Pod Insights Masters in Business BONUS: How the Internet Got Worse with Cory Doctorow About this episode On this special, bonus edition of Masters in Business, Barry speaks with Cory Doctorow, a science fiction author, activist, journalist and blogger. They discuss the power of large companies over the Internet, and Corey's advocacy for data privacy. Barry and Cory discuss platform decay on the Internet, and how companies keep operating profitably while the user experience decays.
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2:46 Barry Ritholtz? This week on the podcast, a special bonus episode. Corey Doctorow has a new book out entitled "In X-ification," all about the decay of digital platforms. I've been reading Corey for a long time, both at Boing Boing and elsewhere. I'm a big fan of his takes on technology. I thought this conversation was really intriguing, and I think you will also. With no further ado, my conversation with technology author Corey Doctorow.
3:30 Barry Ritholtz? Corey Doctorow, welcome to Bloomberg.
3:32 Speaker 05 Thank you very much, Barry. It's a great pleasure to be here.
3:34 Barry Ritholtz? It's a pleasure to have you. So you, before we get into the book, I have to just go into a little bit about your background. I think of you as a writer first, but you have such a multifaceted career. How do you describe what you do?
3:49 Speaker 05 Well, you know, it's funny, before I became a British citizen, when I was living in London, every time I landed, I had to fill in a landing card with my occupation. It just had this little, like, three-quarter inch blank, and I would eventually just write in "writer." But, you know, trying to explain to my grandmother when she was alive what I did for a living was always challenging. I'm a writer. I'm an activist. I've worked for the Electronic Frontier Foundation for nearly a quarter of a century now. It's a digital rights group that tries to make sure that your human rights apply online and offline in these days that the internet isn't taking away your human rights offline. I write science fiction novels. I've written a couple of dozen of those, won a bunch of awards, had New York Times bestsellers.
4:27 Speaker 05 And I'm a blogger. As you say, I edited Boing Boing for nineteen years and these days I have my own blog, Pluralistic.net. And I write about tech policy, culture, science fiction, all kinds of stuff.
4:40 Barry Ritholtz? So let's, let's start with tech culture and EFF. What was the first issue that got you interested in exploring digital rights and just protecting user rights on the internet?
4:55 Speaker 05 Well, like a lot of EFF supporters, you know, I got started reading about the stuff EFF was doing long before I got involved with them. So you know, one of the, one of the big cases that we got involved with very early almost, and they called Bernstein. So the NSA had classed encryption as ammunition. And they said that civilians should not be able to access working encryption. They had a kind of weak form of encryption. They called DES 50. It was the Defense Encryption Standard with 50 bits of key. And they said DES 50 is good enough for anyone. The mafia won't break it. Our foreign adversaries won't break it. But you know, the NSA can break it if they need to. And we tried all kinds of things to say this was a bad idea. One of our founders, John Gilmore, actually built a computer called Deep Crack
5:39 Speaker 05 that could brute force all of DES 50 in two and a half hours. It cost a quarter of a million bucks and it's actually in my office now because John got tired of having it in his garage and no one cared. But then we went to court representing a cryptographer, grad student at Berkeley called Daniel J. Bernstein, who had made an encryption program that was stronger than DES 50, that was as strong as modern encryption these days. You know, when you take your distraction rectangle out of your pocket and click it in the instant it takes for that file to land on the mass storage, it's encrypted so well that if every hydrogen atom in the universe were a computer and it did nothing until the end of the universe, but try and guess the key, you would run out of universe before you ran out of keys.
6:19 Speaker 05 So he makes up working encryption, kind of miraculous, modern thing, the thing that protects your bank transactions and the firmware updates for your anti-lock brakes and your pacemaker and all that other stuff that we want to keep secret and secure. And we argued that he had a First Amendment right to publish his source code. That source code was a form of expressive speech under the First Amendment. We won in the district. We won at the appellate division in the Ninth Circuit. The NSA didn't want to take their chances with the Supreme Court. And ever since then, code has been speech, and we have had the tools to have secure communications.
6:52 Barry Ritholtz? So I recall you being very involved with digital rights management and Napster and Grokster and what was the video version of that?
7:01 Speaker 05 That broadcast flag.
7:02 Barry Ritholtz? Right. That's when I first realized, oh, he's more than just a curator. He's really very much an activist. You started writing about surveillance and monopolies and information asymmetries. I don't know, is it 20, 25 years ago? Tell us a little bit about that.
7:20 Speaker 05 Well, partly it's because I'm a science fiction writer. And so as a science fiction writer, the thing that I'm most preoccupied with is not what do gadgets do, but who do gadgets do them for and who do gadgets do them to? I think of science fiction as a kind of inverse of this kind of vulgar Thatcherism that says there is no alternative. Margaret Thatcher used to say there is no alternative. So often they called her Tina, there is no alternative. What she meant was like, stop trying to think of an alternative. And when you are a technologist, and that's my background, I was a software developer, and when you have that kind of science fiction imagination, you look at the things that you're using, you're thinking, why do we have to take the bad with the good?
