The Google Squeeze

In 3Q 2014 Google had $16.5 billion in revenue and $2.8 billion in profit. I proceeded to write an article entitled Peak Google. Fast forward to last quarter, and Google had $36 billion in revenue and $6.7 billion in profit, increases of 118% and 139% respectively. It is difficult to imagine being more wrong!

For the record, my thesis was not that Google’s revenue and profit growth were over; rather, like Microsoft in the 2000s, Google would continue to grow but that its relevance had peaked, in large part because brand marketing would become much more important on the web.

Frankly, this explanation makes things worse in a way: it is certainly true that some types of advertising have, as I predicted, worked much better on platforms like Facebook or Instagram (and it’s also true that Facebook gave up on competing for advertising on 3rd-party sites); it is also worth noting that much of that advertising is less traditional brand advertising, meant to increase brand affinity for future conversions, than it is demand-generating direct advertising (as opposed to Google’s demand-capturing direct advertising in Search). What truly misses the mark, though, is the suggestion that Google’s relevance has in any way decreased.

Five Years of Growth

I have owned up to getting the Peak Google article wrong in the Daily Update, particularly this post in 2017, but in the interest of accountability — and, naturally, this article — a quick review is in order.

First, I should have been clear from the get-go that the analysis did not apply to YouTube. Not only is YouTube a natural fit for brand advertising, which is traditionally video-based, it was also barely monetized at that point; clearly significant growth was coming from that property alone.1

Second, despite the fact I spent most of the early years of Stratechery writing about mobile and the extent to which its impact was underrated, particularly by those in the United States who had already adopted personal computers, I underrated mobile’s impact! First, mobile dramatically increased the number of users Google served in both developed and developing countries. Second, mobile dramatically increased usage from existing users, as the Internet was now in people’s pockets or purses, not only their desks or backpacks. Google’s market was in the process of getting much larger.

The biggest mistake, though, was in underestimating just how far Google could go in terms of showing users more ads, even once you accounted for more users using Google more often.

MOAR Ads

The first and most obvious way that Google showed users more ads was by literally inserting more ads into mobile search results. This was a development I tracked closely, wondering just how far the company would go as it added first a third ad, and then a fourth. I wrote in that Daily Update:

Admittedly, this observation has been largely critical: is Google’s revenue growth due to actual increased engagement or simply due to stuffing the screen with ever more ads? In fact, the appropriate answer is “Who cares?” I suspect my disproving attitude stemmed from Peak Google: the company continued to defy my general narrative, so surely the cause must be something untoward like a modern paid inclusion model. And, well, that’s kind-of-sort-of what it is…

That certainly may be vaguely distasteful — it was much more edifying for Google to argue, as they did a decade ago, that folks simply using the Internet meant they made more money — but that doesn’t mean it isn’t effective, and frankly, I haven’t given it enough credit.

Just as important, though, is the way in which Google responded to the threat posed by vertical search alternatives. Back when I wrote Peak Google, there was a lot of talk that mobile was a problem for Google because the new app paradigm would make it more likely that end users would go around Google. They would use Yelp for local search, Amazon for shopping, or Expedia for travel; sure, URLs and bookmark managers may have been too confusing for most users, but the “App Revolution” meant a vertical search engine was only a tap away.

In fact, though, this threat ended up being overstated for several reasons.

First, it turned out that users didn’t want to juggle multiple apps any more than they wanted to juggle multiple URLs. Search in the built-in browser was still the easiest and most obvious place to start.

Second, Google was willing to pay whatever was necessary to ensure it was the default search engine for those built-in browsers, including billions of dollars on an ongoing basis to Apple.

Third, Google started to transform mobile results in particular to be much more useful: instead of forcing users to click a link for an answer — something mobile users dislike about as much as downloading new apps — Google would give it to them; they didn’t even need to “feel lucky”. Most importantly, though, when it came to vertical search categories, Google would offer an entirely new kind of results page.

Expedia and TripAdvisor

This reason to discuss this topic now is because of disappointing earnings results from Expedia and TripAdvisor. From CNBC:

Shares of Expedia and TripAdvisor both reached new year-to-date lows during midday trading on Thursday, tumbling as much as 25%. The stock plunge comes after both the travel service stocks reported third-quarter earnings misses after the bell Wednesday. Both companies pointed to weakened visibility in Google search results as a long-term revenue headwind.

Expedia CEO Mark Okerstrom said on Expedia’s earnings call:

What we saw was a continued shift of essentially the free links further down the page, by other modules that were inserted and ultimately a shift of traffic from the SEO channel over to some of the other products whether it’s flight metasearch or hotel metasearch over time. Now of course as related to the hotel product, the lodging product, we are able to pick up some of that volume and that ultimately resulted in spending more on sales and marketing than we had otherwise would have. We are happy with the returns that we saw on it, but ultimately, not as good returns as we would see from the SEO channel.

TripAdvisor CEO Steve Kaufer said on TripAdvisor’s earnings call:

We did see some incremental SEO headwinds over the course of the quarter. It’s always hard to know exactly what Google is doing. We think of it as how far down the page are we is our organic result. And I think you’re seeing this across the industry as Google has gotten more aggressive. We’ve been predicting this of course for the past many years. We talked about it on our last call. We know that this SEO piece is an ongoing trend and we’re not predicting that it’s going to turn around.

Expedia and TripAdvisor used to be the same company; they play in closely related spaces. Expedia is an “OTA” — Online Travel Agent — where you can book hotels, plane tickets, etc.; TripAdvisor is focused on reviews but monetizes as a meta-search engine, i.e. by referring users to OTAs (although TripAdvisor, with its “instant booking” product, is not far from being an OTA itself).

OTAs and Aggregation Theory

OTAs have always been a special case when it comes to Aggregation Theory; like Aggregators, they serve customers on a zero marginal cost basis, and they have power over supply (hotels, primarily) by virtue of delivering them demand. The hangup for me is how they acquire that demand: first and foremost from Google.

Expedia’s Google play is straightforward: deliver highly-ranked answers to common queries like “Tickets to Tokyo” or “Hotels in Sydney”, and also become very good at buying search ads. TripAdvisor, meanwhile, leverages its reviews to rank highly on a whole host of terms related to traveling, and then offers booking functionality alongside those reviews.

What is notable in both cases, though, is that it is Google that ultimately owns the customer relationship, which is why I have always hesitated to call OTAs Aggregators:

Google owns demand

This arrangement between OTAs and Google has long been beneficial to both sides. Google drives traffic to the OTAs, which can monetize that traffic via commissions extracted from suppliers.2 Google, meanwhile, not only receives relevant results it could serve to customers, but also makes billions of dollars from OTAs buying search ads.

Google and the OTAs value chain

What has changed, starting with Google’s search results, which then spilled over to these companies’ financial results, is the hotel module:

Google hotel search results

First, note just how many screens you now have to scroll to reach organic results — at least 3 on an iPhone 11 Pro which is 812 points tall.3 Again, this isn’t necessarily new — Google has been adding ads for a while — but what makes the hotel module compelling is that, while it is easy to ignore the ads, the module is genuinely useful! You have a map of the city with prices of various hotels, an opportunity to specify your dates, and several options to click through on.

Here is the rub, though, at least from an OTA perspective:

Google Partners

In case you’re not sure what “Google Partners” means, here is a screen you get when you click on one of those hotels and look at the prices:

Google hotel module listings are ads

Everything in the hotel module is an ad, or perhaps more accurately, paid-inclusion. This particular example does not have Expedia.com (but it does have Hotels.com, which Expedia owns) or TripAdvisor, but they are in others; it is this module that Okerstrom was referring to when he said:

Now of course as related to the hotel product, the lodging product, we are able to pick up some of that volume and that ultimately resulted in spending more on sales and marketing than we had otherwise would have. We are happy with the returns that we saw on it, but ultimately, not as good returns as we would see from the SEO channel.

I would think not; the SEO channel is free, the hotel module isn’t.

Aggregating OTAs

At this point the conclusion seems easy, no? Google being evil, yet again. In fact, while I understand the frustration of Expedia and TripAdvisor, I think it is a bit more complicated.

Start with the theoretical perspective: the stable structure of an Aggregator-dominated market is that the Aggregator controls demand and suppliers come onto the Aggregator on the Aggregator’s terms. In other words, there are three players in the value chain: suppliers—Aggregator—demand. Notably, though, that has not been the case in travel, where Google has controlled demand but OTAs have controlled supply.

One way to achieve equilibrium would be for Google to become the one OTA to rule them all. Indeed, this would be difficult to compete with (and was a fear when Google acquired ITA in 2010). The truth, though, is that OTAs have put in significant effort to bring suppliers on board, and they deal with all of the pesky payment and customer support issues that Google loves to eschew. Instead Google has realized it can get OTAs to effectively pay Google to take care of the messy parts for them.

The Hotel Module in the Value Chain

With the hotel module, Google captures demand more efficiently, which not only makes Google search more attractive to end users, but also transforms OTAs into suppliers, paying to provide the service that Google doesn’t want to. It is a textbook example of what Tren Griffin calls Wholesale Transfer Pricing:

Wholesale transfer pricing = the bargaining power of company A that supplies a unique product XYZ to Company B which may enable company A to take the profits of company B by increasing the wholesale price of XYZ.

In this case the unique product is demand — users. And this is where I am tempted to defend Google: at the end of the day, the company has the dominant position in its value chain largely by providing a better product. Search was better to start, but Google didn’t rest on its laurels: it made search better on mobile in particular with these sorts of modules, and while users could download another app or go to a different URL, they simply don’t want to.

