Threats from Artificial Intelligence and Walmart’s earnings

I was reading the news this morning and ran across a post on Artificial Intelligence on the BBC News website. And it got me to thinking about technology and the opportunities and threats technological disruption can pose to incumbent businesses. Now, the BBC article was talking mostly about politics and psychology. But I think the ‘threat of AI’ has implications for businesses too. Let me see if I can tease apart some of this in this morning’s daily.

The Threat of Artificial Intelligence

The BBC article claims that experts are warning that Artifical Intelligence is now so sophisticated that it can undermine the integrity of modern states. “Exploitation by rogue states, criminals and terrorists” will turn drones into missiles and ‘fake news’ into a viral sensation. That’s what the article says.

The first thing that came to mind for me was the investigation by Special Council Robert Mueller into Russian meddling in the 2016 US election. And I’m guessing the BBC made the oblique reference to “rogue states” to trigger that thought without explicitly mentioning which rogue sates. So I had my antennae up for propaganda — especially after yesterday’s post on James Montier. That post had reminded me how James once described how we must believe information to process it.  And I didn’t want to have notions put into my head without fully processing them . In the end, though, I thought the BBC article was a good one.

Just yesterday, the Wall Street Journal reported on its investigation into a Russian troll factory. And the conclusion was that the trolls “attempted to incite chaos, fear and outrage about fictitious events, with success that at times spilled into the real world.”

If you add AI to this mix, one can see the threat — and that’s even without thinking about Russia specifically. Here’s how Shahar Avin, from Cambridge University’s Centre for the Study of Existential Risk, described the threats:

He outlined some of the scenarios where AI could turn “rogue” in the near future:

• Technologies such as AlphaGo – an AI developed by Google’s DeepMind and able to outwit human Go players – could be used by hackers to find patterns in data and new exploits in code
• A malicious individual could buy a drone and train it with facial recognition software to target a certain individual
• Bots could be automated or “fake” lifelike videos for political manipulation
• Hackers could use speech synthesis to impersonate targets

Democratization of Information

After reading all this, my first thought was about the democratization of information. That’s because last night I was adding my site to Apple News. You can see my articles up at Apple News now. Do subscribe if you use an iPhone or iPad.

Here’s the question though: how does a reader know that I am a reputable publisher? How does one know that I am publishing articles that are factually-based? Yes, Apple News has given me approval. Google News has too. Yet, even if I usually publicly factually-based articles, how does one know I don’t slip fiction in every now and again? Isn’t that how propaganda works — using a veil of authenticity to slip in propaganda to a credulous audience? Once that they’ve got you hooked, trusting them as a credible source, they can slip in the ‘fake news’.

This is what James Montier was getting at with his post more than a decade ago. We must believe information is true before we can process and digest it. If that processing step is interrupted, we end up believing mistruths to be fact. And in a world in which trusted sources are now dispersed, it’s a lot more difficult to know whether a source of information is trustworthy. I would call that a downside of technology — the seedy underbelly of democratizing information, if you will.

Fake News

Look at this tweet for example.

This tweet is definitely fake. But it’s good pic.twitter.com/YBvJUnEkSs

— Edward Harrison (@edwardnh) February 5, 2018

It’s fake. But a lot of people retweeted it as real.

There’s *always* a tweet pic.twitter.com/dmrmzoRwP1

— Shaun Usher (@ShaunUsher) February 5, 2018

This was a joke. But it’s exactly how the propaganda that the Wall Street Journal investigated spread.

In a world of multiplying information sources competing for attention, ‘fake news’ will increase. We used to think the good news was going to drive out the bad. We no longer believe that. Instead, so-called ‘fake news’ proliferates. Just this morning I read about how some people believe survivors of the Florida school massacre are actors. And one Florida state representative had to sack an employee for spreading this conspiracy theory.

