Tech Brew Ride Home - Mon. 03/21 – Telegram Was Banned In Brazil Until It Wasn’t

Episode Date: March 21, 2022

An alternative title to today’s show could be Schrödinger’s Brazilian Telegram Ban. I’ll explain. Ukrainians say Elon Musk’s Starlink donation is proving quite useful. Toronto has become the third-largest tech hub in North America. Should Apple make routers again? And where will the advertising dollars go in 2022? Sponsors: Hapbee.com/techmeme do.co/trh Links: Telegram forgot to check its email and now it’s banned in Brazil (The Verge) Brazil Lifts Its Ban on Telegram After Two Days (NYTimes) Elon Musk’s Starlink is keeping Ukrainians online when traditional Internet fails (Washington Post) Chipmakers face two-year shortage of critical equipment (FT) Toronto, the Quietly Booming Tech Town (NYTimes) Apple Should Make Home Wi-Fi Routers Again as Part of Mac Reboot (Bloomberg) TV, merchant media and the unbundling of advertising (Ben-Evans.com) 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 Monday, March 21st, 2022. I'm Brian McCullough today. An alternative title to today's show could have been Schrodinger's Brazilian telegram ban. I'll explain. Ukrainians say Elon Musk's Starlink donation is proving quite useful. Toronto has become the third

largest tech hub in North America. Should Apple make routers again and where will the advertising dollars go in 2022? Here's what you miss today in the world of tech. Funny weird story over the weekend, Brazil's Supreme Court had ordered the shutdown of Telegram for not adhering to judicial orders and gave phone carriers and Apple and Google and everybody else five days to block the Telegram app. But that's not the weird bit. The weird bit is Telegram CEO Pavel Dorov said Telegram was unresponsive to Brazil's Supreme Court because the court used the wrong email address to try to get in touch with them. He apologized profusely and asked for a ruling delay, quoting the verge. It seems that we had an issue with emails going

between our telegram.org corporate address and the Brazilian Supreme Court, Duraov said, going on to explain that his company asked the court to send future takedown requests, quote, to a dedicated email address. But the court didn't do that, apparently. It kept using, quote, the old general purpose email address and Telegram somehow missed them. And now it's getting banned unless the court takes pity. The company says it's now found those emails implying that the old address did at least work, which makes it even more bizarre that the email somehow got missed and is trying to remedy the situation with the court. There's a lot of political context surrounding the ban, which stems from accusations that Telegram facilitates the spread of

disinformation. Brazilian authorities threatened to suspend Telegram earlier this year, saying it hadn't responded to request to fight false election information. Telegram responded in February by removing three channels from U.S.-based Brazilian blogger Alan DeSantos, a supporter of Brazilian president Bolisnero, for allegedly spreading disinformation and inciting violence. However, according to an associated press description of today's order, the judge said the company had been uncooperative with authorities. Telegram is caught in a crossfire between the Supreme Court and Bolsonaro, whom the court is investigating for allegedly leaking police documents and making comments falsely linking AIDS to the COVID-19 vaccine. But the app has been criticized elsewhere for offering a haven where far-right political

figures can post false information and hate speech to avoid deplatforming from services like Facebook and Twitter, part of Telegram's stated commitment to refusing government censorship demands. It's been banned in Russia for refusing to share encryption keys in anti-terrorism investigations, although that prohibition was lifted in 2020. Meanwhile, Brazil's legal system has previously ordered blocks of Telegram competitor WhatsApp, but the bans have proven to be short-lived, end quote. And indeed, this one was short-lived. This morning, Brazil's Supreme Court reversed its decision to ban Telegram after Telegram worked to comply with the court's orders, quoting the New York Times. Telegram worked quickly over the weekend to comply with the court's orders, including by DeLegraim.

leading classified information shared by the account of President Bolsonaro and removing the accounts of a prominent supporter of Mr. Bolsonaro's who has been accused of spreading misinformation. That action satisfied the court. Late Sunday, the court lifted its ban on Telegram, but Telegram also went further in a bid to avoid the ban. The app made several other changes in Brazil to combat misinformation on its app, which has worried Brazilian officials ahead of the presidential election in October. Telegram said that among the changes, it would start promoting

verified information in Brazil and marking false posts as inaccurate while also having employees monitor the 100 most popular channels in Brazil, which account for 95% of the views of public posts in the country. The court's reversal was so swift that the ban never took effect. While the court's order was law for two days, the ban had given internet providers, wireless companies, and Apple and Google five days to comply, end quote. I wanted to do a quick follow-up on a story we talked about not too long ago. Mikhailo Fedorov, that minister for tech in Ukraine, who has led outreach to Western tech companies, says Starlink's quality, the Starlink Internet service that has been gifted to Ukraine is excellent, as Ukrainians use the terminals to stay online, and a source there says there are more than 5,000 terminals operating currently in the country,

quoting the Washington Post. Ukraine has already received thousands of antennas from Elon Musk's companies and European allies, which has proved, quote, very effective. Fedorov said in an interview with the Washington Post Friday, quote, the quality of the link is excellent. Fedorov said through a translator using a Starlink connection from an undisclosed location. We are using thousands in the area of thousands of terminals, with new shipments arriving every day, end quote.

