Big Technology Podcast - SEC Comes For Coinbase, Hindenberg Comes For Block, Congress Comes For TikTok

Episode Date: March 24, 2023

Eric Newcomer is the founder and author of Newcomer. Louise Matsakis is the tech and China reporter for Semafor. Both join Big Technology podcast to break down the week's news. We cover: 1) The SEC's notice to Coinbase that enforcement action might be coming. 2) Hindenberg Research targeting Block. 3) Character AI raising $150 million at a $1 billion valuation with no revenue. 4) Tiktok's day before congress 5) TikTok's future in the U.S. 6) Cow and Zebra escapes this week. ---- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [e-mail]

Welcome to Big Technology Podcast Friday edition, where we break down the week's news in our typical cool-headed and nuanced manner. We are going to talk about a lot this week. There's been big news going on in the world of Coinbase Block, so much fintech happening. We have a new unicorn. It's called Character AI, raised $150 million with no revenue. But Andreessen Horowitz leading, are we back? in the good old times and then of course TikTok CEO testified before Congress and it was a mess. Ron John Roy is off today. Joining us today we have two great guests. We have Eric Newcomer with us. He is the author and founder of Newcomer. Welcome Eric. Thanks for having me. And Luis Metzakis is here.

She's Seventh Force Tech and China reporter. Louise, welcome back to the show. Welcome, welcome back both of you actually. Thanks, Alex. We're happy to be here. Let's start with Coinbase. you have the SEC that sent Coinbase a Wells notice, which seems to indicate that there's going to be enforcement coming through. And there are some opinions out there that hold that this might be the end for Coinbase. I mean, it's extreme. But if you think about the secure Coinbase as an exchange for crypto tokens, the SEC seems to think that crypto tokens are securities. Is Coinbase going to survive this? Yeah. The real question right now is just the scope of, what this sort of civil action might cover right if it's sort of side parts of coin

coin basis business then it can find it out and it's fine but if it's at the core of just you know every crypto is a security then that will be devastating right i think from coinbase's perspective they're like we went public we file there was a filing you guys said you know the cc said we could go public uh why why the crackdown now that would be sort of the argument for this being sort of a more narrow problem is if it's like everything why why ever let coin base go out on the other hand i think there have been enforcement actions where you know uh i think wasn't it somebody at coin base was accused of insider trading so there and and if you're your your insider trading that suggests that you're dealing securities which means that you could be violating securities you

know so there there's lots there's lots of signals here but we don't we don't know exactly what's going to happen. What's your hunch? If it goes after everything, I mean, it's going to devastate the whole crypto world. So I guess my hunch would be that it's it's about some other, you know, like side product of theirs. And that's what Coinbase said, right? They thought it would be sort of some of the segments. But we'll have to see. Louise, what's your take? I mean, some people are saying now the government is coming after crypto and trying to destroy it. I don't know about trying to destroy it, but I do think post-FTCs meltdown, there's been a lot of appetite among regulators, right? We saw, like, a couple of indictments, including the co-founder

of Tara Labs, who just got arrested in Montenegro earlier this week. I can't wait for the movie. I think he was caught with both Costa Rican papers and Belgian papers that were both fake. Nothing to hide here. Just let me go by with my fake passport. What a wonderful place to get arrested. Like, man, that's where I want to get arrested. What, hiding out in the Balkans, right? I thought it was shocking that he, you know, dare kind of go to Europe. because last we heard, authorities were looking for him in Siberia, which seemed like a great place to hide. So I don't know why.

Maybe he got a little chilly. But I think about some of the things that Coinbase, I don't know if they still do this, but some of the things they used to do that I could see the SEC sort of taking question with. For example, they used to let crypto companies pay to promote within their app. And you would basically like watch a slideshow and then get paid in that cryptocurrency. So, you know, you were distributing the cryptocurrency via, like, Like, you know, it was like, you know, a reward for watching a slideshow, basically.

And I think that those sorts of things could sort of artificially boost the price of those coins, right? Like, so I think that there were just sort of some maybe like crypto normal things that Coinbase was doing that I could sort of see the SEC taking issue with. But I totally agree with Eric that they were kind of the good player and the above board player. And I think that this suggests that doing everything above board is not good enough. anymore if you are a crypto firm. Is that fair? I mean, it's sort of hard to say. I think that we saw what happened when this market was really deregulated, right?

And I think a lot of sort of innocent people lost a lot of money and it has a bad reputation now for better or worse. But I think people should be allowed to sort of buy and trade the big coins. And, you know, I think it's fine. It's sort of a marginal part of our financial system. But I understand where regulators are coming from with some of this. I mean, the government needs to decide at some point, officially, whether it's okay with crypto or not, right? And it seemed like it was getting comfortable with that.

