Tencent Music Entertainment (TME) has nothing like the global profile of Spotify, but China’s top streaming service is heading for the U.S. public markets according to a filing made this weekend by parent company Tencent, the $500 billion Chinese internet giant which plans to spin the music business out.
But there’s precedent here since Tencent made a similar move last year when it broke off China Literature, its digital books business unit, and listed it in Hong Kong with some success. Hong Kong had also been mooted as a destination for TME, but the Tencent filing stated the firm’s intention to “spin-off by way of a separate listing… on a recognized stock exchange in the United States.”
While it seems unlikely that Tencent will follow Spotify and adopt a direct listing — which ditches with the conventional process of an IPO price and engaging banks — it may well call on its rival for pointers since they are both mutual investors.
America’s mayors have spent the past nine months tripping over each other to curry favor with Amazon.com in its high-profile search for a second headquarters.
More quietly, however, a similar story has been playing out in startup-land. Many of the most valuable venture-backed companies are venturing outside their high-cost headquarters and setting up secondary hubs in smaller cities.
Where are they going? Nashville is pretty popular. So is Phoenix. Portland and Raleigh also are seeing some jobs. A number of companies also have a high number of remote offerings, seeking candidates with coveted skills who don’t want to relocate.
Those are some of the findings from a Crunchbase News analysis of the geographic hiring practices of U.S. unicorns. Since most of these companies are based in high-cost locations, like the San Francisco Bay Area, Boston and New York, we were looking to see if there is a pattern of setting up offices in smaller, cheaper cities. (For more on survey technique, see Methodology section below.)
Here is a look at some of the hotspots.
One surprise finding was the prominence of Nashville among secondary locations for startup offices.
We found at least four unicorns scaling up Nashville offices, plus another three with growing operations in or around other Tennessee cities. Here are some of the Tennessee-loving startups:
When we referred to Nashville’s popularity with unicorns as surprising, that was largely because the city isn’t known as a major hub for tech startups or venture funding. That said, it has a lot of attributes that make for a practical and desirable location for a secondary office.
Nashville’s attractions include high quality of life ratings, a growing population and economy, mild climate and lots of live music. Home prices and overall cost of living are also still far below Silicon Valley and New York, even though the Nashville real estate market has been on a tear for the past several years. An added perk for workers: Tennessee has no income tax on wages.
Phoenix is another popular pick for startup offices, particularly West Coast companies seeking a lower-cost hub for customer service and other operations that require a large staff.
In the chart below, we look at five unicorns with significant staffing in the desert city:
Affordability, ease of expansion and a large employable population look like big factors in Phoenix’s appeal. Homes and overall cost of living are a lot cheaper than the big coastal cities. And there’s plenty of room to sprawl.
One article about a new office opening also cited low job turnover rates as an attractive Phoenix-area attribute, which is an interesting notion. Startup hubs like San Francisco and New York see a lot of job-hopping, particularly for people with in-demand skill sets. Scaling companies may be looking for people who measure their job tenure in years rather than months.
Those aren’t the only places
Nashville and Phoenix aren’t the only hotspots for unicorns setting up secondary offices. Many other cities are also seeing some scaling startup activity.
Let’s start with North Carolina. The Research Triangle region is known for having a lot of STEM grads, so it makes sense that deep tech companies headquartered elsewhere might still want a local base. One such company is cybersecurity unicorn Tanium, which has a lot of technical job openings in the area. Another is Docker, developer of software containerization technology, which has open positions in Raleigh.
The Orlando metro area stood out mostly due to Robinhood, the zero-fee stock and crypto trading platform that recently hit the $5 billion valuation mark. The Silicon Valley-based company has a significant number of open positions in Lake Mary, an Orlando suburb, including HR and compliance jobs.
Portland, meanwhile, just drew another crypto-loving unicorn, digital currency transaction platform Coinbase. The San Francisco-based company recently opened an office in the Oregon city and is currently in hiring mode.
Anywhere with a screen
But you don’t have to be anywhere in particular to score jobs at many fast-growing startups. A lot of unicorns have a high number of remote positions, including specialized technical roles that may be hard to fill locally.
GitHub, which makes tools developers can use to collaborate remotely on projects, does a particularly good job of practicing what it codes. A notable number of engineering jobs open at the San Francisco-based company are available to remote workers, and other departments also have some openings for telecommuters.
Others with a smattering of remote openings include Silicon Valley-based cybersecurity provider CrowdStrike, enterprise software developer Apttus and also Docker.
Not everyone is doing it
Of course, not every unicorn is opening large secondary offices. Many prefer to keep staff closer to home base, seeking to lure employees with chic workplaces and lavish perks. Other companies find that when they do expand, it makes strategic sense to go to another high-cost location.
Still, the secondary hub phenomenon may offer a partial antidote to complaints that a few regions are hogging too much of the venture capital pie. While unicorns still overwhelmingly headquarter in a handful of cities, at least they’re spreading their wings and providing more jobs in other places, too.
