 Good morning ladies and gentlemen. Thank you for joining us for this issue briefing, the second issue briefing of day three and final day of the annual meeting of the new champions 2018 here in Tangin. My name is Oliver Kahn. I work for the World Economic Forum. The purpose of these sessions for those that you that don't watch those and very very grateful for those in the room and also those watching those online and across social media is to attack some of the more gritty topical news news agenda items that are that are that are making their way up news agendas around the world. Now we've just come from a summer where the annual meeting of Central Bankers and Jackson Hole was all about market concentration, so it seems that there's very few more powerful topics especially with divergence in approaches at the regulatory level between the US and Europe and increased mutterings around doing something about big tech that we asked the question is market power strangling competition and innovation? Corporate concentration of course is increasing globally particularly in the United States where it is almost grown by 50% since 1996. So we're asking the question is market power jeopardizing competition and innovation and is it holding back productivity growth very honored to be joined by two experts in this field, Aaron Sundararajan, old friend and those of you who remember the classic issue briefings of 2016 was here talking about platform power back then the rise of Uber and the sharing economy. Aaron is Robert and Dale Atkins Rose and professor of business at Stern School of Business at New York University. He's done research into digital economics and industry structure for over two decades. He focuses for the last seven years on platforms and the sharing economy and is an author of the award-winning book The Sharing Economy. It's testified to US Congress, the European Parliament and the United Nations about platform policy and digital governance issues and that's an area I'd like to touch upon during this session if I may. Next to me on my immediate left, Shirley Tren, you're the founder and chief executive of Narrative USA. You're a 2018 Technology Pioneer. We announced this list of very exciting companies every year. Technology pioneers are companies that we believe have profound potential for not just economic growth but also societal benefits. You're perfect for this panel, Shirley. Your AI technology has enabled and fixed broken links to end the 404 democratizing access to the internet and creating a more level playing field for e-commerce players. Over the last three years, Narrative has repaired over a billion links and is on track to generate $600 million of revenue in 2018. Shirley, you grew up in Beijing in China and you got your undergraduate degree at Columbia University and before setting up Narrative, you've worked in professional services in the media and retail practice and you have also worked in the luxury industry, I believe. So we're going to start a couple of questions and hopefully we'll have a few more from the floor to get things going. I'm just going to ask one very simple question. Over decades in the US and other economies, protections against monopoly power have become diminished seemingly at least. The result in almost every sector has been greater market concentration. That is a reality in the hands of fewer players. So this means less startups. It means less wage growth. It means smaller stock markets. I've just come from a session on global debt and I was reminding people of Ray Dalio's comments of a couple of days ago when he likened the situation of rising populism and stagnant wage growth to the darker days of the late 1930s. So there's a downside to this and we maybe cannot apply all of it to the rise of platforms. But anyway, regardless of that, we do have a tech sector which is dominated by super star firms. My question is how unhealthy is this? Maybe we'll start with you, Aran. You've been working on this field for 20 years, seven years. Well, you know, I think the reason why we have this level of concentration in many industries, it's because of the fundamental underlying economics, favoring sort of winner take or winner take most dynamics. And so Facebook is dominant because in part, like, you know, it makes sense to have one Facebook, not six Facebooks. The same thing with Google and search. You know, same thing with Amazon and retailing the same thing with Airbnb and home sharing. That's part of it. But part of it is also, you know, sort of traditional capital driven sort of market power and concentration. So if you look at DD in China or Uber in the United States, the underlying economics of the business do not favor sort of, you know, one dominant player across the globe. These are sort of locally contestable markets. And so these are firms that have achieved a position of dominance by raising more money than everybody else. So, you know, it's compared to the economy of 25 or 30 years ago. The underlying economics certainly favor concentration. And that's part of the reason why we're seeing it. I don't think that the protections have diminished. I just think that there is less of a political will until this year in the United States to apply the existing protections. And that's partly because of, you know, the political system in the United States itself, the nature of regulatory capture, the system of sort of corporate lobbying that sort of leads to a situation where, you know, many government regulators are reticent about sort of applying existing protections. But part of it has to do with the fact that the protections don't really fit. You