STOP MAKING BIG TECH THE ENEMY

 

Stop Making Big Tech the Enemy

We're in a critical fight to stay ahead of China and India in A.I., yet our government and its regulators keep targeting the companies that are critical to winning. It's time we all played on the same team. 

Expert Opinion By Howard Tullman, General managing partner, G2T3V and Chicago High Tech Investors @howardtullman1

Sep 24, 2024

Election years are notorious for cheap stunts, useless hearings and the annually recurrent attacks on the tech and pharmaceutical industries. There's no lower-hanging fruit for these pointless pontificators than Big Bad Tech, and Big Pharma isn't far behind.

Nothing good ever comes of these abusive sessions except that they permit groups of know-nothing legislators to attempt to humiliate the leaders of some of the most important companies in America. They also consume loads of key management hours which - in these hyper-competitive times - is costly, counterproductive, and actively damaging to America's global market position.

Why anyone thinks these clown shows are productive has never been explained. Although in fairness, the price caps on insulin prices and prescription drugs that the Biden administration has executed are major and long-overdue accomplishments. They were so material and beneficial that the Orange Monster now claims that he was responsible for these new policies. He wasn't. The MAGAts had nothing whatsoever to do with it, but that's just another lie in Trump's vast portfolio of untruths.00:0001:49

The "gotcha" questions in these made-for-media harangues by idiots like MTG (R- GA), Lauren Boebert (R- CO) and James Comer (R-KY) are mostly for the benefit of right-wing cable networks. But they rarely result in anything more than displays of the ignorance of GOP hardliners. In 2018 Orin Hatch asked Meta CEO Mark Zuckerberg how his company could sustain a business model where its users didn't pay for the service. Zuck answered, "Senator, we run ads." Congressman Louie Gohmert (R- TX) once opined that climate change legislation requiring climate-controlled environments for computers could affect the Earth's orbit.  It's often hard to tell the monkey from the organ grinder in these boring bouts of one-upmanship.

And remember when Fox host Bret Baier tried to gotcha Secretary of Transportation Pete Buttigieg by asking him why Tesla wasn't invited to a White House session on tailpipe emissions? Imagine his surprise to learn that EVs don't have tailpipes. There's a quote attributed to Abe Lincoln that goes, "It's better to remain silent and be thought a fool than to speak and remove all doubt." Apparently, there are plenty of politicos and pundits where Abe's warning never got through to its intended audience.

One of the most vocal and insufferable of these congressional clowns is coup conspirator "Gym" Jordan (R-Ohio) who at last count - over a six-year period - clocked more than 565 appearances on Fox and has written exactly zero pieces of legislation during that period. This idiot appears to be preparing additional hearings on nonsensical subjects and is once again planning to seek the speakership in the House if Mike Johnson, the current holder, falls by the wayside because he partnered with the Democrats to avoid the pre-election government shutdown that Trump has been demanding.

Intelligent people might simply ignore these theatrics and the millions of dollars shredded by these stupid shows, but sadly the constant noise and attacks have had two more serious and destructive effects. They have turned substantial portions of the public against the tech industry and they have encouraged and empowered long and very costly litigation by various governmental and regulatory agencies with their own agendas, who never seem to learn their lessons either.

In a digitally connected and fundamentally borderless world of increasing global competition, our own government continues to be short-sighted enough to sue, hamstring and interfere with the operations of our best and brightest businesses in a number of critical tech areas. Decades wasted in pursuit of Microsoft led nowhere, just as breaking up AT&T did absolutely nothing to help the consumer. Threats to break up Amazon and spin out AWS are a bad joke, especially since AWS presently operates more of the U.S. government's back-end computing power than the government itself. The next obvious and very precarious battlefront - with the meetings and hearings already starting - is going to be artificial intelligence, where our edge is already being seriously challenged by China and India.

Only five or six major U.S. tech companies are sufficiently resourced to do battle on our country's behalf in these massive, expensive and complex technology spaces. I've previously explained how challenging it is for smaller operators, entrepreneurs and new business builders to go up against the power and ubiquity of these major players. And that contest seems to be largely over already. Nothing that the U.S. government does in the way of trying to restrict or interfere with their growth is likely to help us in the long run.    

It doesn't take an A.I. prompt engineer to figure out that it's not really a fair fight when the government is on one side of the battle, even if the biggest and most successful tech companies in the U.S. are on the other. And, sadly for our country, it's a more obvious problem and threat when the government in question isn't even ours. The officials and regulators of the People's Republic of China are sponsoring, funding and leading the charge against the U.S. tech industry on behalf of their own China-based businesses as they try to compete with us in the critical industries of the future - especially in the area of artificial intelligence.    