For this analysis, we were looking at U.S. unicorns with secondary offices in other North American cities. We began with a list of 125 U.S.-based companies and looked at open positions advertised on their websites, focusing on job location.
We excluded job offerings related to representing a local market. For instance, a San Francisco company seeking a sales rep in Chicago to sell to Chicago customers doesn’t count. Instead, we looked for openings for team members handling core operations, including engineering, finances and company-wide customer support. We also excluded secondary offices outside of North America.
Additionally, we were looking principally for companies expanding into lower-cost areas. In many cases, we did see companies strategically adding staff in other high-cost locations, such as New York and Silicon Valley.
A final note pertains to Austin, Texas. We did see several unicorns based elsewhere with job openings in Austin. However, we did not include the city in the sections above because Austin, although a lower-cost location than Silicon Valley, may also be characterized as a large, mature technology and startup hub in its own right.
The UK and the USA have always had an enduring bond, with diplomatic, cultural and economic ties that have remained firm for centuries.
We live in an era of profound change, and are living with technologies set to change things ever faster. If Britain and America work together to develop these technologies for the good of mankind, in a way that is open and free, yet also safe and good for our citizens, we can maintain the global lead our nations have enjoyed in the fields of innovation.
Over past months we have seen some very significant strides forward in this business relationship. All of the biggest US companies have made decisions to invest in the UK. Apple is developing a new HQ in the iconic Battersea Power Station, close to the new US embassy, while Google is building a billion dollar new HQ in the increasingly fashionable King’s Cross. Facebook, Amazon, IBM and Microsoft are all extending their operations, and a multitude of smaller US firms are basing their international headquarters in London.
They are all coming here because as we prepare to leave the EU we are building a forward looking Britain that is open to the wider world, and tech is at the heart of this.
Similarly, there have been major expansions or new investment from British firms into the US. Jaguar Land Rover, the UK’s largest automotive manufacturer, supports more than 9,000 jobs in the USA and have recently opened their new multimillion-dollar corporate North America HQ in New Jersey. iProov, a leading British provider of biometric facial verification technology, became the first international company to be awarded a contract from the US Department of Homeland Security Science & Technology Directorate’s Silicon Valley Innovation Program last month.
We want to work with our global partners – to share expertise, and encourage investment – as we harness technology for the wider good. And that of course includes our old friend and closest ally, the USA.
We have a great deal to offer.
The UK was recently ranked the most AI ready nation among all the OECD countries. In the past three years, new AI start-ups have been created in the UK on an almost weekly basis.
Recently, UK government and industry together committed over $1 billion to support our AI sector, much of which will go towards entrepreneurs. Funding has been set aside to create a nationwide network of tech incubators, that we’re calling “Tech Nation”, which will support new AI businesses as they get off the ground.
We are also excited by — and I am a firm advocate for — the development of blockchain and similar technologies. The UK is leading the way in many areas where blockchain has the potential to be used, such as Fintech. There are now more people working in UK Fintech than in New York or in Singapore, Hong Kong and Australia combined.
And we are eminent in the development of immersive technologies, like Augmented and Virtual Reality, which look set to radically improve many areas of life in coming years, with applications as varied as flight simulation and surgical training techniques.
There is so much to be gained from close collaboration between our two countries on these new technologies and from sharing our expertise.
Together, we can reap the economic benefits of stealing an early lead in their development. We estimate that AI, for example, if widely adopted, could add $33 billion to the UK economy. But, perhaps most importantly, we can also work together to build a strong regulatory and ethical frameworks for their wider application.
It is the role of governments across the world, the UK and US included, to set frameworks for these decentralised, cross border systems so we can manage their use in a safe and effective way.
Our aim should be to harness the power and capability of technology but always for the benefit of, and in service to the populace.
We in the UK are avowedly pro-tech, always seeking to put its power in the hands of our citizens.
We have all learned valuable lessons from the recent scandals regarding data use, most recently around Facebook’s use of data.
We want to build a system that protects and cherishes the freedom of the Internet while protecting the rights of individuals, and their property, including intellectual property.
We want to see freedom in a framework; where our tech entrepreneurs have the space to innovate, knowing they do so with full public trust. Trust underpins a strong economy, and trust in data underpins a strong digital economy.
So in the UK we are developing a Digital Charter, to agree norms and rules for the online world and put them into practice. Our starting point is that what is unacceptable offline should not be tolerated in the online world. That includes how tech companies treat private citizens and use their data, as well as how people treat each other online.
Important changes like these cannot be agreed by one country alone. It is more important than ever that we work together and find common ground so we can make sure that tech continues to change the world for the better. Based on our mutual love of freedom and individual rights Britain and America have through history risen to challenges together. I firmly believe working together we can build that brighter future.
Avi Reichental is founder and CEO of XponentialWorks. He is a leading authority on 3D printing and exponential tech convergence.
If you build it, they will come. And if you 3D-print it, they will come faster, cheaper and more sustainably.
We live in an era of overpopulation and mass housing shortages. Yet we also live in a time of phenomenal digital innovation. On the one hand we have major crises affecting the health, liberty and happiness of billions of people. But look at the other hand, where we have potential for life-changing technological breakthroughs at a rate never before seen on this planet.
