The Joys of Anti-Competitive Hiring Practices

There are a few things that’re iconically Silicon Valley largely because they’re unique everywhere else but common here. Talking about programming or math at a bar, having gigabytes worth of storage on your keychain, and masses of people with bachelors degrees in either computer science or computer engineering are typical things around here but oddities  elsewhere.

Another unique aspect of Silicon Valley is the practice of freely and frequently moving between tech companies. Loyalty is often a function of neat tech, good pay, and stock options. When tempted with cooler technology to play with, higher pay, and if your stock has already vested, the fact that being hired into another company only means you’re moving down the block  makes horizontal transitions all the more attractive. You still get to keep your friends and your life. But now you’re getting paid more, have a new title, and maybe even a bigger cube.

It’s really a win-win situation. You get more pay as companies try to outbid each other to get you. Your prospective employers get an opportunity to have a fresh and novel way of solving problems come into their company, and maybe even some accidentally-acquired IP (intellectual property) in the form of trade secret-esque solutions that can be applied to solve their problems. For example, if you go from working on the iPod to the Zune you probably won’t bring blueprints on how the iPod works with you. But if you’re confronted with a problem with the Zune that you had when you were working with the iPod, you can solve it efficiently and quickly using the stuff you learned as an engineer at Apple. This kind of stuff is pretty common, especially in software engineering where algorithms are hard to copyright and protect legally.

But just as a lot of companies welcome in skilled employees from their competitors, they often don’t like their rock stars leaving for this reason. When you get hired by some of the big names, you’ll often see CNCs as part of the big stack of papers you sign. A CNC stands for a Covenant to Non-Compete (or a Non-Compete). CNCs are agreements that stipulate that you won’t go to work for a competitor in the same industry following your service at your company. The reason? You’ll upset competitive advantage. To go back to the previous example, if I solve the problem on the Zune that the iPod had once before, the Zune gains competitive advantage on the iPod. With good marketing and advertisement, this technological gain could mean that Apple loses control of the market just because you solved a problem that’s been holding back their competitor’s product.

What most people don’t know is that CNCs are legally referred to as Unconscionable Contracts in California state. Basically, they’re illegal. They can’t be enforced  and usually are just a form of scare tactic to mess with your decision making process when you consider leaving. Without that ability to be legally enforcable, companies sometimes turn to  gentlemen’s agreements to not hire each others’ employees so as to protect each’s competitive advantage. This “no poaching” deal works out well enough to make the constant competition between firms seemingly professional and civilized (sort of like Victorian Age warfare), ignoring the fact that many companies will then sneak behind each others’ backs and hire recruiting firms that’ll do just that (again, sort of like Victorian Age warfare).

But now even this might become illegal given recent anti-trust rumblings from the Department of Justice. The DOJ announced earlier this year that they’d be taking a “harder look” into the technology market, particularly into recruiting practices that engage in these no poaching deals. Now, there’s a lot of drama surfacing that Palm gave Apple the finger on stuff  like this because they were supposedly afraid of  the DOJ’s new trust-braking campaign in tech. Given that the DOJ would probably investigate both companies anyway if there was some sort of collusion going on, this isn’t just a PR stunt from Palm to hurt Apple’s brand. The message on both parts is clear: something is coming.

I’m honestly a bit surprised that this is the place where the DOJ’s trying to make its stand against tech. That’s it? Huge M&A action has been greenlighted by them that dramatically threaten to yield extreme market power to companies like Oracle, and they choose to protect the resource market by tagging hiring practices? Maybe this is being designed to be some sort of RICO type of maneuver that allows them to hit eveyrone at once.

I hope so. Otherwise the lawyers running the DOJ might be drinking as much on the job as the engineers over here in the ‘Valley. And frankly, drunken programming in C++ is a much better idea than drunken corporate law reform.

M&A <3 Recessions.

Maybe it’s all the finance people I’m around right now, but M&A’s quickly taking over my econ-rants recently (especially those late at night over a few drinks with people who have no idea what I’m talking about). Mergers and acquisitions (ie: M&A) is definitely one of the sexier topics in corporate finance. The amount of money usually involved is probably the culprit: multi-million or billion dollar deals are pretty fun, especially if you’re the over-worked investment banker who’s getting a cut behind the scenes.