know, a lot of antitrust law was crafted at a time where we were trying to regulate railways or we were trying to regulate steel. And while we've updated them a little through the Microsoft case of 2000, the remedies still seem unsatisfying. You know, Facebook has market power, but what does breaking up Facebook really mean? Do we really want to do that? And so because of the fact that the remedies don't really fit the goals, we are in a situation where there's reticence about applying the protections. Do we agree that this is unhealthy? Is that a given? Do consumers, you've already mentioned consumers like this? Well, yes and no. You know, I think it's healthy to the extent that a tremendous amount of consumer value is being generated. I mean, Google is generating literally trillions of dollars of consumer value every year and capturing a relatively small fraction of it. And so while we have concentration, it's not all bad news for consumers and this is part of the paradox, right? Because the framing of antitrust protection is often like, you know, to do better by consumers, but consumers are fine. I think the unhealthiness comes from when these platforms become sort of an essential channel. And so while Amazon may not have a lot of market share, Amazon is becoming an essential channel for any small retailer to reach its customers. And as a consequence, you know, their market power could lead them to extract, like, you know, a significant amount of economic value from the retail sector because of the dependence. It's not quite as stark as, you know, the dependence that voiceover IP players had on, like, you know, the local bells, like, you know, during the emergence of voiceover IP. And there was action there saying that you have to give access to, like, you know, sort of the local line because it's an essential facility. We're not quite there, but that's the kind of market power. That's the kind of framing that we need if we want to take action because that could, you know, stifle innovation, not just in the competition for the market, like, the competition to be the dominant platform, but in the markets that the platform enables so advertising for Google, retail for Amazon, transportation for Uber and DD. And that's very interesting. We'll come back to this point. So we're talking about the regulatory capture and the lobbying and the reticence of that is inspiring government to exercise the protections. And we're also talking about the consumer value side of it. Maybe governments are less keen to get involved when consumers are not making too much of a fuss about it. But it's a good time, Sheldon, to bring you in here because your business is all about disrupting and challenging and creating, you know, eroding that kind of huge market power. Maybe perhaps tell us briefly a little bit about what you do from that context. Yes. So narrative fixes for four links. It could be out of stock from content. It could be broken pages. We focus a lot in the media and consumer sphere. Amazon had this idea 20 years ago that shopping online is actually very difficult. So in e-commerce, you can't inspect a good. You can't ask questions to help inform that transaction. But it's impossible for any retailer to aggregate enough recommendation or enough resources so that consumers can make a purchase decision on their own. So they rolled out something called Amazon Associates, where they started pulling in publishers who make recommendations. It could be Wirecutter, Business Insider, CNET, Vogue, whoever, about the categories of things that they sell. Today, we see that publishers send about 7 billion shoppers a year to Amazon. It is their largest inbound channel. It's bigger than Google paid search. And very few retailers understand it. And it's because of this monopoly they've built through their associates program. What we also see is that on these links from content, about 25% of the time, Amazon does not offer consumers the best price. And maybe many consumers don't check. So it's similar to setting the price, if you will, in terms of this monopoly. I also think it's interesting to just think about protection and that spectrum. So on one side, you may have patents. On the other side, thinking about monopolies. And patents are meant to protect entrepreneurs and to create innovation. The irony in this is that Jeff Bezos himself has criticized the legal infrastructure that enabled him to patent one click and to create this 20-year monopoly over a seamless consumer experience. When you think about monopolies and this idea of looking at unhealthy demonstrations, sometimes it seems too clear to consumers. So Amazon itself being a retailer, now a marketing platform, a logistics provider, a producer of television and film, not to mention AWS, it is on the scale of something we couldn't have imagined. And I think it's because today we're not in the brick and mortar age. The attention economy is around the pace and the speed and the addiction potential of the internet that no one could have written laws about 20 years ago. And when you think about the amount of data and attention that these platforms get, today's laws just haven't kept up. Yeah, in many ways they've sort of become, if you think about the ecosystem that some of these platforms have built, whether it's Amazon or Facebook or Google, the kind of political power they have in society is approaching sort of almost government-like power. And I think that often when you think about framing, how should you approach regulating these platforms, it shouldn't be from the government regulating the platform stance, it should be approaching them as peers. They