Our challenges are vast, but our capabilities to produce solutions are even greater. In the future, we will remember this moment in time as a pivotal one. It is now — not tomorrow, and certainly not five years from now — when technology and innovation are disrupting multiple major industries, including those of housing and construction, at breathless and breakneck speed.
Innovators around the world are hard at work to change the way we design, build and produce our homes, and all of this will result in massive change to the housing status quo. Harnessing the revolutionary power of 3D printing, companies from Russia to China, the U.S. and the Netherlands have already proven that not only can a home be 3D-printed, it can be done cheaply, efficiently and easily.
Here are just a few ways 3D printing is already transforming the way we live.
In March 2017, Apis Cor, 3D-printing specialists with offices in Russia and San Francisco, announced they had produced a 3D-printed home in just 24 hours. That means that from the time you drank your coffee yesterday to the time you sat down for cereal this morning, they produced the self-bearing walls, partitions and building envelopes of an entire home, installed it on site and added the roof and interior finishings. It happened in the dead of winter in a tiny Russian town named Stupino, and it was done using Apis Cor’s on-site printer, which means that the massive cost and logistical hurdle of transporting parts and building materials from factories to a home site was almost entirely eliminated.
Think about the possibilities: You select the site where you want to build your home, Apis Cor brings in their 4.5-meter-long printer, the raw materials are set up and within one single day, your home is printed and ready for you. Compare that to the traditional six- or seven-month construction time the industry is used to, and you’ll begin to understand the scope of potential disruption.
The speed of technological innovation here is also exponential and mind-blowing; just one year before Apis Cor’s breakthrough, we in the 3D-printing industry were marveling over Chinese construction company HuaShang Tengda, who set their own record by 3D-printing a two-story home in a month and a half. Consider that, for a moment: This industry is moving so quickly that construction time has been slashed from 45 days to 24 mere hours in the span of a single year.
Housing prices in America have skyrocketed over the past 50 years, with the average price for a home now surpassing $200,000. And remember, that’s just the average — if you live on the East or West Coast, chances are you’re going to be shelling out something closer to the half-million dollar mark (or more!).
According to a report from the McKinsey Global Institute, a full one-third of people who live in cities will find decent housing out of their reach due to cost by the year 2025. And construction costs are the primary barrier — the report also states that it will take between $9 trillion and $11 trillion just to build the necessary houses to flip that supply-demand ratio and make housing affordable in that time.
New Story, a Silicon Valley-based nonprofit that builds housing in the developing world, just unveiled a new 3D printer at SXSW that can print a house in less than a day for $4,000. DUS Architects — a Dutch architecture studio that has been 3D-printing houses since 2012 — has unveiled the KamerMaker, a huge 3D printer that can build using local recycled materials. This slashes transport, material and manufacturing costs, all driving down costs.
The bottom line
What’s so revolutionary about 3D printing is that its potential is limited only by our imaginations. If the past few years have taught us anything about this industry, it’s that barriers of size, scope and material do not apply to the potential that 3D printing brings to the manufacturing market. From cars to food,to the houses we live in, the industry isn’t just gearing up for a shakeup. It’s in the throes of it already, because change is happening now.
Earlier today, the services marketplace Thumbtack held a small conference for 300 of its best gig economy workers at an event space in San Francisco.
For the nearly ten-year-old company the event was designed to introduce some new features and a redesign of its brand that had softly launched earlier in the week. On hand, in addition to the services professionals who’d paid their way from locations across the U.S. were the company’s top executives.
It’s the latest step in the long journey that Thumbtack took to become one of the last companies standing with a consumer facing marketplace for services.
Back in 2008, as the global financial crisis was only just beginning to tear at the fabric of the U.S. economy, entrepreneurs at companies like Thumbtack andTaskRabbit were already hard at work on potential patches.
This was the beginning of what’s now known as the gig economy. In addition to Thumbtack and TaskRabbit, young companies like Handy, Zaarly, and several others — all began by trying to build better marketplaces for buyers and sellers of services. Their timing, it turns out, was prescient.
In snowy Boston during the winter of 2008, Kevin Busque and his wife Leah were building RunMyErrand, the marketplace service that would become TaskRabbit, as a way to avoid schlepping through snow to pick up dog food .
Meanwhile, in San Francisco, Marco Zappacosta, a young entrepreneur whose parents were the founders of Logitech, and a crew of co-founders including were building Thumbtack, a professional services marketplace from a home office they shared.
As these entrepreneurs built their businesses in northern California (amid the early years of a technology renaissance fostered by patrons made rich from returns on investments in companies like Google and Salesforce.com), the rest of America was stumbling.
In the two years between 2008 and 2010 the unemployment rate in America doubled, rising from 5% to 10%. Professional services workers were hit especially hard as banks, insurance companies, realtors, contractors, developers and retailers all retrenched — laying off staff as the economy collapsed under the weight of terrible loans and a speculative real estate market.