8:01 Speaker 05 Why is the product designer here delivering me a pre-feast menu that's full of a bunch of stuff that no one would ever want to eat, instead of just the à la carte that has the things that I want? And so I started to wonder why we couldn't seize the means of computation, take the things that we were using, and make them work for us, not for someone else. They sell you a printer that only takes generic, or third-party ink. You modify the printer so it takes generic ink. They sell you a phone that only uses their app store. You modify it so it uses anyone's apps. They put you on the web and they start spying on you. Well, you put in a privacy blocker. More than half of all internet users have installed an ad blocker. It's the largest consumer boycott in history.
8:45 Speaker 05 And it means that whenever a product manager sits down to think about like, how invasive and obnoxious should our ads be, they kind of have to contend with this possibility. That users will take it upon themselves to correct the situation, to make a counteroffer, right? My offer is, I'm gonna show you this webpage, but I'm gonna spy on you and bombard you with ads. Your counteroffer might be, how about no? Right? And so, you know, that's dangerous because if, like, making your ads 20% more obnoxious makes 40% of your users put in an ad blocker, you don't get money from them anymore, and no one ever goes back to the search engine and types, "How do I start seeing ads again?" So that's a permanent thing. And, you know, one of the big changes, and one of the things that I've tracked over this
9:29 Speaker 05 quarter-century, is the rise and rise of IP rules that prohibit that kind of modification. So, the biggest one being something called anti-circumvention law, which is law that just says you can't modify something that's designed not to be modified. In other words, if the programmer-
9:46 Barry Ritholtz? Despite the fact that you paid for it and you own it.
9:48 Speaker 05 It's yours, you want to do something legal with it. So if the programmer, basically, when they're writing the code, does the equivalent of drawing a chalk-dotted line around some of the code and says, like, "Don't look in here or change this." Under laws like the Digital Millennium Copyright Act of 1998, it becomes a felony to change it, even for a lawful purpose. And so, you know, an app, it's just the web, but it has these technical protection measures that make reverse engineering illegal. So an app is just a website, you know, skinned in the right IP to make it a felony to defend your privacy when you use it. This is why, you know, bosses are so horny to make you use their apps and not their websites, right?
10:23 Barry Ritholtz? Right. So, it's interesting, because you lived in Europe, and in particular in London, for so long, it seems like the Europeans have a much more user-friendly perspective on privacy rights and digital rights. How far away is the United States from, if not the platonic ideal, just the way Europe does it? Or am I giving them too much credit?
10:47 Speaker 05 Well, look, I don't think it's necessarily because the Europeans are better at regulation than the Americans. I think it has a lot to do with the fact that the companies that abuse us on the internet are not called Nokia, Olivetti, Ericsson, Deutsche Telekom, right? It's a lot easier to get the political space to do evidence-based policy when your economy isn't so focused and controlled by a small number of very dominant firms. That's just the real politique here. I think, though, that something is changing in Europe and it has changed over the last few years and it's about to accelerate quite a lot, I believe. So for a long time, the European approach to tech was to try and make them behave themselves. Right?
11:30 Speaker 05 So, you know, Mark Zuckerberg has a platform with a lot of abuse and hate speech and harassment. They say, Mark Zuckerberg, you have to prevent that. Right? And what they're saying to him is, the problem isn't that you have the power, the problem is how you wield the power. We would like you to wield your power more responsibly. And in fact, if you need more power to do that, right? Because if you're going to stamp out harassment on a platform, you have to know what every user is doing and have the power to stop them. So even if you need to arrogate more power to yourself over your users, that's okay. Just use the power in the way that we want. It's kind of a constitutional monarchy, right? He is the absolute ruler, but he, you know, suffers himself to be draped in like gilded chains held by his courtiers, right? In the last few years, the European Union has started to regulate as though the problem was the power itself.
12:14 Speaker 05 Not that Mark Zuckerberg was bad at being the social media czar for 4 billion people unelected with an office for life, but rather that that office shouldn't exist. And so they've started to impose things like interoperability requirements that make it so that if you leave a social media platform, when you get somewhere else, Blue Sky, Mastodon, something that doesn't exist, because why would you capitalize something when everyone's locked into Facebook or Twitter? When you get there, you should be able to see the messages posted by the people you left behind, you should be able to have discourse with them, be part of those communities. In the same way that like when you switch from, you know, Vodafone to T-Mobile, you do some administrative work and a few seconds later, your phone number cuts over.
12:54 Barry Ritholtz? It doesn't seem to work that way. You used to be able to drag your, either the people you were following or your own followers.
13:02 Speaker 05 Sure.
13:03 Barry Ritholtz? From Twitter to Blue Sky, that, those AIs got.
13:06 Speaker 05 Yeah, they made it a lot harder. So, so it wasn't that you could drag them over, you could find them. Right? And this was all cutting off the, this is what Musk did when he cut off the API, is he made it much harder to build those migration tools. And so, you know, the EU is like focusing on those migration tools and they're about to become a lot more focused because of Trump's foreign policy. So for more than 20 years, I have gone around the world, more than 30 countries, on behalf of the EFF and talked to policymakers about what would make a better internet policy. Things like improved interoperability rules, the right to reverse engineer modify, better privacy rules. And what they've said at every time is that, "Well, we'd love to do that. It sounds very sensible." But the US Trade Representative has made it very clear that if we don't have policies
13:49 Speaker 05 that protect the rent extraction of American firms, they're going to hit us with tariffs. Well, you know, happy liberation day, right? If the guy says-
13:57 Barry Ritholtz? Oh, this trade thing is two-sided? Is that what you're suggesting?
