What is the Internet Worth?–Futurum Tech Podcast

This week’s episode of the Futurum Tech Podcast took a main dive into the topic of the value of the internet, and whether we can put a value on free. In our Fast Fives, we talked about the partnership between Boeing and Porsche for flying taxis, the U.S. potentially helping Huawei rivals with funding, the latest with WeWork, what’s happening with facial recognition technology in China and much more.

Our Main Dive

What is the Internet Worth to You? And can we put a value on free? That’s the question the Federal Reserve wants to know as it works to figure out the value of free services to the economy. Jerome Powell, the Chairman of the Federal Reserve Bank tackled this issue in a recent meeting of economists, which spurred our discussion. What about you? Would you pay for access to social channels that kept your data private? If so, how much? Lots of interesting conversation here that you’re sure to want to give a listen.

Our Fast Five

We dig into this week’s interesting and noteworthy news:

Tech Bites

In the Tech Bites part of the podcast, we talked about the news that Apple and Google pulled apps from their ecosystems that China deemed dangerous. Companies doing business in China walk a fine line between doing the right thing and doing what the Chinese government wants — and for Apple at least, there are $52 billion reasons for this, or one-fifth of its business income that’s attributable to China. The question about doing the ‘right thing’ often comes down to what’s the right thing for humans, or what’s the right thing for investors. In this case, clearly, Apple was thinking of its investors.

Crystal Ball: Future-um Predictions and Guesses

In our Crystal Ball discussion we talk about what’s next with regard to ‘free’ online services like search engines, social networks, etc., and what, if anything, we expect to change as it relates to both consumer behavior as well as how these brands continue to evolve.

Transcript:

Olivier Blanchard: Welcome to this week’s edition of FTP, the Futurum Tech Podcast. I’m Olivier Blanchard, Senior Analyst with Futurum Research, and joining me today are Shelly Kramer and Fred McClimans. And we’re going to start today’s show with a discussion about what free really means on the internet. Then we’ll share some of our favorite tech stories of the week in our Fast Five segment, followed by Tech Bites in which we highlight one of the biggest tech related fails of the week. And we have several this week, so we had to pick one to actually match that.

And then we will end the show as always with our Crystal Ball. But before we begin, it goes without saying that this show is intended for informational purposes only and no advice or insights provided here, no matter how good they sound should be taken as investment advice.

So without further ado, let’s jump into our main topic, which is in general, is free really free? And if not, what is the value of free? And this was a topic that we’ve actually kind of touched on on previous show and really over the years on different points, which kind of started as a discussion of how much would people pay for Facebook, and how much would people pay for Google and YouTube if they were paid service like HBO and Netflix or other things of that nature. And the discussion that we’re going to be having today is actually kind of the opposite of that. It’s how much would you pay not to use those services? How much would you pay not to use Google? How much would you pay not to use YouTube?

And it’s an interesting discussion because in my mind it’s really about how much would you pay not to have your data collected. And so Shelly and Fred might take a different angle on that, but I kind of want to begin with this, and I’ll start with you, Shelly. Maybe you can frame this discussion a little bit better and tell us what triggered us to want to talk about it. But one of the aspects of this that I want to kind of highlights is how much would people pay not necessarily to not be on Google, not be on Facebook, not be on YouTube, but how much would people pay to not have any of their data collected while they are on these platforms? And so I open it to you Shelly. Go ahead.

Shelly Kramer: Well, when I first came across this topic, it was actually in some breaking news this morning out of CNBC that was talking about Jerome Powell, the Fed chairman, and the Fed exploring the economy. The article actually calls it one of the most puzzling paradoxes of the modern economy. So what we have are … We’ve had an expansion that’s the longest in history. Productivity gains are weak, the GDP growth is steady, but it’s not stellar. And what the Fed is looking at is data and good data. What’s the difference between good data and data that isn’t great data? And I think he was looking at, what do I want to say, the chasm between all of these different things. Search engines are free, email is free, GPS is free, social media channels are free. And yet we have economic stats that we’re trying to factor into the equation and to figure out what benefits these kinds of technology platforms are generating for businesses and consumers.

And what I thought was even more interesting, which is a completely separate conversation but equally is fascinating is that Powell talked about some recent work that was done by an economist at MIT, and what he and his team were looking at was what kind of monetary value do users of these platforms place on them? How important is Facebook to a user? How important a role does YouTube play in a user’s life? What would it take to get people to stop using search engines? So as researchers and analysts, I think that to me is a more interesting question than is free really free. Because I look at, for instance, in the data from MIT, their research showed that the median price that consumers said they will give up a video streaming service like YouTube for an entire year would be almost $1,200, okay? I can promise you my teenagers would not give up YouTube for $1,200. So I think that’s kind of interesting too.

