AI BABIES ARE COMING The Sooner Than You Think Issue
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
September 11, 2017
AI
BABIES
ARE
COMING
The
Sooner
Than
You Think
Issue
p42
September 11, 2017
5
PHOTOGRAPH BY KLAUS THYMANN FOR BLOOMBERG BUSINESSWEEK
68 In Sweden, a mine worth moving a town for
CONTENTS Bloomberg Businessweek September 11, 2017
IN BRIEF
10 ○ China’s cryptocurrency crackdown ○ Size 0 models get kicked off the catwalk ○ Hollywood’s summertime blues
REMARKS VIEW
14 Don’t ask private
12 The calculus behind North Korea’s companies to put limits
nuclear machinations is simple: Survival on public debate
BUSINESS TECHNOLOGY FINANCE
1 2 3
17 AbbVie has built a 22 Waymo has an 26 Diamonds are a
fortress of patents edge on Uber in disaster for U.K.
to defend its court, but it may be bank Standard
best-selling drug losing its lead over Chartered
self-driving rivals
19 L’Oréal, long known for its 28 Private equity investors are
female-friendly workplace, is searching for the exits at
23 More than 1 million people
6 looking for a few good men British malls
worldwide have found work
putting the I in AI
21 Why plastics could be pricier 29 A snapshot of United
post-Harvey Technologies’ $23 billion
24 Buzz-building influencers
deal for Rockwell Collins
hold no sway at Snapchat
ECONOMICS POLITICS
4 5
42 “We’re also 30 Small towns are a big 36 Trump’s decision to
exploring problem for oil and rescind DACA will
the idea of mining companies in stoke the GOP’s
creating Colombia long civil war over
a digital immigration
31 An immigration crackdown is
celebrity” adding to a worker shortage
38 A rising tide of anti-EU
in Texas—just as Houston
sentiment may shape Czech
begins to rebuild
elections this fall
34 More med school grads are
39 How much is 666 Fifth Ave.
turning away from medicine
costing the Kushner Cos.?
CONTENTS Bloomberg Businessweek September 11, 2017
How to Contact
Bloomberg
Businessweek
The Sooner Than You Think Issue Editorial
212 617-8120
Ad Sales
212 617-2900
731 Lexington Ave.,
New York, NY 10022
Email
bwreader
Soul Machines puts High-efficiency @bloomberg.net
Fax
212 617-9065
a human face on AI p42 vertical farming, Subscription Customer
Service URL
businessweekmag
everywhere p62 .com/service
Reprints/Permissions
The Silicon Valley index p48 800 290-5460 x100
or email
A 6,000-yard businessweekreprints
China’s livestreaming season p67
@theygsgroup.com
boom vs. Beijing’s Follow us on
An entire town social media
censors p50 Facebook
is on the move facebook.com/
bloomberg
businessweek/
Who will be the first
$100 billionaire? p53
in Sweden p68 Twitter
@BW
Instagram
@bloomberg
8 The clean energy businessweek
Voyage to the revolution is here p73
Earth’s final frontier A navigable
Northwest Passage p73
in a minisub p54
The ultimate
We are the 10% p59
keyboard shortcut p74
The unstoppable
federal budget p59
East tops West p60 Building a
The return of supersonic
air travel p60
business out of
sucking CO2 from
We’ll need a lot of the atmosphere p76
lithium for all those
Teslas and phones p60
Bloomberg Businessweek (USPS 080 900) September 11, 2017 (ISSN 0007-7135) H Issue no. 4537 Published weekly, except Covers, from top to
one week in January, February, April, July, and August, by Bloomberg L.P. Periodicals postage paid at New York, N.Y., and at
additional mailing offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington
bottom: Photograph
Avenue, New York, NY 10022. POSTMASTER: Send address changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA by Justin Kaneps;
50037-0528. Canada Post Publication Mail Agreement Number 41989020. Return undeliverable Canadian addresses to DHL Photograph by Balazs
Global Mail, 355 Admiral Blvd., Unit4, Mississauga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulfillment.com. QST#1008327064.
Gardi; Photograph by
Registered for GST as Bloomberg L.P. GST #12829 9898 RT0001. Copyright 2017 Bloomberg L.P. All rights reserved. Title
registered in the U.S. Patent Office. Single Copy Sales: Call 800 298-9867 or e-mail: busweek@nrmsinc.com. Educational
Ian Teh. All for Bloomberg
Permissions: Copyright Clearance Center at info@copyright.com. Printed in the U.S.A. CPPAP NUMBER 0414N68830 Businessweek IN BRIEF
Asia Americas
○ Cambodia charged the ○ Digital assets ○ Facebook bid $610 million
leader of its main opposition for the digital rights to the
party with treason. Kem such as bitcoin Indian Premier League
Sokha faces as many as swooned as cricket tournament—and still
30 years in jail as the ruling came up short. Star India, a
party tightens its grip before China banned unit of 21st Century Fox, won
parliamentary elections fundraising by pledging
next year.
through new
cryptocurrencies. $2.6b
for both broadcast and
○ Attorney General Jeff
Sessions announced an end
to DACA, the five-year-old
program that gives children
digital rights. brought to the country
illegally the right to work
and study without the threat
of deportation.
The policy is meant to clamp down
on initial coin offerings, which have
raised $2.3 billion so far this year.
○ Over the objections of
○ “They’ll eat grass, many prominent Republicans,
President Trump reached
an agreement with
10 but they won’t abandon congressional leaders to
pass a Hurricane Harvey
relief bill alongside legislation
their program unless to raise the debt ceiling and a
continuing resolution that will
fund the government through
they feel secure.”
CLOCKWISE FROM TOP LEFT: STR/AFP/GETTY IMAGES; RENEE JONES SCHNEIDER/AP IMAGES; MICHELE EVE SANDBERG/AFP/GETTY IMAGES;
mid-December.
COURTESY LILIUM; BEN CURTIS/AP IMAGES; BERNAT ARMANGUE/AP IMAGES; SPUTNIK/MIKHAIL KLIMENTYEV/KREMLIN VIA REUTERS;
Russian President Vladimir Putin rejected U.S. calls for new sanctions against North Korea on Sept. 5, two days after
Pyongyang carried out its most powerful nuclear test to date.
○ An international ○ BRICS countries ○ ○ Wonder Woman could do
consortium of journalists only so much for Hollywood,
accused Azerbaijan of criticized Pakistan which posted its worst U.S.
using a for harboring summer box-office haul since
2005. Domestic theaters
$3b
slush fund to bribe
terror groups
in a 43-page
declaration.
collected $3.7 billion over
the season, which ended on
Labor Day, down 18 percent
from the previous year.
