Antitrust hearing with 4 big-tech CEOs

A disappointing hearing

Today, the long anticipated hearing by The House Subcommittee on Antitrust, Commercial, and Administrative Law which features Jeff Bezos, Tim Cook, Sundar Pichai and Mark Zuckerberg, the four powerful CEOs of big tech companies, took place. Suffice to say, I am not surprised at what transpired, but I am pretty disappointed. I don’t think that there is an objective or a desirable outcome from this hearing. While Democratic officials focused more on the issue at hand which concerns antitrust practices by these companies, their Republican colleagues, in particular Representative Matt Gaetz and Jim Jordan, were more interested in an entirely issue: alleged bias and censorship of conservative views on social media. Jim Jordan even compared Apple’s famous 1984 ads campaign to the so-called cancel culture almost 40 years later! Ranking Member Sensenbrenner even mistook Facebook with Twitter when he tried to question Mark Zuckerberg on Twitter’s decision to temporarily suspect Don Jr’s account. You don’t need to spend time on the hearing, but you can get some idea on the quality of this event based on those incidents.

Notwithstanding the difference in pointed questions, every lawmaker in this hearing did more grandstanding than listening. The 5-minute rule is there to ensure that every lawmaker has a chance to ask questions and that witnesses don’t digress. However, the rule’s side effect is that lawmakers don’t wait for witnesses to answer. Instead, they push their own assumptions/allegations on witnesses or just restrict complicated matters to a “Yes/No” question. If this hearing is to uncover how these CEOs approach competition, why is it that they weren’t allowed to talk more and elaborate?

The format of the hearing needs to change in order to yield results. I have a few thoughts in mind on what can be implemented:

  • Every question at a hearing should stick to a topic. Anyone who violates this rule twice should be kicked out of a hearing. For example, Jim Jordan today didn’t ask questions on anti-competition. He threw allegations towards the witnesses on alleged bias to conservatives. So did several other GOPs. How do those questions belong to the Antitrust conversation at hand?
  • Every lawmaker should have 5-10 minutes, but there should only 5-10 questions allowed. A limit on the number of questions can help ensure the quality of questions, give witnesses more time to elaborate and reduce grandstanding. Many issues are complicated and take some explanations.
  • Before a hearing, questions should be compiled in advance on a portal/website and witnesses must answer in writing before appearing in front of lawmakers. Written answers offer witnesses space and time to elaborate and remove the constraints of time. During hearings, lawmakers can just build off of the written answers submitted in advance.
  • Similarly, there should be a collection of follow-up questions that are answered after a hearing.

Not every acquisition of a competitor violates antitrust laws

Facebook and Google were grilled today on their previous acquisitions: Facebook on Instagram, WhatsApp and Google on DoubleClick. I was baffled by this line of question. Take Facebook’s acquisition of Instagram several years ago as an example.

When Facebook paid $1 billion to acquire Instagram in 2012, nobody could be 100% sure that it would be what it is today. At the time of the acquisition, Facebook was already a big player primed for its IPO and heavily invested while even though it was growing fast, Instagram had around 30 million users, generated no revenue and was valued at $500 million. The startup was struggling to grow its team and infrastructure. Joining Facebook did give Instagram benefits on the way to having more than 1 billion users, as the book No Filter noted below

“It was the most dire server problem in company history. Instagram was now important enough to be mentioned in every press story about the meltdown, alongside Pinterest and Netflix. Coworkers, none of whom did that kind of engineering, sent ice cream to the office as support. Sweeney ate several scoops to try to make it through the night, though he accidentally fell asleep multiple times on his keyboard.”

“The infrastructure wasn’t the only problem bubbling up to an intensity the tiny team could barely handle. Spam was everywhere on Instagram. So was troubling and abusive user content, which the community team could no longer finish sifting through in its shifts—and which was starting to appear in their nightmares. Frustration over the financials aside, selling to Facebook might give employees their lives back.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Systrom gave four reasons. First, he reiterated Zuckerberg’s argument: that Facebook’s stock value was likely to go up, so the value of the acquisition would grow over time. Second, he’d take a large competitor out of the picture. If Facebook took measures to copy Instagram or target the app directly, that would make it a lot more difficult to grow. Third, Instagram would benefit from Facebook’s entire operations infrastructure, not just data centers but also people who already knew how to do all the things Instagram would need to learn in the future.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“So that summer, Zuckerberg directed Javier Olivan, Facebook’s head of growth, to draw up a list of all the ways Instagram was supported by the Facebook app. And then he ordered the supporting tools turned off. Systrom again felt punished for Instagram’s success.

