GoogleMart

May 27th
posted in

It was hard to spot, at first.

It started with one store on the outskirts of town. It was big. Monolithic. It amalgamated a lot of cheap, largely imported stuff and sold the stuff on. The workers were paid very little. The suppliers were squeezed tight on their margins.

And so it grew.

And as it grew, it hollowed out the high street. The high street could not compete with the monoliths sheer power. They couldn’t compete with the monoliths influence on markets. They couldn’t compete with the monoliths unique insights gained from clever number crunching of big data sets.

I’m talking about Wal Mart, of course.

Love ‘em or loathe ‘em, Walmart gave people what they wanted, but in so doing, hollowed out a chunk of America's middle class. It displaced a lot of shop keepers. It displaced small business owners on Main Street. It displaced the small family retail chain that provided a nice little middle class steady earner.

Where did all those people go?

It was not only the small, independent retail businesses and local manufacturers who were fewer in number. Their closure triggered flow-on effects. There was less demand for the services they used, such as local small business accountants, the local lawyer, small advertising companies, local finance companies, and the host of service providers that make up the middle class ecosystem.

Where did they all go?

Some would have taken up jobs at WalMart, of course. Some would become unemployed. Some would close their doors and take early retirement. Some would change occupations and some would move away to where prospects were better.

What does any of this have to do with the internet?

The same thing is happening on the internet.

And if you’re a small business owner, located on the web-equivalent of the high street, or your business relies on those same small business owners, then this post is for you.

Is Technology Gutting The Middle Class?

I’ve just read “Who Owns The Future”, by Jaron Lanier. Anyone who has anything to do with the internet - and anyone who is even remotely middle class - will find it asks some pretty compelling questions about our present and future.

Consider this.

At the height of it’s power, the photography company Kodak employed more than 140,000 people and wa worth $28 billion. They even invented the first digital camera. But today Kodak is bankrupt, and the new face of digital photography has become Instagram. When it was sold to Facebook for a billion dollars in 2012, Instagram only employed 13 people

Great for Instagram. Bad for Kodak. And bad for the people who worked for Kodak. But, hey. That’s progress, right? Kodak had an outdated business model. Technology overtook them.

That’s true. It is progress. It’s also true that all actions have consequences. The consequence of transformative technology is that, according to Lanier, it may well end up destroying the middle class if too much of the value is retained in the large technology companies.

Lanier suggests that the advance of technology is not replacing as many jobs as it destroys, and those jobs that are destroyed are increasingly middle class.

Not Political (Kinda)

I don’t wish to make this post political, although all change is inherently political. I’m not taking political sides. This issue cuts across political boundaries. I have a lot of sympathy for technological utopian ideas and the benefits technology brings, and have little time for luddism.

However, it’s interesting to focus on the the consequences of this shift in wealth and power brought about by technology and whether enough people in the internet value chain receive adequate value for their efforts.

If the value doesn't flow through, as capitalism requires in order to function well, then few people win. Are children living at home longer than they used to? Are people working longer hours than they used to in order to have the same amount of stuff? Has the value chain been broken, Lanier asks? And, if so, what can be done to fix it?

What Made Instagram Worth One Billion Dollars?

Lanier points out that Instagram wasn’t worth a billion dollars because it had extraordinary employees doing amazing things.

The value of Instagram came from network effects.

Millions of people using Instagram gave the Instagram network value. Without the user base, Instagram is just another photo app.

Who got paid in the end? Not the people who gave the network value. The people who got paid were the small group at the top who organized the network. The owners of the "Siren Servers":

The power rests in what Lanier calls the “Siren Servers”: giant corporate repositories of information about our lives that we have given freely and often without consent, now being used for huge financial benefit by a super-rich few

The value is created by all the people who make up the network, but they only receive a small slither of that value in the form of a digital processing tool. To really benefit, you have to own, or get close to, a Siren Server.

Likewise, most of Google’s value resides in the network of users. These users feed value into Google simply by using it and thereby provide Google with a constant stream of data. This makes Google valuable. There isn’t much difference between Google and Bing in terms of service offering, but one is infinitely more valuable than the other purely by virtue of the size of the audience. Same goes for Facebook over Orkut.

You Provide Value

Google are provided raw materials by people. Web publishers allow Google to take their work, at no charge, and for Google to use that work and add value to Google’s network. Google then charges advertisers to place their advertising next to the aggregated information.