14:01 Speaker 05 Yeah. So if the guy says, "Do what I tell you, I'm going to burn your house down." You do what he tells you, and he burns your house down anyways. You're kind of a sucker if you keep doing what he tells you to do. And not only that, but Trump has made it so clear that what we used to call American trading partners are now America's rivals.
14:16 Barry Ritholtz? Right.
14:16 Speaker 05 And that rivalry will be pursued through the American tech giants. You know, this is what we were told Huawei was going to do to us. Every accusation is a confession, right?
14:26 Barry Ritholtz? That's exactly right.
14:28 Speaker 05 You know, when the International Criminal Court swore out a complaint against Benjamin Netanyahu for genocide, Trump denounced this, and then Microsoft terminated his online accounts. He lost his email, he lost his address book, he lost his calendar, and he lost the working files of the International Criminal Court. Well, this has lit a fire under Europe, right? They are now pursuing this thing they call Eurostack. There's a lot of money for it, and they want to replicate American tech stacks. They want to replicate the data centers, they want to replicate the applications, Google Docs, and so on and so on. The problem is, no one is ever going to copy and paste a million documents from their government ministry, one at a time, out of G-Docs and into Eurostack.
15:06 Barry Ritholtz? This sounds very much like Europe has a TikTok problem the way the United States does, only the issue is American tech companies, not a Chinese social media network.
15:17 Speaker 05 And honestly, I don't think TikTok is doing what they say they're doing. And if they are, the best way to solve that is to just update American privacy law because that's the problem. You know, the last time we got a new privacy law in America, you may know this, it was 1988. It was when Ronald Reagan signed the Video Privacy Protection Act. It makes it a crime for video clerks to disclose your VHS rentals. Everything else is fair game, right? Why is TikTok spying on you? That's why TikTok, because we let them, right? But, you know, in Europe, when they reach this point where they're not going to be able to migrate from these old American services to these new European services- They're gonna have to start reinvigorating their reverse engineering game and make it
15:59 Speaker 05 so that you can run headless phones in the cloud that impersonate users and iterate through the documents and move them over or do scraping or alt clients, on-device bridging, all this stuff that we used to do all the time, right? That was like Ross Perot's business, right? It was helping people move data between systems that we used to do all the time, as they would say in the Star Wars universe, this elegant weapon from a more civilized age. They're gonna have to revive it because right now it's like they've observed a giant housing crisis in East Berlin and so they built a bunch of houses in West Berlin. And they're not thinking about how the people are gonna move in. They're gonna have to tear down the wall, right? And so this is, in some ways, one of the most amazing things to happen in digital rights in my whole career. It's sort of analogous to what happened when Putin invaded Ukraine.
16:44 Speaker 05 You know, there used to be all these structural reasons they couldn't solarize Europe, right? Planning permission, electrical and safety codes and so on. All of a sudden, when you're shivering in the dark, that stuff isn't so important. And now Europe is 10 years ahead of their solar transition plan, right? I think that we're about to get this on a global scale, not least because economically it makes so much sense. You think about the extraction from these locked platforms, right? Inkjet ink. Inkjet ink is the most expensive fluid you can buy as a civilian without taking a special license. It would be cheaper to print your grocery list with the semen of a Kentucky Derby-winning stallion.
17:19 Barry Ritholtz? That's unbelievable.
17:20 Speaker 05 And, you know, the only reason we don't have generic ink in our printers is because it's against the law to like make modifications to printer firmware so it doesn't check for generic ink.
17:29 Barry Ritholtz? But you can buy...
17:30 Speaker 05 It just don't work reliably, right? And the printer companies push non-consensual updates to your printer that shuts this down. And they've done all kinds of sleazy things like HP pushed an update in March that was a security update that was like a Manchurian candidate, a sleeper agent. It sat there until September, didn't do anything, waited for all the parents to go to Costco and buy back-to-school kits of generic ink. And then it detonated and all that ink was useless, right? So they're trying to like send a message to America's parents, don't buy generic ink ever, you never know when it's gonna stop working. They were like maximizing the pain here.
18:07 Barry Ritholtz? Unbelievable, absolutely unbelievable. So, literally had to have a conversation with the powers that be to figure out how to say the title of your book... Which ironically has been named the word of the year in two separate major
18:25 Speaker 05 Three?
18:26 Barry Ritholtz? Three. I found two in my research.
18:28 Speaker 05 Well, two dictionaries, but three countries.
18:29 Barry Ritholtz? Three countries.
18:30 Speaker 05 Yeah.
18:31 Barry Ritholtz? So let's talk about entidification. How do you define it?
18:36 Speaker 05 Sure.
18:36 Barry Ritholtz? In a way that we can broadcast without running afoul of the FCC?
