Sharp Tech with Ben Thompson - Apple's Privacy Power Play and TikTok Concerns

Episode Date: August 17, 2022

Apple’s emphasis on privacy and the competitive advantages that come with it. Then, the varied concerns surrounding TikTok’s emerging dominance in culture.

Hello and welcome back to another episode of Sharp Tech. I'm your host, Andrew Sharp, and on the other line, Ben Thompson. Ben, how you doing? I'm doing pretty well. How are you? I mean, I'm doing great. I was just telling you before we came on to record, this is probably the first time in the history of my career in digital media that I have working high-speed internet. So I feel like I've unlocked a superpower here.

Yeah, the shift from. cable to Fios or fiber or whatever you want to call it. It's like back of the day when computers went from like spinning hard drives to like do like solid state ones. It's like I didn't know life could be this good.

It like takes milliseconds to download files now. It's really great. It's been a secondary benefit of working with you and Dumbin is you guys will look at me and be like, I don't know, your phone is like six years old. Maybe you should get a new phone. Or like my laptop was from 2015.

and now I've got a bunch of new hardware. Everything's running great. I'm in a good place. And you're recording a tech podcast, so it's all good. There you go. And, you know, we'll start with my hardware, which is an iPhone and a MacBook. I want to talk today about Apple and ATT, which is shorthand for app tracking transparency, and which has hit the tech and advertising businesses like an earthquake over the past 12 months.

And you've covered it all the way through. I want to give listeners like sort of a broad look at what Apple has done and who it's affecting because it seems like this is a story we're going to be returning to throughout the next couple of years. And to start, I'll just ask you this. Like before we get into the changes and how they've been received by various players, as a basic point, what type of advertising is affected by the ATT shift? and what's changed over the last year. So by and large, big picture, there's two kinds of advertising, digital advertising. There's brand advertising, which is what we're most familiar with from like TV and things along those lines.

And then there's direct response advertising. So brand advertising is really making you build sort of affinity for a particular product or a particular brand or whatever it might be. And so you can see this as most famously like CPG products, right? And the thinking here is you get someone sort of like hooked on a particular brand and they're like your customers for life. So it's like it's really valuable. Like if you start buying, you know, a particular type of deodorant or a particular type of shampoo, then maybe you see commercials and they like sort of. And it's one of those things where people say, oh, that doesn't work on me.

And to the extent they think it's not working on them is probably the extent to which it is. And so what happens is and this is all tied into like, grocery stores and big box retailers where you go and in your car, like, I need to grasp on the odorant and you just reach for one. And you kind of don't know why you reach for that one. But you get in a habit, this is something you don't want to think about all the time. You just sort of buy the same one again and again. And so this is like, that's one type of right advertising.

Another one might be for big sort of big ticket items like cars on those lines. Like you're just building a, and it's all about building sort of like a sense of what sort of person drives this, right? and there's like can be a very aspirational sense to these sorts of things. And if it's done well, it can pay off for decades to come. Right. The deodorant example forces me to look at my own life and I've been like mindlessly buying Old Spice deodorant for like 25 years. Probably based on a commercial I saw when I was 10 years old and it's like going back to the well.

Right, because Old Spice is like, oh, we're very swab and sophisticated. We're not like axediodin or something like those lines. like the bro-y sort of stuff. Exactly. Their ads probably turn me off, X, for life. And so it can cut both ways. Well, no. That means it's effective.

Because if you want to have sort of effective brand building, you need to have sharp edges to your brand. It needs to be well-defined. It needs to be differentiated. And so to the extent they turned a suave, sophisticated person like you off was the extent to which they were turned. No, I don't insult our ex, our ex, the other listeners. But nothing wrong with that.

It's a deodorant positive zone here. Axe is a brilliant brand. I mean, it's a brilliant brand because we can bring up Axe on a tech podcast, and everyone immediately knows what the brand's about. Like, like, it's not like, and so it's been very successful in that regard. And what's funny is, I'm not sure, but Old Spice and Axe might be made by the same company. You know, if, if not, there's other examples we could find where the same, you know, there's only a few big CPG companies.

There's P&G, there's Unilever. there's a few other ones in that sort of space. But they have what are called House of Brands. And the equivalent of a product manager in tech who sort of like owns and defines a product and, you know, supposed to be the voice of the customer, et cetera, et cetera, is the brand manager in CPG companies. And they're all about creating and understanding who's their customer, who are they reaching for, what's the sort of like the ideal they want to build and then sort of delivering that

and building something over time. that's brand advertising. The other side is direct response. And direct response isn't unique to digital per se. There's always been things like clipping coupons in the newspaper or doing things like a direct mail or even like, you know, the late night cable TV channels that are like selling you things. And the key thing here is, well,

brands about building a long-term sense of attachment that pays off maybe in multiple purchases over time like deodorant or some big ticket purchase. like something like a car. Direct response is, I want to get a conversion right now. You see this ad and you buy. And so when you're watching those land-in-infomercials,

and they're like doing the things like, and you're maybe not in a completely sober state of mind. Like, oh, that's amazing. I know you get something exactly like that. And then you're buying it. It shows up in your door like, what happened. And so these modals of advertising have existed for a long time. But brand was always the big sort of sexy one, right?

And you can think about it. Like there's an entire job called brand manager. You know, you're not like one of those people selling late-night infomercials. Digital comes along and digital flips this on its head. And it makes sense because digital has like this sort of immediacy to it. You can be on a surface where you see an ad and you can convert right there. There's no, I have to pick up a phone. I have to call.

I have to deal with the customer agent. It can all be sort of completely automated. It's massively scalable, number one. Then number two, the data you get from digital is just so. much greater. And and so when direct response first sort of came along, it started out kind of advertising, like brand advertising, like contextual data, like, oh, you're, you know, you're on a, you know, this sort of stuff you're looking at means you might be interested in this. But over time, the, the real thing that made direct response marketing work was understanding what you bought,

because of all the signals in the world, like your demographics, your income, your interest, all of that pales. It's like not even, it might as well not even exist relative to have you bought item A or not. And if you've bought item A, you are more likely to buy item B. And so what came out of this

was this huge sort of direct response sort of business. And we use Facebook as the example because it's by far the biggest and best one. By best, I mean sort of performance sort of one. Where Facebook obviously has ads. but what Facebook also has is they have like SDKs and apps. And so SDK is like a component you put in your application that's in there. And Facebook sort of like builds it.