Things weren’t easy for Thumbtack’s founders at the outset in the days before its $1.3 billion valuation and last hundred plus million dollar round of funding. “One of the things that really struck us about the team, was just how lean they were. At the time they were operating out of a house, they were still cooking meals together,” said Cyan Banister, one of the company’s earliest investors and a partner at the multi-billion dollar venture firm, Founders Fund.
“The only thing they really ever spent money on, was food… It was one of these things where they weren’t extravagant, they were extremely purposeful about every dollar that they spent,” Banister said. “They basically slept at work, and were your typical startup story of being under the couch. Every time I met with them, the story was, in the very early stages was about the same for the first couple years, which was, we’re scraping Craigslist, we’re starting to get some traction.”
The idea of powering a Craigslist replacement with more of a marketplace model was something that appealed to Thumbtack’s earliest investor and champion, the serial entrepreneur and angel investor Jason Calcanis.
Thumbtack chief executive Marco Zappacosta
“I remember like it was yesterday when Marco showed me Thumbtack and I looked at this and I said, ‘So, why are you building this?’ And he said, ‘Well, if you go on Craigslist, you know, it’s like a crap shoot. You post, you don’t know. You read a post… you know… you don’t know how good the person is. There’re no reviews.’” Calcanis said. “He had made a directory. It wasn’t the current workflow you see in the app — that came in year three I think. But for the first three years, he built a directory. And he showed me the directory pages where he had a photo of the person, the services provided, the bio.”
The first three years were spent developing a list of vendors that the company had verified with a mailing address, a license, and a certificate of insurance for people who needed some kind of service. Those three features were all Calcanis needed to validate the deal and pull the trigger on an initial investment.
“That’s when I figured out my personal thesis of angel investing,” Calcanis said.
“Some people are market based; some people want to invest in certain demographics or psychographics; immigrant kids or Stanford kids, whatever. Mine is just, ‘Can you make a really interesting product and are your decisions about that product considered?’ And when we discuss those decisions, do I feel like you’re the person who should build this product for the world And it’s just like there’s a big sign above Marco’s head that just says ‘Winner! Winner! Winner!’”
Indeed, it looks like Zappacosta and his company are now running what may be their victory lap in their tenth year as a private company. Thumbtack will be profitable by 2019 and has rolled out a host of new products in the last six months.
Their thesis, which flew in the face of the conventional wisdom of the day, was to build a product which offered listings of any service a potential customer could want in any geography across the U.S. Other companies like Handy and TaskRabbit focused on the home, but on Thumbtack (like any good community message board) users could see postings for anything from repairman to reiki lessons and magicians to musicians alongside the home repair services that now make up the bulk of its listings.
“It’s funny, we had business plans and documents that we wrote and if you look back, the vision that we outlined then, is very similar to the vision we have today. We honestly looked around and we said, ‘We want to solve a problem that impacts a huge number of people. The local services base is super inefficient. It’s really difficult for customers to find trustworthy, reliable people who are available for the right price,’” said Sander Daniels, a co-founder at the company.
“For pros, their number one concern is, ‘Where do I put money in my pocket next? How do I put food on the table for my family next?’ We said, ‘There is a real human problem here. If we can connect these people to technology and then, look around, there are these global marketplace for products: Amazon, Ebay, Alibaba, why can’t there be a global marketplace for services?’ It sounded crazy to say it at the time and it still sounds crazy to say, but that is what the dream was.”
Daniels acknowledges that the company changed the direction of its product, the ways it makes money, and pivoted to address issues as they arose, but the vision remained constant.
Meanwhile, other startups in the market have shifted their focus. Indeed as Handy has shifted to more of a professional services model rather than working directly with consumers and TaskRabbit has been acquired by Ikea, Thumbtack has doubled down on its independence and upgrading its marketplace with automation tools to make matching service providers with customers that much easier.
Thumbtack processes about $1 billion a year in business for its service providers in roughly 1,000 professional categories.
Now, the matching feature is getting an upgrade on the consumer side. Earlier this month the company unveiled Instant Results — a new look for its website and mobile app — that uses all of the data from its 200,000 services professionals to match with the 30 professionals that best correspond to a request for services. It’s among the highest number of professionals listed on any site, according to Zappacosta. The next largest competitor, Yelp, has around 115,000 listings a year. Thumbtack’s professionals are active in a 90 day period.
Filtering by price, location, tools and schedule, anyone in the U.S. can find a service professional for their needs. It’s the culmination of work processing nine years and 25 million requests for services from all of its different categories of jobs.
It’s a long way from the first version of Thumbtack, which had a “buy” tab and a “sell” tab; with the “buy” side to hire local services and the “sell” to offer them.
“From the very early days… the design was to iterate beyond the traditional model of business listing directors. In that, for the consumer to tell us what they were looking for and we would, then, find the right people to connect them to,” said Daniels. “That functionality, the request for quote functionality, was built in from v.1 of the product. If you tried to use it then, it wouldn’t work. There were no businesses on the platform to connect you with. I’m sure there were a million bugs, the UI and UX were a disaster, of course. That was the original version, what I remember of it at least.”