18:41 Speaker 05 Well, you know, working for the Electronic Frontier Foundation, as I have for so long, my job has really been about trying to raise the salience and the urgency of these digital issues that are very abstract, very technical. You know, they eventually become very concrete, but it's when your house is on fire. You kind of want people to get active before then. And so that's a game of coming up with similes and metaphors and framing devices, funny words, parables, and so on. And the latest of these is this one, entidification. And entidification is both an observation about how things go bad and also a theory about why they're going bad. And so the observation's quite straightforward. And in the first phase, you have firms that are good to their end users, but find a way to
19:23 Speaker 05 lock those users in. In the second phase, they make things worse for those end users, and they rely on the lock-in to stop those end users from departing, and they make things good for business customers. In the third phase, they lock in those business customers and extract all of their surplus as well. They leave behind the kind of meanest homeopathic residue needed to keep users locked to the platform, businesses locked to the users, and they extract everything for themselves and they turn into a palate crap. That's the kind of observational end of it. But the question I want to interrogate is why is it happening now? Right? Because we didn't invent greed in the middle of the last decade. The people running these companies are often the same people who ran them from day one. You know, Mark Zuckerberg was running Facebook from his Harvard dorm to today, and he owns
20:05 Speaker 05 the majority of the voting shares. Google actually got worse when Sergey Brin came back in terms of its path to platform decay. So what is it that made these companies bad now? And I think really, the way to understand that is to ask the inverse, which is why weren't they worse before? Because obviously firms would like to charge more, deliver less, pay less to their suppliers, pay less to their employees, seek more beneficial terms themselves. And when you phrase it that way, you know why firms don't do it. Because if you charged infinity and paid nothing, well, maybe you'd be running a scholarly journal. But if you're not running a scholarly journal, no one would do it. Right? You would, you would lose your employees, you'd lose your customers. You have to labor under the discipline of competition, of regulators.
20:50 Speaker 05 And if you're in tech, you had other sources of discipline like interoperability, the ability to make two programs work with each other. So maybe if you had a rent extraction scheme, someone would alienate your users from you by coming up with a plugin that made it possible for them to avoid that rent extraction scheme. And those customers would then discover that there was a better firm out there and they might switch to becoming the customers of them. And you had to worry about your workers because tech workers were so powerful. And they often really fought hard for their users. They cared about their jobs. And so my thesis is that when we dismantled these sources of discipline, we created what you could call the enshitogenic policy environment. Right? The environment that rewards the firms that do the worst, that rewards, rewards the factions and the firms that advocate for the worst,
21:33 Speaker 05 that rewards the impulses in CEOs that are tempted to do the worst. And then the worst happened.
21:39 Barry Ritholtz? So let's talk about some of these firms because I imagine everybody has experienced the title of your book. Platform decay is the phrase I like to use.
21:53 Barry Ritholtz? I mean, in my experience, and I'm a few years older than you. It began with Microsoft, the probably the, you know, sui generis first company that figured out how to lock people in and then abuse the monopoly position they had. That was followed by, let's go through the list. eBay, Google, Amazon. I, I would be biased if I didn't include Apple. I think I can also include Starbucks and other entities like that.
22:24 Speaker 05 Yeah.
22:25 Barry Ritholtz? I have a peeve with them because they basically threatened users with their Starbucks points during the pandemic. I thought that was very misguided and, oh, okay. See ya. That was an easy platform to. Wait, um, there was an article in the Wall Street Journal that the Starbucks app. You would load it up with a credit card. Wait, why do I have to give you fifty dollars? Just hit my credit card.
22:50 Speaker 05 Right.
22:50 Barry Ritholtz? And it turned out it was a three or a four billion dollar interest-free loan.
22:54 Speaker 05 That's right. It's free cash flow.
22:56 Barry Ritholtz? So, so that was a little bit of a, oh, and you want to take my points? All right, I'm done with you. Not boycotting them, just, they just kind of fell off my first choice. But let's, I'm curious.
23:07 Speaker 05 They overcooked their beans, too.
23:08 Barry Ritholtz? Right. Well, if you like strong coffee and don't mind a little bit of bitterness.
23:13 Speaker 05 Sure.
23:13 Barry Ritholtz? For sure. But I'm curious, what were your experiences that led to the book? What, what was the first platforms that you watched decay?
23:24 Speaker 05 Well, like, let me be, clarify a little here, because there is, there have been lots of platforms that have decayed, but they didn't shamble on. Right? I think that's one of the mysteries that I'm trying to plumb here, right?
23:34 Barry Ritholtz? Well, there's a difference between a company like MySpace that just loses out to a superior technology, or a better interface, or whatever, versus something where the entire platform follows the pattern that you've outlined.
23:49 Speaker 05 And they, but, but, and then they stay in business, right? That's the thing that I want to interrogate.
23:53 Barry Ritholtz? Profitably, wildly profitable.
23:55 Speaker 05 Yeah, so, you know, uh, uh, let's think about a few examples that you just raised, and, and what happened when they enshitified, right? So, Microsoft, I was, uh, you, you mentioned Apple, and you said you'd be biased if you didn't mention Apple. I was a kind of CIO for hire in the early 2000s, and every shop that I would work in.
24:13 Barry Ritholtz? Chief info or chief investing?
