How Software is Infusing the World and What it Means — with Tim O’Reilly

BOUNDARYLESS CONVERSATIONS PODCAST — SEASON 2 EP #21

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BOUNDARYLESS CONVERSATIONS PODCAST — SEASON 2 EP #21

How Software is Infusing the World and What it Means — with Tim O’Reilly

In this closing episode of Season 2, Tim O'Reilly talks about what we can learn from the Golden Age of the Internet. As the software industry is becoming more at the heart of everything in society, Tim reminds us that we need to create systems that enable more value than they capture.

Podcast Notes

If you’ve heard any of the terms “open source software”, “web 2.0”, or “government as a platform”, you’ll be familiar with today’s guest — Tim O’Reilly — who has helped popularise these big ideas.

Tim is the founder, CEO, and Chairman of O’Reilly Media, the company that has been providing the picks and shovels of learning to the Silicon Valley gold rush for the past 35 years. The company’s online learning and knowledge-on-demand platform at oreilly.com is used by thousands of enterprises and millions of individuals worldwide, and has a long history of convening conversations that reshape the computer industry. Tim is also a partner at early-stage venture firm O’Reilly AlphaTech Ventures and on the board of Code for America. He is the author of many technical books published by O’Reilly Media, and most recently ‘WTF?: What’s the Future and Why It’s Up to Us’.

He is a visiting professor of practice at the Institute for Innovation and Public Purpose at University College London, headed by Mariana Mazzucato — mentioned more than once in this conversation — and is working on a new book about why we need to rethink antitrust in the era of internet-scale platforms.

In today’s episode, which is the Grand Finale for this season, we explore the future of internet-enabled organizations, and how to think about value creation and regulation of these tech-companies. Listen on to find out what we can learn from the Golden Age of the internet, how platforms like Google and Amazon have lost their way over the years — and are now breeding their own competition — and what Tim thinks about Government-funded innovations. As the software industry is becoming more at the heart of everything in society, we need to create systems that enable more value than they capture.

After Tim’s final words, we bring a brief wrap-up of Season 2 and let you know the next plans for Boundaryless research activities. It’s been quite a ride this season too, and we are so grateful for both our loyal listeners and every guest who are pushing the boundaries of the future of organizing.

To find out more about Tim’s work:

Other references and mentions:

Find out more about the show and the research at Boundaryless at https://boundaryless.io/resources/podcast/

Thanks for the ad-hoc music to Liosound / Walter Mobilio. Find his portfolio here: www.platformdesigntoolkit.com/music

Recorded on 24 June 2021.

Key Insights

1. Tim says that some companies he used to admire, like Amazon and Google, are “losing their way” as they fail to recognize what made them succeed in the first place as aggregators of collective intelligence, supporting users to find the best organic search results based on their need (vs paid-for ads). With insufficient concern for the supply side on the platforms, they are effectively breeding their own competition, as supply goes somewhere else. Instead, you have a lot to win by focussing on suppliers as well as users: as Tim points out “if you got that double flywheel going, it’s a lot stronger than if you just have a user-centered flywheel”.

  •  Around min 9:21 Tim O’Reilly describes how his own company is seeking to enable more value than they capture.

2. As tech giants are effectively becoming central planners of the Internet, a big difference from industrial planned economies is that they manage consumption rather than production. In this context, governments must seize the opportunity to shape demand and desirable outcomes, more than interfering in the details of how companies are run. In Tim’s own words: “what we don’t want is for the government to be writing Facebook’s algorithms. We want the government to say, we want to hold you to account for the outcomes of your algorithms”. This requires us to consider what a “good outcome” is and to rethink our traditional obsession with economic efficiency. We can already see this market-shaping by governments happening, for example with new “climate millionaires” like Elon Musk initially sponsored by the government, or in the development of new vaccines.

  • Listen to the discussion around the role of regulation in the platform economy around min 27:47

3. As a final reflection, Tim shared his current points of attention around algorithms in economics. One key piece to that is to better understand rents, in terms of the ability of people to get an unearned income of various kinds, in the online economy. Rents create asymmetries of power and — albeit often poorly cited — when Adam Smith once talked about free markets, he was referring to markets free of rent rather than free of government intervention. So, for any player with enormous algorithmic power, the invitation is to “regulate themselves better” and use their power to make the market freer, not to make it subject to them, unlike the direction taken by many of the dominating players today.

  • Capture Tim’s final reflections on his latest work on algorithms and rent around min 48:41.

