The 463: Inside Tech

Let the Obama v. McCain in Silicon Valley Stories Begin...

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Amy Schatz of the WSJ is the first out of the gate with a Obama v. McCain-for-the-hearts-and-wallets-of-Silicon-Valley story. (Previous pieces hedged with other candidates).

Few presidential candidates have had as much experience dealing with technology and telecommunications issues as Sen. McCain, who for years chaired a Senate committee that deals with them. But he rarely brings tech issues up on the campaign trail and hasn't released many significant policy proposals about them yet.

By contrast, his likely rival, Sen. Obama of Illinois, presented a detailed technology agenda in November that addressed many of the industries' hot-button issues -- including support for building faster broadband networks and keeping Internet traffic unfettered. He has subsequently raised significantly more Silicon Valley cash than Sen. McCain.

A running total of campaign donations by Silicon Valley zip codes maintained by TechNet, an association made up of 150 high-tech chief executive officers, finds that by March 31, Sen. Obama had raised $5 million, compared with almost $800,000 for Mr. McCain.

The piece notes that the discrepancy in funding between the two candidates can be partially attributed to the fact that tech issues aside, there just happens to be a lot more people ideologically attuned to Obama in the Bay Area. Very true, but a well-done June Atlantic Monthly piece also shows how Obama quietly used the Valley as a fundraising launching pad for his campaign early in the process...

...But more than any policy, the idea of Obama and the world he speaks for seemed to excite something deep within the limbic system of the Valley brain that manifested itself through the early and continuing financial support that was crucial to launching Obama’s campaign. Getting behind Obama, especially for those who did so early, appealed to their self-image as discerning seers.

Discerning seering aside, the WSJ does pick up on one policy note that will likely be exploited by McCain with industry-types in the coming months (and with good reason): Free trade. As the primary election trudged on, Obama's pragmatist instincts were smothered by an apparent need to score populist political points on the issue. McCain has had no need for nuance on the need for free trade in a global economy.

BTW, this week marks the year anniversary of McCain's keynote interview at the All Things D conference (my picture below). I remember a general feeling among the many tech execs in the audience of "it's kind of embarrassing that this guy has zero chance to get the nomination and he's speaking here, but, hey, he's a war hero, a senator, and (John) Chambers supports him, so I guess I will listen."

Even more tellingly, was the post-speech handshake tour among the dining attendees. Cisco's Chambers diligently introduced the Senator to different tables of folks. It was all very polite and people were genuinely interested in meeting and talking to McCain, but there was no rush of people to do so. Folks stood back and if McCain made it to their table, than great, if not, than, hey, look over there... what is Chad Hurley wearing?

It would be different scene altogether if McCain was speaking this year (not to mention Obama). Just shows how vaunted visionaries can miss half of the future even when it has walked in the room and extended its hand.

Lee Gomes Loves Wal-Mart, Hates Family Businesses and Probably Puppies, Too

Do you think that little family businesses should be able to compete against stampeding big box retailers by being able to provide their products online free of unreasonable and costly bureaucratic rules that are not so coincidentally advocated by Wal-Mart, Target and Best Buy and powerhouse lobbying groups like the National Retailers Foundation? Or do you think that these families should wave the white flag and pray that Mom and Dad can get jobs as greeters in front of the 2000-square-foot laundry detergent section of their local big box?

Too much hyperbole? Perhaps not enough when you consider the lede of Wall Street Journal's Lee Gomes piece on Internet tax today...

Do you think that billionaire Internet moguls should continue to benefit from a tax loophole that hurts parks and schools, and makes it harder for your neighborhood bookstore to keep open for business?

I didn't think you did.

In that case, cheer on New York and Texas as they chip away at the popular but grossly unfair advantage enjoyed by the Amazon.coms of the world. Online retailers don't have to collect sales tax on the items they sell if they're "out of state" companies.

Now, Gomes is the Journal's resident tech contrarian. He thinks that he democratizing forces of Internet may NOT be a good thing for politics. He gets bored at the big tech events that tens of thousands of others enjoy attending. And, he thinks that iPods may be the death of quality music. Ha, ha. There goes that Lee again. At times, he's the Andy Rooney of the tech world. But, it does get him attention and a nice paycheck.*

Sadly, his Lou Dobbsian screed against "billionaire Internet moguls" plays right into the hands of those who benefit from limited consumer choices and less competition from small businesses.

On cue, Overstock.com has cut off their affiliates based in New York state thanks to the New York law that Gomes "cheers on." Here is the perspective of one small business owner in the New York Times Bits blog...

