The fundamental problem with Silicon Valley’s favorite growth strategy | Quartz, by Tim O’Reilly

Source: The fundamental problem with Silicon Valley’s favorite growth strategy | Quartz, by Tim O’Reilly
RE: Blitzscaling, by Reid Hoffman and Chris Yeh

Hoffman and Yeh argue that in today’s world, it’s essential to “achieve massive scale at incredible speed” in order to seize the ground before competitors do. By their definition, blitzscaling (derived from the blitzkrieg or “lightning war” strategy of Nazi general Heinz Guderian) “prioritizes speed over efficiency,” and risks “potentially disastrous defeat in order to maximize speed and surprise.”

This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society?

for every company like Paypal that pulled off that feat of hypergrowth without knowing where the money would come from, there is a dotcom graveyard of hundreds or thousands of companies that never figured it out. That’s the “risks potentially disastrous defeat” part of the strategy that Hoffman and Yeh talk about. A strong case can be made that blitzscaling isn’t really a recipe for success but rather survivorship bias masquerading as a strategy.

there are compelling reasons to blitzscale, and the book provides a great deal of wisdom for those facing a strategic inflection point where success depends on moving much faster. But I worry that the book oversells the idea

While Hoffman and Yeh’s book claims that companies like Google, Facebook, Microsoft, Apple, and Amazon are icons of the blitzscaling approach, this idea is plausible only with quite a bit of revisionist history. Each of these companies achieved profitability (or in Amazon’s case, positive cash flow) long before its IPO, and growth wasn’t driven by a blitzkrieg of spending to acquire customers below cost, but by breakthrough products and services, and by strategic business model innovations that were rooted in a future that the competition didn’t yet understand. These companies didn’t blitzscale; they scaled sustainably.

Sustainability may not actually matter, though, according to the gospel of blitzscaling. After all, the book’s marketing copy does not promise the secret of building massively profitable or enduring companies, but merely “massively valuable” ones.

What is meant by value? To too many investors and entrepreneurs, it means building companies that achieve massive financial exits, either by being sold or going public. And as long as the company can keep getting financing, either from private or public investors, the growth can go on.

But is a business really a business if it can’t pay its own way?

figure 2, found on page 58, of table 9 data: “Initial Public Offerings: Updated Statistics”, by University of Florida finance professor Jay R. Ritter, 2018-01-17

Would profitless companies with huge scale be valued so highly in the absence of today’s overheated financial markets?

The horse-race investment mentality has a terrible side effect: Companies that are not contenders to win, place, or show are starved of investment. Funding dries up, and companies that could have built a sustainable niche if they’d grown organically go out of business instead. … The losses from the blitzscaling mentality are felt not just by entrepreneurs but by society more broadly. When the traditional venture-capital wisdom is to shutter companies that aren’t achieving hypergrowth, businesses that would once have made meaningful contributions to our economy are not funded, or are starved of further investment once it is clear that they no longer have a hope of becoming a home run.

I’ve talked so far mainly about the investment distortions that blitzscaling introduces. But there is another point that I wish Hoffman and Yeh had made in their book.

Assume for a moment that blitzscaling is indeed a recipe for companies to achieve the kind of market dominance that has been achieved by Apple, Amazon, Facebook, Microsoft, and Google. Assume that technology is often a winner-takes-all market, and that blitzscaling is indeed a powerful tool in the arsenal of those in pursuit of the win.

What is the responsibility of the winners? And what happens to those who don’t win?

The problem with the blitzscaling mentality is that a corporate DNA of perpetual, rivalrous, winner-takes-all growth is fundamentally incompatible with the responsibilities of a platform. Too often, once its hyper-growth period slows, the platform begins to compete with its suppliers and its customers. … Platforms are two-sided marketplaces that have to achieve critical mass on both the buyer and the seller side.

Unfortunately, the defeat being risked is not just theirs, but ours. Microsoft and Google began to cannibalize their suppliers only after 20 years of creating value for them. Uber and Lyft are being encouraged to eliminate their driver partners from the get-go. If it were just these two companies, it would be bad enough. But it isn’t. Our entire economy seems to have forgotten that workers are also consumers, and suppliers are also customers. When companies use automation to put people out of work, they can no longer afford to be consumers; when platforms extract all the value and leave none for their suppliers, they are undermining their own long-term prospects. It’s two-sided markets all the way down.

Viral Outrage Is Collapsing Our Worlds | The Atlantic

Source: Viral Outrage Is Collapsing Our Worlds | The Atlantic, by Conor Friedersdorf

The ability to slip into a domain and adopt whatever values and norms are appropriate while retaining identities in other domains is something most Americans value, both to live in peace amid difference and for personal reasons.