They also do what's called a pixel with something you put on a website. And so what happens is you can have a situation where you're on Instagram, right? You're on Instagram and you see something, you see an ad maybe for a t-shirt or something. You're like, oh, that's kind of cool. You click the ad. You go to the website and you buy the t-shirt. Now you have this closed loop of understanding, which is that this person saw this ad and they made this purchase.

And then you have a whole bunch of people that make that purchase. And you also have a whole bunch of other purchases of a bunch of other items of a bunch of other people. And none of this works on an individual basis. None of this even works on a few hundred people or a few thousand people. But when you get hundreds of millions of data points, you can start teasing out these very light sort of indicators, being like, oh, if you bought this shirt, you're probably going to buy this blender, right?

The connections can be drawn are crazy. And I think of misunderstanding here, these connections are uniquely possible with computers. They are connections no human could ever sort of determine. And people have this vision, and Apple's contributors with some of their advertising, where it's like someone's snooping in on what you do and getting something else.

And that's not how it works at all. This is just massive, massive, massive sort of scale and finding these very slight indicators. But it's incredibly powerful. And because you can go to Facebook and say, look, I want, I'm willing to pay, you look at your margin. You like, I have this item that I get a $2 margin on. I'm willing to give, you know, all that's been half that on advertising. And you go to Facebook, you go to Facebook and say, oh, you know, I want to advertise to Andrew sharp, you go to Facebook and say, look, I'm willing to spend up to a dollar per click for,

for someone because I know, or conversion, you could actually do conversion. I will pay a dollar for every customer I acquire to you, Facebook. And Facebook goes out there and they find the customer and they show them the ad. If that, if that, you know, customer clicks on the ad, not just clicks on the ad, actually converts because Facebook knows the whole loop, then the retailer benefits, because they got a new customer who they never would have found in a million years, Facebook benefits, because they just got a dollar for sort of doing the work, and the customer benefits, because they were shown something that they wanted that they never sort of realized existed.

And what happened with ATT is that. Before you get there, I just want to emphasize something you just said, because it does, I appreciate, I can't speak to Facebook because I don't really use Facebook anymore, but Instagram, their ads serve me stuff that I want. And it's gotten so advanced that I'm convinced that they can tell not only when I click through and go to a third party website, but also when I just stop and look longer at the stories. And so they can see that like 90s basketball t-shirts are piquing my interest.

And so they serve me more. And I mean, I have mixed feelings about it because I've probably spent hundreds of on like different stuff that I don't need. This is a classic stated preference versus revealed preference. The hundreds of dollars say you love it. Well, yeah, exactly. And so I can't say that I feel like victimized by any of this. And I think the way Apple frames it is that is as this like predatory practice that is

horribly invasive and whatnot. And that just has not been my experience, at least with Instagram. And I'm sure it differs across different. So what ATT did was it basically severed that connection between the third-party retailer and Facebook. So the way that Facebook understood that the conversion happened is, again, because they had a component in that retailer's app or on their website that reported back to Facebook that that conversion happened. Now, the way Apple frames it is that third-party retailer is sharing data with Facebook, Facebook's sharing data with that third-party retailer. on a, from a certain perspective, of course that's happening because the conversion's happening on the retailer's website and then that that data is coming back to Facebook.

What I think is not really well understood is the reality of the situation is that the third party retailer has no data. They have no idea who you are. I mean, obviously you put your credit card info by and large, but Facebook delivered them to you. And they not only don't know. who you are, they have no interest in knowing who you are. They just want to sell t-search. And I think this is the, this is the big, you know, sort of misconception here is that by all

intensive purposes, you know, Facebook is, it's all first-party data to Facebook. What's basically happened is you have all millions of these little retailers or app makers that have basically deputized Facebook to say, you hold all the data. We don't actually want to know. All we want to do is just sell stuff. And actually holding consumer data is a crappy problem. You have to secure it. You might get broke into you. You might get hacked. Like, no one actually wants this stuff. They just want to sell things. And so Facebook's like, we'll do that on your behalf. We'll keep everything up to the point where we're not going to have a mechanism where you report your sales. We will give you a component, like a black box that you put in your app that

just captures the data and sends it back to us. And it's almost like a cool. closed loop within Facebook. What Apple has said is that is sharing data between third parties because there is data that's collected on the website and data that's collected on Facebook. And they've severed that connection. Like you cannot share that data back and forth. And so what's happened? So this has been devastating because, again, it's really funny because people have it in

their heads that the way Facebook advertising works is by knowing all these personal details about your life. And none of that, as I just noted, really matters just compared to did you buy or did you not buy. Not only does it really, it doesn't matter, but it doesn't have much value to anyone in the chain you just described. And so there isn't some like grand conspiracy to learn every last detail about Ben Thompson or Andrew Sharp. It has value to Facebook, right? Because they they build that massive corpus of data where they tease out those very fine connections. if any company is going to get all this data,

it might as well be Facebook, which knows more about us than anyone else already, because we told them, right? Like we've been putting stuff into Facebook or Instagram or WhatsApp for 15, 16 years now. So there's almost a situation here where, like, customer data is definitely a problematic thing. And there are real privacy implications.

I should put this up front. It's not to dismiss that there's real concerns here. it's kind of like nuclear, like spent nuclear energy, right? Right. Like, it can be valuable if you know how to use it and process it, but it's really hard to hold onto. It's hard to secure. You need to build lots of infrastructure around it. And so from my perspective, given this data is going to be out there, having it in Facebook is actually a pretty great thing because the alternative is the rest of the ad ecosystem, which is a big mess where you have all these ad brokers and they really are selling data back and forth.

and they're capturing location data and they're capturing purchase data here and they're putting all these pieces together. And I think what's happened with the rhetoric is there were real abuses in problems in the broader app ecosystem that frankly Facebook was an excellent alternative and solution to.

