CHAPTER 5
Darkness Rises
He didn’t get the chance, obviously, though he certainly tried, filing one patent infringement lawsuit after another, to no avail. (The two companies eventually settled in 2014, more or less calling a truce.)2 As of the first quarter of 2018, Google’s Android mobile operating system represented a whopping 86 percent of the smartphone universe—leaving Apple’s iPhone, while still doing very well in monetary terms, a distant second.3
Jobs’s comment may have been slightly melodramatic, but it wasn’t paranoid. The truth was that Eric Schmidt had spent time on Apple’s board: many years in fact, even after joining Google in 2001 as CEO. And it seemed clear that he had indeed acquired a number of good ideas from the company; the Android system, developed during those years, was nearly identical in many ways to Apple’s iOS—an unlikely coincidence that ultimately resulted in Schmidt being dismissed from Apple’s board in 2009.
But it’s not as though the practice of “borrowing” ideas from a competitor was exactly outside the norm in the tech world. In 2003, for example, Facebook purchased an Israeli cybersecurity start-up called Onavo to track what competitors were doing; Facebook would then copy anything that seemed like it might be profitable. It was an internal “early bird” warning system that alerted the company to start-ups that were doing well, while giving Facebook an unusually detailed look at what users were doing on those systems.4
In essence, Onavo represented a legal form of corporate spying, one that produced intel that Facebook used to both undermine existing competitors and cut untold numbers of new ventures off at the pass. In 2016, for example, Facebook began paying closer attention to Snapchat, the rival that had grown wildly popular among the younger set. Snapchat’s most distinguishing features were impermanence (instead of being immortalized on a “wall” until the end of time, messages sent via Snapchat would automatically disappear soon after being read) and its animated filters (a user could overlay a photo of themselves with, say, cat ears and whiskers). Coincidentally (or not) it was right at this time that Facebook’s own company Instagram launched a feature called Stories, with similar features. In early 2019, Facebook announced they would shut down the digital crystal ball that was Onavo after it was reported in TechCrunch that Facebook had allegedly been paying kids and teens $20 a pop in gift cards to install the spying app on their phones.5
ALL OF THAT has been well documented elsewhere.6 But Android’s similarity to iOS certainly highlights how far Google had strayed from whatever idealistic roots it might once have had. By the early 2000s, as the company moved toward the inevitable payday of IPO—the dream of every Silicon Valley entrepreneur or investor—there was little remaining pretense that Google was anything other than a leviathan of a company looking to monetize everything that it could in preparation for its debut on the public markets. As for the infamous “Don’t be evil” mantra? “It’s bullshit,” said Jobs.7
This ideological shift was most publicly marked by the 2001 hiring of Schmidt. Around that time, Google was still ramping up its advertising model, and it wasn’t yet clear what a gold mine it would become. The investors felt that adult supervision was needed, in the form of a hard-nosed manager who could turn the company’s brilliant ideas into soaring stock prices. Page and Brin had the audacity to suggest to their investors that Steve Jobs was the only candidate they would consider, but the VCs made it clear that the two were on another planet if they thought they would get someone like Jobs—already running two public companies and a legend to boot—to come on board. They needed someone smart and savvy, but low-profile enough to play backup singer to the two founders—or at least not expect to be a rock star themselves. That was when John Doerr, a famed partner at Kleiner Perkins, suggested Eric Schmidt, the CEO of the networking company Novell, who’d previously been CTO of Sun Microsystems. He was in his forties. He wore suits. He understood bottom lines. But he was also a real engineer, someone who spoke the language of the founders.8
Like many Silicon Valley elites, Schmidt grew up privileged, the son of a psychologist and a Johns Hopkins professor, raised in Falls Church, Virginia. In typical fashion for those of his pedigree, he was an overachiever who earned eight varsity letters in distance running and excelled in the sciences, graduating from Princeton with a degree in electrical engineering. (He later got both an MA and a PhD from the University of California, Berkeley.) Schmidt was a tech geek, having worked as a programmer at Bell Labs and Xerox PARC early in his career. But he also had the business acumen and social skills (at least, relative to the rest of the pack in the Valley) required for management, and had quickly moved up the ranks at Sun Microsystems, where he started as a software manager in 1983.