Olivier Blanchard: That sounds insane to me, because … I mean it’s … And Fred, I’m going to get to you in a second, but I just want to get your reaction to this because Shelly, you and I have been kind of involved with the discussion about social media within kind of like the media value universe, right? We remember discussions years ago about what’s the value of a like, right, which was kind of people had a weird conflation going on between cost and price, and cost, price and value, and how those things are actually not the same, but they were sort of batching them together. And some people had this equation that the value of a Facebook like was like $53 and 72 cents, and people said it was like $2, 96-

Shelly Kramer: Hey, I know somebody that wrote a book on this topic. Like seriously? Oh my God.

Olivier Blanchard: I do too.

Shelly Kramer: Yeah. He’s famous. Sorry.

Olivier Blanchard: Yes. Almost, or was for two seconds. So this to me is like there’s an echo of this going on. And when I see somebody saying that Snapchat is valued at 2.17 Euros, and LinkedIn is only valued at like 1.5 Euros a month per people, but for some reason, WhatsApp is worth 536 Euros, to me that’s nonsense. The $12,000 a year valuation for YouTube also seems just egregiously lopsided, because for me, I wouldn’t care. And in a way, even just that kind of valuation for Google for me is transactional. It’s not that I would give up Google necessarily, but how much would I pay per search, I think is more important.

Shelly Kramer: And can you imagine if you had to actually pay for your searches, how much less often you would search?

Olivier Blanchard: Yes. I would have different search habits completely. But I think-

Fred McClimans: I think your first search would be for an encyclopedia salesman.

Shelly Kramer: How to find a free place to search for stuff I want to know.

Olivier Blanchard: Yeah. Right. Well, that’s the thing. You start paying for this thing, you’re going to get the pirates version of the internet where everything’s free and weird. So I’m going to pass it onto Fred just for a second because we haven’t asked him yet. But Fred, what’s your perspective on this? And what angle, I guess, of this discussion do you find most interesting? Because it’s so layered, right? There are so many dimensions to this discussion that I just want to kind of get your unique perspective on this.

Fred McClimans: Well, this particular question, it’s not a new question. It’s one that gets asked from a number of different perspectives periodically. How much value are people giving up for their data to a company? Could they charge for that? And there are separate initiatives addressing that. Then you have the whole issue of this whole free economy here. What’s the value that we’re getting for free out here? How would you monetize that? And I do think that there’s an interesting piece of logic in that MIT study that says, what would it take for somebody to give up something? I mean that clearly places a monetizeable value there, but it’s a tricky number here.

Because we know, if you look at Facebook, Facebook generates a little bit north of $25 per user in advertising revenue per year. We can definitely put a metric on that. We can say, here’s how much revenue this is worth. Here’s how much this user is worth. It turns out that for a user not to use that, they would have to expect a lot more money in return for that. So there’s an imbalance there, which kind of highlights the fact that you can’t really compare these kind of services in play.

The other aspect here though is these services, right now, it’s false to say that we get something for free on Google or on YouTube or on Facebook because we are paying for it in some way. And I’ll go back to that advertising, exchange for personal data. So if you really want to figure out what that value is, let’s take a look at the value of the data to the company rather than how much it would take somebody to give something up, because when you do that and you ask the question, Olivier, Shelly, I want you to pass on Facebook for a month. How much would it take for you to do that?

And by the way, I think that’s a question that a lot of kids ask their parents and maybe a lot of parents ask their kids periodically throughout the year. Can they pay you to get your face out of that phone? And I know for me it’s an interesting question because I gave up Facebook about a year ago. I haven’t been anywhere near it in 12 months. I didn’t get paid for it, but I got value out of doing that. But when you ask the question, how much would you give up, or what would it take for me to pay you to not use something, that’s an incredibly variable number just based on the different types of users there are for a particular service and how their preferences and their needs and their interests may vary by geography, by demographic, by age, by culture. I mean there are so many different factors in there.

But now, here’s the really interesting part in this whole discussion, we have an economy that isn’t showing productivity gains. It’s not showing growth in GDP the way people think it should be. So they’re trying to figure out, is there something that we’re missing here? Should we be calculating into the GDP the value that people get out of all these free services? Now again, I’ll point out they’re not necessarily free here. And you could also make an argument that all these free services are actually diminishing productivity because people are spending so much time on these various sites. But at the core of this, this is an economic issue. It’s a conundrum for the US economy and most likely for a lot of other countries. How do we place a value on this?

