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Hidden Value: Can a $34b Red Hat Help IBM Transform the Cloud?–Futurum Tech Podcast Episode 017
by Olivier Blanchard | November 2, 2018

On this edition of FTP, the Futurum Tech Podcast, we tear apart IBM’s acquisition of RedHat as they look to become a different type of cloud company. Plus Apple’s big mini event, the security risk of application extensions, Google versus Apple maps, Facebook’s failure to promote political transparency and 45 minutes of much, much more.

Our Main Dive

IBM has taken the next step in its ongoing transformation with the $34 billion acquisition of Linux, JBoss, and OpenShift provider Red Hat. With a long history of working together, there is no doubt about the synergy. But can this really boost IBM’s status as a true cloud provider (and the go-to team for hybrid cloud migrations)?

Our Fast Five

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

  • Earnings from Apple and Spotify
  • Browser extensions that steal user data
  • Apple’s new iPad, Mini, and MacBook offerings
  • Cyber thieves love Microsoft Office
  • Apple Maps tops Google Maps (sort of)

Tech Bites

Facebook’s attempt to vet political advertisers falls short. Completely short.

Crystal Ball: Future-um Predictions and Guesses

takes a look into the realistic chances of the US government forcing social giants like Facebook, Google, Twitter, and YouTube to fix the #fakenews issue.

Transcript:

Olivier Blanchard: Welcome to this week’s edition of FTP, Futurum Tech Podcast. I’m Olivier Blanchard, Senior Analyst with Futurum Research. And joining me today are my cohosts and colleagues, Dan Newman and Fred McClimans. We are all reunited at last. How are you guys doing today?

Fred McClimans: Doing fine.

Daniel Newman: Well the busy schedule, traveling around the world. All good stuff, but lots and lots happening this week. So I won’t hold any more up here, Olivier, let’s jump in.

Olivier Blanchard: All right, cool. So we’re going to start today’s show with the future of IBM and RedHat. Then we’ll share some of our favorite tech news stories of the week in our Fast Five segment. Followed by Tech Bytes, in which we highlight one of the biggest tech-related fails of the week, there’s usually more than one. And we will end the show with our crystal ball. Before we begin, as always, it goes without saying that this show is intended for informational purposes only and no advice or insights provided here today should be taken as investment advice. All right, guys, let’s begin with our main topic, IBM and RedHat. So something happened this week while I was gone. Dan, why don’t you get us started and let us know what’s going on between IBM and RedHat?

Daniel Newman: In not only the largest open source deal but the largest software deal ever, IBM has made a commitment to purchase RedHat for 34 billion dollars. Now I’ve seen the figure of 33, but I think the actual figure is 34 billion. And this is just a massive move by IBM. So lagging behind the big boys of Azure and AWS in the public cloud space, kind of just since their acquisition of SoftLayer a few years ago. Kind of just floundering in this cloud space. Nobody really knew what IBM is, was and where they were going. Watson’s been their big story. And Watson’s a really cool marketing headline, but it hasn’t really been driving revenue. And, in fact, if you look under the covers of IBM for the past couple of years one of their highest-performing segments has been their mainframe business and their LinuxONE businesses.

And so I think what IBM really is looking at here is the opportunity for a leading position in hybrid cloud. And, with open source and Linux being sort of the what so many of the VMs and so much of the cloud is being built on right now, I think IBM realized they needed to make a big move. And there are a lot of people out there that are kind of saying they overpaid and they’re crazy. There’s other people speculating that, if this move works well and IBM can become an established leader in hybrid cloud, that they have an opportunity to really set themselves apart. So this is a huge move, huge dollars, and a ton of risk at stake.

And it certainly is not the same IBM that goes back to, which one of their CEOs? I’m trying to remember. They made the comment that the stuff IBM is doing, it cannot possibly be done in cloud. It was the CEO a few before Ginni. I read that quote and it kind of made me laugh because, if only IBM had known at the time how big cloud was going to be, they might’ve gotten this earlier. But now they’ve had to pay a lot, maybe even perhaps overpay. Oh, there’s my quote, I had it noted. IBM’s CEO of the past, Sam Palmisano, said, “You can’t do what we’re doing in the cloud.” Well, apparently you can and they would and they will. And now the question mark is, will IBM buying RedHat put them back into a leading position? And I say that the jury is still out, but this is a really good start if it works. But 34 billion is a big, big amount of money.

