Jonathan Taplin has a bone to pick with Silicon Valley, and it is a big one, perhaps a femur, something structural that holds up the entire skeleton of the economic reality under which three tech giants whose names we all know well have captured their markets ruthlessly, efficiently, and, for us as consumers, conveniently.
The low price of information, music, and culture as a whole — delivered on platforms owned by the monopolistic tech conglomerates Google, Facebook, and Amazon that have reached dizzying heights of capitalization — has come at a high cost for the people who produce all of that culture, i.e. the “creative class.” In a talk hosted by New America with Jeffrey Toobin, the New Yorker legal correspondent and CNN commentator, Taplin spoke last week about his book, Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy (Greenlight Books).
It all started to go wrong circa 1987, announced Taplin, who as a college kid went on the road with The Band and is a famous music industry aficionado. The late ‘80s was when “a bunch of young men came out of Stanford University, trained in the school of Ayn Rand’s ‘Atlas Shrugged,’ and they were radical libertarians.” This crew included Peter Thiel, the creator of PayPal who is currently building a “seastead,” the first of many “off-shore communities” that would exist “outside any government control,” out in the south Pacific.
Yet in the late 1960s, when the precursor to the Internet was created, government was not the enemy. Quite the opposite: “the Internet was started by the government,” Taplin said. “ARPA Net, which was a Defense Department program — Advanced Research Projects Administration.” He added that “these guys who designed the Internet were all hippies, in some sense.”
Stuart Brand started the Whole Earth Electronic Link, some of you knew about the Whole Earth Catalog. So that was one of the first networks. And as Nick Negroponte from MIT said, the whole idea was to ‘decentralize control and harmonize people.’ And for those of us who were living in 1968, we remember what the media system was: three television networks and one newspaper in any town, and that was it. So the idea of decentralizing the media and really having a democratic medium was a good idea, to my mind.
Thiel and his associates, the so-called PayPal mafia (Thiel’s moniker), “didn’t like women, at all, and in fact he said that giving women the vote was the biggest mistake we ever made in America, this is what Peter Thiel said.” The crowd, gathered at CORE: club on Tuesday, April 18, booed and hissed. As Thiel understands it, capitalism and democracy are incompatible, Taplin said. “His theory is that capitalists can’t work in a democracy because people are too stupid and they mess with what the übermensch like Peter Thiel want to do, you know?”
Thiel believed in four rules to follow: “One, that there should be no regulation. So finally we would create this business where there was no regulation whatsoever, so that the entrepreneurs would do whatever they wanted and the government wouldn’t get in the way. The second, there should be no taxes on the Internet. So Jeff Bezos could run a business and put 3,000 bookstores out of business because he didn’t have to pay the 8% sales tax … so he could underbid them, undersell them and basically eliminated the independent bookstore business, and even big chains.”
The third rule is “there should be no copyright,” Taplin said. “YouTube built its whole business on the fact that nobody could have any rights to keep their content off of YouTube, they had no rights to their content. Anybody could post their content. And the fourth is that there should be no competition.” He clicked to a slide showing the difference between the largest companies from 2006 and 2016.
“As you can see,” Taplin said, “in 10 years tech completely took over the economy.” As a consequence, revenues of the music industry and in newspapers collapsed. “The money got reallocated from the people who were making the content to the people that own these three monopoly platforms,” referring to Facebook, Google, and Amazon. “As Peter Thiel says, competition is for losers. If you want to build a sustainable business, you have to build a monopoly.”
Toobin played the role of the Devil’s Advocate, pointing out that “the access to music is greater than its ever been before. The fact is, if I hear a song or remember a song from my childhood and I want to hear it I’ll just put it in YouTube and I’ll get to hear it. And if I wanna walk down the street, listening to music — as it seems like at least half the people on the street do — they, I put buds in my ears and I will listen to it, and it’s easy to listen to music, and it’s convenient. And it’s great! Isn’t that great?”
Taplin agreed that convenience is indeed great, but that he argues that there has to be fairness: “If I had a very popular tune that was downloaded a million times on iTunes, I would make $900,000. Okay, so if you sell a tune for a $1.29, Apple gets 30% off the top, and the rest flows to the record company and the musician. If I have a tune that has a million streams on YouTube, I would make $900.”