Sun had a fast-moving culture, and one that capitalized on the new “open-source” software movement, which was all about putting code into the public domain, thus allowing developers to share work and ideas so as to build an ecosystem around a company much faster. Open-source has many advantages, and plenty of economists and technologists would say it’s crucial to innovation and economic growth, because it allows entrepreneurs to build on one another’s ideas; it’s the polar opposite of the “walled-garden” approach of the kind that, say, Apple employs. But it can also make it difficult for companies to protect their intellectual property—a point that would become salient years later, as tech giants Google and Apple began using their power to reshape the innovation ecosystem to fit their own strategic goals.
Mr. Schmidt Goes to Washington
Within a year of his arrival at Google, Schmidt had a group in place and had created a thriving business model. Now, the trick was to protect it. Google’s search engine was impressive, but in order to keep monetizing the data it generated, Google would need to make sure that it remained free, easily accessible, and unencumbered by copyrights, privacy rules, or any sort of patented intellectual property that would make it tougher for Google to capture as much traffic as humanly possible. That would require a regulatory and legal strategy, and a team of (official and unofficial) lobbyists and lawyers to do Google’s bidding in Washington, D.C. So Schmidt, Page, Brin, and a small group of other insiders began interviewing candidates to head up their government policy team.
Enter Peter Harter, a top lobbyist for Silicon Valley, who had previously led government policy for Netscape and helped the company bring successful antitrust suits against Microsoft. Harter, a lawyer with a specialty in intellectual property, was a tech insider, but he also knew politics—he’d been on the front lines when a previous generation of Big Tech firms had squared off, and was well-connected both in Washington and in the Valley. Harter had worked with Eric Schmidt while he was CTO at Sun Microsystems, where he’d lobbied around issues including export controls on encryption software, and at Novell, on antitrust issues. He’d worked alongside the attorney Kent Walker—whom he referred to as “the guy in charge of s—t cleanup” at Google—when he was at Netscape, and traveled in the same circles as Google insiders like David Drummond, now chief legal officer, who’d been the tech giant’s first outside counsel. Since leaving Netscape, Harter had formed his own government affairs consulting practice, where his client list was made up of blue-chip firms such as Microsoft. I’ve known him to be an unapologetic conservative, the type who will mock vegetarians and hypocritical liberals (humorously, I must say), but also as someone willing to work for whoever could afford him. So in 2002, when a Google executive named Omid Kordestani came calling, asking him to weigh in on the privacy issues harming Google’s model, he was intrigued.
Harter eagerly accepted the proffered invitation to the Googleplex, a sprawling Palo Alto campus bigger and far better funded than many East Coast colleges, to meet with Schmidt, Page, Brin, and a number of other executives in a series of all-day meetings. “Google was thinking of ways to accelerate revenue growth, and get the best IPO valuation,” says Harter. “You were starting to see the advent of the smartphone, video coming online, and lots of open-source, and peer-to-peer sharing, thanks to Napster [the music sharing service started by Sean Parker, later president of Facebook, that was eventually shut down because of copyright infringement].” Harter says that Google could “easily see, looking at the litigation over Napster, that they needed a growth map in Washington to get ahead of any opposition.”9
Harter understood that Google needed to devalue intellectual property and prioritize access to user data in order to ensure its supremacy—and by all accounts, the Googlers understood that, too. In fact, that was one of their major competitive advantages. As Shoshana Zuboff lays out in her book The Age of Surveillance Capitalism, Page, Brin, and Schmidt (along with Hal Varian) were the first in Silicon Valley to fully understand the concept of “behavioral surplus,” in which “human experience is subjugated to surveillance capitalism’s market mechanisms and reborn as ‘behavior.’ ”10 What she’s saying, in simple terms, is that everything we do, say, and think—online and in many cases offline—has the potential to be monetized by platform tech firms. All human activity—the things we post, our videos, our books, our inventions—is potentially raw material to be commodified by Big Tech. “Google is to surveillance capitalism what the Ford Motor Company and General Motors were to mass-production-based managerial capitalism,” she writes.11 Nearly everything we do can be mined by the platform giants. But only if they can keep information free. That means keeping the value of personal data opaque, or ignoring copyrights on content, or—in the case of other types of intellectual property—by making it tougher to protect.