Instagram was also no longer allowed to run free promotions within the Facebook news feed—the ones that told people to download the app because their Facebook friends were already there. That had always brought a steady stream of new users to Instagram.

Another of the new changes would actually mislead Facebook users in an attempt to prevent them from leaving for Instagram. In the past, every time an Instagram user posted with the option to share on Facebook, the photo on Facebook said it came from Instagram, with a link back to the app. Instagram’s analysis showed that between 6 and 8 percent of all original content on Facebook was cross-posted from Instagram. Often, the attribution would be a cue for people to comment on the photo where it was originally posted. But with the change mandated by the growth team, that attribution would disappear, and the photo would seem as if it had been posted to Facebook directly

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

Consolidations in the same industry always involve reduction of competition. The fact that Facebook is a giant company doesn’t make every single acquisition it made illegal or inappropriate. That’s why I don’t get folks are so upset about Facebook’s acquisition of Instagram. I think it’s safe to say that having Instagram at its current size benefits end users, entrepreneurs and small businesses. There is no guarantee that without Facebook, Instagram would have had the same achievement. It’s also worth noting that the FTC, at the time, approved this merger. As a result, why suddenly did this issue become trending again?

Using data to launch private labels isn’t illegal or bad in and of itself

One of the popular themes in this hearing is the use of data from other businesses by big tech companies to launch competing products. Amazon is accused of using data from startups that work with its investment arm and from sellers on its website to launch competing products. First of all, if Amazon violates any confidentiality term to gain illegal access to sensitive data, then yes they should be held accountable. However, I don’t think using aggregate data stemming from activities on its own website to launch private labels is inappropriate or illegal. What do you think Target, Walmart, Kroger or a litany of other retailers do? Where do you think they got intelligence before launching their own private labels? Here is the revenue share by private labels of retailers. The practice went back to several decade. So, why suddenly is it an issue?

Furthermore, even though Amazon has 35%-40% of the US eCommerce, it still has to compete with brick-and-mortar stores. Hence, if you account for physical stores and the whole US retail market, Amazon occupies only 6%, according to Ben Evans. It’s a bit of a Catch-22 situation for lawmakers. Focus on eCommerce alone and it’s not fair. Look at the whole retail segment and Amazon is likely off the hook as they have only 6% of market share. Imagine that as a successful business owner, you were told not to venture in a different segment, how would you feel? You’d probably say: “wait a minute, that’s unAmerican and against capitalism. Why aren’t I allowed to compete in another category just because I was successful in one?”

What I’d have a problem with is if Amazon abuses of its power to promote its private labels without merits. Specifically, if Amazon pushes its own labels which don’t have any positive reviews at all ahead of more established brands with a lot of reviews, then it’s problematic and not in the best interest of consumers. In that case, Amazon’d deserve scrutiny and criticisms.

App Store commissions

I’ll write about this issue in more details later, but here are a few basic points I want to bring up. Every company that plows resources properly into an operation earns the right to make money from such an operation. Even as one of the biggest and richest corporations in the world, Apple should be able to do that too. As a result, when Apple is responsible for manufacturing its own devices and creating the operating systems that include the App Store, Apple earns the right to monetize their effort. It’s unreasonable to expect Apple to run a charity out of the App Store. Whether the 30% or 15% commission is too high warrants a legit discussion, but I strongly disagree with folks who say Apple should just charge developers its cost of running the App Store.

While developers are important, they are just one side of the coin. The other side is Apple customers. Apple needs to ensure that the user experience on the App Store is as pleasant as possible. Otherwise, they wouldn’t sell as many devices and make as much money any more in the near future. That’s why they have guidelines on the App Store. It’s not reasonable to expect Apple let developers do whatever they want when Apple’s brand is on the line. In life, there is no free lunch. Developers shouldn’t expect to leverage Apple’s infrastructure and reach to customers without abiding by their rules. We all know the saying that goes “my house, my rules”, don’t we?

There is a legitimate concern over the inconsistency of Apple’s rule enforcement. The concern is amplified when it comes to select cases in which Apple has a conflict of interest with regard to its own apps. On that front, I do agree Apple should be held accountable and scrutinized by users, developers, media and the authorities.

In summary

The hearing is a waste of time for the most part, in my opinion. There are interesting discoveries revealed by the committee in the documents submitted by the companies; which you can find here, but the format of these hearings needs upgrading and the answers we got today from the CEOs weren’t that meaningful. I do believe that some of the anti-competition claims on big techs should be fleshed out more.

