Tech Brew Ride Home - Fri. 03/08 – TikTok In Peril?

Episode Date: March 8, 2024

Did TikTok overplay its hand yesterday? The potential legislation against them is suddenly moving quickly. How Temu might be single handedly responsible for the tech advertising turnaround. More drama behind the whole Sam Altman ouster business. And, of course, the weekend longreads suggestions. Links: Furious Congress plows forward with TikTok bill after user revolt (Axios) China Readies $27 Billion Chip Fund to Counter Growing US Curbs (Bloomberg) Temu’s Push Into America Pays Off Big Time for Meta and Google (WSJ) Key OpenAI Executive Played a Pivotal Role in Sam Altman’s Ouster (NYTimes) Weekend Longreads Suggestions: The Nvidia Chips Inside Powerful AI Supercomputers (WSJ) Amid explosive demand, America is running out of power (Washington Post) How Netflix’s Massive Paydays, COVID and TikTok Caused ‘Explosion of Comedians’ (Variety) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Friday, March 8th, 2024. I'm Brian McCullough today. Did TikTok overplay its hand yesterday? The potential legislation against them is suddenly moving quickly. How Temu might be single-handedly responsible for the tech advertising turnaround. More drama behind

the whole Sam Altman-Auster business. And of course, the weekend long read suggestions. Here's what you missed today in the world of tech. So remember when I told you that somehow some sort of TikTok ban was back on the menu? Apparently, TikTok heard about this because they sent U.S. users a push notification yesterday, saying Congress plans a total ban of the app with a link to find out who your representatives are that led to well, quoting Axios. Members of Congress are being flooded with calls from angry constituents after TikTok launched a new campaign warning its users that the Chinese-owned app was at the risk of being shut down in the U.S. A key House committee voted unanimously Thursday to advance bipartisan

legislation that would force bite dance TikTok's Chinese parent company to divest its ownership of the app within 165 days. The highly unusual 50 to zero vote in the House Energy and Commerce Committee, which unveiled the bill two days ago alongside the China Select Committee, reflected the level of anger among some members about TikTok's pressure campaign. The flood of calls to congressional offices, which began Wednesday night, was triggered by a notice on the TikTok app warning users of a total ban that would, quote, damage millions of businesses, destroy the livelihoods of countless creators across the country, and deny artists and audience, end quote. After asking their users to enter their zip code, TikTok then directed them to call the representatives in Congress to

let them, quote, know what TikTok means to you and tell them to vote no. Phones are completely bogged down, hearing from students, young adults, adults, and business owners who are all concerned at the option of losing their access to the platform, a senior GOP aide told Axios. Ticktok is characterizing it as an outright ban, which is, of course, an outright lie. House China Select Committee Chair Mike Gallagher of Wisconsin told reporters, I guess if you got a bajillion dollars, you can come up with some crazy public affairs strategies, a senior GOP aide told Axios, but it's backfiring as members are livid about all the calls and misinformation. So bad we turned off phones, which means we could miss calls from constituents who actually need

urgent help with something. A senior Democratic aide added, House Majority Leader Steve Scalise announced Thursday, he would bring the, quote, critical national security bill to the House floor for a vote next week. The White House has indicated that President Biden would sign the bill injecting new urgency and aggression into TikTok's campaign to counter the years-long effort to address the app's national security risks, end quote. Now, again, this is not legislation for a ban exactly, but legislation for Biden's to sell off TikTok if it wants to remain operational in the U.S. and I continue to not understand where people fall on this issue, because suddenly former President Trump, whose administration first led the efforts to ban TikTok, has come out in support of TikTok, saying a ban will help Facebook and Zucker Schmuck double their business, and Facebook is the, quote, true enemy of the people. I want to stress that I'm quoting former President Trump there,

but some prominent Silicon Valley investors are in favor of the ban. So some whose politics seem to suggest they would find it anathema for the government to be so heavy-handed with a tech platform are on board with this. I don't know. But I can tell you this, based on what I'm seeing, a 50-to-nothing vote bipartisan, this could be passed quickly, like we could wake up and this thing could be signed by the president like next week. And then, I don't know, we'd be in uncharted territory. Can you imagine the degree to which people would freak out if TikTok was gone? Let's see. the legislation would give bite dance 165 days to divest. The presidential election is checking the calendar in 241 days. As I said, uncharted territory. Sources are saying that China is in the

process of raising more than $27 billion for its largest chip fund ever in an effort to counter U.S. Curbs on its internal semiconductor industry. Somebody needs to put China in touch with Sam Altman because $27 billion isn't cool. You know what's cool? $7 trillion, right? Quoting Bloomberg. The establishment of a much larger third fund directly overseen by China's powerful tech ministry signals a resurgent effort to harness the world's largest semiconductor market after years of mixed success with central stewardship. Huawei and its partner semiconductor manufacturing international still has to rely on U.S. origin technology to build an advanced processor last year. A majority of the capital for the big fund's third phase vehicle

is expected to come from local governments, their investment arms, and state-owned enterprises, while the central government will only contribute a fraction, said one of the people. Beijing's goal now is to pool valuable capital across the country for major projects, a key element in President Xi Jinping's whole nation approach, according to the person. That fund will help finance three to four pools of capital managed by other general partners under a so-called fund of funds structure to diversify deal sourcing and investment strategies. Fund three, as it will be known, will also directly back local firms, the people said. Negotiations about the fundraising are still ongoing and may take months to finalize the people added, end quote.