Boundaryless Conversations Podcast is about exploring the future of organizing at scale by leveraging on technology, network effects, and shaping narratives. We explore how platforms can help us play with a world in turmoil, change, and transformation: a world that is at the same time more interconnected and interdependent than ever but also more conflictual and rivalrous.

Transcript

This episode is hosted by Boundaryless Conversation Podcast host Simone Cicero with co-host Stina Heikkila.

The following is a semi-automatically generated transcript that has not been thoroughly revised by the podcast host or by the guest. Please check with us before using any quotations from this transcript. Thank you.

Simone Cicero:
Hello, everyone. We are back with the final episode of our second series of the Boundaryless Conversations Podcast. And today I’m here with my usual co-host, Stina Heikkila.

Stina Heikkila:
Hello, hello.

Simone Cicero:
And we have more than a special guest for this last episode, a true legend for many that I’m sure our listeners to this podcast at this moment — surely one of my greatest inspiration for the work we have been doing so far, Tim O’Reilly.

Tim O’Reilly:
I’m so glad to be here. Hello to all of you.

Simone Cicero:
Thank you so much, Tim. And we’re looking forward to have this conversation with you. And again, I want to thank Lisa Gansky for the introduction, our mutual friend. We have so many things to ask you and to have this conversation with you about. But I would like to start, let’s say, from looking into the work that you have been doing in the early days of the Internet and the software movement, essentially, as you have been helping to socialize it and create communities of practice around that. And it was such an important work that you still do. What we are saying, let’s say with software, it’s to some extent, a connection with a world more widely, the world of creating organizations. So, not just creating maybe products that customers can interact with, but also now moving into the finance world or moving into actually creating a modelling organizations and managing them. So, my question would be if you can spare a word on the two aspects, so either software developers becoming, to some extent, architects and managers of organizations, and on the other side, managers that can increasingly do more even bypassing sometimes the software developers with low code or no code environments. So, how are you seeing this movement around software, as we meet these new challenges and these new possibilities?

Tim O’Reilly:
All right. Well, let me start by saying, in many ways, my entire career has been a reflection on William Gibson’s marvelous phrase, “The future is here, it’s just not evenly distributed yet.” And, for me, one of the interesting things about software for so long, has been that it has been living in the future just a little bit ahead of other people. And so it gives us a taste of where the world is going. So, for example, back when the internet and open source software were first having their biggest impact, one of the things that I started recognizing and trying to talk about was that this was a new form of social organization, open source software, in particular. But also the internet architecture was also enabling a new form of social organization, a new form of business organization. And we’ve seen this continued evolution over the last 20–30 years, as software has been enabling at scale the coordination of society. And the thing that’s really important to realize is that history does never go forward in a straight line.

You know, so even though there’s great breakthrough of collective intelligence that we saw in this coordination of software developers over distance, we saw this great coordination in the power of data where the companies that dominated in what we call the web 2.0 era where companies that learned how to harness the intelligence of millions of users to give results, for example, for Google search. Or Amazon, building its marketplace and helping you find the best products. But these things are a stage. And you have multiple vectors of the future, mixing and pushing. And, of course, one of the big vectors that affects the idealistic potential of self-organization is the financial incentives to extract value for a company. And I think that there’s a real issue and a real danger that we have seen for tech, as it’s sort of here has this incredible power to bring people together. And instead, it’s been abusing that power. And so we really have to reflect, and this is why I think your work is so important, because it’s not just about how do you say grow a marketplace, how do you grow a platform? It’s also how do you build one that’s sustainable, where it’s a virtuous circle for all of the participants. Whereas what we’ve started to see, you know, the future of the internet, and the future of technology looks a lot more like the past of extractive businesses where some people get power and then begin to abuse it. And so I think as software becomes more central to our society, we have to say, well, do we want to think about how it makes our society better? Or whether it just allows a different set of people to be winners in an unequal system.

Simone Cicero:
Right. And what is the role that you envision in this process for your company and companies similar to yours, but I would say most of all, your own system, your media company? What is the role that you’re envisioning approaching these new domains of human knowledge that, to some extent, connect with the heritage of the software movement? You said that basically, open source pioneered a new system. So, what is your work now in supporting this watershed moment?

Tim O’Reilly:
You know, if you think about the history of my company, and of course, despite your generous introduction, many people probably don’t know who we are and what we did. As a science fiction writer, Kim Stanley Robinson once said, “History is a wave that moves through time, slightly faster than we do.” And the wave, in many ways, passes all of us by. So, I guess I think about the early days of my company, when we were just a book publisher, and literally, they said, the internet was built with O’Reilly books. Many of the great companies, the programmers learned about new technologies from our books. In some ways, we were an early practitioner of collective intelligence. We were finding out what hackers were doing and then sort of capturing that knowledge. One of our slogans was create more value than you capture. That came about after quite a few internet billionaires had told us they’d started their company with nothing more than an O’Reilly book that taught them how to do some technique that they turned with a bit of ingenuity into a company and a fortune.

