Palo Alto, page 74
But as Carreyrou documented in his reporting for the Wall Street Journal and in his book Bad Blood: Secrets and Lies in a Silicon Valley Startup, Theranos moved fast and broke things (and people) to no useful end. When it rushed its blood tests into drugstores, they yielded false results. And when rumors threatened to topple the pyramid scheme, Theranos brought on feared litigator David Boies in exchange for stock. With Boies personally signing documents, whistleblower lawyers were hesitant to go after the company. His efforts became so crucial to the firm that he joined the Theranos board. Bullying worked; it just had to work long enough for Theranos to produce a box that did something close to what Holmes said it did. It might have happened if not for Tyler Shultz, recent Stanford graduate, George’s grandson, and a low-level Theranos employee who was insufficiently cowed by Sunny Balwani. After he raised his concerns about rigged quality assurance reports in 2014, Balwani chewed him out, and Tyler quit. He filed an anonymous complaint with regulators and began cooperating with Carreyrou and the Wall Street Journal.v Tyler expected his grandfather to take his side rather than Elizabeth’s, but that’s not what happened. George Shultz sided with Holmes and helped Theranos try to destroy his own family, forcing his son to spend hundreds of thousands of dollars to protect Tyler from Holmes, Balwani, and Boies. Their attempts to smear the young man and keep the scam going until it landed didn’t work, but they could have.
The point of centering Balwani in the story to a certain degree isn’t to downplay Holmes’s culpability or to lend credence to her defense that she was Balwani’s puppet. (The federal jury didn’t buy that excuse, convicting her on four counts of fraud.)8 Rather, I want to pay attention to the continuity he represents. How could Silicon Valley learn the lesson of the dot-com bust when there were dozens of guys like Sunny Balwani running around with millions of dollars each, convinced they were geniuses at starting companies? Balwani and Holmes could have found other partners. The two of them weren’t the only ones who used the Palo Alto System to build a unicorn by taping a kitchen knife to a donkey’s forehead; they’re just the ones who got busted.
Garrett Camp and Travis Kalanick had rich-guy problems. Both sold their web companies for millions in 2007—Camp’s random-content portal StumbleUpon to eBay and Kalanick’s legally dubious P2P firm Red Swoosh to Akamai—and the young dudes turned their attention to having a good time. Like many newly rich entrepreneurs, they ran up against novel frustrations. Camp couldn’t figure out a good transportation solution for hitting the town in San Francisco, for example, and after paying $800 for a black car on New Year’s Eve, he figured there had to be a better way.vi The original plan for UberCab was for an elite members-only service leveraging the GPS-enabled smartphones that affluent consumers started to carry around, allowing them to summon an UberCab on demand. “Faster and cheaper than a limo, but nicer and safer than a taxicab” was the pitch, and the membership model and high price ensured a “respectable clientele.”9 Camp bootstrapped the earliest work and talked Kalanick into joining. Worst-case scenario, they told potential investors, it would be a solution for tech-forward rich people in San Francisco—which is to say, them. Running a luxury service for wealthy Bay Area smartphone users was a great way to attract capital, and they assembled a crew of VCs and angels with investments ranging from $5,000 to just over $500,000, the biggest check from a guy who scored on StumbleUpon.10 It didn’t matter that StumbleUpon and Red Swoosh weren’t ultimately worth anything to the companies that purchased them; what mattered was that the founders made money for their investors, which made them Silicon Valley successful.11
In evolutionary biology, there’s a term called carcinization. It describes the tendency of all sorts of crustaceans to evolve crablike bodies. The shelled core and spindly articulated legs are apparently an excellent way to adapt to the sea floor, and various species keep stumbling upon it, evolving to look like relatives even when they’re not. Silicon Valley’s twenty-first-century firms underwent their own type of rapid carcinization, flattening into “platforms” suspended on rows of contractor pin legs. At first, the Uber guys clearly did not understand what they had, and neither did a parallel group of guys building their biggest competitor, Lyft. The two were made for disparate use cases—the Lyft founders admired the efficiency of ride-sharing in Zimbabwe, which made full use of empty seats, while the Uber guys wanted to pay less for a limo—but they converged on the same model. Like the winningest firms of the dot-com era, they tended toward monopoly plays, searching for social layers to disrupt with computers. When it comes to a given niche, that meant whoever could show the most and fastest growth could attract the most and fastest capital, which turbocharged growth, which attracted more capital, and so on. Competitive start-ups didn’t have to make profits, but they did have to scale, and immediately.