Olivier Blanchard: It is. Fred, you’re take on this?

Fred McClimans: Well, first off, let me just say that yeah, I agree. 34 billion dollars is a massive bet on the part of IBM here. And there are a lot of things that we’re still waiting to kind of see play out regarding this. What about the existing RedHat partners that have been reselling and working with RedHat software and services. I mean, there are a lot of things just to kind of shake out here. But, for me, this really kind of… It sets sort of a line in the sand where we can look back from this date and say, prior to this event when people talked about cloud and the major providers, the AWSs, the Azures and so forth and even Microsoft… I’m sorry Microsoft, IBM which has been in the space but perhaps a bit ill-defined, along with Google. People typically thought of the cloud as just sort of this massive resource. It just sat out there. Oh, I’m moving to the cloud. Oh my files and my applications will move there, great.

But, when you look at the RedHat integration here, as Dan mentioned, this is really about the hybrid cloud. It’s not about the storage and the compute power, it’s about the software that actually enables all of that. It’s about all the things that we need for application infrastructure. It’s about the containers. It’s about deploying assets. All these things that really take us sort of, I think, into sort of cloud stage two or maybe stage three here moving forward. And it’s an area where, if you look back five, six years ago, did anybody really at that point call RedHat a cloud company? No. I mean they were a Linux OS company. But the way they approached their application, the way they approached the infrastructure.

And even recently, earlier this year with their acquisition of CoreOS and the automation technologies that they brought with them, that really allow them to blend that public cloud and private cloud and to manage and automate so many of the tasks that are required to keep that moving forward. I think RedHat really started to stand up and get noticed a lot more. And IBM, they’ve been a partner, along with other companies like Microsoft, of RedHat for quite a while here. And not that surprising that somebody made a move. I’m not that surprised that it was IBM. I’m a little surprised at the 34 billion dollar price tag on it. I think this is a very good move for IBM, price tag aside. This really puts them in the map. And it puts them right in the mix of the important stuff. It’s that element of actually helping people migrate to the cloud, helping organizations blend their applications between the data center and the private cloud and the public cloud. So this is a great move here.

And, as we know, what is it? Something like 80% of applications that have been written in the past are still not yet in the cloud? So there’s a lot of growth potential here for that. And even amongst those companies that are avid cloud adopters, or making that transition as part of a digital transformation agenda, by and large most of those organizations they’re not 100% all in yet. They’re in that 20, 30, 40% range if that. So smart move for IBM here.

Daniel Newman: And so much of it comes down to the multi-cloud movement. In the top deal transformation trends of the year on Forbes. I wrote about this and I said we’re hearing more and more about multi-cloud. And the fact is that there is not a one-size-fits-all cloud for any organization, company, enterprise, government institution. They all need a combination of public, private, hybrid. And this open source, they talk a lot about this OpenShift and Kubernetes partnership, the container-based applications that can be run across multiple clouds simultaneously.

And that is really the key.

And not only did IBM get a partner, they got a ton of development capabilities through this acquisition. And the long and short is there is no doubt in my mind that they paid probably a price tag that could never be justified through a traditional financial analysis. And you’ve got to be kind of… You just have to look at these kinds of buys that way. It’s not ever going to make sense. Because they have to put such a massive exponent for synergy into any sort of investment like this that they do understand deep beneath the surface power this is going to give them. And the way that they can impose themselves to become relevant to companies like Cisco and HPE and VMware and companies who have been building things that are highly dependent on hybrid cloud. And, if IBM has the best solution, now suddenly these big tech monsters are going to be coming to IBM again. Which is something that they really haven’t done with the advent of AWS and Azure.

Fred McClimans: Yeah. I think, rather than justifying this as a financial transaction, although they say it will be a accretive to earnings and a in revenue this year, so we don’t expect a big financial drag operationally. But I think the way you justify this is say, “Look, IBM, do you want to be a player or do you not?” And they decided they do. And they put an offer on the table that they made sure nobody else could top.

Olivier Blanchard: So quickly, guys, how does IBM now that, assuming that this deal goes through, how does IBM differentiate itself from its new competition, like the AWSs of the world for instance?