And now O’Reilly is largely an online learning company. We still have the publishing business, but the O’Reilly platform includes not just tens of thousands of books in digital form, but also live training, a major component, interactivity. So, we basically creating learning experiences to continue that. But for me, the thing that I’m personally most focused on is using our own company as a kind of a laboratory and a template for how do you build a sustainable platform? Because one of the things that’s concerned me is that the companies that I took as kind of the models to aspire to, in the early days of the internet, in particular, Google and Amazon have really, it seems to me have lost their way. And let me be very specific about how they’ve done that. You know, the genius of Google going back to its founding was that it was — had developed algorithmic techniques for harnessing collective intelligence to make search better. And search was a way of allocating attention to the best resources on any topic. You could ask any question and Google used hundreds of factors to say, this is your answer. And it was a triumph of collective intelligence.

Again, there were others like Wikipedia, but Google was such a great example because not only had they built one of the largest and most compelling examples of this kind of collective intelligence, they’d figured out how to build an economic system that did not dominate it. It was a sidecar to it. The ad business, they said we don’t want to do ads. You know, Larry and Sergey had written this paper on advertising — or this appendix in their original research paper on advertising — and mixed motives. And with the pay per click advertising, which was clearly at the side framing the organic search results, they were able to say, okay, we’ll give you the answer for free, but sometimes there’s commercial offerings, and you might want to see those too, in addition. So, they had really built this balanced marketplace that was creating so much value. They were sending traffic. Again, in their IPO, Larry Page had talked about that in an interview at the time, “our job is to have people come to us and we send them on as quickly as possible”. So, they were a switchboard for the internet. So, taking in all the intelligence of users, all the click streams of what people did, and then using it to distribute it to the right places.

But now you fast forward 20 years, they start going well, you know, we could do a better job of that instead, ourselves instead. And they start doing what Microsoft had done in the PC era, which is to say, hey, there’s a good website that has information about travel. Oh, we can do that on Google travel. In fact, they even took on Wikipedia, but they didn’t succeed. But you know, we’ll have an encyclopedia of our own. We will — And you see the gradual transformation between 2011 and maybe 2015, where the organic search results that were the product of collective intelligence are more and more replaced by Google’s own, you know, answers. Now, again, they will tell themselves well, we’re also using collective intelligence to form those. But there’s a lot of evidence that there’s a conflict between the self interest of Google and saying, okay, we want to send people to our properties rather than to the best properties. You also see that advertising becomes much more dominant, and this is partly driven by the shift to mobile, where there’s less screen real estate, and so on.

But increasingly, you get to the point where the organic results that you used to see are a tiny part of Google, and most of what you see is basically ads, which of course, are we’re going to show you the thing that people paid us to show you rather than the thing that we have found that might be free, and might be the best. And so in some ways, this incredible optimism and this incredible breakthrough of collective intelligence became replaced by kind of a self-interested justification of why it’s actually better for the user, if we at Google just give you the answer that we think is best. But then you start to see that that answer is tainted by the benefit to Google rather than the benefit to the user.

You know, similarly, Amazon, when I first wrote about them as a kind of paragon of collective intelligence back around 2000, 2001, 2002, I was — their default search was like Google’s. It was what is all the signals tell us is the best product. And in his recent book, Amazon Unbound, Brad Stone, actually unpacks the debate at Amazon, about their ad business, which is now one of their fastest growing most profitable parts of their business. And they literally recognize that they were going to start making choices that were not the best ones for the users. They were going to be making the choices — the money was just too good to pass up.

And I think that sort of reflection on these two companies that I have admired so much has really shaped my thinking about what we want to do at O’Reilly. Because, yes, if you kind of create this flywheel where you give endless amounts of value to your users, and then once you get that flywheel going, you start to say, well, we’re just going to harvest more and more of that value for ourselves. Eventually, the flywheel will slow down. And you see this, for example, with Amazon, I think enabling Shopify as a competitor, because all of a sudden, there’s so much pay to play that Amazon is a less valuable channel for merchants, or at least for many merchants. They may have enabled others, for example, low cost vendors in Asia who’ve dominate the marketplace now. But, so there’s always a lot of complexity to the story.

