Data Boom! Rana Foroohar on Surveillance Capitalism

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Posted on May 27, 2020

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This is Making Contact. I’m Monica Lopez. The biggest tech companies generate enormous wealth and power by harvesting information about you. It’s called surveillance capitalism. As author Rana Foroohar puts it, as a commodity, data can be thought of as the new oil, and the Googles and Apples of the world the new so-called “Too Big to Fail” tycoons.

Foroohar, a global business columnist and editor at the Financial Times, spoke before an audience at Politics and Prose bookstore in Washington, D.C., in November of 2019. Her latest book is Don’t Be Evil: How Big Tech Betrayed Its Founding Principles and All of US.

I got the idea for this book probably two months into my new job at the Financial Times. I was hired in 2017 to be the chief business commentary writer. So my my job was to sort of look at the top world’s business stories, economic stories, and try to make sense of them in commentary. And when I do that, I tend to try and follow the money in order to narrow the funnel of where to put my focus. And I had come across a really, really interesting statistic that 80 percent of the world’s wealth, corporate wealth, was living in 10 percent of companies.

And these were the companies that had the most data, personal data and intellectual property: the FANGs, Facebook, Amazon, (Apple), Netflix, Google. So that was a pretty stunning statistic. And it was interesting because I was thinking about how wealth since 2008 had transferred from the financial sector into the big tech sector. And that had happened really quietly without a whole lot of commentary in the press.

Now, at the same time, I was starting to kind of dig into this story, something else happened, a much more personal episode. I came home one day and there was a credit card bill waiting for me. And I opened it up and I started looking through, and there were all of these tiny charges and the amount of dollar, ninety nine, three dollars, five dollars, whatever. And I noticed that they were all from the App Store. And I thought, oh my gosh, I must have been hacked. And then I thought, who else has my password? My 10 year old son Alex. I see nods from parents and others.

So I go downstairs and I find Alex on the couch with his phone, which is his usual afterschool position. And I say, you know: “What’s up? Do you know anything about this?”. And he’s sort of stunned and: “Oh, yes. Oh, that. Yeah”. And turns out Alex has gotten very fond of a game called FIFA Mobile, which is an online soccer game. And it’s one of these games that you can download it for free, but once you get into the game and start playing, you have to buy stuff. So if you want to move up the rankings and do well in the game, you have to buy “Virtual Renaldo” or some new shoes for your player…

And nine hundred dollars and one month later, Alex was at the top of the rankings. But I was horrified. I was actually horrified and fascinated, in fact. I mean, as a mother, I was horrified, but I was fascinated as a business writer because I thought: this is the most amazing business model I have ever seen, and I have to learn everything about it.

And right about that time someone had come to see me, a man named Tristan Harris, who’s one of the characters in my book. And Tristan is a really interesting guy. He was formerly the chief ethics officer at Google. Tristan had become really, really worried about the core business model that is particularly relevant for Google and Facebook, but is also a big part of Amazon’s model.

And it’s really the model that another author, Shoshana Zubov, who recently wrote a wonderful book on this topic, would call “Surveillance Capitalism”. And so it’s the idea of companies coming in and tracking everything you are doing online, and increasingly offline. You know, if you have your if you have an Android phone, it might know where you are in the grocery store. If you’re in a car with smart technology, your location coordinates can be tracked.

So all of this is serving to build a picture of you that is then used to to be sold to advertisers. And then you can be targeted with what’s called hyper targeted advertising, which is essentially why, for example, if I go online to look for a hotel in California, I might get a certain price, but someone else might get a different price. So this is a really important thing. We are looking at different Internets, right? There are subtle differences, but they’re there. And this data profile that is being built up is splitting us as individual consumers.

But I would argue that it’s also splitting us as citizens, and I’ll, when I get to the readings, I’ll kind of flesh that out a bit more. But Tristan kind of turned me on to this business model, and he also helped me connect the dots between this business model and what had happened to my son. Because it turns out that the technologies, these sorts of nudges  that take you down a game or that bring you to certain places on Amazon or that give you a certain kind of search result or purchasing option on Google are part of an entire field called “Captology”, which is kind of an Orwellian word.

And these these technologies actually come largely out of something called the Stanford Persuasive Technology Lab. So there is an entire industry that is designed to track your behavior and pull in things like behavioral psychology, casino gaming techniques, and then layer those onto apps that will push you towards making purchasing decisions or perhaps, even other kinds of decisions, political decisions, that might be good for certain actors.