European politicians and Pakistan quickly
buy luxury goods. President $4.9m
rejected the
GETTY IMAGES. DATA: BOX OFFICE MOJO
Ilham Aliyev’s office 2013
issued a statement calling portrayal.
the accusations “totally
groundless.” Thousands of Rohingya people fled
Myanmar as the country’s military
attacked the small Muslim community.
$3.7m
About 125,000 refugees have
2017
crossed the border into Bangladesh $3.6m
since fighting began in late August. 2005By Kyle Stock Bloomberg Businessweek September 11, 2017
Europe
○ ○ LVMH and ○ Lilium, a German maker of
flying cars, landed
Kering banned
size 0 models from
their shows, part
of a movement
$90m
in financing, led by China
internet giant Tencent
within the fashion Holdings. The two-year-
industry to old startup completed a
successful flight of its vertical-
promote positive takeoff electric jet last year.
physical standards.
○ Lego said it would lay off
8 percent of its workforce, ○ The European
about 1,400 employees, after Union’s highest
sales fell
court ordered a
5%
11
lower court to
revisit a $1.3 billion
in the first half of the year. It’s antitrust fine
the company’s first revenue
drop in 13 years. against Intel.
Hurricane Irma, one of the most powerful Atlantic storms on record, wreaked
havoc on the Caribbean and threatened southern Florida. Insurance stocks The penalty, levied in 2009, was the
plunged and orange juice futures spiked as investors prepared for devastation. largest of its kind at the time.
○ Federal ○ Brazilian police carried out
Reserve Vice
search and arrest orders on Africa
Rio politicians suspected of
Chairman Stanley paying bribes in the country’s
successful bid to host the ○ After Kenya’s Supreme Court ○ Nigeria and South Africa
Fischer resigned, 2016 Olympic Games.
invalidated the results of the
country’s Aug. 8 presidential election,
posted modest growth in
effective Oct. 13, opposition leader the quarter ended June 30,
Raila Odinga as both economies struggle
citing “personal threatened to boycott
the rerun slated for
to recover from recession.
reasons.” His Oct. 17. He wants Nigeria was buoyed by
greater transparency increased oil production,
departure will from the election commission,
whose electronic systems were
while South Africa surged on
leave four of seven compromised in the vote. a record maize crop.
seats on the Fed
board vacant. Officers searched the headquarters
of Brazil’s Olympic organizing
committee, while a lawyer for Carlos
Nuzman, the committee’s president,
said his client was innocent. REMARKS
12
How the Kims
Came to Love
The Bomb REMARKS Bloomberg Businessweek September 11, 2017
○ For Pyongyang, the nukes aren’t Korea and the U.S. A 2015 assessment by the U.S. Department
of Defense said North Korea’s equipment to a great degree
bargaining chips. They’re an insurance is based on Soviet and Chinese designs dating to the 1970s
policy against regime change and earlier and its air force has planes of 1940s vintage. The
government’s efforts to modernize, the report noted, have
been limited.
○ By Michael J. Schuman If a war does break out, Pyongyang could inflict a lot of
damage and kill a lot of people, especially in South Korea.
Research firm Capital Economics in an August report figured
that the Korean War of the 1950s erased 80 percent of South
North Korea looks pretty scary at the moment, firing off missile Korea’s national output, and even if a 21st century sequel were
after missile, threatening to target Guam, and, on Sept. 3, to prove less catastrophic, wiping out, say, 50 percent, that
testing what the regime claims was its first hydrogen bomb. alone would still shave 1 percent off global GDP. But North
And the country’s dictator, Kim Jong Un—so ruthless he may Korea’s chances of fending off a concerted military effort by
have had members of his own family murdered—might be just the U.S. and South Korea are probably quite low.
crazy enough to push the button to initiate a catastrophic war. Nor can Kim count on his main source of support, China,
Or maybe not. Look deeper, and you’ll find a North Korea to save the day. Beijing did just that in the 1950s Korean War,
that isn’t as much of an immediate danger to the U.S. as the when U.S. forces had North Korea all but wiped from the map.
headlines and rhetoric suggest. That’s because Pyongyang In 2017 the Chinese government may not be so willing. An
isn’t very likely to use its nukes and missiles against the U.S.— August editorial in the Global Times, a Communist Party news-
or anyone else. paper, said that Beijing should stay neutral if Pyongyang were
Don’t get me wrong: North Korea still presents a huge secu- to instigate a conflict with the U.S. That’s not necessarily an
rity risk to East Asia and the world. Kim’s neighbors include official declaration of policy, but it could indicate limits to
three of the world’s 11 largest economies and two of America’s China’s appetite to defend its longtime ally.
closest allies, Japan and South Korea. No U.S. president would Kim certainly isn’t endearing himself to the Chinese gov-
want to see Pyongyang lob a missile into Tokyo or Seoul, let ernment. His antics are raising tensions between Beijing and
alone Hawaii. Washington, which has upped the pressure on China to control
But climb into the mind of Kim—as terrifying as that may its saber-rattling partner by sanctioning Chinese businesses that
13
sound—and we can conclude that his aim isn’t to destroy Los allegedly help Pyongyang and has warned more may come.
Angeles but to save his own skin. This is a regime that was And Kim has displayed a surprising willingness to snub his sup-
never expected to still be around in 2017. When the Berlin posed best friends. The latest nuclear test came on the same
Wall came down and the Soviet Union unraveled more than a day Chinese President Xi Jinping was hosting world leaders at
quarter century ago, North Korea was supposed to vanish with the BRICS Summit in the city of Xiamen and just as Xi is prepar-
them. The regime has since outlasted economic and political ing for the all-important National Congress of the Communist
isolation, stiff international sanctions, and famines so severe Party of China next month, during which he’s expected to
that they may have claimed hundreds of thousands of lives. further consolidate his grip on the country.
But through it all, the Pyongyang government has persisted. Here’s where the nukes come into play. Pyongyang believes
That speaks to the cunning of the Kim family, which has lorded they’re the best, and possibly only, deterrent against evap-
over the country since its founding by the current Kim’s grand- oration, absorption, or annihilation. That’s why the regime
daddy in 1948. They’re survivors. has never been truly willing to trade its nuclear program for
And that’s what Kim is striving to do today: survive. He’s not other benefits—something Washington has tried to do since
out to conquer the world or even expand his influence in his the 1990s. The nukes aren’t a bargaining chip. They’re an
own neighborhood. Kim and the Pyongyang elite must recog- insurance policy.