24:15 Speaker 05 Chief info. Chief info, yeah. Never chief investor. I invested all my dot-com money wisely in laptops. I'm sure they're going to appreciate it someday. Uh, no, I, I was, I was going around helping little SMEs get online. I put up their LAN, I get the file server, everything. And they all had a problem, which is that they'd have a couple of Macs in the shop, and they couldn't read or reliably read or write Microsoft Office files. Because Microsoft has, uh, Microsoft Office, yeah, Microsoft Office for the Mac was the most cursed piece of software to come out of Redmond. You just waved the floppy disk around the office, and files would spontaneously go corrupt. And so, eventually, you'd go to the designer, and maybe the CEO would have a power book, and you'd put a, a PC on their desk that was just for like Excel, Word, and PowerPoint.
24:56 Speaker 05 And then that was kind of unwieldy. So then you put a big graphics card in there. You'd buy Windows versions of all the the programs the graphic designer used and you throw away the Mac. And so Steve Jobs knew that this was a problem. He didn't just beg Bill Gates to fix Office for the Mac. He reverse engineered Office for the Mac. He reverse engineered the Office file formats. And he made iWork, Pages, Numbers and Keynote.
25:21 Barry Ritholtz? Right.
25:22 Speaker 05 Which can perfectly read and write the Microsoft Office file formats. So what he did in economics terms is he reduced the switching cost to zero. Because you didn't have to leave any of your files behind when you went from Windows to a Mac. And he solved the collective action problem of convincing everyone to move to a Mac because you didn't have to. You could go to the Mac and other people could join you when they were ready. This saved Apple's bacon.
25:44 Barry Ritholtz? I recall the famous Prey cover of Wired in 1998. And my pet theory, or it's not even mine, is that Microsoft cut a deal in order there was already the antitrust bubblings.
25:58 Speaker 05 Yeah.
25:58 Barry Ritholtz? So hey, we have to keep a legitimate operating system competitive around otherwise.
26:02 Speaker 05 Control opposition.
26:03 Barry Ritholtz? That's right.
26:04 Speaker 05 Well, yeah. And they ran these switch ads, if you'll recall.
26:07 Barry Ritholtz? Oh, very much so.
26:08 Speaker 05 About how easy it was to switch. So this was this incredible moment. Now, what would happen if you did this to Apple? Right? We have people locked into the iPhone today. Their apps are there, their data is there and so on. It's not hard to like make an iPhone emulator that runs on another computer, including like on an Android device. Right? And so you could run all those apps, you could access all that data. If you did that to Apple today, if you did unto Apple as Apple had done unto Microsoft, first they'd hit you with Section 1201 of the Digital Millennium Copyright Act for Circumvention. That's a $500,000 fine and a five-year prison sentence for a first offense. Then they would call you a tortious interferer with their contract for violating their terms of service. And they might hit you with criminal terms of service violation under the Computer Fraud and Abuse Act. They would call you a copyright violator, they'd call you a trademark violator, a patent violator.
26:54 Speaker 05 Maybe if you hired some ex-employees, they'd say that you're going after their trade secrets and maybe their ex-employees' non-disclosures. They would basically nuke you till you glowed, right? And so it's true, platforms went bad all through history, but they had counter maneuvers. You know, it wasn't just that MySpace was outcompeted by Facebook. It was that when Facebook was trying to lure users over from MySpace, it gave them a bot. And you gave that bot your login and password, and it would go to MySpace several times a day. It would grab everything in your MySpace feed and put it in your Facebook feed, so you could reply to it, and it would push it back out again. So again, you didn't have to choose between the people that you loved on MySpace and the superior application that was Facebook, because Facebook's pitch at the time was,
27:39 Speaker 05 "Don't use MySpace, it's owned by an evil billionaire. No one wants to use social media owned by an evil billionaire. Plus, did you know they spy on you? We're never gonna spy on you at Facebook." Right? But, you know, no one is gonna just smugly read the superior terms of service while they wait for their dumb friends to join them on Facebook. They're gonna be where their friends are. So they just solved that problem for them. Now, in the book, I tell the story of an app called OG App. It was created last year by a couple of teenagers. They just reverse engineered Instagram. And so you would give Instagram, you give the app your Instagram login and password. It would go to Instagram, pretend to be you. It would grab everything in the queue waiting to be shown to you, and it would throw away the ads. It would throw away the recommendations. It would throw away the boosted content. It would throw away everything that had been like surfaced from three months ago because it was getting clickbait. And it would just show you the things that the people you followed
28:23 Speaker 05 had posted in reverse chronological order. It was the OG app.
28:27 Barry Ritholtz? It's what Facebook did to MySpace.
28:30 Speaker 05 Entirely.
28:31 Barry Ritholtz? They're doing to a Facebook-owned property.
28:33 Speaker 05 Yeah. And so, within 24 hours, it was in the top 10 on both app stores.
28:38 Barry Ritholtz? Wow.
28:38 Speaker 05 And then, that night, Apple and Google shut it down at Meta's request.
28:42 Barry Ritholtz? No kidding.
28:43 Speaker 05 Because now, we have these choke points, and it turns out that there is honor among thieves. Right? They will all defend to the death one another's ability to structure whole markets and decide which products can reach audiences, how profitable those products can be, what they can charge, whether or not you can even use them. Right? All of those things are now being privately regulated by entities that are not winning their markets alone, but rather are enlisting the state to win their markets. So... People have different views about how much industrial policy we should have and so on. But nobody, I think, that I know of is like, we should have industrial policy, but the way that it should work is that the government should find some monopolists, pay no attention
29:27 Speaker 05 to what they're doing, except when monopolists get angry and then destroy anyone they're angry at. That is like the weirdest form of industrial policy I've ever heard of.