What Apple did, they did disrupt that ecosystem too. And it would be, it's fair to admit that. But the rhetoric being all about Facebook was like, we're, you know, it's like two firefighters, you know, and like I'm going to put out the fire and also shoot the other firefighter and say it was his fault. Like, so there's like, I think the, this has just been a frustration for me on this whole thing in general is there is a lot of issues going on. There's a lot of problems.

There are companies that sell data. There are companies that abuse this. Those companies are not Facebook, but some of Facebook became the face, no pun intended. of all these sorts of things. And that's just muddled and sort of confused the issue. And so, I don't know, like I'm not going anywhere at this point other than to say- No, no, no, no.

It's an important point. And we're gonna come back to it from a practical standpoint. The way this has worked for Apple is to basically ask any iPhone user if they want to allow apps to track them. And the way it's framed, almost everybody answers, no. Like, you- I think everybody has such negative associations with the idea of apps tracking them and doing everything. I don't know you think about it.

What does it track sound like? It sounds like it's like following you around on the internet, right? Like like, and really it's just this can you like share data across sort of things. And I think the important thing to know about ATT though is what happens when you click no on that is a few things. So number one, the technical thing that happens is there's a unique number on your phone called an identifier for advertisers IDFA. That number, if you click no, when they ask Apple for the number, Apple reports back 0,000, 0,000, so it's basically a null number. It's a meaningless number.

That number was definitely the way to link the most easiest way, particularly from an app perspective. Because if you, you know, one of the Facebook's big businesses was app installs or conversions within apps. That app gets the number. Facebook has the number. It's a trivial sort of exercise to put those numbers together. and not just Facebook, but Snapchat and, you know, and a whole bunch of other company. YouTube was another big one here. So IDFA, and when you say no to that prompt, IDFA goes away.

ATT is bigger than that, though, because particularly when it comes to sort of the e-commerce stuff, like when you're buying on Shopify, like there's a lot of other ways that can tie you together, like via email address, for example, or like ATT isn't just a technical limitation on using IDFA. It's a legislative dictate that you cannot do this whole host of things. And the hammer here is if we catch you, we're going to kick you out of the app store. And so there's, you know, the reality is, is almost certainly there's a lot of this going on anyway because people are trying to figure out a way to keep their businesses afloat in a world without the IDFA. But ATT is much broader and more expansive than that.

And so it's basically an attempt to kill this entire ecosystem from my perspective. And again, there's some things that needed to be killed. There's this part that I think was a healthy, useful part. And again, it's one that developed over the years that is sort of getting thrown out as well. And an important distinction is ATT does not affect you if you are only first party data. So the counter example here is Amazon. If you're Amazon, you go to Amazon, you search for something, half the results are ads, maybe more. Like there's just ads all over Amazon constantly.

They serve you that ad based on your purchase history because they know exactly what you bought. You've been buying stuff on Amazon for 20 years. You click an ad and then Amazon knows you click the ad. They can tie it to conversion. They have that closed loop process. All of that is completely allowed by Apple because it, It's first party data. It's Amazon is sort of has sort of the whole closed loop.

The, you might ask like in practice, how is that different than Facebook having a closed loop? It is no difference. The only difference is that like the name on the tin, the name on the website is some other is xyz.com who is running on the Shopify platform. And I think this really gets at why I personally find this whole thing frustrating. the thing that gets me excited,

the thing that I think is critical for the internet, in the whole internet economy, is that it makes possible completely new kinds of businesses. Those new kinds of businesses are small. They are very focused, their niches,

they're businesses like chrategor. Those businesses could not have existed in the offline world. Like, you couldn't have a newspaper columnist that writes what I write, maybe in New York, right? But like nowhere else,

like you're, because there's just not a large enough audience for that. You end up getting, you know, general purpose, talking about sports, talking about the local political scene, whatever it might be, things that are, you know, broadly applicable to a lot of people. The internet, though, when the entire world is your market, when you can reach, you know, billions of people theoretically, suddenly there's entirely new kinds of businesses that are possible. The only problem is how do you find the people? Now, yeah, trajectory is fortunate in that it's very well suited to Twitter.

So trajectory is grown almost completely on Twitter. I've never done any advertising. So this isn't a self-interested argument for strategically. But there's lots of things like, like, you know, T-shirts don't trend on Twitter, right? Right. Well, and the idea that they're doing this to help the little guys everywhere, because that's sort of the way it's framed and marketed and not only little, like just like individuals, but you're really hurting small businesses that rely on this technology to grow. And it's framed is Apple versus Facebook, but it's really Apple versus a lot of small businesses and Facebook. Yeah, I mean, like Google Search is, to some extent there's companies that are built on Google Search. Google Search is also kind of sketchy and that just harvest clicks.

Like, you're searching for something. You're going to get to it anyway, but because the first four results are all ads, you end up clicking one of the ads. And Google is basically taking a skim off of businesses just because they can. And like how much, how much value is that actually creating? Again, it's not, I'm not saying it's zero. There's a lot of businesses that are viable because of Google search, but it's definitely much more of a tax than a lot of advertising. What makes the Facebook type of advertising much more interesting to me and much more

compelling is it shows you stuff you didn't know you even want it. And, and this isn't a bad thing. Like if you find stuff that's cool, that's great for you as a consumer. And what's cool about Facebook, and I think really underappreciating, Facebook's reputation is very unfortunate in a lot of ways, but particularly this one. There is a lot of businesses that were created simply because of Facebook ads made them possible. And I find this attitude amongst Apple partisans that, well, they were cheating. They never should have been such ridiculous.