nize that the odds are against them and their backs are to the Yet the very same weakness that drives Kim’s mania for
wall. We can assume they’re at least somewhat aware that the nuclear weapons is why he can never use them, at least not
forces opposed to the regime—led by the U.S., the world’s super- as an aggressor. As President Trump has already warned, any
power—are too overwhelming to fight off on their own. North such attack would be met by “fire and fury.” That comment
Korea doesn’t possess the military and economic resources to was irresponsible, but the point is true nevertheless. Kim likely
wage a sustained conventional war. isn’t delusional enough to think his country could survive an
It’s true that the economy has been showing signs of life. all-out war with the U.S. and its allies. Proactively launching a
Seoul’s central bank recently figured that North Korea’s gross nuclear-topped ballistic missile against the U.S. would mean his
domestic product grew 3.9 percent in 2016, the fastest pace own destruction. That’s why it won’t happen. The U.S. Defense
in 17 years. (North Korea doesn’t release its own economic Department in its 2015 report said that even though the country
statistics.) The country, however, remains quite poor. Per remains a continuing threat, “North Korea is unlikely to attack
capita national income, at around $1,300, isn’t even 5 percent on a scale that would risk regime survival.”
of South Korea’s. If we see Pyongyang’s motivations in this light, the policy
That poverty has taken its toll on North Korea’s military. course the Trump administration is taking is all wrong. Threats
KYODO/AP PHOTO
Although the armed forces boast more than 1 million people, of fire and fury will only make Kim more paranoid and more
ranking as the world’s fourth-largest, their conventional weap- certain that he needs nukes to defend himself or deter an
onry is aging and technologically far behind those of South aggressive Washington—paradoxically, persuading Pyongyang VIEW Bloomberg Businessweek September 11, 2017
to press ahead even more quickly with its nuclear and missile risks—mainly, that North Korea’s neighbors, especially Japan
development. Note that the more bombastic Trump has become and South Korea, will feel the need for nuclear weapons of
and the closer he seems to inch toward the use of force, the their own, leading to a regionwide, potentially destabilizing
more belligerent Kim has become, to the point of testing what arms race. Washington would also have to work hard to ensure
could have been a hydrogen bomb. Pyongyang doesn’t spread its know-how to other rogue states
That unfortunately leaves Washington with few options. or terrorist organizations that might be less wary of using it—
Any hint that U.S. policy is heading toward some sort of regime such as Islamic State.
change won’t go down well with a Pyongyang desperate to But the U.S. has successfully dealt with the appearance of
survive. Kim & Co. are equally afraid of being swamped in other nuclear powers, whether China, India, or Pakistan, and
more peaceful ways. Unification with an economically vibrant it may have to do so again, this time by containing the North
South Korea will almost certainly lead to the marginalization Korean threat instead of attempting to eliminate it. Negotiating
of Pyongyang’s elite and an end to their influence. a settlement with Pyongyang as a nuclear power may actu-
At this stage, with Kim already in possession of nukes and ally bring a sort of stability to the peninsula that the U.S. has
maybe the ability to deliver them, the only viable option for been seeking for more than 60 years. Maybe then, a less iso-
Washington is to accept this reality and deal with Pyongyang lated and fearful North Korea will be more open to giving up
as it does with any of the world’s other nuclear powers. This its nuclear weapons. The time it takes may not be ideal. But
may sound terribly distasteful, and the course presents its own it’s a lot better than fire and fury.
To read Meghan L. O’Sullivan on Trump’s North
VIEW Korea dealmaking and Leonid Bershidsky on
Elon Musk and the Russian AI threat, go to
Bloombergview.com
That may appear to be a triumph for Neo-Nazis may seem like an easy call. But
Don’t Kick decency. In fact, it risks setting a dan-
gerous precedent.
Consider a vile neo-Nazi website called
with tens of millions of users expressing
all manner of views, these companies
don’t have the capacity—much less the
14
Neo-Nazis the Daily Stormer. After the rally, both
Google and GoDaddy stopped hosting the
site’s domain registration, and Cloudflare
desire—to parse their customers’ politics
and distinguish what’s appropriate and
what’s offensive.
Off the stopped protecting it from cyberattacks.
Such services are the nuts and bolts of
online life. And in refusing to deal with
More to the point, no one should want
them to. Neo-Nazis, however repulsive,
have the same speech rights as every
Internet the Daily Stormer, they effectively kicked
it off the internet.
Good for the internet, you might say.
other American. In demanding that
back-end web companies kick them off
the internet for legally protected expres-
But it’s not so simple. Cloudflare, for sion, activists are effectively asking them
one, had second thoughts. “It doesn’t to limit public debate—according to what-
sit right to have a private company, invis- ever corporate principles the companies
ible but ubiquitous, making editorial might dream up. Do you trust GoDaddy
decisions about what can and cannot Inc. with that responsibility?
be online,” wrote Matthew Prince, the Remember, too, that the pressure
company’s co-founder. won’t end with neo-Nazis. Some right-
○ Getting corporations to He’s right. Such companies are per- wing groups are already asking whether
decide what’s appropriate fectly entitled to drop odious customers. companies plan to ban Black Lives Matter
risks setting a dangerous But expecting them to arbitrate public activists. In polarized times, such calls—
precedent for all Americans discourse is fraught with risks. Domain however ludicrous—are likely to expand
registrars are generally neutral about the and intensify. As economist Milton
content of their users’ sites and rightly Friedman once put it, expecting compa-
Neo-Nazis are having a hard time doing so: As crucial conduits, they have out- nies to take a stand on such issues would
business these days. After a white- sized power over who can express them- “extend the scope of the political mech-
supremacist rally in Virginia ended in selves online. “The pre-internet analogy anism to every human activity.”
violence in August, a pressure campaign would be if Ma Bell listened in on phone Neo-Nazis should face protest,
has induced a lengthening list of com- calls and could terminate your line if it and their hideous beliefs should be
panies to shut down accounts used by didn’t like what you were talking about,” denounced. When they harm others,
the participants and their fellow trav- as Prince put it. they must be held to account. But cor-
elers. From dating apps to ride-sharing Practical problems also abound. porations—or more precisely their
services, seemingly every right-thinking Exactly what content should the compa- lawyers—are the wrong mediators for
company is joining the crackdown. nies accept and what should they ban? such debates. LOOK
OO AHEAD
D ○ Caterpi p llar holds ○ Alta
Alta
aba, holde
lderr of
of Yaho
Yahoo!’
o!’s ○ Big
Big
g dru
drr gma
gmaker
kers make pr
p esenta
ntations
ns on
o new
its investor day y on r ain
remain
rem ing
i ing
g as
asse
sets,
set s repport
orts medici
med
m ici
cine
ne at the Eu
E ropean
a Societyy for Me
edical
Sept.
