 2022: Everything Is Different

As I discuss college enrollment, retirement planning, job hunting, and economic prospects with the folks in my network, it’s becoming clear that no matter what the sector, things don’t add up the way they used to. Earning a living, deciding where to live, being entertained, staying healthy, moving about, and getting educated have all seen major shifts. This month I’ll attempt to enumerate some of the many changes that have happened.

The baby boom generation is hitting retirement just as inflation decreases purchasing power and retirees’ stock portfolios have shed a significant fraction of their value. The path forward is a mystery: Russia’s geopolitical ambitions, energy uncertainty, a pandemic still capable of sudden changes of direction, and climate risk make economic forecasting nearly impossible.

In entertainment, streaming has displaced physical media, broadcast television, and movie-going. Theater attendance was sliding before Covid, plunged during, and hasn’t recovered after. For their part, the studios now produce a record number of remakes and serials, many of which are based in the land of comic books. Live sports, the last refuge of broadcast TV, now commands astronomical rights fees, with the result that the networks have a large voice in scheduling and even the composition of college sports conferences: driven by football, the SEC is shaped by ESPN while the Big (formerly) Ten is the conference of Fox.

Looking at transportation and logistics, the pre-Covid truck driver shortage is worse. Shipping costs spiked as fuels prices did so. Containers were nearly impossible to obtain (in part because so many were stuck awaiting unloading at Chinese ports during lockdowns, at Long Beach, and elsewhere) but now are almost back at normal rates after dropping 30 consecutive weeks (https://www.drewry.co.uk/supply-chain-advisors/supply-chain-expertise/world-container-index-assessed-by-drewry). Air freight, meanwhile, is consistently running lower than 2021, as measured by weight of goods shipped, led by a big drop in freight originating in China. The Russian embargo may also play a part.

In personal transportation, car production was hampered by labor issues during the pandemic then by microprocessor shortages after the acute phase of Covid waned. Airline and car rental fleets shrunk, leaving them unprepared for the surge of pent-up demand, disproportionately leisure travelers, that hit the industry in 2022. Mass transit is perennially underfunded in the US, and Covid drove up costs while temporarily curtailing ridership. Now the reckoning is happening: Boston had to close a major line for a month even as the whole system operates below capacity because of labor shortages. Washington DC’s Metro doesn’t catch fire as often as it did, but it was operated under federal safety oversight (as Boston now is) from 2015-2019. New York City is still working to convince riders that the system and its platforms are safe. Overall, rising gas prices should make mass transit more appealing, but few US operations can successfully attract or capably serve ridership. In part as a result of poorly performing and nonexistent mass transit, car traffic continues to clog roads, gas prices notwithstanding.

All those leisure travelers can’t make up for the loss of so many business travelers, can they? Business trade shows and conferences will likely never rebound to pre-2020 levels, in part because of strict corporate cost control after Zoom proved itself adequate to many face-to-face scenarios. Just as businesses near office buildings suffer when nobody comes to work on site, so too do airlines, hotels, cab drivers, and restaurants feel the lack of expense-account travel. How soon will the macro picture reflect a new landscape for business travel? What will be the future of auto shows, CES, conferences, business entertaining (look at NBA ticket prices and attendance patterns), and other large-scale business-travel events?

In multiple sectors, Covid reshaped the labor landscape. Work from home led many people to move to resort towns that lack the infrastructure for the surge in new residents, and many of these towns including Boise, ID are doubly vulnerable because of drought (https://www.bbc.com/worklife/article/20220125-the-small-cities-and-towns-booming-from-remote-work). Some workers collected multiple full-time salaries given that they could be two or three “places” at once via remote connection. (https://www.businessinsider.com/millennial-works-two-remote-jobs-great-resignation-inflation-rent-tuition-2022-6) In food service, going months without a paycheck (or tips) led many workers into other job categories where they became sufficiently comfortable, or at least habituated, that they didn’t return once restaurants reopened. 

