The digital economy runs on optimism and expectation. Tech startups don’t make money as long as the scale. Big tech shares are measured with a different yardstick than other businesses. Employees many times make more money from stock options than wages. And whatever short-term problems (“disruption”) it brings is always compensated by big promises (“opportunities”) for the future. But is the hype machine running out of steam?

We’ve had a steady influx of hype for decades. Web 2.0. Smart phones. Big Data. 5G. Smart watches. Blockchain. Web 3. Metaverse. AI. Each of them sparkling with new possibilities, attracting capital private and public, disrupting existing economies and attracting “early-adopters”. Never mind the actual contribution to economy or jobs, get in ahead of the curve and you can make big bucks.

The unusual decade of negative interest and quantitive easings (=printing money) by central banks has been a perfect driver of this economy. If you lose money by keeping it, invest it anywhere. Facebook for pets? Let’s do it! Micromobility app scooters? Bring it! As long as new investors come in after, you can make a nice exit.

Of course now the macro-economy has changed. The era of free money is over. Share-holders ask for profitability over growth. So that is one problem. But is there a bigger problem? What if innovation is dead?

I used to be able to see what was coming around the corner. Spot the next hype from a distance. So perhaps I lost the touch. But I have no idea what comes after AI. Far-future technologies like DNA data storage and quantum computing are decades away. Sure, digital twins and 6G mobile connectivity, but the use cases are more for business-to-business than consumer facing value chain upsetters.

Maybe I’m just out of touch. Or maybe there is a new hype arriving any moment. But it could also be that there is no new great hype any time soon. I am concerned for the big tech barons. Surely the era of digital feudalism cannot be over…

Everybody’s talking about Dune II, Netopia also wants to be in the club! We don’t review movies, but there is a copyright angle here – and not one you might expect. Here goes:

I have done a fair share of lecturing to students, mainly in games. Some of them want to start businesses and want to talk about how to protect their ideas. Except ideas don’t have any legal protection, it is the end result – the work – that can be legally protected. Actually, ideas have little or no value, it is only when you realize that idea into something that other people can enjoy or use that they get value. The more work you put into the idea, the more the value grows. Of course, a good idea is a great motivation for that work. (But the process tends to change the idea on the way, hence the concept “kill your darlings”). But I digress, the challenge is to explain this to the students without killing their enthusiasm. Enter: Frank Herbert.

Frank Herbert was of course the author of the Dune-books. The first movie was made in the 80’s by David Lynch and before the new movies came out, I used to illustrate this with an image of the star Sting in space swimtrunks. There is a story about how Frank Herbert when he did book signings often met fans who had the same brilliant proposal:

I love your books. I have a great idea for the next Dune-book. How about I tell you the idea, you write the book and we split the money?

There is a particular flavour of European techno-nostalgia. It says something like: We used to be the leaders. We used to be inventors. We used to make the fastest trains, the fastest planes and the fastest cars (well, that may still be the case). We used to be drivers of new technologies: telecom, microchips, energy. But today Europe asks itself: “What happened? Where are the European ‘digital champions’? Why has Europe not produced an Amazon or a Tiktok?” (Next instant, somebody says “Spotify!” and then what?).

These phantom pains may be the reason why there are so many EU policy and funding initiatives aiming to bring forth a European digital champion to rival those of California and China. Public support will bring competitive companies, is the idea. That has worked really well for Silicon Valley and Shenzhen. The famous tech funds on Sand Hill Road are built on public funding in the form of federal loan guarantees of four public dollars for one private. 4:1. One detail: the US Small Business Investment Act dates back to 1958, giving America many decades head start. In China, the five year-plans provide ample funding for various technology industries. So plenty of public money to the West and to the East.