p 122 second
second-qu
ondd-quart
u r er ear
e nin i gs
ningss Oncolo
Onc l gy
g Congregress
g ss in Madrid on Sept. 8-111
1
B
U
S
I
N
E
S 1
17
S
G g g
C l
To keep rivals ffrom rolling
T g out g
generics ffor its biggest
gg moneymaker,
drugmaker
g AbbVie is using g patents—lots and lots of patentss
SSWEEK
G BU SINESS
INESS WEEK
K
Humira
Hum ra, a tr
trea
eatmmenentt fo
or in
nfla
flamm
mmattor
ory y di
dise
seas
ases
es c nstr
cons
co truc
tr uctetedd ar
arouou u nd i tss p rize z d moneymaker. y
suuch h as rh
rheu
euma
matotoid
id
d art
rthr
hrit
h itis
is and
nd
d pso
sori
rias
asiss mad
ade
de Thhe mo
more re thhaan 101000p pate
pa tent
ntss Ab
AbbV
bbbVie has
h secured d
ERG
ER
by Abb bbViV e In
Vi Incc., is the planet’s best-selli ling dru
rug.g. overer Humumira’ a s li
a’s fetime
life
feti me make a e it diffifficu
ffi c lt ffo
cu a o
or another
LOOMB
O BLOOM
It’s
It ’ als
lso
o be
been
e around d almo
m st 15 y years. Those e two
w c mpan
comp any y to
t repeplilica
li cate
te the dru rug g wiith
t ou ut us
using pro- o-
OO
facts alone would d normally y have rival drugmakers
d k ce
esss ess and d tec
echn
hn
hniq ique
uess to whi hich
h ch h the
h pha harm
h rma giant
FOR
e
eagerly y circling, ready y to roll out generic versions c tinue
cont ue
es to hololdd ririgh
ghtsts. Ma
M ny y of th
tho osee pa
patetents werer
TOMPKINS
t
that could win a piece of the aging medicine’s i su
is ued ove verr th
thee pa
pasts few
st w yeaearsrs as ththe e ex
expipira
ration of
O
$16
$1 6 billio
b on in annual sales. Yet last y year, when the
ye he Humi
Hu mirara’s
’s maiain
n pate tent
ntt gre
rew
w cllososerer. Ty
Typi
ypi
p cac l dr
drug
u s,
BY CAROLINE
p
patent on Humira a’s main ingredient expired, not m de thr
made
ma hrou
ouugh
g che hemi mica
mi call sy
ca synt
ynthe hesi
siss, usu
sual
ally
ly
y hav
avee no
O
S p
September 11, 2017
7
a single compe p titor launched a copycat y versiono . m
more
mo tha
han n a do
doze
zen n or so pate tentnts,
s, if th
that
at. Bu
Butt biiol
olog
ogi
gic
PHOTOGRAPH
Fg
Figuring g out how to manufacture it wasn’t the ob bst
s a- medi
me d ci
di cine
ness su
such
ch as HuHumimirar , wh
whic ich ac
accocoun
untsts for mor
oree E ted by
Edi y
James s E. Ellis
s
O OG
c The real challenge wa
cle. w s the seemingly y impreg- g- than
th an 60 pe p rc
rcen
entt of Abb bbViVie’
Vi e’ss re
reve
venu ue anand d ca
cann ca
arr
rryy
nable fortresss of patents AbbVie hass methodically y a li
list
s pririce
ce of mo
more re tha
han n $5
$ 0,0,00
00 00 pe
per
p r papati
p tiene t, are
en Businessw
s sss eek.com
m BUSINESS Bloomberg Businessweek September 11, 2017
typically made in living cells rather than chem- detailed its strategy: patents covering every aspect
ically manufactured. That process often involves of the drug’s life, from its origins to the diseases
more steps and a higher level of complexity, which it’s approved for. The company listed 22 patents for
opens the door to more potential steps to patent. various diseases or methods of treatment, 14 on the
What’s more, companies can claim any changes to drug’s formulation, 24 on its manufacturing prac-
their drugs over the years—say, using a slightly differ- tices, and 15 “other” patents. The latest expiration
ent medium in which to grow cells or adjusting the date is 2034—providing more than double the pro-
dosing—warrant new legal protections that can keep tection span a drug such as Humira might normally
generic competitors at bay. expect. “Congress had extensive discussion about
If you have a $16 billion-a-year drug, “every how long should biologics get exclusivity before
month is a good month that you’re on market alone,” they get competition,” says Jeff Francer, general
says Mike Fuller, chair of the biotechnology prac- counsel at the Association for Accessible Medicines,
tice group at law firm Knobbe Martens. “So you’re the lobbying group formerly known as the Generic
going to spend whatever it takes to be as aggressive Pharmaceutical Association. “They settled at
as possible and get as many patents as possible.” 12 years, and if you take 12 years from when Humira
AbbVie’s not the only one relying on patents to was approved, that brings you to 2014, so they’re
protect popular biologic medications. Johnson & now trying to get that extended to 2034.”
Johnson’s Remicade, for instance, is another block- The Humira patents, often with arcane names
buster anti-inflammatory biologic drug with more and descriptions, cover everything from what’s
than 100 patents. But AbbVie has been especially inside the drug to how it’s dosed. For example, a
outspoken about its strategy. After seeing it laid out patent called the Fed-Batch Method of Making Anti-
in a company presentation, Ronny Gal, a research TNF-Alpha Antibody protects the way AbbVie pro- ○ Top five biologics
analyst for Sanford C. Bernstein & Co., said at a duces an antibody used in a cell culture medium by 2016 global sales,
with date of U.S.
conference of makers of biosimilars (generic-like with a specific pH, Cerwinski says. FDA approval
drugs, in biologic drug parlance) last fall: “I’m If the science behind the patents appears exotic
pretty sure every CEO in biopharma sent that to to the nonscientist, the legal strategy is easy to Humira
their head of IP [intellectual property] and said, grasp. In 2014, for instance, AbbVie stepped up
AbbVie
‘Can we do that?’ ” its pace of patent filings in advance of last year’s 2002
18
While most drugmakers have been frightened expiration of its main patent. A review of Humira’s Immunology
off, Amgen Inc. has decided that the prize is too patents by the Association for Accessible Medicines
rich not to try breaching AbbVie’s patent defenses. shows the drugmaker has been obtaining patents $16.1b
Amgen is in the first wave of what’s likely to be at a feverish clip in recent years: 21 in 2016 and
Enbrel
a protracted legal battle with AbbVie to launch a 32 in 2015. “There’s a lot of innovation in biologics
Amgen and Pfizer
biosimilar version of Humira in the U.S. AbbVie has and in biologic manufacturing,” says Fiona Scott 1998
filed suit in federal court in Delaware to block the Morton, professor of economics at Yale. “Of graver Immunology
effort, insisting that Amgen has violated 61 patents. concern is that this multistep process of making
The trial for the first 10 is set for late 2019. “The biologics can be patented. The firm can strategi- $8.9b
AbbVie vs. Amgen case is very interesting to a lot cally choose when to file.”