In some instances, the Covid shutdowns (dentists’ offices come to mind) accelerated decades-long patterns of declining enrollment in vocational and trade training. Now, there are massive shortages not only of dental hygienists but also HVAC technicians, roofers, plumbers, automobile mechanics, and carpenters. Part of this shortage is demographic: as previous employees age out of the work force, there simply aren’t enough US-born replacements. In a recent remodeling job, my drywaller was Mexican, the tile installers Romanian, and the suggested plumber Cuban. General contractors are so busy that none would even bid the job so I did much of the work and all of the project management myself.

The demographics of immigration, however, are keeping millions of potential workers out of the country, whether H1B technologists or entry-level workers who do tough, challenging work like meat processing or farm labor. That shortage at the bottom of the wage ladder is helping drive up food prices, to take only one side effect.

Higher energy costs ripped through many economies, driving other prices — transportation, heating, food — up almost immediately. Even though gasoline prices are receding, albeit far more slowly than they rose, the fundamental instability of the sector is troubling. Climate change, either in the form of temperature extremes that spike demand or catastrophic events that wipe out transport or refining capacity, and geopolitics head the list. Electric vehicle production suffers from shortages of both electronics and raw materials for batteries, and the grid in some states was stressed by drought and heat waves: California passed an EV mandate within weeks of climate-related requests to limit the charging thereof. (https://www.nytimes.com/2022/09/01/us/california-heat-wave-flex-alert-ac-ev-charging.html) 

All things considered, we live in a riskier world than 10 years ago. How many houses and businesses can a property/casualty company insure in the face of flood, wildfire, hurricane, and tornado frequencies all rising? Man-made risks are also increasing, but the cost of cybersecurity insurance, to take one example, has risen to the point that many hospitals and businesses, some of whom recently paid ransoms to get their systems unlocked, are flying naked.

Not all risk can be hedged or insured. For example, what is the risk brought by Covid, either in the form of future mutations or long-wave effects of past infections? Nobody knows. Life expectancy in the US is dropping at a stunning rate (https://www.cdc.gov/nchs/pressroom/nchs_press_releases/2022/20220831.htm), and Covid is but one driver: so-called “deaths from despair,” including suicides and overdoses, were rising at double-digit rates before 2020 and do not appear to have slowed. (https://press.princeton.edu/books/hardcover/9780691190785/deaths-of-despair-and-the-future-of-capitalism) How is the massive human cost of economic misery a) counted and b) addressed?

Much of today’s instability is the result of chain reactions. With (previously) lengthening life expectancy came the need for elder care, to take one example. Nursing homes are both expensive and filled to capacity, so having to care for a family member can affect the caregiver’s role in the paid labor force. The same is true early in life, given the lack of pre-school and universal pre-kindergarten. At the same time, the US population pyramid is relatively healthy, unlike many nations where a shrinking population will cause other issues in the coming decades. 

Another chain reaction arises from student debt. With funding assured, colleges had little incentive to cut costs as price increases were passed through to a relatively price-insensitive market. (Look at how many decisions in higher education are driven not by cost/benefit/risk analysis but by “prestige” and “our peer institutions.”) Covid did very little to slow the growth of debt, which carries over into such things as home-buying, car-buying, and perhaps moving back in with one’s parents. In a time when debt can spur despair and mental health is a major concern, what is approaching $2 trillion of student debt has to be affecting quality of life. 

Education has traditionally provided both a ladder out of poverty for the worker and a skilled labor force for employers. Covid’s impact on K-12 instruction is becoming visible, and the news is grim as millions of student-years appear to have been lost either to students dropping out or to the limitations of remote instruction. One early estimate suggested three million US students disappeared from school rolls, and that’s almost certainly an undercount.

Another domain of extreme uncertainty is that of the employer and manager. Whether you’re staffing a restaurant, running a software shop, or in charge of an office, there’s little confidence that last month’s work force will still be coming in this month. In jobs that went remote, many workers are balking at full return-to-premise mandates. Banking can probably wave enough carrots and sticks to get people back in the door, but Apple is facing organized employee resistance. Less dramatic but said to be far more common — half of US workers say they’re doing so, according to Gallup — is “quiet quitting,” the scaling back of performance to the bare outlines of the job spec. Part of why the economic scene is so hard to read is the unprecedented combination of low unemployment, skills shortages, high inflation, and high uncertainty regarding everything from constitutional democracy to the status of waterfront property on the Atlantic Ocean.

