The media tends to portray rich tech people as superheroes—full-on geniuses able to quickly invent funny, fanciful new technologies. While these portrayals of billionaires and tech CEOs are only beginning to shift away from painting them as gifted, public-spirited entrepreneurs who create life-improving technologies, the cult of the Silicon Valley genius is, regrettably, still with us (as the release of pop biographer Walter Isaacson’s recent book on the prominent, bungling tech jerk-off Elon Musk reminds us). But as these pages have reviewed, billionaires are at the very least no better than the rest of us. Indeed, many behave in ways that show them to be morally inferior to the common person.
Putting the issue of morality to the side, what about their supposed intellectual genius? One way to assess this is what I call the Billionaire Intelligence Test (BIT). It requires a tiny bit of actual economics knowledge, but not much considering how ingenious these gentlemen are alleged to be. Sharpen those pencils!
Open Questions
The basic theme of the BIT is network effects. Familiar to anyone who’s read my writing in these pages, the network effect just describes how some goods and services gain value as more people use them—their value comes from their user base. Telephony, social media sites, and operating systems are all subject to these effects. The more users there are of a phone system or a social media site, the more attractive they become to other potential users, meaning that once one provider becomes most prominent, they can get nearly all the growth in the market as users gravitate to the most popular provider.
Further, as one service provider becomes dominant, their semi-monopoly position in fast-growing markets creates stupendous profits, possibly constituting billions in corporate and personal wealth. So a simple economic literacy test for tech figures would be to see whether they recognize the network effect in their industry, especially in terms of keeping the platform “open” to outside applications. A failure to do so “leaves money on the table” and indicates that the billionaire in question is not quite the super-genius the media has breathlessly built them up into.
Gates of Hell
The first case is that of Bill Gates, the prominent billionaire, adjudicated monopolist, and alleged Jeffrey Epstein fellow-traveler. Gates understood network effects from his company’s earliest days, when his mother used her seat on the national United Way board to get the ear of IBM’s CEO, who then chose Microsoft’s early MS-DOS, later Windows, to run their industry-defining PCs. Since IBM at that time had the great trust of corporate America, Gates realized that his operating system had a strong chance to benefit from network effects and become a standard-setting platform.
The stupendous growth of the IBM PC and its many clones (similar computers made by competing makers like Dell) meant it had a huge audience of business and household users, which then attracted a giant body of developers whose spreadsheet applications and games attracted yet more users, creating the familiar positive-feedback cycle of tech companies that become monopolies almost as soon as the industry comes into existence. Microsoft thus followed the pattern for tech monopolists described by the conservative business magazine The Economist as “capturing a significant, even dominant share of the world market more or less straight out of the box.”
Just like in Microsoft’s later monopoly trial, there’s little doubt on this verdict: Gates clearly understood the power of the network effect—well enough to help him monopolize a gigantic global market. For better or worse, Gates passes the test of the network effect.
Other tech luminaries fare less well.
Bad Jobs
Back in the 1990s when these markets were growing fast, Apple computers were usually considered more innovative and enjoyable to use than Windows machines, and Apple had some actual successes breaking out of its traditional graphic-design market niche with its Mac forerunners Lisa and the Apple II. And especially considering that Microsoft is considered to have copied the basic windows-based display interface from the early Mac, the obvious question is why Apple’s fine, if expensive, products were so definitively beaten out for market share by computers running Windows.
The reason, again, is network effects and platform economics. For something important happened between the Apple II and all the company’s computers that followed—company co-founder and notorious asshole Steve Jobs closed the system. While the Apple II had many peripheral slots to attach drives, printers, and other means to add new software, the III had no slots, and neither did the Mac. Closed systems struggle to attract the user and developer ecosystem needed to exploit net effects. Further, Apple would not license its operating system to other manufacturers, as Microsoft had with Dell. This meant corporate purchasers were leery of widespread investment in Apple machines. If anything went wrong, they had only one company to turn to, whereas there were many companies making PC clones to choose from.
These factors combined meant that the Mac OS could not become an industry standard, while the more-open Windows OS did. Journalists and business analysts covering Apple recognized its goal was to set “an industry standard alongside DOS, the inferior but widely accepted IBM and Microsoft system,” but out of fears of “cannibalizing” its own hardware sales (and their premium prices), Apple never licensed its OS and therefore missed its chance to gain major market share, as Microsoft had done. All these choices, perhaps understandable based on the market landscape at the time, meant that for all Jobs’s celebrated brilliance, he caused Apple to completely miss its opportunity to exploit network effects and its chance to become the dominant platform. Jobs mistakenly believed that Apple could create “a second industry standard,” rather than being part of the one already started by the IBM PCs. This plan shows a recognition of platform economics, but a real failure to understand them.
Gates himself actually wrote to Apple then-CEO John Sculley, essentially imploring Apple to learn from Microsoft’s standard-setting example and desist in its stubborn refusal to license its OS, as Microsoft had done. Gates’s 1984 memo is an open explanation of the network effects and platform economics that gave it its own monopoly, including the crucial role of network standards and the lock-in experienced by users of applications. It also betrays no small irritation with Apple’s obliviousness:
Apple must make Macintosh a standard. But no personal computer company, not even IBM, can create a standard without independent support. Even though Apple realized this, they have not been able to gain the independent support required to be perceived as a standard. The significant investment … in a “standard personal computer” results in an incredible momentum for its architecture. Specifically, the IBM PC architecture continues to receive huge investment and gains additional momentum.… The closed architecture prevents similar independent investment in the Macintosh.… As the independent investment in a “standard” architecture grows, so does the momentum for that architecture. The industry has reached the point where it is now impossible for Apple to create a standard out of their innovative technology without support from, and the resulting credibility of[,] other personal computer manufacturers.