It may have been a disaster, but it was compelling enough to get the company its $1.2 million angel round — enough to barely develop the product. That million dollar investment had to last the company through the nuclear winter of America’s recession years, when venture capital — along with every other investment class — pulled back.
“We were pounding the pavement trying to find somebody to give us money for a Series A round,” Daniels said. “That was a very hard period of the company’s life when we almost went out of business, because nobody would give us money.”
That was a pre-revenue period for the company, which experimented with four revenue streams before settling on the one that worked the best. In the beginning the service was free, and it slowly transitioned to a commission model. Then, eventually, the company moved to a subscription model where service providers would pay the company a certain amount for leads generated off of Thumbtack.
“We weren’t able to close the loop,” Daniels said. “To make commissions work, you have to know who does the job, when, for how much. There are a few possible ways to collect all that information, but the best one, I think, is probably by hosting payments through your platform. We actually built payments into the platform in 2011 or 2012. We had significant transaction volume going through it, but we then decided to rip it out 18 months later, 24 months later, because, I think we had kind of abandoned the hope of making commissions work at that time.”
While Thumbtack was struggling to make its bones, Twitter, Facebook, and Pinterest were raking in cash. The founders thought that they could also access markets in the same way, but investors weren’t interested in a consumer facing business that required transactions — not advertising — to work. User generated content and social media were the rage, but aside from Uber and Lyft the jury was still out on the marketplace model.
“For our company that was not a Facebook or a Twitter or Pinterest, at that time, at least, that we needed revenue to show that we’re going to be able to monetize this,” Daniels said. “We had figured out a way to sign up pros at enormous scale and consumers were coming online, too. That was showing real promise. We said, ‘Man, we’re a hot ticket, we’re going to be able to raise real money.’ Then, for many reasons, our inexperience, our lack of revenue model, probably a bunch of stuff, people were reluctant to give us money.”
The company didn’t focus on revenue models until the fall of 2011, according to Daniels. Then after receiving rejection after rejection the company’s founders began to worry. “We’re like, ‘Oh, shit.’ November of 2009 we start running these tests, to start making money, because we might not be able to raise money here. We need to figure out how to raise cash to pay the bills, soon,” Daniels recalled.
The experience of almost running into the wall put the fear of god into the company. They managed to scrape out an investment from Javelin, but the founders were convinced that they needed to find the right revenue number to make the business work with or without a capital infusion. After a bunch of deliberations, they finally settled on $350,000 as the magic number to remain a going concern.
“That was the metric that we were shooting towards,” said Daniels. “It was during that period that we iterated aggressively through these revenue models, and, ultimately, landed on a paper quote. At the end of that period then Sequoia invested, and suddenly, pros supply and consumer demand and revenue model all came together and like, ‘Oh shit.’”
Finding the right business model was one thing that saved the company from withering on the vine, but another choice was the one that seemed the least logical — the idea that the company should focus on more than just home repairs and services.
The company’s home category had lots of competition with companies who had mastered the art of listing for services on Google and getting results. According to Daniels, the company couldn’t compete at all in the home categories initially.
“It turned out, randomly … we had no idea about this … there was not a similarly well developed or mature events industry,” Daniels said. “We outperformed in events. It was this strategic decision, too, that, on all these 1,000 categories, but it was random, that over the last five years we are the, if not the, certainly one of the leading events service providers in the country. It just happened to be that we … I don’t want to say stumbled into it … but we found these pockets that were less competitive and we could compete in and build a business on.”
The focus on geographical and services breadth — rather than looking at building a business in a single category or in a single geography meant that Zappacosta and company took longer to get their legs under them, but that they had a much wider stance and a much bigger base to tap as they began to grow.
“Because of naivete and this dreamy ambition that we’re going to do it all. It was really nothing more strategic or complicated than that,” said Daniels. “When we chose to go broad, we were wandering the wilderness. We had never done anything like this before.”
From the company’s perspective, there were two things that the outside world (and potential investors) didn’t grasp about its approach. The first was that a perfect product may have been more competitive in a single category, but a good enough product was better than the terrible user experiences that were then on the market. “You can build a big company on this good enough product, which you can then refine over the course of time to be greater and greater,” said Daniels.
The second misunderstanding is that the breadth of the company let it scale the product that being in one category would have never allowed Thumbtack to do. Cross selling and upselling from carpet cleaners to moving services to house cleaners to bounce house rentals for parties — allowed for more repeat use.
More repeat use meant more jobs for services employees at a time when unemployment was still running historically high. Even in 2011, unemployment remained stubbornly high. It wasn’t until 2013 that the jobless numbers began their steady decline.
There’s a question about whether these gig economy jobs can keep up with the changing times. Now, as unemployment has returned to its pre-recession levels, will people want to continue working in roles that don’t offer health insurance or retirement benefits? The answer seems to be “yes” as the Thumbtack platform continues to grow and Uber and Lyft show no signs of slowing down.