At the same time, I get the frustration of the OTAs specifically and all of Google’s suppliers generally: if not even four ads will deter users, and if Google is going to pay whatever it takes to be the default search engine, then isn’t it unfair for the company to collect rent in this way?

Competing With Google

Here it is worth at least considering the biggest OTA of all, Booking Holdings. The company reported its earnings a day after Expedia; from Morningstar:

Booking Holdings Inc. reported third-quarter results that beat expectations. Profit at the online travel site was $1.95 billion, or $45.54 a share, up from $1.77 billion, or $37.02 a share, a year earlier. Adjusted earnings were $45.36, up 20% from a year earlier. Analysts polled by FactSet were expecting $44.50 a share. Revenue was $5 billion, up from $4.8 billion a year earlier. Analysts were expecting $4.85 billion.

Booking Holdings CEO Glenn Fogel argued that the company was relatively insulated from Google’s actions:

Regarding SEO, we saw some headwinds in the SEO channel that did create some modest pressure, but it’s a small channel for us.

Fogel added later on:

In the end, what’s most important for us to get customers to come to us directly. We’ve talked about this a lot in the past. It’s one of the things that I think is very important. For us to have our own future is to create a service that is so wonderful, so good that people just naturally will come back to us directly. And we will not be as dependent on other sources of traffic.

This seems like unequivocally a good thing, no? Booking knows it can’t depend on the Google channel, that its future is best secured by innovating and building a customer experience that convinces users to go to Booking directly. That is competition working to the benefit of customers!

I had a similar thought while reading this profile of Yelp CEO Jeremy Stoppelman; the ‘hotel module’ was long ago preceded by the ‘local module’ on Google search, much to Yelp’s consternation. What always gave me pause about Yelp’s complaints, though, is that, as I noted earlier, the company was at one time held up as the canonical threat to Google on mobile; why didn’t the company earn more direct customers, and instead spend so much time and energy kvetching about Google’s search results? That is why I found this bit of that profile compelling:

It also surfaces reviews algorithmically via recommendation software. It segregates reviews that the software flags for being solicited or biased, or because it doesn’t know enough about a user. Which means Yelp hides almost 30% of the reviews posted to its site, according to the company. This review filter is, to put it mildly, enormously unpopular among businesses…

“I’m sure we could have been making a lot more money if we allowed ourselves to be compromised and just said: Anything goes on Yelp. You want 5 stars? Tell your friends to go write a bunch of reviews for you and they’ll be on Yelp and then you can advertise. And wouldn’t it be wonderful?” said Stoppelman.

Instead, Yelp went another route. It is vigilant about reviews, and has passed on some easy ways to make money from users’ data. It doesn’t let businesses target users who happen to be walking by with an ad, for example. Despite persistent rumors, it’s hard to imagine Yelp fitting in as an acquisition target for Big Tech — in just two interviews with BuzzFeed News, the outspoken Stoppelman took shots at Facebook, Amazon, and Google…

“When I look out at other companies,” Stoppelman said, “I see other priorities, namely growing revenue as much as possible. So why didn’t Facebook crack down on certain types of content, or why did they allow sensational stories or stories that are not true to blast across the network and get amplified so much? Had they had the foresight to say, ‘Hey, this is bad for the world’ or ‘This is bad for our long-term brand, we should shut it down,’ it probably wouldn’t have turned into an eventually traumatic political issue.

“But at the end of the day, collecting attention is the way that they make money, and they dial up the algorithm — the same as YouTube, same for Google. You know, it’s like Google and Facebook did the same thing: Use the algorithm to optimize for maximum attention. And if you optimize for maximum attention, you’re leaning into human nature of rubbernecking at train crashes, and all the worst stuff that humanity can provide. And that’s where you end up. And I’m sure it was like rocket fuel for their business, but now we’re paying the price.”

This is by far the most compelling pitch I have heard Yelp give for itself: “The big companies are full of spam and misinformation, while we take the time to get reviews right.” It is hard not to wonder just how much more popular Yelp’s product might be if this message were spread as stridently as its anti-Google arguments.

And, of course, there is Amazon: more product searches start on Amazon than Google, not because Amazon spent its energy complaining about Google favoring its own shopping results, but because Amazon went out and delivered a better experience for users.

Monopoly Concerns

I remain very concerned about monopoly, particularly, when it comes to consumer tech, digital advertising; this Wall Street Journal story is an excellent overview of how Google makes it extremely difficult to compete (for competitive ad-tech companies) and extremely difficult to go elsewhere (for its customers).

What gives me pause about search, on the other hand, is that there are not constraints on user movement. It really is trivial to use Yelp, or Amazon, or Booking, both on the web and on a smartphone. Is customer inertia something that requires regulation, or is it a possible spur to making products that are that much more compelling?

One answer, perhaps, lies in Google’s behavior itself: unlike traditional monopolies, it is hard to argue that Google’s product isn’t getting better. Sure, OTAs need to pay to play on the hotel module, but the hotel module is a genuine improvement over 10 blue links. The same can be said of the other areas where Google gives answers instead of options. I absolutely get the argument that this might be an unfair extension of Google’s search dominance, but the possibility of stifling innovation, both directly and also its incentives, are worth consideration.

I wrote a follow-up to this article in this Daily Update.

  1. It remains a big problem that we don’t know exactly what YouTube’s financials are; if Google won’t tell us the SEC should make them []
  2. I’m using “Commissions” here broadly; there are multiple monetization models for OTAs, including selling rooms directly, charging hotels fees after-the-fact, etc. []
  3. A “point” is the functional equivalent of a pixel in the user interface; an iPhone 11 Pro has a 3x retinal display which means that three physical pixels represent one “point” []

Tech and Liberty

Alexander Hamilton was against the Bill of Rights, particularly the First Amendment. This famous xkcd comic explains why:

Free Speech by xkcd

According to Randall Munroe, the author, the “Right to Free Speech” is granted by the First Amendment, which was precisely the outcome Hamilton feared in Federalist No. 84:

I go further, and affirm that bills of rights, in the sense and to the extent in which they are contended for, are not only unnecessary in the proposed Constitution, but would even be dangerous. They would contain various exceptions to powers not granted; and, on this very account, would afford a colorable pretext to claim more than were granted. For why declare that things shall not be done which there is no power to do? Why, for instance, should it be said that the liberty of the press shall not be restrained, when no power is given by which restrictions may be imposed? I will not contend that such a provision would confer a regulating power; but it is evident that it would furnish, to men disposed to usurp, a plausible pretense for claiming that power. They might urge with a semblance of reason, that the Constitution ought not to be charged with the absurdity of providing against the abuse of an authority which was not given, and that the provision against restraining the liberty of the press afforded a clear implication, that a power to prescribe proper regulations concerning it was intended to be vested in the national government. This may serve as a specimen of the numerous handles which would be given to the doctrine of constructive powers, by the indulgence of an injudicious zeal for bills of rights.

Hamilton’s argument is that because the U.S. Constitution was created not as a shield from tyrannical kings and princes, but rather by independent states, all essential liberties were secured by the preamble (emphasis original):

WE, THE PEOPLE of the United States, to secure the blessings of liberty to ourselves and our posterity, do ORDAIN and ESTABLISH this Constitution for the United States of America.

Hamilton added:

Here, in strictness, the people surrender nothing; and as they retain every thing they have no need of particular reservations.

Munroe, though, assumes the opposite: liberty, in this case the freedom of speech, is an artifact of law, only stretching as far as government action, and no further. Pat Kerr, who wrote a critique of this comic on Medium in 2016, argued that this was the exact wrong way to think about free speech:

Coherent definitions of free speech are actually rather hard to come by, but I would personally suggest that it’s something along the lines of “the ability to voluntarily express (and receive) opinions without suffering excessive penalties for doing so”. This is a liberal principle of tolerance towards others. It’s not an absolute, it isn’t comprehensive, it isn’t rigorously defined, and it isn’t a law.

What it is is a culture.

The Marketplace of Ideas

The most well-known argument for why free speech is important is that it allows for a “marketplace of ideas”. For example, in 2012’s United States v. Alvarez, in which a law making it a crime to lie about having received military honors was held to violate the First Amendment, Justice Kennedy wrote:

The remedy for speech that is false is speech that is true. This is the ordinary course in a free society. The response to the unreasoned is the rational; to the uninformed, the enlightened; to the straightout lie, the simple truth…The theory of our Constitution is “that the best test of truth is the power of the thought to get itself accepted in the competition of the market,” Abrams v. United States, 250 U.S. 616, 630, 40 S.Ct. 17, 63 L.Ed. 1173 (1919) (Holmes, J., dissenting).

The American people do not need the assistance of a government prosecution to express their high regard for the special place that military heroes hold in our tradition. Only a weak society needs government protection or intervention before it pursues its resolve to preserve the truth. Truth needs neither handcuffs nor a badge for its vindication.

Note the citation in the excerpt to Justice Oliver Wendell Holmes’ dissent in the 1919 case Abrams v. United States; in that instance a socialist and four anarchists were convicted for distributing leaflets condemning U.S. intervention in Russia and calling for a worker’s strike. Holmes wrote:

But when men have realized that time has upset many fighting faiths, they may come to believe even more than they believe the very foundations of their own conduct that the ultimate good desired is better reached by free trade in ideas — that the best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out. That at any rate is the theory of our Constitution. It is an experiment, as all life is an experiment. Every year if not every day we have to wager our salvation upon some prophecy based upon imperfect knowledge. While that experiment is part of our system I think that we should be eternally vigilant against attempts to check the expression of opinions that we loathe and believe to be fraught with death, unless they so imminently threaten immediate interference with the lawful and pressing purposes of the law that an immediate check is required to save the country.