But then a FTX happened, like you mentioned. And then it's like, oh, my God, this was supposed to be the one that was cozying up to us. And then we sort of liked and was a good Democrat. And then, you know, that all sort of unwound. And I imagine that's giving everybody a lot of pause. But if regulators do really give Coinbase ever or the crypto world a full blessing, then you could see, you know, instead of IPOs, people are like, we're back to sort of the ICO type mania.

So they've sort of benefited from this sort of like middle ground where it seems okay, but it's like a big risk factor for your company, which stops, you know, other companies that don't want to take that kind of risk from, you know, embracing sort of the Wild West. So this sort of, it's sort of okay world. It seems like it can't last much longer. It's been just a rough week for fintech companies overall. I mean, you look at Coinbase, their stock is down 11% this week. Well, that was something that Block would have wished for because Block is now down 17% this week.

After Hindenberg Research, without a report talking about the fact that Block, which is formerly square, run by Jack Dorsey, Hindenberg says, which is a short seller, says they ignored user concerns, even as alleged criminal activity and fraud ran rampant, basically saying, listen, Square is trying to help the unbanked, quote unquote, but actually facilitated crime there and hurt the people they were trying to help. Now, I'm curious how bad this is potentially going to get for a company like Block and how bad is a punch, how bad is it to take a punch from Hindenberg research? Eric, what do you think about that? Yeah, I mean, Hindenberg obviously can move. move stocks. I mean, I think Block has been down just overall. Some of the hype around fintechs

have come out already. I mean, it felt like a lot of the critique was again, sort of the cash app type product. And that's, that's like important to the future of Block. But, you know, obviously sort of the core business has always been sort of the registers and small businesses paying through Square. So it doesn't cut against sort of the big, big core business. And I think there have always cash app is hard because it's sort of a low margin. You know, you're sort of like Venmoing people money. It's sort of a hard business.

Obviously, if it turns out to be the case that there was just an extreme amount of, you know, criminal activity flowing over cash app and that they made it extremely easy to sort of dodge their, like, know your customer type protection. then there could be regulatory problems and you know and that's what a lot of these short sellers are doing right they're they're trying to to tee up a regulatory problem and then if they if they can convince regulators that there is something then then they're short basically wins so it'll really depend on on the rules around and cash app stuff yeah one thing I was thinking about is like over the years there are always these stories about Venmo where it's like oh I like Venmoed my friend for like our plane tickets to Cuba and like Venmo Benmo blocked the transaction, right? And there, and a lot of times I think that Venmo sort of overreached, right? Like there was a bunch of stories. I wrote one when the latest, or, you know, maybe two, two times ago when violence

erupted in Palestine, you know, people were donating to aid groups there and anything that sort of had Palestinian in the note section was getting blocked, right? Which is definitely not right. But I think it showed that Venmo has really strict, you know, your customer regulations and they, you know, take it really seriously. Whereas I can't really remember a story like that about cash up. And I remember looking at the stats. And at one point, they had, you know, somewhat comparable market share in the U.S.

I think that's gone down. And then Ben Mo is sort of eaten their lunch. But sort of you have to wonder, like, what were they doing? And it doesn't seem implausible to me. And I think that it's not implausible that Jack Dorsey is like, you know, not the most, you know, with it CEO. Yeah. He's meditating in Myanmar, you know, like, he's busy. I just don't know if, like, know your customer is like on his mind.

Take some time out of the ice bath, you know, and get to, yeah. Casey Newton this week was like on Massadon. He's like, what are the chances that both of Jack Dorsey's companies were not run well? Who's to say? But, yeah, it does look like, Coinbase this week actually emailed me and told me to re-upload my license. And it's like, oh, thinking about those know-your customer rules there, they obviously think something is coming. So here I'm going to put like some tinfoil hat on like we'd like to do on the Friday show and ask a question that I don't know.

I'm curious what you both think. But is it a coincidence that we're seeing these crackdowns on fintech apps when we're seeing, you know, obviously the decline of Silicon Valley Bank and all these little regional start to fail? Like is the fact that, you know, both that that fintech is now getting the screws put to it and the fact that we're seeing such struggles with the regional banks, is that at all linked? I think in the broadest sense, it is not a coincidence. Short sellers obviously are much more likely to make money when markets are struggling and when sectors are struggling. So going after, you know, a block now is like a good time to do it because sort of worried investors are already inclined to believe you.

