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Xerox tells HP it will bring takeover bid directly to shareholders
Xerox fired the latest volley in the Xerox –HP merger letter wars today. Xerox CEO John Visentin wrote to the HP board that his company planned to take its $33.5 billion offer directly to HP shareholders.
He began his letter with a tone befitting a hostile takeover attempt, stating that their refusal to negotiate defied logic. “We have put forth a compelling proposal – one that would allow HP shareholders to both realize immediate cash value and enjoy equal participation in the substantial upside expected to result from a combination. Our offer is neither ‘highly conditional’ nor ‘uncertain’ as you claim,” Visentin wrote in his letter.
He added, “We plan to engage directly with HP shareholders to solicit their support in urging the HP Board to do the right thing and pursue this compelling opportunity.”
The letter was in response to one yesterday from HP in which it turned down Xerox’s latest overture, stating that the deal seemed beyond Xerox’s ability to afford it. It called into question Xerox’s current financial situation, citing Xerox’s own financial reports, and took exception to the way in which Xerox was courting the company.
“It is clear in your aggressive words and actions that Xerox is intent on forcing a potential combination on opportunistic terms and without providing adequate information,” the company wrote.
Visentin fired back in his letter, “While you may not appreciate our “aggressive” tactics, we will not apologize for them. The most efficient way to prove out the scope of this opportunity with certainty is through mutual due diligence, which you continue to refuse, and we are obligated to require.”
He further pulled no punches writing that he believes the deal is good for both companies and good for the shareholders. “The potential benefits of a combination between HP and Xerox are self-evident. Together, we could create an industry leader – with enhanced scale and best-in-class offerings across a complete product portfolio — that will be positioned to invest more in innovation and generate greater returns for shareholders.”
Patrick Moorhead, founder and principal analyst at Moor Insights & Strategies, thinks HP ultimately has the upper hand in this situation. “I feel like we have seen this movie before when Carl Icahn meddled with Dell in a similar way. Xerox is a third of the size HP Inc., has been steadily declining in revenue, is running out of options, and needs HP more than HP needs it.”
It would seem Xerox has chosen a no-holds barred approach to the situation. The pen is now in HP’s hands as we await the next letter and see how the printing giant intends to respond to the latest missive from Xerox.
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AWS confirms reports it will challenge JEDI contract award to Microsoft
Surely just about everyone was surprised when the Department of Defense named Microsoft as the winner of the decade long, $10 billion JEDI cloud contract last month, none more so than Amazon, the company everyone assumed all along would be the winner. Today the company confirmed earlier reports that it was challenging the contract award in the Court of Federal Claims.
The Federal Times broke this story.
In a statement, an Amazon spokesperson suggested that there was possible bias and issues in the selection process. “AWS is uniquely experienced and qualified to provide the critical technology the U.S. military needs, and remains committed to supporting the DoD’s modernization efforts. We also believe it’s critical for our country that the government and its elected leaders administer procurements objectively and in a manner that is free from political influence.
“Numerous aspects of the JEDI evaluation process contained clear deficiencies, errors, and unmistakable bias — and it’s important that these matters be examined and rectified,” an Amazon spokesperson told TechCrunch.
It’s certainly worth noting that the president has not hidden his disdain for Amazon CEO and founder Jeff Bezos, who also is owner of the Washington Post newspaper. As I wrote in Even after Microsoft wins, JEDI saga could drag on:
Amazon, for instance, could point to Jim Mattis’ book where he wrote that the president told the then Defense Secretary to “screw Bezos out of that $10 billion contract.” Mattis says he refused, saying he would go by the book, but it certainly leaves the door open to a conflict question.
Oracle also filed a number of protests throughout the process including one with the Government Accountability Office that was later rejected. It also went to court and the case was dismissed. All of the protests claimed that the process favored Amazon. The end result proved it didn’t.
The president interjected himself in the decision process in August, asking the Defense secretary, Mark T. Esper to investigate once again if the procurement process somehow favored Amazon, and the week the contract was awarded, the White House canceled its subscription to the Washington Post.
In October, the decision finally came and the DOD chose Microsoft . Now Amazon is filing a challenge in federal Court, and the JEDI saga really ain’t over until it’s over.
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Chef CEO does an about face, says company will not renew ICE contract
After stating clearly on Friday that he would honor a $95,000 contract with ICE, CEO Barry Crist must have had a change of heart over the weekend. In a blog post this morning he wrote that the company would not be renewing the contract with ICE after all.
“After deep introspection and dialog within Chef, we will not renew our current contracts with ICE and CBP when they expire over the next year. Chef will fulfill our full obligations under the current contracts,” Crist wrote in the blog post.
He also backed off the seemingly firm position he took on Friday on the matter when he told TechCrunch, “It’s something that we spent a lot of time on, and I want to represent that there are portions of [our company] that do not agree with this, but I as a leader of the company, along with the executive team, made a decision that we would honor the contracts and those relationships that were formed and work with them over time,” he said.