All of this corroborates what Harter has told me about his meeting in the Googleplex. He says that topics like antitrust policy, copyright, file sharing, and privacy were very much on the minds of Schmidt, Page, and Brin by that time. “One of the questions was, ‘How do we avoid what happened to Napster?’ ” He outlined what he thought the Google strategy should be if they wanted to best protect the company’s interests: Spend loads of money and lobbying power to make sure that Google wouldn’t have to pay for the intellectual property and content that search was monetizing, and fight hard to keep liability exemptions in place, so that they wouldn’t be responsible for things that users did on their platform. “I told them, ‘Basically, you have to out-lobby the other guys, and prepare to litigate and generate support for your lawsuits in the media, the policy, and the political communities.’ I remember Eric nodding and saying, ‘I think that sounds right.’ ” Sadly (or perhaps not) for Harter, he didn’t get the public policy position, which ultimately went to Andrew McLaughlin, who became director of global public policy at Google in January 2004, and later went to work for President Obama as deputy chief technology officer of the United States. (A PR representative for Schmidt and the other Googlers told me that they “don’t remember” the entire meeting.)12 Still, says Harter, “what they have rolled out since was basically the strategy we discussed on that day.”
Innovators Versus Implementers
Google, Apple, Facebook, and others often position themselves in the public debate as “innovators,” and that’s true up to a point. As we’ve already seen, by the time these firms went public, most of their biggest and best innovations were behind them. From the IPO on, the game is more about implementing technologies—theirs and others’—to gain business model advantage. In the technology field, and increasingly in most fields, having access to the best intellectual property and data, and paying as little for it as possible, is everything. One of the ways in which Google and other Big Tech companies were able to gain an advantage over intellectual property was by pushing for an overhaul of the U.S. patent system, the first in thirty-some years, which reached its climax in 2011 with the passing of the America Invents Act.
To understand why this is important, you need to understand how patents have historically worked to protect innovators: Imagine that you are the founder of a small biotech company in the United States. You have spent millions of dollars and years of time developing a new diagnostic test for a blood disease. You are about to revolutionize your field. Following the passage of the AIA, it became harder for you to get a patent for your game-changing discovery, because shifts in the system meant that your invention was no longer protected due to changes in the list of what could and couldn’t be patented, and the way in which innovators were allowed to defend their IP.
For example, even if patents were granted, following the AIA, the right to use them could be challenged in a non-court adjudication system, allowing other firms to quickly invalidate intellectual property. Unable to fully monetize their investment, many smaller companies, inventors, and innovators begin funneling their money and ideas to other places, like Europe and parts of Asia. Suppliers and talent begin moving there, too. While the story isn’t one-sided, I have heard from many American investors, entrepreneurs, academics, lobbyists, and lawyers—including some of those who actually helped craft the AIA—who believe that the U.S. patent system has swung radically in the wrong direction. Over the past fifteen years or so it has moved, they say, from a system that was arguably overzealous in granting patents, to one in which the country’s top minds can no longer monetize their research. That is, of course, a state of affairs that could have dramatic consequences for U.S. competitiveness in a world in which most economic value lives in intellectual property.
The shifts in the system that began a decade ago have come in a variety of ways.13 Starting even before the passing of the AIA, there were a series of Supreme Court rulings, such as eBay v. MercExchange in 2006, Mayo Collaborative Services v. Prometheus Laboratories in 2012, and Alice Corp v. CLS Bank in 2014, that, coupled with the America Invents Act passed under President Obama in 2011, have made patents in the United States harder for companies without enormous legal and lobbying power to secure—and harder to defend. Perhaps as a result, many companies now complain of “efficient infringement” on the part of larger rivals, which simply copy or take the intellectual property they want, then settle with aggrieved parties out of court for less than the full value of the IP. Few companies will go on the record with their travails, for fear of being blackballed within the tech community.
How did we get here? Back in the early 2000s, when the dot-com bubble burst, many companies were left with nothing of value except their patents, which were then purchased by financial companies or larger tech entities that then tried to milk some cash from them. At the same time, the ecosystem of software suppliers that served the burgeoning commercial Internet and smartphone markets began to broaden. Pushing back on the ease with which patents could be obtained and defended was great for Big Tech, which, of course, has its own IP to protect, but which was also increasingly monetizing the data and IP created by others. The majority of those companies had legitimate technologies and ideas to protect. But some—so-called patent trolls—were playing a game of legal arbitrage, filing as many patents as possible in order to get larger companies to settle with them for the use of their technology.