of us because it’s the first time the patent thicket Still, AbbVie isn’t home free. A rival drugmaker Remicade
strategy has been tried in biologics litigation” in the can technically launch a biosimilar version of Johnson & Johnson
and Merck
U.S., says Robert Cerwinski, a partner at law firm Humira while patents are still outstanding, a prac- 1998
Goodwin Procter. “The sheer number of patents tice known as launching “at risk.” Should a court Immunology
does not guarantee success.” German drugmaker find the biosimilar drugmaker in the wrong in that
Boehringer Ingelheim GmbH has also started to scenario, the company would end up owing sub- $8.2b
develop its own version of Humira, to which stantial damages. But if courts rule the other way,
Rituxan
AbbVie has responded by filing suit, arguing that AbbVie could suffer a breach in its patent armor
Roche
Boehringer infringed on 74 Humira patents. that likely would invite other companies to chal- 1997
In a statement in response to questions about lenge its drug’s hegemony—and could lower prices. Cancer
this story, AbbVie spokeswoman Adelle Infante said Until that happens, though, AbbVie continues
that Humira “represents true innovation in the field to rake in big Humira bucks. U.S. sales in the most $7.4b
of biologics and is protected by a strong portfolio recent quarter were up 18 percent, to $3.2 billion in
of intellectual property.” When asked about patent the three months ended June 30, from a year earlier. Avastin
challenges on an investor conference call earlier “It is that portfolio of patents that provides us Roche
2004
this year, Chief Executive Officer Rick Gonzalez sug- confidence that ultimately we can protect the posi- Cancer
gested it won’t be easy for a competitor to defeat tion which Humira based on all the innovation that
Humira’s intellectual property. “The strategy that we’ve done and the investment we’ve made,” said $6.9b
we have in place is not one that hinges on one or CEO Gonzalez. —Cynthia Koons
two patents,” he said.
THE BOTTOM LINE Humira’s annual sales exceed $16 billion.
In a presentation by AbbVie in October 2015, But few drugmakers are willing to challenge the more than
a slide titled “Broad U.S. Humira Patent Estate” 100 patents maker AbbVie has constructed around the medicine. BUSINESS Bloomberg Businessweek September 11, 2017
L’Oréal’s Problem ○ The cosmetics giant is
With Men tops with female applicants.
With guys, not so much
In his first assignment for L’Oréal, Rob Imig spent a reputation as a female-friendly workplace that
10 months pitching a shu uemura lipstick to beauty women job applicants flock there. One result: Last
editors across the country. The editors—all women— year, 77 percent of new hires were female. Therein
often reacted with confusion or amusement. “The lies a problem. “They have a huge gender gap,” says
reaction was a bit startled sometimes,” says Imig, Jonna Sjovall, managing director for the Americas at “The definition
now a 13-year veteran of the company. “The beauty Universum, which ranks the most desirable employ-
of leadership
business is dominated by women. They thought it a ers among business and engineering graduates
bit odd that a guy named Rob was coming to show worldwide. In its most recent tally of U.S. employers, is still largely
them a new lipstick.” L’Oréal was No. 9 for women business graduates but male”
While big companies around the world are striv- only No. 150 among men.
ing to improve the gender balance of their work- The beauty company’s managers worry that the
forces, most are focusing on hiring more women. gap could put it at a disadvantage in recruiting. “For
But for L’Oréal, balance means attracting more men. a big corporation like us, attracting talent for the
The €25.8 billion ($30.6 billion) French beauty prod- future will be a huge topic,” says Jean-Claude Le
ucts company has been a pioneer in the push for Grand, L’Oréal’s head of diversity and inclusion.
gender equality, regularly earning awards for its “We need to attract more male talent.”
efforts. Women manage 58 percent of L’Oréal’s Having more men among its 90,000 global
brands and hold almost two-thirds of executive posi- employees might also help L’Oréal better under-
tions. In 2017 the company ranked first in Equileap’s stand and win male customers, who are becom-
19
annual ranking of 3,000 global corporations on their ing increasingly important in the beauty business.
progress toward gender equality. The market for men’s grooming products will
L’Oréal has been so successful at developing expand 3.3 percent annually over the next five
ILLUSTRATION BY INKEE WANG BUSINESS Bloomberg Businessweek September 11, 2017
Where men and women prefer to work Joelle Emerson, chief executive officer of
Companies with the largest perception gap between genders Paradigm, a diversity consulting firm in San
Francisco, says that using images of women and
Ranked higher by men Ranked higher by women
men in nontraditional roles is likely to appeal posi-
tively to both genders. “Signals and messages,” she
UBS says, “can have a significant impact on who’s going
Nissan
Vanguard to be attracted to working for you.”
Riot Games Underrepresented groups—including men in the
Blackstone beauty industry—won’t apply for jobs that emphasize
Honda Worldwide
Dept. of Defense innate abilities, such as having “a brilliant mind” or
BlackRock “an eye for” something, says Emerson. “They believe,
Ford and not incorrectly, that they are more likely to be
SpaceX
QVC stereotyped,” she says. It’s better to emphasize the
Nordstrom opportunity to develop skills in a job, she says.
Mattel L’Oréal still has work to do to integrate women
PetSmart
Kohl’s into its highest ranks. It’s not uncommon for
Coach women to make up the majority of the workforce
American Cancer Society at fashion and beauty companies “because of their
Macy’s
Gap affinity with the product or service,” says Aniela
L’Oréal Unguresan, head of EDGE, a Swiss-based orga-
Rank difference 0 50 100 nization that certifies organizations and compa-
nies, including L’Oréal, on their gender equality
DATA: UNIVERSUM GLOBAL
programs. “You have a thin layer of male talent
years, compared with 2.9 percent for beauty and at the entry level, but at the top, the pattern is
personal-care products in general, according to data reversed,” she says. “The definition of leadership
from Euromonitor International. is still largely male.”
L’Oréal, which doesn’t sell razors, ranks third Just a decade ago, men held 76 percent of the
in the $47.8 billion men’s grooming market, with a top 1,000 positions at L’Oréal, 83 percent of the
20
5.6 percent share in 2016. No. 1 Procter & Gamble strategic positions, and 93 percent of the seats on
Co., maker of Gillette razors and Old Spice cologne, the executive committee. Today, although women
had 18.7 percent, while Unilever NV, which owns the have made gains overall, their ranks thin in the
Axe brand, had 10.9 percent. No L’Oréal brand is in higher posts. They make up 48 percent of the top
the top 10 for men in market share, though the com- 1,000 positions, 30 percent of the strategic posi-
pany’s Baxter of California targets men. Several of tions, and 32 percent of the executive committee.
its other brands, such as Kiehl’s and SkinCeuticals, Le Grand wants to balance that group by 2020, and
are marketed to both sexes. the company is providing managers with bias and
L’Oréal’s goal is to recruit equal numbers of men inclusion training to make sure they can send the
and women by 2020. “Our vision is clear: We want message to their staff and develop and promote
a perfect balance between males and females,” says female leaders. L’Oréal is also encouraging women
Le Grand, who’s headed the company’s diversity to take on science, technical, and engineering posi-
efforts since 2005. tions traditionally dominated by men.