“At the time, and it still remains one of my biggest passions, I was interested in how software could create new meaningful ways of working,” said Banister of the Thumbtack deal. “That’s the criteria I was looking for, which is, does this shift how people find work? Because I do believe that we can create jobs and we can create new types of jobs that never existed before with the platforms that we have today.”
Eleonore Pauwels is Director of the Anticipatory Intelligence Lab at the Wilson Center, an international science policy expert specializing in the governance and democratization of converging technologies, and a former official of the European Commission’s Directorate on Science, Economy and Society.
These legitimate concerns about the privacy threat these companies potentially pose must be balanced by an appreciation of the important role data-optimizing companies like these play in promoting our national security.
The vast majority of the two billion Facebook users live outside the United States, Zuckerberg argued, and the US should be thinking of Facebook and other American companies competing with foreign rivals in “strategic and competitive” terms. Although the American public and US political leaders are rightly grappling with critical issues of privacy, we will harm ourselves if we don’t recognize the validity of Zuckerberg’s national security argument.
Facebook CEO and founder Mark Zuckerberg testifies during a US House Committee on Energy and Commerce hearing about Facebook on Capitol Hill in Washington, DC, April 11, 2018. (Photo: SAUL LOEB/AFP/Getty Images)
Examples are everywhere of big tech companies increasingly being seen as a threat. US President Trump has been on a rampage against Amazon, and multiple media outlets have called for the company to be broken up as a monopoly. A recent New York Times article, “The Case Against Google,” argued that Google is stifling competition and innovation and suggested it might be broken up as a monopoly. “It’s time to break up Facebook,” Politico argued, calling Facebook “a deeply untransparent, out-of-control company that encroaches on its users’ privacy, resists regulatory oversight and fails to police known bad actors when they abuse its platform.” US Senator Bill Nelson made a similar point when he asserted during the Senate hearings that “if Facebook and other online companies will not or cannot fix the privacy invasions, then we are going to have to. We, the Congress.”
While many concerns like these are valid, seeing big US technology companies solely in the context of fears about privacy misses the point that these companies play a far broader strategic role in America’s growing geopolitical rivalry with foreign adversaries. And while Russia is rising as a threat in cyberspace, China represents a more powerful and strategic rival in the 21st century tech convergence arms race.
Data is to the 21st century what oil was to the 20th, a key asset for driving wealth, power, and competitiveness. Only companies with access to the best algorithms and the biggest and highest quality data sets will be able to glean the insights and develop the models driving innovation forward. As Facebook’s failure to protect its users’ private information shows, these date pools are both extremely powerful and can be abused. But because countries with the leading AI and pooled data platforms will have the most thriving economies, big technology platforms are playing a more important national security role than ever in our increasingly big data-driven world.
BEIJING, CHINA – 2017/07/08: Robots dance for the audience on the expo. On Jul. 8th, Beijing International Consumer electronics Expo was held in Beijing China National Convention Center. (Photo by Zhang Peng/LightRocket via Getty Images)
China, which has set a goal of becoming “the world’s primary AI innovation center” by 2025, occupying “the commanding heights of AI technology” by 2030, and the “global leader” in “comprehensive national strength and international influence” by 2050, understands this. To build a world-beating AI industry, Beijing has kept American tech giants out of the Chinese market for years and stolen their intellectual property while putting massive resources into developing its own strategic technology sectors in close collaboration with national champion companies like Baidu, Alibaba, and Tencent.
Examples of China’s progress are everywhere.
Close to a billion Chinese people use Tencent’s instant communication and cashless platforms. In October 2017, Alibaba announced a three-year investment of $15 billion for developing and integrating AI and cloud-computing technologies that will power the smart cities and smart hospitals of the future. Beijing is investing $9.2 billion in the golden combination of AI and genomics to lead personalized health research to new heights. More ominously, Alibaba is prototyping a new form of ubiquitous surveillance that deploys millions of cameras equipped with facial recognition within testbed cities and another Chinese company, Cloud Walk, is using facial recognition to track individuals’ behaviors and assess their predisposition to commit a crime.
In all of these areas, China is ensuring that individual privacy protections do not get in the way of bringing together the massive data sets Chinese companies will need to lead the world. As Beijing well understands, training technologists, amassing massive high-quality data sets, and accumulating patents are key to competitive and security advantage in the 21st century.
“In the age of AI, a U.S.-China duopoly is not just inevitable, it has already arrived,” said Kai-Fu Lee, founder and CEO of Beijing-based technology investment firm Sinovation Ventures and a former top executive at Microsoft and Google. The United States should absolutely not follow China’s lead and disregard the privacy protections of our citizens. Instead, we must follow Europe’s lead and do significantly more to enhance them. But we also cannot blind ourselves to the critical importance of amassing big data sets for driving innovation, competitiveness, and national power in the future.