By the time Barack Obama took office in 2009, the patent troll narrative had reached a fever pitch. It was a story line supported by many Big Tech companies14 that individually and via lobbying bodies pushed for the America Invents Act. The law established a non-court adjudication body, the Patent Trial and Appeal Board. The idea was to save time and money with the non-court inter partes process, and indeed, patent claims went from taking three years and an average cost of $2 million to settle, to taking eighteen months and costing $200,000. The argument about patent trolls increasingly rang false. Yet the largest tech groups, particularly Google, lobbied hard for even more anti-patent legislation in 2013. Companies that supported that additional legislation said it would have cut out legal distortions around issues like the venue in which patent cases are heard, thereby cutting litigation costs.
But some regulators and lawmakers who had originally supported patent reform began to feel that the entire process was being used to push an anticompetitive market agenda on the part of Big Tech. “It was shocking to see calls from some in the tech industry for a second round of drastic patent legislation immediately after all we did in the AIA, and before the AIA had even gone into effect,” says David Kappos, former head of the U.S. Patent and Trademark Office under Obama (who had supported the first round of legislation), who is now a lawyer with Cravath, Swaine & Moore. Kappos has, to be fair, represented Qualcomm, one of the critics of the current system, which only just settled a three-continent, multiyear patent dispute with Apple. But both he and the legal firm have also represented clients on the other side of the argument. “Ultimately, the real agenda sunk in,” he says. “This second round of drastic cutbacks to the patent system was a commercial ploy designed not to stop abuse but to cut supply chain costs by devaluing others’ innovation.”
The new legislation was ultimately held up in Congress. Meanwhile, Michelle Lee, Google’s former head of IP, eventually took over as head of the USPTO. In 2013, the White House put out an alarming report on the prevalence of patent trolls and their destructive effects, blaming them for two-thirds of patent suits. Yet subsequent research done by the nonpartisan Government Accountability Office put that number at one-fifth, and other data showed that the number of patent defendants had been roughly flat before and after the AIA. “The historical trend in litigation rates relative to patents granted clearly does not support claims that litigation in the past decades has ‘exploded’ above the long-term norm,” wrote Bowdoin College professor Zorina Khan in a 2013 paper entitled “Trolls and Other Patent Inventions.” What’s more, she argued, a number of legislative changes seemed to address “the ephemeral demands of the most strident interest groups at a single point in time” and are “inconsistent with the fundamentals of the U.S. system of intellectual property.”15
Indeed, some would argue that the system of adjudication for patents has become a shield for those accused of patent infringement. Most of the verdicts go against the patent holder, leading Randall Rader, former chief judge of the U.S. Court of Appeals for the Federal Circuit, the court in charge of patent appeals, to label it the “death squad” for IP. Another retired federal district court judge, Paul Michel, has become a vocal opponent of the system, arguing that excessive invalidations and the way in which the adjudication board has preempted court rulings are sapping both the strength of the patent system and American innovation itself.
“The cumulative [anti-patent] effect of the Supreme Court rulings and the AIA was, together, stronger than it should have been,” he says, in part because of what he and others say was lobbying on the part of large tech firms. “Patent values are plummeting, and licensing and capital investments in many technologies are sinking. The AIA has done more harm than good.”
I can’t tell you how many technologists and venture capitalists I’ve spoken to in the past several years who say that they simply won’t invest in areas that Google or Facebook or Amazon or Apple are likely to play in, because of the difficulties inherent in protecting open-source technology, and/or defending patents against the big guys, who inevitably have more time and legal muscle on their side. As technologist Jaron Lanier has pointed out, the most profitable assets, like Google’s own PageRank algorithms, or the closed system of the iPhone, are almost always proprietary, rather than open. “While the open approach has been able to create lovely, polished copies, it hasn’t been so good at creating notable originals,” says Lanier,16 a fact that underscores the way in which Big Tech firms push open-source to the extent that it aids their ability to profit from others’ innovation, but rarely let competitors anywhere near the code that powers their own key technologies.
