Pando

When tech CEOs are calling for more regulation, you know disruption has gone too far

By Sarah Lacy , written on September 25, 2017

From The Disruption Desk

“Nobody likes being regulated, but everything (cars, planes, food, drugs, etc) that's a danger to the public is regulated. AI should be too.” -- Elon Musk

So wrote Elon Musk in a Tweet this past weekend. Musk’s Tweet was about AI, but it was also a nod to the fact that anything that could be a “danger” is rightfully regulated. As such it could just as well be about Uber’s mounting regulatory challenges around the globe, or about Facebook and Twitter getting subpoenaed by Congress.

Given Musk’s stature in the industry, and just how damaged the image of consummate law-breaker Travis Kalanick is right now-- might we hope that a pivot from the cult of disruption might be brewing in some corners of the Valley?

It’s certainly remarkable when an entrepreneur who invested most of his net worth in rockets and electric cars (well before the Valley had auto-fever) sounds like the grounded sensible grown up in the ecosystem. But, then again, Musk has never quite fit into the modern “disrupter” mold: For example, his response to his fears over climate change wasn’t to “disrupt” the EPA, it was to disrupt the industries that pollute the earth the most.

What’s undeniable is that once again Musk is at the front of the pack when it comes to tech trends. In this case, his tweet underscores the profound change that’s about to occur (in fact is already occurring) in the relationship between Silicon Valley and Washington DC.

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Just like Silicon Valley’s track record with women-- which has meandered between chasing them around desks to shutting them out of the industry altogether to outright propositioning them in the workplace to whining that they want equality at all-- Silicon Valley’s relationship with government has always been contentious.

In the early days of the Valley, the government was frequently a desirable customer. Like SpaceX today, one deal with the right official could make or break your company. Over time, tech companies got frustrated with the boom-and-bust cycles of government spending, as wars came and went, and pendulums swung back and forth and relying on government contracts went from being viewed a positive to a negative.

Once Valley profits started to come from selling software, hardware and services to large companies or shoving ads in front of billions of users, the Valley went into a sort of cold war with the government. The Valley mostly ignored DC, and hoped to be ignored by it.

Autodesk’s former CEO Carl Bass articulated this well in a recent Pando interview:

Lobbying was primarily around issues that affected the software industry. We generally did it collectively...The smaller companies don’t have a big enough voice, and the big companies don’t want to be singled out and companies like us are in the middle. That’s the reason we always did it together before.

It was incredibly low key and a lot of it was very industry specific. We would go to Washington and lobby about something like anti-piracy being part of the trade agreement with China. My personal experience was that it was the most frustrating days of my job, because you felt like stuff never got done. All you were trying to do was get them to understand a little bit about something.

Most of the time you get told all these reasons things won’t happen. Each year we go and talk about H1B visas and finally someone took me aside and said “Look, this is how it works. You aren’t going to get anything done on immigration because the Hispanic Caucus has tied it to low skilled immigration and nothing is going to move forward.” …

I remember looking at Rahm Emanuel who was looking at ten CEOs, and he was saying, “Tell me the one thing you want and how much money you are going to give us.” It was like being held up at gunpoint.

And then there were losers like Harry Reid, who sat there with CEOs and read us a bunch of pages out of a Dr. Seuss book. It was a filibuster of the worse kind. We are all looking at each other like, “I must be high, or I’d like to be high.”

Something in there was some kind of parable or lesson, but we were too literal and stupid to understand what he was talking about. He had some point, I have no idea what it is to this day.

But that’s always been my interaction... It was incredibly depressing, but on the other hand it was fairly innocuous. Mostly, you were dealing with staffers who were there for the longer term and were more reasonable. But this is how we approached this before.

Then came the era of Napster, and the war hotted up. It was around this time that Silicon Valley became defined, to the wider public at least, by its opposition to regulation. The tech industry was especially hostile to regulation crafted by politicians who don’t “get” technology. It would take a few years for this hostility to be rebranded as “Disruption.”

Still, even during the “cold war” and disruption eras, there remained some “Oh Thank God, government” moments. That time the “outdated” laws around monopolies got justice for Netscape, Sun Microsystems, and a host of other tech companies alleging Microsoft was acting as an illegal monopolist for one. That time low-interest government loans saved Tesla, for another. Also, a host of Valley companies have actually raised money from In-Q-Tel, the venture capital arm of the CIA. You can imagine, those founders are more than cool with DC.

There was even a momentary hear hug between tech companies like Twitter and the Hillary Clinton State Department, when Twitter put off planned maintenance so that Arab Spring protests could continue at the behest of the State Department. When tech and the American dream of entrepreneurship was considered a tool the State Department could use to help other nations.