Here Holmes was echoing John Stuart Mill’s classic, On Liberty:

If all mankind minus one, were of one opinion, and only one person were of the contrary opinion, mankind would be no more justified in silencing that one person, than he, if he had the power, would be justified in silencing mankind. Were an opinion a personal possession of no value except to the owner; if to be obstructed in the enjoyment of it were simply a private injury, it would make some difference whether the injury was inflicted only on a few persons or on many. But the peculiar evil of silencing the expression of an opinion is, that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion, still more than those who hold it. If the opinion is right, they are deprived of the opportunity of exchanging error for truth: if wrong, they lose, what is almost as great a benefit, the clearer perception and livelier impression of truth, produced by its collision with error.

This remains a powerful argument. Consider the dates, and circumstances: Holmes wrote his dissent 100 years ago about “seditious” behavior that today we consider normal, if not expected — any one of our Twitter feeds contains material far more objectionable to the powers that be than any of the fliers in question. Mill, meanwhile, published On Liberty in England in 1859, when slavery still existed in America. Clearly no one knew the full truth in 1919 or 1859, and it is doubtful anyone does in 2019, either.

At the same time, both Holmes and Mill wrote well after the creation of the First Amendment; to the extent the First Amendment creates a “marketplace for ideas”, there is no evidence that was the rationale for its creation.

In fact, the reasoning for the First Amendment was much more straightforward: to defend against tyranny. The Bill of Rights as a whole were added to the Constitution to satisfy “anti-federalists” that feared the creation of a central government that might one day violate their rights; Thomas Jefferson, whose support was essential for the adoption of the Constitution, wrote to James Madison that “Half a loaf is better than no bread. If we cannot secure all our rights, let us secure what we can.”

The Tech Angle

There is, I swear, a tech angle.

Over the last several weeks debate has raged over Facebook’s policy to not fact-check politician speech on its platforms, either in organic posts or paid advertisements. Twitter, meanwhile, decided to ban political ads completely.

Start with the latter: it is hard to interpret Twitter’s decision as anything other than a Strategy Credit. The company, by its own admission, earned an immaterial amount of revenue from political ads in the last election cycle; now it gets to wash its hands of the entire problem and chalk up whatever amount of revenue it misses out on as an investment in great PR.

Such a policy, however, particularly were it applied to Facebook, where much more advertising is done (political or otherwise), would significantly disadvantage new candidates without large followings, particularly in smaller elections without significant media coverage. It is, at a minimum, a rejection of social media’s third estate role; best to leave the messy politics to the parties and the mass media.

Facebook, meanwhile, has struggled to defend its decision in the context of a “marketplace of ideas”. After all, what value is there in a lie? In fact, Mill would argue, there is a great deal of value in exactly that, but it’s a hard case to make! Never mind that most disputes would be less about easily disprovable lies and more about challengeable assumptions.

And that is precisely where the original justification for the First Amendment matters: the point was to avoid tyranny, and Facebook deciding what is or is not true is exactly that — tyranny. It is an approach that is inimical to the culture of free expression that birthed the law about free expression, and the company is right to push back on calls that it be the arbiter of truth.

Tech and Liberty

In fact, I would go further: Facebook’s stance is an essential expression of what makes American tech unique. Don Valentine, the legendary founder of Sequoia Capital who passed away last week, once said:

The world of technology thrives best when individuals are left alone to be different, creative, and disobedient.

This is not a statement about participating in the marketplace of ideas, winning others over by the power of your argument. It is, rather, an affirmation of the absence of tyranny. Only when individuals are able to think for themselves can something truly new to the world be created, and the proof will be the success in the market for tech products and services.

It is on this point that I find Mill’s On Liberty to be particularly compelling:

Like other tyrannies, the tyranny of the majority was at first, and is still vulgarly, held in dread, chiefly as operating through the acts of the public authorities. But reflecting persons perceived that when society is itself the tyrant — society collectively, over the separate individuals who compose it — its means of tyrannising are not restricted to the acts which it may do by the hands of its political functionaries. Society can and does execute its own mandates: and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practises a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself.

Protection, therefore, against the tyranny of the magistrate is not enough: there needs protection also against the tyranny of the prevailing opinion and feeling; against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them; to fetter the development, and, if possible, prevent the formation, of any individuality not in harmony with its ways, and compel all characters to fashion themselves upon the model of its own. There is a limit to the legitimate interference of collective opinion with individual independence: and to find that limit, and maintain it against encroachment, is as indispensable to a good condition of human affairs, as protection against political despotism.

Frankly, I find it deeply concerning that I might have any trepidation in writing that Facebook made the right decision. The unquestioned assumption of the media world in which I live is that Facebook is uniquely guilty of all manners of crimes, first and foremost the election of one Donald Trump as president. Never mind the questionable campaign choices of his opponent, or the unrelenting focus on emails by the mainstream media (emails in general being the far more impactful Russian intelligence operation).

This isn’t that big of a deal in isolation: the beauty of my business model is that I am beholden only to my readers as a collective, and not individually. And Facebook CEO Mark Zuckerberg is even more insulated thanks to his complete control of Facebook’s governance (more on this in a moment).

At the same time, the degree to which Twitter in particular — leaving aside its stance on ads — is increasingly a tool for stamping out independent thought in Silicon Valley should be a real concern for an industry predicated on “Thinking Different”. No power-that-be likes disruption, or innovation they do not control, but tech specifically and the U.S. generally needs more free thinkers, not fewer. Mob mentalities, no matter their good intentions, leave little room for freedom of thought, and lots of room for the status quo.

Think of one of the most famous characteristics of Silicon Valley, the fact that it is ok to fail, both for an entrepreneur and an investor. That is a philosophy of liberty, the point of which is not simply to win arguments, but also to have the space to do something different, sometimes for better, and sometimes for worse.

Facebook’s Policy

This is not a blanket defense of Facebook. I believe the company has it right from a big picture perspective, both in terms of American values generally and tech values specifically, but could do better on the details.

First, while the letter from Facebook employees was wrong, at least constitutionally speaking, in asserting that “free speech and paid speech are not the same thing”, the practical impact in terms of Facebook is very different. Organic posts are subject to the vagaries of the Facebook algorithm, whereas advertisements can be targeted at specific groups.

Both are problematic in their own way. Facebook’s algorithm is, as far as we know, predicated first and foremost on engagement, which inevitably favors the outrageous and controversial. Targeting, meanwhile, both grants a right to be heard that is something distinct from a right to speech, as well as limits our shared understanding of what there is to debate.

These last two points are not new, by the way. Consider this New York Times article from 2004, the year Facebook was founded:

Each party’s databank has the name of every one of the 168 million or so registered voters in the country, cross-indexed with phone numbers, addresses, voting history, income range and so on — up to as many as several hundred points of data on each voter. The information has been acquired from state voter-registration rolls, census reports, consumer data-mining companies and direct marketing vendors. The parties have also amassed detailed information about the political and social beliefs that you might have shared with canvassers who have phoned or knocked on the door over the past few years.

The new databases and statistical tools allow candidates to seek out individuals by predicting what personal characteristic, or what combination of characteristics, makes a voter worthy of a tailor-made outreach effort. In other words, someone who appears nonpartisan, someone who might even think of himself as nonpartisan, may nevertheless have a political DNA that the parties will be able to decode. When I spoke recently with one Democratic statistician who does not want to be named — strategists on both sides see no conflict in combing through our personal lives and then speaking only on the condition of anonymity — he explained that his work is to find voters not just by what they are and where they live (a 30-something Jewish New Jersey resident like me, for instance) but by how they live (a homeowner with two young children, a foreign car and two credit cards). In politics, he added, this is somewhat revolutionary, allowing campaigns to reach out — by mail, phone or in person — to voters they would ordinarily ignore.

Crucially, these efforts, particularly that most devious of political tools, direct mail, operated completely in the dark. Here Facebook is a genuine improvement: in response to the 2016 election the company made all ads accessible and searchable to anyone.

Still, it’s fair to argue the company should go further. I like former Facebook Chief Security Officer Alex Stamos’ suggestion in the Columbia Journalism Review that there be a “floor” for the specificity of Facebook ad targeting when it comes to politicians:

Politicians lie all the time. What we want is for them to tell the same lies to everybody, instead of being able to hit 50 people at a time. There are a lot of ways you can try to regulate this, but I think the simplest is a requirement that the “segment” somebody can hit has a floor. Maybe 10,000 people for a presidential election, 1,000 for a Congressional. This would also reduce the huge market for voter data that exists.

Yes, you could direct mail only 10 people, but that would quickly become untenable given the marginal costs in both time and costs involved; the lack of friction on Facebook means that artificial limitations may be appropriate.

At the same time, the point about direct mail is instructive: no one is arguing that the U.S. Postal Service should start ascertaining the truth of political mailers. The question, then, is to the degree that Facebook is a similar type of communications utility, should the company be doing less censorship period, and instead focusing on limiting the right to be heard?

Facebook’s Governance

Of course the U.S. Postal Service, being a government entity, is also limited by the First Amendment, and ultimately accountable to voters. It is here where I have the biggest problem with Facebook’s role: because of its governance structure, the company is completely unaccountable.

Indeed, Stratechery subscribers know that this is not my first invocation of the Federalist Papers in recent weeks. I wrote in a Daily Update about Zuckerberg’s speech on free expression how the Founding Fathers sought to ensure liberty not simply by law but also by structure. James Madison wrote in Federalist No. 47:

The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with the accumulation of power, or with a mixture of powers, having a dangerous tendency to such an accumulation, no further arguments would be necessary to inspire a universal reprobation of the system.

