Lots of technology policy stories this weekend

There are lots of technology-policy-related stories this weekend.  The first three concern about excess market power in tech markets, and its effects. The remaining three are miscellaneous subjects at the intersection of technology, policy, and politics.

Suggestion: If a newspaper is refusing to let you read an article, you can often get it by searching for it (on Google – irony alert, see one of the stories below), and visiting from the search result.

And a humble brag: Only the last of these stories directly concerns He Who Must Not Be Named. Nor did I mention Juicero, whose idiocy I tweeted about when it first came to market.

Is It Time to Break Up Google?

In just 10 years, the world’s five largest companies by market capitalization have all changed, save for one: Microsoft. Exxon Mobil, General Electric, Citigroup and Shell Oil are out and Apple, Alphabet (the parent company of Google), Amazon and Facebook have taken their place.

They’re all tech companies, and each dominates its corner of the industry: Google has an 88 percent market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market. In classic economic terms, all three are monopolies.

(My response on this one: Market concentration is growing in many industries, and yes it’s a problem. The secondary effects are dire: it is both a cause and caused by increasingly unequal distributions of income AND political power. But it will be correspondingly difficult to persuade the US political system to do anything about it. Perhaps other countries will have more luck because they can appeal to anti-Americanism.)

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How Google Cashes In on the Space Right Under the Search Bar

In the 17 years since Google introduced text-based advertising above search results, the company has allocated more space to ads and created new forms of them. The ad creep on Google has pushed “organic” (unpaid) search results farther down the screen, an effect even more pronounced on the smaller displays of smartphones.

The changes are profound for retailers and brands that rely on leads from Google searches to drive online sales. With limited space available near the top of search results, not advertising on search terms associated with your brand or displaying images of your products is tantamount to telling potential customers to spend their money elsewhere.

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AT&T’s Words on Time Warner Deal Say ‘Underdog.’ Its Actions Speak Otherwise.

WASHINGTON — Here in the nation’s capital, AT&T has painted itself as an underdog that needs to merge with Time Warner in a blockbuster $85 billion deal to compete with powerful cable companies. But in several cities and states, AT&T’s actions send a different message. ….

In other words, AT&T has positioned itself as the incumbent telecommunications juggernaut that has acted to hamper competitors locally.

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Uber’s C.E.O. Plays With Fire

Travis Kalanick’s drive to win in life has led to a pattern of risk-taking that has at times put his ride-hailing company on the brink of implosion.

(My comment: Change the company name, and this is an old story. Many startups have founders who are immature on multiple dimensions. It’s up to the Board of Directors to keep them under control, and of course that does not always happen. Apple’s Board fired Steve Jobs. In late 1985, Quirky imploded after running through $185 million of funding. See http://nymag.com/daily/intelligencer/2015/09/they-were-quirky.html)

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Affordable Care Act: A Tale of Two Red States

In Oklahoma, which has raged against the
law, insurance premiums are among the
nation’s highest. New Mexico, which oversees
its marketplace, has some of the lowest.

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Finally, an update on an entirely predictable slow-motion-train-wreck that is coming in Washington, as a result of the unwillingness or inability of our dominant political party to make rational decisions.

Will the Government Be Open in a Week? Here Are the Dividing Lines

Case in point from today’s WSJ online:
Donald Trump’s Push for Border-Wall Funding Muddies Budget Talks
Administration injects volatility into a crucial week as government shutdown looms
“Less than a week before the federal government could run out of money, White House officials said President Donald Trump wants any spending deal to include some funding for a border wall, despite little appetite among congressional Republicans for risking a partial shutdown over the issue.”

Overwhelmed Yamato mulls exit from Amazon’s same-day delivery service 

Same-day delivery for Amazon ” is taking an increasing toll on Yamato’s drivers because of the high volume of nighttime deliveries.”

The company had been considering partly terminating contracts with major clients who refused to accept raised shipping fees or deferring delivery days during peak periods.

Source: Overwhelmed Yamato mulls exit from Amazon’s same-day delivery service | The Japan Times

Package delivery is one of the only employment categories that is increasing as retailing moves more toward the Internet. But as this article implies,  we will see more change in how retailers and deliverers manage the last step in the B-to-C supply chain. Why doesn’t Yamato raise its prices?

Why doesn’t Yamato raise its prices? Perhaps they don’t want to compete with other delivery services in late night delivery?

Ridiculous: “Why Oxfam is getting it wrong about poverty” – CapX

Bilge from a right-wing pseudo-intellectual. I’ve never heard of this guy before, but he seems to be an expert in deception rather than analysis.

As it’s Davos time, Oxfam has issued its traditional demand for a handout.  Their wealth report this year informs us that a mere eight people have more wealth than the bottom 50 percent of the world’s population. This is entirely true of course. But Oxfam’s solution is that we should take it from the rich and […]Source: Why Oxfam is getting it wrong about poverty – CapX

This is an example of deceptive reasoning. Here’s my quick analysis:

Worstall writes:

>The result is that entrepreneurs get to keep some 3 per cent of the value of their creations. The other 97 per cent of the value flows to us consumers out here.
….
>Poverty exists and obviously we’d prefer that it didn’t. That’s why we need more rich people not fewer: because we need someone to create value for the rest of us to consume.

