November 29, 2020: P(Good for the World)

Hello Interconnected Readers:

Last week -- American Thanksgiving plus my birthday week -- I re-read a few books. One of them was “Against the Gods: The Remarkable Story of Risk.” One small part of the book talks about Kenneth Arrow, a Nobel Laureate in Economics, and his research on risk management and insurance. According to the book:

Arrow won his Nobel Prize in part as a result of his speculations about an imaginary insurance company or other risk-sharing institution that would insure against any loss of any kind and of any magnitude, in what he describes as a “complete market."

[If you’d like to skip ahead to the six news stories and commentaries – three from English language sources, three from Chinese language sources -- here are this issue’s items:

• “Facebook Struggles to Balance Civility and Growth” (English Source: New York Times)
• “Tech CEOs Are Saying Goodbye to San Francisco” (English Source: The Information)
• “How to Think for Yourself” (English Source: Paul Graham’s Blog)
• “Ren Zhengfei’s speech at Honor’s farewell event” (Chinese Source: Huawei)
• “Alibaba and Baidu Temporarily Suspend Talks to Acquire iQiyi, ByteDance Jumping in with Interest” (Chinese Source: 36Kr)
• “Alibaba’s Cloud-Native Real-Time Data Warehouse Core Technology Revealed” (Chinese Source: CSDN)]

Arrow believes that if this imaginary insurance existed, it’d be good for the world, because more people would be more willing to engage in risk-taking, which progress depends on.

This observation got me thinking. Can such an insurance product exist?

As much as startup and entrepreneurial acts are becoming more common, there still isn’t enough risk-taking to increase the probability of something that’s “good for the world” coming to fruition, or P(Good for the World), the mathematical notation for expressing any probability. Later in this issue, you will see a story about Facebook, where the probability of Facebook posts that are “bad for the world” -- P(Bad for the World) -- was used by engineers and data scientists as an experimental metric, leading up to the 2020 presidential election, to train a machine learning system that detects and demotes posts deemed “bad for the world.” The experiment mostly worked, but the tradeoff was that less people logged into Facebook, which would directly impact its ad business. Thus, only a watered-down version of the experiment was implemented.

Despite more money being used to do early-stage venture capital and angel investing than ever before, which theoretically should support more risk-taking, most of the money is poured into ex-engineers or product managers from Facebook and other big tech companies -- the least risky kind of entrepreneurs to bet on. A parallel exists in China’s tech ecosystem too if you sub-out Facebook for Tencent or ByteDance. Why would this be considered “least risky”? Because that big tech pedigree alone may help recruit a decent team, the team may already have a working product that was an internal project before they “took the plunge”, and this kind of “less-risky risks” will more likely receive future funding that marks up valuation of the investment -- what almost every early-stage investors crave to help raise their own next fund. For these entrepreneurs, the proposition isn’t that risky either. They will likely be able to write their own salary similar to or a bit less than their previous big tech jobs with significantly more equity ownership. They will become their own bosses, while keeping their big tech stocks and stand to benefit as those stock prices rise. I’m not saying this to criticize these entrepreneurs; it’s a great deal and they’d be silly not to take it. The point here is just that there’s not as much risk-taking than meets the eye.

Meanwhile, any social media idea aimed to achieve a higher P(Good for the World) than Facebook rarely gets funded these days. Facebook is the 800-pound gorilla in the industry. If a new idea gets traction, Facebook will either copy it or buy it or, in the case of TikTok, lobby the government to kill it before copying it.

Arrow’s vision of a “complete market” remains imaginary, and the world is worse off because of it. The cost of risk-taking is still too high. The cost of working on something that increases P(Good for the World) is still too high.

Kevin

P.S. I want to take a moment to celebrate the life of Tony Hsieh, who passed away last week. He is perhaps one of the best models of risk-taking that increased P(Good for the World). His book, “Delivering Happiness”, is arguably one of the best books about business, entrepreneurship, and the search for purpose. I will definitely be re-reading it. RIP Tony.

The news summary below covers the period between November 23 - 29, 2020 of six news stories – three from English language sources, three from Chinese language sources. Disclaimer: all translated article titles are done by me, not official translations from the media outlets.

Before you go on, please check out one of my most viewed posts: "Why Is Facebook Not in the Cloud Business?"

“Facebook Struggles to Balance Civility and Growth” (English Source: New York Times)

My Thoughts: As much as we, as a society, talk about how Facebook has made us addicted to its products, Facebook itself is addicted to the ad-driven business model. That’s Facebook’s “struggle”. Here’s the relevant passage from this Times article that describes this struggle and the path that Facebook’s leadership chose to take:

So the team trained a machine-learning algorithm to predict posts that users would consider “bad for the world” and demote them in news feeds. In early tests, the new algorithm successfully reduced the visibility of objectionable content. But it also lowered the number of times users opened Facebook, an internal metric known as “sessions” that executives monitor closely.

…

The team then ran a second experiment, tweaking the algorithm so that a larger set of “bad for the world” content would be demoted less strongly. While that left more objectionable posts in users’ feeds, it did not reduce their sessions or time spent.