As for the news industry, it is being dominated by Facebook, where we are now at a point when “fifty percent of people say that Facebook is their primary source of news.” Taplin added, “Two years ago, Facebook says to the New York Times, ‘Hey, we’ve got a great idea: We want you to keep all your content inside of Facebook, because it’ll play much better on the mobile phone, it will be a much better consumer experience.’”
So they created this thing called instant articles, so instead of linking out from Facebook to the New York Times, where they could control their own advertising business, Facebook says “we’ll give you some of the advertising money that’s associated with this.” Well this turned out to be a total, you know, ridiculous idea and the New York Times saw their revenue and a few weeks ago they said, “Screw you, we’re not going to do this anymore.”
Toobin asked if there is a way to “reorder priorities” so that “content creators” such as musicians and journalists can have a “better chance at making a living.” Taplin wholeheartedly agreed, noting that “there’s plenty of money to go around. You just think about this: There are five billion of these devices” — he pulled out his phone from a pocket — “in the world today, so if I could sell something for fifty cents to five percent of the people that have these, that would be a hundred million dollars.”
The problem is that “all the money is being ripped into the pockets of Google, which is the largest corporation in the world or Facebook, which is growing to that level, and they’re making profits — net profits — of 30% margins. You know, if CBS makes a profit of 10%, they’re cheering. The economists say, ‘Wait a second. If there’s a business where the net profit is 30%, that should in the real world attract all sorts of new capital to get into that business.’ ... But nobody’s got into it, because everybody says, ‘Are you crazy, you want me to go up against Google?’”
“Up until the Reagan administration,” Taplin said, “if somebody had 88% market share — like Google has in the search business — they would be prosecuted as a monopoly. If somebody had 75% market share like Amazon has in the book business, they would be prosecuted as a monopoly.” He explained,
At some point, a company gets so big that the only remedy is for the government to break them up. So the example is obviously if data is the new oil, go back to the last time there was an oil monopoly, in 1906, and Teddy Roosevelt said, “Look, this guy Rockefeller’s crushing everybody. There’s no way the market is going to fix this situation. We have to step in and break this up.” So let’s be clear. All of these three businesses that I’m talking about — Facebook, Google, and Amazon — were built by acquisition. ... Google bought AdMob, then Google bought DoubleClick ... YouTube, and they made an advertising-supported business. Facebook bought Instagram, Facebook bought WhatsApp, Facebook bought Messenger, they made a social media mega-business that controls 75% of all mobile social traffic. Amazon bought Zappos, bought Alexa, bought Twitch — bought 50 companies.
“The problem is that both Republicans and Democrats bought into this theory that Robert Bork put forth in 1978 which was the only thing that mattered was consumer prices,” Taplin said. “So in the theory of Robert Bork, if Amazon ended up being the only retailer in the whole country, and had put everybody else out of business — which if you read the newspapers, you know, Sears is about to go under, Kmart’s about, you know they’re working on that — if they were that way and they could keep the prices going down, that would be fine.”
Toobin asked if there would “be some consumer rebellion against breaking” up the Big Three, a point to which Taplin replied that if Google has become what economists call a natural monopoly, i.e. a utility, the government could follow the example of what happened to AT&T. “So what did the government do in return for allowing AT&T to be a monopoly?” he asked.
“They said, you have to have your R&D subsidiary, called Bell Labs, license every patent you own for free to any American company. So what happened? So Bell Labs is, as most of you know, invented the transistor, the microprocessor, the satellite, the solar cell, the laser, you know, pretty much the entire panoply of the digital age came out of Bell Labs. And so, they had to license all those patents and so that created Fairchild Semiconductor, that created Intel, that created Texas Instruments, that created Motorola, that created hundreds of companies.
“And by the way, a lot of the Bell Labs scientists went and set up their own companies. ... Maybe we just have to say to Google, ‘Okay, you have to license all your patents: your autonomous car patents, your advertising patents, your search patents, all of this to anyone who wants them for free, and in return you can keep your semi-unregulated monopoly.’ ... But in the end of the day, for the point of view of the creative class, I’m saying that what’s really necessary is to figure out some way that the people who are making all the money from advertising will share more of it with the creators.”
Consumers have “agreed to give up a lot of control in return for convenience,” Taplin said. “But the thing we don’t realize is we’ve also given up, we’ve surrendered gigantic amounts of data, right? I talk about these businesses as surveillance capitalism. Basically that’s all they care about. They don’t care about content at all.”