Or, as Gary Lauder, a venture capitalist and scion of the Estée Lauder family, once put it to me, “You need a patent system that induces the right behavior, which means one in which incumbents have to pay for innovations, not copy or steal them.” Lauder, a Silicon Valley–based investor who has poured more than half a billion dollars in funding into nearly one hundred companies and sixty venture capital funds in the past twenty-eight years, including GoTo/Overture (the online auction company from which Google copied crucial ideas—see chapter 2), has become an outspoken advocate for a stronger patent system. “We need to protect the larger start-up ecosystem, which is where the majority of jobs are created,” he says. “It’s an issue that’s really crucial for our economy. Today the incumbents are copying the innovators. Next both will be copied and displaced by cheap foreign knock-offs.”17
Information Wants to Be “Free”
Then there’s the way that Big Tech commodifies a different sort of innovation—the content that artists, writers, filmmakers, and others produce as part of their living. Consider the tactics deployed to weaken copyrights, which essentially could have stopped the rise of any of the Big Tech companies in their tracks, since they create almost none of the content that they so richly monetize. In fact, Google, Facebook, and other large platform players were the chief beneficiaries of the Digital Millennium Copyright Act, signed by Bill Clinton into law in 1998, which protected online service providers from being prosecuted over copyright infringement, assuming that the provider wasn’t aware of the infringement. Not surprisingly, it was supported by a number of the California-based politicians and liberals that Silicon Valley interests had begun quietly funding.
The law essentially allowed platforms to bully content creators—anybody putting things online, really—into giving up their work for free if they wanted to be searchable on the biggest platforms, while at the same time accepting the fact that the platforms would be the ones to benefit most from the content, monetarily, in exponential measure. After all, just as no small innovator with a patent could battle Big Tech, there was no way that an individual writer or musician, for example, could wage a legal battle to try to get royalties from the likes of Facebook or Google—or even to understand how much money the companies were making by linking to the content or leading advertisers to it as part of their search or social business models.18
As an example, consider the decade-long battle between Google and myriad authors and publishers over the Google Print project, later renamed Google Books. Scanning every single page of every single book in the world had long been an obsession of Page and Brin—it was, after all, a typically Google-sized ambition. They knew that the majority of the world’s books were protected under copyright from such unauthorized copying and distribution. But the Googlers felt, in typical form, that such pesky rules didn’t apply to them. Plus, they couldn’t understand why anyone would think it was better for authors to make money on books than for the entire world to have free access to information. So in 2002, they simply began scanning pages, albeit covertly. As tech writer Steven Levy put it in his book, In the Plex, which devotes twenty pages to the book-scanning project, “The secrecy was yet another expression of the paradox of a company that sometimes embraced transparency and other times seemed to model itself on the NSA.”19 Schmidt, who had by then decided that “evil is what Sergey says is evil,”20 was all for the project, which he declared “genius.”21
The publishing industry disagreed. In 2005, several publishers, represented by the Association of American Publishers, filed suit against Google’s “massive, wholesale and systematic copying of entire books still protected by copyright.” Soon after, the Authors Guild did, too, and the suits were combined. The publishers and authors wanted, understandably, for creatives with works still protected by copyright to be able to opt in or opt out of their books being scanned. But Google chief economist Hal Varian protested that this would kill the whole project, which, of course, depended on scale. Some three-fourths of the books that Google aimed to copy were still under copyright—and Varian and the other Googlers knew that many, if not most, of the authors probably wouldn’t opt in.22
So, they decided to settle, ultimately agreeing to a compromise in which Google would agree to show only snippets of books that were under copyright for free in exchange for becoming the exclusive seller of digital copies of out-of-print books for the publishing houses and authors that agreed to the settlement. Google, which was earning about $10 billion in yearly revenue at that point, would pay the relatively tiny sum of $125 million to establish a registry of book rights holders and pay lawyers to organize the system and the payouts. It was a complete coup for Big Tech. Brewster Kahle, the head of the nonprofit Internet Archive, which wanted to do its own book-scanning project, claimed (not incorrectly) that Google had become an information monopolist. Even Lawrence Lessig, the digital law expert who favors many of the policies that the platforms support, said that Google’s deal was the equivalent of a “digital bookstore, not a digital library.”23 What he means is that even as Google was presenting the entire project as being done for the benefit of users, Google itself would ultimately benefit the most. More content meant more opportunities to sell advertising.
