Privacy Rights, Property Rights and Google

…there was lunch in the larger, first floor cafeteria where, in the corner, on a small stage there was a man, playing a guitar, who looked like an aging singer-songwriter Mae’s parents listened to.

“Is that….?”

“It is,” Annie said, not breaking her stride.  “There’s someone every day.   Musicians, comedians, writers….We book them a year ahead.  We have to fight them off.”

The singer-songwriter was signing passionately…but the vast majority of the cafeteria was paying little to no attention.

“I can’t imagine the budget for that, ” Mae said.

“Oh god, we don’t pay them.”

The Circle, by Dave Eggers

Since MTP started in 2006, we have focused primarily on artist rights.  Whether the topic is fair royalties, brand sponsored piracy or a lack of respect for the human rights of artists, the basic theme is that the hyper commoditization of music and artists is dehumanizing and has sucked both the creativity and value out of generations of musicians and artists, particularly recording artists.

But what I want to emphasize is that what Google has been doing for a decade to the private property right of copyright Google are doing at an increasing rate to the most private of all property rights:  Your right to privacy and even your right to your own persona.

Who Guards the Commoditizers?

In a prescient 2008 book review of Nicholas Carr’s The Google Enigma (entitled “Google the Destroyer“), antitrust scholar Jim DeLong gives an elegant explanation:

Carr’s Google Enigma made a familiar business strategy point: companies that provide one component of a system love to commoditize the other components, the complements to their own products, because that leaves more of the value of the total stack available for the commoditizer….Carr noted that Google is unusual because of the large number of products and services that can be complements to the search function, including basic production of content and its distribution, along with anything else that can be used to gather eyeballs for advertising. Google’s incentives to reduce the costs of complements so as to harvest more eyeballs to view advertising are immense….This point is indeed true, and so is an additional point. In most circumstances, the commoditizer’s goal is restrained by knowledge that enough money must be left in the system to support the creation of the complements….

Google is in a different position. Its major complements already exist, and it need not worry in the short term about continuing the flow. For content, we have decades of music and movies that can be digitized and then distributed, with advertising attached. A wealth of other works await digitizing – books, maps, visual arts, and so on. If these run out, Google and other Internet companies have hit on the concept of user-generated content and social networks, in which the users are sold to each other, with yet more advertising attached.

So, on the whole, Google can continue to do well even if leaves providers of is complements gasping like fish on a beach.

Broadly speaking, Google have turned this commodization into a science, no pun intended.  Or as David Lowery said, meet the new boss, worse than the old boss.  When Google’s Eric Schmidt tells the Congress that the company has learned from its “corporate predecessors”, that’s one lesson it hasn’t learned.

No tech company personifies this commoditization of artists more fully than Google–Google’s realization of this massive rip off is near complete.  From photography, illustrations and other visual images in its Google Image Search, to books in its horrific “fair use” Google Books, to YouTube, to its monopoly search engine that receives over 500,000 take down notices a day for driving traffic to pirate sites where it often sells advertising, to its advertising platforms that monetize all of its commoditizing activities and allow it to mine the data it collects from traffic to all of these honey pots that other people made popular.

Like their cousins in “black pools,” advertising platforms that include real time bidding desks and a labyrinth of hidden financial transactions that seem designed to accomplish one goal–to disguise the hands that feed the pirate economy while leaving brands open to criticism and now criminal investigations in some countries.  Not to mention disguise from artists who earn a share of advertising revenue on various Google platforms the true sums earned by Google from the artist’s efforts, not just the portion that Google unilaterally decides to attribute to those efforts behind the curtain (a common complaint of ad publishers in general if you can get them to talk about it at all).

But it is not just artists who are being commoditized by Google–it is actually all of us.  Whether it is through Gmail, YouTube, even Google Apps for Education, our rights to our persona, our interests and our communications with others–and those of our children–are being sliced and diced and commoditized, all for the benefit of Google.

Together we will look more closely at all this theft of our personal information, our personal property, and try to understand together what Google’s end game is–we certainly have seen it at work in the music and movie business.  First, though, let me tell you who I think we are dealing with and then inform you of who you actually are dealing with when it comes to Google.  It’s too facile to just say “Google did it”–Google, like any other company, is people.

It’s just that in Google’s case, through a very calculated corporate structure of voting control through its Class B common stock, Google actually is only a handful of people.  So when we say “Google”, we are actually talking about three people:  Eric Schmidt, Larry Page and Sergei Brin.  This is the way they want it, so this is the way they’ll get it.  We will call them The Controllers, because that’s how they roll.

The Lessons of Our Corporate Predecessors

When Eric Schmidt, one of The Controllers testified before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, there were many comparisons in the press to Microsoft’s encounter with the Senate years before.  In fact, Schmidt alluded to that encounter in his opening statement:

I’m here today carrying a long history in the technology business and a very short message about our company.

We get it.

By that I mean that we get the lessons of our corporate predecessors.

We don’t think he was only referring to Microsoft.  We think there were a few other corporate predecessors of Google that all featured in Google’s business far more than Microsoft does.  Companies like Halliburton, Enron, General Electric, Drexel Burnham Lambert.  And given the Controllers unprecedented lobbying efforts on Capitol Hill as recently documented in Amazon’s Washington Post, Ottawa, the capitals of Europe, Japan, individual state houses and state governments, we think that the Controllers learned one lesson above all others:

Getting away with it.