Disclaimer: I own Apple and Amazon stock in my personal portfolio

Book Review – No Filter: The Inside Story of Instagram

Instagram is so popular in our life that it became part of our vernacular: Instagrammable. I wanted to learn more about a young startup that was founded in the beginning of the 2010s, got acquired by Facebook for a monstrous amount at the time and eventually grew to become one of the biggest social networks in the world. This book provides a good insight into the history of Instagram.

The history of Instagram started with Kevin Systrom, a Standard graduate. He passed up an opportunity to join two startups in their early days that would become multi-billion companies (Facebook and Twitter). He worked for a short time at Google before venturing out on his own. Along with Mike Krieger, a graduate student from Brazil, he developed an app called Burbn that attracted interest and capital from some of the angel investors in Silicon Valley. Burbn was later pivoted to become Instagram after a soul-searching discussion between the two founders. After 18 months of hard work, Instagram was bought by Facebook for $1 billion. The Instagram team and the two co-founders managed to keep their relative high level of independence within the Blue Brand for about 5-6 years. A score of disagreements over strategic decisions and a realization that it was Zuckerberg that effectively owned Instagram, the two founders left the company.

What fascinates me about the book is the chronicle of important decisions that the founders made along the way, especially decisions on product development. From the onset of Instagram, the founders, especially Systrom, wanted to focus on genuine and quality connections with users. While Facebook cheapened the relationship with users by prioritizing the sharing of news and articles, Instagram took time and effort to preserve the unique qualities of Instagram. For instance, they refused to have a share feature because they wanted users to have a genuine connection with whom they followed. Specifications for photos on Instagram were stricter than on Facebook. Systrom emphasized the importance of aesthetic quality of Instagram by personally approving Instagram ads at first, limiting to one advertiser a day originally, guiding celebrity users on how to post nice photos and setting up the tone for the culture as well as how users perceive Instagram.

One can argue that Instagram’s founders sold it too soon, but the counter argument is that without Facebook’s resources and infrastructure, Instagram wouldn’t like have achieved the growth it did that quickly. In the end, the hierarchy and essentially cultural clash with Facebook drove the founders out.

The book provides an exciting story of how little features, care for users, commitment to quality and great decisions can lead to a great product, especially when put in contrast to Facebook. I have been super annoyed by the amount of ads on Instagram. You can’t scroll more than 3 or 4 posts without an ads. I don’t think the founders would have approved that, but in the end, it wouldn’t have been their choice to make either.

If you are interested in a popular company’s history, entrepreneurship or product development/strategy, this book will be a nice one to pick up on a slow hot weekend. Isn’t it interesting to learn why there is no share button, why there is only one place you can post a hyperlink, why little details on Instagram came into beings? The book also sheds some light onto Mark Zuckerberg, who cast a long show over much of Instagram’s history.

“When Systrom joined in 2006, it had almost 10,000 employees. Google, far more functional and established than tiny Odeo, was led mostly by former Stanford students making data-based decisions. It was the culture that drove homepage leader Marissa Mayer, who later became CEO of Yahoo!, to famously test 41 shades of blue to figure out what color would give the company’s hyperlinks the highest click-through rate. A slightly purpler blue shade won out over slightly greener shades, helping boost revenue by $200 million a year. Seemingly insignificant changes could make a huge difference when applied to millions or billions of people.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Krieger and Systrom started the exercise by making a list of the top three things people liked about Burbn. One was Plans, the feature where people could say where they were going so friends could join them. Another was photos. The third was a tool to win meaningless virtual prizes for your activity, which was mostly a gimmick to get people to log back in.

Not everybody needed plans or prizes. Systrom circled “photos.” Photos, they decided, were ubiquitous, useful to everybody, not just young city dwellers.

“There’s something around photos,” Kevin said. His iPhone 3G took terrible pictures, but it was only the beginning of that technology. “I think there will be an inflection point where people don’t carry around point-and-shoots anymore, they’re just going to carry around these phones.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Their first prototype was named Scotch, a relative to bourbon. It allowed people to swipe through photos horizontally and tap to like them, similar to a Tinder before its time. They used it for a few days before going back to the Burbn idea, doubting their instincts. And then they tried a new concept that would allow people to scroll through photos vertically, showing the most recent post first, like Twitter.