That’s a breathless, unsystematic look. As we noted at the outset, 

-earning a living

-deciding where to live

-being entertained

-staying healthy

-moving about

-and getting educated 

no longer behave as they did in 2010 or even 2015. 

The implications will be substantial. Bicycles, including e-bikes, scale far better, and better promote personal health, than does driving, but the US has such low population density that I doubt cycling will move the needle here any time soon; it’s also still too dangerous in cities that still favor automobiles. Student debt is among several drivers forcing colleges and universities to think in terms of sunsetting and retrenchment as part of the budgetary vocabulary. Climate change will render many areas too risky to insure or simply uninhabitable given lack of water. Cities will continue to grow and many states will continue to lose population, though the water-starved Western US could lose its appeal after receiving massive inflows over the past two decades. The world’s portfolio of energy generation is in a period of upheaval — parts of Europe are turning back the calendar 350-400 years and burning wood for fuel — and the transmission/distribution grid will need to be rebuilt as well. Increases in life expectancy may be slowing, but the need for medical and nursing care still far exceeds the supply. Similarly, birth rates may not be surging, but child care can be impossible to find, or to afford. What are families going to do with those at both ends of the age spectrum?

The list goes on. Many habits to which both people and institutions grew accustomed will be examined under the harsh light of the new reality. Fate will, I believe, favor the flexible.

Early Indications August 2022: What’s the Internet done to brands?

If you look at your garage, your grocery cart, or your television/tablet, the products in those respective domains may come from different producers than they did 25 years ago, when the Internet was in its commercial infancy. With a seamlessly global communications platform (for the most part, excepting the great firewall, North Korea, and a few outliers) now up and running, the old techniques of brand-building can seem antiquated: Consumer Reports, newspapers, and store shelves all function differently than they did in 1997.

A recent journal article by Jan-Benedict E.M. Steenkamp, a high-profile scholar at the University of North Carolina, highlights five trends:

1) rise of global sales channels

2) cocreation of global brand strategy

3) global transparency of brand activities

4) global connectivity among the brand’s consumers

5) the Internet of Things.

My take is substantially less expert, to be sure, but I don’t see numbers 2 or 5 happening that much, and 4 is only true in selected instances: Amazon shut down both Echo Look and the Dash Button, and Alexa growth appears to be stalling (https://voicebot.ai/2021/12/22/alexa-faces-uphill-battle-to-hold-user-interest-as-smart-speaker-sales-slow-report/). Instead, I’m going to note a few observations.

There’s a common division in the literature between a house of brands (GM’s Chevrolet, Cadillac, Hummer, and Buick) and a branded house (Apple). Both have been shown to work in the new millennium. Here are some possibly surprising examples.

Amazon is now home to more than 400 own-label brands, including more than 80 in apparel alone. In tools, where I hang out a lot, the names range from macho posturing (Hammerhead) to brand new words that sound like they were created by an AI: Yiou, Aproca, Luckut, C P Chantpower. Why Amazon needs such a collection of names in an already-crowded segment is a mystery from the outside, but I have zero doubt that there is data to back up the decision.

In non-Amazonian power tools, there’s global consolidation. Most people have no idea who or what Techtronic Industries is, but the brands in their house are familiar: Ryobi and Milwaukee, Hoover and Oreck, Homelite and Dirt Devil. Across the big-box tool aisle, Stanley Black+Decker owns Bostich, Craftsman, DeWalt, Irwin, Lenox, and Porter-Cable. In contrast to the EU, where there is some standardization, batteries from any of these brands don’t fit their stable-mates: Ryobi and Milwaukee tools likely come off the same assembly lines but there’s no interoperability, maintaining the brand distinction. Meanwhile Bosch is pretty much going it alone. (Incidentally, the Bosch power tools unit is part of a fascinating conglomerate that is primarily owned by a charitable foundation — but said foundation has no voting rights.)