Daniel Newman: Well, it wasn’t really new. So, I mean, with SoftLayer in play, they’ve made a series of acquisitions to become a player in cloud. What has happened is their products and services have kind of gone… They went a little bit stale. So they had Bluemix and they had SoftLayer and those were their kind of platform and infrastructure offerings. And then it just became IBM Cloud. Well, when you were listening to conversations, IBM Cloud was just somewhere a notch, maybe above Oracle Cloud in terms of where people were talking about it. And so it really was AWS as the incumbent, Azure as the hot up and coming, Google as the they’re going to get there because they’re freaking huge, and then everybody else. And even though IBM is huge and Oracle is huge these other legacy companies have not been relevant. And so it’s not so much that there’s new competition, it’s that they haven’t been relevant enough. And this really did for the first time in a long time, for a reason that’s more good than bad, public sentiment of more good than bad it’s sprung IBM into a headline of saying these guys are doing something.

And, if I can say so, I’m just going to go out on a little bit of a limb here Olivier and Fred and I’m going to say Ginni’s at the end of her tenure. I’m predicting that right now she’s at the end of her tenure and she needed to make a move. Because, if she had left IBM before this move, it could be said that she may have left the company in worse shape than when she took it over. This move could be the one that actually completely shifts her legacy from leaving IBM on a on a line out to drown in the Atlantic to truly throwing out some really delicious bait for the next guy to come in, next gal to come in and make a huge difference and take IBM into the future.

Fred McClimans: Yeah. Yeah. I like that, Dan, the legacy move here. And I think that probably fits. Probably fits pretty well in with all of this. I think, probably more than anything else. I mean when you talk about the competitors this really impacts players like Oracle for a long time has been talking about how great their cloud is, how big, how much progress they’ve made in transitioning their user base to the cloud. And a lot of us behind the scenes have been doubting that for quite a while. And some of the information and data is coming out now that, yeah, their use of the phrase cloud has probably been a bit overly broad. But in terms of a competitive perspective, Olivier, I think what this does is this kind of positions IBM a little bit differently than they had been in the past. IBM is a services company. It has always been about helping people move forward. Or at least in the latest iteration of IBM.

With this move here I think what it does is it kind of creates a bit of a growing moat between AWS and Azure as the place where you go to implement the cloud versus IBM and RedHat, the tools that you use to migrate into the cloud. And it’s not just about the size of the data center and the infrastructure and the processing. It’s actually about the applications and how you manage that day-to-day. And I see this as a clear positioning win for IBM and RedHat on that side of the equation.

Olivier Blanchard: Well, thanks a lot you guys. That was super awesome analysis. It actually helped me because that last point you just made, Fred, was with something that I couldn’t quite put my… I mean, it’s not like I couldn’t quite put my finger on it. But I wasn’t sure exactly how to articulate it and you did it perfectly.

Fred McClimans: In fairness, Olivier, there’s a lot of analysts, equity and industry and people in tech and at IBM and at RedHat. And we’re all kind of going, “Huh?”

Olivier Blanchard: Yeah.

Fred McClimans: There were some people that speculated that this may be the least synergistic partnership since Broadcom announced to buy CA. But the difference in this, sort of as things started to unravel, people are starting to see why this makes sense.

Olivier Blanchard: Yeah.

Fred McClimans: Though there are times that CEOs and executives and leaders get something that the market might not, and even employees. And then there’s the other time when companies, when Hock Tan just buys companies for no apparent reason and completely mashes them together. And you know what? Sometimes that works. But if I had to predict today, Olivier? This will work. But the question mark is will it 34 billion work?

Olivier Blanchard: Right.

Fred McClimans: Or is it a 20 billion work? And the thing is, is when you’re talking about billions, that difference can be really what market success versus failure.

Olivier Blanchard: Agreed. Okay. Well, unfortunately, we have to move on to our next segment. So we’ll revisit IBM and RedHats I’m sure six months or a year from now and see how that’s all going and see if you guys were right. So Fred, since you almost had the last word in our first segment, what is your first five, Fast Five this week?

Fred McClimans: Yes, my Fast Five. The first of my two, of the five total Fast Fives. It deals with cyber threat actors, hackers, people that are looking to leverage what you have to their personal gain. It turns out that, pretty much across the board, in 2018 they love Microsoft Office. And, in particular, they love your Microsoft Office. It turns out that, in the first quarter of 2018, Microsoft Office was by far the number one targeted application on the Internet.

