Tech Brew Ride Home - Mon. 09/13 – Is China Dismantling Its Super Apps?

Starting point is 00:00:00 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, September 13th, 2021. I'm Brian McCullough. Today is China dismantling its super apps and selling the parts for scrap. Toast has officially become my favorite COVID-Times survival story, what to expect from tomorrow's iPhone event,

Starting point is 00:00:49 including 1 terabyte iPhone storage tiers, and a full breakdown of the ruling in the Epic versus Apple case. Has the app store officially been cracked open? It's complicated. Here's what you miss today in the world of tech. So for a couple of years now, the holy grail for a lot of VCs and even a lot of existing and successful fintech companies has been to emulate the Chinese-style super apps where you buy, you pay for, you bank for everything you need in just one app. It's your transport app, your shopping app, your investing app, the whole nine yards. Well, as I said, China already has apps like these. It's just a question of if they can be replicated in other markets. but meanwhile, it looks like China wants to burn their super apps down. Sources are telling the Financial Times that Beijing wants to break up Jack Ma's Ant Group's Alley Pay, which has over 1 billion users so that they can carve out a separate app for the company's highly profitable loans business.

Starting point is 00:01:54 Chinese regulators have already ordered Ant to separate from its main business the company's two lending units, Hua Bei, which is similar to a traditional credit card, and Jaibé, which makes small unsecured loans into a new entity and bring in outside shareholders. Now officials want these lending businesses to have their own independent app as well. The plan would also require Ant to turn over the user data that underpins its lending decisions to a new and separate credit scoring joint venture that would be partially state-owned, according to two people familiar with the process. The government believes big tech's monopoly power comes from their control of data,

Starting point is 00:02:30 said one person close to financial regulators in Beijing. It wants to end that, end quote. The move may slow down Ant's lending business with the enormous growth of Quabay and Jaibay, partly powering its planned IPO last year. The Credit Tech Unit, which includes the two units, overtook Ant's main payment processing business for the first time in the first half of 2020 to account for 39% of the group's revenues. The size of the unit, which helped to issue about one-tenth of the country's non-mortgage

Starting point is 00:02:59 consumer loans last year, surprised regulators who fretted about predatory lending and financial risk, end quote. This was followed by a second Financial Times report this morning that suggested that, after a meeting with Chinese regulators, Tencent and Alibaba have pledged to make their apps and services compatible with each other. So again, no hoarding or siloing data, quote, for the past eight years, Tencent and Alibaba have carved China's internet into two rival camps, replicating each other's services and blocking all interoperability between their platforms. Tencent's payment system cannot be used on Alibaba's sites and vice versa. Links to Alibaba's online shopping sites cannot be posted on Tencent's messaging app, WeChat. Short videos from

Starting point is 00:03:45 ByteDance, the owner of TikTok and its Chinese sister app, Doyen, also cannot be posted on WeChat. But after being summoned to a meeting with the Ministry of Industry and Information Technology last week, both companies said on Monday, they will allow competitors to actually their, quote, walled gardens. The meeting was also attended by BightDance, Baidu, NetE's, Huawei, and Zhaomi, quote, we resolutely support the decision of the Ministry of Industry and Information Technology and will implement it in phases, said Tencent. Alibaba said it will, quote, fully comply with the ministry's demands to end the widespread practice among large internet giants of blocking consumers from links to other web services within their apps,

Starting point is 00:04:25 end quote. Can I do a couple interesting raises here this morning? First of all, Recur is a service that lets users buy, collect, and resell NFTs, and it has raised a $50 million series A at a $333 million valuation led by Metaverse investment platform digital. So folks are still trying to make the coinbase of the NFT era, I guess, or at least sell the picks and shovels to the NFT gold rush. Lots of folks are trying for that. And then commerce tools, which provides e-commerce APIs that retailers can use to build customized services, raised a $140 million series C led by a sell at a $1.9 billion valuation. So at first glance, that's more fintech, but with maybe a Shopify style twist, quoting TechCrunch.

Starting point is 00:05:23 While companies like Shopify have addressed the needs of smaller retailers, providing them with an alternative or complement to listing on third-party marketplaces like Amazon's, commerce tools has built its business around catering to larger retailers and the many specific large-scale needs and investment budgets that they may have for building their digital commerce solutions. It provides some 300 APIs today around some nine buckets of services and a wide network of integration partners and powers some $10 billion worth of sales annually for its customers, which include the likes of Audi, AT&T, Danone, Tiffany, and John Lewis, as well as many others. Our main focus is the retailer with more than

Starting point is 00:06:02 $100 million in gross merchandise value, the CEO of Commerce Tools said, quote, this is when it becomes interesting. But he added that the force of market growth is such that Commerce Tools is also seeing a lot of business from smaller companies that are simply needing more functionality to address their fast growth. So we also sometimes have customers that start at $5 million in GMV and quickly go to $50 million. With that scale, they also have specific requirements, so the lines get a bit blurry, end quote. And that also explains why investors are so interested. There is a lot of evidence of the market growing and growing, and by capturing smaller retailers on big trajectories, that represents a lot more scale for commerce tools.

