Morning Brew Daily - Google Takes a Big L & YouTube Soars Past TikTok

Episode Date: December 12, 2023

Episode 211: Neal and Toby talk about Epic Games latest victory against Google that could shift the app market. Next, the economy’s biggest threat doesn’t come from financial institutions, but our geopolitics. Then, will a buyout of Macy’s ultimately mean its demise? Meanwhile, teens spend more time on YouTube than TikTok. Lastly, Apple tries to shut down Android’s only hope for iMessage and Google releases its top trending searches of 2023. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good Morning Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell. On today's pod, Google is waking up with a nasty hangover after losing a major case over its app store. Then the most Googled terms of the year just dropped. And Good Morning Brew Daily show was number one. I kid, I kid. It's Tuesday, December 12th. Let's ride.

Toby, what a great joke. So remember how Shohay Otani signed that record-breaking $700 million deal with the Dodgers? Well, the contract is even crazier than it seems on the surface, which was already pretty crazy. We learned yesterday that $680 million of the $700 million will be deferred until after the deal ends in 10 years to free up cash for the Dodgers to keep spending on other players. That means Otani will be paid $2 million a year for the next 10 seasons, then $68 million a year from 2034 to 2043 when he'll be 49 and likely retired. Everyone is using buy now, pay later this holiday season, Neil. But in reality, personally, I would never do this. Are we really trusting Jerome Powell to keep inflation at bay for these monster payouts in 10 or 20 years?

Are we even trusting that we'll have a society in 2043? I don't know. You got to believe. You got to believe. But the thing is, yes, it's $2 million a year for the next 10 years. But you also have to remember, he is making $50 million a year on sponsorships alone off the field. So, Otani, we don't have to worry about him. This is just a crazy contract structure.

I mean, MLB players do often defer payments in their salaries, but nothing like we've seen at this scale. He's on a whole other level. Okay, before we jump into the news, quick shout out to our friends over at Yahoo Finance. So I know it's December right now, but listen to this Yahoo Finance Easter metaphor I have for you, Neil. Okay. Sometimes when we're prepping for the show the day before, I run into an article on on Yahoo Finance organically, and it feels like I just found a purple Easter egg. All right.

I'll give it 7.3 out of 10. All right, passing. I'll take it. But obviously, Yahoo Finance gets a 10 out of 10 because how do you not give a perfect score to the number one financial platform trusted by over 150 million visitors globally each month? Don't wait to stumble across any purple Easter eggs like Toby. Check out finance.yahu.com today or download the Yahoo Finance mobile app to get it

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Google just got handed a brutal legal ruling that could upend its app store as we know it. In a case brought by Fortnite Maker Epic Games, a jury ruled last night that Google is operating an illegal monopoly on its app store and billing service. It is a huge win for Epic, which had sued both Google and Apple for forcing app developers to hand over a chunky commission each time someone buys an app or makes a transaction on an app through their marketplaces. For context, Google charges app makers a 15% fee for customer payments for app subscriptions and up to 30% for purchases made on popular apps downloaded from the Play Store. So what happens next? The judge in the case will decide a penalty in 2024. And that could include forcing Google to allow for payment and app distribution methods

outside its own app store, potentially costing it billions of dollars in revenue. And that opening up of the walled garden is really what Epic wants to see. it didn't ask for any monetary damages, just the opportunity for apps to not use the Google Play Store. So overall, this ruling is a huge deal that could not only impact Epic and Google, but the entire way the mobile internet has come to operate during the past decade. Epic, which portrayed itself as this Tommy DeVito-like underdog and its battles against Tech Behemus, boasted that the verdict is a win for all developers and consumers around the world. I think the big thing that swung this case in Epic's favor was some of the shady maneuver

going on behind the scenes that Google was doing. There were claims that Google spent over a billion dollars on contracts with phone makers, app developers, and video game companies, kind of to prevent them from creating their own app stores. And that is just anti-competitive practices to a T right there. Also, I do think that execs, the epic show that execs had deleted text messages covering up some of these deals, which is why the fact that this was a jury trial came into play. Remember, the Apple trial was just a judge. This one was in front of a jury.