All of the photos would use as few pixels as possible, so that they would load quickly, helping solve problem number one—only 306 pixels across, the minimum required to display a photo on an iPhone with 7-pixel borders on each side. The photos would be square, giving users the same creative constraint for photography as Systrom’s teacher in Florence gave him. It was similar to how Twitter only let people tweet in 140-character bursts. That would help solve, but not fully solve, problem number two.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“The founders picked their first users carefully, courting people who would be good photographers—especially designers who had high Twitter follower counts. Those first users would help set the right artistic tone, creating good content for everyone else to look at, in what was essentially the first-ever Instagram influencer campaign, years before that would become a concept.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Krieger did build a re-share button but never released it to the public. The founders thought it would violate the expectations you had when you followed someone. You followed them because you wanted to see what they saw and experienced and created. Not someone else.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Instagram, on the other hand, was trying to build a premium experience, brainstorming directly with advertisers about their ideas and manually placing their ads. They knew that this system couldn’t work forever, but Systrom and Krieger always urged people to do the simplest thing first, the way they had when they first built the app. Working manually on a small version of the product made more sense than spending precious engineering resources and navigating politics with Facebook’s ads sales team, for a system that might not ultimately work.

Using a strategy similar to that he’d employed when he founded the company—picking launch partners like Burberry and Lexus who would get it—Systrom personally approved every ad. Especially since now Instagram’s brand was too precious to risk letting anyone and everyone advertise however they’d like.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“Only one brand per day, Systrom had decided—that felt right. It was nonnegotiable: if Louis Vuitton called wanting the twentieth of the month, they would decline if Ben & Jerry’s already had the slot. All the names of the early advertisers were mapped out in red marker on a whiteboard calendar. An employee would print the potential ads out; then Systrom would go through them, one by one, deciding what was good enough and what wasn’t. If an ad wasn’t good enough, he would protest.

At one point Systrom was concerned that the food in one of the branded posts looked unappetizing, especially the French fries, which appeared soggy. “I don’t want to run it like this,” he told Jim Squires, his new ads lead, who had come over from Facebook.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

New employees of Instagram, especially those coming from Facebook, would regularly suggest sharing tools to help increase the amount of posts on the app, only to be shot down by Systrom and Krieger. Public re-sharing was such a popular request that other entrepreneurs built apps like Regrann and Repost to attempt to fill the need, but these were no substitute for an in-app function. This made it harder to get noticed, but in some ways made it easier to build a personal brand. All your posts were yours. That was what the founders wanted.

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

Trump had outspent Clinton between June and November, paying Facebook $44 million compared to her $28 million. And, with Facebook’s guidance, his campaign had operated like a tech company, rapidly testing ads using Facebook’s software until they found the perfect messaging for various audiences. Trump’s campaign had a total of 5.9 million different versions of his ads, compared to Clinton’s 66,000, in a way that “better leveraged Facebook’s ability to optimize for outcomes,” the employee said.

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“By December 2016, Instagram was letting users turn off comments for posts entirely if they wanted. Systrom’s willingness was in stark contrast to the attempts by Facebook and Twitter to err on the side of leaving content up, in an attempt to promote environments they said were neutral and open, but that in practice were rarely policed.

The same ideas, of letting users turn off comments or block them according to keyword, had been suggested several times at Facebook over the years. But it had never stuck. If there were fewer comments, there were fewer push notifications, and fewer reasons for users to come back to the site. Even on Instagram’s team, the former Facebook employees promised Systrom that they would find a way to build out the tool so it was difficult to find, and applicable only to one post at a time. That way, it wouldn’t be used as often.

Thanks but no thanks, Systrom said. He explained that he wasn’t worried about losing engagement, that the team was thinking too short-term. Over the long term, if the tool was easy to find and well publicized, people would have more affinity for Instagram, and the product would better weather storms of bad publicity, like the kind Facebook was starting to receive.”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

“So that summer, Zuckerberg directed Javier Olivan, Facebook’s head of growth, to draw up a list of all the ways Instagram was supported by the Facebook app. And then he ordered the supporting tools turned off.

Systrom again felt punished for Instagram’s success.

Instagram was also no longer allowed to run free promotions within the Facebook news feed—the ones that told people to download the app because their Facebook friends were already there. That had always brought a steady stream of new users to Instagram.