Like, the alternative is the old world where you, had to be big enough to do advertising on TV, to do advertising in newspapers, and not only does that sort of like close the door on new sorts of businesses, but it also results in worst products because you're getting lowest common denominator stuff that is that is like broadly, broadly interesting and useful. I mean, to use a personal example, almost all my clothing now is bought from these like little DTC companies. And I have like sort of a weird situation like in Taiwan like like the weather and things on those lines and just like you know I actually have a not to get too much personal elevation I have a bit of a weird body type uh like a long torso

short legs and honestly being able to buy exactly the clothes that I want that fit me great is been fantastic like like it's it's made my life better those companies only exist because of Facebook and yeah and like there's this I think there's there's an aspect where there is a bit of a dark matter to this because these companies work because they only advertise to their target audience. And that's what Facebook makes possible. Instead of doing a blast, like, if you, there might be a company you see on TV, you never buy from that, but you know they exist because they're on TV all the time. There's lots of companies that exist that you and I have never heard of because we're not in the target market. They only show up on people's Instagram feeds. But I don't think that's a

bad thing. I think that's a great thing. And it's unfortunate that we're instead, Apple single-handedly saying, nope, you have to be big or you have to sell on Amazon. That's your only choice. First of all, for listeners out there, if you want to check out Ben's weird torso, our YouTube channel is not up and running yet,

but you'll be able to watch every episode. We'll put clips up on there. You can check it out. He looks great. I have a long torso and short legs. It's very annoying. Yeah. Well, so, and you mentioned, like,

what gets you, fired up about all this. What gets me fired up about all this is Apple is posing as this altruistic force who's just doing this for the betterment of the internet atmosphere at large and its customers. When to me, it looks like a very convenient way to launder like great business strategy. And to that end, earlier this week, the Wall Street Journal reported that before, Apple introduced ATT, Apple was actually in talks with Facebook about partnering together. And I'll just read briefly from the article. The Wall Street Journal says, an ongoing dispute over privacy between Apple, Inc. and Facebook is roiling the digital economy, leading companies to shift

billions in ad spending as users continue to limit the data available to advertisers. The two companies weren't always at odds. In fact, they were almost business partners. In the years before the change, Apple suggested a series of possible arrangements that would earn the iPhone maker a slice of Facebook's revenue, according to people who either participated in the meetings or were briefed about them. As one person recalled, Apple officials said, quote, they wanted to build businesses together. And that's funny to me in its own right, because it, like, the idea of partnering together sounds a lot like they just wanted like a cut of the money that Facebook was making.

So it's a real favorable partnership for Apple in that regard. But what's your reaction to all of it? Well, I mean, I heard this in, so in 2020, there was a, a, this big dispute between Apple and this app made, this app called Hey. Hay was made by a company called Basecamp, uh, which had a long running sort of SaaS business where it was a website driven like project management service. Obviously they had an app, right? That app was free because it's a web service, right?

that you could just more easily access it on your phone. And, hey, built something similar for email. Like, oh, we're going to have an email service. And then now, of course, there's an app you can access it in your phone. And Apple said that the hey app could not be in the store unless it incorporated in-app purchase, which meaning you couldn't go to the website and subscribe. You had to be able to also subscribe from within the app. If you have a purchase flow in an app, you have to use Apple's payment service,

which means you, there's a few things. everyone focuses on the 30%, you have pay Apple 30%. I think a bigger thing, and Basecamp did push on this is what I agree with, is you now have two completely separate support flows. Like to get a refund, you have to go to Apple. You can't issue refunds yourself. You have to have a different sort of like tracking for invoices and like how do you link the two questions? It's just a lot more sort of rig of a rolled work.

And up until then, it had been accepted that if you have a SaaS app, of course you can have a free application, you know, sort of on the phone to access it. Anyhow, this blows up. I started hearing from, and I put a call out, especially once I started hearing more and more reports, from other people in similar situations. And I got a flood, an absolute flood of emails and direct messages from app makers. And some of them were tiny. Like, like, like, I heard this little family business. Like they, they were like, you know, I don't want to say what it is.

And the reason I want to say what it is is because companies are fearful that if they speak badly of Apple, Apple will retaliate by rejecting their apps. Apple suddenly out of nowhere for an app that had been free in the store for many years cracking down and saying, look, you have a purchase flow somewhere in your application or you have a purchase flow in your overall app, even if it's a web app, and we should get a share of that. But one of the more interesting ones I heard

was from a large ad-supported company that was not Facebook. And this company told me, or someone from this company told me, Yeah, we had discussions at a very senior level where Apple is basically like, look, you used have gotten a free ride for a decade. You guys, your phone app's very popular. You make a lot of money. You need to figure out a way where we get our share.

And it was similar to this. That was implied. Right, because they control the app store basically like supreme authority and not much accountability for the decisions they make. So they can wield a lot of power. And then, I mean, at the time, did you, did you, did you, envision ATT coming into being because it seems like that's also the or else here. Well, so the timing is very interesting, right?

So in this case, you know, as an ad supported business, Apple's like, you need to figure out how to add a subscription component to your business because and that if it's a subscription component, you have to use an app purchase and then we get 30%. And which is basically what is being articulated here for the Facebook thing. Now, the timing is interesting. In 2016, Apple had one of their worst years ever as far as like stock performance goes and like because what happened was the iPhone 6 came out in six, I think even the 6S,

the time is getting a little fuzzy now, but absolutely massive, like the largest leap in sales ever. And Apple was like, oh, this is just the new normal. We're now in China now, like we're going to keep selling like crazy.

What actually happened was Apple finally sold a large iPhone. And so they pulled all these people like upgraded earlier than they would have. They were in China for the first time. But so they had this massive, massive sales cycle. And the next year, sales were flat. And Apple actually, they had to take like a $2 billion right down because they built too many phones.

Like Apple completely misjudged the situation. And so their stock got hit, you know, the flat sales or even, I think they had their first ever down quarter. And in the midst of this, they suddenly come out with this presentation that's like their services revenue. And it's basically all app store revenue. And what was kind of weird about this presentation is they claimed 100% of app store sales, even though 70% of them, go to the developers. But they were trying to, what became known as a services narrative,

that were not just a hardware company. Because kind of the challenge they were facing was their stock would come and go based on projection and understanding of iPhone sales. And also just like hardware is considered like a risker category, so your multiples are lower. Whereas if you have subscriptions and you have like just regular recurring revenue, you get a much higher stock price.