Why do web publishers do this?

Publishers create and give away their work in the hope they’ll get traffic back, from which they may derive benefit. Some publishers make money, so they can then pay real-world expenses, like housing, food and clothing. The majority of internet publishers make little, or nothing, from this informal deal. A few publishers make a lot. The long tail, when it comes to internet publishing, is pretty long. The majority of wealth, and power, is centralized at the head.

Similarly, Google’s users are giving away their personal information.

Every time someone uses Google, they are giving Google personal information of value. Their search queries. They browsing patterns. Their email conversations. Their personal network of contacts. Aggregate that information together, and it becomes valuable information, indeed. Google records this information, crunches it looking for patterns, then packages it up and sells it to advertisers.

What does Google give back in return?

Web services.

Is it a fair exchange of value?

Lanier argues it isn’t. What’s more, it’s an exchange of value so one-sided that it’s likely to destroy the very ecosystem on which companies like Google are based - the work output, and the spending choices, of the middle class. If few of the people who publish can make a reasonable living doing so, then the quality of what gets published must decrease, or cease to exist.

People could make their money in other ways, including offline. However, consider that the web is affecting a lot of offline business, already. The music industry is a faint shadow of what it once was, even as recent as one decade ago. There are a lot fewer middle class careers in the music industry now. Small retailers are losing out to the web. Fewer jobs there. The news industry is barely making any money. Same goes for book publishers. All these industries are struggling as online aggregators carve up their value chains.

Now, factor in all the support industries of these verticals. Then think about all the industries likely to be affected in the near future - like health, or libraries, or education, for example. Many businesses that used to hire predominantly middle class people are going out of business, downsizing their operations, or soon to have chunks of their value displaced.

It’s not Google’s aim to gut the middle class, of course. This post is not an anti-Google rant, either, simply a look at action and consequence. What is the effect of technology and, in particular, the effect of big technology companies on the web, most of whom seem obsessed with keeping you in their private, proprietary environments for as long as possible?

Google’s aim is index all the worlds information and make it available. That’s a good aim. It’s a useful, free service. But Lanier argues that gutting the middle class is a side-effect of re-contextualising, and thereby devaluing, information. Information may want to be free, but the consequence of free information is that those creating the information may not get paid. Many of those who do get paid may be weaker organizations more willing to sacrifice editorial quality in able to stay in business. We already see major news sites with MFA-styled formatting on unvetted syndicated press releases. What next?

You may notice that everyone is encouraged to “share” - meaning “give away” - but sharing doesn't seem to extend to the big tech companies, themselves.

They charge per click.

Robots.txt

One argument is that if someone doesn’t like Google, or any search engine, they should simply block that search engine via robots.txt. The problem with that argument is it’s like saying if you don’t like aspects of your city, you should move to the middle of the wilderness. You could, but really you’d just like to make the city a better place to be, and to see it thrive and prosper, and be able to thrive within it.

Google provides useful things. I use Google, just like I use my iPhone. I know the deal. I get the utility in exchange for information, and this exchange is largely on their terms. What Lanier proposes is a solution that not only benefits the individual, and the little guy, but ultimately the big information companies, themselves.

Money Go Round

Technology improvements have created much prosperity and the development of a strong middle class. But the big difference today is that what is being commoditized is information itself. In a world increasingly controlled by software that acts as our interface to information, if we commoditize information then we commoditize everything else.

If those creating the information don’t get paid, quality must decrease, or become less available than it otherwise would be. They can buy less stuff in the real world. If they can’t buy as much stuff in the real world, then Google and Facebook’s advertisers have fewer people to talk to that they otherwise would.

It was all a social construct to begin with, so what changed, to get to your question, is that at the turn of the [21st] century it was really Sergey Brin at Google who just had the thought of, well, if we give away all the information services, but we make money from advertising, we can make information free and still have capitalism. But the problem with that is it reneges on the social contract where people still participate in the formal economy. And it’s a kind of capitalism that’s totally self-defeating because it’s so narrow. It’s a winner-take-all capitalism that’s not sustaining

That isn’t a sustainable situation long-term. A winner-takes-all system centralizes wealth and power at the top, whilst everyone else occupies the long tail. Google has deals in place with large publishers, such as AP, AFP and various European agencies, but this doesn't extend to smaller publishers. It’s the same in sports. The very top get paid ridiculous amounts of money whilst those only a few levels down are unlikely to make rent on their earnings.