One way L’Oréal is working to attract more men Meanwhile, to help make the workplace more ○ Share of L’Oréal new
hires in 2016 who were
is by tweaking the way the company presents itself welcoming for men, L’Oréal in recent years has spon- female
to job applicants. On the jobs site for L’Oréal’s U.S. sored an affinity group for male employees in the
unit, shots of the glamorous models and makeup U.S., the Men’s Think Tank, which hosts speaking 77%
used in the company’s consumer advertising are and networking events, shares insights with man-
nowhere in sight. Instead, prominently featured are agement, and helps with recruitment. The company
photos of a goggle-wearing female chemist seated says the group shares the credit for increasing the
at a microscope and a male employee who runs a number of male hires there by 27 percent in 2016.
tech incubator that develops products such as an Imig, who was part of an otherwise all-female
electronic hairbrush. team at Kiehl’s from 2007 to 2015, today oversees
L’Oréal today is also more likely to emphasize five women and two men in the Vichy beauty brand’s
the entrepreneurial aspects of a job, such as devel- digital communications department in Paris. His boss
oping a product or having profit-and-loss respon- is a woman. “Communications was predominantly
sibilities, which often appeal to male applicants. women 10 years ago; that’s no longer the case,” he
“We’re not just a company that sells makeup,” says. “There are still not a lot of guys, but I’ve never
says Angela Guy, L’Oréal’s U.S. diversity chief. “We felt anything but accepted.” —Laura Colby
develop our own products, we have R&D, manufac-
THE BOTTOM LINE Cosmetics maker L’Oréal has a great track
turing, engineering, and other jobs in tech fields record attracting female employees—so much so that now it’s
that may interest men.” aggressively trying to attract men to gain a better balance.Artifact Ethylene
Ethylene is found
in plastic bags,
antifreeze, bubble
gum, PVC piping,
polyester,
and diapers
21
Many Americans have probably never heard of ethylene. ethylene supply. That’s critical because this basic chem-
PHOTOGRAPHS BY CAROLINE TOMPKINS FOR BLOOMBERG BUSINESSWEEK
But this colorless, flammable gas usually made by ical building block is the foundation for making plastics
superheating oil or natural gas is arguably the most essential to U.S. consumer and industrial goods, from car
important petrochemical on the planet—and much parts used by Detroit automakers to diapers sold by Wal-
of it comes from the Gulf Coast region savaged by Mart Stores Inc. Processing plants turn the chemical into
Hurricane Harvey. Ethylene and its derivatives make polyethylene, the world’s most common plastic, which is
up about 40 percent of global chemical sales, says used in garbage bags, food packaging, and even chewing
Hassan Ahmed, an analyst at Alembic Global Advisors. gum. As ethylene glycol, it’s the antifreeze that keeps
The U.S. accounts for 1 of every 5 tons on the market, engines and airplane wings from freezing in winter. It also
and ethylene plants globally were already running becomes the polyester used in textiles and water bottles.
almost full-out before Harvey, Ahmed says. “So any little Because of Harvey’s flooding, Texas plants accounting
hiccup—and this is much beyond a hiccup—will dramati- for 67 percent of U.S. ethylene capacity have closed, say
cally tighten supply-demand balances,” he says. analysts at Jefferies LLC. Production may not return to
Texas produces almost three-quarters of the nation’s prestorm levels until fall. —Jack Kaskey, with Lynn DoanLOOK AHEAD ○ San Francisco hosts a ○ Marketers converge on Digital ○ Apple’s annual iPhone unveiling will
regional version of the Mobile Summit Detroit, an annual mark the company’s first serious effort to
2 World Congress trade show conference sell a model priced at about $1,000
T A Slow-
Se Driv
E
C lf- ing
H ○ Waymo has the edge on Uber
as the companies go to court,
between Uber executives and lawyers show “they
knew good and well what they were getting into with
Mr. Levandowski,” the judge said during a hearing
N but both have a lot to lose on July 26. “It’s a mess of your own making.”
Levandowski has refused to testify, asserting his
constitutional right against self-incrimination. His
lawyer, Miles Ehrlich, declined to comment for this
O
There’s a month to go before the trial starts, story. In May, Alsup referred the lawsuit to federal
but in many ways Waymo can already count its prosecutors for possible investigation. So far, no
trade-secrets lawsuit against Uber Technologies Inc. criminal case has materialized.
as a win. The unusually speedy pretrial discovery Like Uber’s lawyer, Alsup has also warned
L
process has yielded a steady drip of embarrassing Waymo that while it’s made a compelling case that
revelations for Uber. It’s forced the ride-hailing Levandowski took the 14,000 files, it needs to prove
22
company to fire the head of its driverless car more than that to sway a jury. “If you can’t prove
division. And it’s contributed to the ouster of that Uber got these trade secrets, then, you know,
O
Uber Chief Executive Officer Travis Kalanick, now maybe you’re in a world of trouble,” he said during
the most highly anticipated witness in a case that the July 26 hearing.
could reshape the nascent market for self-driving Absent an explicit trail of evidence, Waymo is
car technology. betting it can persuade jurors that a comparison of
G
But Waymo, the company formed from the its designs with Uber’s is sufficiently damning. “We
Google Inc. self-driving car project, hasn’t won yet. have documentary, physical, and testimonial evi-
There are no more fact discovery hearings before dence showing the specific use of multiple Waymo
the trial begins on Oct. 10, and Waymo is running trade secrets, specific pieces of technology, that can
Y out of time to locate the 14,000 computer files it
claims engineer Anthony Levandowski stole while
in its employ and transferred to Uber’s driverless
program, which he took over last year. Without
be found copied in Uber’s,” says Charles Verhoeven,
Waymo’s lead trial lawyer. Most important: the
laser-radar technology known as lidar, which helps
driverless cars navigate obstacles and one another.
that smoking gun, Waymo, a unit of Alphabet Inc., “This is an intentional scheme to steal technology
may have a tough time directly tying Levandowski’s that goes to the top of the company,” Verhoeven
actions to Uber’s alleged trade-secret theft, forcing says. “All Waymo wants is for its trade secrets not
it to try to convince a jury using strong but circum- to be used.”
stantial evidence. Kalanick’s testimony may prove pivotal because
“They didn’t sue the guy who supposedly com- he and Levandowski were close, going on long
mitted this great theft,” says Arturo González, a walks together as they planned the future of Uber’s
lawyer for Uber, which has denied using Waymo’s self-driving car program. The two met before
trade secrets. “It’s like your neighbor steals your Levandowski left Waymo, raising questions about
lawn mower, and instead of suing him, you sue the whether they conspired to bring Waymo’s technol-
guy who bought it at the auction.” ogy to Uber.