Today, he acknowledged that intense feelings inside the company against the contract led to his decision. The contract began in 2015 under the Obama administration and was aimed at modernizing programming approaches at DHS, but over time as ICE family separation and deportation polices have come under fire, there were calls internally (and later externally) to end the contract. “Policies such as family separation and detention did not yet exist [when we started this contract]. While I and others privately opposed this and various other related policies, we did not take a position despite the recommendation of many of our employees. I apologize for this,” he wrote.
Crist also indicated that the company would be donating the revenue from the contracts to organizations that work with people who have been affected by these policies. It’s a similar approach that Salesforce took when 618 of its employees protested a contract the company has with the Customs and Border Patrol (CBP). In response to the protests, Salesforce pledged $1 million to organizations helping affected families.
After a tweet last week exposed the contract, the protests began on social media, and culminated in programmer Seth Vargo removing pieces of open-source code from the repository in protest of the contract in response. The company sounded firmly committed to fulfilling this contract in spite of the calls for action internally and externally, and the widespread backlash it was facing both inside and outside the company.
Vargo told TechCrunch in an interview that he saw this issue in moral terms, “Contrary to Chef’s CEO’s publicly posted response, I do think it is the responsibility of businesses to evaluate how and for what purposes their software is being used, and to follow their moral compass,” he said. Apparently Crist has come around to this point of view. Vargo chose not to comment on the latest development.
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As Adam Neumann reportedly faces pressure to step down, it’s looking like a fight for life between WeWork and SoftBank
According to a new WSJ report, certain members of WeWork’s seven-person board, which includes cofounder and CEO Adam Neumann, are planning to pressure Neumann to step down and instead become We’s non-executive chairman. The move, says the outlet, “would allow him to stay stay at the company he built into one of the country’s most valuable startups, but inject fresh leadership to pursue an IPO that would bring We the cash it needs to keep up its torrid growth.”
The WSJ and Bloomberg are reporting that it is SoftBank specifically that wants Neumann to step down. Neither WeWork nor SoftBank is commenting publicly.
It’s a fascinating development, the kind we saw when Uber’s board successfully forced cofounder and longtime CEO Travis Kalanick to abandon his role as CEO. Still, we’d caution against drawing too close a comparison. While the venture firm Benchmark, which spearheaded Kalanick’s ouster, stood to lose billions of dollars if Kalanick dragged down Uber and continued to push off an IPO, Benchmark was not in a do-or-die situation because of its Uber investment.
SoftBank appears to be in more dire straights, making this standoff a particularly meaningful one.
Let’s back up a minute first, though, and consider who is involved and which way this could potentially go. A few days ago, Business Insider put together a useful cheat sheet about WeWork’s board members that may hint at their allegiance.
1.) Ronald Fisher — who is vice chairman at SoftBank Group after founding SoftBank Capital, a U.S. venture arm of SoftBank — joined SoftBank’s board last year. He oversees 114 class A shares, each of which carries one vote. Obviously, he’s going to side with SoftBank.
2.) Lewis Frankfort — the chairman of a fitness studio chain called Flywheel Sports — has been a board member of WeWork for roughly five years, and BI says WeWork once loaned him $6.3 million, which he repaid with interest earlier this year. We have to think he’d stick with Neumann out of loyalty. At the same time, he doesn’t wield much power unless he has the right to block significant actions at the company (some shareholders get these blocking rights; some don’t.) What he know: he controls 2 million shares, and 750,000 of them are Class B shares that carry 10 votes each.
3.) Benchmark, which first backed WeWork in 2012, is represented on the board by Bruce Dunlevie, the founding partner of the venture firm. Benchmark owns 32.6 million Class A shares, and could go either way, seemingly. On the one hand, Benchmark doesn’t want to establish a reputation for pushing out founders after the Kalanick debacle, and if it supports SoftBank over Neumann, it risks this exact thing happening. On the other hand, Benchmark might not want to battle with SoftBank if it thinks it has staying power or it’s concerned (suddenly) that it allowed Neumann to amass too much control.
4.) Harvard Business School professor Frances Frei was brought in roughly a minute ago to add a much-need sprinkling of gender diversity to WeWork’s all-male board. Frei’s name first came to be more broadly recognized when she was hired to help address Uber’s battered culture, so presumably she has ties to Benchmark. We’d guess she’ll side with Dunlevie, meaning that we have no idea whose side she will take.
5.) Steven Langman, the cofounder of private equity firm Rhône Group, has ties that go back a ways with Neumann, and he has benefited richly from the association. According to an April story in the WSJ, Langman met Neumann through a shared rabbi in its earlier days and joined the board in 2012. He also invested in the company (he owns 2.28 million shares, according to a bond filing). Langman is on both the company’s compensation committee and its succession committee. He also runs a real-estate investment vehicle in partnership with We that buys and develops buildings to then lease back to the co-working company, despite that it raises conflict-of-interest questions. We’d guess he’s on Team Neumann.