So he is equating “rich people” to “entrepreneurs” to “creators of value.” If only that were true. Although a small number of tech entrepreneurs get most of the publicity (Steve Jobs, Bill Gates, etc), most of the giant corporate profits are coming from increasing market power/decreasing competition in many markets. For example, few outside the industry think that the “financial services” industry (e.g. investment banking) creates value comparable to the huge profits it makes.

He is also using misdirection to imply that Sam Walton’s heirs were the entrepreneurs who created Walmart’s economic value!

Finally, he keeps using a “3 percent” number to imply that “the masses” get 97 percent of increasing economic value, and the ultra-rich get only 3 percent. In fact median income has not grown for several decades. While the overall GDP has doubled in the last 30 years, the extra income has gone entirely to the upper ten percent. (Median household income rose by 8% in the last 30 years.)
Sources: http://www.multpl.com/us-gdp-inflation-adjusted/table
https://fred.stlouisfed.org/series/MEHOINUSA672N

A slightly different way of measuring. Compare black and red lines.

figure-9-e1455724425470

So the blog post is a dishonest piece of fallacious reasoning. Is this typical of the Adam Smith Institute, where he is apparently based? Is this the average reasoning level of right-wing intellectuals today?

By the way, I’m sure there are problems with Oxfam’s report – just not the ones he claims.

Why Elon Musk’s New Strategy Makes Sense — Really??

Claim: “The history of architectural innovation is on his side. Source: Why Elon Musk’s New Strategy Makes Sense” by Joshua Gans

I’ve seen many people encouraging Musk’s integration of Solar City with Tesla, but it strikes me as a weak move. There is some synergy between electric cars and home PV, but electric energy is mostly fungible. Only if local utilities use really dumb pricing schemes for solar power would it be useful to bypass them if you have an EV. (Admittedly, many utilities do exactly that.)

Second, his closing argument contradicts a lot of other analysis.  I have not read Gans book. But he writes that:

As I outline in my book, The Disruption Dilemma, the companies that have thrived in the face of architectural disruption of this kind are those that have kept all the parts close and in control rather than spread them out.

But, “keeping all the parts under your control” rules out 99% of startups. And it also seems historically incorrect. IBM, when it started the IBM-PC revolution, did so by surrendering control of almost everything, including the OS, processor, hard drive, and applications. IBM made all of these things for its mainframes, but it revolutionized the industry by NOT controlling them for personal computers. And this was certainly architectural disruption – the shift from a closed to an open architecture.

I’ll have to look at his book. Or ask my friend Liz Lyons down the hall, who was his student.

Can Motorola establish a new smartphone platform?

Every electronics company dreams of starting a new platform that other firms adopt and build on. It’s one of the few paths to riches  in electronics (think: iPhone, Android, Blu-Ray, CDMA, Steam, Playstation). Check out extensive writing by my friend Michael Cusumano and his colleague Annabelle Gawer, such as this article in Sloan Management Review. (May be behind a paywall.) Although even if successful, the originator may have to make so many deals that it does not capture much rent. (Think: Android again, Blu-Ray again, Wi-Fi, 4G, HDTV, etc.) And doing it successfully is very hard, even for large companies.

moto-1935  A  related dream is modularity without sacrificing performance. This has been discussed for cell phones for many years, although in the past I have been skeptical. This article, though, sounds as if Motorola has a chance at doing both. Technically, it sounds like a good concept, if they can pull it off as well as the article suggests. Of course, technical excellence is  never sufficient to become a standard. And Motorola, with all its ownership turmoil in recent years, is not very credible. But I’m heartened to think that the goal of a modular smartphone may be technically realistic, which would be great for consumers. (It’s important that Moto is not talking about creating a new operating system or app platform. Just look at Nokia and Microsoft to see how hard that is.)

Video version of the Wired article.

Continue reading

Econometrics versus statistical analysis

I teach a course on Data Mining, called Big Data Analytics. (See here for the course web site.) As I began to learn its culture and methods, clear differences from econometrics showed up. Since my students are well trained in standard econometrics, the distinctions are important to help guide them.

One important difference, at least where I teach, is that econometrics formulates statistical problems as hypothesis tests. Students do not learn other tools, and therefore they have trouble  recognizing problems where hypothesis tests are not the right approach.  Example: when viewing satellite images, distinguish urban from non-urban areas. This cannot be solved well in a hypothesis testing framework.

Another difference is less fundamental, but also important in practice: using out-of-sample methods to validate and test estimators is a religious practice in data mining, but is almost not taught in standard econometrics. (Again, I’m sure PhD courses at UCSD are an exception, but it is still rare to see economics papers that use out of sample tests.) Of course in theory econometrics formulas give good error bounds on fitted equations (I still remember the matrix formulas that Jerry Hausman and others drilled into us in the first year of grad school). But the theory assumes  that there are no omitted variables and no measurement errors! Of course all real models have many omitted variables. Doubly so since “omitted” variable includes all  nonlinear transforms of included variables.

Here are two recent columns on other differences between economists’ and statisticians’ approaches to problem solving.

I am not an econometrician  by Rob Hyndman.

and

Differences between econometrics and statistics: From varying treatment effects to utilities, economists seem to like models that are fixed in stone, while statisticians tend to be more comfortable with variation, by Andrew Gelman.