Riptide from the Third Wave

Were it left for me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate for a moment to choose the latter.

– Thomas Jefferson

In his new book, The Third Wave, Steve Case, the founder of AOL, makes the argument that we are entering a new era of digital technology that will call for new paradigms in business strategy and public-private partnerships.  To roughly summarize:

  • “The First Wave” happened in the heady early days of AOL, when governments were still laying fiberoptic cables and expanding Internet access to private citizens
  • “The Second Wave” happened in the late bubble days and early 2000s, when apps and sites helped power productivity gains from the Internet infrastructure
  • “The Third Wave” is starting right now, and involves the rise of IoT and platforms leading to disruptions of everyday living (e.g., hotels being replaced by AirBnB)

In his book, Steve Case lays out a vision for how the Third Wave will go more like the First Wave: requiring public-private partnerships to establish sensible regulations.  Because the Second Wave companies existed solely in the medium of traditional IT (Facebook is a website, Google is a website, Apple launched new categories of standalone devices), they could largely sidestep the issue of regulation.  But because the Third Wave companies are disrupting hotels, taxi cabs, refrigerators, speakers, lighting, home security, and much much more, consumers and regulators will demand more stringent protections.

Reading a piece in the Journal about Dara Khosrowshahi groveling to London regulators reminded me of The Third Wave. It proves his point.  Steve Case is right.  We are seeing more and more that governments are interjecting themselves into big tech and demanding that these global enterprises be responsive to the needs of the body politic.  In fact, Uber’s brash regulatory approach (which extended to recruiting, I can tell you personally), is probably the reason that it is the first major tech company to have approval ratings below 50%.  However, what Steve Case gets very wrong is his assertion that we have been here before and that we can use techniques from the First Wave’s playbook to succeed.  In fact, we have not been here and the same rulebook does not apply.

In his second term, the Clinton administration passed the Telecommunications Act of 1996.  This sweeping regulation represented the first major update to telecommunications regulation since before World War II, and was the first governmental framework for regulating the Internet[1].  Because the Internet was so new, it was important to establish guidelines and frameworks rather than specific implementation policies.  In fact, the bill’s opening paragraph speaks to this motivation, reading:

Begun and held at the City of Washington on Wednesday, the third day of January, one thousand nine hundred and ninety-six
An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.

This is an important distinction from the battles being waged today! Regulators then were dealing with a greenfield technology, with few incumbent interests[2], in a sector that had no existing labor.  Today, Uber, AirBnB, TaskRabbit, Kiva, Instacart, Tesla and other Third Wave companies pose a direct challenge to vested interests in dozens of different industries that are already highly regulated.

In fact, this is the irony of Silicon Valley.  For years, start-ups have been preaching that they are the harbingers of change, ready to #Disrupt (clearly, my favorite hashtag) our entire way of being.  But what of the early 2000s tech companies? They largely produced technology that created new ways of communicating, gaming, shopping, or working at white-collar jobs.  The major IPOs in the past decade have been from companies like Zynga, Facebook, Box, Alibaba, TrueCar, and Twitter.  These companies did not transform existing aspects of our lives, they only added to it.

The truly disruptive companies have only sprung up in the last 5-10 years, and largely remain private.  These are the ones I mentioned above, and include many that are facing intense regulatory scrutiny.  These companies finally did it! #Disrupt! But that may have led to a quickening of governmental intervention.

Tech Companies Winning at #Disruption

I don’t know how this fight will shake out.  I don’t think there will be a solution (or even détente) in the next decade.  This is a long, slow fight that software engineers and technology leaders have never had to face.  Will this lead to the certification of software engineers as “automated vehicle engineers” to ensure safety standards? Will this lead to criminal suits against leadership at gig economy companies for violating federal minimum wage laws? The high-tech sector may wish for an Internet without the government, but as with Jefferson’s original quote, around the world we are starting to see the former more often than the latter.


[1] In fact, this resulted in subsequent litigation including Reno v. ACLUwhich invalidated portions of the Communications Decency Act (Title V of the Telecommunications Act).

[2] Existing telecommunications companies were lobbying hard against Internet deregulation because they stood to lose, but they also had active investments looking to capitalize on this opportunity and today major players like AT&T are still represented as cable/broadband carriers.