Silicon Valley has never been interested in slow and steady growth—an early winning appearance is key to the Palo Alto System. As Webvan’s Bechtel warehouse debacle showed, fixed capital investments and rapid scaling was a risky combination, and the fastest-growing firms found ways to shift their fixed costs to contractors—whether they needed servers, advertising consultants such as Chiat/Day, or even the coders themselves. In 1999, Oracle wunderkind Marc Benioff continued in the Ampex tradition by spinning off Salesforce with the financial and moral support of his boss, Larry Ellison. The firm provides businesses with cloud-based customer relationship management (CRM) platforms, allowing customers to outsource even their company’s basic internal functions. Most people in San Francisco might not be able to tell you what CRM or “platform as a service” is exactly, but everyone can point you to the Salesforce Tower, which took over the top spot in the skyline in 2017, overshadowing the Gianninis’ Transamerica Pyramid.
Maybe because Lyft was the more naive company, it started making use of drivers who didn’t have professional licenses first. When Uber saw its competitor getting away with it, it followed suit. Designed to be profitable, Uber plowed every bit of income (and then some) into growth instead. The firm subsidized riders and drivers, changing the model from “better than a cab, cheaper than a limo” to “cheaper than a cab, so don’t take a cab ever again.” It was burning billions of investor dollars, faster than any start-up in history, but already the black-car drivers felt betrayed. Inexorably, as the ride-sharing companies broke the cab cartels, they pushed down wages for working drivers. In New York City, community members and reporters found Uber and its effects on the market responsible for a wave of suicides by professional taxi and black-car drivers, at least eight in 2018 alone.12 This was one of the first large battles in what was, in retrospect, a struggle over the nature of work. As we know, the employment of temps and contractors has been growing for decades, especially in the Bay Area, but Uber took it a step further, automating as much of the recruitment, sign-up, and onboarding processes as possible—forget training. These gig workers were barely even contractors. In terms of their relation to the company, they were more like users.
The term underemployed usually applies to people who are working at jobs that are not as highly remunerated as their skill set suggests they should be. But it can also describe a shaving down of job quality. Underemployment is the skyward creep of the exploitation rate, every step up exerting an equal and opposite push down on labor. Economic historian Aaron Benanav gives a precise description of how and why the trend of rising service-sector underemployment dovetailed with the rise of lean gig platforms:
It turns out to be possible to lower the prices of some services, and so to expand demand for them in spite of overall economic stagnation, without raising corresponding levels of productivity—that is, by paying workers less, or by suppressing the growth of their wages relative to whatever meager increases in their productivity are achieved over time.… The same principle applies to self-employed workers, who, by offering to work for less, are able to create demand for their labor at the expense of their incomes. The service sector is the choice site for job creation through such super-exploitation because the wages of service workers make up a relatively large share of the final price that consumers pay.13
By cutting the ribbon holding together the suite of labor laws, the lean crabs freed workers to “create demand for their labor at the expense of their incomes.” The result has been, rather than the much-feared plague of technological unemployment, a pandemic of underemployment.
It’s a mistake, then, to think of Uber’s carcinized business strategy as driven by its scandal-prone leader, Travis Kalanick, and his bad personality. When author Brad Stone asked Kalanick why the company raised over $10 billion in the previous two years alone, the billionaire’s answer comes off as more resigned than pumped: “If you didn’t do it, it would be a strategic disadvantage, especially when you’re operating globally,” he told Stone. “It’s not my preference for how to build a company, but it’s required when that money is available.”14 That last part is worth repeating: It’s required when that money is available. If Uber didn’t take $3.5 billion from Mohammed bin Salman and the Saudi kingdom’s sovereign wealth fund, the royals would have put it on Lyft, and then maybe no one would want to invest in Uber, and then it would all be over. These companies didn’t choose to become crabs—that’s not how evolution works. The founders couldn’t stop themselves any more than the railroad barons could.
