Inequality, Productivity, and WhatsApp | Robert Reich


I find the following story fascinating. To my way of thinking; good for the founders and employees of WhatsApp, I wish I was one of them as perhaps you do.

Clearly, this scenario is not new, but it also reflects the changing environment of our and other societies in terms of work. It is no secret old skills and old jobs will not make it in this new environment. And low skill jobs are mostly in developing countries.

imageTo Robert Reich’s way of thinking the gains achieved by entrepreneurs are fueling inequality. In other words, pulling away from the pack is bad, unfair. The solution? Spread the gains more widely!

As you can see, most of the money in this deal is in stocks, funny money if you will that can grow or evaporate. But $4 billion cash is nothing to sneeze at … and there will be taxes paid and money spent in the economy, a lot of money.

Reich is right, of course, we need to figure out how to grow the jobs for regular folk who are not lucky like these guys, but we need to do that in the context of a global, ever more technology based economic world.

What bothers me is his use of this example which is intended to inflame and reinforce his populist theme that others are taking from the average Joe, the implication being that a financial deal such as this one is somehow bad. Fueling inequality can come from the top and bottom. Adding a few more millionaires is a drop in the bucket compared with adding millions of low skilled, low income immigrants. I’m not picking on the immigrants, but simply the numeric results when comparing the high and low ends of the economy.

This is from Huffington Post and is written by Robert Reich.

MORE: Brian Acton Jan Koum Whatsapp Facebook Income Inequality Business News

If you ever wonder what’s fueling America’s staggering inequality, ponder Facebook’s acquisition of the mobile messaging company WhatsApp .

According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.

That’s the highest price paid for a startup in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.

(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)

Given that gargantuan amount, you might think WhatsApp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.

Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.

It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.

The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.

Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion).

How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it’s already achieved, even a small fee generates big bucks. And if it gets into advertising it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world’s population.

The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.

And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.

But we’re not getting more jobs.

In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).

Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.

Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line — or spread the gains more widely — our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.

via Inequality, Productivity, and WhatsApp | Robert Reich.

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