Tech Brew Ride Home - Mon. 08/19 – Everything Eventually Becomes An Advertising Business

Episode Date: August 19, 2024

Is X closing up shop in Brazil? Remember how Apple is trying to make their own modems? How’s that going? Why is the online dating sector suddenly struggling? And could the next big advertising platform actually be Walmart? Sponsors: ArcticWolf.com/techmeme Links: X says it’s closing operations in Brazil (TechCrunch) AMD Buys AI Equipment Maker for Nearly $5 Billion, Escalating Battle With Nvidia (WSJ) Apple Is Playing the Long Game With Switch From Qualcomm Modems (Bloomberg) ‘Bumble fumble’: online dating apps struggle as people swear off swiping (The Guardian) How Walmart became a force in a $54bn retail advertising industry (Financial Times) 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 TechMeme right home for Monday, August 19th, 2020. I'm Brian McCullough. Today is X closing up shop in Brazil. Remember how Apple is trying to make their own modems? How's that going?

Why is the online dating sector suddenly struggling and could the next big advertising platform actually be Walmart? Here's what Jim is today in the world of tech. It says it is closing its operations in Brazil, claiming a judge there, quote, threatened arrest if we do not comply with his censorship orders. Though at the time of this writing, X does still remain available to users in that country, quoting TechCrunch. The announcement comes amidst a legal battle with Brazil's Supreme Court Justice Alexander de Mores, who sought to block certain accounts on X as part of an investigation into election disinformation and, quote, digital militias. In a post from X's global

government affairs account, the company said, Mores has, quote, threatened our legal representative in Brazil with arrest if we do not comply with his censorship orders. The company continued. As a result, to protect the safety of our staff, we have made the decision to close our operation in Brazil, effective immediately. The X service remains available to the people of Brazil, end quote. In an earlier post, X listed some of the targeted accounts and said they include a pastor, a current parliamentarian, and the wife of a former parliamentarian. Earlier this year, Mores opened a criminal inquiry into Elon Musk after X's owner said he would defy a court order by lifting restrictions on designated accounts. Then the company seemed to reverse course and said

it would block the accounts after all. Supporters of Brazil's former far-right president, Jer Bolsonaro, have criticized Morais and called for his impeachment. Bolsonaro lost the election in 2022, and Brazil's superior electoral court has blocked him from seeking office again for eight years, alleging that he sought to undermine the election through his claims of fraud. Musk, who visited Brazil in 2022 and met with Bolsonaro, has also said Moraes, quote, should resign or be impeached. In today's post, X said, quote, our Brazilian staff have no responsibility or control over whether content is blocked on our platform and that the people of Brazil have a choice to make, democracy, or Alexandra de Mores, end quote. AMD has agreed to buy New Jersey-based ZT systems for $4.9 billion. $ZT designs and makes servers, server racks, and other infrastructure.

So this is another big move in the chip data center cloud space, which is super competitive at the moment. Quoting the journal, the deal among AMD's largest is part of a push to offer a broader menu of chips, software, and system designs to big data center customers, such as Microsoft and Facebook owner meta platforms, promising better performance through tight linkages between those products. Succas, New Jersey-based Z-T systems, which isn't publicly traded, was founded in 1994. It designs and makes servers, server racks, and other infrastructure that house and connect

chips in the giant data centers that power artificial intelligence systems such as chat GPT. ZT has more than $10 billion of annual sales, AMD chief executive Lisa Sue said in an interview, nearly half the $22.7 billion in revenue her company reported last year. However, AMD plans to sell ZT's manufacturing. manufacturing business after the acquisition is complete, keeping its system design business instead. Sue said ZT's main value for her company is in offering customers more hands-on assistance in setting up huge data centers where clusters of chips train up AI systems. What it allows me to say to them is

let me help you build your next training cluster and tell me what's important to you, Sue said. I now have a very large design team that can help you do that. The deal could bolster AMD's competitive position against Nvidia, which also has added aggressively to its data center offerings in recent years. InVedia, for example, bought networking company Melanox in 2020 for nearly $7 billion, bringing in supercomputing-grade data transfer capabilities that have helped it maintain its edge during the AI boom. It also increasingly has focused on designs for servers and data centers that its chips go into. While Nvidia is by far the chip industry's prime beneficiary of the AI boom, AMD has been making inroads.