Another of the new changes would actually mislead Facebook users in an attempt to prevent them from leaving for Instagram. In the past, every time an Instagram user posted with the option to share on Facebook, the photo on Facebook said it came from Instagram, with a link back to the app. Instagram’s analysis showed that between 6 and 8 percent of all original content on Facebook was cross-posted from Instagram. Often, the attribution would be a cue for people to comment on the photo where it was originally posted. But with the change mandated by the growth team, that attribution would disappear, and the photo would seem as if it had been posted to Facebook directly”

Excerpt From: Sarah Frier. “No Filter.” Apple Books.

Concern over Facebook’s new privacy-focused vision

A few days ago, Mark Zuckerberg shared with the world his privacy-focused vision for Facebook moving forward. I understand that it may make sense strategically for the company, but I have real concerns over the feasibility of the strategy.

Lack of trust

Facebook has been littered with scandals for the past two years. The trust between the blue brand and users isn’t particularly at its all-time high. There have been documented evidence on the exodus of users from Facebook or the significant decrease in activities. If the trust is already shaky, why would users trust Facebook with every aspect of their life by using their proposed super app? (The super app concept is similar to WeChat, which users can use to do many things while on the platform such as booking movie tickets, paying bills, transferring money to friends and families…). If we can’t trust Facebook with just daily communication, how can we entrust it with more aspects of our life? If you can’t trust a dentist to treat your teeth, would you trust that dentist if he said he could fix your eyes?

The audience

I think one of the reasons why WeChat is successful is because of the target audience. Coming from that part of the world, I can say from personal experience that we Asians tend to not care as much as Western audience about privacy. I think there is a reason why WeChat hasn’t been as successful overseas as it is in China. If it were marketed to Western audience, given its relationship with the Chinese government and Western users’ concern over privacy, I don’t think it would be a triumphant effort. Hence, to convince Western users to use Facebook for everything, the trust has to be pretty solid. It’s not there now for sure.

Regulatory hurdles

Facebook has attracted unwelcome attention from lawmakers recently. And for a good reason. Even if they had done nothing wrong, which is definitely not the case, I suspect that the road to the super app vision wouldn’t be without robust challenges from the regulatory perspective.

Essentially, it’s all well and good for Facebook to change its stance on privacy. However, the trust isn’t there. I would love to see more concrete actions to transition from a company whose more than 95% of its revenue is from ads to a company that values privacy first. I am not a believer at the moment since Facebook has used up the rope we gave them already. If they want us to trust them again, they have to do it the hard way. And I think they have to hurry as well as the world won’t stand still for them. If this is the vision that makes business sense, others will go for it as well.

If they are committed and succeed in the future, kudos to them. Until then, I choose to remain skeptical of the vision.

Peter Thiel’s interview

I was listening to this interview with Peter Thiel while in the gym yesterday (Yes, I like to listen to podcasts, interviews and John Oliver while sweating it out! Weirdo me). There are two points that stood out for me.

A bit of context, Peter Thiel was the founder of Paypal and recruited what would be known as the Paypal Mafia, a group of individuals who would found successful startups. Peter is known for being a wildly successful entrepreneur, investor and contrarian thinker who challenges assumptions and established thinking.

He didn’t think Facebook would be that big

Peter was one of the first investors in Facebook when the company was at $5 million valuation. He said in the interview (around minute 7:20) that he didn’t think it would be as big as it eventually became. It would be worth his investment if Facebook just dominated the college student market. We all know how it turned out.

I sometimes beat myself up a little bit for not seeing far ahead in terms of companies that I analyzed or missed. But if the great Warren Buffett missed Amazon, Google and for many years, Apple (he is now one of the biggest shareholders of Apple) and if Peter Thiel couldn’t figure out Facebook’s eventual great future, then I guess it’s OK for any of us to be…human.

First meeting with Mark Zuckerberg

Peter Thiel talked about the first meeting with Mark around minute 4:20. He recalled that Mark went to the meeting with Sean Parker and Sean did most of the talking. Having watched a few of Mark’s interviews and speeches, he doesn’t appear to me as an exceptional salesman. Yet, people often claim that if you don’t have sales skill, you can’t be an entrepreneur. While it may be true in most cases, it’s not definitive. Mark and Facebook still getting the money without doing most of the talking was the proof of that.

Point is that I increasingly believe that every advice is contextual. Most of the time, there is barely one-size-fits-all or hard-and-fast advice. What works for one person may not work for others. One piece of advice is like a tool in your arsenal. One tool cannot do everything. It serves only a specific purpose in a certain set of scenarios. Constant learning gathers many tools at your disposal and learning what tool to use in a scenario is probably what makes a person succeed.