But anyway, I’ve thought a lot about that. And so at O’Reilly, we’re trying to make trade offs between growth and providing value to our suppliers, not just to our users. Because one of the things that if you think back on sites, marketplaces like Google and Amazon, they really have two sets of customers, or maybe even more than two. They have the people who supply the information and the people who consume it. And so for Google, the people who supply the information were millions of websites. And Google still supplies value to those websites if you’re doing a search that’s non-commercial. You know, if you search for some obscure, I use the example the British author Anthony Trollope, you search for him, there’s no commercial interest. So, it looks like the old Google, you get a bunch of organic search results. But if it’s a topic of commercial interest, you get the things that people would pay Google to show you. And this is a loss.

Anyway, so the point I would make is that I’m trying to say there’s a supplier and Google is starving their supply side, i.e., the web of revenue, capturing it for themselves. And ultimately, that means that the web has become a less valuable, less dynamic place, the developers move on, so it’s short sighted. Amazon competing with all of its vendors in the marketplace, giving them higher and higher fees. This causes them to go somewhere else, use another alternative channel, try to build up their own web presence and use — do e-commerce with a partner like Shopify.

So, at O’Reilly, we think a lot about that. We say, oh, we have a bunch of suppliers, we have a bunch of consumers, and we have to create value for both of them. And a lot of our innovations on the O’Reilly platform are actually supplier driven, not consumer driven. We do ask ourselves, yeah, would this be a good feature for our consumers? But we also ask, is this a good feature for our suppliers? So, when we came up with the idea of doing live training on the platform, it was because authors were making less money from books as the book market became less valuable. And we said, well, we have to come up with a new format that will drive lots of revenue that we can pass on to our author base. And so we were building that product as much for our supply side as for our demand side. And that, I think, is one of the great opportunities in marketplaces, which is to coordinate both sides and then make it a win-win for both sides. Because if you got that double flywheel going, it’s a lot stronger than if you just have a user centered flywheel.

Simone Cicero:
Tim, to some extent, I think your overview, your reflection connects with what we are seeing, the D2C, the so-called D2C revolution. You spoke about Shopify, for example, and that, to some extent, is the probably the most significant company in this space, as this has enabled tons of professionals to create their own shops and connect that with their audiences. So, I think, to some extent, the question that we are debating on the aggregators are also being challenged by the evolution of the internet itself that is continuously shifting this power towards the small, to some extent, in this moment, at least, it seems like to me.

Tim O’Reilly:
I would say it is that the aggregators like Amazon and Google have failed to recognize something really important about what made them succeed in the first place. As they centralize their power, they stopped being aggregators. And of course, all that supply needs to go somewhere. And so people who are wanting to reach customers, they go, well, Google siphons off so much, or Amazon siphons off so much, we got to find another route to the market. And so I think they’re breeding their own competition. And it’s because — it’s not because the internet is moving on, it’s that they are pulling back from the thing that made them great.

Stina Heikkila:
Right. I wanted to come back to this, what you said about to create more value than you capture. And maybe if you can double-click a bit on this question of exactly of what value are we talking about? And so now we had this discussion on, to some extent, caring for your suppliers and catering to their needs, as well as the other users. So, and I know that you had made this distinction between “operational and financial economy”. So, I don’t know if you could connect those ideas to what we were talking about so we can get your insights on that.

Tim O’Reilly:
Yeah, I think that there’s a — one of the reasons why I think the internet went wrong was it became so easy to say if we can grow — get lots of users. The market will value us very highly. And that’s a kind of financial betting. In fact, I just wrote a new piece about it, which I published on O’Reilly.com this morning called “Why Elon Musk is So Rich”. And it really has to do with this idea that I wrote about in my book, WTF. But I took it from a guy named Goodman who wrote a book in the 70s called Supermoney about the stock market. And it’s really the idea that the stock market is a way of borrowing from the future. You know, so when you buy a stock, you’re buying a stream of its future earnings. And so you look at a simple ratio, I mean, there are much more complex ways to value companies, but the price earnings ratio is one. And you say, okay, Apple is valued at 30 — roughly 30 times its current earnings. That is if Apple makes $10 billion this year, I’m just making round numbers, they actually make more than that, then it would be valued at $300 billion. In fact, it probably made 30 or 40 billion, so it’s valued at a trillion dollars and change. Right? So, it’s over 30 years of assuming that you’ll continue that income stream.