Instead of the government tearing these tech leaders down with stupid hearings and pointless litigation and further slowing our country's growth and initiatives in A.I., we need our political leaders to implement programs and strategies that permit and encourage collaboratives, consortiums, and other shared efforts to put all our resources behind a concentrated effort and a single goal - a U.S. win. Or we can count on being overtaken and outrun by China in the A.I. global marketplace.  

NEW INC. MAGAZINE COLUMN FROM HOWARD TULLMAN

 

Three New Rules to Create Customer Loyalty

Hanging on to consumers and clients has never been more difficult. Make sure you know what you're up against. 

 

EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1

MAY 21, 2024

 

It's becoming increasingly obvious that Amazon is still the leader of the online retail pack even as a number of other major players like Target and Walmart successfully grow their own online presences. To date, the relative growth of the other big players doesn't appear to be coming out of Amazon's share of the pie which is still increasing.

Instead, the online pie itself continues to expand and, to the extent that there's ongoing cannibalization, it's mainly at the expense of traditional retail operators. There has already been a wave of store closure announcements from the likes of Family Dollar, Rue 21, CVS Health, Rite Aid, Express, The Body Shop and Macy's, to name a few.

Today, if you're not building a competitive and protected position on one of the major provider platforms, you're absolutely nowhere and just waiting for the ax to fall. The big platforms are the only place left for the smaller merchants to be.

And, if you're a large traditional retail player, (unlike Amazon which fairly quickly abandoned its own attempts to create a retail bookstore business), you have to keep one eye on the problem of how the expanding web activity is going to adversely impact your physical stores. This is the nightmare scenario that we're increasingly seeing in terms of legalized online casino gaming. There are  currently seven states that allow betting by phone on these kinds of games - whereas almost 40 states have legalized mobile sports betting, which has exploded. The casino owners are already starting to complain about decreases in physical traffic at their venues.

Suffice it to say, all of these issues are only going to get worse as the next generation picks up the play.  You can bet (no pun intended) that the biggest traditional retailers are watching this gambling action quite carefully. Not only isn't this an issue for Amazon, but I'd also guess (to add some additional insult to their injuries) that some of the backend computing resources for these new online casino games are being supplied by Amazon Web Services (AWS) itself. Plenty of oars in the Amazon boat.

Amazon's own results and growth are being accelerated by the power of its other platforms - advertising, fulfillment, video and AWS for starters - the stickiness and expansion of the Prime bundles, and its aggressive race to continue to be the best and fastest player in the delivery game. Speed, ease of access, and convenience are still the dominant differentiators, but there are a number of new drivers for success in online retail, which will increasingly separate the winners from the also-rans who don't pick up on the new rules. Amazon is already on top of all of them and the rest of the world is playing catch-up.

There are three main areas of concern:

First, too many choices often result in no decision. The more options people have, the less likely they are to choose anything. The clearer the offer, the fewer the choices, the quicker the buyer decides. The trick is to remove as much thought and evaluation as possible from the purchase process and continually shorten the window between consideration and consumption.  Amazon's Overall Picks and Best Seller labels help simplify the selection process. Limited time discount offers also accelerate the speed of the transactions.

Second, brand loyalty is the best tool for overcoming decision confusion, reluctance, and fatigue. Consumers want fewer choices and total confidence in them, and this is exactly the promise that strong brand identities offer. Life is increasingly complicated and buyers are most comfortable returning to familiar products and services rather than making new and risky selections. Amazon's Subscribe and Save programs for recurring regular purchases, especially on replenishable consumables, assure the consumer of reliable, timely, and consistent deliveries.  That basically removes price from the equation.

Third, price is rarely the final determinant in most online transactions anyway. Because most of the sites have real-time price adjustment and matching algorithms which virtually eliminate material differences in the prices of comparable items. No one wants to deal with, or negotiate the prices of items they regularly purchase. They are far more concerned with availability and speed of delivery - and, of course, they believe that their time is typically more important to them than a few incremental dollars. In fact, the smoother and quicker the initial transaction, the more likely the buyer is to add additional items to the cart. And it's become apparent as well that the faster you can deliver after the purchase, the more the consumer will buy from you. Near instant gratification is a powerful and addictive element of the overall web experience and a crucial component of the dopamine culture.   