I wonder whether ongoing debates about matters as varied as Facebook user-data practices, “the right to be forgotten,” NSA data collection, and any number of public-shaming controversies are usefully considered under the umbrella framework of How is new technology affecting our ability to keep our various worlds from colliding when we don’t want them to, and what, if anything, should we do about that?

What would the implications be of adopting the norm that it is often wrong, or only rarely appropriate, to rob an individual of the ability to slip into a given domain and adopt whatever values and norms are appropriate while retaining their identities in other domains?

What would be the worst consequences? How might we shift the cultural equilibrium to value domain-slipping more highly while recognizing its practical and moral limits? What tradeoffs are involved?

The digital revolution isn’t over but has turned into something else | Edge

Source: The digital revolution isn’t over but has turned into something else | Edge, by George Dyson

Once it was simple: programmers wrote the instructions that were supplied to the machines. Since the machines were controlled by these instructions, those who wrote the instructions controlled the machines.

We imagine that individuals, or individual algorithms, are still behind the curtain somewhere, in control. We are fooling ourselves.

Nature uses digital coding for the storage, replication, recombination, and error correction of sequences of nucleotides, but relies on analog coding and analog computing for intelligence and control.

Digital computers deal with integers, binary sequences, deterministic logic, algorithms, and time that is idealized into discrete increments. Analog computers deal with real numbers, non-deterministic logic, and continuous functions, including time as it exists as a continuum in the real world. … Digital computing, intolerant of error or ambiguity, depends upon precise definitions and error correction at every step. Analog computing not only tolerates errors and ambiguities, but thrives on them. Digital computers, in a technical sense, are analog computers, so hardened against noise that they have lost their immunity to it. Analog computers embrace noise; a real-world neural network needing a certain level of noise to work.

Nature’s answer to those who sought to control nature through programmable machines is to allow us to build machines whose nature is beyond programmable control.

The Uncharity of College: The Big Business Nobody Understands, by Conrad Bastable

Source: The Uncharity of College: The Big Business Nobody Understands, by Conrad Bastable

How Colleges Make More Money Than God By Giving It Away

A very brief summary of what’s to come in this essay:

  • College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years
  • Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25  years
  • Microeconomics 101: Fixed Supply + Increased Demand = Increased Price
  • That’s the obvious part
  • The non-obvious part is that this is intentional
  • Because the Charity-status ( 501(c)(3) )of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)
  • That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS
  • Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is
    • Investment Returns already generate more revenue than undergrad tuition income at: Princeton (911% more), Harvard (529% more), Yale (254% more), MIT (118% more), Stanford (115% more), Brown (29% more), Duke (13% more), Dartmouth (9% more), and U Chicago (6% more)
    • Undergrad tuition brings in just 10% – 20% of total revenue at the Ivy League / Top-10 schools not listed above. Undergrad Tuition is not more than a quarter of revenue at any of these schools.
  • Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads

Tuition is meaningless income to MIT now — a drop in the bucket, just 3.2% of their income comes from undergraduate tuition — but so long as the Tuitions are unaffordable for 58% of undergraduates, the Investment returns on $16.4 billion dollars are tax free.

On the age of computation in the epoch of humankind | Max-Planck-Gesellschaft

Source: On the age of computation in the epoch of humankind, by Christoph Rosol, Benjamin Steininger, Jürgen Renn, & Robert Schlögl

tl;dr: To paraphrase Homer Simpson, “To Computation! The cause of… and solution to… humanity’s resource problems.”

 

Digital technologies do not only provide the basic infrastructure to control the industrial metabolism, they also are first-rate consumers of resources. Through the entwinement of the digital sphere with the physical world and actual energy and material cycles, digital communication has become tightly coupled to the current dynamics of wear and tear of earthly resources. No computational infrastructure can exist without the prior transformation of matter and no information without the transformation of energy.

The asymmetry of signals and effects should therefore not be misinterpreted. Information technology is the opposite of an immaterial technology. Even the smartest device needs dumb metals. At least 40 chemical elements are used in every smartphone, which means we carry around one-third of the periodic table in our pockets. What seems to be an almost immaterial business of zeros and ones makes use of more chemical elements than every previous technology in history.

Smart data technologies appear to many to offer ways out of the energy and resource dilemma. … However, in undertaking such endeavours, rebound effects should be a concern. As the well-known Jevons’ paradox states, increasing efficiency will likely lead to an increase in consumption in response to lower prices. One will have to see if smart, adjustable technologies create a difference to that rule.

Digital technologies have greatly contributed to a frenzy of unsustainable resource exploitation and consumption, the generation of waste and political ambivalence, yet they appear as viable solutions to ameliorate those problems. The rapid and radical change that has occurred to the Earth system as a result of the impacts of industrialized societies has been accompanied – if not leveraged – by rapid and radical changes in information technologies and digital media. Yet still, the hope is that their potential and collaborative scalability for a rational counter approach to untenable developments is enormous.