But doesn’t technology create new jobs? People who were employed at Kodak just go do something else?

The latest waves of high tech innovation have not created jobs like the old ones did. Iconic new ventures like Facebook employ vastly fewer people than big older companies like, say, General Motors. Put another way, the new schemes.....channel much of the productivity of ordinary people into an informal economy of barter and reputation, while concentrating the extracted old -fashioned wealth for themselves. All activity that takes place over digital networks becomes subject to arbitrage, in the sense that risk is routed to whoever suffers lesser computation resources

The people who will do well in such an environment will likely be employees of those who own the big data networks, like Google. Or they will be the entrepreneurial and adaptable types who manage to get close to them - the companies that serve WalMart or Google, or Facebook, or large financial institutions, or leverage off them - but Lanier argues there simply aren't enough of those roles to sustain society in a way that gave rise to these companies in the first place.

He argues this situation disenfranchises too many people, too quickly. And when that happens, the costs spread to everyone, including the successful owners of the networks. They become poorer than they would otherwise be by not returning enough of the value that enables the very information they need to thrive. Or another way of looking at it - who’s going to buy all the stuff if only a few people have the money?

The network, whether it be a search engine, a social network, an insurance company, or an investment fund uses information to concentrate power. Lanier argues they are all they same as they operate in pretty much the same way. The use network effects to mine and crunch big data, and this, in turn, grows their position at the expense of smaller competitors, and the ecosystem that surrounds them.

It doesn’t really matter what the intent was. The result is that the technology can prevent the middle class from prospering and when that happens, everyone ultimately loses.

So What Does He Propose Can Be Done?

A few days ago, Matt Cutts released a video about what site owners can expect from the next round of Google changes.

Google have announced a web spam change, called Penguin 2.0. They’ll be “looking at” advertorials, and native advertising. They’ll be taking a “stronger line” on this form of publishing. They’ll also be “going upstream” to make link spammers less effective.

Of course, whenever Google release these videos, the webmaster community goes nuts. Google will be making changes, and these changes may either make your day, or send you to the wall.

The most interesting aspect of this, I think, is the power relationship. If you want to do well in Google’s search results then there is no room for negotiation. You either do what they want or you lose out. Or you may do what they want and still lose out. Does the wealth and power sit with the publisher?

Nope.

In other news, Google just zapped another link network.

Cutts warns they’ll be going after a lot of this happening. Does wealth and power sit with the link buyer or seller?

Nope.

Now, Google are right to eliminate or devalue sites that they feel devalues their search engine. Google have made search work. Search was all but dead twelve years ago due to the ease with which publishers could manipulate the results, typically with off-topic junk. The spoils of solving this problem have flowed to Google.

The question is has too much wealth flowed to companies like Google, and is this situation going to kill off large chunks of the ecosystem on which it was built? Google isn’t just a player in this game, they’re so pervasive they may as well be the central planner. Cutts is running product quality control. The customers aren’t the publishers, they’re the advertisers.

It’s also interesting to note what these videos do not say. Cutts video was not about how your business could be more prosperous. It was all about your business doing what Google wants in order for Google to be more prosperous. It’s irrelevant if you disagree or not, as you don’t get to dictate terms to Google.

That’s the deal.

Google’s concern lies not with webmasters just as WalMarts concern lies not with small town retailers. Their concern is to meet company goals and enhance shareholder value. The effects aren’t Google or WalMarts fault. They are just that - effects.

The effect of Google pursuing those objectives might be to gouge out the value of publishing, and in so doing, gouge out a lot of the value of the middle class. The Google self-drive cars project is fascinating from a technical point of view - the view Google tends to focus on - but perhaps even more fascinating when looked at from a position they seldom seem to consider, at least, not in public, namely what happens to all those taxi drivers, and delivery drivers, who get their first break in society doing this work? Typically, these people are immigrants. Typically, they are poor but upwardly mobile.

That societal effect doesn't appear to be Google’s concern.

So who’s concern should it be?

Well, perhaps it really should be Google’s concern, as it’s in their own long-term best interest:

Today, a guitar manufacturer might advertise through Google. But when guitars are someday spun out of 3D printers, there will be no one to buy an ad if guitar designs are “free”. Yet Google’s lifeblood is information put online for free. That is what Google’s servers organize. Thus Google’s current business model is a trap in the longterm

Laniers suggestion is everyone gets paid, via micro-payments, linked back to the value they helped create. These payments continue so long as people are using their stuff, be it a line of code, a photograph, a piece of music, or an article.