Well, how much do you think, at the moment of Elon Musk’s peak wealth back in January, how much do you think Tesla was valued for? It was 1400 years worth of its earnings. Right? And nobody reasonably thinks that Tesla is going to be around in 1400 years. Nobody, even somebody who does the math can say, oh, yeah, Tesla is eventually going to become so large and so profitable, that it will be that valuable. You know, so all it is is a betting economy that the stock is going to go up. And so this idea that you can have a company, which makes no money in the operating economy, which Tesla didn’t until 2020, for the first time, they made money. But the money they made was about equivalent to the money made by a grocery store chain, about 2% of sales. You know, so not something that’s intrinsically super valuable. So, it’s all expectations.

And then you look at companies like Uber, still not profitable, and you look at a company like Clubhouse, you know, valued by VCs at $4 billion, with no revenue, no profit, just a bunch of hype. And you start to ask yourself, well, what are they really betting on? Well, they’re betting on maybe an acquisition, they’re betting on maybe being able to go public. Maybe they can sell on this stock to someone else before the bubble pops. And so you realize that we’re living in this financial economy where there are a lot of incentives to basically pump up businesses with lots of users way ahead of any possible results in the operating economy. And we see this, again, bringing this back to O’Reilly we have competitors who’ve gone public, on promises of amazing user growth, they’ve spent basically everything they’ve taken in on marketing, to show what appears to be this flywheel. And then once they’re public go, well, this really isn’t sustainable. You know, and they’ve gotten out. We’re trying to build for the long term, we’re trying to say, okay, what’s the sustainable rate of growth that we can achieve without just buying growth that will go away as soon as we stop pumping more money at it.

So, there’s a lot, I think, in this theory of marketplaces, that the internet is teaching us about what’s wrong in our society, because, of course what we’re seeing in general is the problems of inequality driven by this ability of people to borrow from the future, to get paid for expectations that may never be fulfilled, is endemic to our society. Our society basically says, if you can get to scale, you can make a lot of money, even if it makes things worse for other people. You know, we have marketplaces that favor their users by taking advantage of their suppliers. You know, Uber started out being really good for its drivers, that was the promise is it’s going to be this opportunity for you. But over time, they basically subsidize the users with low fares, and the drivers had to bear the cost.

Simone Cicero:
By the way, Tim, isn’t it worth then since, you know, when I was reading your recent post, and you were mentioning that the approach, for example the European regulators, has been so — you use this word, you said it’s “blunt”, and the processes for assessing harms most likely proceed more slowly than the harms themselves. And in another passage of that post, you say the markets are ecosystems and they have hidden dependencies everywhere. So, I’m thinking about the inherent difficulties for regulators to actually regulate that. And so I would be curious if in your work with, for example, with Mariana Mazzucato recently, how do we move from regulating that, for sure, it’s something we need to do into enabling the next wave, something that needs to emerge as an alternative?

Tim O’Reilly:
Yeah. Well, first off, there’s a couple of things that I think about this. And all of my thinking is always sort of — continuing to evolve. But the first thing is, I believe that there’s a real breakthrough in regulation that is demonstrated by the tech companies themselves. You know, it’s funny because you talk to a typical Silicon Valley person, and they’re likely to lean libertarian, but if you watch what they do, not what they say, these platforms are typically centrally managed economies. You know, they’re centrally planned economies managed by algorithms; Google, Facebook, Amazon, the app stores. There’s a central planner in charge, they’re allocating attention. And there’s a lot to actually understand there that I think, really useful for the government and for economists.

Because the thing that’s interesting, if you think about, say, Soviet central planning, what they tried to manage was production. And what the central planners of the internet do is they manage consumption, not production. Google and Facebook and Amazon manage what we see, and therefore, what we consume, and let the supply come to meet it. And that’s actually a really interesting opportunity to rethink how we manage our economy. Because we do have more capability to understand where the demand is. We also have the ability to shape demand. And that’s something Mariana talks a lot about, the market shaping function of government. And I think when we think about regulation, we think a lot of times about hand slapping, you know, people are doing something wrong, we want to — But there’s a way that we, first of all, I think we could understand that our system of government is, by definition, a regulatory system.

One of the analogies that I like to make is between, say, the Facebook newsfeed and tax policy. Everybody says, “Oh, don’t don’t mess with tax policy. The government shouldn’t interfere.” And they go, “It already interfered.” That’s a lot like saying, “Oh don’t don’t mess with the newsfeed algorithm.” It already exists. You know, so you’re just — your opportunity is to make it better. It’s not to not have it. So, if you look in the US, which I know a lot better than Europe, we have tax policy that favors homeownership. In Germany, you have a tax policy that doesn’t. In the US, you have a tax policy that favors big cars, because we basically don’t tax fossil fuels. In Europe, there’s much higher gas taxes, we get smaller cars. There’s — All through the economy, there are regulatory mechanisms that are not like a regulator passing small rules, they’re passing market shaping rules.