One final thought. In the old, pre-web days, consumers had many needs and few choices. It was a local seller's market. The most obvious example of the changes is probably the newspaper business where news, ads, classifieds and sports were all historically geo-bound. But, by the end of this year, one-third of the newspapers in the U.S. as of 2005 will be gone. Local retail,  having shakily survived the development and impact of major shopping malls in many communities, is probably next on the chopping block.

Today, the whole world is just a click away and buyers have infinite choices but little time, and even less loyalty. Time is the scarcest commodity and the winning merchants will build and optimize every aspect of their online presences to streamline, simplify, and speed purchases to make the sales process as quick, productive and painless as possible. Trying to lock them in through loyalty and reward programs, subscription incentives, and "secret" sales of premium brands and also overstock inventory are all short-term solutions.

Even then, consumers whose expectations are perpetually progressive will continue to ask "what have you done for me lately" and will seek out the best and most effortless experiences - regardless of the provider.  They remain loyal only until they find something better. They may stick around due to other constraints, lack of alternatives, and practical considerations that drive frequency and repeated purchases, but these limitations shouldn't be confused with loyalty or true preference. If you want your customers to keep coming back, you've got to try to be the best in the business and Amazon is currently the gold standard.

New INC. Magazine Blog Post by Howard Tullman

Which of the FAANG's Will Get Broken Up?

Not all of them. And not Amazon. And don't forget to include Microsoft in this bunch of dominant, powerful tech companies. But the idea that they're all going to get trustbusted is silly.

By Howard Tullman

General managing partner, G2T3V and Chicago High Tech Investors

@tullman

I'm surprised at how many smart people don't understand the very different long-term prospects of the members of the FAANG 5. As things begin to heat up and the FTC starts specifically looking at this cast of characters , it's too simplistic to paint them all with the same brush.  Because, while their predatory behaviors may be similar on the surface, there are substantive differences in their businesses and business models. This suggests that the government's likelihood of success in attacking their alleged anti-competitive actions will vary widely.

I spoke last week at a financial conference and one of the other presenters cautioned the audience about how quickly tech-centric businesses can vanish. He noted that only Intel remained today as a major player from a select group of the early semiconductor pioneers.  And he suggested that we'd see a similar turnover among some former tech leaders in the next few years. While he didn't name names, it was clear that his short list included IBM, GE, HP, Xerox, etc. That's astonishing, when you think about it. These companies were once the bluest of blue chips.

I'd say that he will be about half right (two out of five) regarding the FAANG 5.  But to even understand the proper landscape, we probably need to start by changing FAANG to FAAMG. That's because Microsoft will be a major player for a lot longer than Netflix, which is looking more and more like a first-moving, one-trick pony and under tremendous competitive cost, price and content pressures. Meanwhile, unfashionable Microsoft, which still owns the desktop, is just hitting its stride in multiple adjacent verticals, like the Azure cloud. In the end, highly diversified lines of business and multiple material revenue streams will actually aid Apple, Amazon and Microsoft in making their antitrust arguments.

Say what you will about the FTC's light and late responses, at least the agency figured out that taking another look at Microsoft is a lot more relevant than worrying about Netflix. That's especially true if the primary investigative focus is going to be around systemic acquisition patterns that target young, innovative startups before they get big enough to disrupt the industry status quo. Netflix is certainly acquiring and creating content as fast as humanly possible, but so are half a dozen other major media and entertainment players with equally deep pockets and other advantages.  In addition, I'd say that Microsoft's past antitrust traumas along with its new, hyper-low-key leadership, is going to be a pretty effective deterrent and largely inoculate it from much of the saber-rattling.

But unlike Apple and Amazon, you can bet that Facebook and Google are both going to come under repeated fire not simply from federal regulators, but also from every greedy and cash-poor states attorney general, every class action lawyer, and every country in Europe as well. Facebook's $500 million settlement in Illinois for misusing bio-metric data is just an early indicator of the flood of claims and litigation that are coming. These are rich firms, easy targets who haven't handled repeated PR blowups in any effective fashion, and are especially vulnerable around privacy, targeting and data security issues-- which are, of course, at the very heart of their business models.