29:35 Barry Ritholtz? And that seems to be the sort of policy we have. Let's talk a little bit about the crapification of Amazon.
29:42 Speaker 05 Sure.
29:43 Barry Ritholtz? Which, which the great reveal to me was during the pandemic, when they would frequently run out of stuff, and then sometimes it would be at Walmart, sometimes it would be at Target, sometimes it would be on Instacart, and the shock of the pandemic to me was, these guys have been, I've had an Amazon account since I got a gift from a college roommate, I want to say it was 98, something like that, so a long time, and the same with eBay, and suddenly you discovered that Amazon wasn't the low-cost provider. And then, the free overnight shipping, it's like, hey, your shipping day is Wednesday, we'll send it to you on Wednesday, or we'll
30:25 Barry Ritholtz? give it to you tomorrow for $3.99. Wait, this isn't next-day shipping, or even two-day shipping. And then the last insult was the advertisement. I was searching, you know the little lithium batteries for key fob for cars?
30:39 Speaker 05 Sure.
30:39 Barry Ritholtz? Like, they're very specific, Duracell 5374. You put that in the search bar, and the first thing that pops up, it's a Duracell, you click it, you send it, you open up the package, wait, this isn't a 5374, what?
30:52 Speaker 05 Right.
30:53 Barry Ritholtz? Why are you, I'm advertising for this exact size, voltage, whatever, why on earth would you show me something else? And I'm enough of a jerk that I make them pay me the $2.89 for it, and I send it back.
31:07 Speaker 05 So, you remember Lily Tomlin's bits on SNL, where she would pretend to be Ernestine, the phone operator, doing these commercials for her?
31:14 Barry Ritholtz? Laughing.
31:14 Speaker 05 Well, start on a laugh, and she took to, I've been corrected by so many pedantic people.
31:18 Barry Ritholtz? Right.
31:18 Speaker 05 But she started on a laugh, and she did it on SNL, she did more segments on SNL than on a laugh.
31:22 Barry Ritholtz? Oh, really? I didn't know that.
31:23 Speaker 05 Yeah, so it's but yes, I I but both. And she would at the end of these ads for the Bell system. She would turn to the camera and she'd say, we don't care. We don't have to. We're the phone company. Right. One of the insights I think that Lena Kahn had when she was in office that really landed was that companies don't just become too big to fail. They don't just become too big to jail. They become too big to care. That when they when they're insulated from consequence, they do this. Now, what's striking about Amazon is the growth that they've experienced from rent. Right. Not from products, but from rent. So you mentioned the advertisements. When I wrote this book, their so called ad market, which is the payola markets, the payment for placement and a search result. That was like a $32 billion business.
32:08 Speaker 05 It's now a 50 something billion dollar business. This is remarkable growth. And that's the reason that the first item in your Amazon search result is on average 29% more expensive than the best match for your search.
32:20 Barry Ritholtz? Or just the wrong item. It's amazing.
32:22 Speaker 05 Sure. And then the top bar 25%. And then you to you get down to position number 17 or so, and that's where you find the good result. And of course, the companies spending more to advertise have less surplus to allocate to product quality. And so they're just dominating these search results and they're they're shipping bad things to you. By the same token, every merchant on Amazon is paying junk fees to list on Amazon. And most of these fees are listed as optional. But practically speaking, if you don't pay them, you won't get there. So you have to do fulfillment by Amazon. You have to pay for Prime. You have to pay for advertising. When I wrote the book, it was depending on the estimate 45 to 51%.
32:59 Barry Ritholtz? Wow.
33:00 Speaker 05 In junk fees.
33:01 Barry Ritholtz? And now?
33:01 Speaker 05 Today, in the New York Times, Tim Wu cites 50 to 60%.
33:05 Barry Ritholtz? That's unbelievable.
33:06 Speaker 05 And I've been through New York Times fact checking. I think he's he wouldn't make that. And I've known Tim since we were in elementary school together 50 years.
33:12 Barry Ritholtz? Columbia professor, right?
33:14 Speaker 05 Columbia professor. We both grew up in Toronto, like all like all the best Americans were Canadians.
33:18 Barry Ritholtz? So in the book, you it's funny because I'm assuming the advertising on Amazon.
33:25 Barry Ritholtz? Yields a result. In the book, you talk about how the process of decay got worse and worse at Facebook. And what was it, 2018? Procter and Gamble said, "We're just gonna cut"
33:36 Speaker 05 2017, yeah.
33:37 Barry Ritholtz? $200 million in advertising, and they saw zero decrease in sales.
33:41 Speaker 05 Yeah, so one of the things that Amazon, that Facebook did early on was allocate a lot of resources to anti-fraud, because ad fraud is very easy. You think about how the ad market works, it's very complicated. And you know, if you're a publisher, and you're getting paid by the click, you can just fire fake clicks on ads.
33:57 Barry Ritholtz? Right, bot farms and everything.