Facebook, obviously, is not the government, and thank goodness: the fact that Zuckerberg answers to no one is deeply concerning to me. To be fair, in the case of political ads, this was arguably a benefit: I think he is making the right decision in the face of massive resistance. In the long run, though, it is very problematic that such a powerful player in our democracy has no accountability. Liberty is not simply about laws, or culture, it is also about structure, and it is right to be concerned about the centralized nature of companies like Facebook.

To that end, the fact that this debate is even occurring is evidence of the problem: those opposed to Facebook’s decision about ads wish the company would wield its power in their favor; my question is whether such power should even exist in the first place. Facebook can close Munroe’s door on anyone, and there is nothing anyone can do about it.

I wrote a follow-up to this article in this Daily Update.

The Internet and the Third Estate

Facebook CEO Mark Zuckerberg began his speech last week by attempting to place free expression in the historical American context, and only then turned to discuss free expression in the context of Facebook, where he proposed something much more modern:

People having the power to express themselves at scale is a new kind of force in the world — a Fifth Estate alongside the other power structures of society. People no longer have to rely on traditional gatekeepers in politics or media to make their voices heard, and that has important consequences. I understand the concerns about how tech platforms have centralized power, but I actually believe the much bigger story is how much these platforms have decentralized power by putting it directly into people’s hands. It’s part of this amazing expansion of voice through law, culture and technology.

The Fifth Estate is a clear reference to the Fourth Estate — the press — and Zuckerberg’s argument is that while the Fourth Estate entailed gatekeepers the Fifth Estate does not, for both better and worse. It’s a compelling framing, and one that certainly puts in perspective the tension that exists between the press and Facebook in particular: no gatekeeper likes to lose their monopoly on the distribution of information.

It’s also a framing that is, appropriately enough, uniquely American; in the United States, the first three estates are commonly thought to be the three branches of government: the executive, legislative, and judicial. It is the press that holds all three accountable, and in Zuckerberg’s telling, the Fifth Estate that gives everyone else a voice.

There is, though, another way to think about social media that is perhaps even more compelling, with a story that draws not from American history but rather European.

Europe’s Three Estates

In Europe the first three estates are a reference to how society was organized throughout the Middle Ages: the First Estate was the church, the second was the nobility, and the third were the commoners. By the 1700s those estates, at least in England, had become branches of government: the King (the First Estate — more on king versus clergy in a moment), the House of Lords (the Second Estate), and the House of Commons (the Third Estate); this was the context for Edmund Burke’s remarks in 1787 that “There are Three Estates in Parliament; but, in the Reporters’ Gallery yonder, there sits a Fourth Estate more important far than they all.”

With this context, the European reading of the Fourth Estate is actually rather akin to the American one: the press is an independent force holding the government accountable. And so, again, Zuckerberg’s characterization of social media as the Fifth Estate makes sense.

Without this context, though, social media as the Fifth Estate would not make sense at all: after all, “people having the power to express themselves at scale”, to use Zuckerberg’s words, is about giving the commoners a voice — but the commoners are the Third Estate! In fact, in the medieval period where the three estates existed the press as fourth estate wouldn’t have made much sense either, given that the printing press didn’t even exist.

The Printing Press

That the clergy came first was not an accident: in the Middle Ages the principal organizing entity for Europe was the Catholic Church. Relatedly, the Catholic Church also held a de facto monopoly on the distribution of information: most books were in Latin, copied laboriously by hand by monks. There was some degree of ethnic affinity between various members of the nobility and the commoners on their lands, but underneath the umbrella of the Catholic Church were primarily independent city-states.

The printing press changed all of this. Suddenly Martin Luther, whose critique of the Catholic Church was strikingly similar to Jan Hus 100 years earlier, was not limited to spreading his beliefs to his local area (Prague in the case of Hus), but could rather see those beliefs spread throughout Europe; the nobility seized the opportunity to interpret the Bible in a way that suited their local interests, gradually shaking off the control of the Catholic Church.

Meanwhile, the economics of printing books was fundamentally different from the economics of copying by hand. The latter was purely an operational expense: output was strictly determined by the input of labor. The former, though, was mostly a capital expense: first, to construct the printing press, and second, to set the type for a book. The best way to pay for these significant up-front expenses was to produce as many copies of a particular book that could be sold.

How, then, to maximize the number of copies that could be sold? The answer was to print using the most widely used dialect of a particular language, which in turn incentivized people to adopt that dialect, standardizing language across Europe. That, by extension, deepened the affinities between city-states with shared languages, particularly over decades as a shared culture developed around books and later newspapers. This consolidation occurred at varying rates — England and France several hundred years before Germany and Italy — but in nearly every case the First Estate became not the clergy of the Catholic Church but a national monarch, even as the monarch gave up power to a new kind of meritocratic nobility epitomized by Burke.

In other words, Burke’s Fourth Estate was the means by which the Second Estate overthrew the first.

The Second Estate and the Press

I would go further: just as the Catholic Church ensured its primacy by controlling information, the modern meritocracy has done the same, not so much by controlling the press but rather by incorporating it into a broader national consensus.

Here again economics play a role: while books are still sold for a profit, over the last 150 years newspapers have become more widely read, and then television became the dominant medium. All, though, were vehicles for the “press”, which was primarily funded through advertising, which was inextricably tied up with large enterprise. I explained this symbiosis in 2016’s TV Advertising’s Surprising Strength — And Inevitable Fall:

The very institution of television advertising is intertwined with the kinds of advertisers that use it the most, the products they sell, and the way they are bought-and-sold…Start with the top 25 advertisers in the U.S. The list is made up of:

  • 4 telecom companies (AT&T, Comcast, Verizon, Softbank/Sprint)
  • 4 automobile companies (General Motors, Ford, Fiat Chrysler, Toyota)
  • 4 credit card companies (America Express, JPMorgan Chase, Bank of America, Capital One)
  • 3 consumer packaged goods (CPG) companies (Procter & Gamble, L’Oréal, Johnson & Johnson)
  • 3 entertainment companies (Disney, Time Warner, 21st Century Fox)
  • 3 retailers (Walmart, Target, Macy’s)
  • 1 from electronics (Samsung), pharmaceuticals (Pfizer), and beer (Anheuser-Busch InBev)

Notice that the vast majority of the industries on on this list are dominated by massive companies that compete on scale and distribution. CPG is the perfect example: building a “house of brands” allows a company like Procter & Gamble to target demographic groups even as they leverage scale to invest in R&D, bring down the cost of products, and most importantly, dominate the distribution channel (i.e. retail shelf space). Said retailers, meanwhile, are huge in their own right, not only so they can match their massive suppliers at the bargaining table, but also so they can scale logistics, inventory management, store development, etc. Automobile companies, meanwhile, are not unlike CPG companies: they operate a “house of brands” to serve different demographics while benefitting from scale in production and distribution; the primary difference is that they make money through one large purchase instead of over many smaller purchases over time.

My list of top advertisers had one missing piece — politicians — but that is only because the data was from a period that did not include an election. More broadly, the press, big business, and politicians all operated within a broad, nationally-oriented consensus.

Note, though, the reason I wrote that article: my argument is that every part of the media-advertising-industrial complex was threatened by the Internet.

The inescapable reality is that TV advertisers are 20th century companies: built for mass markets, not niches, for brick-and-mortar retailers, not e-commerce. These companies were built on TV, and TV was built on their advertisements, and while they are propping each other up for now, the decline of one will hasten the decline of the other.

There is no reason this reality shouldn’t apply to nation-states as well.

The Internet and the Third Estate

What makes the Internet different from the printing press? Usually when I have written about this topic I have focused on marginal costs: books and newspapers may have been a lot cheaper to produce than handwritten manuscripts, but they are still not-zero. What is published on the Internet, meanwhile, can reach anyone anywhere, drastically increasing supply and placing a premium on discovery; this shifted economic power from publications to Aggregators.

Just as important, though, particularly in terms of the impact on society, is the drastic reduction in fixed costs. Not only can existing publishers reach anyone, anyone can become a publisher. Moreover, they don’t even need a publication: social media gives everyone the means to broadcast to the entire world. Read again Zuckerberg’s description of the Fifth Estate:

People having the power to express themselves at scale is a new kind of force in the world — a Fifth Estate alongside the other power structures of society. People no longer have to rely on traditional gatekeepers in politics or media to make their voices heard, and that has important consequences.

It is difficult to overstate how much of an understatement that is. I just recounted how the printing press effectively overthrew the First Estate, leading to the establishment of nation-states and the creation and empowerment of a new nobility. The implication of overthrowing the Second Estate, via the empowerment of commoners, is almost too radical to imagine.