Musk responded to a request for comment on his efforts, with Starlink and past efforts, telling the post, to give his regards, quote, to your puppet master Bezos. blowing kiss emoji, blowing kiss emoji, end quote. Amazon founder Jeff Bezos owns the post. Musk did not respond to a follow-up request specifically on his work with Starlink in Ukraine, end quote. Stay classy, Elon. Still, despite that, I think it is worth giving credit to Elon when it is due. More bad news on the chip front, the CEO of Lithography Machine Maker ASML says

chipmaker's expansion plans will be constrained by a shortage of its critical equipment for at least the next two years. Quoting the Financial Times. The warning comes from Peter Wennick, chief executive of ASML, which dominates the global market for the lithography machines used to make advanced semiconductors. Next year and the year after, there will be shortages. Wenick said, we're going to ship more machines this year than last year and more machines next year than this year, but it will not be enough if we look at the demand curve. We really need to step up our capacity significantly more than 50%. That will take time, end quote. ASML's machines are used to etch circuits into silicon wafers. It is the single most critical company in the

semiconductor supply chain, said Richard Windsor, tech analysts at Radio Free Mobile. It is the printing press of silicon chips, end quote. Wennick said ASML was assessing with its suppliers how to increase capacity. It was not yet clear the scale of investment required, he said. ASML has 700 product-related suppliers, of which 200 are deemed critical, end quote. According to a new report, Toronto has become the third largest tech hub in North America, and its tech workforce is growing faster than any hub in the U.S. currently, quoting the New York Times. As the tech industry continues to expand and communities all over the world compete for tech jobs outside Silicon Valley. Many executives, investors, and entrepreneurs are promoting warm

climbs like Austin and Miami as the next big tech hubs, but they are tiny tech communities compared with the new hub growing in the cool air along the shore of Lake Ontario. Thanks to years of investment from local universities, government agencies, and business leaders, and Canada's liberal immigration policies, Toronto is now the third largest tech hub in North America. It is home to more tech workers than Chicago, Los Angeles, Seattle, and Washington, D.C., trailing only New York and Silicon Valley, according to CBR, a real estate company, that tracks tech hiring. Toronto's tech workforce is also growing at a faster clip than any hub in the United States. And unlike many cities, Toronto is likely to have the resources needed to sustain the trend. It is the fourth largest city in North America, with about 3 million people in the city and more than 6 million in the metro area.

behind only Mexico City, New York, and Los Angeles, and its roots in technology run deep. Everyone points to Miami as the next tech hub because it offers low taxes, but it offers little else from a tech point of view. Mike Volpe, a partner with the Venture Capital Firm Index Ventures, said on a recent visit to Toronto, you need anchor companies that can provide a transformative impact. Entrepreneurs come from these companies and start their own, end quote. These anchor companies, including the Canadian e-commerce company Shopify, as well as the many American giants, have come to Toronto for the researchers and engineers who are already there, but they also believe the talent pool will grow, end quote. In his newsletter this weekend, Mark German said that now that Apple is back in the business of making monitors again,

the company should get back in the business of routers, should develop a mesh network version of the airport extreme, in order to compete with Google and Amazon routers. Quoting the Power On Newsletter from Bloomberg. The company was one of the first major proponents of consumer-grade wireless internet launching the airport base station in 1999 alongside the iBook laptop. Remember that? The concept behind the first airport was simple. Instead of plugging the Ethernet cable into the computer,

you attach it to the airport and the device provides Wi-Fi for your home. Unforgetably, Steve Jobs showcased the Wi-Fi on the I-Book for the first time by pulling it through a hula hoop, showing that the computer was surfing the web with no cables attached. Apple released additional airport models for about 15 years. The lineup included a low-end version called the Airport Express and a high-end module named the Airport Extreme, as well as the airport time capsule, which embedded a hard drive in the router for wireless Mac backups. But then, in 2016, one of my first stories at Bloomberg, I broke the news that Apple had disbanded its team working on the airport and that it planned to eventually discontinue the product. Sure enough, in 2018,

Apple stopped selling its routers. A new Apple-designed mesh network system with its own software and deep device integration could be a hot seller and keep people away from rival alphabet and Amazon products. Another suggestion, if Apple doesn't want to launch a full-blown mesh router system, turn the HomePod Mini into one. It would make sense. Apple already wants users to buy a speaker for every room, and integrating Wi-Fi into that would make it a bit more compelling. Take it from Google, which is already doing this with its latest Nest routers, end quote. Now, you might be thinking, this sort of lines up with what Chris Messina was saying at the end of the bonus episode this past weekend, though Chris would say merely getting into mesh networking