Can Europe catch up by pouring public money into digital start-ups? Could that bring the European digital champions we yearn for? (If you think those looks like rhetorical questions, it is because they are!) The answer lies in how the tech startup system works and the keyword here is “exit”. Let me try to make sense of it:

Digital entrepreneurs are note expected to make any money, they are expected to “scale”. Investors don’t care about the profits of the company, they have a longer view of value. Of course, the company still has costs, but those are covered by the investors. There is a system of “rounds” called things like pre-seed, seed, series A, B, C etc. Each step of the way, investors get shares of the company and what they pay for those shares decide the valuation.

If you pay one Million US-dollars for 10% of the shares in a “series A-round”, the startup is valued at ten Million. If then in the “Series B-round” the next investor buys 5% of the shares for two Million USD, the startup is valued at 40 Million and the first investors shares have quadrupled in value.

The risk is considered to be lower in later rounds, so earlier investors get more shares for the same money. Note that this can go on for several rounds with the startup operating at a loss. So… now you probably ask “how do investors get their money back?”. The answer is the magic word “exit”. Normally this could be different things, for example offering the company’shares on the stock exchange or selling to a bigger company or investor. But for tech startup investors, the end goal is (almost) always the same. Exit by selling the shares to an internet skyscraper. Amazon, Apple, Google, Meta… the usual suspects. Those mammoths know how to make money from users, the investors cash out and move on to the next case. Happy end for all involved. (This system used to work much better in a low-interest rate economy, but the exit-principle is the same).

This means no amount of EU startup-funding will bring European champions: as long as the end goal is exit to Big Tech, all that tax-payer money only serves to reinforce the incumbents.

“Digitalization brings fantastic opportunities” – ever hear that line? I’ve heard it a lot, in particular from people in public office (=politicians) and civil servants (=bureaucrats). One time, I found myself in a seminar with six(!) directors of different public agencies. Each of them opened their talk with some variation of the phrase. It was like catechism. Before we can say anything else, we must first pledge allegiance to the digital revolution. (Fifteen years before the line used to be “The internet brings fantastic opportunities”, perhaps progress can be defined as replacing one word with another?)

Opportunities. Sounds great, doesn’t it? But… is really opportunities you want? So many opportunities, so little time. Maybe if you’re looking to change jobs or move house, opportunities can be great – but even then, too many opportunities can be overwhelming. For most parts, perhaps other things are more important? Quality, delivery, reliability, cost, availability, simplicity… (I’m sure you can think of more words!). Of course, opportunities – used properly – can bring all those great things. An opportunity is an unfulfilled promise. It demands of you to pursue it. But what you really want is results. Your time is limited. Your money is limited. You don’t want more opportunities, what you really want is better results.

Have you bought or received any device lately? Any new software or digital service? Does your phone have four different calendars, each of which sends you reminders for an appointment that was cancelled two days ago? In software development, there is a phenomenon called “feature creep”. It means adding new features, not because we need them but because we can. It can be very difficult to resist new features. What if your toothbrush had an app that helped you keep track of your brushing habits? Oh, wait – that already exists! It is easy to make a case for more features and difficult to say no to them. If you’re already making a photo indexing software, you might as well add a timeline and once that is there you can always add appointments and reminders and an AI tool that trawls your phone and cloud services for other appointments and just like that… you have a fifth calendar sending you reminders about birthdays of people you haven’t met in a decade. Digital opportunity and feature creep are siblings. They make each other stronger and makes it harder to break the pattern.

I don’t know the answer, but I do know that we are fast approaching the point where our digital assistants create more work than they take away. Perhaps we are already past that point. Opportunity brought us here. I have one idea for a different way, though. Bear with me.

We have all heard the stories of how Japanese trains are always on time. If the Shinkansen is 30 seconds late, the director of the train company makes a public apology. It is tempting to think that this punctuality is thanks to superior technology, perhaps a super-computer looking after all trains or some kind of electronic miracle device in each locomotive. Japan is the birthplace of GameBoy and micro-computer powered rice cookers, after all. But no. The opposite is the reason. By carefully eliminating every potential source of delay, the risks are mitigated. If a railroad switch can be removed, that is one less potential malfunction. If a road-crossing can be re-designed from gates to a bridge or tunnel, that takes away one potential source of disruption. Not by looking for opportunity, but by removing it, the Japanese railway system works better than perhaps any other in the world.