6.) John Zhao is the chairman and CEO of Hony Capital, which partnered with SoftBank and WeWork to create a standalone entity called WeWork China back in 2017, and Hony has subsequently poured more capital into that subsidiary. We’re not sure how close Zhao is to SoftBank, but if SoftBank brought Hony into WeWork, we’re guessing he will back the Japanese conglomerate on this one. Hony doesn’t own 5 percent or more of WeWork’s parent company so its share holdings aren’t listed publicly.
Neumann, it’s very worth noting, is himself is far more powerful than any of these six individuals. Even after the company recently revised Neumann’s supervoting rights, which gave him 20 times the voting power of ordinary shareholders and now give him 10, he could fire the entire board if he so chooses, notes the WSJ.
Naturally, that wouldn’t be a good look for Neumann, who is already battling growing public perception that, among other negatives for a public company CEO, he smokes a whole lot of pot and that he may be delusional. (A WSJ piece last week reported that Neumann likes to smoke marijuana with friends and while airborne. It also said that Neumann has confided to different people his interest in becoming Israel’s prime minister and president of the world.)
All that said, SoftBank is also fast-losing credibility. While its CEO, Masayoshi Son, has been long revered as a visionary, a growing number of sources we’ve spoken to question the viability of his entire Vision Fund operation. They see WeWork’s ever-soaring valuation on the private market, from $20 billion to, more recently, $47 billion — which was almost single-handedly SoftBank’s doing — as just one in a costly string of poor calls.
Indeed, despite the roughly $10 billion that SoftBank has sunk into WeWork, the financial loss it would take if WeWork falls apart would pale in comparison to the reputational hit Son would suffer, and you can bet there will be ripple effects.
Our suspicion: given the Vision Fund’s impact on the startup industry over the last few years, there’s a lot more riding on what happens with WeWork than meets the eye. Stay tuned.
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Judge dismisses Oracle lawsuit over $10B Pentagon JEDI cloud contract
Oracle has been complaining about the procurement process around the Pentagon’s $10 billion, decade-long JEDI cloud contract, even before the DoD opened requests for proposals last year. It went so far as to file a lawsuit in December, claiming a potential conflict of interest on the part of a procurement team member. Today, that case was dismissed in federal court.
In dismissing the case, Federal Claims Court Senior Judge Eric Bruggink ruled that the company had failed to prove a conflict in the procurement process, something the DOD’s own internal audits found in two separate investigations. Judge Bruggink ultimately agreed with the DoD’s findings:
We conclude as well that the contracting officer’s findings that an organizational conflict of interest does not exist and that individual conflicts of interest did not impact the procurement, were not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Plaintiff’s motion for judgment on the administrative record is therefore denied.
The company previously had filed a failed protest with the Government Accountability Office (GAO), which also ruled that the procurement process was fair and didn’t favor any particular vendor. Oracle had claimed that the process was designed to favor cloud market leader AWS.
It’s worth noting that the employee in question was a former AWS employee. AWS joined the lawsuit as part of the legal process, stating at the time in the legal motion, “Oracle’s Complaint specifically alleges conflicts of interest involving AWS. Thus, AWS has direct and substantial economic interests at stake in this case, and its disposition clearly could impair those interests.”
Today’s ruling opens the door for the announcement of a winner of the $10 billion contract, as early as next month. The DoD previously announced that it had chosen Microsoft and Amazon as the two finalists for the winner-take-all bid.
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Smartcar accuses $50M-funded rival Otonomo of API plagiarism
Ruthless copying is common in tech. Just ask Snapchat. However, it’s typically more conceptual than literal. But car API startup Smartcar claims that its competitor Otonomo copy-and-pasted Smartcar’s API documentation, allegedly plagiarizing it extensively to the point of including the original’s typos and randomly generated strings of code. It’s published a series of side-by-side screenshots detailing the supposed theft of its intellectual property.
Smartcar CEO Sahas Katta says “We do have evidence of several of their employees systemically using our product with behavior indicating they wanted to copy our product in both form and function.” Now a spokesperson for the startup tells me “We’ve filed a cease-and-desist letter, delivered to Otonomo this morning, that contains documented aspects of different breaches and violations.”
The accusations are troubling given Otonomo is not some inconsequential upstart. The Israel-based company has raised over $50 million since its founding in 2015, and its investors include auto parts giant Aptiv (formerly Delphi) and prestigious VC firm Bessemer Ventures Partners. Otonomo CMO Lisa Joy provided this statement in response to the allegations, noting it will investigate but is confident it acted with integrity:
Otonomo prides itself on providing a completely unique offering backed by our own intellectual property and patents. We take Smartcar’s questions seriously and are conducting an investigation, but we remain confident that our rigorous standards of integrity remain uncompromised. If our investigation reveals any issues, we will immediately take the necessary steps to address them.
Both startups are trying to build an API layer that connects data from cars with app developers so they can build products that can locate, unlock, or harness data from vehicles. The 20-person Mountain View-based Smartcar has raised $12 million from Andreessen Horowitz and NEA. A major deciding factor in who’ll win this market is which platform offers the best documentation that makes it easiest for developers to integrate the APIs.
