Sharp Tech with Ben Thompson - The First Week of New Twitter and Apple/Netflix/Taiwan Follow-Up

Episode Date: November 3, 2022

Reactions to $8/month for Twitter Blue, the fevered conversation around Musk’s ownership, whether Twitter should take even more risks as a private company, and answers to mailbag questions about Apple, Netflix and Ben’s personal calculus in Taiwan.

Hello and welcome to Sharp Tech. I'm Andrew Sharp, and this is a free preview of today's episode. To shift gears from Twitter, James asks, I have a question for the mailbag around Ben's update on November 2nd that discussed Apple's earnings. It was my point of view that despite the lacking features of SK ad network, we would actually expect that because of ATT, ad spend on iOS would shift toward Apple. There was a Financial Times article in October 21 covering this phenomena. Is it possible that the services earnings were hit like Google Play, but were somewhat buoyed by Apple absorbing ad spend that fled other advertising platforms on iOS for Apple search ads? Yes, absolutely. I just missed this. I should have put this in the daily update.

It's a good catch by James. There's a few reasons driving Apple services rather than expecting. I think the fact of the matter that demographics are generally different between Android and iOS and you could definitely see an economic slowdown hitting Android more. ATT would impact the number of games and internet purchases on Apple's platform, but James makes a good point. The answer to Facebook ads performing worse or Snap ads performing worse is to buy more ads with Apple, which would increase the prices, increase the revenue. And then number three, the point I was getting at is Apple has a much more broad-based services, revenue stream from their app store than I think Android does. They have all these subscriptions.

Like, they have so many productivity apps have shifted subscription model. And I wanted to praise Apple because, you know, I've been obviously pretty negative and frustrated with a lot of their policies lately. And that is sort of just from a business perspective. It is impressive how they've done that. But I totally missed. Like, I just, I was, like, I hadn't covered Apple's earnings yet because they were really good. I didn't really have much to say.

And so I just kind of threw this in at an update as well as he was. on Twitter, and I overlooked it. So good catch by James. I'm going to actually add that to an update next week saying, duh, I miss this point. Well, listen, Apple is now worth as much as meta, Amazon, and Google combined. And I don't think you need to feel bad for being too negative. Apple's going to do just fine. But yes, it is a good point by James, because that's sort of what's in the back of my mind as I see Apple as the lone company thriving as the rest of big tech deals with this reality check. I mean, even Amazon is struggling. And there's Apple just chugging along the most dominant company on the planet right now. Well, one of the things that I was

curious about and that I was trying to get to in this update is would Apple's ATT crackdown hurt their business because Facebook driving people to these games? benefits Apple because then people make purchases in those games and Apple takes 30%. So that we haven't yet, I mean, the apps revenue was down, but, you know, can we divorce that from the economic environment? Like, is there an ATT effect? All hard to say, long and short, their service revenue was up. And I think that's in the current environment. That's, that's pretty impressive and speaks to a pretty, a pretty solid business. Okay. Well, we got two reactions. to our Netflix discussion, PD says, one aspect of the Netflix ad strategy I've not heard you guys

consider is the discovery slash recommendation ad strategy, where ads are paid for by movie and TV studios to get their content in front of relevant viewers. Ben has praised this same aggregation ad model at Spotify where artists and labels promote their music to the most interested audiences via playlists and for you mixes. Why shouldn't Netflix do the same, especially if the long-term view is for studios to get back to licensing content to Netflix in a very competitive landscape?

What do you think? Yeah, well, just to be super clear, he's kind of referring to two things. I'm sure Netflix would be more than happy to accept ads from movie and TV studios that are just part of the general ad rotation that's going to be sort of in front of, you know, at the pre-roll for a show

or whatever it might be. This second bit is about like the Netflix homepage and the algorithm of what you should watch next where you can actually pay to play to sort of be part of that. I think it's a valid strategy. I'm not sure Netflix agrees. I think they might want to make the case that like, no, we're not going to be corrupted by XYZ, ABC. I, again, I just in general am more open to to advertising.