Janet Attard, the owner of BusienssKnowHow, which is based in Centereach on Long Island...expressed worry that the state’s new tax rules would hurt her and other small businesses. ...

“I know a lot of small businesses that make a significant amount of money from selling other company’s products,” she said. “Laws like this can put small businesses out of business.”

Oh, and, pay little mind, Lee, that the New York rule is likely unconstitutional. From the director of the Tax and Fiscal Policy Task Force for the American Legislative Exchange Council (a conservative individual membership organization of state legislators) in Forbes...

New York saddles taxpayers with the third-highest tax burden in the nation. But not content with taxing its own citizens and businesses to the max, the Empire State is now unleashing its tax collectors on the rest of the nation. A first-of-its kind law recently passed in New York places new sales taxes on catalog and online retailers in every state of the country. Retailers that have no physical presence in New York, but sell products to New Yorkers, are now expected to collect and send tax revenues to the treasury in Albany....

...Serious constitutional concerns plague this bill. Its overextension of state taxing authority to corporations lacking any physical presence in New York appears to be an unlawful tax on interstate commerce. The U.S. Supreme Court's ruling 16 years ago in Quill Corp. v. North Dakota reaffirmed that a corporation must have a "substantial nexus" with a state in order to be subject to its sales and use taxes.

And, the impact on the people of New York? From the Journal's editorial page earlier this month...

...some companies will feel pressure to pay instead of doing battle with a state government. New York's overall business tax climate ranks 48th among the states, according to the Tax Foundation. Mr. Paterson's money grab could make New York the biggest loser when it comes to tax competitiveness.

*UPDATE (5/28): I struck these sentences and made a couple of other small tweaks because Lee Gomes made the time to send me a thoughtful response to this post. This tells me that he genuinely cares about his position and isn't just being a contrarian to move his column up the "most-read" Journal chart. Oh, in the process of responding to Gomes, I found this Tax Foundation review of the New York law. I wish I had seen it and used it before. Here's a healthy excerpt....

New York's move is just the latest in a string of state efforts to abandon the physical presence rule of taxing out-of-state businesses. In 1992, the U.S. Supreme Court reaffirmed the rule in the Quill v. North Dakota case, holding that a state could not impose sales tax collection obligations on a company, unless the company has either property or employees in the state. Amazon has neither in New York.

As we mention so often, politicians are tempted to increase state spending not by asking constituents to fund the programs they want, but instead by shifting burdens to hidden taxes on (faceless, non-voting) out-of-state businesses. Such moves add to complexity, make the tax system less neutral, and lead to more government than citizens are willing to pay for. In this case, beyond being poor tax policy, New York's "Amazon tax" may also violate the U.S. Constitution's Commerce Clause.

Some local retailers applaud these of raids on out-of-state business:

"This is a first step -- but a critical one -- in our ongoing battle to level the sales tax playing field between New York retailers and the out-of-state Internet giants that have, for years, capitalized on an unfair and unintended competitive advantage driven solely by tax policy," James Sherin, president CEO of the Retail Council New York, said in a statement reacting to the bill's passage.

Far from creating a level playing field, New York's new law and other efforts to abandon the physical presence rule (California has a pending bill, A.B. 1840) actually move away from a level playing field. If every state did what New York did, online retailers would have to keep track of the different rates and bases of the 7,400+ sales taxing jurisdictions in the United States and all the income tax systems. We here at the Tax Foundation have a lot of researchers and subscriptions trying to do that, and it'd be quite burdensome for small online retailers to tackle that task. Meanwhile, brick-and-mortar retailers need only keep track of one sales tax rate and base.

(photo by retrogression)

Microhoobook

Microsoft buys Yahoo's search capability and then buys Facebook -- all for about the price than what it would have taken to buy all of Yahoo.

Web entrepreneur John Furrier is spreading the same rumors that I heard repeatedly at various geek gatherings over the weekend.

The impact if it happens? Lots. But, expect more and chatter about data portability and open social networks vs. closed.

(photo by neverletmego)

The Egyptian Facebook "Revolution"

General Al Jazeera story on the protests

Jack Fairweather of Islam's Advance (Newsweek/WaPo) writes a fascinating post on the role of Facebook in organizing recent protests in Egypt. He notes that the social network has engaged young moderates and liberals in the type of political activity previously reserved for Islamists. The piece also suggests that the impact of the social network might be overblown thus far. Of course, that could be true, but, then again, could you imagine reading an article like this two or three years ago?

