Tech's desire for rapid growth incentivises harming users

As of 2021 all but one company that broke a trillion dollar valuation have been tech companies. Year-on-year we see an increase in unicorn startups. Again, most in the tech industry. We have seen grand promises of a better world— one where people are connected more than ever before, where profitable work can be found on-demand and on our own schedule. Lately Facebook has rebranded into Meta vowing to build an entire metaverse that will help us be even closer with our friends and loved ones. Despite these positive messages the same businesses will not stop short of driving down wages, exploiting inequalities, perpetuating hate speech or abusing their technology and data as long as it maximizes and speeds up growth. And frankly those are not exceptions or the result of wrong people being in charge, but rather natural outcome of the business environment.

To see where the seeds of this problem are, we have to understand how tech companies grow and how that goes in tandem with their founders’ (and later — investors’) motivations and goals. Most startups go through multiple rounds of funding, starting with a pre-seed round, where the founders’ and angel investors’ money is funnelled into the company. With progress in research & development, signing of new deals and contracts, and an increase in the market potential of the company, the value of the business will go up. Hence, early investors take more risks, but acquire larger share for less, hoping to cash in eventually (and ideally cash in big). As cash flow gets more stable, the customer base has been built, trust in the direction of the star-tup has been established and market potential is more clear, any future shareholder has to put in more since the risk they take on themselves is relatively lower.

Those funding rounds are known as series A, B and C, and the business’s growth so far is crucial to convincing your investors to put more for less, leaving you — the founder — with a larger piece of the pie. Eventually, two scenarios will play out: an Initial Public Offering is made, and the company is listed on the stock market. Alternatively it gets bought out, meaning a large corporation pays off all existing shareholders and takes full ownership of the business. Both of those situations are the finish line, and as far as people with stakes in the company are concerned there are two important questions: how do you get to the end fast? And how do you earn the most you can out of it?

If one was to maximise their profits in the minimum amount of time, it would be best to use any tricks necessary to speed up their growth velocity. Even if that means putting the company’s long-term future in jeopardy, damaging existing industries, exacerbating social issues and experimenting with their own users’ well-being. One cynical (or sociopathic?) enough could ensure they are personally shielded from any legal repercussions of their actions, while exploiting all ways possible to put growth first — no matter the harm. While it sounds far-fetched we will soon see that tech companies have been doing exactly that.

We can go as far back as 2005 to see how YouTube’s founders already knew this back then, when they decided to “concentrate all our efforts in building up our numbers as aggressively as we can through whatever tactics, however evil”. YouTube’s primary issue at the time was copyright infringement, mostly affecting large corporations, a victim that is not likely to attract too much public sympathy. With the subsequent purchase of YT by Google for 1.65 billion dollars in stock, it is easy to see that this strategy paid off. The copyright issue then became Google’s problem.

However, it does not take a lot to see that any competitor unwilling to use similar methods would have been instantly outpaced by YouTube’s expansion. How can one compete with a video hosting website that allows on its platform much more content, regardless how dubious its legal status? The scale of the issue is small in this case and limited to legal struggles between big companies, but YouTube was a mere start of how the tech industry can abuse its reach to generate growth and push for an increase in valuation.

Funnily enough, a business does not even have to be profitable to make money for its shareholders. See Deliveroo, the UK food delivery startup, which employs over 2 thousand permanent employees and 30 thousand “self employed delivery riders”. It debuted recently on the stock market with a valuation of around 7 billion pounds, after which it dipped to about 5 billion pounds. Starting off in 2013, it had to make gains against a well established rival, Just Eat, while capitalising on the growing takeaway delivery sector. Deliveroo tried to make promises to make delivery faster for their customers, bring more business to restaurants, and create opportunities for delivery riders to make decent profit while working on their own schedule. On top of that, Deliveroo itself as a business is supposed to generate enough turnover to cover its costs and return the investment back to shareholders.