Sue last month raised her forecast for the company's AI chip sales to $4.5 billion this year after reporting quarterly results ahead of analyst's expectations. She had forecast three and a half billion of sales in January, end quote. Mark German's newsletter this weekend checks in on that long-time Apple project to develop its own in-house modem chips to free itself from reliance on Qualcomm. Quote, for more than a decade, Apple has used modem chips designed by Qualcomm, the industry leader for connecting phones to cellular networks. The modem is arguably the most important component in the phone after the main processor, and it's not easy to make. But in 2018, while facing a legal battle over royalties and patents, Apple started working on its own modem design. Unlike in other

areas such as processors, AI engines, and sensors, it's hard to see how you improve on the Qualcomm modem design. The existing chip is already state-of-the-art, and it's been battle-tested by phone carriers around the world, making it highly reliable. For now, it's unlike the that any upgrades Apple makes to the part will result in a better experience for users. In a CNBC interview, Apple executive Johnny Shruji acknowledged that developing a modem was, quote, extremely difficult to do. But Apple is plowing ahead anyway. It's devoting billions of dollars, thousands of engineers, and millions of working hours to a project that won't really improve its devices, at least at the outset. Saving money is one reason for the move. The iPhone maker has argued for years that it pays

Qualcomm too much for modems, but Qualcomm has said that Apple will still have to pay it some royalties regardless. The chipmaker believes that Apple won't be able to avoid infringing its patents. So it's hard to tell how big the benefits will be in the near term. Down the road, there are plans for Apple to fold its modem design into a new wireless chip that handles Wi-Fi and Bluetooth access. That would create a single connectivity component, potentially improving reliability and battery life. There's also the possibility that Apple could one day combine all of this into the device's main system on its chip. That could further cut costs and save space inside the iPhone, allowing for more design choices. Furthermore, if Apple does

ultimately save money by switching away from Qualcomm, it could redirect that spending toward new features and components. Apple's modem shift could be akin to the development of its neural engine, the part of the processor that handles AI. The benefits weren't obvious when that component launched in 2017, but it has now been validated by the industry's focus on. AI, end quote. There's been something I've been monitoring for a while in a sector we don't talk much about, i.e. nobody likes using dating apps anymore, apparently. For example, Match Group has now reported a decline in the total number of paying users for seven straight quarters. What's going on here? Another post-pandemic hangover story, or is there something else?

Something maybe cyclical or even secular going on? Quoting the Guardian. Dating apps, those social media businesses that were supposed to improve, preview, or supplant all manner of personal human interactions are in crisis. Shares in Bumble crashed 30% this month after a bad earnings report. Match Group, the Dallas-based owner of Tinder, Match.com, OKCupid, Hinge, and others, has reported a decline in its total number of paying users for seven straight quarters. According to Pew Research, nearly half of all online daters and more than half of female daters say their experiences have been negative. The same study found that 52% of online daters said they had come across someone they thought was trying to scam them. 57% of women said

online dating is not too or not at all safe. And 85% said someone continued to contact them after they said they weren't interested. Ali Volpe, Vox writer and author of a recent article advocating for finding romance offline, says her single friends in Philadelphia are burned out online dating. People are sensing it has become so impersonal and such a numbers game that people feel there are infinite options out there. We're not really that nice to people on the apps anymore, Volp says. People are looking for organic ways to meet each other, she adds, running clubs and sewing circles, for example. At least in person, you can tell them, hey, I'm not interested, but online, you feel like you have no control on the other side, and they have the means to contact you.

that's kind of scary. It can be kind of weird on the apps to go from stranger to being potentially romantically involved immediately, Volp ads. It can be jarring, and that just doesn't happen when you're meeting somebody face to face. But Volp volunteers that the situation is confusing. The pandemic normalized the dating app experience because you couldn't go places or meet them in a bar because they weren't open. For Gen Z, maybe their first dating experience was during the pandemic, so they've never dated except online and don't know where to. to go where there are people they don't know. For all its visibility, the online dating industry is relatively small, with Match Group reporting $3.4 billion in annual revenues compared with

multi-trillion-dollar social media tech giants, says Mark Brooks, an industry consultant and co-editor of online personals watch, a database of dating services running since the 1990s. Outside of the big players, dating apps have become fragmented in terms of focus in much the same way that audiences for news and entertainment have specialized, whether that's lifestyle, religion, preferences around sexuality, and of course, money. People are getting wise to swiping, Brooks says. It was deadly to old-school dating apps like E-Harmony that took a high-integrity approach by saying, if you're really serious, you can answer 200 questions, and then we can do a semi-decent job of matching you with someone. When paid online dating services moved to free mobile

apps with instant notifications, the enterprise started to come apart, he says. Mobile completely disrupted online, and it created this addictive behavior because you're waiting for the next message to hit. People got hooked and kept others in play on the dangle because they know they've got more choice, end quote. Nor did the development of swipe-based dating apps replace the misconnections classified ad section of a local newspaper. It's not misconnections because these are connections that were never even missed, Brooks says. The French app happen is the closest you'll get to serendipity, he adds, because it matches you with people in the vicinity or perhaps sniffies, a gay cruising app. At heart, Brooks says online dating needs to get back to basics and overcome the paradox of choice,

end quote. Finally today, we also don't really cover this company much, but Walmart recently had a decent earnings report. It turns out that at long last, 30 years after the challenge of e-commerce first reared its head, Walmart is now earning a meaningful percentage of its sales via e-commerce. But also, and I know sometimes I joke that every company eventually becomes an advertising company, is that really a joke? If Amazon has had such success turning on the advertising spigot, why not Walmart? Well, in its Q2 earnings report, Walmart said its ad business grew 30% in the last year. E-marketer says Walmart will claim 6.8% of 2024 U.S. retail media spending, for $3.7 billion in ad revenue, quoting the Financial Times.