Uber hasn’t exactly been upfront about the Google parent Alphabet doesn’t have a rep-
evidence in this case. U.S. District Judge William utation for sore-loser litigiousness or even for
ILLUSTRATION BY NEJC PRAH
September 11, 2017 Alsup has repeatedly upbraided the company for particularly caring about much of its intellec-
misleading him about the trail of evidence and its tual property; it paints itself more as a for-profit
Edited by often-clandestine early dealings with Levandowski, academy where knowledge is the priority. It’s been
Jeff Muskus
including the 2016 acquisition of his self-driving truck rare for the company to use its IP, which includes
Businessweek.com company, Otto, for $680 million in stock. Emails thousands of patents, to attack competitors. TECHNOLOGY Bloomberg Businessweek September 11, 2017
Motion,
Car
g Cra sh
Driverless cars, however, seem to have hit a nerve. In his first address to new employees, on
Just before Christmas, Alphabet sued another Aug. 30, Khosrowshahi said he’s most interested in
former employee for allegedly taking trade secrets making the company a better ride-hailing company.
to driverless- technology company Drive.ai. A “Especially in times of trouble, you really want to “If you can’t
former Google employee who’s raising money for focus on the core,” he said, according to comments prove that
another autonomous driving startup says he’s had released by a spokesperson. “The core of this busi-
Uber got
to field unusually pointed questions from inves- ness is what’s going to pay the bills.”
tors worried about the possibility of a legal threat, Now that Kalanick, Waymo’s hostile star witness, these trade
even though he didn’t work on Google’s self-driv- isn’t running Uber, might the companies settle the secrets, then,
ing project. (He declined to speak publicly for fear suit and ignore a bruising trial? Maybe. That would, you know,
of retribution from Alphabet.) for example, remove the threat that the case could
maybe you’re
“If Waymo loses the lawsuit against Uber, it’s embarrass Alphabet executives on the witness stand.
possible that folks will start to question whether But Khosrowshahi, after all, was hired by the board in a world
23
Waymo has lost its competitive edge,” says Eric of Uber, where Kalanick remains a force bigger than of trouble”
Goldman, a professor at Santa Clara University the director’s seat he continues to occupy. “I’m a
School of Law who focuses on internet and fighter,” Khosrowshahi told his staff in that first
intellectual-property cases. And there’s a lot more address. “I am all in, and I’m going to fight for you
competition than there used to be. with everything in my body.”
When Uber first began its self-driving effort —Joel Rosenblatt, with Mark Bergen
in 2015, Google’s project “seemed to be the only
THE BOTTOM LINE While Waymo has put Uber on the defensive
game in town,” says Mike Ramsey, an auto analyst during pretrial proceedings, it could fail to win over a jury, and it has
at researcher Gartner Inc. Ramsey estimates that a lot of fresh competition in driverless technology.
some 50 companies are now working in autonomous
driving. “A lot of things have changed since then,”
he says. In those two years, General Motors Co. and
Ford Motor Co. have each paid hundreds of millions
of dollars to buy self-driving companies. And since
Waymo sued Uber, Fiat Chrysler Automobiles NV,
Will Make AI Smarter
Waymo’s initial car partner, has formed a self-driving
partnership with BMW AG. Chris Urmson, Waymo’s
For Cash
former top executive, is also raising money for his
own company, another likely competitor. ○ The need for humans to train AI
Whether or not Waymo wins its lawsuit, it’s fair software has created a new industry
to wonder if Uber will stay in the race. Incoming
CEO Dara Khosrowshahi, the former head of travel
site Expedia Inc., has a long list of business and When Katharine Rubin has a spare moment on the
cultural problems to resolve. While driverless cars way to school, she helps a big-name tech company
were an obsession for Kalanick, Khosrowshahi may smarten up its artificial intelligence. Rubin, a 22-year-
not have the same love for an unproven technology old accounting major at New York City’s Baruch
that has hall-of-fame liabilities attached. “It’s like College, is part of a growing workforce that spends
Delta owning special jet-engine technology,” says anywhere from 5 minutes to 40 hours a week increas-
Ramsey, who suggests Uber may stop trying to ing the I in AI. Specifically, Rubin and others provide
build its own lidar and other components, instead training data for machine learning algorithms, a form
waiting for them to become cheap enough to of AI that can be taught from experience.
be interchangeable. For an autonomous car to recognize pedestrians TECHNOLOGY Bloomberg Businessweek September 11, 2017
and stop signs, it’s typically fed thousands or mil- more fun and less fatiguing. These services pay any-
lions of photos, all hand-labeled. To nail a conver- where from a penny a task to $2,000 a pop for a
sation, a digital assistant needs to be told over and radiologist to tag a medical image.
over when it’s failed. And so Rubin spends 10 to Other companies offer full-time work. IndiVillage
30 hours a week on her phone or computer evalu- Tech Solutions LLP hosts about 100 women and
ating search results and chat retorts through a site youth at its office in the Indian town of Yemmiganur
called Clickworker. Her income, generally $10 to $14 and spends profits on education and drinking water
an hour, pays for part of her college commute from for the community. “We think it’s pretty cool that
New Jersey and some of her mom’s groceries. Each a tiny community in a rural Indian village today
task pays 3¢ to 15¢ apiece, she says, and “they’re easy, is helping with providing data for artificial intelli-
so it quickly adds up.” gence,” says Chirasmita Amin, the company’s busi-
As automation and AI eliminate a range of rel- ness development manager. In Serbia, Microwork
atively rote jobs, the need to train software is also pays an hourly wage of at least $3 an hour, more than
creating other employment opportunities. People twice the local minimum, to 100 people in an area
must label massive collections of unsorted data where jobs are scarce, and it says it aims to expand
so computers can perform more complex tasks, its ranks to 1,000 this year. Samasource trains and
such as driving cars and carrying on conversa- employs people in Africa, India, and Haiti.
tions. Clickworker GmbH is one of several compa- “I can imagine an AI that is connected to all of
nies feeding the need for training data as machine humanity,” says Andy Gough, the CEO of Microwork,
learning spreads into more business processes. All “and whenever it needs to learn something, it simply
together, more than 1 million people around the employs humans to generate the data it needs.” ○ There are well over
world are chipping in, one click at a time. Rubin, the Baruch student, doesn’t worry about
Many of the startups are being fed by eager possibly training her AI replacement someday. 1m
people helping to train
venture capitalists. So far this year, Alegion, Scale, “No matter what the profession,” she says, “we AI software (for a fee)
CloudFactory, Mighty AI, and CrowdFlower have will be working alongside AI in our everyday lives.”
received about $50 million in investment funding, —Matthew Hutson
and Understand.ai is expecting to raise a few million
THE BOTTOM LINE The nine-figure market for AI trainers has
this month. attracted about $50 million in venture funding this year to a cadre
24
Some of these companies have specialties. of startups dependent on armies of workers to sort data.