What we see as we engage with the platforms of the internet, like Facebook, what we don’t want is for the government to be writing Facebook’s algorithms. We want the government to say, we want to hold you to account for the outcomes of your algorithms. Like, when you create divisiveness, when you have triggered massacres in Myanmar, when you have influenced the US election through misinformation. These are outcomes that are undesirable. We expect you to regulate yourself so these things don’t happen. Similarly, when you look at some of the economic things I’m talking about with Amazon and Google, I think regulators should be saying, “Hey. Look, we desire as an outcome, that there is opportunity for the people who make things in our economy to earn a fair profit.”

Right now, our algorithm, our economic algorithms throughout most of the Western world say the best outcomes will come if you squeeze suppliers as much as possible to get costs as low as possible, the consumers will benefit. And you know, that was a good theory. But now that we see what it has produced, giant companies with soulless products, cutting corners, making things that are cheap and disposable. You know, you go, was that really what we thought we meant when we said we want the economy to be more efficient? And when we elevated the value of “economic efficiency”, in quotes, over all other values. And again, that kind of brings me back to like, the wonderful thing about technology that I saw in the golden age, I think, of the earlier internet is the ability to take more factors into account.

You know, this is a wonderful quote from Paul Cohen, who was the former DARPA program manager for AI and now a professor of computer science at the University of Pittsburgh. But he said, in a panel we were on at the American Association for the Advancement of Science, he said, “the opportunity for AI is to help humans model and manage complex interacting systems”. And so when we have an economy that’s basically focused on optimizing for one thing, above all else, or a few small things, they’re really intertwined. You know, economic efficiency, bigness, the extraction of value, the creation of huge stock market fortunes, all are kind of in — They are the outcomes of the economic algorithms we’re using.

And so when I think about regulation, I think about how do we set different objectives. Just like when Google originally said we want people to come to Google, and go away, satisfied. One of their fabulous little algorithmic tweaks that I loved was the concept of the long click versus the short click. People come, they click on the first result, and they go away, and they come right back, and they click on the second result, they go, “Oh, that means maybe the second result was better” because they go away after that one. So, that’s a long click. And so Google was saying, we’re going to actually try to figure out what people really want. And now, of course, they’re doing what everybody else does, they say, “What’s the thing that makes us the most money?” And if I had the choice of regulating of sort of what is the regulatory outcome, it’s not just remedial.

It’s not like we have a system where we’re going to create all this stock market wealth, and then we’re going to tax it and give it back to other people. How would we make a system that’s more fair in the first place where people can earn a living doing things that they love? What kind of algorithms would help to produce that? And you go, “Well, that’s government interfering in the market.” Well, government interferes in the market today, it just interferes in the wrong way. It says, optimize for efficiency. It could be saying, optimize for quality of life. How would we create incentives and rewards for that outcome? So, a lot of my thinking about regulation is, how do we build a system, just like Google and Facebook and Amazon do that focuses on outcomes? So, it’s an opportunity for us to say, how does technology help us both to ask and to answer the question of what do we really want?

Simone Cicero:
That’s a really fascinating conversation, Tim. And one thing that I was thinking about is, don’t you feel like we need something a bit more complex, more complex than just forcing functions for the market. So, something that is much more bottom up. Because sometimes I feel like the approach to regulation is really industrial in a way. If you don’t go beyond that, if you don’t go into enabling constraints. So, essentially, what I was referring before, the idea that you nurture the birth of the new, I think we are in trouble.

Tim O’Reilly:
I think that’s absolutely right. I think the thing that’s very interesting there is to step back and think about the range of what the government is expected to do. And I think that this is why I like working with Mariana. You know, she has the Institute for Innovation and Public Purpose. Her recognition is that government, one of the things that it does is it can help to shape innovation with big missions. So, you look at climate change. Yes, the market may eventually get there and you can see how the market happens, and you can even see the role of bubbles in that. I mean, I wrote in that piece, “The end of Silicon Valley as we know it”, the one that you referred to earlier by saying there’s going to be more climate billionaires in the next couple of decades than there will be in social media or traditional areas of Silicon Valley focus. And quite frankly, that’s the result of government intervention.