And yet, take a look around: there are protests around the globe, from Hong Kong to Chile to France to Spain to the Netherlands, primarily by populist movements. The U.S. and U.K., meanwhile, have no need for populist protests given that populist movements won stunning victories at the polls in 2016. I described the rise of Trump in particular in The Voters Decide:

For a moment, though, step back to the world as it was: the one where newspapers (and TV stations, etc.) were gatekeepers thanks to their ownership of production and distribution. In this world any viable political campaign had to play nicely with those who ran the press in the hopes of gaining positive earned media, endorsements, etc. Just as important, though, was the need to buy advertising, as that was the only way to reach voters at scale. And advertising required lots of money, which meant donors. And then, once the actual election rolled around, a campaign needed an effective GOTV effort, which took not only money but also the sort of manpower that could only be rustled up by organizations like labor unions, churches, etc. It is all these disparate pieces: partisan media members, advertisers, donors, large associations, plus consultants and specialists to manage them that, along with traditional politicians, made up the “party” in The Party Decides

This brings us back to today’s world, and admittedly, the leap from a description of Facebook and Aggregation Theory to politics is not an obvious one: I’m not proposing that Donald Trump or anyone else is an aggregator. Indeed, given their power over what users see Facebook could, if it chose, be the most potent political force in the world. Until, of course, said meddling was uncovered, at which point the service, having so significantly betrayed trust, would lose a substantial number of users and thus its lucrative and privileged place in advertising, leading to a plunge in market value. In short, there are no incentives for Facebook to explicitly favor any type of content beyond that which drives deeper engagement; all evidence suggests that is exactly what the service does.

Said reticence, though, creates a curious dynamic in politics in particular: there is no one dominant force when it comes to the dispersal of political information, and that includes the parties described in the previous section. Remember, in a Facebook world, information suppliers are modularized and commoditized as most people get their news from their feed. This has two implications:

  • All news sources are competing on an equal footing; those controlled or bought by a party are not inherently privileged
  • The likelihood any particular message will “break out” is based not on who is propagating said message but on how many users are receptive to hearing it. The power has shifted from the supply side to the demand side

A drawing of Aggregation Theory and Politics

This is a big problem for the parties as described in The Party Decides. Remember, in Noel and company’s description party actors care more about their policy preferences than they do voter preferences, but in an aggregated world it is voters aka users who decide which issues get traction and which don’t. And, by extension, the most successful politicians in an aggregated world are not those who serve the party but rather those who tell voters what they most want to hear.

Forgive the long excerpt, but there are multiple points relevant to the current moment worth covering.

First, the initial effect of the printing press was substituting Second Estate control in a First Estate framework; specifically, emerging nation-states formed state churches with the King as the head. That is a similar dynamic to many of these populist movements, which are nationalistic in nature. Both Brexit and Trump explicitly call back to nostalgic views of national greatness, conveniently ignoring that neither movement would have been allowed a national voice in the time periods they aspire to. I suspect this adherence to the Second Estate nation-state framework is temporary.

Second, the degree to which the press — and again, this includes all types of high fixed cost/low marginal cost mediums like newspapers, TV, etc. — is intermingled with politics generally and the nation-state specifically is impossible to overstate.

Third, Facebook’s potential power over elections truly is immense.

Facebook’s Power

What is critically important when it comes to Facebook’s power is the various means by which that power could be realized.

The first and most straightforward way is Facebook putting its thumb on the scale. This is a concern that arose recently with the leaked audio of an all-hands meeting where Zuckerberg was reported as being willing to “go to the mat” versus Elizabeth Warren. This was, as I laid out in this Daily Update, an extremely unfair characterization of Zuckerberg’s obvious intension to fight any potential antitrust lawsuits. At the same time, it was a useful reminder that Facebook’s power is to be feared, and an argument the company is simply too large.

The second concern is the capacity of trolls, both of the profit-seeking and foreign government variety, to leverage Facebook’s fundamental engagement-seeking nature to push misinformation and division. The company claims it has made substantial investments in this area, both in terms of identifying bad actors and in taking down problematic content; Facebook puts these investments forward as an argument that the company’s size is an asset.

The third concern is what has dominated the news cycle as of late: Facebook’s decision to not fact-check any posts or ads from politicians. This is largely being framed as aiding President Trump in particular, which is probably both true and also an unsurprising complaint from the Second Estate used to having monopoly control over fact-checking.

The broader issue is that the third concern and first concern are so clearly in direct opposition to each other. If Facebook has the potential for immense influence on politics, why on earth would anyone want the company policing political speech?

The China Question

This question is even more meaningful than it seems. The other major news story of the past few weeks has been The China Cultural Clash. Zuckerberg referenced this in his speech:

China is building its own internet focused on very different values, and is now exporting their vision of the internet to other countries. Until recently, the internet in almost every country outside China has been defined by American platforms with strong free expression values. There’s no guarantee these values will win out. A decade ago, almost all of the major internet platforms were American. Today, six of the top ten are Chinese.

We’re beginning to see this in social media. While our services, like WhatsApp, are used by protesters and activists everywhere due to strong encryption and privacy protections, on TikTok, the Chinese app growing quickly around the world, mentions of these protests are censored, even in the US.

Is that the internet we want?

For some in the Second Estate, it appears to be an open question. Consider the New York Times, which has been at the forefront of Facebook criticism: over the weekend the country’s preeminent newspaper ran a front-page story about TikTok and its embrace by U.S. high schools; there was zero mention of Chinese censorship. To be fair to the author, that wasn’t the point of the story; to be cognizant of the role of editors at the New York Times in particular, it is hard to imagine any sort of glowing profile about a Facebook-owned property that wouldn’t contain multiple caveats.

Indeed, this gets at why the Facebook questions are so critical: the company’s critics that argue that Facebook is too big are making a cogent argument that reconciles concerns about Facebook’s power with a desire to control misinformation; critics that ignore these tradeoffs, though, come across as authoritarians in their own right, disappointed in Facebook only so far as the company fails to leverage its power to enforce their personal preferences.

And so we are back to China. The U.S. specifically and the West broadly is not going to out-authoritarian an avowedly Marxist regime with a demonstrated willingness to use “re-education camps” and omnipresent surveillance to ensure the Second Estate era — that of the cohesive nation-state — remains in place. To fight the Internet’s impact, instead of seeking to understand it and guide the fundamental transformations that will surely follow, is a commitment by the West to lose the fight for the future.

The fact of the matter is that the world is fundamentally changing, just as it did five hundred years ago. At the same time, that change will take time — the printing press was invented in Germany in 1440 and yet German unification did not happen until 1871 — and will be guided by choices we make along the way. The sooner we recognize that transformation is coming, the more readily we can reject authoritarian attempts to hold onto the world as it was, and create the world we want to see.

Google and Ambient Computing

The most surprising revelation from yesterday’s Made by Google 19 keynote came in Google Senior Vice President of Devices and Services Rick Osterloh’s opening remarks:

If you look across all of Google’s products, from Search to Maps, Gmail to Photos, our mission is to bring a more helpful Google for you. Creating tools that help you increase your knowledge, success, health, and happiness. Now when we apply that mission to hardware and services, it means creating products like…Pixel phones, wearables, laptops, and Nest devices for the home. Each one is thoughtfully and responsibly designed to help you day to day without intruding on your life.

Did you catch that? Apparently Google has a new mission — to bring a more helpful Google to you. So much for organizing the world’s information!

To be clear, I’m overplaying what was surely a misstatement; five months ago, at the beginning of May’s Google I/O keynote, CEO Sundar Pichai both reiterated the company’s longstanding mission statement while also introducing the “helpful” phrasing that Osterloh used:

It all begins with our mission to organize the world’s information and make it universally accessible and useful. Today our mission feels as relevant as ever, but the way we approach it is constantly evolving. We are moving from a company that helps you find answers to a company that helps you get things done. This morning we’ll introduce you to many products built on a foundation of user trust and privacy…we want our products to work harder for you in the context of your job, your home, and your life. They all share a single goal: to be helpful, so we can be there for you big and small over the course of your day.

So “being helpful” is the company’s goal, not its mission statement. A fine distinction, perhaps, but I’m grateful for the misstatement: going back to Pichai’s comments was how I made sense of what was, at first viewing, a pretty boring and self-satisfied event.

Google’s Announcements

Google announced, in order:

  • That Stadia, the company’s video game streaming service, would launch on November 19th
  • Pixel Buds, the company’s AirPods competitor, which will ship in “Spring 2020”; there weren’t even working models for the press to try
  • Pixelbook Go, the company’s third Chromebook, which will start shipping October 28
  • New pricing for Nest Aware, the cloud recording service for Nest devices; instead of charging a fee per device Google will charge a flat fee per household. The new plans will launch in “early 2020”
  • Nest Wifi, a mashup of its Google Wifi mesh router with Google Home speakers, which will start shipping November 4
  • A new Nest Mini, a replacement for the Google Home Mini, which will start shipping on October 22
  • The Pixel 4 smartphone, with radar chips, new cameras, and enhanced Google Assistant capabilities; it will start shipping on October 24

The first thing that is striking about this list is how many of the announcements won’t ship for quite some time. The second thing is that most of the products were not announced on their own merits, but rather after long interludes about Google’s product development process. Like I said, boring and self-satisfied.

Pichai’s articulation of the company’s new goal, though, is helpful to understand what I believe the company was driving towards: to “be helpful” Google needs to be everywhere, which by extension means the company needs to be trusted. Thus the announcement of a wide array of products — whether ready to launch or not — that covered a multitude of places of where you might need Google’s assistance, done in the context of explaining how Google really does have its users best interests at heart.

Google’s Vision

Osterloh described this vision as “ambient computing”. From the keynote:

In the mobile era, smartphones changed the world. It’s super useful to have a powerful computer everywhere you are. But it’s even more useful when computing is anywhere you need it, always available to help. Now you heard me talk about this idea with Baratunde, that helpful computing can be all around you — ambient computing. Your devices work together with services and AI, so help is anywhere you want it, and it’s fluid. The technology just fades into the background when you don’t need it. So the devices aren’t the center of the system, you are. That’s our vision for ambient computing.