And it’s interesting because when I started to think about all this, one of the things I really wanted to do in this book was to try and create a single narrative arc to take folks through this 20 year evolution of this industry from the mid 1990s, which is really when the consumer Internet was born, till now.

And at the time I was writing and and still probably today you could argue that Facebook was the company that was getting the most negative attention for a lot of the economic and political ramifications of it’s business model. But if you go back to the very beginning, Google is the most interesting way to track this, because Google really invented the targeted advertising business model.

They really invented surveillance capitalism. And one of the things that is fascinating and sometimes I’m asked, what’s the most surprising thing that you found when writing this book? And really the most surprising thing is it was all hiding in plain sight.

So if you go back to the original paper, that Larry Page and Sergey Brin, who were the founders of Google, did in 1998 while at Stanford as graduate students, they actually lay out, they lay out what a giant search engine would look like, how it would function, but then how you might pay for it. And if you go down to page 33, there is a section in the appendix called “Advertising and Its Discontents”. And it essentially says that if you monetize a search engine in this this way with hyper targeted advertising, the interests of the users and the interests of the advertisers, be they companies or who knows what, public entities, are eventually going to come into conflict. And so they actually recommend that there be some kind of academic search engine, an open search engine in the public interest. In the last 20 years we all do a lot less reading. Not folks here, but but in general, we do less reading.

There was actually a fascinating study that came out recently from Common Sense Media, which is Jim Steyer’s group in California that tracks children’s behaviors online. Teenagers: only one third of them read for pleasure more than once a month, long form articles. Doesn’t matter if you’re reading on an e-book or device, but long form articles-books only once a month for pleasure. So all, our entire world has been changed.

Economically these companies have huge monopoly power. Politically, we’re all kind of living with the ramifications of this new world of social media, disinformation, fake news. And cognitively, our brains are changing. Our behaviors are changing. So connecting all of those things was really what I was trying to get at in this book.

And so I’m going to read two or three, maybe short excerpts and then we can leave a lot of time for questions so that people can kind of dive into as much of this as they want. And I’ll start perhaps with my very first meeting with The Googlers: Larry Page and Sergey Brin, who I met not in Silicon Valley, but in Davos, the Swiss gathering spot of the global power elite, where they had taken over a small chalet to meet with a select group of media. The year was 2007.

The company had just purchased YouTube a few months back, and it seemed eager to convince skeptical journalists that this acquisition wasn’t yet another death blow to copyright paid content creation and the viability of the news publications for which we worked. Unlike the buttoned up consulting types or the suited executives from the old guard multinational corporations that roamed the promenades of Davos, their tasseled loafers slipping on the icy paths, the Googlers were the cool bunch. They wore fashionable sneakers and their chalet was sleek, white and stark, with giant cubes masquerading as chairs in a space that looked as though it had been repurposed that morning by designers flown in from the Valley.

In fact, it may have been, and if so, Google would not have been alone in such excess. I remember attending a party once in Davos hosted by Napster founder and former Facebook president Sean Parker that featured giant taxidermy bears and a musical performance by John Legend.

Back in the Google Chalet. Brin and Page projected a youthful earnestness as they explained the company’s involvement in authoritarian China and insisted they’d never be like Microsoft, which was considered the corporate bully and monopolist at the time. “What about the future of news?” we wanted to know.

After admitting that Page read only free news online, whereas Brin often bought the Sunday New York Times in print: “It’s nice”, he said cheerfully, the duo affirmed exactly what we journalists wanted to hear. Google, they assured us, would never threaten our livelihoods. Yes, advertisers were indeed migrating en masse from our publications to the web, where they could target consumers with a level of precision that the print world could barely imagine. But not to worry: Google would generously retool our business models so we too could thrive in the new digital world. I was much younger then and not the admittedly cynical business journalist that I’ve since become, and yet I listened skeptically to that happy future of news lecture.

Whether Google actually intended to develop some brilliant new revenue model or not, what alarmed me was that none of us were asking a far more important question. Sitting towards the back of the room, somewhat conscious of my relatively junior status, I hesitated, waiting until the final moments of the meeting before raising my hand.

Excuse me, I said, we’re talking about all this like journalism is the only thing that matters, but isn’t this really about democracy? If newspapers and magazines are all driven out of business by Google or companies like it, I asked, how are people going to find out what’s going on? Larry Page looked at me with an odd expression, as if he were surprised that someone should be asking such a naive question. “Oh, yes, we’ve got a lot of people thinking about that”. “Not to worry” his tone seemed to say, Google had the engineers working on that little democracy problem. “Next question?”.