They had, according to Kaspersky Labs, they blocked 796.8 million attacks around the globe in the first quarter. 47% of those attacks were targeting exploits with Microsoft Office. For just sort of a rough comparison here, only 23.5% of all cyber-attacks were targeted at browsers. 20.7% were targeted at Android. And Adobe Flash Player, that a lot of us have been very wary of and haven’t used in a couple of years because of the security risks there, that only received 2.5% of total attacks. So it turns out that there were some exploits in Microsoft Office, a tried and true product that people around the world have relied upon, that were just making it just too much of a juicy target to not go after. So a bit of a surprise there. I would not have expected Microsoft Office to have that level of appeal or vulnerability, perhaps.

Olivier Blanchard: Well, I guess it makes sense. A lot of data goes into Excel, so you can capture a lot of intelligence from companies and salespeople and whatever from that.

Fred McClimans: Sure. And remember, too, that Microsoft Office it’s not just Word and PowerPoint and Excel. It’s a whole suite of desktop and workplace applications beyond that. So, interesting nonetheless.

Olivier Blanchard: Makes sense. All right, Dan, what’s your first Fast Five?

Daniel Newman: Yeah. So, real quickly, because there’s a lot of meat here, but the extensions in your browser could become a real problem now for Facebook who, once again and continuously, seems to have all kinds of issues with their security and development. And while this isn’t a direct issue with Facebook itself, it does come down to the things that are being shared, the extensions, and things that can be downloaded through your feed. So all those quizzes and games and other things that you’ve been downloading. Well, apparently some Russian hackers, not all Russian there are some other countries that had been associated but is primarily in Russia, announced that at least…

They shared on the Internet at least 81,000 Facebook users private messages on the dark web yesterday. And, in this share, they basically are proclaiming to have millions more. Which has not been verified, yet. But the 81,000 they have, and they have been verified by security analysts who have actually called up users who have… They’ve asked it, “Are these your messages?” And it turns out that they are. And all this was done through extensions that people were downloading and using through Facebook.

So this particular incident is just one more black eye in Facebook’s world of many, many, many black eyes with more to come. And just their continued ability to keep people on their platform and basically just lie through their teeth about making efforts to improve and then doing nothing meaningful. So I guess you can kind of hear where I stand on it, but wow. Just another Facebook issue that I don’t see any resolution in sight for.

Olivier Blanchard: Well, you may have kind of prematurely introduced our Tech Bites for this week. So we’ll be talking about Facebook again before too long. My Fast Five, my one Fast Five contribution this week is actually kind of a cheat. It’s a dual contribution. I wanted to talk about earnings, because two earnings calls kind of caught my eye this week. One was the Apple earnings call, but specifically the Q4 iPhone revenue numbers. So apparently iPhone revenue is up 29% year-over-year, which is excellent, but the numbers are flat. So the actual number of smart phones, of iPhones, being sold is flat. So essentially what it means is that growth is pretty much all from the pricing strategy that Apple has put together more so than success selling new iPhones. And I think that’s really interesting. I think it’s clever, I’m going to give Apple props for probably anticipating that this might happen and finding a way to please investors. So I think it’s clever. But it’s still, for me, it’s a little bit of a caution ahead that Apple still has a growth problem. Or, rather, a no growth problem with its devices.

The second half of this earnings-specific Fast Five is focused on Spotify. And Spotify kind of met expectations in Q3 with really solid revenue, 1.35 billion dollars, actually Euros, I’m sorry. Which was 31% growth year-over-year. And Spotify, in the last year, also added 4 million premium subscribers for a total of nearly 90 million subscribers. Really strong numbers for Spotify. We don’t really talk about Spotify all that much, so I thought I should mention them once in a while and here we are.

Fred McClimans: I’m curious, Olivier and Dan, do either of you use Spotify on a regular basis?

Olivier Blanchard: I do.

Daniel Newman: I share my time with them and Pandora.

Olivier Blanchard: Yeah.

Daniel Newman: Kids love Spotify though.

Fred McClimans: Yeah, yeah. My kids like Spotify. I shifted almost completely to Amazon music and Amazon Unlimited.

Olivier Blanchard: Yeah. No, I’m a Pandora and Spotify. Pandora at the gym and Spotify at home.