UNITED STATES – SEPTEMBER 24: Aerial view of the Pentagon building photographed on Sept. 24, 2017. (Photo By Bill Clark/CQ Roll Call)
In its 2017 unclassified budget, the Pentagon spent about $7.4 billion on AI, big data and cloud-computing, a tiny fraction of America’s overall expenditure on AI. Clearly, winning the future will not be a government activity alone, but there is a big role government can and must play. Even though Google remains the most important AI company in the world, the U.S. still crucially lacks a coordinated national strategy on AI and emerging digital technologies. While the Trump administration has gutted the white house Office of Science and Technology Policy, proposed massive cuts to US science funding, and engaged in a sniping contest with American tech giants, the Chinese government has outlined a “military-civilian integration development strategy” to harness AI to enhance Chinese national power.
FBI Director Christopher Wray correctly pointed out that America has now entered a “whole of society” rivalry with China. If the United States thinks of our technology champions solely within our domestic national framework, we might spur some types of innovation at home while stifling other innovations that big American companies with large teams and big data sets may be better able to realize.
America will be more innovative the more we nurture a healthy ecosystem of big, AI driven companies while also empowering smaller startups and others using blockchain and other technologies to access large and disparate data pools. Because breaking up US technology giants without a sufficient analysis of both the national and international implications of this step could deal a body blow to American prosperity and global power in the 21st century, extreme caution is in order.
America’s largest technology companies cannot and should not be dragooned to participate in America’s growing geopolitical rivalry with China. Based on recent protests by Google employees against the company’s collaboration with the US defense department analyzing military drone footage, perhaps they will not.
But it would be self-defeating for American policymakers to not at least partly consider America’s tech giants in the context of the important role they play in America’s national security. America definitely needs significantly stronger regulation to foster innovation and protect privacy and civil liberties but breaking up America’s tech giants without appreciating the broader role they are serving to strengthen our national competitiveness and security would be a tragic mistake.
Impossible Foods is taking another bite out of the meat supply chain, with the announcement that its meatless burger substitute is coming to America’s first fast-food burger chain — White Castle.
That’s right, now stoned vegan hippies can join stoned slackers in their quest for cheap, delicious burger-y goodness.
The “Impossible Slider,” which is made from Impossible Foods’ vegetable-based ground beef substitute, will now be available for $1.99, or as part of a combo meal.
It’s hard to understate the importance of this as Impossible Foods now makes the jump from higher-end, fast-casual restaurants to a truly mass consumer, fast-food chain.
If the company’s mission to be a viable competitor to ground beef — and ultimately replace it — Impossible Foods was going to have to make the jump from Umami Burger to “Impossible Slider” at some point.
As we wrote recently, the company has been beefing up its balance sheet to make just such a move — raising nearly $300 million in funding to take its burgers to Asia, and across America.
As part of the deal, the Impossible Slider will be available at 140 locations in the New York-New Jersey corridor and around Chicago and its suburbs.
“White Castle’s model has been often imitated but never duplicated — an impressive feat in the hyper-competitive fast-food sector,” said Impossible Foods’ founder and chief executive Patrick Brown in a statement. “We look forward to working closely with White Castle, and together learning how to popularize plant-based meat with mainstream burger lovers.”
Since the dawn of the internet, the titans of this industry have fought to win the “starting point” — the place that users start their online experiences. In other words, the place where they begin “browsing.” The advent of the dial-up era had America Online mailing a CD to every home in America, which passed the baton to Yahoo’s categorical listings, which was swallowed by Google’s indexing of the world’s information — winning the “starting point” was everything.
As the mobile revolution continues to explode across the world, the battle for the starting point has intensified. For a period of time, people believed it would be the hardware, then it became clear that the software mattered most. Then conversation shifted to a debate between operating systems (Android or iOS) and moved on to social properties and messaging apps, where people were spending most of their time. Today, my belief is we’re hovering somewhere between apps and operating systems. That being said, the interface layer will always be evolving.
The starting point, just like a rocket’s launchpad, is only important because of what comes after. The battle to win that coveted position, although often disguised as many other things, is really a battle to become the starting point of commerce.
Google’s philosophy includes a commitment to get users “off their page” as quickly as possible…to get that user to form a habit and come back to their starting point. The real (yet somewhat veiled) goal, in my opinion, is to get users to search and find the things they want to buy.
Of course, Google “does no evil” while aggregating the world’s information, but they pay their bills by sending purchases to Priceline, Expedia, Amazon and the rest of the digital economy.
Facebook, on the other hand, has become a starting point through its monopolization of users’ time, attention and data. Through this effort, it’s developed an advertising business that shatters records quarter after quarter.
Google and Facebook, this famed duopoly, represent 89 percent of new advertising spending in 2017. Their dominance is unrivaled… for now.
Change is urgently being demanded by market forces — shifts in consumer habits, intolerable rising costs to advertisers and through a nearly universal dissatisfaction with the advertising models that have dominated (plagued) the U.S. digital economy. All of which is being accelerated by mobile. Terrible experiences for users still persist in our online experiences, deliver low efficacy for advertisers and fraud is rampant. The march away from the glut of advertising excess may be most symbolically seen in the explosion of ad blockers. Further evidence of the “need for a correction of this broken industry” is Oracle’s willingness to pay $850 million for a company that polices ads (probably the best entrepreneurs I know ran this company, so no surprise).