You know, people like to make fun of the government as a — the government shouldn’t be an investor. They made massive loans to Tesla. They kick started Tesla, which became the first superstar of the energy economy, and is going to kickstart everybody else going, “how do we get as rich as Elon?”. That was — actually, you can trace that right back to the government. And yet, all everybody talks about is their failed investment. You know, it’s as if you looked at a venture capitalist who flamed out 10 times in the dot com bust, but they also invested in Amazon. And you wouldn’t talk about Amazon, you just talk about their failures. Why would you do that? And it’s politically motivated. I think government has done a pretty darn good job. Government funded all the research that laid the way for those mRNA vaccines. Government was also the customer that paid for those mRNA vaccines to be brought so quickly to market. You know, so most of that, of so many innovations are driven by mission-driven public policy. Space, Elon’s other big win. Again, who is his customer? Well, governments. Yes, private companies starting to be, but government kickstarted that free market in competition. You know, and I think that’s — Governments that are taking an entire market to itself, absolutely wrong. Government being a funder and a customer and a regulator, we can get so much better at.

Simone Cicero:
So, really, Tim, maybe the last point that — I know Stina wanted to explore on some of those particular aspects, but I want to underline for our listeners, really this question that emerged from this conversation that we’re really looking into seeing our institutions, to some extent, implement these regulation that are needed, do the investments, as you are talking about, and also, as once you’ve wrote talking about government 2.0, you said, build a simple system and let it evolve. So, also this idea that they can’t do much, they can’t do everything, and they need to seek a cooperation with the citizens, with the dynamics that you have been studying, and writing about for so long. Thanks very much for this reflection. Stina, I know that you have a final point before we close.

Stina Heikkila:
Yeah. No, and I guess it was also linked to this. Because now we spoke specifically about what governments can do, can invest and think more in terms of market shaping, and so on, so maybe just as a final reflection, what about how governments are organized themselves. So, Simone started to touch upon that. But if we are seeing these kind of new frontiers, let’s say, software-enabled organizing, is that going to happen in government, you think, anytime soon?

Tim O’Reilly:
Well, in some sense, we’re seeing a lot of progress, but also regression. You go forward, you go back. You look at the UK Government digital service, which kind of brought a kind of user-centered design to the British government. Then you have a change of politicians, and they get defunded and made less central to the project. In the United States, we copied that with the United States digital service, which surprisingly, actually flourished. You know, it was started during the administration of Barack Obama, but continued to flourish under Donald Trump and is again continuing to flourish under Joe Biden. So, I think that we have progress. The thing that I — Probably the biggest piece of advice I would have for governments is to remember that first off, it’s not technology, it’s actually the focus on the user that is the thing. And this is a little contradictory to what I was saying earlier about — well, it’s the focus on the participants in the system, and really understanding them that I think drives successful public policy. So, user-centered design, and then also thinking through how do you actually implement what you do?

And I think one of the things that has really gone wrong, if you look at the last probably hundred years of government, is that bills — certainly I am very familiar with this in the US but I think it’s also true in the EU — are way too specific. You know, the example I used to get was the Highway Act of 1956, which created the interstate highway system in the United States, one of the largest public works projects in history, that was 29 pages long. The Affordable Care Act in the US trying to create — it was something like 3,000 pages long. And that’s a little bit like the board of directors of Google writing the specifications for Google’s algorithms. And you go, “Wait, that’s just wrong.” You know, like, why would you have a legislature that is not actually — has any expertise in implementation, specifying in so much detail how the thing is to be done, rather than what the thing is? What are the outcomes we’re looking for, which you can make very clear. When they did that national highway system in the US, they didn’t —

Congress didn’t say, “Here’s where you’re going to put all the roads.” They just said, “We’re going to build the system, and go figure it out.” So, it was a statement of a goal. And I think government has to get better at setting and measuring and modeling outcomes, and not telling people exactly what to do. And then they have to get much better at measuring whether those outcomes have been achieved. And if they haven’t, making changes more quickly. You know, you don’t get to say like, if you are again, this is, again, this powerful lesson from tech. When Google finds that there’s a new attack on search quality, or Facebook finds that there’s a new attack on the newsfeed algorithm, they go to work fixing it right away. They don’t say, “Well, we did that in the algorithm update of 2016 and we can’t touch that again for 10 years.”

