The long bezzle
Verizon can remain irrational longer than you can remain solvent.
Going to Defcon this weekend? I’m giving a keynote, “An Audacious Plan to Halt the Internet’s Enshittification and Throw it Into Reverse,” on Saturday at 12:30pm, followed by a book signing at the No Starch Press booth at 2:30pm!
When it comes to the modern world of enshittified, terrible businesses, no addition to your vocabulary is more essential than “bezzle,” JK Galbraith’s term for “the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it”
https://pluralistic.net/2023/08/09/accounting-gimmicks/#unter
The bezzle is contained by two forces.
- First, Stein’s Law: “Anything that can’t go on forever will eventually stop.”
- Second, Keynes’s: “Markets can remain irrational longer than you can remain solvent.”
On the one hand, extremely badly run businesses that strip all the value out of the firm, making things progressively worse for its suppliers, workers and customers will eventually fail (Stein’s Law).
On the other hand, as the private equity sector has repeatedly demonstrated, there are all kinds of accounting tricks, subsidies and frauds that can animate a decaying, zombie firm long after its best-before date (Keynes’s irrational markets):
https://pluralistic.net/2023/06/02/plunderers/#farben
One company that has done an admirable job of balancing on a knife edge between Stein and Keynes is Verizon, a monopoly telecoms firm that has proven that a business can remain large, its products relied upon by millions, its stock actively traded and its market cap buoyant, despite manifest, repeated incompetence and waste on an unimaginable scale.
This week, Verizon shut down Bluejeans, an also-ran videoconferencing service the company bought for $400 million in 2020 as a panic-buy to keep up with Zoom. As they lit that $400 mil on fire, Verizon praised its own vision, calling Bluejeans “an award-winning product that connects our customers around the world, but we have made this decision due to the changing market landscape”:
https://9to5google.com/2023/08/08/verizon-bluejeans-shutting-down/
Writing for Techdirt, Karl Bode runs down a partial list of all the unbelievably terrible business decisions Verizon has made without losing investor confidence or going under, in a kind of tribute to Keynes’s maxim:
Remember Go90, the “dud” streaming service launched in 2015 and shuttered in 2018? You probably don’t, and neither (apparently) do Verizon’s shareholders, who lost $1.2 billion on this folly:
https://www.techdirt.com/2018/07/02/verizons-sad-attempt-to-woo-millennials-falls-flat-face/
Then there was Verizon’s bid to rescue Redbox with a new joint-venture streaming service, Redbox Instant, launched 2012, killed in 2014, $450,000,000 later:
Then there was Sugarstring, a tech “news” website where journalists were prohibited from saying nice things about Net Neutrality or surveillance — born 2014, died 2014:
https://www.theverge.com/2014/12/2/7324063/verizon-kills-off-sugarstring
An app store, started in 2010, killed in 2012:
https://www.theverge.com/2012/11/5/3605618/verizon-apps-store-closing-january-2013
Vcast, 2005–2012, yet another failed streaming service (pray that someday you find someone who loves you as much as Verizon’s C-suite loves doomed streaming services):
https://venturebeat.com/media/verizon-vcast-shutting-down/
And the granddaddy of them all, Oath, Verizon’s 2017, $4.8 billion acquisition of Yahoo/AOL, whose name refers to the fact that the company’s mismanagement provoked involuntary, protracted swearing from all who witnessed the $4.6 billion write-down the company took a year later:
Verizon isn’t just bad at being a phone company that does non-phone-company things — it’s incredibly bad at being a phone company, too. As Bode points out, Verizon’s only real competency is in capturing its regulators at the FCC:
And sucking up massive public subsidies from rubes in the state houses of New York:
https://www.techdirt.com/2017/03/14/new-york-city-sues-verizon-fiber-optic-bait-switch/
New Jersey:
and Pennsylvania:
Despite all this, and vast unfunded liabilities — like remediating the population-destroying lead in their cables — they remain solvent:
Verizon has remained irrational longer than any short seller could remain solvent.
Short-sellers — who bet against companies and get paid when their stock prices go down — get a bad rap: billionaire shorts were the villains of the Gamestop squeeze, accused of running negative PR campaigns against beloved businesses to drive them under and pay their bets off:
https://pluralistic.net/2021/01/30/meme-stocks/#stockstonks
But shorts can do the lord’s work. Writing for Bloomberg, Kathy Burton tells the story of Nate Anderson, whose Hindenburg Research has cost some of the world’s wealthiest people over $99 billion by publishing investigative reports on their balance-sheet shell-games just this year:
Anderson started off trying to earn a living as a SEC whistleblower, identifying financial shenanigans and collecting the bounties on offer, but that didn’t pan out. So he turned his forensic research skills to preparing mediagenic, viral reports on the scams underpinning the financial boasts of giant companies…after taking a short position in them.
This year, Anderson’s targets have included Carl Icahn, whose company lost $17b in market cap after Anderson accused it of overvaluing its assets. He went after the world’s fourth-richest man, Gautam Adani, accusing him of “accounting fraud and stock manipulation,” wiping out 34% of his net worth. He took on Jack Dorsey, whose payment processor Square renamed itself Block and went all in on the cryptocurrency bezzle, lopping 16% off its share price.
Burton points out that Anderson’s upside for these massive bloodletting was comparatively modest. A perfectly timed exit from the $17b Icahn report would have netted $56m. What’s more, Anderson faces legal threats and worse — one short seller was attacked by a man wearing brass-knuckles, an attack attributed to her short activism.
Shorts are lauded as one of capitalism’s self-correcting mechanisms, and Hindenberg certainly has taken some big, successful swings at some of the great bezzles of our time. But as Verizon shows, shorts alone can’t discipline a market where profits and investor confidence are totally decoupled from competence or providing a decent product or service.
I’m kickstarting the audiobook for “The Internet Con: How To Seize the Means of Computation,” a Big Tech disassembly manual to disenshittify the web and bring back the old, good internet. It’s a DRM-free book, which means Audible won’t carry it, so this crowdfunder is essential. Back now to get the audio, Verso hardcover and ebook:
If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
https://pluralistic.net/2023/08/10/smartest-guys-in-the-room/#can-you-hear-me-now
Cory Doctorow (craphound.com) is a science fiction author, activist, and blogger. He has a podcast, a newsletter, a Twitter feed, a Mastodon feed, and a Tumblr feed. He was born in Canada, became a British citizen and now lives in Burbank, California. His latest nonfiction book is Chokepoint Capitalism (with Rebecca Giblin), a book about artistic labor market and excessive buyer power. His latest novel for adults is Red Team Blues. His latest short story collection is Radicalized. His latest picture book is Poesy the Monster Slayer. His latest YA novel is Pirate Cinema. His latest graphic novel is In Real Life. His forthcoming books include The Internet Con: How To Seize the Means of Computation, a detailed policy plan for dismantling Big Tech (Verso, 2023); and The Lost Cause, a utopian post-GND novel about truth and reconciliation with white nationalist militias (Tor, 2023).