I read that because I am kind of amazed there is still a real lack of understanding, I think in the Valley about some of the real negative externalities of what have been, let’s face it, amazing technologies. I mean, where would we be without search and our smartphones, we’re all carrying around the power of a mainframe in our pockets.

But as a journalist, I think there’s really been an inability of these companies to kind of own up to some of the bad stuff that they have wrought. And I think that that still considers or sorry, still continues to be to be the case. I had a conversation a couple of years ago with an executive from Zurich Financial, which is a big financial company. They do insurance in many parts of the world.

They will now, if you’d like them to, put sensors in your home or in your car. And if you have, for example, as I do, you live in a 1901 townhouse, let’s say you’re upgrading your pipes. You get a check, you get a, you know, a positive mark and you may see your insurance premium go down.

But let’s say your kid is smoking a joint in their bedroom and the sensor picks up on that. You then get a black mark here and your premium may go up. Same again in your car if you’re speeding, your insurance company will know and so on and so forth. Now, you can either like this or not, depending on where you sit in the socioeconomic spectrum. But what’s very, very interesting is that entire business model, a pooled risk business model. That’s what insurance is. It’s now been completely disintermediated. So you can be targeted and split. So this is no longer about society pooling risk. This is about individuals having to own the risk. So if you take that to its natural conclusion, you can imagine an elite up here that has access to special pricing and all kinds of great products. But you can also imagine an uninsurable group of people at the bottom. And then who is going to pick up that risk now?  The public sector? Maybe, maybe there’ll be a junk bond market for insurance.

Either way, you have a split in society that didn’t exist before. And that was always the business model here. You know, you go back and read some of the early work of someone like Hal Varian, for example, who was the chief economist at Google: splitting pricing down to the individual was always the point of platform technology firms like Google or Facebook or Amazon: splitting individuals out so they could be targeted in different ways. But that not only splits pricing, it splits society. And so that’s kind of really the core issue I want to get out here.

BREAK

You’re listening to Rana Foroohar, author of Don’t Be Evil, speaking at Politics and Prose Bookstore in Washington, D.C. This talk was recorded in front of an audience in November 2019. We’ll get back to the presentation shortly.

But first, we want to hear from YOU: podcast and radio listeners across the country. Is there something that you thought you would never do until the Covid-19 pandemic, like applying for unemployment, going to a food bank, shopping for a gun, calling a hotline for help, or working from home while taking care of your kids? We want to hear your story. So give us a call at: (510) 239-3899. That’s (510) 239-3899, and now back to Rana Foroohar, talking about her latest book. Don’t Be Evil, How Big Tech Betrayed Its Founding Principles and all of us.

My first book, again, was about the financial industry. And one of the things that strikes me is that big tech companies have in some way become the new “too big to fail” entities. Not only are they holding more wealth and power than the largest banks, but in some ways they function like banks. They have a tremendous amount of money. They use it to buy up corporate debt. If that debt were to go bad, that could actually be the beginnings of another financial crisis. And so that’s kind of a part of this story that really hasn’t gotten out there.

So let me let me read just two or three more pages for you on that topic. “The late, great management guru Peter Drucker once said, In every major economic downturn in U.S. history, the villains have been the heroes during the preceding boom. I can’t help but wonder if that might be the case over the next few years as the United States and possibly the world, heads towards its next big slowdown.

Downturns historically come about once every decade, and it’s been more than that since the 2008 financial crisis. Back then, banks were the too big to fail institutions responsible for our falling stock portfolios, home prices and salaries. Technology companies, by contrast, have led the market upswing over the past decade. But this time around, it’s the big tech firms that could play the spoiler role.

You wouldn’t think that it could be so when you look at the biggest and richest tech firms today. Take Apple, for example. Warren Buffett says he wished he owned even more Apple stock. Goldman Sachs is launching a new credit card with the tech titan, which became the world’s first trillion dollar market cap company in 2018. But hidden within these bullish headlines are a number of disturbing economic trends of which Apple is already an exemplar. Study this one company and you begin to understand how big tech companies, the new “too big to fail” institutions could indeed sow the seeds of the next financial crisis.

The first thing to consider is the financial engineering done by such firms. Like most of the largest and most profitable multinational companies, Apple has loads of cash. About 300 billion, as well as plenty of debt, close to one hundred and twenty two billion. That’s because, like nearly every other large rich company, it has parked most of its spare cash in offshore bond portfolios over the last 10 years.