Whereas in a bear market, you might just like, you know, totally get run over by the overall enthusiasm. And I think similarly, you know, regulators, they're cowards sometimes and they don't want to like destroy a good business. So when things are really roaring, they don't want to be blamed for totally derailing a great company. But then when things are failing, it's easier to point blame because, you know, investors are mad that Coinbase is losing them money. You know, Bitcoin prices are down. There's just less of a, you know, constituency. And so I think for both short sellers and regulators, when things are going poorly, it's a time to move.

And so I think to me, that's just sort of the conspiracy of what happens in a down market environment. Do you think that thing spiral then from here? I mean, we're seeing, I thought we were almost done with what was happening to the regional banks, but they're continuing to get hammered this week. Like, does it end up in a place where we just consolidated in the big banks?

I mean, the banking piece of it, you know, I don't know. it's some of it is just reading how much like people keep being afraid and pulling their money which has been very hard to know right i mean i think in a lot of ways first republic which was sort of you know in the crosshairs of fear should have been fine but you know people's paranoia is like a hard one to predict which is what's made this the banking crisis specifically so tough to game out yeah and let me ask this one more question one last question about this which is about one of the main characters here, Hindenberg Research. They have taken down a very powerful company in India. They're obviously a short seller with some heft, and people listen to them.

But I did find it astonishing that, you know, they were able to move blocks down, blocks stock down as much as they were, right? About a fifth overnight, effectively, is what they helped cancel out. Who are they? I don't really know much about their background, to be honest. I was looking at some stats though and like six months from when a report comes out from them like I got you know it seems like they can push down a stock like 40 to like 70 percent so they they seem to have a lot of weight and but I don't know like about their their credentials I was looking at some of the companies that they have investigated in the past and it seems like you know they've gone after sort of shady startups companies

that I I think were good targets in a lot of ways but I don't know if they've had a big miss before so I don't know how worried we should be Eric, do you know much about them? They've been, I mean, fairly recent. I think it's 2017. I'm just looking through the, they were big against Nicola. I think they went after Clover Health, which was Jamal's. They helped get them.

Yeah, go ahead. And then you reference Adonai, which is like, I think that one really like has landed with a, I mean, a huge thought would be the wrong word. No, it's like been extremely successful, you know, like going after one of the richest men in, India and seeing his fortune really tumble. I mean, yeah, so I think after coming off of something like that and then going after Square, you know, like, you know, short sellers live on credibility, right? You need to get these things right enough that the sort of case sticks so that people want to want to go with you. So reputation is essential and they're building a strong one. Does I wonder if this is just me kind of speculating here, but I wonder if Jack Dorsey's

legacy, which for a moment there seemed like, okay, he built Twitter, he built Square, two big powerful companies now at the sale of Twitter to Elon Musk and potentially what's coming for Block, whether his legacy is at stake. I don't think this, I think Block, I don't think Block is undone by this. I mean, I think there could be problems, but cash app, you know, like I said, I don't think that's like the whole business and there's a lot of future to it um the the bigger sort of turn against fintech broadly to me is the issue um but yeah i mean he had these two great ideas and neither feels like he's executed them to you know like he better better like creator right less of an operator

i think like he just sort of ends up in this uh group of founders from the early aughts who like didn't really carry on to the next generation like ev williams comes to mind right like i think who had some good ideas but like i don't know we're sort of like part of that hippie far out ice bath situation and and i just don't know if that is the type of vision that gets you like a super compliant fintech company or like the most efficient social media network right like i think that that's probably a reasonable criticism that's right well the ice bath i think the ice path probably probably help but the other stuff maybe not let's are you ice bathing Alex so I was so I did listen to Andrew Euberman's cold immersion podcast and I started doing it now I'm not in

the baths but I'm doing the cold showers and I like that you like it do you feel like it wakes you up I think it just invigorates you I mean I don't I was doing some cold showers before I listened to the Euberman podcast I just think that they are just yeah it's swimming in cold water is awesome it's super refreshing so but uh every day I think I do maybe like not fully cold but at least you know four days a week at least a minute in the cold water for sure you could do like four minutes hot water one minute cold shower well one minute cold at the end and you get the benefits so yeah okay let's let's talk about uh let's talk about something I like good experiences the warm comfort of hot water in the shower I generally chart out my day looking for a positive happy experience. I'm saying you might have a much... You might have a much better day if you do the cold shower. I'm just saying.

Have you tried it before? Have you tried it before? I have, yeah. I agree with you the one minute is the way to go though. Like not the full... No, I'm not getting in one of those tanks or... Did you see they're selling it for like $1,000 a barrel? Anyway.