“A few days ago, we came across Otonomo’s publicly available API documentation. As we read through it, we quickly realized that something was off. It looked familiar. Oddly familiar. That’s because we wrote it” Smartcar explains in its blog post. “We didn’t just find a few vague similarities to Smartcar’s documentation. Otonomo’s docs are a systematically written rip-off of ours – from the overall structure, right down to code samples and even typos.”
The screenshot above comparing API documentation from Smartcar on the left and Otonomo on the right appears to show Otonomo used nearly identical formatting and the exact same randomly generated sample identifier (highlighted) as Smartcar. Further examples flag seemingly identical code strings and snippets.
Smartcar founder and CEO Sahas Katta
Otonomo has pulled down their docs.otonomo.io documentation website, but TechCrunch has reviewed an Archive.org Wayback Machine showing this Otonomo site as of April 5, 2019 featured sections that are identical to the documentation Smartcar published in August 2018. That includes Smartcar’s typo “it will returned here”, and its randomly generated sample code placeholder “”4a1b01e5-0497-417c-a30e-6df6ba33ba46” which both appear in the Wayback Machine copy of Otonomo’s docs. The typo was fixed in this version of Otonomo’s docs that’s still publicly available, but that code string remains.
“It would be a one in a quintillion chance of them happening to land on the same randomly generated string” Smartcar’s Katta tells TechCrunch.
Yet curiously, Otonomo’s CMO told TechCrunch that “The materials that [Smartcar] put on their post are all publicly accessible documentation, It’s all public domain content.” But that’s not true, Katta argues, given the definition of ‘public domain’ is content belonging to the public that’s uncopyrightable. “I would sure hope not, considering . . . we have proper copyright notices at the bottom. Our product is our intellectual property. Just like Twilio’s API documentation or Stripe’s, it is published and publicly available — and it is proprietary.”
Otonomo’s Lisa Joy noted that her startup is currently fundraising for its Series C, which reportedly already includes $10 million from South Korean energy and telecom holdings giant SK. “We’re in the middle of raising a round right now. That round is not done” she told me. But if Otonomo gets a reputation for allegedly copying its API docs, that could hurt its standing with developers and potentially endanger that funding round.
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HQ2 fight continues as New York City and Seattle officials hold anti-Amazon summit
The heated debate around Amazon’s recently announced Long Island City “HQ2” is showing no signs of cooling down.
On Monday morning, the Retail, Wholesale and Department Store Union (RWDSU) hosted a briefing in which labor officials, economic development analysts, Amazon employees and elected New York State and City representatives further underlined concerns around the HQ2 process, the awarded incentives, and the potential impacts Amazon’s presence would have on city workers and residents.
While many of the arguments posed at the Summit weren’t necessarily new, the wide variety of stakeholders that showed up to express concern looked to contextualize the far-reaching risks associated with the deal.
The day began with representatives from New York union groups recounting Amazon’s shaky history with employee working conditions and questioning how the city’s working standards will be impacted if the 50,000 promised jobs do actually show up.
Two current employees working in an existing Amazon New York City warehouse in Staten Island provided poignant examples of improper factory conditions and promised employee benefits that never came to fruition. According to the workers, Amazon has yet to follow through on shuttle services and ride-sharing services that were promised to ease worker commutes, forcing the workers to resort to overcrowded and unreliable public transportation. One of the workers detailed that with his now four-hour commute to get to and from work, coupled with his meaningfully long shifts, he’s been unable to see his daughter for weeks.
Various economic development groups and elected officials including, New York City Comptroller Scott Stringer, City Council Speaker Corey Johnson, City Council Member Jimmy Van Bramer, and New York State Senator Mike Gianaris supported the labor arguments with spirited teardowns of the economic terms of the deal.
Like many critics of the HQ2 process, the speakers’ expressed their beliefs that Amazon knew where it wanted to bring its second quarters throughout the entirety of its auction process, given the talent pool and resources in the chosen locations, and that the entire undertaking was meant to squeeze out the best economic terms possible. And according to City Council Speaker Johnson, New York City “got played”.
Comptroller Stringer argued that Amazon is taking advantage of New York’s Relocation and Employment Assistance Program (REAP) and Industrial and Commercial Abatement Program (ICAP), which Stringer described as outdated and in need of reform, to receive the majority of the $2 billion-plus in promised economic incentives that made it the fourth largest corporate incentive deal in US history.
The speakers continued to argue that the unprecedented level of incentives will be nearly impossible to recoup and that New York will also face economic damages from lower sales tax revenue as improved Amazon service in the city cannibalizes local brick & mortar retail.
Fears over how Amazon’s presence will impact the future of New York were given more credibility with the presence of Seattle City Council members Lisa Herbold & Teresa Mosqueda, who had flown to New York from Seattle to discuss lessons learned from having Amazon’s Headquarters in the city and to warn the city about the negative externalities that have come with it.
Herbold and Mosqueda focused less on an outright rejection of the deal but instead emphasized that New York was in a position to negotiate for better terms focused on equality and corporate social responsibility, which could help the city avoid the socioeconomic turnover that has plagued Seattle and could create a new standard for public-private partnerships.