As an entrepreneur, my job is to predict the future. When reflecting on what I’ve learned thus far in my journey, it’s become clear that two truths can guide us in making smarter decisions about our digital future:
Every day, retailers, advertisers, brands and marketers get smarter. This means that every day, they will push the platforms, their partners and the places they rely on for users to be more “performance driven.” More transactional.
Paying for views, bots (Russian or otherwise) or anything other than “dollars” will become less and less popular over time. It’s no secret that Amazon, the world’s most powerful company (imho), relies so heavily on its Associates Program (its home-built partnership and affiliate platform). This channel is the highest performing form of paid acquisition that retailers have, and in fact, it’s rumored that the success of Amazon’s affiliate program led to the development of AWS due to large spikes in partner traffic.
Chinese flag overlooking The Bund, Shanghai, China (Photo: Rolf Bruderer/Getty Images)
When thinking about our digital future, look down and look east. Look down and admire your phone — this will serve as your portal to the digital world for the next decade, and our dependence will only continue to grow. The explosive adoption of this form factor is continuing to outpace any technological trend in history.
Now, look east and recognize that what happens in China will happen here, in the West, eventually. The Chinese market skipped the PC-driven digital revolution — and adopted the digital era via the smartphone. Some really smart investors have built strategies around this thesis and have quietly been reaping rewards due to their clairvoyance.
China has historically been categorized as a market full of knock-offs and copycats — but times have changed. Some of the world’s largest and most innovative companies have come out of China over the past decade. The entrepreneurial work ethic in China (as praised recently by arguably the world’s greatest investor, Michael Moritz), the speed of innovation and the ability to quickly scale and reach meaningful populations have caused Chinese companies to leapfrog the market cap of many of their U.S. counterparts.
The most interesting component of the Chinese digital economy’s growth is that it is fundamentally more “pure” than the U.S. market’s. I say this because the Chinese market is inherently “transactional.” As Andreessen Horowitz writes, WeChat, China’s most valuable company, has become the “starting point” and hub for all user actions. Their revenue diversity is much more “Amazon” than “Google” or “Facebook” — it’s much more pure. They make money off the transactions driven from their platform, and advertising is far less important in their strategy.
The obsession with replicating WeChat took the tech industry by storm two years ago — and for some misplaced reason, everyone thought we needed to build messaging bots to compete.
What shouldn’t be lost is our obsession with the purity and power of the business models being created in China. The fabric that binds the Chinese digital economy and has fostered its seemingly boundless growth is the magic combination of commerce and mobile. Singles Day, the Chinese version of Black Friday, drove $25 billion in sales on Alibaba — 90 percent of which were on mobile.
The lesson we’ve learned thus far in both the U.S. and in China is that “consumers spending money” creates the most durable consumer businesses. Google, putting aside all its moonshots and heroic mission statements, is a “starting point” powered by a shopping engine. If you disagree, look at where their revenue comes from…
Google’s recent announcement of Shopping Actions and their movement to a “pay per transaction model” signals a turning point that could forever change the landscape of the digital economy.
Google’s multi-front battle against Apple, Facebook and Amazon is weighted. Amazon is the most threatening. It’s the most durable business of the four — and its model is unbounded on two fronts that almost everyone I know would bet their future on, 1) people buying more online, where Amazon makes a disproportionate amount of every dollar spent, and 2) companies needing more cloud computing power (more servers), where Amazon makes a disproportionate amount of every dollar spent.
To add insult to injury, Amazon is threatening Google by becoming a starting point itself — 55 percent of product searches now originate at Amazon, up from 30 percent just a year ago.
Google, recognizing consumer behavior was changing in mobile (less searching) and the inferiority of their model when compared to the durability and growth prospects of Amazon, needed to respond. Google needed a model that supported boundless growth and one that created a “win-win” for its advertising partners — one that resembled Amazon’s relationship with its merchants — not one that continued to increase costs to retailers while capitalizing on their monopolization of search traffic.
Google knows that with its position as the starting point — with Google.com, Google Apps and Android — it has to become a part of the transaction to prevail in the long term. With users in mobile demanding fewer ads and more utility (demanding experiences that look and feel a lot more like what has prevailed in China), Google has every reason in the world to look down and to look east — to become a part of the transaction — to take its piece.
A collision course for Google and the retailers it relies upon for revenue was on the horizon. Search activity per user was declining in mobile and user acquisition costs were growing quarter over quarter. Businesses are repeatedly failing to compete with Amazon, and unless Google could create an economically viable growth model for retailers, no one would stand a chance against the commerce juggernaut — not the retailers nor Google itself.
As I’ve believed for a long time, becoming a part of the transaction is the most favorable business model for all parties; sources of traffic make money when retailers sell things, and, most importantly, this only happens when users find the things they want.
Shopping Actions is Google’s first ambitious step to satisfy all three parties — businesses and business models all over the world will feel this impact.