33:59 Speaker 05 Yeah, yeah, or you know, just websites that don't even exist, that are just loading, like they just, they only exist like in, as a series of API calls that are then generating click responses and so on, you know, it can be very lucrative. And so they put a lot of money into policing this, and then they just drew down that spend because it's expensive, right? And so you just let-
34:20 Barry Ritholtz? Providing a quality product and service is expensive?
34:23 Speaker 05 And so you let $200 million disappear down the fraud hole, right? That's someone else's problem, right? It's not Facebook's problem. I'm sure Facebook would prefer a fraud-free marketplace, but why bother, you know, gold-plating their anti-fraud?
34:35 Barry Ritholtz? When one of the biggest advertisers and purchasers of the country says, "Cutting this out because your ads are garbage," that's why.
34:43 Speaker 05 Well, they're back now, though.
34:44 Barry Ritholtz? Oh, are they?
34:45 Speaker 05 They reinstituted it, and they just have more anti-fraud on their own end. So they're internalizing those costs.
34:49 Barry Ritholtz? Huh, that's unbelievable.
34:50 Speaker 05 They're doing more auditing on their end.
34:51 Barry Ritholtz? Unbelievable. So, we talked about Facebook, we talked about Amazon, gotta ask about Uber, which has all sorts of interesting platform issues. The big one was when the VCs first realized, "Hey, we have to stop subsidizing these millennials and allow the prices to float freely." The one I've noticed over the past year or two is, there's time as it exists in the universe, and then there's time on the Uber app waiting for a car that seems to have no correlation to the actual time. What's going on with Uber in terms of what they pay people?
35:29 Speaker 05 Yeah.
35:29 Barry Ritholtz? Surge pricing and their wonky perspective on, on time?
35:35 Speaker 05 So when Uber kicked off- They tapped the capital markets. Specifically, they got Masayoshi Son, star of stage and screen, the man who gave us Yahoo buying and destroying every promising web 2.0 company and WeWork and these days OpenAI's latest round. And he went to his favorite suckers, the Saudi royal family, and he got $31 billion out of them. And then they lost 41 cents on every dollar for the next 13 years. They just lit it on fire. But that did have some salutary effects from their business perspective. It provoked a lost decade in transit investment all over the world, because why invest in transit when it's so cheap? They put medallion cabs out of business everywhere. And they use
36:15 Speaker 05 predatory pricing to freeze out all but one also ran ride hail company, which is Lyft. And then having effectively cornered a market and spent a lot of money on policy adventurism, think about the $225 million that was spent in California on Prop 22 to formalize the worker misclassification, allow them to, you know, only pay the drivers when they had a passenger in the car and not when they not when they were cruising around giving free labor and wear and tear on their cars to to the company. They were able to raise prices and they were able to lower wages. And to do both, they tap both private data and algorithmic fluidity. So the labor con or the lawyer, rather,
36:55 Speaker 05 the labor lawyer, Veena Dubal, coined this term algorithmic wage discrimination. It's when two workers are offered a different wage based on the algorithm's estimation of their desperation. And so in the case of Uber, the way that this works is if you take a lowball offer, and when you get an offer as an Uber driver, you have just a few seconds to say yes or no. And you've got to figure out like mileage, minutes, and so on. When you if you take that offer and it's lower than your historic rate, then that becomes a new ceiling, and they start to nudge you down lower and lower.
37:28 Barry Ritholtz? Really? That's unbelievable.
37:29 Speaker 05 Yeah. So drivers, they bucket themselves into pickers and ants. And the pickers are picky and the ants take everything. And ants have their wages go down and down and down. And the idea is to turn every picker into an ant, because an ant is subsidizing the company, right? They're just driving around and around. They're on the road, eating no matter how Garbage the fares are, it's great for the company. And of course, if you can take a lowball offer and you can find a passenger who will take a price gouging offer, then the difference is the companies to suck up. And so we, on the passenger side, we have our own version of this, where they are doing all kinds of calculations in the backend to calculate how desperate we are to take the ride. Now, it used to be that they had this whole thing about, oh, we're going to match supply with demand using price signals. We'll have surge pricing.
38:14 Speaker 05 When everyone gets out of a Dodgers game, we'll crank up the price. Pouring rain, whatever. That'll drive drivers out. That's not what they do anymore, right? They do have surge pricing. They just keep the surge, right? Unless the drivers won't take it. Now, again, if it were lawful to do reverse engineering modification, you could imagine drivers doing what they're already doing in other countries. Like in Indonesia, gig riders, because they don't drive cars, they ride motorbikes there. And those are the taxis and delivery vehicles and so on. Those gig riders, they started these little clubhouses because you need somewhere to pee and to have a cup of tea and, you know, work on your bike. And those clubhouses turned into co-ops, and the co-op started commissioning software. And they commissioned software to modify their dispatch apps. And it started pretty modest.
38:56 Speaker 05 It started with the well-understood tendency of graphic designers to torment the rest of us by making all their type eight-point gray type on white. Right. And all the older riders are like, I cannot see my goddamn phone and I'm in traffic. Make the type bigger and black. But these days, it's stuff like an app that allows all the riders to say, none of us will take a ride that's a lowball offer. So automatically calculate the mileage and the per minute when you get the offer over the air and just turn it down automatically so that you can force the algorithm to force the wage up, right? Amazing. Drivers here can't do that. Not because it's technically impossible, because it's unlawful. You know, the... Why would that be unlawful? It's like a union. Because you're bypassing the technical protections in the app. And under Section 121 of the Digital Money and Copyright Act,
39:40 Speaker 05 that's illegal, even if you're doing so for a lawful purpose. So the mere presence of what's called an effective means of access control in the statute creates a zone where you cannot enter, irrespective of the legitimacy of the reason for your entry.