And by the way, if we are successful in doing that, if somebody in the government or somebody in academia is able to actually say, here’s the value of what Google generates independent of Google’s revenue and what people may pay in advertising dollars, the first thing I would expect somebody to do is to say, how do we tax that value? And that for me is a very scary proposition.

Olivier Blanchard: Yes. The libertarian in you always comes out, which is what I like about you. Okay. Let me kind of reframe this, because you’ve made some good points. And one of the underlying kind of topics here is the value, not so much the value of our time but the value of data. So the first thing is the attempt to value the amount of time that we spend online, on the one hand could be just calculated like you would any kind of human work or head count cost accounting. If your value to an employer or the value of your time to you is worth X amount of dollars per hour, you can do kind of a cost analysis of what your time online is versus your time doing something perhaps more productive.

Even though your time online might be productive and it’s just how you think and it’s how you kind of stay sane without medication or whatever, it could be self-medication. But I think that the value of data, the value of the collection of data is a little bit more interesting. And the way that I frame this is, this is a continuation of discussions that we’ve had over the years, which is how I opened the segment. And one of them, like the first version of that I think a few years ago was how much would you pay not to see ads on Facebook? So basically it’s kind of you have the free version of Facebook, the free version of Google, and you want to be able to use it, but you don’t want to see any ads, period. No sponsored posts, just your plain feed, nothing else. Would you pay $9 a month for that as opposed to being free? Would you pay $19 a month? And so that was kind of the first layer of this discussion.

I think that now that we’ve entered into this era of just kind of realizing that all of these platforms are collecting our data all the time and not just collecting it, but just selling it to everybody without our consent and with no transparency, and we have no control over it, and we understand that our data is very valuable, and perhaps more valuable to these companies than we realize it’s valuable to us. And so there’s a weird delta in the way that we value our data and the way that other companies value our data. And we have no control over what they do.

So the question I think goes from how much would you pay not to see ads to how much would you pay to have your data anonymized so that these companies can still collect data as they should for advertising purposes and what have you, but if it’s anonymized, it protects your privacy. So they can still get value out of it, they can still use your data to build better algorithms and deliver better services, but you don’t feel like you’re being just invaded and sold out. And so Shelly, I want to turn it back to you and then I’ll go to you, Fred, and then we’ll probably close the segment out for now. Do you think I’m on the right track here? Do you think that ultimately this economic study exercise leads us in that direction, or are these two completely different things? Do you think one is more important than the other? I’m just going to leave it open.

Shelly Kramer: Well, I think that we’re nearing a pivotal time as it relates to some of these technology platforms and how they collect our data, how they use our data, what we’re seeing in Europe, for example. I think we’re going to see a lot of changes. My concern, and I come into this with a degree of skepticism, is that that sounds really neat, Olivier. Facebook says to me, Shelly, you can trust us. We’ll anonymize things. Well, you know what, Facebook, I got over trusting you a long time ago. I feel like the average individual has no reason to trust Facebook or Twitter or Google or Instagram. You know what I’m saying? I mean there’s never been any indication at all that any of these platforms care at all about protecting our data, about keeping it safe from breach. Look what just happened with Twitter this last week. You know what I’m saying? So I think that’d be great. In theory, it would be great, but I just don’t see that technology giants have earned our trust in a way that would enable them to say, Oh, we’ve got a solution to this problem. We’ll anonymize data.

Olivier Blanchard: It would be either just an issue that’s legislated or one that’s just contract based, which would make Fred a lot happier, where basically this is the agreement. If you want to use our service for free, we’re just going to collect your data, whatever. If you want your data to be anonymized, you’re going to pay a fee, whether it’s $9 a month or $19 a month. The meter just keeps running whenever you’re actually on and the app is open, which will be more difficult for Google, I understand that.

But I think once that agreement is made and this is the direction these companies take, which I think creates a balance of power between consumers and the companies, I think that would be a good balance to have. Then if the company breaks its contract, breaks the agreements, then you’re going to have lawsuits. And so the DOJ and the FTC and other organs of government might also file a suit against these companies for all sorts of infringements. So I understand. I wouldn’t trust them either. But once you put it on paper and it becomes a legal agreement, then that bears more weight than just a promise by Mark Zuckerberg or whomever.

Shelly Kramer: I think one of their point … Did you happen to see the elites … I think it was this presentation that Zuckerberg gave internally and he was talking about basically they’re coming for us and we’re going to double down, as it relates to regulations and that sort of thing. And the problem is that Facebook is a formidable adversary for us as individuals, and for governments and regulators and everything else. I mean the amount of data and control they have over society in general is frightening. Part of the challenge is that we as consumers, whether it’s Google, whether it’s Facebook, whether it’s some other thing, we value the luxury of never needing to ask for directions, and always having an internet machine in our hand where we can ask any question at anytime and get all those things. So it’s really a sticky thing. Fred, what do you say?