So one of the things that Epic did very well in this trial is kind of paint Google as maneuvering behind the scenes in kind of pulling the strings in a way that is very anti-competitive. You mentioned the Apple, the Apple case. Epic did sue Apple and Google at the same time in this crusade against the app stores a couple of years ago. Apple mostly, or Epic mostly lost the case against Apple, and now it won the big one against Google. Just to go back to what you were saying about these secretive deals, one of them I was looking into was a deal with Spotify Do you see this? Uh-uh. Where they basically said Spotify, you don't have to pay any commission when people buy subscriptions through your own system.

And if they chose Google as a payment processor, Spotify only needed to pay 4%. And that's much lower than the market rate for other apps. So this is what Epic pointed to during this case as saying Google was making all of these shady deals behind the scenes. and that points to their illegal abuse of their market power. Yeah, here's the question now. Is Google going to be forced to alter its app store rules, which would open the door for other companies to potentially make inroads into the app store kind of marketplace?

Also, are they going to make it easier for developers to avoid those fees that we're talking about for those in-app purchases? So a lot of these things, even though it's being celebrated as a win right now for Epic, as you said, this is actually kind of funny, the judge will determine in the second week of January what the actual damages will be, which is just classic. Even judges in massive Google versus epic cases say, let's circle back after the holidays. Yeah, they need some time to think about it.

But Google will plan to appeal. Legal experts say it's not likely to succeed because the jury ruling was quite sweeping and conclusive. They ruled across everything that Google was being anti-competitive. For a long time, the boogeyman under the bed for the global economy was rising. interest rates and soaring inflation, but the monster that goes bump in the night right now is actually geopolitics, at least according to 500 institutional investors surveyed by Natixis. Geopolitical bad actors were ranked higher than central bank policy mistakes, China's sluggish economy, or even a pullback in consumer spending, according to the annual questionnaire.

It's not just the Natixis survey either. Bank of America's Fund Manager survey found that 89% of respondents said, geopolitical risk is above normal, and the Black Rock Investment Institute said in a paper that they see geopolitics as a structural market risk. It's important to note that the institutional investor survey took place as the Israel-Hamas war erupted and amid the ongoing conflict in Ukraine, both of which have dampened investor optimism, but 72% think a messy U.S. election year will also lead to increased market volatility. You know, suddenly these institutions are looking around at the world and saying,

Whoa, there's a lot of looming uncertainty on the horizon. Yeah, so there are 183 regional conflicts happening right now, according to the International Institute for Strategic Studies in London. And if that sounds like a lot, it is because that's the highest level in three decades. So it turns out war is not great for the economy or markets. Absolutely not. Also, China loomed large in the survey. 64% believe that its geopolitical ambitions will split the global economy into two spheres of influence,

which is also making sense. China less desirable investment for foreign dollars. People say that their geopolitical ambitions diminish its investment appeal for 73% of institutions. So it is just everywhere you look. It's not just the Israel-Hamas war. It's not just the war in Ukraine. It's also just all the tension that we're seeing across the geopolitical landscape. It does seem like some of the stability that we've had during the Cold War, after the Cold War, has kind of been breaking down here. And there's a lot of people up to some shady things all around the world. It's really spooking investors. It feels There's a particular stability has been broken down.

So in that Black Rock survey you mentioned, they said, look, geopolitics is always on the mind of investors. They're always concerned about war and conflict and governments breaking down. But they said, BlackRock said that geopolitical events historically have not had a long-term or major impact on markets going back to 1962, except now is very different. They say they see geopolitics as a structural market risk. So, you know, what's interesting is we always say, you know, investors are spooked about geopolitics, and maybe that has been overstated in the past. Now, I think investors believe that this is like top of mind, obviously. It's manifesting in anxiety about the potential for a recession to 51% of those institutional investors

think a recession is inevitable in 2024, which also we have to take with a grain of salt because how much did we hear about the fact that a recession was certain this year? Every major financial institution predicted it, and yet here we are, it kind of navigating the soft landing as we've talked about. But yeah, that bump in recession numbers just shows kind of the anxiety that people are feeling. Moving on, the Snoopy balloon must have really been eye-catching this year because a group of investors has reportedly made an offer to buy the department store Macy's for $5.8 billion and take it private.