Character AI is raising $150 million at a $1 billion valuation with no revenue. Eric, you've broken some news on this. I thought we were past the days of companies raising $150 million at a billion dollar valuation and not making any money. And the company just doesn't seem very impressive to me. I mean, I've used the product. You can talk to like historical figures, but it doesn't seem to me like it's a billion dollar company. Am I wrong? In these days, if you worked at OpenAI or Google, the company, and you put AI on it,

the company can have any value you know i i think this is i if i remember correctly i had nome chaiseer uh i think i'm pronouncing that correctly i mean i think he was involved in some of the key papers and work on ai techniques at google so so you know i mean character's an interesting case where it has like this app you know where it's like i mean what percentage of them are like sex bot type things but like characters you can interact with alex i guess you've you've you're you're spending a lot of time on that app you know um not a tremendous but you know i i like was talking with george washington about his background it was interesting um but i mean i they're building sort of large language models underpinning it right so i think there are these

companies that are trying to do the big foundation models and then there are companies that are trying to do sort of products that are often you know rappers on top of something like chat chb t i think people are excited about character because it's a company that has the capacity to do both um that that's that's sort of the bull case but i mean clearly you know i mean anthropic stability's out there raising like you know if you are a key player in this sort of foundation models in terms of large language models uh yeah you can raise it billion dollar valuations with without very much revenue. That's just the world we're in right now. It feels like the good old days. I hope they have a good lawyer. The thing about characters sort of main product that I don't understand is it just

seems like a walking, talking, I guess not walking, but talking copyright violation. And I just don't know how they're going to sort of solve that problem. How's that? Like probably George Washington is fine, but a lot of the types of characters that the Mel and Vernon Legal Defense Fund or whatever I think people want to talk to, like, characters from IP'd works, right? Like, you know, like Marvel movies or, like, the Mickey Mouse's of the world, right? And I just don't know, like, sort of how they're going to account for that. Like, I think the tech reporters are going to talk to George Washington, but, like, the average person, right? And I think, you know, the sex bots thing is easy to joke about, but I actually do believe that that's going to be a big market, especially for.

Yeah. Yeah. And I think the first company that is, like, we're not afraid to. sort of take this seriously and we're going to be really deliberate about it and we're not going to walk away is probably going to make a lot of money and stands to be like the next mind geek right like the next more replica was letting it happen and then backed away I can't yeah they backed away from it I don't know exactly why if they were worried about you know advertisers or some sort of like content issue and it's fair right whenever you deal with this kind of stuff there are you know

really serious content moderation concerns but I think if you lean into it you know there's a lot money to be made and I just worry if character AI is betting on the like character side right like when we think of characters they're copyrighted often you know there's someone's IP so I just I wonder about that but I think you make a good point about their capacity to sort of have the underlying model and maybe they can pivot away very easily especially if they have a lot of capital they realize like we've been sued by Disney right yeah Ellen you had had a great story about replica this week and in Bloomberg talking about how basically all the people whose hearts were broken once their sex bots were disabled by replica it's very interesting people can form very intimate connections

with these bots so well you know stay tuned because it's going to be very weird chat gpt four i like you know i i i had it play like a pen and paper role playing game with me and said okay in that game like create a character created a little character i was like okay make that character like a persona outside of that game called itself like cogent we had the you know we had like inside jokes you know I was trying to build like sort of a shared history with it. And then, you know, at some point you hit the memory limits where it just can't recall things earlier in the conversation. And so then it would just like bullshit about what our inside joke was. And it was pretty frustrating.

I was like, it's right. It's right in the chat. Like we have shared experience now and you can't remember it. And there is a sort of emotional reaction there even though, even when you really know it's sort of a game you're playing. It's not very hard to trick people into thinking that the computers are talking. too, even though they're computers, our people. And we're going to just see that more and more. And people will play into it, which is going to be interesting.

All right, we're here on Big Technology Podcast, Friday edition. We're talking about all the news of the week. We've hit a bunch of things already. We've hit the Coinbase News, the Block News, Character AI, The Good Times are back in Venture Capital. On the other side of this break, we're going to talk about TikTok and whether we think TikTok is going to get banned. Louise has been watching this very closely, especially after the hearing in Washington on Thursday. And we're going to break down what happened and talk about what comes next. So stay tuned.

We'll be back right after this. Hey, everyone. Let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. they have a daily podcast called The Hustle Daily Show where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them.