Let’s go outside to the woods or more likely campus or club. VF Corporation used to be Vanity Fair Mills, founded in Pennsylvania. Today it has moved on from the days of silk lingerie (it exited that business in 2007) to own both Lee and Wrangler (before it spun them off), both JanSport and Eastpack, both Icebreaker and Smartwool. Dickies workwear lives inside VF, alongside VF Imagewear, the supplier of those sharp-looking TSA and CBP uniforms. Core brandsTimberland, Supreme, Vans, and The North Face survive; Nautica was bought then sold. Confusingly, the VF Outlet business no longer belongs to VF but to Contour, where Lee and Wrangler ended up. 

If you want to play tennis or softball, or ski or hike, there’s a good chance you’re interacting with Helsinki-based ANTA Sports. They own Wilson and Louisville Slugger, Salomon (France) and Atomic (Austria), Arcteryx (Canada) and Armada (U.S.), and the Suunto (Finland) GPS watch operation. Confusingly, ANTA was acquired by a Chinese company in 2019, though day-to-day operations seem not to be affected. How much of this is driven by private-equity trends vs Internet effects is hard to say: Norway-based Helly Hansen was owned from 2015-2018 by the Ontario Teachers’ Pension Plan; it’s currently part of Canadian Tire, a multi-line retail chain.

What about the grocery store? Here, it’s less clear that there’s global brand consolidation because of the Internet redefining other channels; equities markets and geopolitics are major drivers. For whatever reasons, brands are constantly on the move. Food brands have long been global: think Nestle, Lipton, or Lux. More recently, acquisitions align with changes in economics and diet: the Chinese firm WH Group purchased Smithfield Ham in 2013. (TIL that China has a national pork reserve much as Canada holds a strategic reserve of maple syrup.) All-American Ben & Jerry’s is owned by UK-based Unilever. 

J&J is splitting into a pharma company and a consumer company next year, so Tylenol, the eponymous baby shampoo, Band-Aids, Listerine, and Neutrogena will be housed in a straight-ahead CPG operation. DePuy, Janssen, Ethicon, and the vaccine business can focus on the medical channels. Elsewhere in grocery, Budweiser parent Anheuser Busch is 28% owned by a trio of Belgian families and about 23% owned by Brazil-based 3G capital. Parent company AB InBev has only 3 global brands: Bud, Corona, and Stella Artois. The 400-strong brand portfolio also includes “local champions” including Labatt and Michelob.

Staying with things you drink — one hesitates to call them “beverages” — energy drinks are massively connected to the rise of the Internet. Red Bull’s use of YouTube is masterful, to take just one example: adrenaline sports are often niche markets, but the enthusiasts are passionate, so Red Bull can promote wing-suiting, backcountry skiing, or whatever without global television network deals lining up. The brand’s investment in Formula 1 is also paying off handsomely in light of Netflix’s huge boost of interest in the sport.

Elsewhere, I suspect Internet business models are driving change at existing brands. Airbnb is now a major player in the travel sector. What have hotel chains done in response? Install more kitchenettes, for one thing: so-called “extended stay” formats seem to be proliferating. Hilton has not only Embassy Suites and Homewood Suites, but has added Home2 Suites in the extended stay category. Other sub-brands strive to be hip, eco-chic, “curated,” or ultra-luxurious and exclusive. Canopy, LXR, Motto, Signia, and Tempo brands all strive to say “we’re not Hilton” while being Hilton. All of those brands date to the Airbnb era. 

Slicing the problem a different way — looking at the big “branded houses” through the lens of the Interbrand brand equity ranking — we see that 12 of the top 50 brands are largely or entirely creatures of the Internet. I’ll split that out a bit. 6 of those 12 are heavily dependent on the Net for operational purposes as distinct from branding: these firms might run cloud software but advertise heavily on network television, let’s say. In the other bucket are the Teslas, 6 companies that build their brand via online mechanisms, whether they use it operationally or not.

