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Next Economy: Tech Capitalism’s Impossible Dream

Author Doug Rushkoff on how digital platforms are marching us over a financial cliff while ruining the Web.

Justin Ritchie 9 Dec

Justin Ritchie often thinks about the meaning of “business as usual” as a PhD candidate at the University of British Columbia’s Institute for Resources, Environment and Sustainability. When not writing academic tomes, he is part of the Extraenvironmentalist podcast that interviews authors and thinkers about their vision of the future.

[Editor’s note: Business as usual may be replaced by automated job scarcity, digital-powered sharing economies, yawning wealth imbalances, post-carbon energy, explosive innovation, capitalism rebooted or scrapped. This Tyee occasional series interviews experts with differing visions of what lies ahead.]

Douglas Rushkoff has been observing the Internet’s trajectory since the 1990s, writing 16 influential books about digital culture along the way including Media Virus and Present Shock. Rushkoff’s latest work, Throwing Rocks at the Google Bus, focuses on the business and investing practices of today’s leading tech companies like Uber and Snapchat, and how they are exaggerating the worst aspects of an economic system that pushes for growth at all costs.

The Tyee sat down with Rushkoff to talk about his perspective on the hottest digital platforms that are reshaping our daily life.

The Tyee: Let’s start by talking about the growth model of today’s tech startups: I was just looking at the numbers yesterday and Snapchat is valued the same as Deutsche Bank, a major European financial institution — what does this mean?

Douglas Rushkoff: What we’re looking at is a basic kind of pyramid scheme. I don’t usually talk about it like this, but the people who found and invest in [today’s] digital startups are largely doing it in order to flip them.

It doesn’t actually matter if the company makes revenue, supports a marketplace, or has any true longevity in front of it. What matters is that it can sell its shares for 100-times whatever that last round of people bought them for.

Look at a company like Twitter. Like it or not, Twitter makes $2 billion dollars a year on its 140-character messaging app. That’s considered an abject failure by Wall Street, because $2 billion is about all Twitter can figure out how to make. They’ve plateaued at this level. It doesn’t matter that the company has revenues or that it could be extremely profitable for everybody involved. All that matters is whether they can go from a $2 billion company to a $4 billion company, and get their share price to grow. This is what it means for companies like Snapchat, Facebook to be considered “successful.” They can get someone else to buy their shares for more than the last round of people put in.

To be successful in this game, a company needs to show that it can establish a monopoly in a particular vertical, and then pivot from that vertical to another one, into another one, and so on and so on. This is the Amazon model of, “we’re going to go and take over the book industry”; not because they need there to be a book industry 10 years from now, but because establishing a monopoly in that book industry lets you grow into another industry, and another one. So Snapchat looks like they’re going to “win” messaging on some level and that means that they should be able to leverage that win into something else and something else.

This growth profile geared toward digital platform domination is something that seems different about this recent round of successful tech startups. How is this affecting innovation in the economy?

This is changing the science of innovation from a focus on how to serve customers, or create new marketplaces, into something much more cyn-ical. Innovation now means: “How can we exploit the monopoly we’ve created or extend that monopoly?”

This is not particularly new to digital. This is what Wal-Mart did through establishing a monopoly of big box stores. I don’t know that Wal-Mart has this so much anymore now that there is an Amazon, but there was a point at which companies really had to decide, “Do I want to sell through Wal-Mart, or do I want to sell in every other way?” If you want to sell through Wal-Mart then you have to adapt your business to use their RFID tag system and distribution scheme. You have to reconfigure your whole business around producing for Wal-Mart and Wal-Mart’s shelves and Wal-Mart’s way of tagging things.

There’s a company called Seamless here in New York, which essentially has a monopoly on restaurant delivery. They have an app like Uber, but for restaurant delivery. What most people don’t know is that since Seamless established this monopoly, they make it extremely hard for a restaurant to survive if they aren’t using their app. And then if you don’t pay Seamless extra money, their algorithm changes so your restaurant shows up lower in the list. Now restaurants are paying upwards of 25 per cent of their bill to a company that’s just replicating what the restaurant could already do on its own. You could already call a restaurant and order food to be delivered. But if you want the convenience of the app, and you want to be able to choose the restaurant through the app, now the establishment of that monopoly lets them tighten their grip and force restaurants to choose whether you’re with us or against us.

If you’re against an app with a monopoly, you’re in trouble.

Platforms like Uber are extremely convenient. I used it a lot when traveling after it first launched because it is so simple and fast compared to hailing a cab. But is this convenience sustainable?

What Uber ultimately looks like is a total destruction of the taxi business. In other words, they will make taxi driving so unsustainable for the drivers that all the drivers go out of business, and the industry is itself decimated. Then you will see alternatives emerge, if they’re not already emerging.

This is like what happened when Clear Channel, basically a big marketing company, used their huge war chest to buy most of the FM radio stations all around the United States. They incorrectly believed that radio was a growth industry and that consolidating all these stations, and running them from a single warehouse out in Utah or somewhere, rather than having local DJs and local sales and all, this space could be commodified and centralized, and everything could be run by computers.

This action destroyed the local fabric of the FM radio universe.