Why did the authors and publishers ever agree to this initial settlement? Because they didn’t know any better. As with the people who took subprime mortgages from big banks, there was a huge information asymmetry in the dealings of the publishers with Big Tech, which was holding pretty much all the important inside information about just how valuable the digital monetization of searching such content could be. Google understood the new digital world that it was, in fact, creating and dominating. The publishers did not, and were desperate in the short term to stop the Big Tech behemoth from eating their lunch.
Not only did they not have the information required to understand the long-term implications of content monetization via targeted advertising, they also didn’t have the time to think about it. They were on the defensive in a way that many more industries today are when dealing with Silicon Valley (witness the raft of quick mergers in, for example, the food industry after Amazon bought Whole Foods). Big Tech plays offense, while the rest of us are on defense. The problem is that, as any sports fan knows, that’s not a good strategy. Like most of us who were eager to use and be a part of the shiny new thing called the World Wide Web, authors and publishers didn’t fully internalize the truth—that they were becoming complicit in the idea that Silicon Valley wanted everyone to believe, which was that information should be free, and that the value created by others—be it books, music, or any other type of content—was a commodity that could be mined on the cheap.
It was really only when other big companies like Microsoft and Amazon became outraged, too, that things began to change somewhat. The Google deal shut them out of a key part of the publishing market, and they wanted back in. (This paradigm has played out in a number of subsequent cases—Google and Amazon, for example, regularly do battle to try to gain more access to each other’s markets, and many of the most powerful groups that complain about monopoly power on the part of Big Tech are other corporate behemoths.)
Eventually, under pressure from some 143 groups, both nonprofit and private-sector, the U.S. Department of Justice took on the issue, claiming it had granted Google too many anticompetitive rights, and that the book-scanning and -selling project was a monopoly issue. Larry Page called the legal challenge a “travesty to humanity,” while Sergey Brin wrote a sanctimonious piece in The New York Times defending Google’s efforts. At court proceedings in 2010, Google’s attorney Daralyn J. Durie argued that “copyright infringement is evil to the extent that it is not compensated and that it harms the economic interests of rights holders.” It was a clever argument, because it shifted attention toward the fact that Google was, after all, facilitating book sales—and away from the fact that Google itself was becoming the major beneficiary of a huge amount of copyrighted content. The judge ruled in Google’s favor, on the basis that the project offered “significant public benefits.” That Google would now have a monopoly on the digital sale of some thirty thousand books was deemed less important.24
This commodification of content and transfer of wealth from creators to platform tech firms heated up further after Google’s acquisition of YouTube, which specialized in user-generated content, in 2006. It was a move that amounted to a kind of industrial policy that they were offering to the world (or at least that’s how one high-level Googler once put it to me).25 Instead of getting paid for their creativity via copyright, people could make money doing stuff on YouTube. The problem is that it takes about 2 million hits, according to Move Fast and Break Things author Jonathan Taplin,26 to make around $20,000 a year or so—not exactly a substitute for a middle-class job. You are either a YouTube star, or you are at the bottom of a pyramid of free labor, which critics like Taplin would say has become a zero-sum game for everyone but the technologists themselves.27 While it’s true that the new crop of tech companies makes it easier to slough off less productive tasks—driving, shopping, and so on—they also rely on “DIY” inputs, including user-generated content and open-source software. This is essentially unpaid work being done on a mass scale.
Documents from the 2007 Viacom International v. YouTube lawsuit provide a window into how Google saw the creators of the content it was monetizing. Email chains back and forth from top leadership (including Schmidt, Page, and Brin) illuminate how Googlers pressured the entertainment company to keep as much content as possible outside of a paywall, making it free online, where the platform could more easily make it searchable (and thus monetizable).