Fred McClimans: I like the breakdown.

Daniel Newman: Although Amazon, it’s attractive if you’re a Prime user. They have a lot of free music as part of your Prime membership. They do make it attractive. And I know my daughter does use some Amazon. Although she finds that sometimes the songs, the newest stuff that she really likes, isn’t available there. So that’s been one of the downsides. But, again, the price is right.

Olivier Blanchard: All right, Fred, what’s your second Fast Five this week?

Fred McClimans: So my second Fast Five. All three of us, we love to travel. At various times we’re on the road a little, maybe a lot. Whenever I travel I tend to rely a lot upon the mapping applications for whatever location I happen to end up in. I’ve not been a fan of Apple Maps in the past. Even today, I still have issues where I realize I’m being directed to a one-way street the wrong way or a road that has been closed for three years and here it is on Apple Maps. But, that said, I came across an article where they were claiming… Not they, but an independent researcher was claiming, that Apple Maps was outperforming Google Maps. So, obviously, my curiosity was there. It turns out that what they have done, what Apple Maps has done, is they’ve spent the last couple of years really focusing on the detail within their maps. So things like the actual shape of buildings, the actual shape of parks, where there’s green in a city and where there’s not. It turns out that Apple Maps really does a pretty phenomenal job now of actually showing you what the landscape actually looks without having to toggle back and forth to satellite mode.

So kudos to Apple for finally figuring out that the details do matter in something like Apple Maps. But the flip side of this here is that, while the headline turned out to be a little bit more clickbait than I was hoping for, it turns out that the Apple Maps more detailed perspective, which includes everything from wildlife wilderness to city and urban areas, they only cover 3.1% of the land mass and only 4.9% of the population today. So they’ve got a long way to go. But at least maybe this is a nod in the right direction for people who are geographically challenged as I am.

Daniel Newman: So I’m going to wrap this up then on the fifth Fast Five, right? Is that me, Olivier?

Olivier Blanchard: That’s you.

Daniel Newman: We should talk about Apple, because we haven’t talked about them in these Fast Five items. But, I mean, how do you really do a week-of show when Apple has an event and not talk about them? Although you and I being a little bit more the Apple Challengers, I’ll call us, where Fred’s a little more of a fan boy. But, as a whole, how do you do a tech podcast and not talk about an Apple launch? So Apple took to New York, they announced a few new things. I’m going to be real brief about it, in case you are under that rock and you somehow missed it. First of all, follow #AppleEvent on Twitter because it’s always a blast. Because you get both the fanboys and the haters. And the comedy is near… It’s near as good as a show, any comedy show you can catch on a Friday night. It’s pretty hilarious.

But they announced the new MacBook Air. They announced a new Apple Mac mini, I don’t even know really. It kind of was squeezed in-between the two real announcements, which was the Air and then the iPad Pro.

And, just as a quick assessment, everything went up in price. So they are defying Moore’s law. They’re defying the, pretty much, market laws for technology and the law of diminishing returns for manufacturers. Because they’ve made them more powerful, but only relatively more powerful from the years that they built the last versions to this.

And they’re charging more. So the Mac Airs are up, the iPad Pros are up and the Mac minis are up. And they all have some great new features, and we don’t have time to cover that all now. But I did see something great that was kind of along the lines of, “Yes, this MacBook Air has pretty much all the same features as the $249 HP computer right now.” And, again, nobody’s buying a Mac that’s thinking about it quite that way. But it was really interesting.

And the one other thing I’ll say is interesting is the iPad Pros have starting prices that are very attractive at what? $799 and $999? But Fred so quickly built one online and sent me the image and, to build the iPad Pro the way most of us envisioned it in our heads as we were hearing about it with the terabyte, went almost $2,000. So your tablet now costs almost as much as a high-performing MacBook Pro. So very interesting. Another announcement. I guess you could just say I wasn’t overwhelmed, I wasn’t underwhelmed, I was just whelmed.

Fred McClimans: Whelmed, yeah.

Olivier Blanchard: Whelmed.

Fred McClimans: Well hey Dan, to put it in context from my perspective, I thought the two great maybe three interesting things that were announced. I love the update of the mini only because, from a creative perspective, it brings a lot to the table. And I see an opportunity there, which also kind of highlights that I think Apple is moving away on these products from the mass market to the more specialized market. The second part of that was the integration, on the software side, with Adobe and the Creative Suite and all the things that they’re doing there with the iPad. That I thought, again, targeting the creative marketplace spot on. But, when it came to the iPad, I thought the best feature of all was just the squared off edges. Just ergonomically, they’re easier to hold.