While the New York City Council noted it was looking into legal avenues, the opposition seemed to have limited leverage to push back or meaningfully negotiate the deal. According to state officials, the most clear path to fight the deal would be through votes by the state legislature and through the state Public Authorities Control Board who has to unanimously approve the subsidy package.
With the significant turnout seen at Monday’s summit, which included several high-ranking state and city officials, it seems clear that we’re still in the early innings of what’s likely to be a long battle ahead to close the HQ2 deal.
In response to the summit, an Amazon spokesperson offered the following statement: “Amazon is engaging in a long-term listening and engagement process to better understand the community’s needs. We’re committed to being a great neighbor – and ensuring our new headquarters is a win for all New Yorkers. Amazon makes substantial positive contributions to the economy, the communities where we operate, and to the lives and careers of our employees. We have created more than 250,000 full-time, full benefit jobs across the U.S. that now have a minimum $15 an hour pay and we have invested more than $160 billion in the U.S. economy since 2011.”
Updated with statement from Amazon.
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Lime tries to back-peddle on VP’s line on why it hired Definers
Scooter startup Lime has sought to back peddle on an explanation given by its VP of global expansion late last week when asked why it had hired the controversial PR firm, Definers Public Affairs.
The opposition research firm, which has ties to the Republican Party, has been at the center of a reputation storm for Facebook, after a New York Times report last month suggested the controversial PR firm sought to leverage anti-semitic smear tactics — by sending journalists a document linking anti-Facebook groups to billionaire George Soros (after he had been critical of Facebook).
Last month it also emerged that other tech firms had engaged Definers — Lime being one of them. And speaking during an on stage interview at TechCrunch Disrupt Berlin last Thursday, Lime’s Caen Contee claimed it had not known Definers would use smear tactics.
Yet, as we reported previously, a Definers employee sent us an email pitch in October in which it wrote suggestively that “Bird’s numbers seem off”.
This pitch did not disclose the PR firm was being paid by Lime.
Asked about this last week Contee claimed not to know anything about Definers’ use of smear tactics, saying Lime had engaged the firm to work on its green and carbon free programs — and to try to understand “what were the levers of opportunity for us to really create the messaging and also to do our own research; understanding the life-cycle; all the pieces that are in a very complex business”.
“As soon as we understood they were doing some of these things we parted ways and finished our program with them,” he also said.
However, following the publication of our article reporting on his comments, a Lime spokesperson emailed with what the subject line billed as a “statement for your latest story”, tee-ing this up by writing: “Hoping you can update the piece”.
The statement went on to claim that Contee “misspoke” and “was inaccurate in his description of [Definers] work”.
However it did not specify exactly what Contee had said that was incorrect.
A short while later the same Lime spokesperson sent us another version of the statement with updated wording, now entirely removing the reference to Contee.
You can read both statements below.
As you read them, note how the second version of the statement seeks to obfuscate the exact source of the claimed inaccuracy, using wording that seeks to shift blame in way that a casual reader might interpret as external and outside the company’s control…
Statement 1:
Our VP of Global Expansion misspoke at TechCrunch Disrupt regarding our relationship with Definers and was inaccurate in his description of their work. As previously reported, we engaged them for a three month contract to assist with compiling media coverage reports, limited public relations and fact checking, and we are no longer working with Definers.
Statement 2:
What was presented at Disrupt regarding our relationship with Definers and the description of their work was inaccurate. As previously reported, we engaged them for a three month contract to assist with compiling media coverage reports, limited public relations and fact checking, and we are no longer working with Definers.
Despite the Lime spokesperson’s hope for a swift update to our report, they did not respond when we asked for clarification on what exactly Contee had said that was “inaccurate”.
A claim of inaccuracy that does not provide any detail of the substance upon which the claim rests smells a lot like spin to us.
Three days later we’re still waiting to hear the substance of Lime’s claim because it has still not provided us with an explanation of exactly what Contee said that was ‘wrong’.
Perhaps Lime was hoping for a silent edit to the original report to provide some camouflaging fuzz atop a controversy of the company’s own making. i.e. that a PR firm it hired tried to smear a rival.
If so, oopsy.
Of course we’ll update this report if Lime does get in touch to provide an explanation of what it was that Contee “misspoke”. Frankly we’re all ears at this point.
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Tech giants offer empty apologies because users can’t quit
A true apology consists of a sincere acknowledgement of wrong-doing, a show of empathic remorse for why you wronged and the harm it caused, and a promise of restitution by improving ones actions to make things right. Without the follow-through, saying sorry isn’t an apology, it’s a hollow ploy for forgiveness.
That’s the kind of “sorry” we’re getting from tech giants — an attempt to quell bad PR and placate the afflicted, often without the systemic change necessary to prevent repeated problems. Sometimes it’s delivered in a blog post. Sometimes it’s in an executive apology tour of media interviews. But rarely is it in the form of change to the underlying structures of a business that caused the issue.