You get a much higher multiple. And so they started to really push the narrative. We're actually a service, company. We're like, like, you think about us as a product company. We know,

we're a services company. That was 2016. It's striking that these conversations with Facebook were between 2016 and 2018. These other conversations I've heard about were in 2018, 2019, 2020. So you,

you, and it seemed to really start a crack down late 2019 and early 2020. Apple's like, no, we are scrounging around, even with these little rinky dink family, you know, owned apps,

because we're going to claw out sort of every sort of bit that we can. So that's the context that's going on. then ATT is introduced in 2020. So it's certainly striking the timing, to say the least. I wouldn't go so far as to say that ATT was a mob-esque, fine, you don't want to play ball, we're going to kill your business. At the same time, it's kind of like one of those things where I say it's not that because I have a hard time believing that can be true, despite all evidence seeming to

suggest that's a very reasonable sort of explanation. Well, that's sort of what I'm seeing here. And look, at the same time, Apple has really benefited. Like the financial times in October 21 ran a piece that was headlined, quote, Apple's privacy changes create windfall for its own advertising business. And then from that story, they say Apple's advertising business has more than tripled its market share in the six months after it introduced privacy changes to iPhones that obstructed rivals, including Facebook, from targeting ads at consumers. The in-house business called search ads offers sponsored slots in the app store that appear above search results. So to me, it looks like Apple is kneecapping other companies while continuing to track all this data themselves and using that data to service

their own ad business. Right, but it's first party data. Like that's the, the, the hilarious thing about Apple has done is because they force every app on the store to use their payment system for any digital content, they claim that all purchase data on the phone is first party data. After all, it's using our payment system. So it's a neat little trick they've done here where you have some of the disputes like Epic, for example, in the lawsuit about being forced to use Apple's payment method.

That's all tied into this. everything all transactions have to go through Apple, ergo, everything is first party data, or Apple can use it for their own advertising. Now, their current advertising is App Store ads, which I think is something like doubled, is sort of like we're on the streets over the last, you know, a couple of years.

And that's kind of like Google. It's like a skim, like a tax, where I search for an app and that app feels like they have to take out an ad, even though they're going to show up in the results because people click on the first one that's on there. The big question is, do they actually start offering ads within third party apps.

And again, their excuse will be, hey, it's our ad platform. We're not asking them to put an SDK in their app because it's built into the phone. We'll just automatically insert ads because all these apps are running on our software stack. And, you know, that seems like there's been reports about them wanting to increase ad revenue from $4 billion a year to $10 billion a year. You're not going to get there unless you're sort of doing this sort of thing. Unless you're doing that.

And which, by the way, ads. Ads are a great, great addition to the services revenue narrative. That's for sure. Well, and Apple has such a robust business right now. And they're doing so great in so many different ways that if I were them, I would be very careful about upsetting the Apple cart and pushing this too far. Yeah, well, exactly. Seriously, that was not intended.

But don't upset the Apple cart, man, because like the anti-competitive. sort of backstory to all of this is pretty clear to anybody who's paying attention. And somehow people are like in the mainstream have not paid close attention to this. And I just wonder like how far they can push it before people wake up and say, okay, well, these bare-knuckle tactics are ridiculous. And everything that Apple has done since introducing ATT has been pretty obviously anti-competitive. and we'll invite more scrutiny. Well, I mean, I think, so Apple tells themselves a story,

and there is some truth to it that, like, there was abuse of the, I think the IDFA in particular, and this ability to link stuff together and follow people around. So there was, like, I don't want to come out here and say that, like, everything was hunky dory and great and nothing needed to change.

Because I think there's, there is arguments that that, that wasn't true. There were things that needed to be changed. And I think that one of the issues was, I think, internal to Apple, there is a very strong sort of privacy oriented team that I think for a couple years there got a lot of power. And you saw Apple doing stuff just in other places that,

that you maybe didn't make the most sense. And I think that there's been changes. Like Apple came out with the new framework called SKI Network. That's always been there. But SKI. Network was supposed to be the replacement for the IDFA sort of, and it was terrible. It was a piece of junk. It didn't actually do anything. And this year they came out with a new version that is actually more useful. And I think is actually a bullish side for companies, particularly Facebook, it's harder to get good signal, but there's actual like anchor points that you can latch on to, particularly if you're at scale. It doesn't help small players. And so it's going to help, I think, Facebook most of all. But there are, it does feel like there is some parts of the company that have like, woke up like, look, we,

we kind of over, overdid it here. At the same time, there is no company that believes more in its greatness and righteousness than Apple. Like,

it's hard, I think, for Apple internally to even, no, all they see is themselves and their best intentions. They make ads

that completely misrepresent what Facebook advertising is, and they believe it because they're not small businesses hustling, trying to build a business on Facebook.

They're Apple. Why don't you just do a TV advertising? We do TV advertising. It works great for us. us. And I just think that there's, it's, it's really out of, I mean, Apple's been well known for being its sort of own universe and not really tied into Silicon Valley broadly, even though they're in Silicon Valley. And I think there's an aspect where that's been a part of this. And also I think there's a bit where Apple is just so successful, there's been a degree of areas and lots of areas.

I mean, they have manufacturing in China, this massive, massive, massive risk area. Like, like, yeah, probably nothing's going to happen. But if it did, Apple's business is completely and utterly screwed. And yet, as of a year ago, when you could see this coming, particularly someone like me that's been observing the space and I've been writing about our trajectory for a long time, I heard, you know, that Apple's had completely dismissed all concerns. No, it's all spun up. It's not a real thing. Fast forward to this year, the Shanghai sort of lockdowns happened with COVID. Suddenly Apple has their pants offender.