Olivier Blanchard: Yeah, that’s worth the extra 800 bucks.

Daniel Newman: Only the edge-to-edge that wasn’t really edge-to-edge as our friend Pat Moorhead showed so clearly.

Fred McClimans: Yes.

Daniel Newman: At what point is not edge-to-edge really edge-to-edge not edge-to-edge? We were all looking at it because they were like, “You’ve got to have enough bezel to hold the screen in. But probably the best quote I heard of all was. I was tracking the event on Guardian and they do the real-time news updates where they sort of tweet live on their blog. The way blogging was really designed to be, like real-time thinking, which I always liked about The Guardian. And they said something along the lines of, “Here’s the part where they’re going to talk about AR and how big of a deal it is, even though nobody actually really cares about AR.” It was kind of something along the lines that, “This is the part where they make a really big deal about AR, even though nobody uses AR or cares about AR.” It was just kind of a really witty little moment and The Guardian had a few of them. So, if you want to read about the event, check out The Guardian’s column and the real-time comments. They were really funny

Olivier Blanchard: And Apple makes good stuff. I mean, it’s nice. It’s just… My complaint with them is that it’s still very iterative. There’s nothing particularly new and particularly superior to other offerings that are outside of the Apple ecosystem that may even be offered at a much lower price. It just seems like a premium product that is more premium-priced, necessarily, than premium in terms of functionality. I was… No, I was as particularly disappointed in the battery life and connectivity side of some of these devices. Being a road warrior, and seeing how many of my fellow business travelers use Apple products, I’m still surprised that Apple hasn’t focused a little bit more effort into extending battery life for instance. And giving, especially with something the MacBook Air, 15 to 18 hour battery life for some of these devices. So that’s… It’s not a beef. I think that whatever battery life comes with these new devices, I think it’s in the order of eight to 12 hours, is not negligible. It’s good, it’s adequate. But I think that Apple could really do itself and a lot of its users a huge service by trying to push the limits of autonomy for people who don’t like to be plugged in when they work on their own.

Fred McClimans: And, with that, our Fast Five has become the slowest one. The longest.

Olivier Blanchard: Has it? Oh well, whatever.

Daniel Newman: Yeah. Yeah, yeah, yeah, yeah. You really… Because you can’t do an Apple headline in a Fast Five, but there wasn’t really anywhere else to stick it in the show.

Fred McClimans: No, it was good.

Daniel Newman: So we’re going to call it, we’re going to call it a fast four plus one slow.

Olivier Blanchard: That’s what I… That’s what happens when I try to actually give Apple a compliment.

Daniel Newman: Yeah, you just drag on and on and on. So, in other… In news that may have surprised the market, and we’re not going to comment on this, I just thought I’d point it out is Intel had a shockingly good quarter. For everybody out there seeming to be really hard on them right now. You’ve got to give kudos. No CEO yet, but they’re still pulling in some pretty darn good numbers. So there was a fast one. So now we did a Fast Five plus a slow extra.

Olivier Blanchard: Fast five, slow plus one. All right, so we are now up to Tech Bites. And Tech Bites is not going to be about Apple, it is going to be about Facebook. And I don’t want to drag this out either, but the short of it is that Facebook promised to address fake news ahead of the midterm elections. And they made kind of a big deal about this. “Yeah, we’re going to fix our stuff and we’re going to do it in time for elections, the US midterm elections. We’re putting together a war room to combat fake news. And we’re going to be able to block it. Blah, blah, blah.” Turns out those promises were absolutely not kept. From a practical perspective, I didn’t really expect it to work. I don’t see how Facebook could actually police fake news, from a legal standpoint or even an engineering standpoint, at the scale that it promised or that it seemed to imply it was promising. And especially not in that short of a period of time.