Fred McClimans: I’ll take this back to the genesis of this particular conversation from an economic perspective here. We are at that point where we talk a lot about digital transformation or customer experience transformation and whatnot in work. But this is really this interesting combination of global economic and societal transformation that we’re witnessing right now. It’s fueled by technology. It is something that you could argue, well, that’s happened in the past. Yes, it has been on a much slower scale. So right now, we have a lot of people who are grappling for answers. They’re trying to find out, what does this next look like from a business perspective, from a consumer perspective, and in the case of the Fed chairman here, from an economic perspective, because nobody knows how to value where we are today and they certainly don’t know how to value where we’re going to be.

And yet as a culture, as a business community, we try and put a dollar value on things. So we want to know how do we compare ourselves to other countries? How do we compare ourselves to how we were six months ago, and how do we forecast the growth that we all expect to be coming when the metrics that we have, the KPIs that we have in place, they simply don’t capture the complete picture. It’s a really fundamentally interesting question that businesses themselves also need to start asking about their products, about their productivity. How do they measure growth?

In the GDP space, it’s about output. It’s not about value received, but output. And that’s changing. Clearly it’s changing because there’s this gap that exists between what we expect and what we’re actually seeing in the data.

There are a number of questions that we have to ask about valuation, and we need to talk about this a lot moving forward, whether it’s for personal data or whether it’s for businesses or economies. But I think the most important thing, and I’ll just end on this, is that can you place a value on free? The answer is no. You can’t place a value on free. And in a lot of cases when we asked that question, there already is a value. We just haven’t accepted the answer.

Olivier Blanchard: Well, you know what, that’s actually a really good place to press pause on this discussion, which we will pick up again soon in the coming months. I’m really fascinated by this. And like Shelly implied earlier, I kind of wrote a book that touches on this a little bit.

Fred McClimans: Kind of sort of wrote a book. Yeah.

Olivier Blanchard: Kind of sort of wrote a-

Shelly Kramer: Back in the day.

Olivier Blanchard: … yeah, a 300-page dissertation.

Shelly Kramer: What else is new?

Olivier Blanchard: All right. Yeah. Yeah. So thanks for listening to us on this topic, and definitely let us know however you picked up on this podcast. You can reach us on Twitter and on other channels, and let us know what you think, and continue the discussion there. We are now moving into the fast five segments of our show, and I’m going to hand it off to Shelly. Ladies first. And I think that you want to talk to us about China and the very free, freedom loving face scans that they are not imposing, but kind of imposing over there to do stuff. So tell us about that.

Shelly Kramer: Free, freedom loving, those words don’t really go when you’re talking about China. So starting in December, the first day of the month, Chinese citizens will have to allow telecom carriers to scan their faces when they’re signing for internet access or to get a new phone number. And this new rule was just announced by China’s ministry of industry and information technology late in September. And the statement that they release says that earnestly safeguard the legitimate rights and interests of citizens in the cyberspace. So isn’t that neat? Basically, anybody who lives in China, anybody who visits China is aware that they are under surveillance 24/7.

What this is, is an attempt to tie carriers and the government to verify whether mobile and landline phones, I’m not sure anybody has a landline phone in China anymore, but whether they’re registered under real names, and terminate those who aren’t. I mean this is really a move by the Chinese government, that shouldn’t surprise anybody, to control every part of what it is its citizens are doing, how they’re using devices and that sort of thing. And I’m glad I don’t live there.

Olivier Blanchard: Yeah. It’s a little scary. We’ll circle back to China a little bit later because we have another kind of technology China freedom adjacent topic coming on. Okay. Well, thanks for talking to us about the upcoming dystopia of technology being used against civil rights. This is wonderful.

Shelly Kramer: Continuing dystopia.

Olivier Blanchard: Continuing dystopia. So Fred, you have something about a partnership between Boeing and Porsche.

Fred McClimans: Right. Porsche. Yeah. I’ve got a couple of fast fives, and I am going to this week actually make them fast fives. So talk about dystopia-

Olivier Blanchard: I don’t believe you.

Fred McClimans: Yeah. We’ll talk about dystopia in the skies. Boeing and Porsche, two globally known brands, one recognized for excellence in automotive styling, detailed performance and luxury, and the other really not known for a lot of great things right now given all the issues that they’ve had over the past couple of years from trash left in planes to some really crappy policies regarding airline safety and so forth. So we’re not going to get into the max issue here, but what we have is we have Boeing and Porsche who have partnered up to take a look at what the future of air taxi travel and potentially air sub travel on a personal level might actually be, and how they can together design and define luxury, and that air taxi experience that’s profitable for the both of them.