Putting things online for free largely benefits the platforms, not the content creators, because it means more traffic, which means more revenue. Whatever press or publicity that a content creator can gain from the exposure is minuscule by comparison, and certainly doesn’t replace the revenue gained by more traditional channels of distribution; even today, it’s arguably easier to make decent money as a writer or producer working for a traditional print medium or television brand than for an online outlet, with a few exceptions. But that wouldn’t be completely clear to the studios (or the publishers) until much later. In the 2007 case, the major studios eventually decided it was better to be on YouTube than not, believing that the number of eyeballs involved would pay off. The courts ruled that as long as YouTube wasn’t given any “red flags” by content creators in advance of posting content, then the Digital Millennium Copyright Act allowed it to upload clips without worrying about copyright violations.28
For Google, these cases amounted to tens of billions of dollars in revenue gained from the work of writers, producers, musicians, filmmakers, and ordinary people who were putting content online in increasing numbers. Free, user-generated data and content is the lifeblood of platform technology companies. All of them are built on it—every tweet, every like, every search (on Google or Amazon) is the raw material of Big Tech. That’s not to say that there aren’t benefits to this for users, content creators, and developers—it’s just that the benefits to the platform firms themselves so greatly outweigh them. Just imagine if GM or Ford had to pay for nothing but labor—no material costs, no factory costs, no cost for anything that it took to build their products, only the salaries that they paid to their workers. Then imagine that they needed a fraction of the workers that they currently have to create their products. That’s the difference between a digital business model and an industrial one.
Given all this, it’s no wonder that Big Tech will do whatever it takes to protect the loopholes that enable it to get around any sorts of restrictions on the monetization of user data and content—including using its megaphone to kill the Stop Online Piracy Act (SOPA), a bill that would limit access to sites that hosted or facilitated pirated content. A day after the bill was introduced, Google put what looked like a big black box across its logo, with the words TELL CONGRESS: DON’T CENSOR THE WEB. The message let people click straight through to a blank email already addressed to their congressperson, which resulted in the crashing of congressional email servers. The bill was pulled within three days.29
A Tide Turn?
Google, Facebook, and others tried to use some of the same tactics in Europe in 2019, in advance of an EU decision around new copyright rules (the European Copyright Directive) that will now force platform companies to take more responsibility for removing unauthorized copyrighted content, and/or pay publishers and other content creators for its usage (albeit with a relatively small fee).30 The directive passed the European Parliament by a wide margin, despite a smear campaign by the Big Tech firms, in which they tried to make it seem as though the new laws would penalize small companies who couldn’t comply with the rules effectively, and/or impinge on freedom of speech.31 A top German newspaper, the Frankfurter Allgemeine Zeitung, published an undercover exposé showing that Google money was linked to YouTube “activists” who had organized to protest the laws. It turns out that far from being part of a grassroots movement, they were being paid by Google to protest32—not unlike the way in which poor people in countries like, say, Iran, are paid by the government to show up and decry this or that idea that might be unfavorable to the regime.
Meanwhile, actual content creators were happy to have the European government legitimize the idea that their work should be properly protected and paid for by the people using it. “[Platforms now] have an incentive not to upload content that violates a copyright, and they have an even greater incentive to sign licensing deals with the owner of that content,” Thomas Rabe, the chief executive of the German media group Bertelsmann, told the Financial Times. “We have to put an end to this for-free culture on the Internet.”33
The fact that the EU has taken some steps toward protecting content creators is hopeful. But it’s certainly not the end of the story. Spain, for example, tried to enact similar measures unilaterally in 2014, and Google simply “turned off its news service there,” according to the editorial board of the Financial Times. In Germany, it has opted to “carry news only from sites that agree to have content shown for free.”34 But the success of the platforms at the expense of content creators has come at a cost. Ironically, Facebook and Google both recently launched services to try to support local news, because after years of struggling in the wake of their business model being destroyed by the platform firms, there simply aren’t that many local news outlets left. That, in turn, begins to affect the platform companies themselves—if there’s nobody left to create content, then what’s left to monetize?
The disruption has taken a huge toll on news media and publishing, which have been most directly affected by the rise of the Big Tech industry. Newspapers have essentially been in decline since the mid-1990s, when the commercial Internet took off.35 Today, over 62 percent of the U.S. population gets news from some form of social media, with Facebook being the dominant source, according to the Columbia Journalism Review.