is not aggressive enough. He has his conspiracy theory that is much more expansive, shall we say? Chris, in fact, reach out to Mark to make this very point, and Mark has agreed to come on our Twitter space this week to discuss. Now, you know how these things go. Scheduling-wise, it could all change. But as of right now, German is booked for the Twitter space this Thursday and thus the bonus episode this weekend to come back on our show after about a three-year absence. Finally, today, also an interesting essay from friend of the show, Benedict Evans. This weekend, Ben wrote that, As Amazon's ad revenue passes YouTube's and U.S. pay TV subscriptions drop, ad budgets are going to shift further to targetable spots and other customer acquisition tools. In other words, Apple's ad tracking apocalypse added to the continued dying off of pay TV, and the years of COVID shutdown for physical retail mean that perhaps the biggest shift in advertising spend in a decade is nigh upon us. quote, about five years ago, a revenue line buried in the back of Amazon's accounts started to get quite big. Other revenue was over $4 billion by the end of 2017, and if you looked at the notes to the notes,

you'd discover that this was primarily advertising. By 2019, this had grown to $14 billion, and I wrote about it in this newsletter, pointing out that Amazon was no longer just e-commerce and AWS and had become a bundle of lots of different businesses, many of which were probably just as profitable as AWS. However, we still didn't know exactly what primarily meant. At the end of 2021, this changed. Amazon started splitting out the ad revenue directly, telling us that this is now a $31 billion business. $31 billion is roughly the same size as Google's display business, YouTube, or the entire global newspaper industry's ad business. Meanwhile, this is only about six and a half percent of Amazon's net revenue, but it has much higher margins. Google,

's ad business has close to 60% operating margins, excluding TAC. Amazon's ads should be higher margin, given that it's mostly leveraging the core business's existing cost base. In other words, this is found money. But even assuming the same 60%, that would be $18 billion of operating income in 2021, almost exactly the same as the $18.5 billion that Amazon reports for AWS. Given AWS's CAPEX requirements, this makes it extremely likely that the ad business produces more cash flow. The difference in margin between e-commerce and advertising has become a much bigger story than Amazon. Everyone from Uber to Walmart to Instacart is pushing into merchant media and hiring at scale. Digital storefronts and apps can be ad inventory.

There's no a priori reason why you can only show ads next to content. An ad in a physical store is not the same as an ad in a magazine, but apps are apps. Many of these brands, e.g. Instacart, sit far down the purchasing funnel, and so can sell very specific ads directly to brands. But even if they don't, here I'm thinking of Uber, they still have all sorts of first-party data that comes with some form of privacy consent, which makes it valuable in itself.

But much more valuable as we go through the cookie apocalypse and remake how online targeting is going to work. And of course, the margin differential means that ad revenue, that's a small percentage of the top line, might have a much larger impact on the bottom line, at least until everyone else tries the same. Stepping back, though we should probably ask where all these ad budgets are coming from, and more importantly, where the growth for internet advertising will come from next,

the obvious answer is television. Print is mostly already gone, but TV viewing is now finally unlocking, with US pay TV subscriptions now down by over a third. In the UK, people aged 16 to 34 now watch more subscription streaming than all broadcaster content combined. Where does all that inventory go and where does all that budget go? Clearly, some of the inventory goes away. But a lot of it becomes targetable and targetable in new ways. Disney is building a complete cross-platform ad platform, while smart TVs have suddenly changed from dumb glass to gatekeepers. Your TV, after all, knows what you watch, if nothing else, and so the TV platform can insert ads into live or streaming TV based on the viewer rather than the context.

Just as with Apple's advertising products, such a system can track you without the tracking data leaving the device. Again, privacy tends to change the gatekeepers. Equally, YouTube is looking at these budgets from the opposite direction. Where TV people see roughly the same kinds of content and inventory being sold in a different way, YouTube sees potential for different kinds of inventory to be sold to the same customers or new customers and to convert all of that budget. Never mind the targeting. What does video advertising mean?

what does it look like? Who is buying it? And what are they trying to do? This is also a big question for TikTok, which so far seems to have better product market fit with consumers than with advertisers. Hence, the obvious story in my ad revenue chart above is the collapse of print and the growth of internet, but more interesting to me is the decline of the top line. U.S. advertising has shrunk by a third as a share of GDP. This is some combination of internet advertising being vastly cheaper and vastly more efficient on one hand and on the other a lot of recategorization. If a car dealer used to buy a 20-page ad insert in their local paper but now pays for one Google search ad, and how many people bid against them for BMW dealer San Francisco, and spends the rest of their budget on running their own website

with all their inventory, that isn't in the ad numbers. This was the point of the joke in Silicon Valley a few years ago that rent is the new KAC, customer acquisition costs, by the way. In 1995, If you had said, should we open stores in this state or that state or just run TV ads there, that would not have been a meaningful question. But now, all of those budgets are merging into one TAM, total addressable market. Do you get a better ROI, return on investment on Instagram ads, or faster shipping? If you open a store in that city, do your returns go down? Is it more efficient to ship from the store, ship from a warehouse,

or close the store, and put the budget into TikTok? Do we have more brands because you're no longer constrained by physical inventory and marketing can target by region or target demographics that may have been uneconomic for physical retail? Or do we have fewer if you're not marketing by filling shelves at Walmart and need to concentrate on a smaller number of bigger brands with more awareness? I thought this was an absolutely fascinating essay and I encourage you all to read the whole thing. It's linked at the very bottom of the show notes. That's all for today. Talk to you tomorrow.

Thank you.