That change was ultimately approved. But other features employees developed before the election never were.

Civility may be nice, but it simply isn’t as profitable in an ad-driven, attention-driven business model -- an addiction that Facebook, in my opinion, has a low chance of reducing, just like most addictions.

“Tech CEOs Are Saying Goodbye to San Francisco” (English Source: The Information)

My Thoughts: There are some interesting second-order effects worth observing in the next 2-3 years as the first-order effects of tech companies leaving San Francisco (lower real estate cost, less income inequality, smaller tax base) take shape. One second-order effect is: in an increasingly remote-friendly work environment, how much does “proximity to power” matter in realizing one’s professional ambition. It wasn’t that long ago that face time with the CEO is a factor in a person’s professional advancement. Now that the CEOs, in the case of Dropbox, Splunk and Brex as profiled in this article, are moving to a different city, mostly for quality of life and tax-saving reasons it seems, do you move there too in order to advance? Another second-order effect that’s especially interesting to me, as someone who looks at all startups on a global scale, is where tech startups based outside of the US will first enter the US market. It used to be a no-brainer. Nine out of 10 times, the first US hire is defaulted to be the SF/Silicon Valley area. How long will this default last?

“How to Think for Yourself” (English Source: Paul Graham’s Blog)

My Thoughts: I find most of Paul Graham’s essays immensely thought-provoking. This one particularly stood out, because he articulated a clear framework of independent-mindedness that few people can. This framework has three components: fastidiousness about truth, resistance to being told what to think, and curiosity. The degree in which a person either possesses these three components preternaturally or grows them as she matures can determine how independent-minded that person really can be. Also, the footnotes in this essay is worth reading too; don’t ignore them.

“Ren Zhengfei’s speech at Honor’s farewell event” (Chinese Source: Huawei)

My thoughts: The full text of Ren’s speech was released in the form of an all-staff email. The link here is a picture of that email. If you are interested in a English translation of it, Jordan Schneider did one in the ChinaTalk newsletter. Two things from this speech stood out to me. One is Ren’s rationale for selling Honor to a consortium of partners and distributors as a way to help them remain in business. A less-known fact about Huawei is the vast ecosystem of partners and distributors its smartphones and other consumer products have fueled. By selling Honor -- the cheaper smartphone line that requires less high-end semiconductor chips and thus should be less affected by US sanctions -- the “guilty by association” problem is removed. The other point is Ren’s use of the “divorce” analogy, characterizing the sale as a clean break, thus putting an end to speculations that Huawei may still retain a stake in Honor and buy it back in the future. That being said, there’s reporting that Huawei plans to send 6,000 engineers to Honor, so the break may not be as clean as Ren would’ve liked. One more thread worth paying attention to: while Huawei parts with Honor and licks its wound, Xiaomi, the smartphone brand that most directly competes with Honor, has been surging. Its stock price more than doubled since the start of 2020.

“Alibaba and Baidu Temporarily Suspend Talks to Acquire iQiyi, ByteDance Jumping in with Interest” (Chinese Source: 36Kr)

My thoughts: The future of iQiyi, a big longform video platform in China, could be a prelude of where China’s big tech companies plan to position themselves strategically in video streaming. Right now, the industry is neatly partitioned along BAT boundaries: iQiyi is owned by Baidu, while the other two competitors, Youku and Tencent Video are owned by Alibaba and...well Tencent, respectively. This article revealed that Tencent wants to be a majority owner of iQiyi one day, but the price it’s offering is too low for Baidu’s taste. That low price, whatever it is, may very well be justified, because iQiyi is accused of fraud by Wolfpack and Muddy Water, who successfully exposed all the shenanigans at Luckin Coffee. Alibaba has also shown interest, though the negotiation is on hold. Baidu is, in my opinion, the weakest of the BAT. The “B” will soon be replaced by ByteDance. How soon may very well depend on if and how much ByteDance can get in iQiyi.

“Alibaba’s Cloud-Native Real-Time Data Warehouse Core Technology Revealed” (Chinese Source: CSDN)

My thoughts: I track the database industry pretty closely. It has a special place in my heart, because of my previous work at PingCAP, which commercializes the open source distributed HTAP database TiDB. HTAP is a trendy database industry category that stands for: Hybrid Transactional/Analytical Processing. This article introduces both a new technology out of Alibaba Cloud, Hologres, and a new category that I’m sure Alibaba would like to make trendy: HSAP or Hybrid Serving/Analytical Processing. Hologres is apparently one of the core technologies that helped Alibaba Cloud withstand the massive peak traffic of 583,000 transactions/second generated on Singles Day, a topic we covered on last week’s Interconnected Weekly. I won’t go into too much detail on the technical difference between a “transaction” and “serving”, since not everyone is a database nerd like me. However, hybrid databases is definitely an industry trend that will take shape in the coming years. (And if you do happen to be a database nerd, I’d recommend reading the academic paper on Hologres published at the international database conference, VLDB, written by Alibaba engineers.)

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