Oh, my God. Like, should we really be completely dependent on China? And it's like, dude, like you could see this coming from ages. And I just think there's, like, there's an aspect when you're so successful and particularly when your brand's so strong. And there's a certain story that you tell the world about yourself. Right. No one ends up believing that story more than yourself. And we're not being asset competitive.

We're just doing good by the customer. Everybody seems to believe that about Apple, including me, until I started paying attention to this. Like, that's the most interesting aspect of the story from where I sit, because. When I first, like if you had come to me a year ago and asked what I think about big tech, my half big takes would have been very critical of Amazon and Google and Google's ability to just totally skate on any accountability for YouTube's impact on society, Facebook, obviously, like, right down the line. I'm not a huge fan of any of these people.

But Apple, like, who doesn't love good old Apple, you know, Steve Jobs? and his turtlenecks and they make great products and they've got the colored desktop computers, the think different ads. And it's just funny because to take it back to where we started, their brand advertising was so effective in like the 90s and early 2000s that they're able to basically sabotage some of their stiffest competition, hurt a ton of small businesses along the way. And when they say, this is all part of a progressive mission to ensure that your data is kept private, everyone believes them because they have such positive associations with Apple and like what that company is. Yeah. That's the thing with brand.

I mean, brand isn't just the ads though. Like Apple makes great products. Like, and people love their iPhones. They love their, they love their Macs. And all that feeds back into it. And I think that's one of those things. To your point, it's a. very interesting because I kind of said this earlier. On one hand, a lot of people don't even

realize this is happening. There are other people like me that realize it's happening and I kind of don't want to believe it's true. Right? It's like, like, how can this, how can this be possible? And I think there's a lot of Apple fans that do really find this very disheartening. Because it's like, look, we just want great computers. We want great products. And, you know, there's a story to be explored probably about the, you know, what is the impact of the, you know, you know, know, the push for growth, you know, like things that always have to go up, you know, like, is this where it leads? And yeah, there's some aspect to it where it's all kind of a bummer.

I think the outcome of ATT is a bummer. Hopefully we'll sort of get back to a good place, but there's going to be a lot of casualties along the way. And I think that the impact and corrosive effect on Apple is a bummer too. Yeah. Well, we'll continue to explore all of these implications because. like I said, it's going to continue to sort of shape the entire industry. And it's incredible, though, that, like, Facebook is getting investigated for antitrust because they apparently have no competitors while they're getting their rear end kick by TikTok.

And then Apple is out here without. They're wielding monopoly power. No, it's the most ridiculous way. It's the biggest abuse of market power ever in tech anyway. And this includes IBM. This includes Microsoft. like I've read about all this sort of stuff. It's breathtaking.

They, because they decide what can be installed on iPhone, whatnot, they have leveraged that into potentially not just wiping out businesses, but potentially building a BMF of their own. It's incredible. Yeah. Well,

and the extent of the audacity is just really not appreciated by almost anyone in the main stream. No, I think it's so, it's so audastic. Is that a word? Audacious. It doesn't even occur to me. Yeah.

Adacious. Well, it's seriously. Like, I would not have believed that Apple would be bold enough to do what they've done over the past couple of years. I think part of it, too, is there's a story they can say, like, look, no, suppose they do build an ad network for apps, which I do think they will. What they will say is, look, our app makers need a good advertising network. We're, but we care about consumers. And we're going to make something that's consumer friendly. And there's a story that they will tell, and a lot of people will buy it, especially Apple themselves, that they're just doing a good thing for developers or for consumers.

And there's certainly, let's just say there's multiple perspectives on what's going on. Indeed. Indeed. Well, speaking of multiple perspectives, for part two, I want to talk about TikTok. And I feel like in our last episode, we talked about all of TikTok's dominance. among young people and how incredible its algorithm is. And the entire time we were talking, I mean, all of that's absolutely true. But I was thinking to myself, there's another side to all this that's pretty interesting.

And is it actually a good thing that TikTok has this much power and influence among every young person in the United States? And that dovetails with a couple different reports this week that were interesting. First, the New York Times had a long piece earlier in the week about misinformation concerns on TikTok in the lead up to this fall's election. Casey Newton wrote that TikTok is addressing concerns over its ties to the Chinese government and its trust deficit by partnering with Oracle, who will, quote, vet and validate the company's moderation policies. and then Bloomberg reported earlier today that TikTok has banned all paid political influencer videos. And I'm grateful that I'll never have to find out what a TikTok politics influencer looks or sounds like. So thank you TikTok for that change. But big picture, you've watched this app evolve over the past few years and you've spent decades living in close proximity to China.

So what are your thoughts on the threat posed by the Chinese governments? I mean, they don't own TikTok, but they seem to have the ability to influence it. Is it like a misinformation concern? Are you worried about data collection, the ability to suppress ideas? I mean, you could say all of the above, if you want. Well, I think there's a certain aspect here where it's not just that I've lived close to China, but I'm also an American. and not to put too final point on it, but we are used to running the information environment on the internet.

You know, like the internet, it's, it's really interesting because there's an aspect where America, like America is like the world's entertainment, right? Like, you can go to Europe, you can go wherever you want. People are talking about US politics. Like it's the greatest reality show, you know, reality TV show on Earth. And there's some aspect where because America is sort of the world hegemon, it does have an impact.