So, search for The Hustle Daily Show and your favorite podcast app, like the one you're using right now. And we're back here on Big Technology Podcast. With two great reporters, Eric Newcomer, is the author and founder of Newcomer. Eric, you have a conference coming up. I know it's sold out, but I guess you can plug that. Oh, you're going to let me shout out.

Yeah, Cerebral Valley AI Summit. I am actually in Volley's offices of my friend's company that's co-hosting it with me right in the heart of Hayes Valley. Yes, do not reach out to me about tickets. They are sold out, but I am very excited. We're going to have the CEO of Stability AI. We're going to have one of the co-founders of Anthropic, the CEO of Runway. I'm sure, yeah, Sequoia, benchmark, CO2 are all moderating panels.

So it's going to be a lot of fun. Sweet. Yeah, you're inspiring me. I think we're going to have to do. a big technology event. So stay tuned. I'm going to hit you up for some tips here. Louise Metzakis is here. She is Semaphore's Tech and China reporter. Louise, do you have anything that you want to shut out? I think you have a, Ben Smith was on a couple weeks ago talking a little bit about your newsletter,

but I feel like it's worth telling people again about where to find it. Yeah, please go to Semaphore.com. And on the right side, you can sign up for the technology newsletter that I write twice a week with my colleague, Reid Elbergotti, who is a great reporter. and I think it's a really nice sort of balance of like international stories of like really what's happening in the heart of Silicon Valley so please sign up okay I'm a fan of it good stuff so let's talk about what's in your newsletter today which is the aftermath of the testimony of the TikTok CEO shout you and I thought that he just didn't the core responsibility for him was to go to Congress and make clear that TikTok is independent and not subservient completely

to bite dance, had at least some degree of independence. But almost at every point, it seemed like he was deferring to bite dance. And he wouldn't make any proclamations really like you would expect a CEO would make. So just for example, he didn't say definitively that TikTok wouldn't promote messages supporting Chinese hostilities towards Taiwan. He couldn't say that. He couldn't commit that TikTok wouldn't sell data. And he couldn't even answer who clearly who prepped him. He kept saying, I prepared with my team as when they kept asking him questions of did you prepare with anybody else. I prepared with my team. Well, what are you leaving out there, Mr. Mr. Chu? So Louise, what was your perspective here? Does this did, let's just like look first at the link

between TikTok and bite dance. Am I right in thinking one of the main takeaways from this hearing? was that we now see that TikTok and Bight Dents are even more interlinked than they professed to be. Yeah, so I've been covering this company since 2018, and I've talked to many employees sort of across the spectrum from, like, you know, low-level staffers hired in Los Angeles to, you know, like, mid-level executives and high-level executives. The fact of the matter is that it is a subsidiary of Bight-Dance, and Bight-Dance is a Chinese company, and Bight-Dance is headquartered in Shanghai. That is just sort of a big point-blank period.

And I think for a while, the debate was about U.S. data and whether the app was being influenced by the Chinese government in some way, right? So what TikTok did in response was come up with this very elaborate plan where, you know, every time there was a code update, those code updates were going to be reviewed by Oracle and outside, you know, auditors who were then going to hand that code to the app store. All the data was going to be stored in the U.S. or is going to be stored in the U.S. and they were going to have the separate, you know, subsidiary of like vetted U.S. nationals or U.S. citizens we're going to work there and they were the only ones who were going to handle that data, right? That was supposed to be sort of the problem. But I think the problem now is any sort of Chinese control or any sort of Chinese employees working on anything that has to do with the U.S.

And the way that ByteDance and TikTok are set up, that is what's happening right now, right? Like I've talked to, you know, bite dance employees who come here and work with teams in Los Angeles where I live. And that's perfectly normal. And I don't think anything nefarious is necessarily going on there. But that is certainly the reality of the situation. And that is a reality that Shochu is deeply aware of. And I think you saw him sort of struggling to explain that. Because in most cases, that's how companies function, right?

Like, of course, like META might have an Indian subsidiary, but there are teams coming in from California, right? And they're working with those teams in India. And that's how it works. And that's completely accurate, I would say. So why, so is there a problem here? I mean, that's sort of the thing is like, okay, so Congress brings him in front of, you know, this committee where, you know, in the U.S. there's a review of whether it can continue to operate here after the sale of musically. There are no document.