For example, if you wrote a blog post, and someone quoted a paragraph of it, you would receive a tiny payment. The more often you’re quoted, the more relevant you are, therefore the more payment you receive. If a search engine indexes your pages, then you receive a micro-payment in return. If people view your pages, you receive a micro-payment. Likewise, when you consume, you pay. If you conduct a search, then you run Google’s code, and Google gets paid. The payments are tiny, as far as the individual is concerned, but they all add up.

Mammoth technical issues of doing this aside, the effect would be to take money from the head and pump it back into the tail. It would be harder to build empires off the previously free content others produce. It would send money back to producers.

It also eliminates the piracy question. Producers would want people to copy, remix and redistribute their content, as the more people that use it, the more money they make. Also, with the integration of two-way linking, the mechanism Lanier proposes to keep track of ownership and credit, you’d always know who is using your content.

Information would no longer be free. It would be affordable, in the broadest sense of the word. There would also be a mechanism to reward the production, and a mechanism to reward the most relevant information the most. The more you contribute to the net, and the more people use it, the more you make. Tiny payments. Incremental. Ongoing.

Interesting Questions

So, if these questions are of interest to you, I’d encourage you to read “Who Owns The Future” by Jaron Lanier. It’s often rambling - in a good way - and heads off on wild tangents - in a good way, and you can tell there is a very intelligent and thoughtful guy behind it all. He’s asking some pretty big, relevant questions. His answers are sketches that should be challenged, argued, debated and enlarged.

And if big tech companies want a challenge that really will change the world, perhaps they could direct all that intellect, wealth and power towards enriching the ecosystem at a pace faster than they potentially gouge it.

Published: May 27, 2013

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Comments

May 28, 2013 - 1:40pm

When you want well written and thought provoking articles about SEO and the net in general you come to SEOBOOK. However this one exceeds even my high expectations of the site. Sorry if this sounds like I am blowing wind up your ass but there have rarely been times that I have re-read an article in the last 15 years and I have now read this article 3 times and I may just read it again.

I will definitely be buying that book.

May 29, 2013 - 5:04am

I couldn't agree more with SEOEnquirer. The content & ideas on SEOBook typically stands head and shoulders above other posts published in the "Search marketing echo chamber". I find the current state of SEO blogging quite depressing (apart from this site and John Andrews occasional pearls of wisdom), it seems to have become more homogenous over the past couple of years with fewer and fewer industry experts prepared to offer an opinion contray to the current "link manipulation is evil; content marketing + guest blogging is the new cure for cancer line". Anyone who has been in this industry for a while and who has a modicum of intelligence and critical thinking skills should be able to spot massive inconsistencies between actual results in the SERP's vs Googles line on what we should be seeing. I have a suspicion that Google has actually given up on solving the dilemma of using inbound links as a ranking signal and is instead engaging in PR driven sabre rattling (think Eric Enge's pre penguin puff piece) combined with a modicum of manual penalties and a heavy dash of "rank modification confusion" (http://www.seobythesea.com/2012/08/google-rank-modifying-spammers-patent/ ) to keep us all guessing / push us into the safe embrace of adwords.

Jaron Lanier is a very smart guy; but I'm not sure that I'll buy this book as I find it a rather depressing scenario that I think has a decent chance of eventuating.

May 28, 2013 - 4:51pm

Could not agree more with SEOEnquirer. Fantastic article and great indepth information!

May 28, 2013 - 5:25pm

BTW just bought the book ;)

May 28, 2013 - 5:41pm

A brilliant and well-timed article. This sums up where we are right now.

Money is pooling to fewer and fewer people. I'm no socialist, but nor do I like what I see with this form of ultra-capitalism. You're quite right in that if these megacorps keep gouging away and hoarding value, then they're essentially damaging the economy. 99.9% of the private sector in the UK are SMEs. A health economy ensures a free flow of value in the private sector, and let the strongest survive. If someone upstream is building a dam to hoard value, then even the strongest companies downstream will die if they are reliant on whatever happens upstream. The trouble is Google control 90%+ of targeted business traffic in the UK, and they're controlling who gets value and who doesn't in a rather arbitrary, hard-to-predict way. This causes a loss of confidence for any business dependent on Google (almost all companies, sadly) - which in turn has a negative effect on the free flow of value downstream. It's all very unsettling and has caused me to wonder if it's not simply easier to make a living offline.