But it's also the fact that it's just, really entertaining and it's and it's lively like like there's there's stuff going on and the internet so there's always been the issue like american cultural impact like mcdonalds around the world levi's jeans etc etc i would argue the american cultural dominance of the world is vastly larger and higher than it has ever been and to a huge degree and that's because of the internet because it's not just like american products and american tv shows and hollywood that's sort of going abroad. It's the day-to-day environment and like information environment that people live in that is America denominated, whether that be Twitter or Facebook or Google or just the news that people

consume and care about. And, you know, again, like, and I think there's a, there's lots of aspects to this. There's a bit where I think America is probably a bit underrated because American problems are constantly front and center and issues. And, you know, This sort of like the strengths are sort of like going on underneath the surface. But that's all important context which to say I do come at this unapologetically as an American where by and large, I understand my people resent and hate America. But I think that is generally a better situation for the online environment where there's sort of more information, more free-willing debate, more back and forth than the alternative model, which is the Chinese model. And the Chinese model is where information is heavily restricted. And it's not just that information is heavily restricted,

but there is a specific point of view on information that is promoted. So it's a two-part process. It's both limiting information and also pushing information. And that is the Chinese Internet, where there's stuff that's promoted and pushed, there's stuff that's censored. And the censorship is, it's interesting. There's obviously the great firewall that sort of directly cuts off sites. There's a whole censorship apparatus within the sort of central government,

but there's the expectation that's pushed down to companies themselves, like 10-cent employees, tens of thousands of sensors. But the real effectiveness is when people self-censor, right? Where people just don't bring stuff off, they know better than to go there, et cetera, et cetera. And that's when you've sort of really accomplished control of sort of the information environment. So big picture, painting with very broad strokes about what's going on there.

So sort of just from a pure, if I look at, look at this as a non-American, I can understand irritation in other countries that basically Google and Facebook and Twitter decide and have control of the information environment in my country. And those are, those are countries that I don't control. And you saw a bit of this when Trump was banned from Twitter where there was a lot of outrage from companies like Germany, for example, it's like, why, or India was another one. How can a private company have this sort of power?

Why is that, why is that allowed? And it's not that they were necessarily pro-Trump. It was the principle that a private company could have this sort of control. If they can kick off Trump, why can they kick off us? Well, they can. Like, that's the answer. So I can understand that. And I would take the same view, big picture of TikTok.

I think it's very problematic that a Chinese company has significant influence and control over the Western broadly and American specifically information environment. So just as a principle, I have sort of a problem with that. That's even before you get to the fact that China has cracked down

and forced the now former CEO of ByteDance, who was brilliant, by the way, and almost certainly sort of felt I would strongly, you have to spend more time with his family, you know, to sort of apologize for ByteDance, their TOTO, their news app.

Because what happened? How does TikTok work? it gives you what you're interested in seeing. Well, it turns out if you're someone, you know, on Total, you like to see like, you know, celebrity gossip or you like to see, you know, pictures of scantily clad women

or whatever it might be. And so they were cracked down on for, you know, promoting like bad morals and like all these sorts of things. And they had to like apologize. So you already have a situation where this company, bite dance, has already bowed the need to the government. You are,

secondly, a few years ago, this structure of all these companies is very convoluted. like there's different holding companies versus in the Cayman Islands, then back to Hong Kong, then China, that's how they end up listing in the U.S., and it's a big mess.

But at the top level, there is like a core company that actually holds the reins and holds the power. China now owns a portion of that company and has someone on the board, the central government. And that was basically like, if they didn't buy it, it was like, no, you're giving this to us.

So just to be super clear, the Chinese government sits on the board at the top of the entity that controls TikTok. So, like, that's just a factual statement. That's true. Well, and when you say the arrangement is problematic, just to put a finer point on the way I understand it as potentially problematic, in 2020, you wrote the following. China is a great nation with a history far longer than that of the United States, and this long history looms large in how China thinks about its relationship to the U.S. specifically and the West generally. China is driven to reverse its quote, century of humiliation and to retake what

it sees as its rightful place as a dominant force in the world. What few in the West seem to realize, though, is that the Chinese Communist Party very much believes that Marxism is the means by which that must be accomplished and that Western liberal values are actively hostile to that goal. And then I'm going to read a little bit more here. You cited an article from Tanner Greer, who wrote in Tablet. In a 2013 address to fellow party members, Xi Jinping said, why did the Soviet Union disintegrate?

An important reason is that in the ideological domain, competition is fierce. And then Greer continued and said, a leaked internal party directive from 2013 describes, quote, the very real threat of Western anti-China forces and their attempt at carrying out westernization within China. The directive describes the party as being in the midst of an

intense ideological struggle for survival. And according to the directive, the ideas that threaten China with, quote, major disorder include concepts such as separation of powers, independent judiciaries, universal human rights, Western freedom, civil society, economic liberalism, total privatization, freedom of the press, and free flow of information on the internet. And Ben, I read all of that because until you surfaced some of that material, I as a Westerner wasn't familiar with that. I knew China considered itself in competition with the U.S., but I wasn't aware that they view this as an ideological struggle. I mean, she literally compared China to the Soviet Union.

And in that context, it is a big deal that the CCP may have control over the most influential app in the United States right now. Yeah, I mean, to be clear, they're right. I mean, the whole justification for like admitting China, the WTO and, you know, the, the, establishing trade relations was it was like the U.S. was quite honest about it. It's like yeah, we're going to open up economics and then we're like political liberty is going to follow and implied with that is

they're going to become a part of sort of the U.S. run global order. And to an extent that has happened economically. I think the number one thing limiting any sort of conflict to the U.S. and China is that neither side, but particularly China can afford to be, can afford that. They like they saw what happened to Russia just being. basically shut out of everything, and the Chinese economy would completely fall apart.

And the number one way to understand Chinese leadership is first and foremost concern with its own survival. And so that even more than ideology is what sort of motivates them and is, I think, a useful, honestly, sort of check on what they do. At the same time, on one hand, there is this blithe sort of, if we open up this conduit, right? it's like you now have fiber in your house. Like if we establish fiber between us in China, all the information and ideas are going to go in one direction. And that's not how it turned out. Like we see lots like honestly, we see,

look at all the Western companies that bow the knee to China. Look at LeBron James. Like, like, you know, look at our movies. Yeah, censoring themselves so they can be in China. Look at Marriott, you know, because some, you know, some poor customer service representative in Nebraska made a mistake. He gets fired and they completely redo.

other websites to take out any references to Taiwan. Like there is example after example of when you opened up this connection, the flow of influence was not unidirectional. It was at best bidirectional. And in reality, if we're honest, it's kind of gone on the opposite direction. Look at our own internet. It's moving more and more to a Chinese sort of model where, you know, you mentioned at the beginning, this TikTok news about they're going to police information.