It’s ironic, or maybe fitting, that just as the Disruption era reached its peak, so we saw a sudden renewal of enthusiasm amongst tech leaders for working with regulators to settle their differences. So long as the collaboration remained strictly on the Valley’s terms.

SOPA marked a significant shift of power when it came to the Valley actually killing laws. The JOBS Act was the first time in recent memory that the Valley successfully lobbied to get a law changed.

But we knew from past behavior by the Disruptors (never mind from reading Animal Farm) what would happen next. As early as 2012, Paul wrote about Uber cutting backroom deals even as it was decrying the taxi industry for doing just that. Fast forward three years and Uber had become the single biggest lobbyist in the state of Nevada, bigger than the entire gaming industry combined. Moreover, the company had recruited the former CIA director to head up “Uber Military” and had even hired ex-CIA spies to smear critics.

But Uber was just the posterchild of tech bad behavior. Google had already become the largest corporate lobbyist in America well before Uber started buying off state governments.  And Mark Zuckerberg and Sheryl Sandberg had become virtual world leaders in their own right, with Sandberg hopping across the country on Air Force One and Zuckerberg getting on first name terms with global heads of state. When it became clear that Facebook had become a direct threat to American democracy during the last election, President Obama personally intervened with Mark Zuckerberg to warn him. A warning that, of course, Zuckerberg dismissed.

From resistance to the government, to coziness, to dominance and arrogance towards elected leaders in little more than a decade.

So now the wheel is turning again. Three years ago, I warned that Uber had invited the government into regulate the Valley with such reckless behavior.

And yet, nothing much happened. At Uber, three more years of flagrant lawbreaking continued-- in the form of alleged trade secret theft, discrimination, harassment. Right until recently, Facebook continued to disseminate fake news and stonewall investigators into the Russia/Trump investigation, laughing when it was suggested that this had had a negative impact on the world, calling what lawmakers and law enforcers are now seeing in subpoenaed evidence “crazy.”

The first rumblings of a backlash came not in the US but in Europe where regulators are less easily influenced by orchestrated pressure campaigns and lobbying. Now, though, search warrants are flying over FB/Russia, Uber may be banned even in once-friendly London,  and Hillary Clinton - despite her closeness with Sheryl Sandberg specifically and the Valley generally - is doing TV interviews to call out Facebook’s continuing culpability in her loss.

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It’s easy to focus on Uber when it comes to all this stuff. But in fact it’s Facebook where the most interesting shift has occurred. And where we see most clearly how the Valley has brought its recent regulatory troubles on itself.

Back in the company’s early days, Facebook was uncannily savvy about how to keep the government out of it’s business. It was rival MySpace that thumbed its nose at the government when states attorneys general expressed concerns about pedophiles using the service to find victims. You just don’t get it! That’s a small percentage of our users! We’re a platform, dude!

And that “platform” became an easy target for politicians to rail against. Facebook on the other hand, under the guidance of the politically savvy Chris Kelly, went to meet with those same Attorneys General. They worked on strategy with them. They expressed their own concern their platform could be used that way, and even did photo opps with the government. So important was that effort, it’s the singular shout out to Kelly’s Facebook tenure on his Wikipedia page.

Joining Facebook as the fledgling company's first attorney, Kelly would serve as Chief Privacy Officer, General Counsel, Head of Global Public Policy, and Vice President of Corporate Development. was Chief Privacy Officer.

Kelly’s development of the site’s safety and security policies around real world identity and deployment of a highly trained staff for rule and law enforcement are credited as critical elements in the company’s success. At Facebook, Kelly worked with Attorneys General in all 50 states to develop safeguards protecting children from sexual predators and represented the company in complex situations involving privacy and intellectual property in the digital age.

So important was that effort, that when MySpace was cratering years later and Facebook was on the pre-IPO ascendancy, I spoke with MySpace insiders who pointed to that Chris Kelly moment in time-- what Facebook got strategically that MySpace did not-- as one of the many reasons Facebook won.

For a company that forces us to remember every moment of our lives, shoving painful breakups in our newsfeeds, Facebook sure has a short memory when it comes to how it avoided the gaze of government in its more fragile years.

The last week - capped by Robert Mueller’s search warrants, and with the possibility of more to follow -  has been a stark reminder for Facebook: You are based in America, not your own sovereign nation.

In the last decade, Silicon Valley has stepped on the government’s toes, come back and screamed it in the face and pulled its hair, insulted its entire family, turned around and punched it in the gut, round-house kicked it, and told it to go suck an egg.

Finally, DC seems to have noticed the affront. Silicon Valley is so far beyond having itself to blame for whatever comes next. It’s destroyed its own soft power to the point where citizens want more government regulation of tech. Hell, even people like Elon Musk do.

It didn’t have to go down like this.