But, apparently, some journalists and bloggers took them to task and wanted to test this out. So, for instance, some people placed ads with Facebook posing as senators. And I think it was all hundred senators in the US senate, they were all fake ads and Facebook did not catch any of them as being fake. The Guardian, I think, also identified another scam like this, a purposeful scam, where fake Cambridge Analytica ads were sold through Facebook and Facebook didn’t catch those either. Even with a scandal in its rear view mirror. So whatever Facebook apparently is trying to sell the public and sell legislators is completely bogus. Whatever effort they’ve they put towards combating fake news and trying to clean up their act and their content strategy ahead of the elections has been minimal at best and completely ineffective. So I don’t know if you guys want to quickly comment? 30 seconds each. Fred?

Fred McClimans: Oh, I’ll defer to Dan on this one. And I’ll follow Dan.

Daniel Newman: So is this a case where the inmates are running the asylum? I really want you to think about this. Can Facebook police? Meaning here they are, they’ve got a lot of people, staff they’ve hired. I think I saw 10,000 additional staff that are supposed to be helping them with this. But the platform itself is really designed as such that needs so much automation, so much robotic process to approve ads. They’ve got to set all kinds of algorithmic… So people are creating ads that really do look legitimate, that don’t have hate speech, that don’t have any sort of parameters that they can set to automate. Now what ends up happening is you’re talking about trying to build a platform that runs at scale of Facebook without automation. Which then it just becomes an unsustainable organization. They can’t do it. So we’ve actually built this monster. We created this monster.

And I’ll say one more thing, and I think I commented on this on your post or on a similar post Olivier, but so long as people keep going back posting and using Facebook as the platform to complain about Facebook? We haven’t moved even an inch forward in terms of making them or forcing them to be in a position to have to do anything. Their revenues are still strong, their user growth is not great in some mature markets, but they’re still growing in other markets. And, overall, they still have huge adoption and they’re still one of the preferred platforms by most people to talk about everything all day long. So, until there’s some real attrition, I don’t know whether they have to act. And like I said, I don’t know that they can if they want to. I don’t know that they have the capacity and the capabilities, technically, to actually stop the sophistication of some of these attacks that are being done on the platform. Because most of the vulnerabilities are human and in the way humans read stuff. So I’m not giving them a pass. I’m just saying I think they might be too big and too slow and too incapable to actually police and accomplish the things that they’re using and saying in their PR campaign.

Olivier Blanchard: I think you’re correct. I also think that there’s not really a willingness to do this. And it’s a conversation for another day, maybe we can have this conversation next week. But I had an experience on my flight home that kind of opened my eyes to what Facebook actually is as opposed to what I thought it was based on my own experience. Facebook is a very different platform depending on who you are and how you… But I think that there’s not necessarily a willingness across Facebook to really change its business model. And so, even if Facebook had the engineering capabilities to fix some of these problems, I’m not sure that they would necessarily be free internally to do so. Which actually leads us to our Crystal Ball.

And my question to you both this week because, whether Facebook even decides to fix its issues with content and social responsibility, Facebook is not the only platform with this problem. Google also has that issue. Twitter has that issue. YouTube has that issue. Every flat-earther page on Facebook draws its information from YouTube videos. So fake news is not a… It’s a platform-agnostic problem. And we need to think of a bigger solution than just Facebook fixing its ads. So do you think that the US government, for instance, could or will put real pressure on tech companies like Facebook, Google, Twitter, and YouTube to fix their fake news and malicious ads problem in 2019?

Or are we still having this conversation in 2020 when the next presidential elections happen? Fred, you first.

Fred McClimans: Well.

Olivier Blanchard: And this is like a 30-second answer.

Fred McClimans: Yeah, yeah.

Olivier Blanchard: It’s like yes or no and why.

Fred McClimans: I’ll get real quick to it. Do I think that the US government can do something to force Facebook to do this? The answer is no, because I don’t think they understand what the actual issue is. And I’m not even sure it’s their role to actually step in to legislate the fix. I think they can do things to encourage or regulate how these companies operate, and this last example was a good one where the ads that were placed we don’t know what they were. What we do know is that Facebook failed to actually properly vet who was paying for the ad, which was the real issue in play here. That Facebook posted these ads without checking who was actually paying for them. And the paid for part is probably one of the most important ways that we can have to vet. So I think there are things that they can do in that regard. Very small, very limited. But, no, I don’t think the federal government understands Facebook at all.