But looking at the patent issue makes it clear that there is a price to be paid for the “information wants to be free” approach in other industries as well—including the technology business itself. While the complexity of global supply chains and investments makes it tough to show clear causality between patent protection and innovation in the United States, the trend lines do not look good. According to one study, the shifts in patent regulation have cost the U.S. economy $1 trillion. Venture capital investment in biotech has been down in recent years, in part because it’s tougher to patent certain kinds of innovation. Anecdotally, I’ve spoken to many investors who have said they are considering moving money away from the United States and into Europe and Asia because of this. Those are, of course, highly skilled jobs that the country should be looking to keep.36
Cartels and Collusion
Large technology companies use cartel-like methods to protect what is perhaps their most valuable resource: their employees. Consider the agreements among a number of Big Tech firms not to poach one another’s employees. When companies attempt to lower their potential labor costs by agreeing, via a backroom handshake, to make it tougher for workers to leverage one offer against another, that behavior is typically considered collusion. When it happens in Silicon Valley, however, it typically also means that one or both companies are trying to prevent their top talent from absconding to a competitor—and taking their proprietary information, ideas, and secrets along with them.
In 2011, court documents revealed that in 2007, after Steve Jobs called Google to complain that a recruiter was trying to hire one of his people, Schmidt wrote an email to HR saying, “I believe we have a policy of no recruiting from Apple….Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly.”37
While at Google, Schmidt instituted a “Do Not Call” list of companies that could not be tapped for talent, something that was legally dicey, since it basically undermined the ability of individuals to look for work. And clearly, he knew it: According to one court filing, when Schmidt was asked in an email by Google’s HR director about the no-poaching agreements with competitors, Schmidt responded that he preferred it be shared “verbally, since I don’t want to create a paper trail over which we can be sued later.”38 As one key staffer for a senior Democratic senator later said to me, “Those guys should have gone to f—ing jail for that.” Instead, Google, Apple, and two other firms implicated in the scandal—Adobe and Intel—agreed to pay $415 million in damages in an out-of-court settlement.
As Peter Harter put it when I interviewed him about his experience with the Googlers, “These companies get so powerful and have so much money and access to politicians and employee talent, that the usual rules just don’t apply.”39
IF THE LARGEST players can’t steal or poach the IP they are after—they simply shell out a few million and buy it. Google, for example, has purchased more than 120 companies in the past decade. (Facebook and Amazon have purchased 79 and 89, respectively.) Such purchases, however, are just as likely to be defensive ploys as offensive ones. Facebook’s 2014 acquisition of Oculus, an up-and-coming virtual reality start-up, for example, was much less about getting into that business than killing the upstart’s promising operating system, which might have eventually competed with their own.40 And its acquisitions of Snapchat, Instagram, and WhatsApp were about making sure that no one else would develop a new social network that Facebook followers might jump to. Amazon’s Alexa is based on the technology of a start-up that got a mere $5.6 million from the company, who then copied the voice assistant pretty much wholesale.41 Google, of course, is the biggest buyer of all, with more than two hundred acquisitions made during its history.42
Given the rapaciousness of the giants, and the fact that Washington has done little to nothing to stop such mergers (since they aren’t perceived to be in conflict with the Bork-era “consumer welfare” concept of lowering prices, a topic we’ll examine in chapter 9), it’s no wonder that there are now innovation black holes around anything that the platform technology companies are (or might be) interested in, something known in the business as “kill zones.”43 As several venture capitalists and technology executives have told me, nobody wants to start a company in an area that they know Google or Facebook or Amazon might be entering, unless it’s to create a kind of “talent farm” that might eventually be bought up by the giants simply for human capital. This isn’t innovation building or creating new jobs. It’s about making existing giants richer.
And richer they have become, to the tune of double-digit margins, year after year, with vastly fewer input costs than most other businesses. Apple, in less than four decades, became the world’s first trillion-dollar firm, with others following closely behind. Google went public on August 19, 2004, with an $85 floor. By the end of the day it was around $100, and 900 Google millionaires had been created. By day two, it was $108. And by February 2005, it was at $210. It was all up from here for Google, and no wonder. As the IPO and the financial documents revealed during that time would show, Google wasn’t just a tech company. Page 80 of the prospectus laid it out: “We began as a technology company and have evolved into a software, technology, Internet, advertising and media company, all rolled into one.”44 AdSense was a money-printing machine. Yahoo, seeing the writing on the wall, dropped its patent lawsuit in exchange for shares in Google. Big Tech had come of age. In the years to come, Big Tech would grow even bigger and more powerful than anyone could imagine, thanks to the new science of persuasive technology known as “captology.”