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Boring Company Flamethrower

The Boring Company Not-A-Flamethrower

The Boring Company Not-A-Flamethrower was casually announced by Elon Musk in this Dec 10, 2017 tweet.

The remaining promotional hats sold out quickly.

Seven weeks later:

100 hours later:

The Boring Company – Musk’s underground drilling company – sold 20,000 Flamethrowers in about 100 hours. That’s $10 million in top line revenue and millions more in free press and captured mind space.

Opps.. It’s not called a Flamethrower. It’s a “Not A Flamethrower” – a brilliant regulatory decision, drawing even more attention (and desire) to Musk’s scheme:

Musk drew some heat for this move – many criticizing him for making a flamethrower for his “rich friends” instead of giving a bunch of money to charity or ending world hunger.

What the non-strategic thinker missed was that Elon wasn’t making a toy for his friends. They have plenty of toys. This was a brilliant marketing stunt.

Of course it’s not just a stunt. The flamethrowers were real. And so is the deal the company just signed with the city of Chicago. The Boring Company will build an 18 mile high-speed (150mph) skate-based tunnel transit system between O’Hare International Airport and downtown Chicago.

Bottom Line: If Musk can get people excited about city planning and tunneling, you can get people excited about what you’re doing.

Entertaining review of the Not-A-Flamethrower pickup day in LA.

The Facebook Freakout

A new slice of Facebook users finally understand how much data they’ve been handing to Facebook over the years. By the way, if this piece gets you all riled up, leave a comment here.

Summary:

  • Facebook gave politically motivated parties access to user data.
  • This isn’t unusual. It’s what Facebook does and what users signed up for.
  • You are not Facebook’s customer. You are Facebook’s product.
  • The days of “click first and asks questions later” are over.
  • Facebook will most likely come out of this unscathed or stronger.

Time to Read: 2 Mins 58 Sec

What Actually Happened?

In short, Facebook did what Facebook has always done: sell access to its users to 3rd parties.

Cambridge Analytica, an organization that wanted to build “psychographic profiles” of US citizens in order to help politicians capture more votes, created a Facebook App. The app directly asked questions about “the issues” and stored user responses.

But the app also asked users to grant permission to Cambridge Analytica to access their Facebook data. Users accepted willingly. If a user didn’t grant permission, then Cambridge Analytica didn’t have access to that user’s data – yet.

There’s another way to get your Facebook data though: your friends.

This Is Too Abstract

Let’s get concrete. Let’s talk about Aaron and Betty – Facebook friends. Say Aaron is foolish enough to take this survey from Cambridge Analytica and agrees to give up a whole bunch of data about himself. Betty, who just happens to be “friends” with Aaron on Facebook, is part of Aaron’s network and data. So while Cambridge Analytica got explicit access to data about Aaron, Facebook also gave them some data about Betty.

To be clear, Cambridge Analytica didn’t get all of Betty’s data in this case – just a subset of her data.

Who Owns the Data?

In my mind, at least three parties own pieces of Betty’s data: Betty, Aaron, and Facebook. If Facebook chooses to sell their data (about you and your friends), then you’ve already given them permission to do so when you signed up. Further, Betty gave Aaron access to some of her data when she accepted his friend request.

(BTW, I’m using the word “sell” pretty loosely throughout this article. Facebook doesn’t really sell data anymore. But they do monetize their data in all sorts of ways that make it difficult to get network information without paying for something – usually an advertisement or promotion.)

What’s really confusing about all of this is that it feels like Facebook is selling Aaron’s access to Betty’s data. But they’re not. Facebook is selling their data.

You’re Not the Customer, You’re the Product.

But I wouldn’t be mad at Facebook. Facebook is in the data business.

Selling metadata about individual nodes isn’t very interesting anymore. What’s interesting is the edge data – information about how nodes are connected. But what’s most interesting is predictive edge data – information about how nodes might be connected now or in the future.

Said another way, Facebook’s business model is selling access to swaths of the social fabric. You are not the customer. You are the product.

So What Should Facebook Do?

Currently, their brand is a little more tarnished in the public eye and the stock has lost about 10% of it’s value. But honestly, I don’t see a probable scenario where Facebook loses much more here:

  • If Zuck and Facebook remain silent (or pander), then this whole thing may blow over in a few days/weeks as the media grasp for more salacious (and easier to consume) news.
  • If it doesn’t blow over, then government regulations will likely be passed in order to “crack down” on Facebook’s “misdeeds.” While this might not be ideal for TheZuckBook.com, Facebook will end up writing much of the regulations – regulations that will make creating competitors to Facebook very difficult.

The worst thing Zuck and Facebook can do is come out with some controversial statement that keeps them in the news cycle longer. Barring that or some other crazy revelations, I think Facebook will be just fine and that this is just another #FacebookFreakout.

One thing I can say very confidently though: we should all be grateful that Zuck is the CEO of Facebook instead of Theranos founder and fraudster, Elizabeth Holmes.