Theoretically, M&A should be picking up a lot in the next few months. With prospects good for economic improvement in the next fiscal year, some companies are more willing to spend cash to buy innovation rather than develop it in house. This take on the “Buy/Build” question probably has to do with the cost curves for firms in a recession.

Gains from Specialization and How Carol Bartz Plays For Keeps

Carol Bartz is pretty “G”. Armed with spunk, brilliance, and an impressive background, she helped Autodesk fight off an upstart company by the name of Adobe to retain their advantage in the CAD software market. She’s on the board of directors at Sun, cusses like a fuckin’ sailor, and probably shoots her chrome .45ACP sideways while she throws “westside” with the other hand. She’s the perfect person to turn Yahoo! around and put it back on track.

Merlot and Rock Band: The Role of Culture in Technology M&A

[Hopefully] on the tail end of the recession, a wide range of major acquisitions and mergers has started as the frozen credit market begins started to thaw. This is the time that a lot of tech companies were waiting for. With public firms undervalued and indication that the macroeconomy is starting to improve, the time is ripe to empty some of their huge coffers in buying competitive technology that’ll give them a comparative and competitive advantage for cheap.

How to turn an Algorithms test into an economics final.

My Algorithms final had an awesome question on it that asked you to use graph theory to solve a constrained optimization problem for a bulk transport business. Naturally, being both an Econ major and hopped up on
caffeine, I went a little crazy on this question. Here’s roughly what I answered.

What are the edge weights for this graph?


The weights for this graph correspond to a vector of costs including:

• Fuel Costs: Distance in miles * [ Efficiency of Engine] * ( Miles / Gallon at nearest transport depot)
• Tariff other import taxes when entering a region.
• Other taxes on heavy freight.
• Fixed Costs: Fixed costs of utilizing a certain type of vehicle to transport heavy freight.
• Opportunity costs: Some quantification of the value of time used in transit along this route relative to what else could’ve been done.

So at this point, I stopped myself and turned my test into my professor. But, still caffinated, I kept geeking out and told him that:

Dr. Beeson, I loved your last question. Asking an Econ major to write you what amounts to a cost function is dangerous though. I was going to fill up this page with other variables like:

• Potential externalities related to transport along this route (e.g.: Exxon Valdez)
• The Expected Value of a PDF for payouts for things like worker’s comp, accidental death payouts, etc.
• Potential for this event to be a path-dependent factor in later antitrust litigation.

He asked me if I thought there was money in using graph theory for constrained optimization. I immediately opened the floodgates and talked about the potential for using graph theory to seek optimal FOREX trades (the topic of my ACM Crossroads paper I’m working on) as opposed to linear programming on a regression – a much more time-consuming and thus imprecise system given how quickly such a market changes.

Long story short: I hijacked my algorithms final and turned it into some bastardization of Econ 101, 102, 103, 104, and 121.

The Department of Justice Keeps it Real

The Department of Justice recently recalled a policy report that took a very Williamson-esque review of technology antitrust policy. The implications of this do not look good for the Oracle-Sun merger: if the DOJ has decided that market power from firms may not be as good for social welfare as they originally thought (or worse: is anticompetitive), sneaking MySQL and OracleDB’s market share may become a serious problem. Computer World’s article on the subject has one particularly telling part:

Christine Varney, assistant attorney general in charge of the Antitrust Division, said her comments, made during a speech Monday, weren’t directed at any one company. She did say, however, that the DOJ should take close looks at the high-tech and Internet industries and new ways of measuring antitrust activity there. Varney also said the DOJ would look hard at mergers and their impact on competition.

“Withdrawing the … report is a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers,” Varney said during a speech. “The division will return to tried-and-true case law and Supreme Court precedent in enforcing the antitrust laws.”

Yikes. Good luck, Mr. Ellison.

On the personal front, I’m pretty beat. Finals on this upcoming week mean I’m doing the whole why-aren’t-there-enough-hours-in-the-day-ohmiGodcanIpleasesleep thing. I keep telling myself that it’s only a week until I go back and intern at the company that I was at last summer. Still, it can’t come fast enough.