A excerpt:

When most people log onto Facebook, the thought of fermenting revolution is pretty far from their minds. But in the Middle East, and most recently in Egypt, Facebook has become an important platform for dissent in countries that routinely clampdown on liberal activists, and where the mosque has traditionally been the only outlet for venting political frustration.

Last month saw the arrest of Esra Abdel Fattah, 27, after she formed a group on Facebook calling for protests against the high price of food and other commodities in Egypt. Strike action was already planned by factory workers in the Nile Delta city of Mahalla al-Kobra, and the Facebook group, which attracted 64,000 members, tapped into a national mood of unrest. During Fattah’s incarceration, police clashed with protestors in Mahalla, killing three; some 500 people were detained.

By the time Egyptian police freed her two weeks ago, Fattah, an active online activist and member of the liberal al-Ghad political party, had become something of a cyber folk hero, feted by Middle Eastern bloggers and tech-minded students.

Intel Begins Big New DC Push

From RollCall today...

Intel Corp., one of the country’s largest and best-known high-tech manufacturing outfits, today is launching an effort to refurbish its brand on Capitol Hill. The two-pronged campaign involves a major inside-the-Beltway advertising push and, ultimately, a transformation of its operation here with a new chief lobbyist.

Another big tech company doubling down in DC. This helpfully supports my ramblings from yesterday.

(Subscription needed to see the full article).

(photo by ricky romero)

I Don't "Get" Nathan Mhyrvold, Either

I've seen him give his Powerpoint a few times on how the patent litigation crisis is supposedly a false one and have been left scratching my head. Mike Masnick at TechDirt articulates my feelings...

...Then Mhyrvold is asked about whether or not it's okay for someone to get a patent and then not do anything with it, to which he responds:

I would say, yes, there's nothing wrong with that. And the analogy I would use is, it'd be like saying, "Is it OK for someone to buy a chunk of the business and never show up there?" And the answer is, yes. We call them venture capitalists or shareholders. To have a system of taking risk and building valuable companies, you have to have people that are financiers or have other specialized roles.

That sounds nice, but that analogy doesn't work in the slightest. Patent hoarding isn't like an investor or a shareholder. It's about someone holding onto a patent and then popping up and suing when someone else does something. A shareholder or an investor is a win-win relationship based on a fair transaction. A company gets some money, and the shareholder gets some equity. Patent hoarding is quite different. It's about holding onto a patent and then using it to legally threaten someone else or prevent them from doing work and then demanding money out of them after the fact. To equate that with an investor is simply incorrect.

Leadership 2.None?

A decade ago, we had industry leaders like John Doerr, John Chambers, Jim Barksdale, Reed Hastings, Craig Barrett and so on who put on the hat of industry steward and talked about the growth of the technology industry and the policy issues that would impact it. They weren't necessarily reserving their big keynote addresses or sit-downs with the Wall Street Journal to discuss Kleiner Perkins portfolio companies or Cisco's growth strategy.

Who is doing this in 2008? With a few exceptions, it's pretty much the same people. That's a good thing when considering how well Doerr, Chambers and Barrett do when evocatively connecting the dots between sound policy and innovation that benefits society at large. But, it's also a bad thing when you consider that a whole lot of companies have grown up and a lot of executives have made their marks since then without a contribution to the policy dialogue.

This made me wonder why there has been such a leadership gap.

Now, much has changed since 1998 that changes the dynamics of need. Back then, very few companies had strong government affairs staffs and the different tech trade and lobbying groups were just getting their footing. Now, the big companies in the Valley have a straight line to key policymakers via their own teams; organizations like TechNet, ITIC, and TCC; ad hoc issues focused coalitions and advocacy groups. This means that while it is nice for Eric Schmidt to take a leadership position on spectrum issues at a National Press Club event, it is not wholly essential. Google has a strong team and informal coalition of folks doing the day to day work on the issue that make an appeal from the boss merely a helpful component of the overall strategy.

But, I can't help but think that one of the biggest trends of the last decade of tech policy is how the rich have gotten wiser and the poor, less informed. That is, the big and/or smart companies have made a land rush to DC to hire the best staff; secure lobbyists and establish control over the existing trade groups. This has had the effect of transferring much of the tech policy conversation and work to DC. Now, this may seem like a no-brainer and the right thing to do (which it perhaps is), but it wasn't so long ago that there were many more public forums in Silicon Valley that revolved around policy issues. Without the DC apparatus in place, executives needed to do the work themselves in talking about a bad piece of legislation. Media covered this in the Valley. Events were held to take advantage of this. People paid attention. They then got involved.