Does it not blow anyone's mind that a Chinese-owned app is making unilateral decisions about what information can be used in our elections? Yes. It's ridiculous. It's big picture. Big picture. There's a whole, I'm sure we'll have an episode about this. But the fact that this misinformation bugaboo has made otherwise rationality. people somehow get so worked up around trolls creating silly stuff on Facebook and basically

abdicating any sort of commitment to free speech. And yes, the first amendment is about the government. But there's a culture and an like a cultural value around free speech that has been completely thrown away. And tech has led the way on this. And we would say I wrote it, not completely thrown away. Well, we're basically. I'm not willing to concede the battle. The press, who is supposedly supposed to be the champions of this, are leading the charge for Mark Zuckerberg and Sundar Pachai and, you know, Prague-Agral to decide what people see and what they don't see. So the overall shift is bad.

But now it's not just we're going to ask three Americans to make that choice. We're going to ask a Chinese government to start doing this. And like it combines all these factors. where we're ending up with like, it's just, it makes no, it makes no sense to me. And, and, you know, I'm definitely sort of someone who believes strongly in the rule of law.

I believe in free markets. I believe, like, I have a big problem with sort of, I think government intervention, even if well intention, often goes sideways. There's a lot of dead weight loss. I have all these sorts of issues.

But, and I value TikTok as a competitor to Facebook. Like this idea that Facebook has a monopoly is absolutely hilarious. Facebook is, is scrambles. for their lives, as we talked about sort of last week. You talk admiringly of TikTok whenever we discuss it. But this idea that you're going to have not just a different country, but a country that is ideologically opposed.

And Americans are, this goes back to Americans running everything. They're so narcissistic and solipsistic. All they see is themselves. And it doesn't, to your point, it doesn't even occur to Americans that other people and other countries see the world fundamentally differently, number one. Number two, that that difference is not a difference of opinion or facts. It's a fundamentally different ideology. And number three, that they may be willing and eager to push that ideology outwards,

not just because there's a sort of missionary zeal, but because they see it as essential to their national interest. And the funny thing is, is China doesn't hide this. Right. Like all this stuff they say. China doesn't hide. We're so arrogant. I mean, like America and Apple are kind of the same thing here.

We're so arrogant. We don't actually believe that. That's not true. Like, like, it's, everything's going to work out. What's interesting to me is I think a lot of people's first reaction to some of the hand-wringing is to say this is a bunch of nativist fear-mongering. And honestly, that's sort of what I assumed until I looked at it a little bit closer. Yeah.

And to be clear, I'm actually, I'm not that worried about the data. I think the whole thing talking about data, who cares? This data is worthless to our point. right? That's not what I'm worried about. It's the ability to push an ideological point of view. And there's evidence they've done this. During the NBA thing, just anecdotally, you could not find Houston Rockets content on TikTok. And you could find every other NBA team. You know, like, I actually documented this at the time. There's been other reports of this happening. It definitely was happening in Taiwan. It was happening on Hong Kong was a big one. And, you know, it's hard to know for sure because you're just

individuals going through the app and trying to figure out what shows up and what does it. And search results are so these these ones to police. We would never know. We would have no idea if stuff's actually being pushed into the feet. And we talked last week about TikTok as this unbelievably effective tool at capturing our attention. And then we also have President Xi who is pretty open about saying, look, the soft power war, matters here and that's a competition that we take seriously. And in that context, none of it is to say that TikTok is currently being used as some

sort of ideological weapon, but it's totally reasonable to be concerned that it might be at some point. Yeah, it's like a military perspective, right? You don't, it's not just what's happening now. You have to think about the potential of what could happen and if you sort of want to eliminate that possibility. I think the likelihood is that there probably isn't anything going on currently. You know, I think the temptation to intervene, say, in a congressional election where kind of off the radar map, there's someone who's pro-China, someone there's not, like you could basically push content for one and no and whatever, no, it's basically sort of impossible to track, is definitely out there.

And it's real things like, do we want that capability to exist in general? And again, this is rich for an American saying because this is what we do to every other country in the world. So I'm caveat with I'm an American. I believe in, you know, Western liberalism broadly defined. Like, and I make, and I think it's important to say that because there's this temptation to believe we're past ideology. We're in like the postmodern era. None of this matters. We all just want to sort of make money.

Totally. This globalized approach to everything. But anyone who pooh-poo's the potential threat posed by all this isn't being some, like, global citizen. They're just not paying attention to what the Chinese government says. And the whole thing with China has been so self-serving from the beginning. I mean, what an amazing, what an amazing, you think Apple's propaganda is good. Imagine the propaganda being, we're going to gut America's industrial heartland. We're going to increase our profit margins.

We're going to get access to a huge new market. And we're going to do it to bring democracy to China. Oh, man. Like, that's the story we were told. And everyone went along with it. And at some point, you have to realize, one, that story was wrong and utterly and completely failed. And two, why did it fail?

It did it, like, it's not the case that the Western liberal order is inevitable. There are other ways of approaching the world. And I think there's a temptation that, oh, China is going to fail. It's never going to work out. well, you know, maybe a stop clock will eventually be right. But the China doom series has been wrong again and again. I think it behooves us to take China seriously, not just as an economic rival,

but as an ideological rival. And this is probably one of my most, like, West least trajectory, like, is very technocratic, very focused on strategy and things. This is, and I make no bones about it. This is an ideological position. And I don't like it. I don't like the idea of saying we should take,

literally take TikTok away. Like, it should be owned by a Western company. But it's one of those exceptions that proves the rule. I think the situation, like, China cut off all our social networks from China for a reason. You know, this is the other side of the conversation that I was having with myself as we were talking through TikTok last week. So I'm glad we could get into some of it. I'm sure we'll come back to all of it because there's a lot more there. But for now, this has been a lot of fun.

internet has held up really well the entire time. I mean, just great video quality. Likewise, Ben. You and your weird torso looking excellent out there in Taiwan. I can't wait to come back next week and I will talk to you then. Talk to you later.