Operations-primary: 

Nike (11) Nike.com has doubled its contribution to retail sales, off a bigger base, in the past decade, smartly avoiding fallout from the death of malls

Facebook (15) 

Adobe (21) Cloud software has completely taken over in the graphic arts

Netflix (36)

Salesforce (38)

PayPal (42) That ranking is just a hair behind Visa and comfortably ahead of Mastercard

Branding-primary:

Apple (1) 

Amazon (2)

Google (3) For the better part of a decade Google didn’t have to advertise: journalists so loved the search engine that they wrote so many stories about how great it was that ads weren’t necessary.

Tesla (14) This still ranks behind Toyota, Mercedes-Benz, and BMW, market capitalization notwithstanding, but well ahead of Honda

Instagram (19)

YouTube (26)

It will bear watching to see how soon Instagram passes Facebook, how the carmakers do as fleets become increasingly electric, and how long Apple can continue its dominance.

My Penn State colleague Arvind Rangaswamy taught that brand and search played opposite roles: nobody’s going to Google Kleenex, and the people who sell replacement automobile cabin air filters on eBay aren’t going to buy Super Bowl spots. That was before social media had its moment, a moment that might be receding: TikTok doesn’t overtly care who your real-world friends are, and Facebook is responding by increasing algorithmic contributions to the Instagram and Facebook feeds — to less than wide acclaim (https://www.cnn.com/2022/07/26/tech/instagram-update-backlash-kardashians/index.html). (Short version: “Why am I seeing posts from people I don’t know?”) The Internet is by now a utility rather than a novelty, and marketing will continue to co-evolve with both the technology and more importantly our uses of and attitudes toward it.

June 2022: Locating the demarcations

In the many years that I’ve been tracking technological, cultural, and economic change, it’s become quite clear that 2022 is radically different from 1997. It’s not that there was one epochal moment — the dropping of atomic bombs, the US withdrawn from Vietnam, the assassination of a King or a Kennedy — but something happened. This month I want to tease out how the future we were promised in 1997 isn’t the future we got, and why that might be so.

Some salient facts about 1997:

-Cell phones were phones and texting was not at all common in the US

-Software was sold on physical media either at consumer “computer stores” or via system integrators large (Andersen Consulting) and small (Microsoft’s certified developer network)

-Computers lived in special rooms on corporate premises and/or on desktops (possibly after having been carried in a briefcase or backpack)

-Computing was big but not huge business: Microsoft’s revenues of $11 billion were on par with those of Weyerhaeuser, outside the Fortune 100

-Human attention was not yet a dominant business: the top-ranked media/entertainment company on the Fortune 100, Disney, ranked 55th

-Information intermediaries including political parties, news-gatherers, and scientific organizations were still regarded as credible.

Compare that state of affairs to our time:

-Mobile phones are becoming ubiquitous in more and more countries, even Afghanistan (with 65 phones per 100 people five years ago), with smartphones being the dominant product category (77% market share)

-Software is harder to buy as physical media, even when you really want to do so (as with Adobe Creative Suite). Most software updates occur without the knowledge of the user.

-Computers live on our persons and are no longer called computers. US residents are estimated to check them 250 times a day — an average of every 5 waking minutes.

-Companies that rely on machine learning and other advanced forms of computing trade in human attention for at least part of their revenue. Amazon (#2 on the Fortune 500), Apple (#4), Google/Alphabet (11th), Microsoft (21st), and Facebook/Meta (46th) are the prime examples.

Rewind

At the dawn of the World Wide Web, access to knowledge was presumed to lead to better decisions. In 1992 Tim Berners-Lee explicitly referred back to Vannevar Bush’s “As We May Think” essay from 1945 that envisioned what was essentially an infinite microfilm reader built into a desk. As early as 1998, however, a Rutgers professor (James Katz) pointed out the two-edged sword of wide access to media: “unlike newspapers and other media outlets, there are often no quality control mechanisms on Web sites that would permit users to know what information is generally recognized fact and what is spurious.“ The death of gatekeepers meant the demise of fact-checking, but in the age of Yahoo, AOL, and Geocities, the problem was relatively contained.