Back to the civil servants and elected decision-makers. If they focus their resources on opportunities, there will be more. Lots of great potential. But when is the time to focus on results? How to best spend the public funds? How to get the most delivery for the investment. The case can always be made for opportunity. But now may be the time for simplicity rather than opportunity. Less, not more. Can we be inspired by the Japanese train philosophy? Or would you rather have seven… no eight… no eighteen reminders for that meeting that you cancelled?

Will machines replace humans? That question has presented itself many times over the centuries. It has escaped no one that the current focus is around artificial intelligence. Can the machines become smarter than people? Is human labour over? Should that be celebrated or mourned?

Some call for a moratorium on AI research. Some ban it. EU regulates. Should the value of the input data for training the machine learning systems be recognised? Is “data dignity” the answer? I follow all these issues with great interest, but there is one aspect that I find underreported.

The jaw-dropping publicly accessible AI services such as text generator GPT4 or text-to-image machines like Dall-E or Midjourney have flooded our social media. Integration to existing services hints at great change, such as Midjourney integrated into chat service Discord. Or talking coffee machines. But the machine cannot create anything on its own. It uses predictive statistics (=math!) to generate these results. It needs to be trained on data before it can produce anything. A lot of data! In my recent video interview with AI scholar Stuart Russell, he takes the example of a giraffe: any child can see an image of a giraffe in a children’s book and then recognise every giraffe in any drawing, video, photo or zoo. It takes the machine thousands of correctly labelled giraffe images and it still doesn’t always get it right.

Those thousands of giraffe images must be prepared by humans. The quality of the input data decides the quality of the output. For an AI to generate an image of a giraffe in the style of Monet, it needs large numbers of giraffes and Monets – all correctly labelled. You help with this, when you click on motorcycles or traffic lights in order to convince the machine you are not one of them, you help train the AI to recognise motorcycles or traffic lights. But the bulk of the input data is made by… you guessed it – gig workers in the global South. Gig services like Fiverr or Sama, marketplaces like Defined or Appen… they connect the AI companies with the $2-an-hour-proletariat. Time Magazine has uncovered that Open AI (the company behind ChatGPT and GPT-4) paid such wages to Kenyan workers to make ChatGPT “less toxic”. AI has not taken people out of the equation. Much like the textile or manufacturing industries moving production to the cheapest workforce, AI companies do the same. Human labour on this side of the process has very little value, but comes in great quantity. (The AI engineers who develop the systems are of course far on the other end of the income spectrum).

A Centaur is not just a creature of ancient Greek mythology. In computer science, it refers to humans and AI working together. The term was coined after Deep Blue beat chess grand master Garry Kasparov in 1996-97, starting a new chapter in chess history. Today, the best chess is played by teams of humans and machines working together. Centaurs.

Turns out that generative AI is also a Centaur. Only most of the humans involved are invisible and far away on a different part of the planet. AI will not replace humans anytime soon. But perhaps there is a conversation to be had about the value of human labour. And the giraffe from the children’s book, turned out to be a Centaur from Kenya.

Granted, nobody knows what the network tax will be or indeed if it will ever happen. What we have is speculation and telco Xmas wishes. The idea that the sender should pay for the traffic in the network (in addition to the fees paid already by the subscribers).