Now, with the policy stuff "taken care of" by the DC types, very little Valley buzz is created around specific issues (save Net Neutrality) and, more importantly, dedicated ongoing policy activities. Not only is this because there is less of a need for executive involvement, but because the DC types who are now controlling the conversation see very little need in including Valley audiences in it. If they can talk to Roll Call and the key staffer on the Commerce Committee, why do they need to brief GigaOm?

The net impact of all this is that the CEO of the emerging start-up that may or may not be the next Facebook rarely reads about key policy issues that may impact her business and almost certainly never sees her peers engaged on them. If confronted, the CEO would probably say that she assumed that the Googles, Ciscos and Microsofts of the world were taking care of a particular issue. And, while that may be the correct answer, is it the right answer?

To be considered:

Have the big players left the small ones behind?

And, if they have, should they care?

If John Chambers is the next John Chambers, who comes next?

Are there any new executives out there who can make policy issues relevant to the Twitter-class? Or does Michael Arrington become the default leader from his perch at TechCrunch? (He does write about policy from time to time). I would prefer if someone who didn't profit from their words would take this mantle, instead.

What is the real impact to all of this? I, for one, have thought that if there was better organization among the new turks, that there would have long been a forceful organization created that would advance the interests of the new online video industry. I have felt the same about the social networking niche.

There also has been a lot of lost opportunity. While the big companies are now controlling the message in DC, the truth is that policymakers like hearing from any sized firm that can educate them. They don't care about market cap. A perfect recent example is the storm that the content distributor Vuze created when it made a FCC filing on network management not so long ago.

Happy to keep kicking these thoughts around....

(Photo by Thomas Hawk)

The Future of The Internet Was Posh For a Night

Katie Hallen -- Arianna Huffington and Melanie Ellison threw a posh soiree for Berkman Center for Internet Society Co-Founder Jonathan Zittrain this past Saturday night in honor of his new book, The Future of the Internet – And How To Stop It.

Held at the Ellison’s breathtaking, ubermodern Pacific Heights home overlooking Alcatraz and the Golden Gate Bridge, the party was well attended by Silicon Valley celebrities including Melanie’s husband, Larry Ellison, Larry Page and Craig Newmark (sporting an Obama pin). Others included Mayor Gavin Newsom, Jerry Brown, Phil Bronstein, Yves Behar (designer of the XO laptop), USA Today’s Jon Swartz (co-author of the cybersecurity caper Zero Day Threat), and Stanford Law’s Joshua Cohen (leading John Rawls philosopher and editor of the Boston Review). And, myself.

The Wall Street Journal’s Kara Swisher posted this fun video capturing the evening and thoughts on the book. For more, Zittrain discusses the book tonight on Charlie Rose.

The Berkman Center is a 463 client.

Final Obama Ad Update

My brother's MoveOn Obama ad won the "People's Choice" award. Out of 1000+ initial ads and a second round with 15 other finalists, Josh got the most votes from the people (5.5 million voted). For the top prize, the super delegates judges selected a well-done ad about a Republican veteran (Frank Black-look-alike) who is voting for Obama.

Band Uses CCTV Cameras for Video (or A Sucker is Born Every Page Load)

Blog biggie Boing Boing writes and links to a Telegraph (UK) article...

"The Get Out Clause, an unsigned Manchester band who could not afford a camera crew for their video, 'performed' in front of a load of CCTV cameras, requested the footage from the camera operators under the Data Protection Act and then stitched the results together for their music video."...

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Genius idea. Even more genius marketing stunt. According to the lads' hometown paper, the hype bouncing around the Internet on this video might be a tad overdone. It seems that footage is just a little to good to be true...

But after the M.E.N. spotted some telltale signs that the footage was not all that it seemed, the band admitted that the idea of a CCTV video was a PR stunt.

The unusually clear images show them performing in a variety of Mancunian locations including on a tram, in the back of a taxi and at Castlefield.

CCTV footage showing the band playing in the back of a taxi that apparently belongs to Clayton cab firm Mantax also features in the four minute long video.

When we contacted the city centre firm they denied all knowledge of it.

Spokeswoman Bernadette Tabner said: "I don't think any of our drivers actually have CCTV footage yet. And even if they did it would not say Mantax on it. I'm the manager and if any request like this came in I would know about it and I don't!

Further clips show the band playing on a tram. Footage bears the label `GMPTE CAR 4'. But when we contacted Greater Manchester Passenger Transport Authority, they too denied that it was genuine CCTV film.