You might be thinking to yourself, why? Department stores aren't exactly a booming business these days, and Macy's stock has dropped from a peak of $70 a share to under $21. As of last fiscal year, the company's revenue was 10% lower than where it was in 2014, not adjusted for inflation. Like as department store peers, Macy's has gotten stuffed into a locker by the rise of e-commerce, direct-to-consumer brands, and changing shopping trends it just hasn't kept up with. But in spite of those challenges, clearly these investing firms, Archaus, manager,

and Brigade Capital Management, see some opportunity to make money with Macy's. What is the upside here? I think it's 100% its real estate footprint. You can definitely make some short-term games by kind of buying up their store footprint, maybe spitting off its e-commerce business and just selling kind of the retail business off. If you remember, the whole company was valued at about $5.8 billion, and yet the Bloomberg intelligence analyst estimates that Macy's real estate assets could be worth around $5 billion.

So it is one of those things that the retail aspect of it, like the actual selling of the goods, is just something that is not very valued in today's market because, again, e-commerce is the way of the future. And Macy's is certainly the way of the past. It is a head scratcher when you're like, why would anybody want to buy a department store? I mean, so many of them have gone out of business. They're gone bankrupt in 2020. It's just not what consumers are where they're shopping these days. They're on Sheehan. They're on Timo.

They're on these fast fashion sites. So if I'm these investors, I'm pouring all of these billions of dollars into, you know, she and stock when they go public. It's very much a dying business. Macy's in Bloomingdale's. Macy's owns Bloomingdale's. The amount of stores they have is down 280 in the last nine years. It's net income for the first recourse of this fiscal year. Felt 74% from a year earlier.

So it's got all the markings of a dying business on it. We've also seen this play out before, too. Let's be clear, once private equity becomes involved in some of these kind of store. They usually end up going out of business. Toys R Us, Payless, Sports Authority, Radio Shack, Clare's and Aero Postow, these are all brands that were kind of snapped up by private equity firms. And then we saw the selling off of their real estate footprint and then kind of like the winding down of the brands themselves.

They just gut them. They absolutely gut them. But that's the thing. Macy's has such cultural cachet, like the Macy's Day Parade. You have these massive, massive department store. So that brand will always carry a certain amount of weight, even if a private equity firm does come and ends up gutting them. So I don't think it will ever fully disappear.

We've seen Toys R Us, for instance, kind of resurrected as a zombie brand, and every once in a while a new location will pop up. So it is kind of crazy, though, to see this one-storied institution just kind of falling the way it has. All right, Neil, before we jump into our next story, we're going to take a quick break. Study and play. Come together on a Windows 11 PC.

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Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion. One third of teenagers described their social media usage as almost constant in a new Pew Research Survey, and I want to talk about it in today's edition of Toby's Trends, where I, a Sprightly Gen Zer, educate my grizzled millennial co-hosts about a recent trend I've had my eye on. So obviously, the youths are obsessed with social media, but this Pew survey dug into which platforms take up most of their attention, and one platform absolutely dominates its YouTube.

93% of teens age 13 to 17 say they use YouTube, which is actually slightly down from the 95% who said they used it last year. TikTok was second at 63, while Snap, Insta, and Facebook came in at 60, 59, and 33%, respectively. But Neil, holy moly is YouTube a juggernaut. About 7 in 10 teens say they visit the video sharing platform daily, including 16% who report being on the site almost constantly, which is crazy to me because Morning Brew Daily episodes are. only 25 minutes long. What else are they watching? Anything else about the rankings of the social media sites surprise you, Neal? One thing, this didn't surprise me, but it was interesting to see just how far Facebook and X-slash Twitter have fallen. In 2015, 71% of teens said they use Facebook, and now that has declined to 33%. Meanwhile, use of Twitter has declined from 33%

eight years ago to just 20% this year. So if I'm Zuck or Elon, I guess I'm looking at the I'm looking at these stats and saying, man, I really have not done a good job of capturing the younger generation. But to go back to like the TikTok YouTube thing, do you view them as competitors? I mean, I think a lot, I think in many people's minds, they're kind of separate. TikTok is the short form video app on your phone. YouTube is maybe something you watch on your desktop, longer videos. But they have been on a collision course where TikTok's been introducing longer videos and YouTube has these shorts that they've been rolling out. So it seems like they are rather competitive with one another.

Oh, absolutely. They're both kind of in a race to copy each other. TikTok's rewarding longer videos. And then obviously YouTube shorts has become a big priority for YouTube. So they're definitely kind of becoming one and the same. And so it will be interesting to see if YouTube can maintain that just massive, massive lead it has over other apps and popularity. I also want to talk about some of the new entrants in this year's survey. Be Real clocked in for the first time.