But how does it manage to achieve that in an industry with extremely low profit margins? The simple answer is that it doesn’t. So far Deliveroo managed to miraculously recover from nearly falling apart to booming again thanks to an Amazon investment, however it has not made profit as of 2020. At the same time cost of orders is 31% higher compared to ordering directly, up to a third of riders gets paid less than minimum wage. Restaurants themselves see Deliveroo predominantly in negative light, having faced more and more pressure to submit and share their profit and customer base, one that will now be absorbed into Deliveroo’s. Effectively meaning owners of small businesses can be bullied into creating competition for themselves.

It seems like the winners are few and far between, and a legitimate question comes to one’s mind — why would anyone build or run a business like this? When do you start making money if a 7 billion pound company is not enough to turn a profit? The answer shows the true winners of the race to the billion-pound valuation — it turns a profit for those who most invested in it. For instance the CEO, Will Shu, is out for a good pay-out of $36 million for selling off his shares, as are all pre-IPO shareholders who can now liquidate their shares.

As in YouTube’s case, the growth-at-all-costs strategy worked. It is hard to believe that without all the cost cutting, abusing gig economy and exploiting restaurants, it would have been possible to make the same gains against well-established rivals, which naturally means the valuation — and therefore the share price — would have been far less. Potentially even derailing the IPO in the first place. It is only investors, C-level executives and founders that are out to make a buck out of it however, all at the price described above: harm to businesses, often small or family run, that cannot stand up to a well established, international company, exploitation of gig economy workers. That further exacerbates income gap between rich and poor by driving wages down.

It is not even that far-fetched to think of Deliveroo as a parasite that embedded itself in the food industry long enough to grow and make its owners a quick buck. Even worse it is here to stay — with the amount of data and control it exerts, in case of any financial troubles buying Deliveroo out will be pocket change for big tech giants the likes of Amazon, and will subsequently hand them sizeable market share, fuelling another big tech company’s data pool and user base. All of this makes the damage even more long lasting, and further rewarding Deliveroo’s executives.

This is not an isolated case, and some or all of the traits described above can be found in other start-ups. Uber similarly disrupted the ride hailing industry, but rather than siphoning profit out of existing taxis it simply replaced them with a fleet of their own, supposedly self-employed drivers.

The company has been famously marred by controversy from the very start, and it exercised YouTube’s mantra in its own style. It would expand into a city whether the regulations allow it or not, and force authorities to adapt: eventually meaning that “Each government, whether municipal or state, goes through its own process to craft rules, but in the end, officials generally codify the insurance coverage, background-check policies, and inspection protocols Uber already has in place. Uber makes the rules; cities fall in line.”. Taxis are usually fall under more serious regulation, with cities employing medallions or licensing schemes. Their supply is managed to prevent saturation to ensure stable, predictable revenue and limit risk. While more taxis would help shorten waiting times, it also means drivers spend less time making money when driving.

Uber moved all of that risk from itself onto their fleet of on-demand drivers. As far as the company is concerned it can always match a rider with an available car regardless whether their amount is highly overprovisioned or perfectly matches the demand. Uber makes equal profit in both cases since it only pays for trips done. Ironically the one situation which should work to the drivers’ benefit — undersupply of available cars — still makes Uber the main winner as it will take even 80% of the surge pricing fee. The drivers now face all the business risk of while getting little of the rewards or job security.

All of this is directly called out by the Illinois Economic Policy Institute as “shifting income from the workers to the executives and shareholders of TNP [Transportation Network Providers — Uber, Lyft and Via] companies.”. Yet still despite all of those measures Uber is not turning any profit, and it is unclear whether its business model can actually make its accounts go positive. The business model did benefit at least one man however — Travis Kalanick was compensated with a hefty sum of $2.7 billion after stepping down as CEO. The philosophy of growth at all costs, regardless how evil the measures are, paid off tremendously.