The next big wave revolved around Google, in particular its business model. As the technical goal shifted in light of the 2001 tech recession and profitability became imperative, providing the most accurate search results did not pay the bills: getting people to click on ads did. The slight change in emphasis from technical accuracy and performance to managing human behavior portended the rise of the planet-scale platforms in the 2005-15 decade: Facebook, YouTube, Reddit, Instagram. Note the change in both language and conceptual underpinnings: Tripod was a collection of personal pages on an umbrella website; Facebook is a platform. Note that Geocities-style personalization was unavailable. Rather, the value was in the links, including to those in your reference group who were living more interesting lives than you were. Thus the big emphasis on behavioral aspects of computing: software companies need to get people to follow, like, subscribe, click, watch, refer, recommend. 

It’s worth pointing to the role of the smartphone in this context. As computing goes from something that sits on a desk and maybe connects via a modem to something that lives in your pocket, our interactions with computing evolve. I cannot imagine Facebook getting the degree of user engagement it did had it only been available as a desktop website, nor could YouTube have grown to its current scale had video cameras not become ubiquitous. Doing searches — for restaurants, for directions, for recommendations — in the moment as opposed to at the desktop prior to venturing forth is a completely different process.

At the same time, Amazon’s re-invention of time-share computing under the cloud rubric, along with Salesforce and the other software-as-a-service plays, further de-emphasized traditional software practices. This was observed first in B2B markets, then in prosumer (Adobe Creative Suite), then in consumer software: nobody downloads Google, and many aspects of software functionality now are paid for with ads. It may be almost a full decade since I last installed software off a physical disk. Note that apart from cryptocurrency, which I will address in another newsletter, there hasn’t been a US-based breakout software play since 2009, when Uber and Airbnb came to market. Similarly, between Apple/Samsung’s conquest of the smartphone market and Amazon et al’s conversion of many enterprise systems to off-premise computing, when people say they work in computing circa 2022, they probably don’t do things or buy things the way their progenitors of 15 years ago did.

2015-pandemic

Because this chapter hasn’t really played out yet, I’ll suggest two themes and trust that readers will suggest more that I’m missing. First, machine learning hit a period of rapid improvement — in performance, in range of application, in scale — since about 2012 as a result of the aforementioned cloud-scale compute farms, of bigger and better training data, and some decisive advances in algorithms. If you haven’t played with the DALL*E 2 AI image generator (https://openai.com/dall-e-2/), I suggest you do so, just to have something to wrap your mind around. Combined with Amazon’s announcement this week that Alexa can speak in the voices of people no longer living (https://www.npr.org/2022/06/23/1107079194/amazon-alexa-dead-relatives-voice), we need to get very serious very soon about the issue of deep fakes in multiple audio and video formats.

The signal “contribution” of machine learning to date, however, is not in images but in hacking human behavior. Whether it’s the McDonalds video menu board, ads on social media, recommendations for YouTube, or something as simple yet frequently disturbing as Google type-ahead, people are being manipulated throughout the day by companies operating under little oversight and under regulations ill-fitted to the task of preserving human autonomy, privacy, and independence from lock-in. (Note that autonomous passenger vehicles, Elon Musk’s promises and branding to the contrary, are not yet ready for prime time.) How tech gets regulated in the coming years will be key to both human and economic futures.

It may be that I’m operating with the blinders of someone completing a book on online video, but the second big story since 2015 for me is the rise of TikTok. Consider a few facts that mark it as a departure:

-Parent company ByteDance’s core competency is algorithmic control of human attention. TikTok is but one app that operationalizes this capability; it’s fascinating to consider where the parent company might pivot next: mobile telephony, enterprise software (think Slack for countries that might not want to buy from US firms), even banking.

-TikTok was built on a vertical visual model. There is no scroll. As a result, the app can map visual cause to physical effect with extreme accuracy. Scrolling apps, meanwhile, have very little idea of what might be on the screen when I click “like” or click away.

- TikTok takes action — starts a video — rather than presenting a user with alternatives.

-The short-video format means that many more behavioral data points are collected per hour of interaction with the app. In any machine-learning scenario, the better the training data, the better the performance.

-TikTok was built as an app then ported to a web presence as a secondary consideration. Like Uber, it was built mobile-first, so old assumptions applied to “Internet companies” need to be tested.