Staying in the game was much more important than any imminent prospect of profitability, and platforms courted big bucks from Russian oligarchs, Emirati sheikhs, and cosmopolitan capitalists of every stripe. Even Canada’s Public Sector Pension Investment Board put $500 million on Lyft.15 Early investors were rewarded as new investors inflated the stock value and made them look smart. The region sprouted a whole crop of paper billionaires. Yet the Uber IPO flopped, and though the stock price has fluctuated up and down in the years since, the public has not been as enthusiastic as the VCs were. The firm has continued losing money, still slugging it out for a monopoly spot that might turn the numbers around.16 But Uber has a market capitalization of over $40 billion at the time of this writing, and investors brag about when they bought in. Not bad for a company that hasn’t come close to making a dollar in profit. The bet on Uber is still live, and the stakes are high enough for the position alone to still be worth a lot—for now.
Kalanick’s biggest single contribution to the tech industry is an insight so important that it ranks up there with Moore’s law about the falling cost of processing power.vii Named by Stone after Kalanick, Travis’s law holds that if you offer a service that consumers love, they will prevent regulators from stopping you. Once users got hooked on Uber’s one-click cabs, municipal regulators didn’t have the stomach to take it away, even though it tossed the intricately organized industry into chaos. Despite the powerful incumbents in New York, for example, and the heart-wrenching stories of immigrant drivers taking on hundreds of thousands of dollars in debt for a taxi medallion only to see its value plummet as the city refused to enforce its codes, machine politics was no match for Travis’s law. When California moved to turn ride-share drivers into employees eligible for worker protections, the sector made use of a tried-and-true vigilante strategy and funded Proposition 22, which went over the legislature’s head. It passed in 2020 with near 60 percent of the vote, thanks to a couple of hundred million dollars from the crabs at the top of Silicon Valley’s bucket.17 Who says they can’t work together?
Somewhere along the way, liberals forgot that they had a good reason for regulating markets. Individual rights was such a dominant framework that it was hard for Democrats to even imagine legitimate group claims. Many of them, including Barack Obama, were too busy celebrating these (money-losing) new growth engines. Uber hired David Plouffe, the Obama ’08 campaign manager, paying him more than enough to handle the $90,000 fine he got for illegally lobbying his Obama buddy, Rahm Emanuel, then the mayor of Chicago, about Uber’s dissatisfaction with regulations on airport pickups.18 Plouffe wasn’t alone: The Chicago Tribune editorial board wrote, “Choice is a good thing. Chicago should promote and preserve it. How? Not by letting the air out of Uber’s tires. The answer isn’t more regulation, it’s less.”19 Emanuel came around, and Chicago added itself to what was then a short list of cities deregulating airport transit. Six years later, the Chicago Tribune editorial board rent its garments in lamentation at the results: “We collectively abandoned cabs, once a reliable form of public transportation offering a ride for a consistent and predictable price, for a world where big tech controls a crucial part of the city’s infrastructure.” Unable to compete, the supermajority of Chicago cab medallions had gone off the street, so “that cramped Uber ride to O’Hare might well set you back $100 or more on a busy Friday afternoon, double or triple the price of the cab that no longer cruises your neighborhood.”20 The board took a desperately apologetic tone, but it can’t get the cabs back on the street or the crabs back in the barrel.
Compared to past cohorts of successful Silicon Valley tech founders, the crab platform leaders made Steve Jobs look like Steve Wozniak. Not only did they not build anything substantial—most of them didn’t have the technical expertise to know where to begin—they also didn’t even come up with anything new. Still, investors pumped novel magnitudes of value through these platforms, allowing them to pursue money-losing strategies indefinitely and hold out for monopoly positions. Since the start-ups were little more than fantasies before their first six- or seven-figure infusions, early investors in the top crabs got extraordinary hauls. VCs couldn’t afford not to take chances on hare-brained schemes. “Airbnb for X” and “Uber for Y” pitches proliferated. What is the lesson there? Whatever it was, capitalists took it.