Daniel Newman: So a BuzzFeed article just came out. It says Twitter apologized after kill all Jews appeared as a trending topic in many New Yorker’s local trending sections following the vandalism of Brooklyn Synagogue. So the answer is, do they need to? Maybe. Will they? No. I think the faith of the people in our government to police technology, let alone manage a budget, run a school district, oversee our military, the health of our economy. I think there’s no faith right now, overall. I think right now it’s always the lesser of two evils. And, actually, the only thing that scares me more than Mark Zuckerberg running Facebook is Donald Trump running Facebook.

So I think, so long as we’re in a world where that’s our choices, we’re going to let the technology people run these companies. Because God would our government just mess them up bad. We would be Russia and China. Our technology would look Russia and China. And instead of seeing… At least now we can somewhat self-manage to see something a little better, if we kind of utilize the tech and utilize and choose whose posts we want to see and whatnot.

Can you only imagine if our government took over what our choices would be? Scary. No. Let’s keep them out. Let’s put more onus on these tech companies to manage hate speech, to manage the false and fake news. But let’s please, please, please. The government can help with many things: school, health care. Keep them out of our technology.

Olivier Blanchard: Right. Well as the resident Frenchie here, who comes from a culture of government regulation for the good of the people, whether it’s effective or not. I think that there’s a solution, but we won’t get into it this week. I don’t think it’s necessarily Donald Trump, or any president for that matter, regulating or controlling what Facebook does. I don’t think it’s either… It’s congress and men like Chuck Schumer and Chuck Grassley figuring out how to work the internet, either. That’s not the solution. But I think there’s an opportunity for a new agency. Or even a consumer protection bureau, creating an office to focus on how to, not necessarily police fake news on the internet, but require platforms like Facebook and Google and YouTube to disclose what types of content are opinion versus news. To help consumers who may not understand the difference realize that they’re seeing… Just like a sponsored post, for instance, says sponsored. I think that there’s room for expansion for that type of clarification and disclosure of the content. Just to keep everybody kind of better informed about the type of content. So that is my last word on that. But we can pick this up later, on a later edition of FTP. But for today-

Daniel Newman: Yeah, so one comment, Olivier.

Olivier Blanchard: Yeah.

Daniel Newman: I got to say this. Who is going to write that algorithm? Because I actually read your post and I think you’re right about this agency, but they’re going to go back to big tech to actually have them write the algorithm that can figure out what is opinion and what isn’t.

Olivier Blanchard: Well-

Daniel Newman: So it’s like that-

Olivier Blanchard: No, that’s definitely… It is an engineering problem. Or a challenge, rather. It’s not something that we can’t overcome if we try. But the important thing here is not to target Facebook specifically, right? The important thing is to target nobody. To keep everybody kind of honest on the same level. The point is that I don’t think any of these companies are going to police themselves. They’re not going to do it on their own. They’re only going to do it if they’re forced to. But the issue here is that Twitter doesn’t really have a competitor. Facebook doesn’t have a competitor. YouTube doesn’t have a real competitor, either. And so there’s really no reason, normal market forces are not at play here. And that’s why I think that government has to step in. Now we don’t have anything in place now that’s capable of performing the types of duties that I’m suggesting. It doesn’t mean we can’t build it. And it doesn’t mean that people in the tech industry, who used to work at Facebook and used to work at Google, and can understand this problem and can code their way around it, can’t participate in that project.

So I think if we create a problem like this, we sure as hell can fix it. And I think it’s… If an industry won’t fix it themselves, if given the opportunity they refuse or find themselves unable or unwilling to do it, then I think that’s when their government has to come in and install some guardrails. And I don’t like it either, but it’s… I think it’s the government’s role to protect people and to regulate industries when they’re out of control. And I think, in this particular instance, they are. It’s kind of either behave like an adult or get treated like a child.

Daniel Newman: TBC, buddy. To be continued.

Olivier Blanchard: TBC, for sure.

Fred McClimans: On the next edition of-

Olivier Blanchard: Okay, so that does it for this week’s edition of FTP, the Futurum Tech Podcast. Thanks a bunch for listening, especially today since we went a little over. I was really hoping we were going to go short this week, but nope. No. We keep getting… We keep inching our way to 45 minutes to an hour. But you can catch us next week for another round of news and analysis from the three of us. And, as usual, don’t forget to hit that subscribe button. And, in the meantime, until next week, have a great one.

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.

About the Author

Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.  Read Full Bio.