Everything seems to be sort of thematically related today. Sources say Temu became Meta's top advertiser by revenue in 2023 by spending nearly $2 billion on ads on meta properties. It also became one of Google's top five advertisers by spending in 2023. I'm saying this is tangentially related because, you know, Chinese startup, but also the degree to which Temu and Sheen just copy. copied TikTok's playbook in terms of exploding into popularity in the U.S. TikTok built its user base by throwing billions of ad dollars at Meta.

And if I'm reading these charts right, you know how suddenly Meta turned things around financially in a big way recently to a large degree was that merely because of huge spending by Temu and Sheehan. Meta's revenue from China was roughly $7 billion in both 2021 and 2022. The bad years, the years where Meta's stock was. in the toilet, and then suddenly last year, Meta's revenue from China nearly doubled to $13.69 billion. Quoting the Wall Street Journal. PDD Holdings, the parent company of Temu spent nearly $2 billion on advertisements last year at Meta,

according to people familiar with the matter, surprising executives at the parent company of Facebook and Instagram. Temu also became one of Google's top five advertisers by spending last year, according to people familiar with the business. The volume of advertising from Temu, which launched in 2022, has caught executives off-garly at both tech companies, which have long been the dominant players in digital advertising. Tamu, fast-fashioned giant Xi'an, and other online shopping platforms with Chinese roots are spending aggressively to reach American consumers, pushing up digital advertising prices, poaching logistics employees, and delivering so many products that they have become a boon

to the shipping industry. Meta's stock price surged in early February after it posted its best quarterly sales growth in more than two years. Internally, Meta employees joked that they should thank Temu by sending them a hefty Temu gift card, a person familiar with the issue said. Goldman Sachs estimated that Temu's marketing spending contributed to an average loss of $7 per order in 2003. Temu is likely losing money on every sale as it attempts to invest their way into a position in the marketplace, said Brian Weiser, a advertising analyst. If it doesn't work, or if it decides that they've spent enough money on advertising, that would become a headwin for big tech companies such as Meta. However, Weiser noted that, because

spending coming from China is so broad, a pullback by Temu wouldn't make a significant debt in meta's overall growth. E-commerce companies ship 10,000 tons of goods a day by air out of China, and Sheehan and Temu account for more than 70% of the packages. Stephen Wang, chief executive of e-commerce logistics company Baxayo estimated. In the U.S., she and Temu each ship an estimated 1 million packages a day, according to parcel shipping consultant ship matrix. The volume of ads bought by Temu, and other players is raising the prices of certain ad spots, according to some CEOs. Before the Super Bowl, where Temu famously had an ad, multiple Republican lawmakers called on CBS to pull Temu's

ads from the lineup over its alleged use of forced labor. Temu has come under allegations that some of its products contain cotton source from China's region where, in 2022, U.S. law banned the import of goods tied to where the U.S. has accused Chinese authorities of committing genocide and using forced labor in its repression of mostly Muslim Uyghurs. Beijing has denied the allegations, end quote. So that whole internal investigation at OpenAI is expected to wrap up this month, as we said. Wilmer Hale, the law firm is apparently putting the finishing touches on their report, and OpenAI is supposed to announce a new board of directors when that report finally comes out. In the meantime, what has come out is new reporting that OpenAI CTO Miramirati brought questions,

about Sam Altman's management to the board last year before he was ousted, and that was perhaps one of the triggers for the coup. Quoting the New York Times. In October, Ms. Marotti approached some members of the board and expressed concerns about Mr. Altman's leadership, the people said. She described what some considered to be Mr. Altman's playbook, which included manipulating executives to get what he wanted. First, Ms. Marotti said Mr. Altman would tell people what they wanted to hear, to charm them, and support his decisions if they did not go along with his plans, or if it took too long for them to make a decision, he would then try to undermine the credibility of people who challenged him. The people said.