It also sent a clear message that it can be reproduced. DoorDash’s (founded just 4 years after Uber) drivers are protesting low pay, highlighting draconian measures where “dashers are allegedly penalized for trying to take only high paying or low distance orders, potentially facing deactivation of their account for failing to take on more assignments”. We can already catch a glimpse of where this algorithm-governed dystopia. Chinese app delivery companies engineer their algorithms in a way that the only way to avoid a fine for a late delivery is to violate traffic safety rules. Either risk a hit to your income, or risk your life and the life of others.

Finally, there are more examples of destructive activities to choose from. AirBnB has been blamed for raising rent prices in cities and pushing out locals, while profit is driven towards the company itself and property owners. Even regular, “old school” jobs are under threat of being “disrupted” by tech, with the drive for squeezing productivity out of each and every employee has lead to the deployment of surveillance tools at homes.

One could be naive enough to think that the obsession with growth eventually stops. That companies who sell or go public finally get a moment of reprieve and stabilisation. In reality there is always the next big threshold to reach — for instance it could be becoming one of the few companies to reach 1 trillion dollar valuation. To achieve that you need to, again, build or maintain your entire work culture around encouraging growth.

Enter Facebook, where “bonuses and promotions hinge on achieving incremental gains, and workers say morale swings with the stock price. Those who suggest changes that may improve users’ well-being but threaten the upward trajectory find that their ideas face resistance”.

Thanks to the recent revelations made public by Frances Haugen we learned that Facebook was well aware of Instagram’s impact on teenagers’ mental health, yet its executives chose to ignore it. In the grand scheme of things growing Instagram means increasing the share of people’s attention it can hold and the amount of interaction with the content. It does not matter whether it’s positive interaction, or whether it’s all down to addictive, compulsory behaviours. The ultimate benchmark is whether usage metrics show an upwards curve, even if that gain is all thanks to teenagers anxiously browsing through more and more harmful content picked by machine learning algorithms.

Depressingly enough, that could be seen as a more tame impact of Facebook’s activity and obsession with selfish growth. If keeping the wheels turning involves being complicit in ethnic cleansing, Mark Zuckerberg and his suite of executives are happy to do just that. This has been amply proven by their activity in Myanmar, a country which has been under international scrutiny due to an ongoing, military-perpetrated genocide of the Muslim Rohingya people. Facebook has been caught in-between a government that they need to play nice to in order to keep their platform’s presence, and responsibility towards ensuring their platform does not become a vector for hate speech exacerbating the tensions. It is worth nothing that in countries like Myanmar Facebook is the Internet. It is boasting a user base of around half of the country’s population, coming preloaded on most phones and not counting towards data usage.

One could think that this requires extra cautiousness and responsibility, however in reality business takes precedence. FB has been happy to crack down on non-government groups on its platform, effectively boosting the ruling regime, despite their own acknowledgments that they had not done enough to tackle hate speech in the country. This leads to the company and the military ending up in a symbiotic relationship, where it pays off for the former to keep Zuckerberg’s monopoly in Myanmar in return for some good will in keeping the information flow under some control.

While Deliveroo and Uber’s purpose is to either deliver your food or get you to your destination, Facebook (or “Meta” now following a rebrand) runs a platform that connects entire nations, allowing all variety of content to be hosted and spread. If we cannot trust the tech companies to get your food to their customers without resorting to exploitation or breaking the rules, how can we expect them to put fighting hate speech and radicalisation above making profit? Lately Facebook is now looking to reach six years old with their products to compensate for the declining user base. It is scary to imagine what that might mean, and only shows there are no red lines when a corporation’s cash flow or growth is threatened.

Why does it all matter? We are living in times where climate change is galloping towards us, gap between rich and poor is widening to a point where only lucky few will be able to cross it, the rise of automation and AI will be cutting more and more jobs out, and hate groups are re-emerging using tech to build their support base. We desperately need a new outlook on how society and economics should work. One that does not allow people to build empires which at best allow few to scurry away with massive payouts, be it CEOs or shareholders. After all, in the current system how can we expect ethical companies to compete with Uber’s bullish attitude to regulations, Deliveroo’s abuse of its position to push to squeeze out as much profit as possible from restaurant owners and its riders, or Facebook’s push for growth in disregard for their users’ mental health or life? Worst of all, why would a company not use any of those strategies in the first place if they can guarantee investment, increase valuation and open up the doors to the hall of fame of unicorn startups?

