Jason Goldman
Larry Summers

The Most Powerful Force In The Universe

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The Most Powerful Force In The Universe

There was an incredible media glare this week on the Kleiner Perkins sex discrimination trial and its negative outcome for Ellen Pao, but all the news about equality in tech was not nearly as negative. One of the most significant victories for women in tech came this week from Google, where Ruth Porat, the current Chief Financial Officer of Morgan Stanley, accepted an offer to join the search giant as CFO.

It is also the clearest sign yet that Wall Street is no longer the place for top talent, supplanted in its role by the ascendancy of tech. Porat didn’t just choose Google because the company has a more interesting mission statement than Morgan Stanley, but because it also pays better. A lot better. Google is reportedly paying Porat more than $70 million in salary and stock options over her first two years (although the vesting period for the options is much longer), a significant increase in her current compensation.

Silicon Valley has the dreams of young and old people thinking about the future and science fiction, the money of the most profitable businesses in the world, the intelligence of the smartest talent concentrating in its borders, and some of the most sophisticated PR savvy worldwide. In almost all respects, it is omnipotent. When we consider that the industry employs relatively few people, it might finally be the case that technology has supplanted banking as the highest per capita power industry on the planet.

Give Me Everything

We already knew that Silicon Valley was a great place to work. While salary compensation is still better for young executives in finance, hordes of MBA graduates still come to the Bay Area to work in the technology industry, either to start a company or ply their trade. The same dynamics can be seen among college graduates across the country.

If you want to understand the power dynamics of America, however, then you need to watch where the top talent goes. And it is obvious that power is starting to concentrate in Silicon Valley like never before.

Here’s just a handful of notable examples. David Plouffe, the manager of Obama’s 2008 presidential campaign, now runs policy at super-unicorn Uber. Larry Summers, the former Treasury Secretary and presidential advisor, is an advisor to Andreessen Horowitz and a board member at Square. The tech talent is also going the other way, with DJ Patil, a data scientist at Greylock, Jason Goldman, a product lead at Twitter, and Megan Smith, a vice president at Google X, all joining the Obama administration in the last few months.

The revolving door between Goldman Sachs and the White House has now been supplanted by a much more technologically-sophisticated revolving door with Silicon Valley.

All those relationships and connections are certainly being used to their fullest. Just take a look at the Wall Street Journal’s analysis of Secret Service logs, which indicated that Google had a meeting with the Obama administration at a rate of one per week, dwarfing a number of other companies like Comcast, which was trying to fend off net neutrality at the FCC. All that effort certainly worked: Google avoided a negative judgment from the Federal Trade Commission regarding its search practices, despite the urging of its own staff.

Power follows money, and technology companies certainly have the resources to throw. The tech market continues to grow unabated, with dozens of unicorn startups, a handful of super unicorns, and multiple public companies among the most valuable in the world. All those resources mean higher salaries of course, but they also mean record payments to lobbyists on K Street from the tech community.

The Downsides Of Power

Of course – and you knew this point was coming – with all that power comes extraordinary risk, not just that power itself is incredibly corrupting, but that our work is almost fundamentally defined as being against power in all its forms.

We have replaced weapons of financial destruction like CDOs with weapons of cloud destruction like AWS.

Just take a look at the net neutrality debate, which is perhaps the most potent example of Silicon Valley’s newfound power. The final decision of the FCC was a huge win for our technology industry, because it would prevent internet service providers (ISPs) from signing special agreements with leading internet services that could stifle innovation. Few people seemed to comment that the largest beneficiaries of such agreements would be incumbents like Google and Netflix, the very groups most vociferously opposed to these rules.

What then was their motivation? It’s about money, of course. By reducing their leverage in the market, these rules essentially guarantee that revenues made on the internet will always be made by internet services, and not by the ISPs. And of course, with the rollout of Google Fiber, even that small chunk is going to be profit made locally as well.

While we were sold on the freedom aspects – and there is indeed at least a verisimilitude of truth to that – these rules ensure that incumbents can never be threatened to pay fees for their bandwidth. That means they will always have the revenues and resources to use somewhere else, such as fighting off competition from startups.

The Internal Threat To Our Industry

That leads us to the other risk of all of this accumulation of power. Part of the promise of Silicon Valley is indeed its disruptive quality, a quality that becomes significantly harder to maintain in the market when the incumbents are so wealthy and powerful. The latest example of this is live streaming. Meerkat was booted off Twitter, only to be replaced by Twitter’s own acquired startup Periscope. Now Meerkat has to defeat a competitor backed with by the full resources of a $30 billion dollar public company. This just isn’t a startup utopia anymore.

We are talking about a taxi startup becoming more valuable than the most well-known investment bank in the world.

To use a programming metaphor, we used to be a highly modular industry, with startups offering “parts” that other companies put together, from the defense contractors of the 1950s all the way to the software of the 1990s. Now, we have closed gardens and API access agreements, designed to keep you within the limited experience of our devices and software.

Worse, those parts are now interacting in ways that create massive systemic risks for the rest of the economy. The entire corporate world pretty much runs on the cloud today, and that means that a failure at a data center could have catastrophic effects for the economy. A single bug in a single encryption software library could open up nearly the entire world’s business to theft. We have replaced weapons of financial destruction like CDOs with weapons of cloud destruction like AWS.

The Changing Definition Of Startup

Unfortunately, many in this industry continue to sit blissfully unaware at best to these changes, and some even loudly proclaim their support for this acquisition of power. Silicon Valley isn’t all that different from Wall Street, except we believe that we are helping the world even more than the capitalists and investment bankers.

The challenge is that the scale we are talking about is almost beyond human comprehension. Apple is the richest company in the world, with a market cap north of $700 billion. For comparison, JPMorgan’s is $220 billion and Goldman Sachs’ is about $85 billion. Given that Uber’s next round may well double its current valuation of $40 billion, we are talking about a taxi startup becoming more valuable than the most well-known investment bank in the world. There’s a reason Plouffe joined as head of policy.

TechCrunch has talked about what companies should be allowed to use the word startup. We care about that in our own reporting, since startups are still a different beast from these mega corporations, often lacking the power and resources to fight back. But we need to extend that critical look to all facets of what we report and analyze.

For all of us in this industry, we also need to take a more critical look at ourselves. We need to more carefully analyze which “sides” we are on, since the interests of the largest corporations are not necessarily the interests of newly-launched startups. Just because we are familiar with these companies and their engineers, doesn’t mean that they necessarily have all of our interests at heart.

Today, Silicon Valley faces serious risks from the excesses of its success, and we need to become much more adept at navigating a world in which we truly are the victors in politics and society. This region’s success has come from its intense cauldron of creativity and entrepreneurship, and with so much technological wonder left to discover, we need to make sure those qualities remain protected for generations to come.

Featured Image: European Southern Observatory (ESO)/Wikimedia Commons UNDER A CC BY 4.0 LICENSE