are different sort of societal players. I mean Facebook and YouTube are our sensors. Facebook and Google have incredible surveillance power. Platforms back currency, platforms provide ID. Platforms determine sort of the division of intellectual property between content creators and content providers. Platforms create infrastructure for inclusive access. Platforms are going to shape our perception of reality through VR and AR technologies. Platforms have AI capabilities that give them the kind of power that is typically associated with military power because now you could sort of take down someone's electricity grid. You don't need sort of like your bombers, right? And so I think as we think about how are we going to curb platform power, the framing that I'm often taking is not one of like, you know, regulate the platforms. It's more of coming to a treaty with them or inducing democratic reform in a benevolent dictatorship. I think that sort of seems to be a better way to approach this problem because I don't think there's any senator in the United States who's going to stand up and say, I'm going to make my career on trying to curb Facebook's power when it has been demonstrated that Facebook can swing an election inadvertently. I mean, they're not a good enemy to have in the political sphere. So it's really sort of like, you know, it's new territory. Yeah. And we'll come to that. I mean, one of the recurring memes at this meeting in particular is the inability for governments and regulators to keep up with the march of technological advance. In fact, the founding principle of the Fourth Industrial Revolution work we do as an organization is about trying to come up with more agile, smarter ways of providing this government. But let's, we'll come to that. But surely you are winning in this, you know, you're not of the size of Amazon, but you're growing quite fast. So, you know, there are ways to, there are ways to gain business. And these, they're not monolithic, undefeatable, these big tech companies, they have certainly a lot of advantages for them. But give me a feel, you're at the cold face, you're fighting, fighting away, trying to gain market share and building a business by offering what, you know, customers find is, is a good value proposition. So maybe, maybe competition and capitalism is working fairly well. We certainly see that from a funding perspective. And from how retailers are participating in our platform. So narrative is about three years old. When we first started, a lot of VCs asked us, well, how do you win in a market against Facebook, Google Amazon? And when you're three months into the job, that's not really the type of question that you want to answer. But it's the, it's the right one. And you started your business, you must have had a feeling that you had a chance. Yes, it's the right question. And I think the flip back to a lot of VCs is, if you're not in the game of disrupting a trillion dollar industry, why do you go to work? Like, what's the fun in that? And you can be smart about it. So you must have a differentiated place. The technology has to stand up on its own. You need to build boats on its own. So narrative, for example, we don't collect any consumer data, we're not about hyper targeting, we're about fixing an ecosystem that has a lot of broken links and lost consumer value. The most important thing to us is that consumers see the best price at all times, regardless of who that retailer is, and that everyone has access. So I think there are a lot of startups that are taking these very differentiated plays, and thinking about how to tackle these companies head on, and that VCs, especially in the US are very keen on tackling these questions. When it comes to other retailers who get in the game, lots of folks want to compete against Amazon. And it's a very interesting business for them to understand what some of these underlying drivers of both are, and what are some of the data models that have enabled Amazon to grow. For example, we see that when you think about attribution and advertising, attribution essentially is about influence. Who do you assign that influence to? Amazon has always played the long game when they thought about attribution. It's about how do you acquire customers that have lifetime value and grow that business? It's about customer acquisition. They pay publishers when readers add products to their cart, not when they check out. It demonstrates that there is some kind of influence in driving new visitors to their channel. Most other retailers still operate in a very last click zone, still thinking about coupon sites retargeting, how to get people to purchase a product. That data model and flipping that and sharing that through a technology platform like ours is of utmost importance. And to be clear, you're taking on one take, Tyson, not all of them, but I think a lot of these principles are applicable. We're halfway through this short session, so I should not monopolize the conversation. Let's have a quick show of hands. Who wants to ask a question? Gentleman there. Have a microphone for the gentleman in the second row, please. Can you remind us your name and where you're from? So Carl Volce, I run a company called Soft Robotics, also a technology pioneer this year. So we're very honored to be here. I want to ask a question that seems simple to me, but very hard for the regulators, is particularly in Facebook, if I buy radio time to support a candidate in election, I have to disclose that, I have to track the money. How have we not been able to just make that simple switch to buying advertisements online should be equal to buying