-TikTok has stakeholders ranging from VCs (Softbank , Sequoia) to private equity (General Atlantic, KKR), to the Chinese communist party. Its governance, exit strategies, and accountability are unlike any other tech firm, and are still very much fluid. To date, no other Chinese firm has established anywhere near this big a consumer presence outside China, so how it moves forward as a company will be important to watch.

What next?

History has a way of, if not repeating, then at least rhyming. The LP record is a more viable format than the compact disc, 40 years after the latter promised “perfect sound — forever.” Moleskine paper planners and diaries are big sellers. Old-school sports and games from bowling to axe-throwing attract hipster audiences. Will we see more analog record-keeping in the days ahead? Even people who burned photo libraries to DVD can have a hard time playing physical media these days. 

Similarly, will some people rediscover the desktop, reserving the phone for on-the-go mapping, weather, and other emotionally lightweight uses? Anecdotally, the number of people I’ve heard trying to limit phone presence seems to be growing, and the surge in usage of U.S. wilderness suggests that getting unplugged might be part of the appeal. (Note that the most recent Apple iOS has multiple controls for shutting functionality off.) There’s also the matter of an aging user base: no matter the screen resolution, older eyes need bigger print.

Finally, how long and how deep will public dissatisfaction with the platforms run? Facebook/Meta’s stock price drop has many causes, but falling engagement metrics are part of the landscape. Market exit along with regulatory limits will both be factors, but the countervailing force of algorithmic “addictiveness” (the term often used in association with TikTok) also bears watching. Part of ByteDance’s success is in not overdriving its headlights: when Facebook got adopted by grandmothers, its days among teens were numbered, and TikTok so far hasn’t repeated the same pattern. Rather than building a mass-audience single platform, look for ByteDance to maintain distinct audience segments with unique products — or that’s my guess anyway. In an issue coming soon, you'll see just how many times my projections have been wrong . . . .

To those of you stateside, best wishes for a safe and enjoyable Independence Day holiday.

July 2022 Early Indications: Actual Reality

As much as it’s tempting to address a wave of news in the virtual reality market from Meta, Apple, and elsewhere, I’m more concerned about the fate of ground truth — actual reality — in the current technology landscape. Whether it involves physical goods, news, or personal identities, the possibilities for fakery have never been easier to exploit or more numerous to try to regulate. At some level, this is also a question of trust, specifically, of the eclipse of human-scale mechanisms as we build planet-scale platforms that move too fast to keep up with. Let’s start with examples then move to the concerns. 

The aptly-named The RealReal is a consignment seller of luxury goods. The business is crucially dependent on human authenticators who can vouch for a six-digit Gucci or Louis Vuitton. The site has never had trouble attracting traffic, but neither has it achieved profitability. As is happening in many companies these days, the founder was replaced in part because of investors’ concerns over cost controls. Said founder’s previous startup — pets.com — should have provided some clues in this department, one would think, but in any event, authentication is both a systems administrator and real-world challenge. Ebay provides authentication for select wristwatches (a Patek Philppe from a Boca Raton jeweler is currently listed for $1.25 million) as well as sneakers. Third parties are introduced into the workflow, adding complexity, time, and shipping costs to the transaction, but the all-important trust relationship is maintained. How long can either authentication model — RealReal in-house, eBay’s external network — persist in the face of better-financed fakers, higher transaction volume, or recessionary cost pressure?

A widely circulated video appeared to portray House Speaker Nancy Pelosi as drunk. With no gatekeepers at CBS News, the Washington Post, or similar organizations to stop the flow, millions of people were fooled by the simple act of slowing down the frame rate on the video. As far as I can determine, such manipulation is not prohibited at Facebook; at YouTube a clause in the terms of service about political figures might disqualify the video. Coming very soon, deep fake videos will make such crude manipulation seem quaint. Hollywood-grade effects tools are becoming widely available and there are no standards in place to watermark or otherwise authenticate first-party video originality and fidelity. Given the tenor of US and other political debate since 2016 or so — in which blatant lies are routinely repeated, transmitted, and amplified — we should probably expect to see deep fakes play a role in an upcoming election, whether in the UK, EU, or US. Teaching digital literacy is already an uphill battle: people still click on dangerous email links every day. Now imagine trying to teach Internet users of any age, in any nation, that what they are seeing and hearing might be fake while there are limited tools for testing any given artifact.