They asked them how many times are using. B-reel. Only 13% of teens reported using the app. So, again, it's much, much smaller scale than some of these bigger apps. Also, Discord popped up for the first time as the six most popular social media platform. I think that number is only going to continue to grow. And then TikTok actually did come in with the highest when they asked them which platforms you use almost constantly. TikTok came in higher than YouTube at 17%, being out the 16%. So people are more addicted to TikTok. Right. People are more addicted, which is interesting. Also, that whenever this survey comes out, like, the climate of, is social media bad for mental health?

Is it an addictive in itself? So it is always interesting to kind of cross-reference these numbers. And for all intents and purposes, the Internet usage of teens is just insane. It's nearly... Scientific term. I have the scientific term for you, though. The share of teens reporting that they use the Internet almost constantly has nearly doubled in the eight years since Pew first released a survey in 20. to 46%. So half, almost half of teens, any of the youths you know who have their faces

buried in their phone, there's a reason for that. It's internet usage has nearly doubled. Yeah, and it comes at a time when lawmakers are scrutinizing social media platforms for getting kids, especially hooked on their platforms and causing allegedly mental health harm. Apple really, really, really, really wants to protect iMessage to the point where it's gone to war against an upstart app that's trying to allow us Android users to join the rest of the civilized world in sending blue techs. That app is called Beeper, and recently it essentially reverse-engineered iMessage to allow people with Android phones to send iMessages to users with iPhones. The app was super popular, gaining 100,000 downloads in 48 hours in the most successful launch of a page. Android app ever. Apple was not happy about this at all, and last Friday it throttled Beeper saying it was necessary to protect its iPhone users, privacy, and safety. As of yesterday, Beeper

was back online, but not with its full functionality. This may all seem like a silly blue text, green tech, but actually it speaks to deeper questions in tech about market power, privacy, and a concept known as interoperability, which is when different types of software programs can exchange information. And the Beeper Apple War has even attracted the attention of lawmakers. Senator Elizabeth Warren called out Apple for squashing competitors, saying that chatting between different platforms should be easy and secure. I actually want to go back to nothing chats as well, which launched last month, and actually

ended up shutting down quickly after because there were reports that its servers restoring non-encrypted user data. And I think that's the crux of the issue here, at least from Apple's perspective, which is security. Apple has done this branding masterclass. They made blue text not only into a status symbol, but also into a symbol of privacy and security. So then you can always go back to the fact that whenever they shut down something like Beeper, they say, listen, we're just trying to keep all of Apple users safe. But then Beeper's founder turned around and said, hey, if you actually cared, you'll actually let us do this because we're making things more secure. His exact words were

if Apple truly cares about the privacy and security of their own iPhone users, why would they try to kill a service that enables iPhones to send encrypted chats to Android users? So it is kind of this cat and mouse game where beepers saying, listen, we're making, we're entering your ecosystem. We're trying to make things more secure. Why are you preventing us from doing that? Right, because the blue text, green text thing is aesthetic, obviously, but also a blue text, iMessage comes with end-to-end encryption. Whereas if you send, if I, an Android user, send a text to you, an iPhone user, then it's over SMS,

which is kind of this antiquated technology. And not just is the color different, but multimedia is terrible. I, there's no read receipts. Basically, the functionality all breaks down. But when I can actually tap into the I-Message functionality, then we can actually have an end-to-end encrypted conversation. When you send me a video, like, when you send me a video, it comes in super grainy. It's awful.

And that's because it's over SMS and not I-Message. Is this why you're-R-CS? Is this why you never are texting me, Neil? You're always slacking me and saying, yeah, this is why we're never hanging out after work. Apparently, you don't like the grainy video messages. But in a way, this isn't really Apple's problem. IMessage is their service that can do with it, what you want. It's a key way to lock users into kind of their famed wall garden and add value to their iPhones.