an advertisement on television on radio or other standard media outlets? It seems to me that there's a problem there that I don't understand or the regulators aren't willing to tackle. I'd love to get your thoughts on that. Preferential treatment for online? Yeah, I think it's a temporary situation that will change. There's nothing that technologically prevents us from having the same kind of transparency. I think if a platform like Facebook is smart, they will volunteer that transparency rather than having it mandated. I think that that's true of a number of different choices that they're going to be making over the next few years, whether it has to do with due process when something goes wrong, whether it has to do with the freedom from bias and algorithmic fairness, whether it has to do with the extent to which stakeholders like Amazon sellers participate in the division of revenue between Amazon and its sellers or Facebook users participate in the design. All of these things are things that I think that the platform is going to voluntarily a smart platform will voluntarily sort of move in the direction of sort of greater democracy, greater transparency. And so, you know, because if they don't something akin to KYC will sort of kick in and it may not be designed in a way that's best for the platform. So it's a temporary situation that I'm sure will be resolved. Yeah, I think in a lot of ways, advertising formats are proliferating faster than regulation. And that's what you see. I think for a lot of these platforms, if I were, if I were a giant whisperer, I would say, it's not too late. You've been told your entire life that success is being measured on the amount of revenue you generate and as quickly as possible how you grow. Once you're a 20 billion, 60 billion trillion dollar company, whatever that is, maybe some of the measuring sticks for success to change. You should think about the broader social impact you're having as a large platform. I think there's a lot that you can do with the resources that you have at your disposal, the motes and distribution that you have at your disposal. There's probably something that you can start with in terms of equal pay, let's say for women. There's more that you could do with education. I think that if the platforms want to be perceived as friendly giants, they should act that way and not just be because they're being regulated to do so. Yeah, and in some ways, there are two sort of interacting forces here. A lot of the conversation about regulating platforms is really about recognizing their role as new trust institutions and figuring out a design of these trust institutions that sort of works for broader society. I think sort of proactive and firm steps towards sort of like being more democratic will help the platforms in the antitrust and market power battles that are looming because those are going to be fought, maybe not on the front of consumer protection, but they're certainly going to be greater scrutiny on this facet of access to the essential facility or access to the essential channel. I'm sure that there will over time be scrutiny on whether platforms are stifling innovation by replicating features that startups come up with somewhat seamlessly. There's probably going to be scrutiny into acquisition, at least in the United States, into acquisition strategies by platforms as a way of growing. That's a double edge sword in some ways because a lot of innovation is spurred by the prospect of acquisition. On the other hand, the acquisition then starts to sort of not allow a competitor to blossom. I think that this sort of culture of acquisition or of concentration is perhaps prevalent more in China than in any other country, where in many ways there isn't this conflict between the large players and the venture capitalists about how will you compete with Facebook, Google and Amazon because the large platforms are the VCs. I think the level of concentration here perhaps poses greater challenges than it does in the United States. Of course we don't want to be too disparaging of the regulators. They have a tough job but they're failing quite broadly on those fronts, especially on the acquisition side of things. It comes to something if you're able to buy your way out of trouble. Maybe a few generations ago the CEO's dream would be to launch on the public markets and maybe there are other exits out there that should be given more attention. So aren't we at a situation where we do have this rarest of things, bipartisan agreement that something has to happen and what do you think? How are we going to see this? I'm slightly concerned by inducing democratic reform and a benevolent dictatorship. I'm not sure how many times that's been successful in the past. So how exactly are we going to make that happen? Well I certainly think that there's a consensus that something needs to be done but I have not seen much sign of a consensus about what needs to be done. And I think that... We're seeing a divergence from the US and Europe perhaps. And Europe are getting arguably more proactive in that space. Absolutely and I think that some of the decentralization of data ownership that underlies the GDPR for example is a step in the right direction. But the challenges cannot be underestimated because while we may ring our hands and say why aren't the regulators doing anything, we really are in new territory because it's not just the market power and concentration issues that are unfamiliar. It's the broader sort of like how do we make these institutions better institutions that are very unfamiliar. And so the only part that I really see forward is one where