It’s a really interesting area to kind of look at and speculate on. We already see air taxis emerging in a number of other countries, some really cool stuff, and in the middle East, in Dubai, for example. In the US here, it’s not so much a big ticket item, although in a lot of cities, the helicopter taxi businesses, if they do exist, and they are functional.

But here we have two companies really trying to figure out how do they put you into a flying batmobile, so to speak. It’s really early. They say they’ve got some ideas, but more than anything else right now, I think it just kind of highlights the direction that we’re going and the technologies that we have waiting around the corner for us as well as the pitfalls. So there we have it, it’s Boeing and Porsche. I’m not sure what you’d call that, a Boche or something-

Olivier Blanchard: Boche.

Fred McClimans: … air taxi. I don’t know.

Shelly Kramer: I think they’d call it, what luxury looks like in this new dimension of transportation.

Fred McClimans: Yes. Yeah. Well, that’s a great piece of marketing lingo, isn’t it?

Olivier Blanchard: It is. I mean, yeah, Shelly would know something about that. Yeah. Shelly, so back to you. Twitter done messed up. What did they do now?

Shelly Kramer: Oh, you know what, I wasn’t even going to talk about that, but I can, I guess.

Olivier Blanchard: Oh, I’m sorry, I’m sorry.

Shelly Kramer: That’s okay. That’s okay.

Olivier Blanchard: What were you going to talk about?

Shelly Kramer: Well, I was going to touch on China again a little bit in that I was going to touch on Huawei, and the fact that it appears that US officials are mulling giving Ericsson and Nokia a little leg up over Huawei, and they’re looking at ways to provide financial assistance to telco operators that would allow for … actually, would probably benefit rural communities the most. Obviously Huawei is blacklisted by the US and this is really causing a problem as it relates to 5G in rural communities across the US, because Huawei has been working with rural communities and telcos, and they price their equipment really, really inexpensively, with Huawei on a US blacklist and their progress with regard to 5G in the US pretty much stalled, now, we look at companies like Ericsson and Nokia to move into that void and to fill that void.

And what is purportedly under consideration by the Trump administration is offering telecommunications companies alternatives to Huawei’s equipment. And some of that also includes funding for operators to rip out and replace Huawei equipment that’s already in place. When it comes to 5G and the rollout of 5G, it’s easy to get excited about it as it relates to big markets, whether across the world or in the US, but it’s the rural communities that have really kind of been incredibly hopeful about how this is a game changer for them. So it’s interesting to see talks about how Ericsson and Nokia can move into this space and how it can be financially incentivized on the part of those companies as well as on the part of telco operators.

Olivier Blanchard: Okay. Yeah. Yeah. No. That makes sense. And I’m actually going to the 5G summit put on by Qualcomm next week in Barcelona. So it’s probably going to be a topic that will be discussed there. So I’ll check back with you guys on that.

Fred McClimans: Is it Qualcomm or Quelcomm?

Olivier Blanchard: Qualcomm. It’s Qualcomm. Or at least last time I checked my French accent, it’s still Qualcomm. Okay. I guess I’ll wrap it up with the fifth after you, Fred. You have some news about WeWork, or we don’t work anymore, or wherever the company … as in whatever it’s called now.

Fred McClimans: First, let me just explain to people that haven’t been listening on a regular basis. The Qualcomm reference was a reference to something that was said by the US president reading off a script talking about Qualcomm. He misread, he misspoke, but he complemented Qualcomm for their excellence. So moving on to WeWork-

Olivier Blanchard: So close. So close and yet so far.

Fred McClimans: So close, yeah, and yet so far. So yeah, WeWork, and I’ll get this pun right out of the way upfront, WeWork has been we valued, and that’s the only Elmer Fudd you’ll ever hear me do on this or any other podcast. So we all know about WeWork global company worth tens of billions of dollars, potentially 40, 50 billion dollars based on their prior investment rounds. They are in that collaborative workspace environment. They, in my opinion, are not a technology company. They don’t deserve a high valuation. I’ve always treated them as sort of a real estate company. I mean they acquire space, they rent space out. It’s a pretty simple transaction. I’ve never understood the high valuation. However, a lot of people bought into that.