Speed Bumps
Despite how they appear to us now, at first it was hard to understand the rise of the scraper advertising and crab platforms politically. The world’s turbulent 1990s left political narratives scrambled, and capital’s orthogonal attack on labor caught the United States by surprise. Surely big multinational employers weren’t worth defending against lean start-ups, especially when, thanks to burning piles of investor cash, the latter offered easy user experiences, lower prices, and incentives for contractors. Walmart, Clear Channel, Bechtel, Exxon, Goldman Sachs, and Starbucks were the evil corporations, not Amazon, Apple, Google, Twitter, and Facebook. For a moment, it even looked like parts of the tech industry were on the people’s side. By the time the alignment clarified, however, it was already too late.
In 2011, the “movement of the squares” seized the world, as decentralized groups of protesters, opposing economic inequality, undemocratic political administration, and high household debt, occupied public spaces. In Egypt, where the movement toppled the regime, a Facebook page administered by a Google employee named Wael Ghonim played a well-publicized galvanizing role. In the absence of official coordinating parties and groups, some in the tech industry flattered themselves into thinking that the tools were causing the movements, or at least shaping them. Twitter cofounder Biz Stone evoked the company’s bird logo for the Atlantic, sounding a lot like a ’90s left-wing theorist: “A flock of birds flying around an object in flight has no leader yet this beautiful, seemingly choreographed movement is the very embodiment of change. Rudimentary communication among individuals in real time allows many to move together as one—suddenly uniting everyone in a common goal.”21
The techno-optimism was short-lived. In the late spring of 2013, an NSA contractor named Edward Snowden leaked government documents revealing a vast surveillance program called PRISM, under which everyone’s favorite tech companies collaborated directly with the national security state behind their users’ backs. Despite the public outcry, Total Information Awareness didn’t go away, it just got moved to a less accountable corner of the government: from DARPA to the NSA itself. And as the volume of data running through the servers of U.S.-based tech companies increased, the state enlisted them in the effort one by one: Microsoft in 2007, Yahoo in 2008, Google and Facebook in 2009, YouTube in 2010, Apple in 2012. Though the names of classified programs aren’t supposed to relate to their functions in any way, PRISM’s internal logo showed a rainbow of light transformed into a solid beam of white, the diversity of information sources fused into a single stream, accessible as such by government analysts. In a continuation of John Ashcroft’s precedent-setting deal with the industry, tech companies traded a copacetic regulatory environment for a government back door. Despite Biz Stone’s high-flying rhetoric, Twitter turned over data from an Occupy Wall Street organizer to a Manhattan criminal court after the judge threatened the corporation with fines.
Snowden was an example of what can go wrong with the tech contractor model. A patriotic computer whiz born into a family of government servants during Reagan’s first term, he tried to join the Iraq War but washed out of army training after breaking his leg. He took another route: With the right engineering certifications, Ed landed a cybersecurity job contracting with the CIA.viii Confusing his colleagues, he took a pay cut to go public, joining the actual CIA, and he rose fast in the agency, high enough to try out some field work, which proved unappetizing to the young man. Snowden quit, but with his skills and clearances he had a bright future as a contractor. “As in the CIA, this contractor status was all just formality and cover, and I only ever worked in an NSA facility,” Snowden writes in his memoir.22 It was easy for the state to forget that he didn’t actually work for them, and Snowden’s authority and access increased as he showed himself particularly capable, eventually leading Dell’s CIA account.ix
Working as a top private spy, Snowden came to know the full range of classified American cybertools. In his retelling, he first became concerned while on an assignment researching Chinese surveillance capabilities, when he realized that his own government must have and use the same programs. Indeed, he found that the NSA not only had agreements with internet service providers and web companies, it had also reinstituted a version of Carnivore: physical taps on the internet’s infrastructure. It had everything, and Snowden watched young analysts play God, peeking into the minutiae of people’s private lives. To get the story out, Snowden planned and successfully executed a complicated plan to leak and escape, one that benefited from the latitude the state gave skilled contractors like him. Here was an achievement subject gone wrong, and the revelations shocked the world, as did the exciting backstory. But Americans didn’t stop using the internet, and the Obama administration cracked down on whistleblowers rather than reconsider the B2K techno-capitalist security state. None of the PRISM firms has faced negative market consequences; even if you bought the day before the leaks, a Snowden stock index would still have made an excellent investment. A monopoly was a monopoly.