On the other hand, Apple and Amazon have a much easier path to avoid prosecution and Microsoft also seems to have skirted the whole set of issues in these two areas. In the last year at least, no one I know has Binged anything. And it seems to me that no one ever fretted for a moment about Microsoft's super-sized acquisitions of Skype, LinkedIn and GitHub in terms of stifling young competitors. If anything, given how poor a job Microsoft has done in terms of integrating Skype into its product suite, the concern is almost the complete opposite - that Microsoft will end up ruining Skype and LinkedIn rather than building successfully on them. On the other hand, it's interesting to watch the Teams team from Redmond attack Slack, which feels a lot like Internet Explorer crushing Netscape in the old days. We'll have to see how that plays out; it's unlikely to end in an anti-competitive acquisition anyway.

Product-first businesses like Apple connect to consumers in far different and more personal/emotional ways. Moreover, Tim Cook has gone way out of his way to make privacy a very clear crusade for Apple as well as a sharp stick in the eyes of Apple's big tech competitors. We'll need to watch closely (no pun intended) as the Apple watch becomes more and more of a wearable medical device - although I'd have to say that's not much of a risk yet as the stupid thing keeps telling me I've fallen down and tries to call 911. Note to Apple: I'm still vertical.  

But, all kidding aside, this is another important and differentiating factor.  The Apple watch arguably--and with my express consent-- uses data to improve my life, my training and physical activities, and my health in relatively non-invasive and additive ways. This is miles away from Facebook and Google selling small slices of my mind-share and attention to every advertiser and marketer extant to serve up an unending flood of ads--product and political-- that do next to nothing except enrage me and waste what little time I have left in my life. It's hard to argue that the ad business has ever been a worthwhile enterprise --JUUL for kids, anyone? Every consumer and regulator knows that any claims by advertisers and marketers of doing any good for society are bogus. They are in it to make billions on their ad sales.

An interesting aside is Google's recent earnings report, which makes it very clear that search--the core and largely worthwhile business until corrupted by Google's strategy of selling the top search result spots to the highest bidders-- was slowing.  Only ad sales associated with YouTube are growing and keeping the ship moving forward. Just to show you how difficult it is to compete with the Big 4, remember that even Google couldn't make a successful social network out of Google+ and had to shut the thing down. Here again, you could argue that it would be a piece of cake for the government to simply slice off YouTube from the Googleplex and turn the video service into a free-standing and viable enterprise. Easy peasy.

If you do the same separation math and pull Instagram out of Facebook, you see a pretty clear indication that the Facebook core is stagnant while Instagram (and especially ad and commerce sales connected with it) continues to grow rapidly. Much like Microsoft needs to be careful around Slack, it's going to be fun to watch the claims and the ultimate litigation when Snap finally shuts the doors and points a nasty finger at Facebook for stealing every single thing that Snap ever did. Of course, the guys at Snap probably deserve every bit of bad news they get.

Amazon is equally well insulated for a couple of important reasons as long as Jeff B can control himself in terms of his private life, his politics, and doesn't get lost in space. First and foremost, a "forced" spin-off of Amazon Web Services (AWS) would be accretive to all the current shareholders and probably quickly add to their respective portfolio values once people learned just how lucrative the cloud business really is and how broadly distributed and entrenched Amazon's customer base is. This may end up resembling the old Uncle Remus story where Br'er Rabbit begged Br'er Fox not to fling him in the briar patch where he could promptly escape the fox's clutches. Let's just say that helping Amazon create a trillion-dollar AWS business wouldn't be the worst thing the government could do to them.

But even more to the point, Amazon actually does use our data to make products and services more relevant and attractive to us. One simple example is that, while Facebook and Google re-target the crap out of us based on our search and traffic activities, Amazon knows what we have actually bought and doesn't waste our time or advertisers' money offering us the same pair of shoes we just bought yesterday.

Another powerful and locked-in incentive - especially for seniors - is automated replenishment, in which refills and new supplies magically appear on time on your doorstep. More than 70% of what we buy every week at the supermarket is the same stuff. Why bother to make that trip and do all that heavy lifting if Amazon will deliver it free to your door?  Amazon Prime with more than 150 million members worldwide and growing is an unstoppable force and so attractive and compelling to people that any politician with a brain is going to steer as far away as possible from interfering with that love affair. And, whether President Trump knows this or not, AWS runs a huge amount of the government's own web services and that area of involvement is also rapidly expanding. Finally, there's no question that we all love a good deal and we're all convinced that Amazon really does offer us the best pricing, service, support and delivery system in the country. Hard to look a gift horse in the mouth.

If you thought the old "I want my MTV campaign" was effective, just imagine the heat and screaming that our super-sensitive politicians and regulators would face from an enraged public if they got in Amazon's way.

PUBLISHED ON: FEB 18, 2020