Frankly, it’s a compelling vision on multiple dimensions:

  • First, it is a vision for the future that actually seems larger than the smartphone reality we live in. Alternatives like augmented reality or wearables feel smaller.
  • Second, it is a vision that does not compete with the smartphone, but rather leverages it. The smartphone is so useful for so many things that any directly competitive technology would have to cover an impossible number of use cases to displace it; ambient computing, though, simply conceives of the smart phone as one of several means to deliver on its promise.
  • Third, it is a vision that Google is uniquely suited to pursue. The company is a services company incentivized to serve the maximum number of customers no matter the means (i.e. device), and it already has a head start in providing services that contain and accumulate essential information about people’s lives.

Note how much better Google is placed than Facebook or Amazon, both of which I wrote about two weeks ago. The latter two companies are hindered by their lack of a smartphone, and their beachheads in the consumer space — Oculus and Alexa, respectively — are constrained by specialization in the case of Facebook and location in the case of Amazon. Ambient computing that goes away when you turn off a headset or leave your house is not truly ambient. Osterloh made this point:

The Google Assistant plays a critical role here. It pulls everything together and gives you a familiar, natural way to get the help you need. Our users tell us they find the Google Assistant to be smart, user-friendly, and reliable, and that’s so important for ambient technology. Interactions need to feel natural and intuitive. Here’s an example: if you want to listen to music, the experience should be the same whether you are in the kitchen, you are driving in your car, or hanging out with friends. No matter what you are doing, you should be able to just say the name of the song and the music just plays without you having to pull out a phone and tap on screens or push buttons.

Only companies with smartphone platforms can deliver the same experience everywhere. That is to say, only Google and Apple, and the latter seems to be barely trying in the home in particular.

Google’s Integration

This also explains why Google, despite being a Services company, is investing in hardware. Clayton Christensen in The Innovator’s Solution, explained what it took to win in new markets:

When there is a performance gap — when product functionality and reliability are not yet good enough to address the needs of customers in a given tier of the market — companies must compete by making the best possible products. In the race to do this, firms that build their products around proprietary, interdependent architectures enjoy an important competitive advantage against competitors whose product architectures are modular, because the standardization inherent in modularity takes too many degrees of design freedom away from engineers, and they cannot not optimize performance.

To close the performance gap with each new product generation, competitive forces compel engineers to fit the pieces of their systems together in ever-more-efficient ways in order to wring the most performance possible out of the technology that is available. When firms must compete by making the best possible products, they cannot not simply assemble standardized components, because from an engineering point of view, standardization of interfaces (meaning fewer degrees of design freedom) would force them to back away from the frontier of what is technologically possible. When the product is not good enough, backing off from the best that can be done means that you’ll fall behind.

In the case of ambient computing, “integration” does not refer to an individual device and its associated software. Rather, the integration that matters is between all of the various devices that exist in every part of your life — home, work, play, and everywhere-in-between — and the service that links them together. Thus all of Google’s various hardware offerings: without question the best solution for ambient computing by some time next year will be Nest devices in your house, a Google Pixel in your pocket, Pixel Buds in your ears, and a Pixelbook at work.

Google's Ambient Computing

I don’t think this is Google’s long-run goal, though, nor should it be. While the company has at times been drawn into the trap of prioritizing and differentiating Android with its services, the fundamental services nature of Google means that its ambient computing offering will leverage any OEM that wishes to take part, even Apple. For now, though, the technology just isn’t good-enough, which is why Google is doing a lot of the work itself.

Google’s Challenges

Despite how well-placed Google is to execute on this vision, it is not a certainty that the company will win, for reasons both structural and also internal to Google itself.

First, the customers most likely to not only be interested in the idea of ambient computing but to also have the significant funds necessary to buy all of the various gadgets required to make it a reality probably use iPhones. Apple was the high-end integrated player in smartphones, and contra-Christensen, that was a sustainably large portion of the market. Google, meanwhile, was the modular player in smartphones, which meant it had the most affordable smartphone offerings and by far the largest marketshare. The challenge the company faces is that its modular customer base is less likely to spend on the integrated solution that Google is selling.

Second, while Siri will likely never reach the reliability and usability of Google Assistant — Apple has its own internal challenges — Apple continues to increase the switching cost from iPhone by doubling down on devices. AirPods are infinitely better than Pixel Buds in that they actually exist and have for three years, and the Apple Watch continues to grow strongly. Both devices, particularly when used together, also give you ambient computing beyond the smartphone (and yes, HomePod is still muddling along).

Third, as I noted above, Google spent so much time yesterday framing its approach in terms of user-centricity for a very good reason: its core advertising business is under attack for treating users and their data as a commodity. This raises the question as to whether customers will be comfortable having Google involved in even more aspects of their life, a point that Apple has and will continue to make regularly (Google, as I wrote after I/O, is fighting back by touting the benefits that come from it having so much data).

Fourth, Google has a business model problem. Yes, per the previous point, being a continuous presence in people’s lives will bring in even more data for ever more finely targeted advertisements, but there is no place for advertising in ambient computing generally. The Google Assistant can only give one answer, and it had better be the best one, not one that is paid for, if Google wishes to retain trust.

Fifth, to the extent the previous point does not matter, simply because Search and Display and YouTube make so much money, is the extent to which Google can be lackadaisical about execution. It doesn’t really matter that a good portion of the products announced yesterday won’t be ready until next month or next year because they are a rounding error on Google’s income statement. That may seem like a luxury, but in fact needing to succeed or die is one of the greatest advantages a company can have, particularly while trying to enter a new market.

Google’s Culture

One thing Google can absolutely work on is their messaging: I found yesterday’s presentation dreadfully boring, and only picked up on what Google was trying to convey on a second viewing.

That, though, isn’t necessarily a surprise. Google from its founding has succeeded simply by being better and letting the masses figure it out for themselves. It completely worked too: Google search was better than anything else on the market, and by virtue of being on the Internet it was immediately accessible to anyone anywhere on a zero marginal cost basis.

The company struggles, though, when it has to actually sell something. Look no further than Google Cloud Platform, which is a distant third to Amazon (which was first) and Microsoft (which can sell, particularly to existing customers). The company is currently trying to brute force its way into contention, hiring a VP from Oracle and a whole bunch of salespeople, but those efforts will run up against the company’s sense that simply building better stuff should be enough.

The challenges in ambient computing will be different given the differences between the consumer and enterprise markets, but no less significant: to succeed, particularly with its integrated offering, Google has to get better at all parts of the funnel, from initial awareness to education to conversion to channel to distribution to support. However, there is not much evidence the company has made progress in any of these areas, and, given how strong the company’s core business remains, not much motivation to either.

That’s the thing with visions: they are easy to come up with, harder to articulate, and even more difficult to build. It is the selling, though, that truly requires dedication.

The China Cultural Clash

It all started with a tweet:

Daryl Morey's since-deleted tweet

“It” refers to the current imbroglio surrounding Daryl Morey, the General Manager for the Houston Rockets of the National Basketball Association (NBA), and the latter’s dealings with China. The tweet, a reference to the ongoing protests in Hong Kong,1 “hurt the feelings of the Chinese people” (a rather frequent occurrence). The Global Times, a Chinese government-run English-language newspaper, stated in an editorial:

Daryl Morey, general manager of the NBA team the Houston Rockets, has obviously gotten himself into trouble. He tweeted a photo saying “fight for freedom, stand with Hong Kong” on Saturday while accompanying his team in Tokyo. The tweet soon set the team’s Chinese fans ablaze. It can be imagined how Morey’s tweet made them disappointed and furious. Shortly afterward, CCTV sports channel and Tencent sports channel both announced they would suspend broadcasting Rockets’ games. Some of the team’s Chinese sponsors and business partners also started to suspend cooperation with the Rockets.

There’s one rather glaring hole in this story of immediate outrage from Chinese fans over Morey’s tweet: Twitter is banned in China.

China Started It

Earlier this year I wrote about the uneven playing field between the U.S. and China when it comes to technology companies. From China, Leverage, and Values:

This is where I take the biggest issue with Culpan labeling this past week’s actions as the start of a tech cold war: China took the first shots, and they took them a long time ago. For over a decade U.S. services companies have been unilaterally shut out of the China market, even as Chinese alternatives had full reign, running on servers built with U.S. components (and likely using U.S. intellectual property)…

The truth is that the U.S. China relationship has been extremely one-sided for a very long time now: China buys the hardware it needs, and keeps all of the software opportunities for itself — and, of course, pursues software opportunities abroad.

This understated the case: not only were Chinese companies allowed into the U.S. while U.S. companies remained locked out of China, Chinese attacks on U.S. tech companies were allowed by China’s censors, and in fact even augmented by the Great Firewall. James Griffiths wrote about the 2015 attack on Github earlier this year:

In a paper coauthored with researchers at Citizen Lab, an activist and research group at the University of Toronto, Weaver described a new Chinese cyberweapon that he dubbed the “Great Cannon.” The “Great Firewall” — an elaborate scheme of interrelated technologies for censoring internet content coming from outside China—was already well-known. Weaver and the Citizen Lab researchers found that not only was China blocking bits and bytes of data that were trying to make their way into China, but it was also channeling the flow of data out of China.

Whoever was controlling the Great Cannon would use it to selectively insert malicious JavaScript code into search queries and advertisements served by Baidu, a popular Chinese search engine. That code then directed enormous amounts of traffic to the cannon’s targets…The cannon could also be used for other malware attacks besides denial-of-service attacks. It was a powerful new tool: “Deploying the Great Cannon is a major shift in tactics, and has a highly visible impact,” Weaver and his coauthors wrote.