I don't think there are no documented problems of them, the Chinese government, for instance, accessing data. There are no documented problems of the Chinese government influencing pop culture in the U.S., which is another concern. What's the problem here? I think the problem is just that we are in a situation where it is politically untenable for one of the most popular media platforms in the country to be controlled by a Chinese company. It's unfortunate that that's the case. And I think that people like me and a lot of, you know, like sort of idealists about the U.S.-China relationship maybe like five, seven years ago would have said, you know, the principle of an open Internet is that we allow companies from anywhere in the world that are following U.S. laws to operate the same way that American companies do. And I would love to live in that world. But I think we are now in a situation with where, you know, Xi Jinping's behavior, the behavior of the CCP and the current political situation in the U.S., I just think make that a non-starter. And I don't think any of the solutions are ideal. And I think that no matter what we do, which either I think the two options now are force to sale or ban the

app, I think both of those are really bad precedents for the U.S. I think banning is a worse precedent probably. But I just don't see a situation in which the status quo continues indefinitely. And I think just going back to what I said earlier, it's that point about like I just think for lawmakers now, it's like we don't want Chinese employees working on this app, period, even if there's nothing nefarious happening. I think that's what we heard and that's not maybe what they will say out loud, but that that's what it is really. And the concern is that they are subject to this Chinese law that will basically subject any Chinese company to work hand in hand with the Chinese intelligence department if they need to. I think that's sort of like the cartoon version, right?

Is that like, is that like, you know, the state security is going to like burst into Bight Dance's office one day and say, give us the hard drives? I don't think that that's how this would go down. But, you know, the sort of parallel story that's happened over the last few years in China is that there has been a widespread crackdown on the private tech sector, right? Like we saw Jack Ma, you know, effectively disappeared. Zhang Ming, who is the founder of Bight Dance, you know, stepped away and seems to be, you know, God knows where and has sort of, you know, really taken a much more low profile and it's sort of,

you know, limiting his public appearances. So I think that's the concern. It's like that's the environment that you're in, right? Like we live in a country where Elon Musk can, you know, talk smack about Elizabeth Warren all day on Twitter and nothing's going to happen to him. And that's just not the situation that these executives are in. And again, it is a risk. It's a theoretical risk. It's not something that we have evidence of. But, you know, and I've sort of changed my tune on this to be, to be really honest with you. I sort of felt that this was a really bad idea a few years ago. And then I've sort of watched the Chinese government take increasingly disturbing steps that sort of tell me that that something has to be done here.

I think it's just it's just untenable. Eric, what's your perspective? Are there any risks if we end up actually going through with the ban or something like that? I think I hold the sort of mainstream Silicon Valley perspective, which is the Chinese Communist Party controls China and businesses in China and has been escalating their control of businesses. It's absurd that Facebook and Google can't compete in China, but we let TikTok influence the minds of Americans. Like I absolutely do not, as a TikTok addict myself, I do not think we should allow like the Chinese government to have. have control over over a key app reaching children and adults in the United States, especially if we're not allowed, if we're not allowed to do, do the same to them, you know, like,

why are we, why are we competing like with an arm tied behind our back here? So just as like a free market competition, like if our businesses can't compete fairly there, their businesses shouldn't be able to compete here in the same sectors. And then in terms of influence, if we can't influence them, they shouldn't be able to influence us. And then in particular, TikTok is such a black box. Like the amount that you could influence TikTok without it being obvious to anyone is terrifying, right? At least with Twitter, it's like, oh, trending. You know, you can sort of see it.

It's like which accounts are being. But with TikTok, it's such a black box that it feels like the psychological control there is much, much more potent. So I absolutely think if TikTok's going to continue to reach Americans needs to be under non-Chinese control very soon. I think it's worth saying, though. I agree. And I think that it's just sort of this really big problem that doesn't have an easy answer. And it's just become increasingly clear that some sort of step is necessary and that a step like, you know, brokering a deal with Sipheus, which is this, you know, body. in the Commerce Department that is supposed to sort of like, you know, deal with these sorts of

incidents when there's a potential security risk with a company operating in the U.S., you know, that's the way that this would have happened like 10 years ago, right? But I think that that's now, you know, an untenable solution. But what I will say, like watching the hearing yesterday, it just made it so clear to me that there was something, it's just become so muddled. Like, basically I would say half or more of the questions from lawmakers were about child safety, we're about, you know, the sort of ills of social media. And I think that that's what makes the conversation about TikTok really difficult to have

because you're often not having, you know, Chinese security experts or people who really know China's tech ecosystem inside and out having these conversations. You have people who are like, my kid is sad because he spends five hours a day on TikTok. Right. Right. If I were a dictator of the world and passing laws, you know, I would say the United States should pass laws regulating social media, forget antitrust, and just say, you can't like after a certain number of hours try to keep engaging people you should be trying to push them off the app if they spend too much time you know children can't see xyz like have a lot of principles that have nothing to do with u.s china relations that should regulate both facebook and ticot to solve some of those problems and then totally independent of that we have the china issue which is just we have sort of a free competition problem and sort of national security problem with china and we need to take it out of their hands i think those are two totally separate