The world's biggest retailer has bought myriad ads and newspapers on television and online in its 62-year history. Now it is selling airtime to other advertisers competing with traditional media companies for marketing dollars. Its U.S. ad business, Walmart Connect, is part of an emerging industry known as retail media, in which big retailers flex their muscles as gatekeepers between vendors and consumers to sell ads to brands seeking an edge. U.S. spending on retail media will exceed $54 billion in 2024 e-marketer forecasts up from $18.7 billion just back in 2020. E-commerce Titan Amazon is expected to hold a dominant 77% share while e-marketers analysts see Walmart claiming 6.8% of the market with ad revenue of $3.7 billion.

Yet Walmart disclosed in an earnings release this week that its U.S. advertising business had grown 30% in the past year, rocketing past the growth rate of the company as a whole. With e-marketer forecasting the retail media industry will reach $130 billion in four years, store chains are in a land rush. Advertising is far more profitable than the roughly 4% operating margin Walmart earns from selling merchandise and groceries, and brick-and-mortar retailers see a chance to seize business from their e-commerce arch rival. Sarah Marzano, an analyst at e-marketer said,

Amazon is frequently the place where consumers start their product searches now instead of going to Google. With retailers becoming the destination for consumers for researching what they want to buy, there's opportunity for retailers to monetize that traffic, end quote. The prospects for higher margin businesses such as advertising have excited investors, helping propel Walmart's shares up 38% this year. The retailer now ranks as the 16th largest ad seller by revenue outside China, according to Madison and Wall, a media and tech consultancy.

A leading source of business is sponsored search results on Walmart's app and website where vendors pay to receive prominent placement for their products. A recent online search for dish soap turned up sponsored listings from Procter & Gamble's Dawn brand, while a search for chicken breasts offered up a variety of cuts from Meatpacker Tyson Foods. Such companies already purchased general search results on platforms such as Google. The difference in retail media is that the likes of Walmart and Amazon have data not only on what consumers see on apps, but on whether they followed through with a purchase. after you click on an ad at a general purpose search engine, they don't know what you did after that,

said Ryan Mayward, senior vice president of retail media sales at Walmart US. We capture the click and also know that you checked out and bought those specific things after you were exposed to or interacted with the ads. That's the core value proposition of retail media versus other types of media, end quote. Walmart is doubling down on advertising with its planned $2.3 billion deal for Vizio. The connected TV maker has been losing money on device sales but earned $356.3 million in gross profit last year, thanks to technology that tracks what people watch and serves them targeted ads. Agreed in February, the takeover is under review by federal competition regulators.

Unlike Amazon, Walmart has 4,600 big box stores around the U.S., plus hundreds more Sam's Club warehouse outlets. That's where Walmart has scale that Amazon can't compete with, Marzano said. John David Rainey, Chief Financial Officer has noted Walmart can connect customers' purchases to ads they view days before using bank card and electronic payments data. A week goes by, you decide to buy that item in a store. We know that there was attribution related to that ad, he told an analyst in June, end quote. Well, it can happen to anyone at any time I got fished this morning. I was up late last night, so I was bleary-eyed this morning as I sat down to the computer. for the first time to see an email directing me to complete the signing process for something on

DocuSign, which I had been doing signing something recently. So I click the link in the email, click to sign in via my Google account, and as I'm doing so, think, wait, since when do I need to log in to DocuSign via Google? I go and double-check the email and the URL, and sure enough, the usual misspellings and weird domains. Damn it. Fortunately, I have two-factor other I also immediately got a Google email being like, did you just sign in on Linux? You never do that. And so right away, I followed all their steps to change my password and log out of any non-essential connections.

If I was compromised, I was compromised for less than 60 seconds before I logged out and changed all my passwords and stuff. So fingers crossed, all they got was that one password, and there will be no further ramifications from this. But, you know, hacking is just a number. game. You can do all the right things 1,500 times in a row, but on that 1,500 and first time, that's when they get you. That's the lesson here. Also, maybe coffee before email is probably the lesson too. Talk to you tomorrow.