Mighty AI Inc. and Understand.ai focus on annotat-
ing images for autonomous driving. DefinedCrowd
tackles natural language processing, so workers
record or transcribe speech samples, among other
Snapchat
tasks. Microwork photographs and tags brand logos
to, say, track exposure on Instagram. Other com-
panies are generalists, tagging vehicle damage,
categorizing media, handwriting notes, or assess-
vs. the
ing product reviews as needed.
Clients range from startups to the likes of Google
parent Alphabet, Amazon.com, Apple, Facebook,
International Business Machines, Microsoft, and big
‘Influencers’
automakers. (At that level, most also have in-house
sorters.) Jacques Bughin, a director of the McKinsey
Global Institute, speculates that the nine-figure
market could hit $5 billion in five years. Jonathan
Roosevelt, a partner at Industry Ventures who led
CrowdFlower’s $20 million round of funding in June, ○ The disappearing-message service kept it tough for users
says that’s optimistic but possible. “One of the things to measure their audience, and Instagram swooped in
that got us excited is how valuable this is to some very
rich companies,” he says.
Beyond recruiting workers and sorting data, AI Wes “Wuz Good” Armstrong has almost 700,000 fol-
training companies typically create the software lowers on Instagram, enough to get paid six figures a
interfaces for workers to label data, as well as the year to promote Lexus cars and Axe body spray there.
quality-control methods. Some of them hire people It’s easy, he says, to put products in his comedy and
one task at a time. Alegion Inc. and Clickworker each stunt videos for an audience that will still like and
have about 1 million data sorters, with most of the comment on the posts as long as they’re entertained.
tasks aimed at machine learning. Daryn Nakhuda, the Snapchat makes things a lot tougher. Armstrong
chief executive officer of Mighty AI, says his company has followers there, too, but he doesn’t know exactly
YOUTUBE (3)
tries to add gamelike elements (experience points, how many. And because of the way the service works,
badges, online discussion forums) to make the jobs it’s hard for him to track how many people watch the TECHNOLOGY September 11, 2017
sponsored messages he sprinkles into his posts. To ① Armstrong hails a
Lyft to class and nods
capture the audience for a recent video for Toyota to the Fresh Prince of
Motor Co., he had to set an alarm on his iPhone for ① Bel-Air theme, after
23 hours and 59 minutes after the post to remind him oversleeping ② The
freedom of the internet,
to take a screen shot of the number of viewers. He was the former Vine star
cutting it close: Like most Snapchat posts, the video says, helped deliver him
disappeared at the 24-hour mark, taking his proof a Toyota Corolla ③ He
credits Axe body spray
with it. He makes a lot less money on Snapchat— with getting him out of
maybe $10,000 a year, he says, if he’s lucky. the “friend zone”
This is by design. Snapchat’s parent company,
newly public Snap Inc., says the app is mostly meant
to be used for communication among close friends.
The implication: It’s not designed for the so-called
influencers who use carefully edited Instagram ②
photos to get internet-famous enough to hawk Axe.
Influencer types use Snapchat anyway, and people
follow them anyway, but Snap makes little effort to
cater to them. And they’re getting annoyed. The
number of influencers posting Snapchat stories in the
second quarter fell 20 percent from the first quarter,
while Instagram saw an 11 percent jump, according
to data-analysis company Captiv8.
The company doesn’t send executives to VidCon,
the influencer conference in Anaheim, Calif., where
Instagram and its corporate parent, Facebook Inc., ③
have a heavy presence. There’s no special Snapchat
team catering to the pitchmen and no easy way functionality and capabilities and transparency for
for the influencers to tell how many views they’re influencer campaigns,” says Dorr, whose company
25
getting, making it less obvious why the Lexuses of represents Procter & Gamble Co. and General Motors
the world should pay them. And since Instagram Co., two of the biggest advertisers in the world.
copied Snapchat’s “stories” feature, letting users But Snap isn’t interested, say people familiar
string together videos that disappear after a certain with its executives’ thinking. As a compromise, the
amount of time, “Instagram has taken a lot of company has started providing viewership data to a
Snapchat’s swag, for sure,” Armstrong says. Snap handful of popular users who produce posts Snap
declined to comment for this story. considers broad or interesting enough to be tagged
Instagram’s clone (also called “stories”) has made as “official” stories. Michelle Obama made the cut;
it easier for advertisers to cut Snapchat out of their most latte-foam artists didn’t.
plans. At last year’s New York Fashion Week, market- This break with self-promotional social media
ing agency United Entertainment Group used other types is one of the many ways Snap has deliberately
services to pay teen girls and college-age women to eschewed the examples of Facebook and Instagram,
pitch a large hair-care brand to their peers. “It would despite outside pressure for it to start making more
have fit right into the Snapchat demographic, but money. Without mentioning the company by
right now there is just so much available on Instagram name, Snap executives aren’t shy about criticizing
and on YouTube and on Facebook,” says Josh Kaplan, Facebook’s obsession with growth during investor
senior director at UEG’s influencer-focused division. presentations and earnings calls, arguing that the
“It makes it very difficult for us to justify pushing service’s value has been diluted by meaningless con-
content to Snapchat.” nections and notifications about acquaintances users
Instagram has catered to this kind of advertising haven’t seen in years. Snap maintains it’s focused
only in the past year or so. Since 2016, the company on holding the interest of a much smaller group of
has made it easier for brands to track the popularity higher-value eyeballs.
of posts by the influencers they pay and let the brands However big or small the audience, brands want
pay to promote those posts as they would regular to know exactly who they’re reaching, says UEG’s
ads. (It’s also started to indicate more clearly which Kaplan, whose clients include Microsoft, Samsung,
posts are paid ads.) Facebook and Twitter Inc., like and Unilever. “It’s very important to us to have an
YouTube, allow some influencers to get a cut of ad apples-to-apples comparison with how we’re spend-
revenue from videos they produce. ing our dollars.” If clients choose Snap, he says, “we
Snap would be wise to catch up, says Erin Dorr, get a lot of screen shots.” —Sarah Frier
vice president for digital and social strategy at MSL
THE BOTTOM LINE Snapchat’s lack of public user data
Group, a PR conglomerate. “Agencies everywhere has made it less hospitable for buzz-building types. Its parent
are just waiting for Snapchat to come out with more company doesn’t seem to mind.You can also read
