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23 octubre, 2018
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S4 Winter is coming

Javier G. Recuenco

Javier G. Recuenco
Personetics Expert – CSO Singular Targeting

«Although the FAANG [Facebook, Amazon, Apple, Netflix, Google] have entered a bearish phase, analysts predict stellar benefits.» – Marc Fortuño, on twitter, translated: https://twitter.com/Marc__Fb/status/1066948287801057286

Physics is a never-ending treasure trove of wisdom for the ones daring enough to dwell its lands. One of its most obscure kingdoms is materials science, which was introduced to me via an ex girlfriend (don’t get me into that). The field is absolutely mesmerizing, but today I want to focus on one concrete aspect of materials sciences, the one called material fatigue. From Wikipedia:

In  materials science,  fatigue is the weakening of a material caused by repeatedly applied loads. It is the progressive and localized structural damage that occurs when a material is subjected to cyclic loading. The nominal maximum  stress values that cause such damage may be much less than the strength of the material typically quoted as the  ultimate tensile stress limit, or the  yield stress limit.

Fatigue occurs when a material is subjected to repeated loading and unloading. If the loads are above a certain threshold, microscopic cracks will begin to form at the stress concentrators such as the surface, persistent slip bands (PSBs), interfaces of constituents in the case of composites, and grain interfaces in the case of metals. [1] Eventually a crack will reach a critical size, the crack will propagate suddenly, and the structure will fracture.

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What I find completely fascinating about the concept it’s the fact that when any specific material is about to break, it shows a complete array of and specific characteristics and symptoms.

Same happens with companies, business models and overarching business frameworks. They show a certain array of warning signs ready for the trained eye to spot. In fact, when you have been working on this for years as I have done, it becomes second nature. And now I can clearly detect all the symptoms of fatigue on a certain kind of companies, now heavily under the spotlight.

And all this long introduction serves to the purpose of introducing you in something that is happening right now and that will be studied in business schools in the next decade, as the E-commerce collapse of the late 90’s and early 00’s is being now. The collapse of S4 business model and the companies built around it, called from now on on this article, S4 companies.

What is an S4 company?

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Generally speaking, an S4 company shows a concrete set of characteristics in order to make its business model viable. The name comes from basic architecture who underpins the whole proposal: 

S(NIFF): The data is obtained without any kind of involvement of the user. Basically suctioned or sniffed through several value proposals or tools with increasing ways in terms of aggressiveness coming in.

S(TORE): The data is stored in some kind of Cloud mechanism of sorts. It’s patiently gathered and paired. You can create a variety of anal prob…errr value services in order to obtain several different behavior datasets.

S(HAKE): There is some mix with other existing data, some Big Data thrown for good measure, you could use third-party data as well, or AI. The idea is trying to squeeze some more drops of value from the existing lemon by shaking the data, not stirring.

S(ELL): The final step: Pack all the data and sell it to someone else. Of course, behind the back of the owner and in obvious denial that you are doing so.

Is it clearer now? Google is an S4. Facebook is an S4. If advertising and selling chopped user’s liver is the core of the business model, we are talking about an S4 company.

S4 Origins and success

The origins of S4 were somehow accidental. Google didn’t start as a S4 company. In fact, it took them some time to recognize which was the real business model. Point is, when they embraced the S4 mantra, they became the blueprint to follow, and they do it really in a deep fashion. Check Google business model here.

It’s no surprise given the fact of the collapse of traditional advertising and demand generation schemas that this kind of tools has hit gold. The amount of money raised has been staggering and made several billionaires in the process. And the mantra spread like wildfire affecting Amazon, Microsoft, Apple, Netflix…

They have basically eviscerated the advertising landscape and they are in for the kill of several other industries. It seemed that they were an unstoppable, war of the worlds-like metal tripod army ready to scorch anything under their feet.

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What lies beneath the glitter

Problem is, the whole narrative collapses once you scratch a little bit off the veneering. Most of the premises are based on false assumptions, if not directly bullshit.

And, if you have time, check here to know how much Google knows about you. And hey, as a dessert you can check this other article of mine where I state that Google knows jackshit about you, but it’s pretty good at providing a sense that they really do. I know, it’s complicated. That’s why I have been working on it for almost two decades and still counting.

In fact, I think Google created a dangerous narrative which has filled the graves of countless startup companies. They moved the narrative dial from «People will come, Ray» to «Bring them and we will eventually find the way of monetizing them».

The problem with the Ray pitch is that relies heavily on timing. It’s a beautiful proposal coming from the halcyon days with alas, no clear translation to modern times. But the problem with the equivalent modern times’ proposal is that it’s just wishful thinking. Google was the exception, not the norm, and a lot of startup belly-ups have learned that the hard way.

Why do I think they are in trouble?

I think that for S4 companies, the jig is definitely up, based on several coalescing factors that I will try to enumerate, even if every one of them deserves a post of its own:

General awareness of their foul premises and general purpose

If Google’s approach served as the blueprint for most S4 companies to follow, the spectacular demise of Facebook under the public eye is the blueprint that most S4 companies are going to follow through. The well documented downward spiral in terms of image and public perception has been enormous. The current level of awareness of what they stand for and is at an all-time high. If you want to check the blueprint, you can check this article for it. If you want a detailed list of gripes and chores associated to an S4 company, you can check this list focused on Facebook gripes, and mutatis mutanti, there you go.