Intractable Revenue
Unfortunately, tech company business models often conflict with the way we wish they would act. We want more privacy but they thrive on targeting and personalization data. We want control of our attention but they subsist on stealing as much of it as possible with distraction while showing us ads. We want safe, ethically built devices that don’t spy on us but they make their margins by manufacturing them wherever’s cheap with questionable standards of labor and oversight. We want groundbreaking technologies to be responsibly applied, but juicy government contracts and the allure of China’s enormous population compromise their morals. And we want to stick to what we need and what’s best for us, but they monetize our craving for the latest status symbol or content through planned obsolescence and locking us into their platforms.
The result is that even if their leaders earnestly wanted to impart meaningful change to provide restitution for their wrongs, their hands are tied by entrenched business models and the short-term focus of the quarterly earnings cycle. They apologize and go right back to problematic behavior. The Washington Post recently chronicled a dozen times Facebook CEO Mark Zuckerberg has apologized, yet the social network keeps experiencing fiasco after fiasco. Tech giants won’t improve enough on their own.
Addiction To Utility
The threat of us abandoning ship should theoretically hold the captains in line. But tech giants have evolved into fundamental utilities that many have a hard time imagining living without. How would you connect with friends? Find what you needed? Get work done? Spend your time? What hardware or software would you cuddle up with in the moments you feel lonely? We live our lives through tech, have become addicted to its utility, and fear the withdrawal.
If there were principled alternatives to switch to, perhaps we could hold the giants accountable. But the scalability, network effects, and aggregation of supply by distributors has led to near monopolies in these core utilities. The second-place solution is often distant. What’s the next best social network that serves as an identity and login platform that isn’t owned by Facebook? The next best premium mobile and PC maker behind Apple? The next best mobile operating system for the developing world beyond Google’s Android? The next best ecommerce hub that’s not Amazon? The next best search engine? Photo feed? Web hosting service? Global chat app? Spreadsheet?
Facebook is still growing in the US & Canada despite the backlash, proving that tech users aren’t voting with their feet. And if not for a calculation methodology change, it would have added 1 million users in Europe this quarter too.
One of the few tech backlashes that led to real flight was #DeleteUber. Workplace discrimination, shady business protocols, exploitative pricing and more combined to spur the movement to ditch the ridehailing app. But what was different here is that US Uber users did have a principled alternative to switch to without much hassle: Lyft. The result was that “Lyft benefitted tremendously from Uber’s troubles in 2018” eMarketer’s forecasting director Shelleen Shum told the USA Today in May. Uber missed eMarketer’s projections while Lyft exceeded them, narrowing the gap between the car services. And meanwhile, Uber’s CEO stepped down as it tried to overhaul its internal policies.
This is why we need regulation that promotes competition by preventing massive mergers and giving users the right to interoperable data portability so they can easily switch away from companies that treat them poorly
But in the absence of viable alternatives to the giants, leaving these mainstays is inconvenient. After all, they’re the ones that made us practically allergic to friction. Even after massive scandals, data breaches, toxic cultures, and unfair practices, we largely stick with them to avoid the uncertainty of life without them. Even Facebook added 1 million monthly users in the US and Canada last quarter despite seemingly every possible source of unrest. Tech users are not voting with their feet. We’ve proven we can harbor ill will towards the giants while begrudgingly buying and using their products. Our leverage to improve their behavior is vastly weakened by our loyalty.
Inadequate Oversight
Regulators have failed to adequately step up either. This year’s congressional hearings about Facebook and social media often devolved into inane and uninformed questioning like how does Facebook earn money if its doesn’t charge? “Senator, we run ads” Facebook CEO Mark Zuckerberg said with a smirk. Other times, politicians were so intent on scoring partisan points by grandstanding or advancing conspiracy theories about bias that they were unable to make any real progress. A recent survey commissioned by Axios found that “In the past year, there has been a 15-point spike in the number of people who fear the federal government won’t do enough to regulate big tech companies — with 55% now sharing this concern.”
When regulators do step in, their attempts can backfire. GDPR was supposed to help tamp down on the dominance of Google and Facebook by limiting how they could collect user data and making them more transparent. But the high cost of compliance simply hindered smaller players or drove them out of the market while the giants had ample cash to spend on jumping through government hoops. Google actually gained ad tech market share and Facebook saw the littlest loss while smaller ad tech firms lost 20 or 30 percent of their business.
Europe’s GDPR privacy regulations backfired, reinforcing Google and Facebook’s dominance. Chart via Ghostery, Cliqz, and WhoTracksMe.
Even the Honest Ads act, which was designed to bring political campaign transparency to internet platforms following election interference in 2016, has yet to be passed even despite support from Facebook and Twitter. There’s hasn’t been meaningful discussion of blocking social networks from acquiring their competitors in the future, let alone actually breaking Instagram and WhatsApp off of Facebook. Governments like the U.K. that just forcibly seized documents related to Facebook’s machinations surrounding the Cambridge Analytica debacle provide some indication of willpower. But clumsy regulation could deepen the moats of the incumbents, and prevent disruptors from gaining a foothold. We can’t depend on regulators to sufficiently protect us from tech giants right now.