there is the threat of regulation that could lead to really bad outcomes for the platforms that induces them to sort of take actions on their own because they have better information about what the sort of judicious balance should be. And so it's almost like 15 years ago when Microsoft had the Windows monopoly, in many ways the price that they charged for Windows was far lower than the price that they could have charged. And it was partly an entry-deterring price. It was sort of like, you know, I'm going to price it at this level so that someone doesn't come and build another operating system. But it was also a regulation-deterring price. It was like, you know, if I start to raise my prices then I'm going to... And so what we need is for a similar dynamic to sort of come into the aspects of democratic reform that we want from these platforms that may induce them because if they don't then the threat of something bad happening to them and not necessarily that the governments have enough power to do this. But, you know, there... I think that one of the things that the platforms believe for sure is that any government entity is not sufficiently well-informed to craft sort of the right regulations. And so maybe self-regulation is the best solution rather than sort of being saddled with regulation that perhaps isn't quite as favorable. So the choices are self-regulation imperfect as it is or regulation, which is imperfect. But we just have to understand that the power dynamics have changed. So, yeah. I saw the gentleman in fourth row request the microphone. Thank you. My name is Tetsuro Fukunaga, actually from Japanese government. And, you know, I shall make this comment detached from my organization. But actually I'm curious. In particular, I want to ask a professor. Then actually you mentioned a lot for the, you know, antitrust or trust created in a very, you know, uncompetitive situation. But how do you observe the recent situation of such a platform? In particular, you know, not only U.S. but also China. We start seeing the very, you know, big tech giant platform are making the horizontal integration. They utilize their data, they utilize their, you know, capital to penetrate into the other sectors. And it's maybe a typical close-up situation. But this close-up is more expanded through the, you know, technological innovation for the data. Then how do you, you know, this is not necessarily a situation for just, you know, dominance. It's also some sort of a conglomerate type of discussion. How do you observe this current ongoing phenomena of the horizontal expansion of these platformers? Well, I think that it's, you know, it's fundamental to sort of the digital technology itself. The ability to sort of easily sort of gain dominance in one industry and then sort of envelope a different industry, move into, like capture a white space and then move into an adjacent industry by leveraging the user base you have is far more seamless in the digital world than, say, if you're a steel manufacturer and you want to move into aluminum. Right? I mean, Amazon can leverage its user base on the consumer retail front and enter entertainment far more seamlessly because the product being delivered is digital and the interface is relatively uniform. So, you know, I think that the dimension in China that is different is that it's not just sort of horizontal integration. It's also a concentration of ownership. You have sort of the Alibaba Group and the Tencent Group that are sort of building these massive ecosystems. And in the short term, I think that that has helped innovation in China because there's been ample venture capital, there's been sort of the deep pockets of the large players to be able to sort of like, you know, put money into sort of the fledgling startups. And there's been like, you know, sort of an easy exit strategy for a company that says that, well, let's start and if we sort of succeed, we'll be absorbed by one of these giants. The concern I have is that perhaps it is like, you know, limiting the ambitions of entrepreneurs in China. More and more, I see tech entrepreneurs not going after giant markets the way that DD did five or six years ago, but going after smaller niche markets, going after sort of little slices, you know, raise some money, capture a little bit of a market and like, you know, hope that you'll be absorbed. And so it makes me worry that perhaps the kind of innovation that you need to solve big problems in the food sector, in the energy sector, in the healthcare sector will not come from the startup industry the way that problems were solved in the retail sector or in the communication sector or in the transportation sector. It's 1130 China's standard time, which if you work for a Swiss organization like ID, you would recognize as being one of those egregious sins are about to go over. But I want to go over time on this one because the gentleman here has put his hand up. We'll do one more question. Thank you very much. Claudia Ludlow from the Pro-Mexico Investment Agency. I originally had two questions, but if I answer only one, that's that's sufficient. One is regarding what Professor Sundar Rajan mentioned about how are the Western firms going to react to the unfair advantage that the national, the Chinese champions will have that I would say euphemistically speaking, there is more freedom to access the data in China, that there is in the Western world. And the second question will be regarding the you mentioned the the political power of the Google's Amazon, etc. But concomitantly, there's a backlash. And I hear increasingly specialized firms, auditing firms talking