Of course, I remember back when I was lobbying for patent reform, literally the patent commissioner’s saying, “Well, we’re not going to touch this again. We just did a patent reform act last year, so we won’t touch this again for 10 years.” You know, and you go, “How crazy is that?” Why would you not take the opportunity of technology to keep perfecting what you do? Because that’s one of the things that’s really good about our technologies today is unlike the technologies of when you think about the PC era, where you would do a version of software, and you ship a new one, maybe years later, now it’s continually updated. And we have the capabilities to have these systems that are learning, that are perfecting, that are taking in new signals from the system that they’re trying to manage. And so there’s so much for government to learn from tech about how to manage, model and manage dynamic systems.

And I think there’s a real need for people with that expertise from the technology industry to go into government and to help make that transformation so that we can take these incredible powers that we have taught ourselves in tech, and apply them to the world’s hardest problems. So, I guess I would say in one sense, my two calls are for technologists to regulate themselves better, i.e. to make sure that they think a lot about the value that they’re creating and who they’re creating it for. And not just be about, “Hey, how do we make as much money as possible?” And then for people who have the technology skills, to go into government, and for government to welcome them and to empower them. And not as one technologist said, to keep them at the kids table when it comes to policy. But to get them deeply involved in it and think how do we implement, how do we solve these hard problems?

Simone Cicero:
Tim, the conversation we had, to some extent, we understand that there’s a lot about these changing how we organize and regulate and so on, it’s about capabilities building. Also, it’s about essentially helping both the, maybe also the civil servants that actually work in government to be more capable of investing the massive amount of money that, for example, now they are investing across the board in the transition. But as you said, also, in one of your pieces, you say climate response is both capital intensive and inherently local. And so also these capabilities will need to be built in the local context. And so I think your work is going really in the right direction as you try to, let’s say, mix your experience in building these communities of practice and this way to connect the people that are actually doing the work with also the regulation context, the political, the government context. And so I really think this is a sweet spot where as you said we need to improve. Before we close, anything that you want to add that maybe about something new you’re working on, and people that can be stay tuned?

Tim O’Reilly:
You know, a lot of it, as I said, I am thinking a lot about algorithms in economics, and what we can learn from technology companies. I think you made reference to the way that the software industry is becoming at the heart of everything. And perhaps we could paraphrase Marc Andreessen and rather than saying “software is eating the world”, let’s say “software is infusing the world”. And a lot of what I’m trying to figure out is how software can infuse the world in a way that is healthy, rather than simply consuming it. And one of the big pieces that I’m wrestling with in economics is the theory of rents, a pretty central focus for Mariana Mazzucato’s group. Right now we tend to think in terms of labor and capital, but the traditional — the historical economist used to think a lot more about rents. That is the ability of people to get unearned income of various kinds. And how that happens in our economy is really the secret to understanding inequality and many other problems. Because rents are effectively attacks.

As Mariana likes to say when Adam Smith talked about the free market, he didn’t actually mean the market free of government interference. He meant the market free of rents. That is of asymmetries of power, that kept the market from operating properly. And he actually saw government as a factor that could actually make the market freer rather than less free. Of course, government has to do right, just like Google and Facebook and Amazon have to do right. You know? You have this enormous algorithmic power, use it to make the market freer, not to make it subject to you. And I think a lot of what I’m doing is activism around both understanding that, evangelizing some of the lessons of tech, probably more these days to economists than to government per se.

My wife, Jen Pahlka who is the founder of Code for America and the United States Digital Response now writing a book about how do we improve government is much more focused on the government side of this per se. So, I guess I would just say, there’s so much opportunity for us to take these powers that we have developed over the last decades of the technology industry, and use it to solve new and important problems. There’s a real urgency to so many of the challenges that face our world. And all of you who are out there building the future, ask yourself, how do we make it a better one?

Simone Cicero:
And surely, I mean, they’re going to build on your work, Tim. I think it’s really important to honor the work that your company, yourself, you have been doing for these movements around open, collaborative communities. And it’s really important for, I think, all the work that we are doing. So, again, thanks so much for spending this, almost one hour together with us. I’m sure our listeners will write tons of notes. So, again, thank you so much, Tim.

Tim O’Reilly:
You’re very welcome.

Stina, I’m sorry that Simone and I got on such a run that I gave such long answers that we didn’t talk as much as I would have liked. So, perhaps we can do another podcast.

Stina Heikkila:
Thank you. No, I am very happy with the answers that I got, and very inspired by your work. And I think this is something that also attracted me to Boundaryless, this ideology of open source and really trying to create more value than you capture. So, thank you very much.

Tim O’Reilly:
Oh, you’re very welcome.

Simone Cicero:
I’m trying to get Stina to become the main host next year. So, I’m sure you’re really right on that. So, thanks so much again, Tim. And to the audience, to the listeners, catch up soon.