Our Hope On The Inside
The best bet for change will come from the rank and file of these monolithic companies. With the war for talent raging, rock star employees able to have huge impact on products, and compensation costs to keep them around rising, tech giants are vulnerable to the opinions of their own staff. It’s simply too expensive and disjointing to have to recruit new high-skilled workers to replace those that flee.
Google declined to renew a contract with the government after 4000 employees petitioned and a few resigned over Project Maven’s artificial intelligence being used to target lethal drone strikes. Change can even flow across company lines. Many tech giants including Facebook and Airbnb have removed their forced arbitration rules for harassment disputes after Google did the same in response to 20,000 of its employees walking out in protest.
Thousands of Google employees protested the company’s handling of sexual harassment and misconduct allegations on Nov. 1.
Facebook is desperately pushing an internal communications campaign to reassure staffers it’s improving in the wake of damning press reports from the New York Times and others. TechCrunch published an internal memo from Facebook’s outgoing VP of communications Elliot Schrage in which he took the blame for recent issues, encouraged employees to avoid finger-pointing, and COO Sheryl Sandberg tried to reassure employees that “I know this has been a distraction at a time when you’re all working hard to close out the year — and I am sorry.” These internal apologizes could come with much more contrition and real change than those paraded for the public.
And so after years of us relying on these tech workers to build the product we use every day, we must now rely that will save us from them. It’s a weighty responsibility to move their talents where the impact is positive, or commit to standing up against the business imperatives of their employers. We as the public and media must in turn celebrate when they do what’s right for society, even when it reduces value for shareholders. If apps abuse us or unduly rob us of our attention, we need to stay off of them.
And we must accept that shaping the future for the collective good may be inconvenient for the individual. There’s an oppprtunity here not just to complain or wish, but to build a social movement that holds tech giants accountable for delivering the change they’ve promised over and over.
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The real threat to Facebook is the Kool-Aid turning sour
These kinds of leaks didn’t happen when I started reporting on Facebook eight years ago. It was a tight-knit cult convinced of its mission to connect everyone, but with the discipline of a military unit where everyone knew loose lips sink ships. Motivational posters with bold corporate slogans dotted its offices, rallying the troops. Employees were happy to be evangelists.
But then came the fake news, News Feed addiction, violence on Facebook Live, cyberbullying, abusive ad targeting, election interference and, most recently, the Cambridge Analytica app data privacy scandals. All the while, Facebook either willfully believed the worst case scenarios could never come true, was naive to their existence or calculated the benefits and growth outweighed the risks. And when finally confronted, Facebook often dragged its feet before admitting the extent of the issues.
Inside the social network’s offices, the bonds began to fray. An ethics problem metastisized into a morale problem. Slogans took on sinister second meanings. The Kool-Aid tasted different.
Some hoped they could right the ship but couldn’t. Some craved the influence and intellectual thrill of running one of humanity’s most popular inventions, but now question if that influence and their work is positive. Others surely just wanted to collect salaries, stock and resumé highlights, but lost the stomach for it.
Now the convergence of scandals has come to a head in the form of constant leaks.
The trouble tipping point
The more benign leaks merely cost Facebook a bit of competitive advantage. We’ve learned it’s building a smart speaker, a standalone VR headset and a Houseparty split-screen video chat clone.
Yet policy-focused leaks have exacerbated the backlash against Facebook, putting more pressure on the conscience of employees. As blame fell to Facebook for Trump’s election, word of Facebook prototyping a censorship tool for operating in China escaped, triggering questions about its respect for human rights and free speech. Facebook’s content rulebook got out alongside disturbing tales of the filth the company’s contracted moderators have to sift through. Its ad targeting was revealed to be able to pinpoint emotionally vulnerable teens.
In recent weeks, the leaks have accelerated to a maddening pace in the wake of Facebook’s soggy apologies regarding the Cambridge Analytica debacle. Its weak policy enforcement left the door open to exploitation of data users gave third-party apps, deepening the perception that Facebook doesn’t care about privacy.
And it all culminated with BuzzFeed publishing a leaked “growth at all costs” internal post from Facebook VP Andrew “Boz” Bosworth that substantiated people’s worst fears about the company’s disregard for user safety in pursuit of world domination. Even the ensuing internal discussion about the damage caused by leaks and how to prevent them…leaked.
But the leaks are not the disease, just the symptom. Sunken morale is the cause, and it’s dragging down the company. Former Facebook employee and Wired writer Antonio Garcia Martinez sums it up, saying this kind of vindictive, intentionally destructive leak fills Facebook’s leadership with “horror”:
The fact that some Facebooker would place their personal grudge and views above the interests of the company fills anyone on the home team with horror (in the same way that the current administration colluding with foreigners to secure a domestic victory does Americans).
— Antonio García Martínez (@antoniogm) March 30, 2018
And that sentiment was confirmed by Facebook’s VP of News Feed Adam Mosseri, who tweeted that leaks “create strong incentives to be less transparent internally and they certainly slow us down,” and will make it tougher to deal with the big problems.