The attack went on for days. The Citizen Lab team said they were able to observe its effects for two weeks after GitHub’s alarms first went off. Afterward, as the GitHub developers struggled to make sense of the attack and come up with a road map for future incidents, there was confusion within the cybersecurity community. Why had China launched so public an attack, in such a blunt fashion? “It was overkill,” Weaver told me. “They kept the attack going long after it had ceased working.”

It was a message: a shot across the bow from the architects of the Great Firewall, who—having conquered the internet at home—were now increasingly taking aim overseas, unwilling to brook challenges to their system of control and censorship, no matter where they came from.

The projects China was presumably targeting were Chinese versions of GreatFire.org, which documents censorship by the Great Firewall, and the New York Times, both of which were hosted on Github. Given the importance of Github to software development, China could not block the site completely, so instead they tried to hold it hostage. It was a harbinger of what happened this week.

Dreams Versus Reality

The story about engagement with China, both in terms of the U.S. generally but also tech specifically, has long been a belief that some engagement was better than no engagement, and that the shift to more freedom was inevitable. President Bill Clinton stated when the U.S. established Permanent Normal Trade Relations with China:

The change this agreement can bring from outside is quite extraordinary, but I think you could make an argument that it will be nothing compared to the changes that this agreement will spark from the inside out in China. By joining the W.T.O., China is not simply agreeing to import more of our products; it is agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people — their initiative, their imagination, their remarkable spirit of enterprise.

He added with regards to the Internet:

In the new century, liberty will spread by cell phone and cable modem. In the past year, the number of Internet addresses in China has more than quadrupled, from 2 million to 9 million. This year the number is expected to grow to over 20 million. When China joins the W.T.O., by 2005 it will eliminate tariffs on information technology products, making the tools of communication even cheaper, better, and more widely available. We know how much the Internet has changed America, and we are already an open society. Imagine how much it could change China.

Now there’s no question China has been trying to crack down on the Internet. Good luck! That’s sort of like trying to nail jello to the wall. But I would argue to you that their effort to do that just proves how real these changes are and how much they threaten the status quo. It’s not an argument for slowing down the effort to bring China into the world, it’s an argument for accelerating that effort. In the knowledge economy, economic innovation and political empowerment, whether anyone likes it or not, will inevitably go hand in hand.

In fact, it turned out that China was able to first contain the Internet, blocking sites outside the Great Firewall, then control the Internet, censoring content on social networks like Weibo and WeChat, and, as this New York Times article explains, even leverage the Internet:

The Communist Party indeed doesn’t hesitate to use state power to tell the Chinese people how they should think. But the displays of patriotism, especially from young people, also show that the party’s propaganda machine has mastered the power of symbol and symbolism in the mass media and social media era…While imposing tight censorship, the Communist Party has also learned to lean on the most popular artists and the most experienced internet companies to help it instill Chinese with patriotic zeal. It’s propaganda for the Instagram age, if Instagram were allowed in China.

The problem from a Western perspective is that the links Clinton was so sure would push in only one direction — towards political freedom — turned out to be two-way streets: China is not simply resisting Western ideals of freedom, but seeking to impose their own. Note this statement from state-owned broadcast CCTV, as it announced that it would not televise NBA games:

NBA Commissioner Adam Silver defended Morey. “I think as a values-based organization that I want to make it clear…that Daryl Morey is supported in terms of his ability to exercise his freedom of expression,” Silver said in an interview with Kyodo News in Tokyo Japan. CCTV did not agree with Silver’s remarks.

“We are strongly dissatisfied and we oppose Silver’s claim to support Morey’s right of free expression. We believe that any speech that challenges national sovereignty and social stability is not within the scope of freedom of speech,” CCTV said in its statement in Chinese, which was translated by CNBC.

The lever for this rather radical definition of “freedom of speech” is the China market. The Global Times editorial I linked to above could not have been more explicit on this point:

Respecting customers is a universal business rule. Morey has to choose between safeguarding his individual freedom of speech and protecting the Rockets’ commercial interests by respecting the feelings of Chinese fans. When he opted for the former, the Rockets will have to make a second choice from the perspective of the team.

In other words, Morey, a private U.S. citizen posting an image on a social network already banned in China, had to be fired, or the Rockets and the NBA would quite literally pay the price. Abide by China’s standards, or else.

The TikTok Question

China’s exportation of its standards goes beyond brute force. Consider TikTok, the short-form video app owned by the $75 billion Chinese startup ByteDance, which has exploded onto Western markets over the last year. The Guardian reported last last month:

TikTok, the popular Chinese-owned social network, instructs its moderators to censor videos that mention Tiananmen Square, Tibetan independence, or the banned religious group Falun Gong, according to leaked documents detailing the site’s moderation guidelines. The documents, revealed by the Guardian for the first time, lay out how ByteDance, the Beijing-headquartered technology company that owns TikTok, is advancing Chinese foreign policy aims abroad through the app.

The revelations come amid rising suspicion that discussion of the Hong Kong protests on TikTok is being censored for political reasons: a Washington Post report earlier this month noted that a search on the site for the city-state revealed “barely a hint of unrest in sight”.

In fact, at least as of this afternoon, there is a hint of unrest on the site: while searches for “Hong Kong” show city views and high school students playing along with the latest TikTok meme, searching for Hong Kong in Chinese (香港) brings up a video that shows the protestors as hooligans and vandals (this was the first result as of this afternoon, and the only video relating to the protests):

Honk Kong on TikTok

There appear to be similar efforts in the case of the NBA controversy. Searching for the “Warriors”, “Lakers”, and “Rockets” brings up the sort of content you would expect:

NBA teams in Chinese on TikTok

However, searching for the same team names in Chinese (“勇士”, “湖人”, and “火箭”, respectively) shows basketball-related results for the first two and nothing related for the third:

Tiktok searches for NBA teams

This should raise serious concern in the United States and other Western countries: is it at all acceptable to have a social network that has a demonstrated willingness to censor content under the control of a country that has clearly different views on what constitutes free speech?

There is an established route for undoing this state of affairs: earlier this summer China’s Kunlun Tech Company agreed to divest Grindr under pressure from the Committee on Foreign Investment in the United States (CFIUS); Kunlun Tech had acquired Grindr without undergoing CFIUS review. TikTok similarly acquired Musical.ly without oversight and relaunched it as TikTok for the Western market; it is worth at least considering the possibility of a review given TikTok’s apparent willingness to censor content for Western audiences according to Chinese government wishes.

The NBA’s Example

Adam Silver, the commissioner of the NBA, ultimately did do the right thing. In response to that CCTV cancellation Silver released a new statement that stated:

Values of equality, respect and freedom of expression have long defined the NBA — and will continue to do so. As an American-based basketball league operating globally, among our greatest contributions are these values of the game¬

It is inevitable that people around the world — including from America and China — will have different viewpoints over different issues. It is not the role of the NBA to adjudicate those differences. However, the NBA will not put itself in a position of regulating what players, employees and team owners say or will not say on these issues. We simply could not operate that way.

Silver added in a press conference following the statement:

Part of the reason I issued the statement I did is because this afternoon, CCTV announced that because of my remarks supporting Daryl Morey’s freedom of expression, not the substance of this statement but his freedom of expression, they were no longer going to air the Lakers-Nets preseason games that are scheduled for later this week. Again, it’s not something we expected to happen. I think it’s unfortunate. But if that’s the consequence of us adhering to our values, we still feel it’s critically important we adhere to those values.

I am increasingly convinced this is the point every company dealing with China will reach: what matters more, money or values?

China Responses

I am not particularly excited to write this article. My instinct is towards free trade, my affinity for Asia generally and Greater China specifically, my welfare enhanced by staying off China’s radar. And yet, for all that the idea of being a global citizen is an alluring concept and largely my lived experience, I find in situations like this that I am undoubtedly a child of the West. I do believe in the individual, in free speech, and in democracy, no matter how poorly practiced in the United States or elsewhere. And, in situations like this weekend, when values meet money, I worry just how many companies are capable of choosing the former?

The NBA, to its immense credit, appears to have done just that. Will technology companies be so brave? Certainly Google did so once before, exiting China in 2010 (albeit after both losing share to Baidu and being attacked by Chinese hackers). At the same time, the company appeared eager to reverse its decision, only terminating “Project Dragonfly” earlier this year; similarly, Facebook worked earnestly for approval — its product team built a censorship apparatus and CEO Mark Zuckerberg learned Chinese — only to give up last year. Both decisions appear motivated by the certainty of failure as opposed to core values.

And then there is Apple: the company is deeply exposed to China both in terms of sales and especially when it comes to manufacturing. The reality is that, particularly when it comes to the latter, Apple doesn’t have anywhere else to go. That, though, is where the company’s massive cash stockpile and ability to generate more comes in handy: it is past time for the company to start spending heavily to build up alternatives. Sticking one’s corporate head in the sand, praying that President Trump will not be re-elected and that everything will go back to normal, is deeply irresponsible both to shareholders and to the values Apple claims motivates them.

The government response is also critical: I already argued that CFIUS should revisit TikTok’s acquisition of Musical.ly; the current skepticism around all Chinese investment in the United States should be continued if not increased. Attempts by China to leverage market access into self-censorship by U.S. companies should also be treated as trade violations that are subject to retaliation. Make no mistake, what happened to the NBA this weekend is nothing new: similar pressure has befallen multiple U.S. companies, often about content that is outside of China’s borders (Taiwan and Hong Kong, for example, being listed in drop-down menus for hotels or airlines).

The biggest, shift, though, is a mindset one. First, the Internet is an amoral force that reduces friction, not an inevitable force for good. Second, sometimes different cultures simply have fundamentally different values. Third, if values are going to be preserved, they must be a leading factor in economic entanglement, not a trailing one. This is the point that Clinton got the most wrong: money, like tech, is amoral. If we insist it matters most our own morals will inevitably disappear.