Gates added that the lack of “Mac-compatible” manufacturers meant that “corporations consider it risky to be locked into the Mac, for reasons of price AND choice.” Therefore, Apple should license the Mac to 3-5 computer makers like Compaq or Dell, and “Microsoft is very willing to help Apple implement this strategy.” A second letter from Gates to Apple repeated the offer to help, concluding, “Please give me a call.” Microsoft was eager to help Apple survive because it was under intense scrutiny from antitrust authorities, and it wanted Apple alive to help appease the Justice Department.
For these reasons, writer Owen Linzmayer observed that “Apple itself is really to blame for the success of Windows.” Beyond his numerous personal shortcomings, Jobs remains an icon in the world of business and especially tech. Numerous literary and movie characters are based on him, and he inaugurated the tradition of insufferable tech bastards taking to presentation stages in sneakers and jeans like middle-aged rock stars.
But for all his enduring visionary reputation, Steve Jobs’s platform bungling richly deserves a big fat F.
Exploring the Amazon
Next up, billionaire entrepreneur Jeff Bezos.
Amazon’s network effect shows up primarily in its marketplace of independent sellers. Bezos’s first attempts to create the independent seller marketplace began in 1999 with the eBay-modeled Amazon Auctions, followed by zShops, virtual storefronts similar to the presence today of the gigantic Amazon Marketplace of independent third-party sellers. These made little money in the early days, but Bezos insisted on keeping the platform open, telling executives he hoped they would grow as fast as the main retail platform. Incredibly, James Marcus, the former lead writer for Amazon’s front page, claims Bezos’s policy was, “If necessary, we should decimate the books division [the main store at the time] to make auctions work.” In other words, allow the indie sellers to cannibalize the company’s main sales in order to build up the platform.
What this suggests is that like other successful evil tech billionaires like Bill Gates, Bezos saw the potential network effect of his business. In any market, having more products to buy attracts more buyers. But with an onboard market of independent sellers, more buyers attract more sellers, whose inventories then attract more buyers in the familiar positive-feedback loop that builds accelerated monopoly across tech industries. The pattern appears even in markets like search, where Google’s search algorithms are trained on user searches—so more users, more search data, better search performance, more users, etc. Bezos recognized the fantastic potential of this simple economic phenomenon, calling his controlled market the company’s “flywheel.”
Clearly, Bezos was vindicated. Today, third-party sellers are ubiquitous on Amazon’s site—including tiny companies and gigantic brand-name corporations—and sell 60 percent of all merchandise on the platform. But, as I wrote in Jacobin last year, “Amazon is fully in control, and as the FTC is arguing [in its current lawsuit against the company], it has used that control to squeeze the sellers and their data at every turn, suggesting the inherent conflict of interest in owning a marketplace and also competing in it.”
In sum, Bezos at the first instance was willing to risk sacrificing the main retail business in order to build the platform—bringing in a large body of indie sellers, helping to run the flywheel of network-fueled growth. That willingness is all the evidence we need to give this bully, famous in the company for screaming at subordinates, an A on the BIT.
Failing Elon
The newest dumb magnate to bungle the BIT is, unsurprisingly, the prominent wifeless billionaire Elon Musk. Since being forced to legally consummate his wildly overprice bid for Twitter, believed to originate as another bad joke, Musk has proceeded to largely wreck an already-intolerable platform, laying off most of the staff and making the surviving workforce boost his posts after he threw a hissy fit in response to President Biden’s Super Bowl post getting more attention than his. The rest of the Musk Management Method has involved demoting the reach of accounts that don’t pay for the now-pointless checkmark, removing article headlines, and writing highly-publicized checks to prominent users while struggling to get the company out of the debt he put it in to buy it.
Most recently, the ham-fisted, pie-faced incompetent has a new idea: paying for access. Desperate to wring more nickels and dimes out of the always-limited user base, Musk hopes to come up with the millions needed to service the company’s Musk-era debt by charging users a dollar a year to use the platform. So far only rolled out in New Zealand and the Philippines, the policy, Musk claims, will extend to the main markets later.
The reader can probably see the point—limiting access to the app is like closing the Apple III. It’s guaranteed to constitute a brake on growth and therefore repress the network effect, which moderately less dumb tech billionaires have recognized. Musk, so far, has not acted on his economically illiterate proposal, typical of a man who is himself the king of letdowns, backdowns, and fuckups. One imagines some member of his ass-kissing inner circle talked him down, as in the numerous other cases of Musk making an eyebrow-raisingly dumb announcement only to later back out or just never bring it up again. But no amount of damage control by his ball-fondling lackeys can erase the reality that Musk has absolutely earned a big fat F on the billionaire intelligence test. What an asshole!
Finally, we should bear in mind that no amount of intelligence entitles these rich jerks to their positions of incredible influence and social power. From Jobs to Musk, half the time billionaires aren’t even aware of the powerful economic forces propelling their platforms to exponential success, even if some of their subordinates are. Getting these dumb imperialist brats out of their positions of social power is one of the first tasks of the socialist movement. Anything else deserves a failing grade indeed.