The reason why most tech startups got where they did has nothing to do with “business being business”, human nature or immutable laws of the universe. It is pure natural selection at work, such growth is only achievable if one ignores negative impact they might have on the environment, society and other businesses. Just like in nature however, we can control and steer natural selection by controlling the environment those companies operate in. This means enacting regulation, changing the narrative behind what the purpose and responsibilities of a company are, providing incentives to generate social benefit, and ensuring a single business cannot unilaterally hold the amount of control they are able to now. Otherwise we end up with parasites, and those only stop until either they have had their fill or they have devoured their host. With the pressure to keep an uphill curve of revenue and expansion it is most likely we will see the latter become true, unless action is taken.

Some promising developments include unionisations, which has been achieved by Uber drivers following a ruling that classed them as employees, however that is not an option for other gig economy workers if they are classed to be self employed. Potentially a change of regulation is needed here to recognise the new reality, and expand the scope of collective bargaining privileges to contract workers as well — something the EU is currently considering.

On another front, delivery riders have set up cooperatives that shift the focus from the business’s well being to its riders’. Which underlines a potential weakness in most of the gig economy business practices — while they are highly reliant on their workforce to maintain business, the workforce is only gatekept by the lack of technological know-how, the ability to maintain the infrastructure and software behind a ride sharing or a delivery app.

If that obstacle is overcome then one would expect Uber drivers or Deliveroo couriers to migrate to an app that offers better pay and work conditions. Effectively using the rules of the market to improve the workers’ situation. One has to wonder whether this is one of the reasons Uber has toyed with the idea of giving loans to their drivers, using it as a way to trap them and avoid being able to seek out alternatives. Protecting workers is one step, even if it is one that merely treats the symptoms rather than the source of the issue.

Businesses need to be responsible for more than just ensuring shareholder’s profit, and take more accountability for their actions. Directors or executives very rarely face consequences for anything more than hurting the company’s business or outright fraud, and even then they have become masters of shedding responsibility, whether by hiding behind lawyers, buying out insurance to cover financial loss from lawsuits or even the use of consultancy companies to have convenient scapegoats.

Corporations have mastered the art of avoiding legal issues, and shielding their executives from any liability. As such KPIs, goals and targets are set in such a way that fulfilling them without causing harm is impossible. Doing so gives plausible deniability to the upper management, and anyone below them the comfort that they are doing the best they can given the circumstances. While it might be hard to prove intent of those strategies, we still should be able to expect someone to be responsible when a problem is known but not acted upon. Especially if it is something as obvious as Facebook’s lack of response to findings regarding their actions in Myanmar and their influence on teenagers.

Finally, it is clear that allowing the lucky few people to make millions out of growing a start-up is only incentivising short term thinking and destructive behaviour. Whether via taxation, introducing pay and dividend caps or rethinking the ownership model of companies, there is a need to change that incentive and encourage responsible expansion. In practice that means we should strive to reward businesses that are ethical. In the current model it is not difficult to see why C-level executives & founders would be willing to use and abuse all methods at their disposal to hit the jackpot, and it is more than fair to ask whether they truly deserve the pay-outs we have seen so far. Building a business requires collective action and we should think of CEOs, COOs, CTOs and so on less as the masterminds behind the success, and more as just another role in the company that is required to make it successful. Even research suggests that CEOs’ influence on business performance is overvalued.

One thing that is clear is private businesses are able to leverage the Internet and technology to hold more power at a lower cost than ever before, and at the moment are surpassing by multiple folds the influence governments used to have. Our old system of company ownership and shareholding until recently had been bound by the limits of time it takes to transport goods, make them, by geographical limitations and lack of automation that we enjoy now. With the advent of tech that ceiling had been broken, and any progress will only make for an even scarier future than we have now unless a serious change happens.