Let me make this assertion:people will become fearful knowing that some sources are ‘fake’. And they will retreat to safe places and limit their consumption of information to these safe places. If you add, face expression altering AI into that mix, it is going to make the situation more stark. The cry ‘fake news’ has a big effect in that world. The result is that the dichotomy between suspending disbelief for ‘safe’ news and ‘fake’ news sources is becoming much greater. News from a ‘fake’ source can be dismissed out of hand while the ‘safe’ source will be believed without a second thought. This trend will increase.

For journalists and journalism, this is catastrophic. It definitely lowers trust. But from a revenue perspective, it is not yet clear what it means. Traditional revenue models for newspapers and the news business are already under assault. So if the democratization of information increases distrust, that’s probably negative for journalism and for their revenue models.

Anyway, that’s where I am on this right now.

Walmart and the need to get big

I have another story about technological disruption. So, let me make an abrupt transition to Walmart’s earnings here. I flagged poor online comps to Amazon when Walmart announced its bonus round and minimum pay bump in January.  Here’s what I wrote:

While this payout to employees is clearly a political move by Walmart – and I will have more on that later — the most important takeaway here is that Walmart feels confident enough in its future business prospects to both increase wage rates and pay out cash bonuses of $400 million. And this is true even though Walmart was trounced by Amazon in the online holiday season.

The earnings announcement yesterday makes clear that Walmart did get trounced by Amazon. But the numbers are still pretty impressive. Sales were up 2.6% and online sales grew 23%. The problem is that this 23% figure is well-below “three previous quarters of more than 50% growth,” according to the Wall Street Journal. And so the stock sold off in a major way.

What’s the takeaway? Get big!

Technological disruption means more competition

Think about it. Here’s the largest company in the world by revenue and by headcount. It’s growing sales 2.6% overall and 23% in the red hot sales channel of the future. And it acquired a big online retailer Jet.com for a cool $3.3 billion to get there. Yet when it announces these results, it’s not enough. The stock tanks, pulling down the whole market. What would you do?

I know what I would do: think about more acquisitions. Amazon is dominating online retail. And, at first, Walmart tried to go toe to toe by going it alone and building up its online presence. They failed. Then Walmart made a splashy acquisition and grew sales at huge rates at first. But they still got beat in the holiday selling season. And the stock tanked as a result. That’s failure yet again. So executives Walmart have to believe that they aren’t BIG enough in the online space to beat Amazon.

I’m sure you could make different well-reasoned arguments. Nevertheless, it is instructive to think about this in the context of widespread market consolidation globally. A lot of factors are driving that consolidation. But one key factor is technological disruption. Incumbent firms want to get big in order to have the wherewithal to deal with that disruption.

Look at the media space, where Comcast owns broadcast TV network NBC, is the second largest broadband provider in the US and is also the third largest home telephone provider too. Yet, it is trying to get bigger. For the past four years, it has been pursuing a merger with Time Warner. One could reasonably argue the deal offers no competitive benefit to either company. Even so, the executives at those companies want to grow their businesses like everyone else. And they have to fear that technological disruption will put them in the cross hairs with a Google or an Amazon or an Apple as it has Walmart. A merger makes a lot of sense then.

We should remember that the reason Comcast is in all the lines of businesses is because of technological change. The Internet and the advent of Broadband data has turned the media landscape upside down by allowing delivery of multiple media and connectivity services through the same network. That dynamic will continue. For example, this morning I heard Tom Keene and Jonathan Ferro discussing SpaceX as an entrant into the media space. Through launching cheap and reusable rockets, SpaceX could build a network of low-orbit satellite for communication purposes. Google is getting into this space too via an investment in O3b.

Regulation and Anti-trust

So again, here’s technological disruption creating competition out of nowhere. That puts fear into the minds of corporate executives and drives them to get big just for the sake of forestalling competition. The question one has to ask is what is the regulatory and antitrust framework best suited to deal with these issues. I don’t have the answer. But I do think it’s a question that will be important in the future.

Right now, Europe is leading the way in trying to constrain the US tech giants like Amazon and Google. But eventually the US will join the fray as these companies get bigger.