In fact, the sender already pays, and also invests in the infrastructure. Take a look at your own internet subscription and you will find that the bandwidth has one figure for download and one for upload (sometimes they match, but no rule) for example 1000/100 Mbps – that means the capacity for transfer from the internet is 1000 megabits per second, but the transfer speed from your end-point to the internet is only 10^th of that – 100 megabits per second. Guess what: you can increase your upload capacity by buying a better plan. The sender pays. The same business logic applies to anyone with a server. Of course, the uploader will often use a different service provider than the downloader, so the telecoms charge each other for transit traffic. (And throttle it to maximize their profit). With upload and download fees, both senders and consumers pay: telcos are already charging both ends of the pipe. The concept of network tax does not really add a new revenue stream but rather a regulation increasing an existing one. And yes, the services and platforms already invest in infrastructure, namely in the “middle-mile”: such as sub-oceanic cables and content-delivery networks. Not to mention how telcos often sell package deals with content services, effectively integrating them in their consumer offer and relying on that value to attract customers. (Remember zero-rating for Facebook? Telcos chose to sugarcoat their subscriptions by excluding popular services from the monthly data allowance.)

It’s not like the telecoms have a natural monopoly on data traffic (though sometimes you can get the impression that they would love to). The Starlink satellite internet is now combat-proven in Ukraine and has 2000+ satellites providing decent bandwidth and okay latency also in parts of Europe where mobile and fiber struggle. (Musk got it right this time. Who thinks Starlink will have zero-rating for Twitter?) Other satellite internet initiatives exist – you may have used satellite internet on an airplane, dear reader. Should content services pay… network tax in space? Not to mention Google’s balloon internet. Not sure humanity would benefit long-term from GAAFA also owning the last mile-infrastructure, but it makes sense for them to find ways to by-pass the telcos. Or perhaps they should pay the network tax to…  themselves?

Not even mobile networks are the exclusive domain of telecoms, for example the Swedish communication system for police, fire department, ambulance services and other such functions is called Rakel and it runs nation-wide on its own base-stations (in one of the biggest member states by land area). Not that Rakel will stream movies anytime soon, but it proves that there is no need for a telco in order to build and run a mobile network.

WRAN is a technology that uses wi-fi to cover larger areas and provide data traffic. The evolution of mobile network technologies follows the opposite trajectory of shorter wavelengths/higher frequencies and a denser network of base-stations. 3G was 400 MHz to 3 Ghz, 4G is up to 3,8 GHz, 5G is 2-6 GHz. 6G is envisioned to have even shorter wavelengths – so-called “millimeter waves” and frequencies 30-300 GHz (or even higher according to some sources) – and thus even smaller antennae. (One telecom engineer this writer spoke with explained that 6G base stations might be in the form of paint on a wall!). It is already the case that wi-fi technology (6-300GHz) overlaps mobile networks and we can only expect that trend to continue. The lines are blurring.

When everyone is a telco, who should receive the network tax payment? No wonder the telecoms regulators are skeptical.

It ain’t easy being telco. €100 Billion Euro public support and dividend pay-outs five times above average…  are we sure this is where the state needs to step in and dictate a new revenue-stream? Enter The Network Tax a k a The Sender Pays.

Once celebrated concepts of network neutrality and open internet are old hat when EU telcos look for new revenue. Many interesting failures to broaden income have led to this point. Remember the experiments in central-Asian “emerging markets”, where telcos ended up supporting dictators chasing down democracy activists? Or the fonky-labelled subscriptions for young demographics? Integrating services and content with connectivity, anyone? In the end, it turns out that telcos rely on two main sources of revenue: subscriptions and public money.

ECIPE – a Brussels think-tank – looks into this in a recent report and the findings should be a cause for concern for any fan of European telecoms. At the moment, the European incumbents receive Billions of Euros in public support, but that goes to investment in non-EU markets and pay-outs to share-holders rather than domestic infrastructure. The proposed network tax-regime would bring market concentration, discourage infrastructure investment and potentially bring market disruption where platforms by-pass the telecoms, accessing users directly. Not to mention pricier access for European consumers (need I add it would be poor timing considering the macro-economy and pressure on households?).

Does this blog post put Netopia in the same camp with Big Tech? Maybe, but I’d rather be asking question than making suggestions. In any case, rest assured Netopia will continue to criticize Silicon Valley whenever called-for. Stay tuned.