In reality, Facebook is a tangle of rules and procedures for sorting information, rules devised by the corporation for the ultimate benefit of the corporation. Facebook is always surveilling users, always auditing them, using them as lab rats in its behavioural experiments. While it creates the impression that it offers choice, in truth Facebook paternalistically nudges users in the direction it deems best for them, which also happens to be the direction that gets them thoroughly addicted. It’s a phoniness that is most obvious in the compressed, historic career of Facebook’s mastermind.

(The Guardian, Facebook’s war on free will)

The way capitalism works

This must sound a little too abstract but will try to put it into simple terms. Generally speaking, there is some kind of underlying cycle going into action when talking about capitalism. Capitalism innovates, disrupt, run rampant, gets a control check, stabilizes. Ford appears and creates mass production, then there it comes company abuse and exploitation, union rise, strike hits, normalization comes.

The S4 companies have generated an immense amount of money and benefits while turning a blind eye to all the crap that was mounted under the rug. It’s about time they face an abuse check. And when it is delivered, business get chopped, people get fired and alarms are raised.

Please read this wonderful horror story for details.

The overall promise is false

Again, I do not want to dwell on themes I have covered extensively in the past like how little they know about you or the real capabilities of making relevant ads are just, as the old Englishman would say, plain bollocks. so it’s no surprise that they are losing foot on what was once its core demographic, young people.

In fact, people is really starting to notice that despite the promises, they couldn’t deliver anythig relevant even if their lives depended on it.

The zeitgeist is against them

I do not want to make ouf of all this some kind of dystopian narrative on the likes of Shoshana Zuboff’s Surveillance Capitalism, but definitely there is some zeitgeist involved on its demise. There is a certain sense of «It’s about time we end up this madness» and it’s about time we end the crotchsniffing charade once and for all.

Which are the symptoms?

What kind of signs are there for the trained eye to catch in order to notice that the tide is changing? What kind of obvious or subtle signals are being sent to the market that can help us identify the kind of narrative I’m setting on the table? Again, I’ll try to recap some of them, without trying to be exhaustive.

An unending set of legal hurdles

Well, it’s no surprise that justice ended up catching up. There is an old saying that implies that «Justice is slow, but when it comes, it tramples you like an elephant stampede». The Cambridge Anañytica fiasco has been just the opening act and we should get accustomed to key directives of S4 companies paying their dues in terms of being exposed in political forums in order to be held accountable from their acts.

GDPR

GDPR has been somehow the crystallization of the aforementioned fact, this time with a European twist; Basically, if you’re based in the EU or  you “offer goods or services to, or monitor the behavior of, EU data subjects,” the GDPR will force you to be more transparent regarding the kinds of personal data you collect and what you do with it. Furthermore, prospects must give their expressed consent in order for you to harvest and utilize that data. No tomfoolery. No shenanigans. Only the utmost transparency.

The implications for S4 businesses are massive. You can have some tidbits on the matter here.

Investor restlessness

This is a new actor into the foray. Up to now, S4 companies have been the darlings of the ball. There was only a way for them and was up. But recently, they have received the first jabs from the market, and they have turned to have a crystal jaw.

Problem is, have all the signs of a bubble. No wonder investors got a little jumpy and kicked the share a whopping 20% when a profit warning was issued. Every investor worth its salt knows that the musical chairs game they are playing is about to stop sounding, and folks left out are going to incur into massive losses.

Bread and butter under question

S4 companies have rised like rockets based on a simple fact: Up to now, they have been a licence to print money.

Well, as you know, we already mentioned Facebook’s profit warning, even if that was on the basis of reputation. That’s an exception, right? The business numbers are there, right?

Problem is investors give far more importance to reputational factors than financial considerations when responding to corporate crises, according to new research from FTI Consulting. And that, my friends, spell doom for S4 companies.

Zuboff’s & McNaMee’s book

Last but not least, the aforementioned book has started to make waves. And even if the overall panorama is heavily biased (Zuboff seems to have a problem with neoliberalism and if you want to say it so, with capitalism at large) maybe not so bleak as pictured there,

Did I mention Roger McNamee’s book? «Zucked» is a book by Roger McNamee, someone with no real upfront bias to Facebook like Zuboff could have. Let’s leave to The Guardian the honors of making an introduction to the book:

This may suggest the perspective of an outsider, but McNamee does not quite fit that description. As a high-profile investor in tech businesses, he was co-founder of Elevation Partners, a private equity firm established with  U2 frontman Paul “Bono” Hewson, the very embodiment of the 80s’ uneasy mixture of profit and philanthropy. In 2010, the firm acquired 1% of Facebook for $90m, but McNamee had already put money into the company, become a source of occasional advice for its founder, and been key in the appointment as chief operating officer of Sheryl Sandberg, the former Bill Clinton administration insider who brought business acumen and political connections to Zuckerberg’s inner circle. But now McNamee has come to the conclusion that what he helped bring about is a blend of hubris and dysfunction:  Zucked is partly the story of his early enthusiasm giving way to mounting alarm at Facebook’s failure to match its power with responsibility, and what he has tried to do about it.

Seems the word is on the street that the fire in your heart is out.

Conclusion

The reckoning day is close. I know, I know, it seems ludicrous from my part saying this of zillionaire companies. But again, metal fatigue must be measured before the piece breaks with disastrous results. The signs are all out there for those wanting to see them. And they spell doom for S4 companies. Plenty of companies, startups, and individuals are going to position themselves against S4 companies and the fight has only begun.

The unwrapping of dubious practices will go on, and with the under 20s already considering Facebook a thing of the past, the slippery slope is there waiting. And If you think that you can make a firewall around Facebook and think that people like Google or Amazon are going to walk scot free, well, think again.