That has now come crashing back to earth after the company’s failed attempt to IPO, which has resulted in Neumann’s departure from the CEO role at WeWork. They are now in a state where they were high-flying, they were looking at an IPO, now they’re trying to find a $5 billion reworked line of credit to keep them going, moving forward here. The expectation had been when they went public, they were going to get a conditional line of credit for I think about 5 or 6 billion dollars that would carry them through that period as they build up to cash flow positive and profitability. With that off the table, now they are in a very, very bad way. Just as an example, Neumann’s own personal net worth, he has been pulled off the Forbes billionaire list. He was I think close to four billion or so. He’s now somewhere maybe 500, 600 million. Still a lot, but not where he was previously in this high flying jet setting lifestyle of WeWork.

I think the one thing I’ll point out in this here is that we have a lot of tech companies that we cover. We see a lot of innovative business models. Sometimes just because other people are buying into a business model and into a valuation, doesn’t mean that it’s actually true. And that’s, I think, the big issue here with WeWork. There are a lot of people that are blaming excessive spending. And of course the company now is trying to divest themselves some of their smaller holdings and some of their businesses that they’ve acquired over the past couple of years. But in my mind, there’s just a fundamental break with reality there. WeWork was never a tech company. They never deserved a valuation in the tens of billions of dollars. I’m not even sure they are worth the valuation of one or two billion dollars, personally. But that’s where we are today. WeWork is now in we trouble. So that’s it.

Shelly Kramer: Yeah. You said it twice.

Fred McClimans: That was a stretch. That was a stretch.

Shelly Kramer: You know what, you should have said your entire pun, Fred, because you created a pun at the beginning before we started the show and you’ve only hit on two of the points in that sentence.

Fred McClimans: That’s all you, Shelly. Go ahead.

Shelly Kramer: WeWork has been we valued, deflating Neumann’s WeWorth.

Fred McClimans: There you go.

Shelly Kramer: I think it’s pretty clever.

Olivier Blanchard: It is.

Fred McClimans: Neumann’s WeWorth, I love that. Yes.

Olivier Blanchard: It’s a headline.

Shelly Kramer: You guys are the best fans.

Olivier Blanchard: Yeah. You don’t even need to write the article. You just need to pitch somebody just with that headline and that’s it. Nobody reads anything anyway except the headlines. That’s all that matters. Okay. Well, mine actually was going to be about the new Pixelbook go, which was super leaked before next month’s Google event in which the Pixel phones and the Pixel laptops will be officially revealed. But I’m actually going to steal what I thought Shelly’s second fast five was going to be, and this was actually a candidate for our tech bites segment, which comes next, and which we talk about massive fails in the tech industry for the week. And this touches on Twitter, and it’s really simple, it’s really short.

In case you didn’t know Twitter was like a lot of other platforms and apps and services was asking their users to provide their phone number to them in case they were locked out of their accounts and need to get back in, or just … It was just basically a two factor authentication thing. So if you lose your password, for instance, as just one of the many examples why you would need this, the platform of the service might ask you, Hey, would you like us to send you a code by email, by text or actually by voice on your phone. So you select the box that you want. And in this particular case, it was your telephone number where they would send you a code or a link or something and then you would be able to get back into your account.

And unfortunately, when you do this, the expectation is that you’re giving them your number, they use it for that particular purpose, and that’s it. However, Twitter has admitted that it ‘unintentionally’ used those phone numbers and email addresses that their users were using for this two-factor authentication for advertising purposes. They were actually passing them on to third party advertisers and partners, which is absolutely not what their users thought they would be doing with that.

Fred McClimans: Accidentally.

Olivier Blanchard: Yeah. Yeah.

Fred McClimans: And they accidentally generated revenue.

Olivier Blanchard: That’s the thing. It’s not accidentally, it’s unintentionally.

Fred McClimans: Oh, unintentionally.

Olivier Blanchard: Yes. So I really want to split hairs with the semantics here at some point and kind of figure out why-

Shelly Kramer: Inadvertently. Inadvertently. Yes.

Olivier Blanchard: Inadvertently. Oh yeah. So that’s where we are with that.

Fred McClimans: I’m going to look for that on the next financial filing from Twitter. I want to see their revenue breakdown by geography, by user demographic and then the intentional and unintentional revenue generation.

Olivier Blanchard: Yes. I think that should be out of, 100%. So anyway, in case you weren’t aware of this, your email and phone number may not have been compromised, but they might have been shared without your knowledge, so just be on the lookout for that. Just another little fail, another little bit of news from the tech world. So that does it for our fast five.