Long ago an investigative reporter was told to “follow the money” on the Watergate coverup. It’s still good advice. There’s a reason Meta is almost a trillion-dollar company while any news-focused organization you can name is worth a fraction of that. Meta is concerned only with “engagement,” a metric that conveniently increases not with the propagation of truth but with falsehood: whatever gets people riled up does the job nicely. The company is seeing its usage and reputation decline as Apple’s forced opt-in policy took millions of users off Facebook’s cross-site behavioral tracking. 

Meta is now undertaking steps to loosen controls on false or deceiving anti-vaccine and related content because they apparently cannot afford to keep falsehoods out of users’ feeds. A 2020 article in Nature showed that 

“anti-vaccination clusters offer a wide range of potentially attractive narratives that blend topics such as safety concerns, conspiracy theories and alternative health and medicine, and also now the cause and cure of the COVID-19 virus. . . . By contrast, pro-vaccination views are far more monothematic. Using aggregation mathematics and a multi-agent model, we have reproduced the ability of anti-vaccination support to form into an array of many smaller-sized clusters, each with its own nuanced opinion, from a population of individuals with diverse characteristics . . . .”

In other words, the person-to-person “feel” of Facebook plays well with deliberate or incidental micro targeting: anti-vaccine adherents can find whatever flavor of argument they find most congruent with their preexisting beliefs. Very few public-health workers are expert in such behavioral marketing nuance, so the “monothematic” messaging continues, accompanied by an ample dose of inconsistency: what is the virus called this week? (Both nation of first observation and Greek letters seem to have left the building.) Should young children get vaccinated? When? How often? Does masking help? When and where is it required? Is there a BA4/5-specific vaccine yet?

The social critic (he co-founded Spy magazine, for those of a certain age) Kurt Andersen plausibly connects the rise of the Internet — massive communications power with few gatekeepers — to the anti-authoritarian impulse of the 1960s. Now, nobody’s word can be said to be definitive and every voice gets its own free channel: “Before the Internet, crackpots were mostly isolated and surely had a harder time remaining convinced of their alternate realities. Now their devoutly believed opinions are all over the airwaves and the Web, just like actual news. Now all the fantasies look real.” 

How much deeper will much of the world venture into fantasyland? How far will our various publics veer from reality, whether wittingly or via deception? How will science education, instructors in civic virtue, and news media react when the lies and falsehoods get bigger and more consequential as the tools for their dissemination grow stronger? How much more damage will civic institutions — schools, government agencies, public safety — sustain? 

What might a positive path forward look like? As Andersen notes, people often prefer falsehood to fact, so any effort that involves behavioral engineering needs to be carefully considered, monitored, and adjusted. Old-style public-service messaging like “Only you can prevent forest fires” or “Just say no” turns out to be a) less true than the taglines once were and b) disconnected from the current zeitgeist. Thus, addressing the root cause of rampant fakery — insatiable demand for it — relies on both messages and institutions that no longer command the respect they once did. 

All of this adds up to seriously confusing times. At the same time that the Webb telescope opens entirely new chapters of deep-space astronomy to millions, cultists believe the most outlandish quackery or worse. In fact, one observer (on Twitter, so I can’t find the post any more) posited that movie scripts are now the measure of plausibility: forgot ground truth, if Nicholas Cage or some Marvel character can be imagined doing it, I’ll choose that over the mundanity of record-keeping, basic math, and legal reasoning. There’s something to this: what else would explain the seemingly infinite desire for dystopian plot lines in the face of overall good news: an almost instant vaccine for a global pandemic, fewer people (by percentage) in poverty than ever, improved legal rights for many minority populations? (I first noted this trend in the September 2016 newsletter, but we don’t seem to have turned any corners.) In the midst of such confusion, “keeping it real” is getting more difficult every year.