Ms. Marotti told the board she had previously sent a private memo to Mr. Altman outlining some of her concerns with his behavior and shared some details of the memo with the board, the people said. Around the same time in October, Dr. Saskaver approached members of the board and expressed similar issues about Mr. Altman. The people said some members of the board were concerned that Ms. Marotti and Dr. Saskaver would leave the company if Mr. Altman's behavior was not a job. addressed. They also grew concerned the company would see an exodus of talent if top lieutenants left. There were also other factors that went into the decision. Some members were concerned about the creation of the OpenAI startup fund, a venture fund started by Mr. Altman. Unlike a typical company investment fund, which is a legal extension of the corporation, Mr. Altman held legal ownership for the OpenAI fund and raised money from outside limited partners. OpenAI said the structure was

temporary and that Mr. Altman would not receive financial benefit from it. The OpenAI fund use that money to invest in other artificial intelligence startups. Some members of the board grew concerned that Mr. Altman used the fund to skirt accountability from OpenAI's nonprofit governance structure. They confronted Mr. Altman about his legal ownership and operational control over the fund last year. Members of the board began discussing their next steps after they were approached by Ms. Marotti and Dr. Sascaver. By mid-November, the board planned to name Ms. Morati as interim chief executive while conducting a search for a new CEO, the people said. The board ousted Mr. Altman on November 17th. In the days after, Mr. Altman waged a public fight to regain his position

using a mix of public pressure and powerful allies in Silicon Valley to push for his reinstatement. Most of OpenAI's 770 employees threatened to quit if he were not reinstated as chief executive, Ms. Moradi and Dr. Sascaver quickly and publicly said they supported Mr. Altman's return to the company. Dr. Saskaver has not returned to his regular duties at the company some of the people said, end quote. Time for the week and long read suggestions. The first one. This one from the Wall Street Journal is a visual one. It's one of those infographics pieces that you really need to see to understand, but it's also really worth checking out because it really does a good job of diagramming out how exactly those invidia chips powering the AI boom are deployed in data centers in sort of a rack system, the size of a shipping container. Again, nothing to quote from, but well worth checking out. Next, related. The Washington Post has a piece up looking at how data center demand, just data centers in general, and now data centers for AI cloud stuff, is leading to a staggering

explosion in U.S. electricity demand. Like, again, this piece has charts that you have to see to believe. Quote, vast swaths of the United States are at risk of running short of power as electricity-hungry data centers and clean technology factories proliferate around the country, leaving utilities and regulators grasping for credible plans to expand the nation's creaking power grid. In Georgia, demand for industrial power is surging to record highs with the projection of new electricity use for the next decade now 17 times what it was only recently. Arizona Public Service, the largest utility in that state, is also struggling to keep up projecting it will be out of transmission capacity before the end of the decade absent major upgrades. Northern Virginia needs the equivalent of several large nuclear power plants to serve all the new data, centers planned and under construction. Texas, where electricity shortages are already routine on

hot summer days, faces the same dilemma. When you look at the numbers, it is staggering, said Jason Shaw, chairman of the Georgia Public Service Commission, which regulates electricity. It makes you scratch your head and wonder how we ended up in the situation. How were the projections that far off? This has created a challenge like we have never seen before, end quote. The nation's 2,700 data centers sapped more than 4% of the country's total electricity in 2022, according to the International Energy Agency. Its projections show that by 26, they will consume 6%. Industry forecasts show the centers eating up a larger share of U.S. electricity in the years that follow as demand from residential and smaller commercial facilities stays relatively flat

thanks to steadily increasing efficiencies in appliances and heating and cooling systems. Data center operators are clamoring to hook up to regional electricity grids at the same time the Biden administration's industrial policy is luring companies to build factories in the United States at a pace not seen in decades. That includes manufacturers of clean tech, such as solar panels and electric car batteries, which are being enticed by lucrative federal incentives. Companies announced plans to build or expand more than 155 factories in this country during the first half of the Biden administration, according to the Electric Power Research Institute, a research and development organization. Not since the early 1990s has factory building

accounted for such a large share of U.S. construction spending, according to the group. Utility projections for the amount of power they will need over the next five years have nearly doubled and are expected to grow, according to a review of regulatory filings by the research firm grid strategies. And finally, this piece in variety says that the combined factors of COVID times, Netflix's massive paydays, and tying everything together thematically again today, TikTok have all led to a new boom for stand-up comedy. Quote, comedians were able to build their brand on YouTube, TikTok, Instagram, and on podcast, says Hirsch.

These platforms really put comedians on everybody's phone. That's what's helped make these younger comedians into their own big brands. What changed in the last five years is that most of the audience who is watching is watching on their phone, says Rath. It created a completely different audience. Now when we talk with a young comedian who is emerging as a headliner, we talk about output. but we do the long-form video, the video clips, the TikTok clips with captions, the audio long-form, and the audio tracks that all go to Sirius XM and all that, end quote.

While social media has helped up-and-coming comedians gain notoriety, live events like comedy festivals have helped solidify a comedian's career. The live event business is better than ever for comedians, says Hirsch, the driving force behind the New York Comedy Festival, which in 2023 featured 200 comedians performing more than 100 shows at venues throughout the five boroughs, end quote. So this weekend, you're getting the... that great guy Kawasaki episode as a bonus. And this week, I also went on the podcast,

a long time in finance, talking about the dot-com bubble, how it relates to the AI moment and just technology hype cycles and bubbles generally. Search your podcast app for a long time in finance, if interested, and check that out. Talk to you on Monday.