I think the Spotify thing where, you know, at the end of the day, you use the Spotify Discovery playlist because you find it valuable and it works well. And Spotify is risking that if they overindex on music labels paying to push new songs and get them in those lists. If they stick a song in there that's from a different genre or from an artist or a bad song that you don't like, you're going to stop using Discovery. And if you stop using Discovery, Spotify's relative position and power in the music market, it is going to be impaired.

So I think there is a good balance of incentives here. And I think it's a valid way for them to, for them to monetize. And I do think that makes, like, Spotify is more better, is in a better place because there's just like more inventory, right?

There's a new discovery playlist every week or every day or, or like different playlists are updated all the time. And there's lots of playlist for lots of different people. Netflix kind of has that one screen, like the home screen when you log in. I'm not sure that it's, it's as advantageous or as large of inventory. as they might have.

But I do think it's definitely a possibility. I don't think it's going to happen anytime soon. I think they're going to build out this product to a much greater extent first. But I wouldn't be shocked if it happened in the long run. Yeah. Well, and the holier than now idea that we couldn't possibly do that to our customers, I mean, the algorithm they have now is designed to make you watch as much as you possibly can and get you hooked on Netflix.

so it's like already a capitalist endeavor. Well, no, it's biased towards their content, right? Right. So they're getting the advertising for free in a certain regard. Yeah, well, they're not doing this out of the goodness of their heart or just solely for the benefit of their customers. So I don't necessarily see a problem incorporating ads from major Hollywood studios, but we'll see what it turns into for them.

Another Netflix question, Matt says, when Netflix spun up their streaming service while still mailing DVDs, I'm sure people looked at it the same way we're looking at them doing gaming. Stadia or Stadia, I don't know if we've settled on an official pronunciation here. I think it's Stadia, but I actually am not sure. Now you have me question. Okay, so Stadia was shut down because Google didn't put any marketing behind it. I think there's an opportunity here for Netflix to do a much better job,

and it's cheaper if they build their own toy games. games rather than investing in IP. And mobile games can be a great platform to show ads, therefore increasing their nascent, bound to be mispronounced, he says, ad business. What do you think? So, Ben, what do you think? I mean, I think there's all kinds of businesses for all kinds of companies where you can just spin a theoretical story that makes a lot of sense. I guess my concern here is I feel like Netflix has as other things to do what like build out a good ad business and uh and you know it just feels like a something that isn't essential I mean there is definitely a like a churn aspect I think to this where someone's hooked on a game and your thing like that's a reason for

them to for for them to stay around I don't know how people are going to actually like sign up for Netflix to get access to their games um so maybe I mean maybe They do have data, right? Maybe they've already seen that whatever efforts they've done have paid off in that people, you know, people that play a game or more are open the app more often, see content more often, are less likely to churn. That's very possible. So I'm not here to completely discredit it. It just seems like a bit of a distraction and I'd like them to spend, spend money on better content. But, I mean, maybe he's right.

might be right. I think that, you know, again, Netflix has data. I don't. I feel uncomfortable when companies I feel like have things to attend to and they branch out to do other stuff. I mean, it's make the same criticism better. So, but that's, that's, that's my main takeaway, but I'm definitely open to being wrong on this one. Well, can I lodge an objection also when Netflix spun up their streaming service while still mailing DVDs, I'm sure people looked at it the same way. We're looking at them doing gaming. I don't. think that's an apt comparison because the pivot from mailing DVDs to nailing streaming years before everyone else is like a once every hundred years type stroke of brilliance. It's like drafting Janus with the 15th pick or like Kauai turning into a superstar out of nowhere for the spurs. It's not going to be replicated. So I just don't think it's a useful data point. It's not like gaming is a new thing, right? Right. Like there's, I mean, speaking of like ads you don't want your product, Apple will

shove an Apple arcade ad in front of you every moment they can. Like that, which is the same idea. We'll give you games that don't have in-app purchases, that don't have advertisements. You can just have sort of this great experience. Like, this isn't, this isn't some sort of groundbreaking paradigm shifting concept. I think that's a, that's a very appropriate pushback that I agree with. All right. And that's the end of the free preview. If you'd like to subscribe and receive every episode of this show, you can do so by subscribing to Stratecre Plus. That'll give you access to every Sharp Tech episode, all of our Sharp China episodes, the Dithering Podcast with Ben and John Gruber,

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