I’m really worried about this. I worry it’ll make it much more difficult to step up to the challenges we face.
— Adam Mosseri (@mosseri) March 30, 2018
Those thoughts weigh heavy on Facebook’s team. A source close to several Facebook executives tells us they feel “embarrassed to work there” and are increasingly open to other job opportunities. One current employee told us to assume anything certain execs tell the media is “100% false.”
If Facebook can’t internally discuss the problems it faces without being exposed, how can it solve them?
Implosion
The consequences of Facebook’s failures are typically pegged as external hazards.
You might assume the government will finally step in and regulate Facebook. But the Honest Ads Act and other rules about ads transparency and data privacy could end up protecting Facebook by being simply a paperwork speed bump for it while making it tough for competitors to build a rival database of personal info. In our corporation-loving society, it seems unlikely that the administration would go so far as to split up Facebook, Instagram and WhatsApp — one of the few feasible ways to limit the company’s power.
Users have watched Facebook make misstep after misstep over the years, but can’t help but stay glued to its feed. Even those who don’t scroll rely on it as a fundamental utility for messaging and login on other sites. Privacy and transparency are too abstract for most people to care about. Hence, first-time Facebook downloads held steady and its App Store rank actually rose in the week after the Cambridge Analytica fiasco broke. In regards to the #DeleteFacebook movement, Mark Zuckerberg himself said “I don’t think we’ve seen a meaningful number of people act on that.” And as long as they’re browsing, advertisers will keep paying Facebook to reach them.
That’s why the greatest threat of the scandal convergence comes from inside. The leaks are the canary in the noxious blue coal mine.
Can Facebook survive slowing down?
If employees wake up each day unsure whether Facebook’s mission is actually harming the world, they won’t stay. Facebook doesn’t have the same internal work culture problems as some giants like Uber. But there are plenty of other tech companies with less questionable impacts. Some are still private and offer the chance to win big on an IPO or acquisition. At the very least, those in the Bay could find somewhere to work without a spending hours a day on the traffic-snarled 101 freeway.
If they do stay, they won’t work as hard. It’s tough to build if you think you’re building a weapon. Especially if you thought you were going to be making helpful tools. The melancholy and malaise set in. People go into rest-and-vest mode, living out their days at Facebook as a sentence not an opportunity. The next killer product Facebook needs a year or two from now might never coalesce.
And if they do work hard, a culture of anxiety and paralysis will work against them. No one wants to code with their hands tied, and some would prefer a less scrutinized environment. Every decision will require endless philosophizing and risk-reduction. Product changes will be reduced to the lowest common denominator, designed not to offend or appear too tyrannical.
Source: Volkan Furuncu/Anadolu Agency + David Ramos/Getty Images
In fact, that’s partly how Facebook got into this whole mess. A leak by an anonymous former contractor led Gizmodo to report Facebook was suppressing conservative news in its Trending section. Terrified of appearing liberally biased, Facebook reportedly hesitated to take decisive action against fake news. That hands-off approach led to the post-election criticism that degraded morale and pushed the growing snowball of leaks down the mountain.
It’s still rolling.
How to stop morale’s downward momentum will be one of Facebook’s greatest tests of leadership. This isn’t a bug to be squashed. It can’t just roll back a feature update. And an apology won’t suffice. It will have to expel or reeducate the leakers and those disloyal without instilling a witch hunt’s sense of dread. Compensation may have to jump upwards to keep talent aboard like Twitter did when it was floundering. Its top brass will need to show candor and accountability without fueling more indiscretion. And it may need to make a shocking, landmark act of contrition to convince employees its capable of change.
When asked how Facebook could address the morale problem, Mosseri told me “it starts with owning our mistakes and being very clear about what we’re doing now” and noted that “it took a while to get into this place and I think it’ll take a while to work our way out . . . Trust is lost quickly, and takes a long time to rebuild.”
I think it starts with owning our mistakes and being very clear about what we’re doing now. For much of the company November 2016 was their first negative cycle, so it’s also good to share old stories. And then you have to deliver, you have to make real progress on the issues.
— Adam Mosseri (@mosseri) March 30, 2018
This isn’t about whether Facebook will disappear tomorrow, but whether it will remain unconquerable for the forseeable future.
Growth has been the driving mantra for Facebook since its inception. No matter how employees are evaluated, it’s still the underlying ethos. Facebook has poised itself as a mission-driven company. The implication was always that connecting people is good so connecting more people is better. The only question was how to grow faster.
Now Zuckerberg will have to figure out how to get Facebook to cautiously foresee the consequences of what it says and does while remaining an appealing place to work. “Move slow and think things through” just doesn’t have the same ring to it.
If you’re a Facebook employee or anyone else that has information to share with TechCrunch, you can contact us at Tips@techcrunch.com or this article’s author Josh Constine’s DMs are open on Twitter. Here are some of our feature stories on Facebook’s recent issues:
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