about Amazon tax, Google tax, etc. As a political backlash nationally, basically to defend national industries and interests that are basically going to suffer from the disruption. Okay, both really good questions. So let's try to answer them briefly. National champions and the effect you have if you level the play field in one area, not in another, and that playoff between the political power of a platform and the backlash that some people feel is coming. Okay, real briefly. So I'm a glass half full kind of guy. And so one of the things I'm optimistic about is sort of the loosening of barriers by the Chinese government for like, you know, American and European countries, especially in the tech sector to operate. I mean, this may be one of the positive sort of unintended consequences of the trade war that it may sort of like, you know, cause them to step back. And so I'm cautiously optimistic that that situation will get better over time rather than worse. In terms of like, you know, balancing political power, it's a difficult balancing act. I don't think that the platforms have embraced yet sort of their new stature in society. And I think that we're going to enter a phase where there'll be sort of jockeying for power between like, you know, the platforms and nation state governments and sort of the same way that you saw happen in medieval Europe between the Catholic Church and the nation state governments, because I'm not saying that Facebook is the new church by any means. I'm just saying that the political power that they will have in the future may be comparable. So I think they'll weather the backlash and just sort of assume the mantle that like, you know, will sort of be part of their destiny in the long run. And I think part of the question is, are these ruthless juggernauts that consumers love? And the tension with and hesitation, I think is that every day hundreds of millions of consumers use and love these products. In some of the platform extensions that we talked about, in terms of entering new markets, I think that's a place where regulation becomes more clear. Sometimes it is not just in terms of the platform, but in terms of its mindset. When you think about the way Amazon goes after new industries, the amount of money it's willing to lose an offset with a different part of its business, that's a totally different mindset than a company that is purely competing in that single market. And I think ultimately governments represent people, right? So people need to see and reflect some of the topics that we've been discussing. In the U.S., there's a lot of news right now around Amazon's second headquarters. And cities have been lobbying for these headquarters. They've been creating tax cuts. But there's also talk, could these tax cuts have benefited smaller businesses? Could they have created other incentives for consumers? Is this a clear demonstration of the market power of a platform not necessarily being used for consumer good? So the more everyday consumers ask these questions, the more I think you'll see that reflected in government policies. It's interesting that you bring up that sort of relationship between the people and the government versus the people on the platform. Because five years ago it was almost like the platform was representing the people against the government. You know, Facebook and Twitter and they still do it. But you know, sort of, we will not give your data to the government. And I think we're entering a phase where people are going to be looking to the government saying that the platforms have too much power. And, you know, they've taken too much from us. Can you sort of give us some of these rights back? So as I said, we have gone over time, which is a shame for me, if me alone, because I love this topic, if you talk for ages. Before we go, very, very quickly Shirley. Really exciting what you're doing and love reading your stories why I invite you on to this panel. I just want to quote somebody who was on one of the sessions, one of the televised sessions yesterday about innovation. And they were talking about one of the one of the large giant firms. And the panelist said they'd run 1000 experiments a year and they have an agreement with their investors that allows them to spend at a certain rate. And it is just incredible. It means they are constantly innovating and finding new markets. Now that's awesome. It's also quite scary. So my question is very simple. Do you are you optimistic or pessimistic that you'll be in a competitive market where you'll be able to disrupt as you are doing today a year from now? Optimistic. I think that you build businesses regardless of the large companies, monopolies that may exist and they need to succeed in spite of them. And at the end of the day, I think businesses that serve consumers first and offer differentiated value for consumers against these platforms are the ones that are going to win. So whether it is protecting your privacy or pointing out that price anomaly or fixing friction, there's a lot of other spaces where I think this is pertinent. But that's the optimism we feel. And I think having that mission enables us to grow, recruit, bring talent into our company and also, you know, creating that coalition of like-minded folks, whether they're on the business side or on the investment side to enable that growth is fundamental for us as well. Well, to return to the question of this session, is market power strangling competition and innovation? It would appear evidently not, or they would also appear that changes on its way. Thank you so much, both of you for joining us. Thank you for joining us here.