Let’s Have a Conversation!

Here.

PS

  • There are a lot of details that feel important about this story (ie: Cambridge Analytica said they were doing “research” – whatever that means; Facebook asked them to delete data and they lied about doing so; Cambridge Analytica paid some users to incentivize them to grant their Facebook permissions…etc). But these things aren’t the core issue and bad actors aren’t new or unexpected.
  • Also, there’s still a lot we don’t know about this situation. It’s very possible we’ll learn things that will change my thoughts and analysis. #disclaimer.
  • PS: Follow Straty on Facebook! (jk)

Sources & Further Reading

The Raisin Cartel

In 1937 the US Department of Agriculture picked a group of raisin farmers and handlers and gave them the power to constrict the amount of raisins that all farmers could produce in a given year. This cartel, called the Raisin Administrative Committee, made it a federal crime to attempt to sell more raisins than they determined.

Fun facts: The United States Department of Agriculture, created in 1862, is part of the administrative branch but basically has the power to create laws – a role that’s traditionally reserved for the legislative branch. In 2017 the USDA employed over 105,000 people and had a budget of $151 billion, nearly 8 times NASA’s budget.

Even though cartels, collusion, price-fixing, and other monopolistic practices are clearly violations of US antitrust law, in 1937 a few lucky raisin farmers and handlers became part of a government-protected cartel. The stated purpose of the cartel was to “stabilize” the price of raisins.

Specifically, the Raisin Administrative Committee “a requirement that growers set aside a certain percentage of their crop” to give to the Government, “free of charge.” These raisins are then destroyed, donated, or sold in “noncompetitive” markets, which artificially increases the price of raisins for consumers like you and me (but not my mom – she hates raisins).

In the 2003-2004 growing season, raisin growers were required to set aside 30% of their crop. But that was a relief from the season before when growers were forced to set aside a whopping 47% of their crop.

But like it or not, the rules were the rules. Until they weren’t.

In 2002, when the Raisin Administrative Committee told Marvin and Laura Horne that they could only sell 53% of their raisin crop, they choose to disobey. “The Government sent trucks to the Hornes’ facility at eight o’clock one morning to pick up the raisins,” the Supreme Court opinion reads, “but the Hornes refused entry.”

They were fined $480,000 for the market value of the raisins – even though they would not be compensated that amount when forced to give them to the government – and an additional $200,000 for disobeying orders. Over the next 12 years, the case bounced around various courts until it finally reached the Supreme Court in Horne v. Department of Agriculture.

The court’s opinion was that “Raisins…are private property – the fruit of the growers’ labor – not public things subject to the absolute control of the state.”

Another raisin grower, Dan King, thought that Marvin Horne had acted unfairly: “I think that there’s a set of rules that everybody was playing by during the time that he was not. You know, it’s like everybody stops at the stop sign but not everybody. [If] somebody doesn’t, it causes a problem. And we needed to have the whole industry following the rules or nobody following the rules.”

This is exactly how cartels normally collapse – some members want more for themselves and begin to “cheat.” They produce more than their quota and soon enough everyone is cheating. Except in this case, “cheating” meant competing to supply the right product to the right customer at the right price. While the Supreme Court’s opinion may mean that the cartel members can no longer constrain supply and therefore inflate prices, it also means that consumers pay a lower price on the free market – a clear win for consumers.

WTF is going on in Raisin-town?
Notes: 1) Apparently Dan King is a member of the Raisin Administrative Committee. 2) By the way, the ‘S’ to the far left of his name stands for “Sun-Maid Member Representative,” which collectively controls over 20% of the committee at present. Interesting that a private company has any say in a government agency, let alone a 20% say. 3) Also of note was that the Chooljian Family represents 3 members (and 1 alternate), the Kazarian family has 2 members, and the Sahatdjian family (related to the Sahatjian family) also represent 3 members. Together, these three families control an additional 17% of the member votes. 4) Finally, it turns out that “Sahatjian” v “Sahatdjian” is not a typo but that the two families are related. In fact, there was a real “Sahatjian” v “Sahatdjian” in 2014 – a huge (>$3.25m) lawsuit between the two related families that seems to suggest that things get ripe in the raisin racket frequently – even within families. (Screenshot: Dec 14, 2017)

While I’m glad that things worked out okay for the Hornes and for US raisin consumers, it does make me think about all the other places where consumers are paying artificially high prices because of cartels and how many of those cartels are being protected by those in power.

And while this is an amazing case of a farmer breaking bad rules in order to change them for the better, there was clearly a large element of “right time, right place” involved in the Horne case. Which makes me wonder: How do you know when to be the raisin rebel or when to surrender to the rules?

Credits & Sources:
I originally heard about the Hornes through the NPR Money podcast – one of my all-time favorite podcasts.  And here’s the Supreme Court’s 42 page opinion.