Apple’s responsible for about a quarter of the $407 billion in buybacks announced since a Trump tax bill was passed in December of 2017. But buybacks have bolstered mainly the top 10 percent of the U.S. population that owns 84 percent of all stock. The fact that share buybacks have become the biggest single use of corporate cash for over a decade now has buoyed markets. But it’s also increased the wealth divide, which many economists believe is not only the single biggest factor in slower than historic trend growth, but is also driving political populism, which threatens the market system itself. That phenomenon has been put on steroids by the rise of yet another trend epitomized by Apple.

Intangibles such as intellectual property and brands now make up a much larger share of wealth in the global economy. The digital economy has a tendency to create superstars and software and Internet services are so scalable, and they enjoy network effects. But as software and Internet services become a bigger part of the economy, they reduce investment across the economy as a whole. And that’s not only because banks are reluctant to lend to businesses whose intangible assets may simply disappear if they go belly up. But because of the winner take all effect that a handful of companies, including Apple, Amazon and Google, enjoy.” So to sum this up in plain English, as this handful of companies has gotten bigger and more powerful, investment in the overall economy has declined. The number of jobs that they’re creating relative to their market size is much lower than that in the past.

So you have this superstar economy that has become kind of a winner-take-all game. I think that we’re going to probably see some kind of a market correction in the next couple of years. It’s going to be very interesting at that point to see whether tech leads the markets down and whether you might then see a kind of an Occupy Silicon Valley sentiment, as you did in 2008 with Occupy Wall Street. I think that that’s really quite possible. We can delve more into that if you’d like. But I think I want to stop here and be respectful of question time.

Q: Go ahead. (questioner) “How important for any solution to the problems you raise, would the revival of anti-trust be as we see on the continent where it’s more aggressive?”.

A: Foroorhar: Well, so let me take the antitrust question first. That’s actually an important part of the book. There’s an entire chapter on antitrust and I think we probably are gonna see some shifts. As folks may know, since the 1980s onward, antitrust in America has basically been predicated on price. So as long as consumer prices were falling, it was perceived that companies could be as big as they wanted, that it wasn’t a problem. But one of the things I look at in the book is this  shift to a world in which transactions are being done, not in dollars, but in data. So that’s a barter transaction, really. And one of the things that’s so interesting, and this is actually a way, another way in which Silicon Valley is similar to Wall Street, the transaction is really opaque. So you don’t know essentially how much you’re paying for the supposedly free service that you’re receiving. That is a very difficult market to create fairness within. And it probably makes the Chicago school notion of “consumer prices going down: no problem” I think probably irrelevant.

And so there’s two ways in which that’s being dealt with. You have the rise of this new Brandeis School of thinking in which, you know, maybe this is really about power. Maybe we should think about the big tech firms like we do the 19th century railroads, where, all right you know, you had at one point railroad titans that would come in and build tracks and then own the cars and then own the things that were in the cars. And eventually that became a Zero-Sum game. And it’s you know, it’s as folks probably know, we’re in a period in which there’s as much concentration of wealth and power as there was in the Gilded Age.

So I could imagine very easily a scenario in which you could justify Amazon, say, being the platform for e-commerce, but not being able to compete in the specific areas of fashion or, you know, whatever else they’re selling against other customers. And in fact, that’s already the case in the financial sector, that big companies that trade, let’s say aluminum, you know, as Goldman Sachs did, this is why it ran into a suit a few years ago that it was both owning all the aluminum and trading it. And that’s anti-competitive. And so that became an issue for the Fed. So I think we probably are going to see that kind of ruling.

Q:  “So it seems like some of the major decisions that these big tech companies are making are in regard to fake news and how they’re moderating fake news or the lack of it. So have you seen maybe an approach by any current social media platform or any proposed plans in place that you think would be best for moderating fake news?”

A:  Foroohar:  That’s such a good question. So just to kind of pull back the two points of view on that are, hey, look, you know, the platform tech companies are essentially giant media and advertising firms, right?

I mean, if you look at the business model of a Google or a Facebook, it’s essentially just like the Financial Times or CNN. It’s just much more effective and it can be targeted to the individual. That means that these firms have taken, you know, 85, 90 percent of the new digital advertising pie in the last few years.