I wrote a follow-up to this article in this Daily Update.

  1. This post is not about the specific issues driving the Hong Kong protests; it is useful to understand that China, particularly internally, has characterized the protests, which began when the Hong Kong government attempted to pass an extradition bill that would allow extradition to China, as a separatist movement driven by foreign powers. The protesters state their goals are not independence but rather that China honor its promises surrounding the transfer of Hong Kong back to Chinese rule, particularly in terms of universal suffrage []

Beachheads and Obstacles

The fact that Amazon held its annual hardware event the same day as the keynote for Facebook’s Oculus Connect conference is almost certainly a coincidence. It was, though, a happy one, at least as far as Stratechery is concerned: these two events, wildly disparate in terms of presentation and content, have more in common than it might seem.

Revisiting the Smartphone Wars

In 2013, when Stratechery started, the widely held belief was that the iPhone, innovative though it may have been, was in serious trouble in the face of Android’s increasing marketshare. Henry Blodget wrote a useful articulation of the bear case on Business Insider:

If smartphones and tablets were not a platform — if the only thing that mattered to the value of the product and a customer’s purchase decision was the gadget itself — then Apple’s loss of market share would not make a difference. Apple zealots would be correct when they smugly assert that what matters is Apple’s “profit share” not “market share.”

But smartphones and tablets are a platform. Third-party companies are building apps and services to run on smartphone and tablet platforms. These apps and services, in turn, are making the platforms more valuable. Consumers are standardizing their lives around the apps and services that run on smartphone and tablet platforms. Because of these “network effects,” in platform markets, dominant market share is huge competitive advantage. In platform markets, as the often-hated but always insanely powerful Microsoft demonstrated for decades in the PC market, the vast majority of the power and profits eventually accrue to the market-share leader.

In this view there is still a premium market, but only within the dominant ecosystem. This, Blodget argued, was Apple’s problem: soon the company would have no market, because Android would have the ecosystem, and by extension all of Apple’s premium customers.

Of course this turned out to be mistaken, for reasons I laid out in What Clayton Christensen Got Wrong.

  • First, integration provided user experience benefits that premium customers valued
  • Second, those premium users were more likely to pay for apps, which increased the attraction of iOS to developers
  • Third, the absolute size of the smartphone market was so big that both iOS and Android were large enough to be attractive to developers

Note, though, that just because Blodget and company were wrong about the iPhone’s prospects does not mean they were wrong conceptually: ecosystems do matter. However, instead of one ecosystem devouring the entire premium versus ubiquity landscape, Apple and Google split it up rather neatly:

Apple and Google's Ecosystem Duopoly

Amazon and Facebook were two of the more prominent companies that found out this reality the hard way.

Mobile Successes and Failures

Apple and Google may be the first companies people think of when you ask who won mobile, but Amazon and Facebook were not far behind.

Amazon spent the smartphone era not only building out Amazon.com, but also Amazon Web Services (AWS). AWS was just as much a critical platform for the smartphone revolution as were iOS and Android: many apps ran on the phone with data or compute on Amazon’s cloud; mobile also created a vacuum in the enterprise for SaaS companies eager to take advantage of Microsoft’s desire to prop up its own mobile platforms instead of supporting iOS and Android, and those SaaS companies were built on AWS.

Smartphones, meanwhile, saved Facebook from itself: instead of a futile attempt to be a platform within the browser, mobile made Facebook just an app, and it was the best possible thing that could have happened to the company. Facebook was freed to focus solely on content its users wanted and advertising to go along with it, generating billions of dollars and a deep moat in targeting advertising along the way.

What is not clear is if Amazon’s and Facebook’s management teams agree. After all, both launched smartphones of their own, and both failed spectacularly.

Facebook’s attempt was rather half-assed (to use the technical term). Instead of writing their own operating system, Facebook Home was a launcher that sat on top of Android; instead of designing their own hardware, the Facebook One was built by HTC. Both decisions ended up being good ones because they made failure less expensive.

Amazon, meanwhile, went all out to build the Fire Phone: a new operating system (based on Android, but incompatible with it), new hardware, including a complicated camera system that included four front-facing cameras, and a sky-high price to match. It fared about as well as the Facebook One, which is to say not well at all.

That, though, is what made last week’s events so interesting: it is these two failures that seemed to play a bigger role in what was announced than did the successes.

Amazon and Facebook’s Announcements

Start with Amazon: the company announced a full fifteen hardware products. In order: Echo Dot with Clock, a new Echo, Echo Studio (an Echo with a high-end speaker system), Echo Show 8 (a third-size of the Echo with a screen), Echo Glow (a lamp), new Eero routers, Echo Flex (a microphone only Echo that hangs off an outlet), Ring Retrofit Alarm Kit (that lets you leverage your preinstalled alarm), Ring Stick Up Cam (a smaller Ring camera), Ring Indoor Cam (an even smaller Ring camera), Amazon Smart Oven (an oven that integrates with Alexa), Fetch (a pet tracker), Echo Buds (wireless headphones with Alexa), Echo Frames (eyeglasses with Alexa), and Echo Loop (a ring with Alexa). Whew!

This is an approach that is the exact opposite of the Fire Phone: instead of pouring all of its resources into one high-priced device, Amazon is making just about every device it can think of, and seeing if they sell. Moreover, they are doing so at prices that significantly undercut the competition: the Echo Studio is $150 cheaper than a HomePod, the Echo Show 8 is $60 cheaper than the Google Nest Hub, and the new Eero is $150 cheaper than the product Eero sold as an independent company. Amazon is clearly pushing for ubiquity; a whale strategy this is not.

Facebook, meanwhile, effectively consolidated its Oculus product line from three to one: the mid-tier Oculus Quest, a standalone virtual reality (VR) unit, gained the capability to connect to a gaming PC in order to play high-end Oculus Rift games; Oculus Go apps, meanwhile, gained the capability to run on the relatively higher-specced Oculus Quest. It is not clear why either the Go or Rift should be a target for developers or customers going forward.

The broader goal, though, remains the same: Facebook is determined to own a platform; the lesson the company seems to have drawn from its smartphone experience is the importance of doing it all.

Beachheads and Obstacles

What Amazon and Facebook do have in common — and perhaps this is why both seem to look back at their very successful smartphone eras with regret — is that Apple and Google are their biggest obstacles to success, and it’s because of their smartphone platforms.

Amazon to its great credit — and perhaps because the company did not have a smartphone to rely on — found a beachhead in the home, the one place where your phone may not be with you. Now it is trying to not only saturate the home but also extend beyond it, both through on-body accessories and also an expanding number of deals with automakers.

Facebook, meanwhile, is searching for a beachhead of its own in virtual reality. That, the company believes, will give it the track to augmented reality, and by extension, usefulness in the real world.

Facebook and Amazon are building beachheads to take on Apple and Google

Amazon’s challenge is Google: Android phones are already everywhere, and Google is catching up in the home more quickly and more effectively than Amazon is pushing outside of it. Google also has a much stronger position when it comes to the sort of Internet services that provide the rough grist of intelligence of virtual assistants: emails, calendars, and maps.

Facebook, meanwhile, is ultimately challenging Apple: augmented reality is going to start at the high end with an integrated solution, and Apple has considerably more experience building physical products for the real world, and a major lead in chip design and miniaturization, not to mention consumer trust. Moreover, while there is obviously technical overlap when it comes to creating virtual reality and augmented reality headsets, the product experience is fundamentally distinct.

Lessons Learned

I’ve been pretty skeptical about Facebook and Oculus all along, both at the time of purchase and last year. I’d like to say I’ve changed my mind, but frankly, last week’s keynote made me question whether Facebook learned any lessons from mobile at all. Zuckerberg said in the keynote opening:

We experience the world through this feeling of presence and the interactions that we get with other people, which is why Facebook’s technology vision has always been about putting people at the center of your computing experience. We’ve mostly done that so far through building apps. I don’t think it’s an accident that a lot of the top-used and biggest apps that are out there are social experiences that put people at the center of the experience, because that’s how we process things.

But there is only so much you can do with apps, without also shaping and improving the underlying platform. I find it shocking that we’re here in 2019 and our phones and our computers are still organized around apps and tasks and not people that we are actually present with. I feel like we can help all of us together deliver a unique contribution to this field by helping to ensure that the next platform changes this.

Zuckerberg is, in effect, saying that he finds it shocking that Facebook Home didn’t succeed. I think the reasons were pretty clear, and a lack of distribution or high-end hardware was not the primary problem. The fact of the matter is that while social connection on our phones is important — perhaps the most important — it is not the only job we ask phones to do. That is why Facebook is an app and not a platform, and that’s ok! Apps, particularly those of Facebook’s scale and advertising prowess, are fantastic businesses. And apps shouldn’t be platforms.

Amazon, on the other hand, seems to have learned the right lessons from its mobile failures; what is notable about the company’s approach to Alexa is that it leverages and learns from the mobile era. Alexa benefits from Amazon’s investments in data centers and networking, interacts with both iOS and Android to the greatest extent possible, and is roughly inline with Amazon’s overall business — making buying things that much more convenient. Alexa is an operating system for the home, and perhaps beyond.

This isn’t a guarantee of success, of course. Google is a formidable competitor, with multiple advantages. It is particularly hard to see Alexa gaining traction outside the home. The only reason Amazon has a chance is because building on strengths is always better than doing something completely new and different from what has made you successful in the past.