39:56 Barry Ritholtz? That's unbelievable. You would think they could create a very simple um client app where the server is the one that's doing all that. It's not. And just do the calculation and say no.
40:07 Speaker 05 Yeah, but scraping the so that scraping the number, right, when it comes in is illegal.
40:12 Barry Ritholtz? You're not even scraping it. You're just you're seeing it. You don't have to go to their site and scrape it.
40:16 Speaker 05 No, no, but it's on your device, but on your device.
40:19 Barry Ritholtz? Right.
40:19 Speaker 05 They're blocking other apps, but they're blocking other apps from seeing what one app, one app by design, one app can't see what the other app is doing.
40:27 Barry Ritholtz? Really?
40:28 Speaker 05 Which is good. You kind of want that, right? You don't want, you don't want like the malware in your browser seeing your private messages.
40:33 Barry Ritholtz? Sure, that's fair.
40:34 Speaker 05 But um you, as the owner of the device, could certainly say, well, I give permission for this.
40:38 Barry Ritholtz? Right, that's right.
40:39 Speaker 05 But uh for someone to write the app that bypasses that control, even with permission from the owner, is unlawful because that control itself has its own zone of protection that is not in the control of the owner of the device. It's in control of the author of the software. I'll I'll give you a quick example.
40:56 Barry Ritholtz? That's unbelievable.
40:57 Speaker 05 All the audiobooks on Audible are sold with these technical protection measures.
41:00 Barry Ritholtz? G R M and everything else.
41:01 Speaker 05 Yeah, they only play on Amazon's approved apps.
41:04 Barry Ritholtz? Uh huh.
41:04 Speaker 05 They're 90% of the market. That means every time I sell you an audiobook, I create a switching cost for you.
41:09 Barry Ritholtz? Right, that's right.
41:10 Speaker 05 And so if Amazon screws me and I leave, I have to you, I have to guess whether you're willing to throw away all your audiobooks to follow me.
41:16 Barry Ritholtz? No, well, I mean, who, how many people listen to the same audiobook twice?
41:20 Speaker 05 Lots of people at big libraries.
41:21 Barry Ritholtz? Yeah.
41:22 Speaker 05 Lots of people at big libraries. So here's the thing. If I give you a tool to move your audiobook library from one app to another, I, the author of the book, and in this case, I read the book aloud myself in a studio.
41:34 Barry Ritholtz? Right.
41:34 Speaker 05 I financed the production. I paid the director. I paid the engineer. This is my copyright from top to bottom. This is mine.
41:41 Barry Ritholtz? You're not allowed to do that.
41:42 Speaker 05 Not only do I commit a crime, but I create, I commit a more serious crime than you would if you pirated the audiobook. I face a worse sentence than if you shoplifted the audiobook on CD at a truck stop. And we would probably get the same sentence if you and I, if I were to provide you with a tool to take the audiobook out of the app, and if you were to stick up the driver of the truck that delivered the CDs to the truck stop.
42:03 Barry Ritholtz? That's unbelievable. I have to ask you about generative. AI, the impact on artists and writers and what it means in terms of
42:11 Speaker 05 Oh, we're never going to get this in two minutes, but let me try.
42:14 Barry Ritholtz? Go ahead.
42:14 Speaker 05 So, look, the only, your boss is insatiably horny for firing you and replacing you with an algorithm. That has been true since the time of the Luddites. Bosses don't like to pay workers and they're looking for a way to erode the rights of workers. If we were to give to creative workers a new right to control AI training, those workers would still have to sell their labor into a market of five publishers, four studios, three labels, two companies that control all the apps and one ebook, audiobook company. And those companies would change their terms of contract to non-negotiable acquire that training right. They would license our data to the AI companies and then they would buy back the resulting algorithm and try and put us out of business. However, we do have some remedies to us.
42:56 Speaker 05 So, the first important one is that the US Copyright Office has said correctly that copyright is only for works of human creativity. So, anything [bleeped] by a bot, excuse my language, is not eligible for a copyright. And the only thing our bosses hate more than paying us is having people take the stuff we make for them and using it without paying them without their permission. So, that's the first thing. And the second thing is what the Writers Guild taught us, which is that you can't solve AI with a copyright, but you can solve it with a union that has the right for sectoral bargaining, right? To bargain with all the studios. And if creative workers are going to advocate for a new law, let's not make it a law that our bosses want, which is a new copyright law. Let's make it a law that our bosses hate, which is a sectoral bargaining right for
43:41 Speaker 05 all creative workers to bargain with all employers in their sector, because that actually worked.
43:48 Barry Ritholtz? That was my conversation with Cory Doctorow, author of the new book, In Shitification. If you enjoy this conversation, well, be sure and check out any of our previous 600 we've done over the prior 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your favorite podcasts. I would be remiss if I didn't thank our crack staff who helps us put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.
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