May 28, 2013 - 8:59pm

Cheers :) Great feedback, always appreciated.

Regarding socialism, Lanier touches on this point a few times in his book. He's not an advocate. Rather, he talks about what capitalism needs in order to work well, which - I'm paraphrasing - means people need to be rewarded for the value they create.

So they can buy stuff.

Henry Ford made cars his workers could afford. If he paid his workers a better wage, they could afford to buy the cars he produced. Value remained in the chain, and the ecosystem grew.

But when we talk about information, workers aren't just Google employees. Workers are also the people who produce Google's raw materials. The content.

Are they getting paid? Paid enough? Who's going to be buying most Adwords? Is the whole information economy being centralised in the head?

Interesting questions, huh :)

May 28, 2013 - 10:48pm

PeterD, Henry Ford had it right. He looked after his workers - not perhaps out of altruism, but out of self-interest - to help foster a market for his product. And absolutely nothing wrong with that. In fact, everything right with it. Nature loves symbiotic relationships. Bees collect pollen and nectar while helping flowers reproduce - two seemingly unconnected things relying on each other. When there's a lack of symbiosis in nature, it often leads to chaos, destruction and extinction. There is no sustainability in domination. If you over-hunt an animal into extinction, guess what? No more meat for you. The very thing you rely on is no longer there. If Google don't need SMEs, then that would be rather strange, since they make up the vast majority of the private sector of any industrial country. But maybe they figure they don't need them, since I see way more domination than symbiosis from Google when it comes to SMEs. The small guys don't really figure for Google, unless they're an Adwords rep - then you're on their radar ;) - if that's the case, then that's the case - but something must break in the process. There's a tension created out of that, and something has to give.

May 28, 2013 - 11:09pm

Right on, Andrew.

I think companies like Google will either have to come to the party, or be forced to do so by political decree. A disenfranchised middle class is politically dangerous and that is where things appear to be heading.

What lay at the heart of the French Revolution?

Not identical, obviously, but the same drivers, really.

Ford understood the social contract. I wonder if Google does?

June 1, 2013 - 2:39pm

I particularly appreciated the observation that, with Google, the value is all one way: To Google. Google takes data and organizes it so we can find it easily. Google endeavors to keep others from manipulating the results. The danger with Google is its relationship with the NSA. Google is the most invasive digital pick-pocket on Earth, followed by Facebook. Capitalism and the free market built the most effective privacy-robbing apparatus on Earth and with the utter pervasiveness of Google, it will become the most powerful company on Earth.

The government will profile all human beings, triangulate relationships among friends and acquaintances, and determine the class most likely to resist the Brave New World. It is the complete surrender of all privacy (which we voluntarily give to others) that creates our downfall. Privacy makes us stronger as individuals, and strong individuals make for strong societies. No privacy = no strength, and oddly, no cohesion.

June 15, 2013 - 5:45pm

There's no way we can go back to paying for information. The value of each piece of content or information has been devalued in the process of aggregation. When the money is in aggregation the competitive battle is who can get to scale the quickest. When the value is in the aggregation, as Google's is, then Google has to continually devalue the individual pieces. The index, or the metadata is the value and massive scale is how it's monetized. Getting micropayments for the individual pieces (pages of content, video, etc) is a useless excercise because the micropayments would be tiny, tiny percentages of tiny value. For most individuals they wouldn't amount to much at all, maybe a a couple or three dollars a month, if that. That's not enough to fuel a resurgent middle class.

We need a new type of GDp, a new way of measuring our economy, a new way of dealing with this world, a new way of dealing with the end of work for most people. It can either be a heaven, a golden age or a hell -- we're good at the latter but we need the former. We have far more than enough technology, we have massive engines of global abundance -- our massive manufacturing industries which we have to restrain constantly lest they flood and kill markets with ever cheaper products. What if we didn't have to create artificial shortages constantly? Is it ethical or even moral to refuse to use our massive economies of scale to reverse poverty, to provide everyone with the basic means of healthy and fulfilling lives when we have the means to do so? We're heading into a future where our economy will change dramatically because the old measures of progress and investment make no sense. There's already so much capital in the world that there's no where to put it to good use! It's becoming literally useless, which is reflected in the incredibly low interest rates hovering around zero and even negative...

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