Whether it’s paying off a criminal prosecution of their senior executive team (including Sheryl Sandburg, now at Facebook) for violating the Controlled Substances Act with $500,000,000 of the stockholders money, profiting from the proceeds of crime as evidenced in advertising for the sale of counterfeit Olympics tickets, or devising a complex scheme of advertising payments through intermediaries to avoid the unseemly act of Google actually handing money to a thief (and having to send the thief a 1099),

Yes, the Controllers at Google seem to have learned how to get away with it.

So far.

But remember–if you had walked into a room of MBAs in 1985 and told them that in a few years time, their hero Michael Milken the Master of the Universe would be in prison and the sainted Drexel would be bankrupted, you would have been laughed out of the room.

And all he did was a little garden variety insider trading.  Milken never helped sell pills to kids.

How Do The Controllers Keep Control

This is a good time to start focusing on the Controllers because Google recently had a stock split–a very particular kind of stock split.  (This was a “forward” stock split, one in which the current stockholders get additional shares, which is almost always of the same class of stock, usually common stock.)

But remember–before the split, Google had two classes of common stock:  Class A and Class B.  Class A is what you could buy from your stock broker and traded under the symbol GOOG.  Class A shares had customary voting rights, one share one vote.  Voting on issues like, say a new board of directors who might do something like…fire the executive team.  Sounds fair, right?

What about the Class B shares?

There were certain rules about the Class B shares.  According to a pre-split filing with the SEC, Google disclosed that:

Our Board of Directors has authorized two classes of common stock, Class A and Class B. At December 31, 2009, there were 6,000,000,000 and 3,000,000,000 shares authorized and there were 243,611,368 and 74,160,683 shares legally outstanding of Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted at any time at the option of the stockholder and automatically convert upon sale or transfer to Class A common stock. We refer to Class A and Class B common stock as common stock throughout the notes to these financial statements, unless otherwise noted.

Very Googlely:  The rights of the holders of Class A and Class B common stock are identical, except with respect to voting.

So the rights are identical except they’re not.  Do you call “identical” having 10 times the voting power of the other class?

And how do you get to own Class B shares?  You have to be named Eric Schmidt, Larry Page or Sergei Brin.  And when one of these guys wants to raise a little cash to, say soundproof a lair in New York for a little entertaining, you would convert the unregistered Class B to registered Class A–so no one outside the control group would ever be able to get the 10x voting power.

Because, you know, some animals are more equal than others.

Page and Brin each own about 15% of Google’s outstanding stock, but they hold 56% of shareholder voting power because of the 10x power boost of their Class B stock.

So the Controllers came up with a plan to issue nonvoting Class C shares in Google–say that again–nonvoting stock.  This means that anyone who buys a share of Series C will never be able to vote on something like whether the company should spend $500,000,000 to keep the Series B holders–the Controllers–from being indicted.

Of course it should.  What are you thinking?

And here’s the added bit of transparency–the new Series C will trade under the ticker symbol GOOG.  That was the same ticker symbol that was used from inception for the voting–but gelded–Series A.  The old Series A will trade under a new ticker symbol, GOOGL.  In fact, the S&P will shortly remove the GOOG ticker–Series A–from the indices and replace it with GOOGL, the nonvoting Series C.

Meaning that if you said, I think I’ll buy some of the Google stock I’ve heard so much about, it’s entirely possible that you would buy GOOG without any idea that you were just handing over your money to Google.  Because after two years of litigation with its stockholders over the fact that Google has never paid a dividend of the billions it is sitting on top of, the split IS the dividend.

So how did they get away with it again?  Very Googley:

The Class C stock was proposed by Page and Brin and it was reviewed by a special committee of independent directors, according to court documents. The lawyers for the plaintiffs had argued that the special committee never really considered rejecting the plan.

The settlement comes after the judge overseeing the case, Leo Strine, said he would be looking closely at whether the special committee members were overly chummy with the founders. “During the negotiations, were they arranging a fishing trip to Alaska? That stuff is actually, can actually be substantively relevant,” Strine said, according to a court transcript.

Many of the court filings were heavily redacted, leading some to question whether Google settled to avoid putting its founders on the witness stand.

Gee–wonder what was in the evidence?  Tips on souvenir stands in Sitka?

Whatever The Controllers Want, The Controllers Get, and Little Person, the Controllers Want Your Data

You can see then, that when we speak of “Google”, we really mean Eric Schmidt, Larry Page and Sergei Brin.  They have done about all that can be done in the clubby atmosphere of Silicon Valley with its overlapping boards and vast piles of monopoly rents to keep absolute control over the company that is so much a part of the Internet that for many users, Google essentially is the Internet.

And there is a revolving door for Google the government contractor, whether it’s hiring the head of DARPA (presumably to advise Google about competing for no-bid government contracts), controlling NASA’s iconic Moffett Field hangar for the Controllers’ private jets, or placing a former Googler in the U.S. Patent & Trademark Office from which she can affect U.S. intellectual property policy both foreign and domestic.

I am not saying that Google does nothing good, although that’s kind of like what Catholics call an “indulgence”.  No, the Controllers get the praise for the good things Google does.

But they also get the blame for the bad things it does.  And maybe one day they will also get prosecuted for the very, very bad things it does.