Eventually Clear Channel realized they couldn’t make any money this way. There wasn’t any money to be made. People stopped listening because part of what makes terrestrial radio special is that it is deeply local. There’s some sort of local flavour, and some sense of interaction with the broadcaster. They sold all of the stations, giving up what they destroyed. This entire process didn’t achieve anything because it’s hard to rebuild an ecosystem after it’s been destroyed, especially a cultural ecosystem. And for this same reason, I don’t see Uber staying in the ride sharing business for so long. I don’t even see Amazon necessarily staying in the book industry. Amazon doesn’t really care that the local bookshop is returning now because that book market provides such a low profit compared to cloud services and the other sorts of things that Amazon wants to monopolize now.

You write about the growth trap that we’re facing throughout the economy at large. This brings up the question of whether the digital economy can expand forever. A lot of people tell me that even though there might be limits to physical growth of roads and the amount of oil we use and carbon we put in the atmosphere, with dematerialization, modern technology makes it possible to keep economic growth going. In fact, we can grow the digital economy without limits. What would you say to that?

The argument, which isn’t new, is that we have infinite real estate online. This would be true except that human beings are needed to pay for this value, and our attention only has so much surface area. Living in a digital economy that wants to expand forever is part of why we’re experiencing what I’ve been calling “present shock.”

Present shock is an assault on our attention from this always-on reality where our cell phones are strapped to our bodies so that we can be updated and interrupted every time somebody tweets about us, or our boss wants us, or there’s a new offer at the Gap or something. Notification is not a feature, it’s a nightmare. I shouldn’t care about any of that if I’m living my own real life. This eventually runs up against limits because profit-seekers can take people’s every waking hour, every sleeping hour, and every subconscious hour, and broadcast to them simultaneously. This would create a demand for pharmaceuticals in a world where everybody’s being assaulted constantly like that. But then either the population needs to keep growing, or we reach a point where even our attention has been used up, and people start pushing back by spending less time online, and less time on phones.

If this continues, these devices are going to become so nauseating that the consumers everyone is after will resist these things. You’re going to see “turn off movements” and people going to restaurants and turning off their phones, or maybe choosing to spend more time making love away from their devices. That’s a serious problem for those who demand that we be “on” every second.

We’ve had so much value extracted from us that if we have no money, then what’s the point of being online all the time? So we can have data extracted from us instead? Data is the biggest bubble of all. Every single company out there has an ultimate exit strategy as a big data play. The problem is that all this data is from bankrupt people. Everybody’s already got the data. So the data is going to become the cheap commodity. I don’t see that plan working out either.

There is an understandable logic in the idea that online real estate is infinite. But just as we found out in the web of 1998, just because you have infinite online real estate and tens of billions of HTML pages, this doesn't mean there’s enough eyeball hours of human time to absorb all of it.

Years ago it was a lot of fun to be part of the first generation of people using peer-to-peer sharing apps like Kazaa and Napster, sharing data between hard drives of real people. It seemed like there was an endless frontier of information to be discovered on the Web. But over the last few years this feeling seems to be shrinking. Any information that’s valuable is going behind paywalls, or buried in pages dominated by ads like Huff Post’s. Is there hope for returning to that original kind of fun hacker culture that existed in the ‘90s and early 2000s where information existed to be liberated and democratized?

The hope isn’t that the whole Web may shift back. It’s that the Web or the Internet will be able to accommodate a parallel culture of participation of art, community and peer-to-peer activity. The way that the Net is going, even most digital publications which were formerly magazines are moving on to Facebook, using it as their distribution platform because people don’t even go to the home pages of most publications. All the traffic is received sideways through social media. If publications want to stay high in the social media platforms algorithms, they’ve got to move in, lock stock and barrel.

The early Internet had America Online, and a lot of people thought America Online was the Internet, but it was actually a walled garden that wasn’t even connected to the Internet for a while. Eventually people realized there was something much more out there. And it was inevitable that those walls would fall because people would want to be out on the greater net and actually in the real world. Now it looks like Facebook has enough power and enough members and enough people who really look at the world through its algorithms that a lot of digital culture is moving on to their site as a way of protecting themselves. That’s a negative development as far as I see it.

On the other hand, there are still people interested in what we now call the Open Web. The Open Web is really just the original web idea: that you maintain your own web site instead of going onto these giant centralized platforms, and that you use protocols for one web site to connect with another one. It’s something much closer to the early Internet dream of a large network of nodes that are connected.

I think as people realize they can’t get jobs in this highly centralized digital economy, as companies realize that it might be better to beat them than join them, I think we will see the retrieval of some of these earlier networking values.

Listen to more Douglas Rushkoff: This was only the start of our conversation with Rushkoff. You can listen to the interview as it continues by clicking here.

About Douglas Rushkoff: Winner of the Media Ecology Association’s first Neil Postman award for Career Achievement in Public Intellectual Activity, Dr. Douglas Rushkoff is an author, teacher, and documentarian who focuses on the ways people, cultures, and institutions create, share, and influence each other’s values. He is Professor of Media Theory and Digital Economics at CUNY/Queens, technology and media commentator for CNN, digital literacy advocate for and a lecturer on media, technology, culture and economics around the world. Visit his website here.  [Tyee]

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