issues. But like you're saying, these members of Congress have no idea how to regulate social media, barely understand it, and instead are just leaning on antitrust to solve a problem that it doesn't solve what they want. So I don't know. That's my view on that. Luis, you wrote something very interesting in your newsletter talking about how lawmakers were asking why they're still dangerous and harmful content on TikTok where bite dances app in China, Do Yun, is sanitized and safe for children. And that do you, is actually more PG-friendly because of China's censorship, and that's not what we want here in the United States. And it was interesting because Chu was like getting ready to, he felt, it seemed like he felt ready to just burst out and say,

don't you understand, like, the freedom that you have in this country? That's what causes some of the problems. But of course, he couldn't say that because of who really owns the app. So do you want to expand on that a little bit? Yeah. So I think, so one thing that's worth noting is that the Chinese government has had a lot of the same concerns about child safety, about kids being addicted, about kids like, you know, going inside and spending all their time on these short video apps instead of, you know, going and hang out with their friends. And they have sort of cracked down on them and passed some of the sorts of regulations that Eric is talking about.

So that's another reason that the situation is different. And that totally just seems to fly over their heads, right? They're like, oh, you know, bite dance is nicer to the Chinese consumers than they are to us and they're poisoning kids' brains. And it's like, no, they want to make as much money as possible. But they are, you know, necessarily following the regulations in China so they can stay, you know, operational in their most important market. So I think that goes over people's heads. And also, I think it's worth saying that, sure, it's definitely more sanitized than the U.S. version of the app because we have free speech.

But there also is crazy shit on Doyin in China that, you know, China's vast censorship army is not able to crack down on quick enough. I think that's just sort of the nature of social media. but it's interesting to me that lawmakers have really, I don't know where they got it from, but they've really sort of latched on to this idea that in China, TikTok is this perfect app where there's only educational videos and kids love it and they just look at it for an hour a day

and in the U.S., you know, all the children are being poisoned. And I think that that is just such an unhelpful comparison. That's a capitalism problem. Yeah, but it sort of, I think, brings home this sort of like really insidious part of the TikTok debate which is that a lot of the things people are proposing are things that either China has done and we've condemned or that China is trying to do. And it's just sort of scary when we're talking about banning apps or we're talking about

ensuring that social media is sanitized, right? It's like isn't the whole point that we don't want to be like this government that is so brutal and cracked down on speech? One thing that I thought was so interesting was there was a number of Republicans in the hearing yesterday hitting TikTok for its poor content moderation policies. and it was just like, I thought that, okay, never mind. So the censorship debate was not exactly what we thought. What happens?

Well, actually, I'm going to, I want to ask what happens from here, but Louise, you did say something a bit earlier that has stuck with me, and I want to just ask about it. You said you saw even more concerning things that made you change your tune. What were those concerning things from the Chinese Communist Party? Yeah, I think watching the tech crackdown, you know, since kind of 2020, Because I think that there sort of was this sense that, you know, since Deng Xiaoping, you know, took power that China was sort of on this opening track where it was going to be capitalism with, you know, Chinese characteristics. And of course, it was never going to be a free and open society. But that, you know, one of the reasons I started covering China's tech ecosystem is because I was just so amazed by the incredible innovation. And I think it was really sort of sad to see, you know, Mack have to go into hiding to see these companies really get smashed, right, and to get

their businesses, you know, incredibly impeded. You know, D.D., the ride-hailing app, you know, just disappeared from app stores, you know, for almost three years, you know, and I think that watching, also I think just watching, and it really hit home for me in the fall when China had sort of their their congress that happens every few years and i just realized she jing ping is probably going to be in power for the rest of my career you know until i'm getting ready to retire and and that is a situation and we have another now on our hands and that's not going to change and i think for me just sort of realizing like okay he's taken away the term limits he's taken a third term he's probably going to want a fourth term he's consolidating his power that is a different situation than we had you know five

seven, 10 years ago with China. And that is what I watched and saw. And it sort of changed my mind on this issue. So let's just go quickly. What do you both think will happen next? What's most likely? You guys are more the expert on this. I mean, I do think, you know, the U.S. moves in some fashion to say TikTok can't operate under its current control. I mean, it seems like there's such a clear, rare bipartisan consensus on this. So I don't know the exact mechanism. I would suspect they just say, you know, it's banned until you solve this problem and then, and then see what happens. I don't know. I think the banning won't hold up. And I think that the Biden administration is worried about trying to issue a ban because Trump tried that, right? And it didn't