Now, given that they function as media companies, should they not be liable for disinformation in the way that a media company would be? So if I print something incorrect at the FT, that’s, you know, the paper and also my hide on the line there. I think that we should actually think about rolling back some of those loopholes that these firms enjoy since the mid 1990s onwards. I think that they are going to have to take some responsibility. Now, the question is, do we want Mark Zuckerberg being the minister of truth? And that’s that’s that’s a really tough question. What I would prefer is for the government to actually, you know, for democratically elected governments, to come up with rules about what is and isn’t appropriate and to not have individual companies making those choices.

I think we’re in a period right now where, you know, you’ve got Twitter, you’ve got Google to a certain extent coming out saying, OK, we recognize we need to do things differently. That’s putting pressure on Facebook. But at the end of the day, we’re going to have to have, I think, an entirely new framework, not just in this area, but also in taxation, in, you know, in anti-trust, which we’ve already talked about. This is, the shift that we’re going through is, I think, the new industrial revolution. It’s a 70 year transition and it’s going to require a lot of different frameworks relative to what we already have. So the answer is no. I don’t see any particular company that has come up with the right framework yet.

Q: questioner) “I’d like to go back to antitrust for a minute. The Washington Post put up an article about how Apple is changing its business model. And it’s differentiated, as you know, it’s differentiated itself in the market by saying they care about privacy. And so it says in the article that the feds are considering looking at anti-trust measures against Apple. But I think it raises a bigger question. How do you think from an economic point of view, we as a society need to look at the role of privacy and the role of antitrust together to somehow change the way we think about these companies?”

A: Foroohar: Yeah, right. For starters, I think you’re hitting on something really important, which I get at in my solutions chapter, that this is such a huge shift and it’s touching so many different areas. And we’ve talked about privacy. We’ve talked about antitrust. We haven’t even gotten into national security, you know, civil liberties. I mean, there there are so many different areas. And when you, one of the things I noticed when I sat down to write the solutions sections, you look at this and you notice that when you pull a lever here, it affects something in this other area. So I think that’s one reason why we should have a national committee to actually look at: what are all the questions? When I speak to folks, particularly in D.C., policymakers, there’s, you know, the antitrust camp here, the privacy here, the security folks there. That conversation needs to be happening in a 360 way.

One of the things that seems to be, folks seem to be headed towards, is a public digital commons, a kind of a database, let’s say, all right, if you decide, as you know, the cat seems to be out of  the bag that we’re going to allow surveillance capitalism. I mean, there are certain folks, like Shoshonna would love to see the dial turned back, I’m not sure if that’s possible. Let’s have a public database in which not just one corporation or a handful of corporations, but multiple sized players, as well as the public sector, as well as individual citizens whose, you know, after all, it’s our data being harvested. Everybody gets access and then you can figure out how you want to share the pie.

And one interesting example recently is the Google Sidewalk Project in Toronto. Google had taken over sort of 12 acres on the Toronto waterfront and put sensors everywhere. And the idea was to create a smart city in which you’d be able to manage traffic patterns and energy usage and things like that.

But until recently, Google was going to own all that data and have access to it. And finally, the Toronto government got a clue and said, well, actually, you know what, let’s put this in a public database. So other, smaller or mid-sized local firms can come in and be part of that economic ecosystem.

But also as a public sector, we can decide, well, maybe we want to share data for energy issues or for health issues, but maybe we don’t want to share it for certain other kinds of things. And perhaps there would be some way in which individuals could take back some of that value.

So California is thinking about a digital dividend payment from the big tech companies. There’s also been talk of a digital sovereign wealth fund. If you think about kind of data as the new oil. I’ll tell you, I have many examples in the book of ways in which the bigger players have been able to squash small and mid-sized firms. And now that’s a major issue. And a lot of venture capitalists that I speak to are actually becoming concerned about that because they say that there’s sort of black zones of innovation where if Amazon is there or Google is there, you really can’t start a business. There’s just been too much that’s been ring fenced.

CREDITS You’ve been listening to author and journalist Rana Foroohar on Making Contact. Special thanks to Rana Foroohar and Politics and Prose Bookstore for allowing us to broadcast this presentation.

Is there something that you never thought you would do until the Covid-19 pandemic? We want to hear from you. Our feedback line is: (510) 239-3899.

The Making Contact team is executive director Lisa Rudman, producers Anita Johnson, Salima Hamirani and Monica Lopez, web manager Kathryn Styer with special assistance this week from Sabine Blaizin. And I’m this week’s host: Monica Lopez. Thanks for listening to Making Contact.

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