So Beeper's security and beeper's issues isn't necessarily Apple's concern at all, but IMS is very much is. So I can totally see where Apple is coming from, even though it doesn't always look great. it's David versus Goliath in this scenario. I think it's going to become Apple's problem because the EU is looking into making iMessage interoperable. They're going to say, you guys have to, you can't just be this walled garden anymore. You have Elizabeth Warren on the case. I think if Apple keeps going to war against these upstarts, then it's going to attract

even more regulatory attention. And people are going to say, look, this is freaking 2023. It's going to be 2024. The fact that we can't text each other with any, with security, with end-to-ending like Apple does, just because Apple wants to have this market power and wants to keep people on its phones from iMessage, I don't think that's going to fly in the next few years. And Apple has been kind of giving concessions. Next year, it's going to release RCS, which is rich communication services, which is kind of an

upgrade over SMS. It's not fully iMessage or anything like that. But as an Android user, I'll be able to text you with a little more functionality with multimedia will come in a little bit better than it has been now. So Apple has been making moves because I think it's going to come on. under a lot of pressure. I don't think this status quo is going to last. All right, Neil, moving on.

My favorite year end list just dropped Google's Year in Search, 2023, where we get to see what was really trending on the interwebs this year. Google breaks it down into categories nicely for us, and since we're a news show, let's start with a news category. Globally, the top search thing in news was the war in Israel and Gaza, which was a late entrant, but obviously of great interest to many people. That was followed by Titanic Summerene, which of course is in reference to the Ocean Gate submersible that imploded while diving the Titanic.

In the people category, the Buffalo Bills, DeMar Hamlin, came in on top after his near-death experience on the gridiron. In the actors category, Jeremy Renner was the most searched after his rogue snowcat accident almost made him lose his leg. And finally, for movies, Barbie beat out Oppenheimer to go one and two. Strangely missing from all the list, Neil, was Taylor Swift. She wasn't even in the top five musicians searched globally. Shakira was first. I was honestly a little shook by that. Maybe we've over-indexed on T-Swift this year

because the people weren't searching for her. Well, you have to think of what Google searches and there's a gap in knowledge, right? People want to find out something about somebody. And maybe the interest around Taylor Swift just doesn't happen on Google. People kind of already know they go to Instagram or TikTok or other ways to get their Taylor Swift information

or they just listen to this podcast. But to me, looking at this list, I was just thinking, If you're wondering why there's no websites dedicated to good news, then all you have to do is look at this list. I mean, the only things people search were natural disasters, wars, people dying, people almost dying. So, you know, it's a little, people, people do in their inside, people do seek out the morbid. I do think, though, that curiosity gap comment makes a lot of sense because sometimes you just hear a rumor that something happened and then you want to follow up yourself. So I do think that definitely shaped what people were doing this year.

I also thought another fun one was the most search recipe, which was Bippinbop, which is a Korean mixed rice veggies and meat dish. I love that because obviously, first of all, I love the dish. You got the egg on top. It's delicious, but also it's a great way to use up. You don't need a searcher, right? Because you know how to make it off the top of your head. Oh, of course, of course.

That was what was interesting to me is like conceptually, I guess I could. But again, if we need, if we're talking about the curiosity gap, I would need just a little extra prompting to figure out, all right, what seasonings am I using here? Okay, but the number four search recipe in the world, not, it was scooped bagel. That's, that's, I'm not sure how much of a curiosity gap there is for a scoot bagel. I feel like that is kind of a one step recipe. The other. That one should definitely never do, first of all.

Absolutely never scoop your bagel. If you toggle into your country's tab on Google, they kind of break searches down by country and you go into the U.S. category, one category they added is top, explained, which is someone just asking, can you explain this to me? And the top for that was the menu explained, which is something I 100% Google this year. You could ask me. I can explain the menu. Well, I don't know. This is something I do after I watch movies. Are you a Googler after you watch movies? Sometimes, yeah. I do that religiously where it's not necessarily to understand it, but just to see what other people interpreted as. And the menu was definitely one of

those movies that I ended up doing. Yeah, you could have just asked me. I would explain that whole thing to you. All right. That's all the time. have for today. Have an amazing Tuesday. As always, feel free to send your thoughts on the show or just say hi to our email address, Morning Brew Daily at Morningbrew.com. Let's roll the credits. Emily Miliron is our editor and producer. Samantha Velas and Raymond Lou are associate producers. Eugenwa Ogu is our technical director. Billy Menino is on audio. Hair and makeup's contract allows them to defer working for 10 years. Didn't know that. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back

tomorrow. Hey, Mama. Thanks for making all my favorite recipes. Hi, Ma. Thanks for your unfiltered advice. Hi, Mom. Thanks for always being by the phone. Hey, Mom.

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