So let me switch to the Tech Bites. So even though we’ve had several tech bites on the previous segment, the one I want to kind of briefly touch on just for … guys, just literally four minutes, otherwise we’re going to go over our allotted time, is the fact that Apple and I think Google as well just suspended or agreed to suspend or remove certain apps from their respective app stores that the Chinese government wasn’t very happy with because evidently Hong Kong protesters were using those particular apps to organize and communicate. And so Google and Apple wanting to do business in China, it’s a huge market, apparently may have kind of ceded to the request or to the suggestion by the Chinese government that those particular apps should be removed.

And I think it’s sad because … and especially with Apple, Apple has this brand story of being for the revolutionaries, for the little guy, for the originals, for the people kind of involved in their own revolution, whether it’s an artistic revolution, a political revolution, whatever it is, that they’re at the core of all of these grassroots movements of change and very much in favor of self-expression and freedom. Their ads are always inspirational and you just kind of buy into this whole narrative. But here in this one time where they’re being tested as live your brand, live your brand story, actually embody what your brand story is, they appear to have chosen their fiduciary duties and responsibilities towards their investors, which is make as much money for them as you can, which means being competitive in China and being able to operate in China over perhaps some of their more core visceral brand attributes. And so I just wanted to get both of your reactions on that. So I’ll start with Fred, for once. Fred, you go first. How do you feel?

Fred McClimans: Hey, I feel great. It’s Friday. The sun is shining and we have some really interesting things to talk about here. We talked earlier about the issue of sort of the hidden or the dark matter in the economy. Where’s that revenue generation? Massive question that nobody really has an answer for. The situation in Hong Kong and with China, another one of those situations where something just clearly is not right here and everybody has a different perspective on what the actual best thing to do might be. But more importantly, through all of this, we’re realizing one very, very important thing, putting aside all the trade wars, putting aside everything else, our economy is a global economy. Companies in the US are relying upon and counting on China’s growth, China’s consumption, China’s consumers individually and a lot of other things to keep their businesses going moving forward.

We saw the same thing with the NBA and the whole issue over support for the protesters or not. And it’s interesting in kind of a sad way to watch some of these organizations kind of do that two step, forward, backwards, left, right, trying to figure out what can we say that doesn’t offend the most number of people out here. In this case with Cook and Apple, it’s interesting because his justification for pulling these apps were primarily based on two criteria. One, according to Hong Kong law, the app is actually illegal in Hong Kong. I can’t speak to that. I’m not a lawyer. Don’t know the laws there. But that’s his rationale. And the second part of that was that the app was being used by protestors and potentially by others, but by protesters to identify locations where police were not present, and then that’s where we stage our protests.

That one, that just seems like an absolutely ridiculously absurd argument in my mind. That’s what maps do. That’s what social media does. I mean we live off the ability to communicate, to share maps, share information and all that. So I don’t buy that for a minute. But again, at the core of this, the delicate relationship we have with China, that is a state that is increasingly a surveillance state, increasingly a big brother state. On the state sponsored side where we have similar with Facebook and Google watching everything we do here. But this is an issue that we need to find resolution to, either we accept it or figure out what we can accept, or we reject it and we accept what the penalty is for not doing business in those countries.

Olivier Blanchard: Yup. Shelly.

Shelly Kramer: Well, I’ll be brief. There’s $52 billion worth of reasons for Apple to keep China happy. I mean that’s a fifth of its sales for last year. And Tim Cook, to his credit and to his detriment, it depends on who you’re talking to, he’s managed to do a good job having a relationship with the president of the United States and he makes a decision like this that opens the company up to much criticism, much well-deserved criticism, and comes down firmly on the side of China, and again, to me it’s all about the money. $52 billion is … I mean I realize Apple is a gigantic company, but $52 billion is nothing to ignore. And when you’re responsible to shareholders, I think sometimes you have to make those decisions. Again, I’m not saying it’s the right decision, I’m just saying I see to me it’s all about the money.

Olivier Blanchard: Yeah. Yeah. I see both sides. I prefer that they do things differently, but I understand why they don’t. So I’m not happy about it, but it’s like I can’t be too angry about it either. It’s just unfortunate. Okay. Well, that does it for our very somber seg fights. Let’s kind of swing back to our original topic for our final segment, which is the Crystal Ball, in which we actually do predict what will happen in the world because we are that good. We were talking about the value of free and the value of paying to not have ads and paying to not have your data used in certain ways, or to potentially have your data anonymized. Do you think that in the next, let’s say, two to three years, we start seeing, for whatever reason, whether it’s pressure from the market, pressure from the courts, pressure from the legislative branch, do you think we begin to see options for services that have always been ‘free’ or at least free of charge to start giving customers, their users, an option to either use the free service and incur the unseen costs of that ‘free use’ or …

So does it continue the way it is or do we start to see a divergence where you can either not pay and have all of your data collected and everything ensues, or have the option to pay to have a premium service that could potentially anonymize your data or not collect your data at all? Do you think that we see this divergence or this new direction in the next two to three years? And I’ll go with you first, Shelly.