work. It was struck down by two federal courts. I think one of the most likely things to happen is see one of the various bills in Congress and the Senate get passed. One of the most promising right now is called the Restrict Act, and it's coming out of the Senate. And what the Restrict Act would do is sort of give the White House more levers that they can pull to sort of restrict companies from, you know, countries of concern, which is basically like Venezuela, China, Russia. It's really just aimed at China. That seems to be one of the most promising pieces of legislation that has sort of been carefully designed. But what is really scary about the Restrict Act is that the way it's written, it would

basically prevent any Chinese tech company from trying to operate in the U.S. And that would put us on just a really new footing here in the U.S. Yeah. And I'm also curious as this debate plays out, like whether the journalists with big followings on TikTok will sort of come to TikTok's defense and be very loudly like in opposition to anyone trying to cover this, you know, some objectivity. It is amazing how pro TikTok my TikTok feed obviously is. I guess it shouldn't be amazing, but definitely there are tons of creators who are just worried about being able to reach

their following. And TikTok is far superior to reels or YouTube or whatever in terms of what it delivers and surfaces. So definitely, you know, I think we want to see the technology maintained, But just under U.S. control. Or China can let Facebook go compete in China, and then maybe we can think about it differently. You know, it isn't just, China could easily just open up to Google and Facebook. Like, it's easy to make this some sort of only American problem,

but I feel like it's going to be really tough. Why doesn't China do that? Yeah, it'll be tough for Mark Zuckerberg if that happens because he goes from almost letting Xi name his child to going on this big anti-China. public relations campaign and now you know Facebook Facebook's operating again if Facebook operates in China that would be good for America yeah Facebook in China I agree it's not going to happen I mean it's a total

but I'm just making the point that like we're putting ourselves on the defensive here where it's like well China could easily make this a harder message for us if they opened up to American companies to reach their citizens yeah okay we always like to end with a fun story here on the Friday show so let's talk about two heroic escaped animals that left their pastors. So in Brooklyn this week, not far from where I am, there was a Canarsie cow, black Angus calf, that escaped the Sabah Live poultry house in Canarsie, Brooklyn,

and ran through the streets and they tried to corral them. And I don't know if they could get the cow under wraps for a while. And then in Korea, there was a zebra that a three-year-old zebra escaped the sole children's grand park and went through the streets of Korea. Someone said it must be global warming. Now it's warm enough for zebras to run around Korea. Let me put my tinfoil hat in. Is there any coincidence here with all these animals escaping?

You know, we're about to enter this world of artificial general intelligence. And you know, that nature is trying to warn us about escapes and just to, to keep us on high alert about the potential for escapes. And so, yeah, I absolutely believe that the earth is warning us of a great, great threat coming with these animals on the loose. Yeah, Louise, what's your reaction to this? I really wish I saw videos of the zebra on TikTok. I'm sad that I didn't.

Yeah, it was pretty amazing. I mean, the zebra's just prancing through Korea. It's amazing. That's incredible. I would spend a lot of money to be in Seoul when that happened. Good news is that the escaped cow was on its way to the slaughterhouse. A cow is a woman, so she, sorry, excuse me, I misgendered the cow. She's now in a nature reserve or some reserve in upstate New York or New Jersey

and is not going to be slaughtered. So I do feel, I feel like that should be our lesson is that if livestock is good enough to get away, then it just deserves a pass, can't kill it. No, the takeaway is if you are brave enough to reach for freedom, you will get it. A perfect bow on our episode. Thanks, Louise. Thank you, Eric. Great to have you both.

Thanks for having us. Thanks to everybody who's been listening. Thanks to everybody here on the feed. We will be back again Wednesday. I have an interview with Palmer Lucky, the founder of Oculus and the CEO of Anderl, which is an AI weapons company. At least that's the public perception. We're going to unpack all of that this coming Wednesday. so make sure to tune in for that.

And then following this next Friday, Ranjan Still Be Off, Aaron Griffith from the New York Times is going to come in to break down the news. Thank you again to Eric Newcomer, author of Newcomer. You can get his newsletter on Substack, and you can't get to his conference,

but maybe the next one you'll be able to because it's sold out. Luis Metzakis of Semaphore. You can get her tech newsletter on Semaphore.com. And if this is your first time here, please hit subscribe if you've been here for a while. Five-star rating goes a long way. It helps us get great guests as they see that people are paying attention and enjoying the show.

That'll do it for us here on Big Technology Podcast, and we will see you next time. Thanks.