Shelly Kramer: I just think that this is a really interesting question. And Olivier, you and I have fairly large friend networks and we both hang out on Facebook a fair amount. I cannot tell you how many conversations that I’m involved in or I see my friends having about really seriously looking for a solution to Facebook, an alternative. I also I’m seeing people create profiles using fake names, using an iteration of their first name, a completely fake last name. I’m sure information in their profiles is completely inaccurate and they do that with intention. So I really I’m seeing people aware of the dangers, aware of their tradeoffs and wanting to make a change. The problem is just the luxury of the ease of I already have this home that I go to and now I have to build a new house somewhere else, and so it’s tricky.

And I think it’s … I don’t see in general … I’ll give an example. I have a lot of … I have Netflix and I use Amazon Prime services and I am an HBO user and I also have Hulu, and I refused to pay for the Hulu premium account even though I have premium … I’m spending ridiculous amounts of money, but it’s like, you know what, this is one place. I’m just going to suck it up and I’m going to sit through the ads. But I think that when we have these conversations, we have to step back on everything it is that we know based on being early adopters, based on really being immersed in the technology space, and we have to look at ordinary average users. And are they going to care as much as I care about my frustrations about privacy and being targeted by Twitter ads and everything else or are they going to treat it like I do Hulu, like I’m just going to suck it up, and it’s 5.99 to deal with the ads, and it’s twice that much to …

All of a sudden it also becomes what can we really justify paying for and how important is it to us? So I’m not sure that we’re going to see a massive shift one way or the other even if there are government regulations. Fred, I’m interested to see what you say.

Olivier Blanchard: So you think status quo then stays the same, basically?

Shelly Kramer: I do.

Olivier Blanchard: Okay.

Fred McClimans: Since you said we make predictions, I will offer my prediction on this, and take them with a grain of salt, however you like. But when it comes to sites like Facebook offering a paid version, ad free version, two answers on here. First off, Facebook would be crazy to do that because as soon as they do that, their income generation potential is locked in for a particular user. Right now they have a lot of flexibility. They can command a high valuation in the market because they can always sell in advance of what they’re going to be able to do in advertising. Right now, if they go to here it is Olivier, X dollars and you go ad-free or even ad-free and data free, that locks them. That’s not going to happen.

The other interesting thing though is it would be interesting to see what Facebook would actually charge you for that. That would be a really good measure of how much your data is actually worth. Not what revenue they can generate, but the data value there. But now, here comes the interesting part. Do I think that they will offer services that sound a little bit like that? Absolutely. I think there will be … We see it in a number of areas. There’s the pay wall going back up on the internet around content. It’s been happening for a few years. People gave everything away for free and they weren’t able to monetize off that.

But here’s the rub. If you look at services like Hulu, like Netflix, in fact, just about any company that we talk about in business, and remember we talk a lot about companies finding operational leverage through data and data monetization. Right now, I pay for my Netflix subscription. I don’t have a Hulu subscription, but my Netflix, I do. I pay for it and they still monetize and capture my data and do a lot of other things with it. So even if Facebook comes out and says, yup, here it is, we’ll give you this, don’t believe it. It’s bullshit.

Olivier Blanchard: Okay. Yeah. All right. Well, I don’t necessarily disagree with you guys. Just because I think I have a good idea doesn’t mean that I think it’s actually going to materialize in the real world. So I’m with you on this, guys. I don’t think much changes. I think that we move towards a GDPR-like model and it kind of absolutes with everybody, not just Facebook thing. But I think Facebook might test a few options or try to give us little nuggets of, here, we want to protect your privacy. Here’s an experiment, see if it works. But I don’t think it will be as fleshed out as this. I don’t think it will be as programmatic and transformational as what we’ve discussed today. But anyways, so great, great conversations today.

This is really good. I could keep going for hours, but unfortunately we don’t want to put our listeners through a three-hour diatribe about this. They have better things to do that they need to go back to doing right now. So let’s close this out. Everybody, thanks a lot for listening, but that does it for this week’s edition of FTP, the Futurum Tech Podcast. As always, hit that subscribe button if you haven’t already. Feel absolutely free to reach out to us on LinkedIn, Twitter, Facebook, Instagram, and wherever else you hang out on the internet, and catch us next week for another round of news and analysis at the intersection of tech and business. And in the meantime, have a great week everybody.

Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.