Starting point is 00:06:41 CEO Ho-Rig is sometimes credited with being the person who first coined the term headless commerce, which basically means APIs that can be used by a company or its team of strategists, developers, and designers to build their own customized checkout and other purchasing experiences rather than fitting these into templates provided by the tech company powering the checkout. But as the API economy has continued to grow, and the world of non-tech companies that use tech continues to mature, that has taking on a mass market appeal. And so Commerce Tools is far from being the only one in this area. In addition to Shopify, which has its own version targeting larger businesses, Shopify Plus, others include Spriker, Swell, Fabric, Fabric, Cord, and Shogun, end quote.

Starting point is 00:07:22 And finally, this is not a raise, but an IPO filing. toast, which offers cloud-based restaurant management tools, is seeking $717 million in a US IPO at a valuation of as much as $16.5 billion after pricing shares in a range of $30 to $33 a share. Now, I'm mentioning this because I remember talking about toast in those crazy first weeks after the pandemic hit and we all went into lockdown. Like, who could be worse positioned than a startup helping restaurants when restaurants were closed seemingly indefinitely. I remember worrying about Toast and talking about it on the show. Hopefully I resisted the urge to pun on whether or not Toast was Toast, but indeed, the reality

Starting point is 00:08:06 has been that restaurants have had to embrace technology to survive in COVID times, and so Toast has ridden that wave. And so I just wanted to tip my hat to a startup that looked in serious, almost era-defining peril, but has come out of it seemingly triumphant. Talk about Diamond Hands. The iPhone event is tomorrow, and ahead of that, our friend Ming Chi Kuo has one last taste of the rumor mill for you. TLDR, the iPhone 13 Pro lineup might be gaining a one-terabyte storage option. Apple will announce the AirPods 3 at this event tomorrow, but we'll still continue likely to sell the current generation AirPods alongside them. Quoting Apple Insider. Quo isn't predicting a one-terabyte option on the iPhone 13 Mini nor on the iPhone 13.

Starting point is 00:08:59 Commensurate with the higher capacities, Quo is also expecting a higher price. Quo is still expecting the Apple Watch Series 7 to debut at the event. He also says that Luxshare is, quote, aggressively duplicating production lines, which will result in a significant improvement in Apple Watch availability in mid to late October. As for the AirPods, Quo is expecting continued manufacture of the current AirPods, unless their continued sale. Most of his speculation for Sunday's note is about pricing bans. Quo has two scenarios in this regard.

Starting point is 00:09:27 His first prediction is that the AirPods 3 pricing will be higher than AirPods 2, with the current generation remaining at the same price point. Alternatively, he suggests that the pricing for AirPods 3 may be the same as the current AirPods, with the latter getting a cut, end quote. So to sum up, what can we expect tomorrow? iPhones and Iwatches, or Apple watches. No M1X MacBook Pros. That's coming at an October event, most likely. But what are the headlines we are expecting that would surprise us? by their absence tomorrow, we are expecting a narrower iPhone 13 notch. LTP displays on the iPhone

Starting point is 00:10:05 Pro models and a redesigned watch series 7, a redesign that will be significant enough that you should be able to tell the new ones from the old ones just by sight. As always, a reminder that because the event doesn't even start until 1 p.m. my time tomorrow, the show will be out later than usual in the morrow, but I usually do have it out by four or maybe five at the latest. Finally, today it was one of those things, one of those game time decisions where it happened that news broke right when I was about to publish, and so I could have done a quick re-edit to tell you about the news, or I could just wait until people could analyze the news so we could figure out what it all meant. I chose to wait for analysis, but on Friday, the court ruled in the Apple versus Epic case,

Starting point is 00:10:52 issuing a permanent injunction ruling that Apple can't prohibit developers from linking to external purchase options in addition to Apple's own app payment system. Quoting the verge. In short, iOS apps must be allowed to direct users to payment options beyond those offered by Apple. The injunction is scheduled to take effect in 90 days on December 9th unless it is enjoined by a higher court. In a separate judgment, the court affirmed that Epic Games was in breach of its contract with Apple when it implemented the alternative payment system in the Fortnite app. As a result, Epic must pay Apple 30% of all revenue collected through the system since it was implemented, a sum of more than $3.5 million. In the full ruling, Judge Gonzalez-Rogers explained her thinking on the issue in greater detail. Notably, the judge rejected both parties' definition of the marketplace at issue in the case,

Starting point is 00:11:39 quote, the relevant market here is digital mobile gaming transactions, not gaming generally, and not Apple's own internal operating systems related to the App Store, Gonzalez-Rogers wrote. Under that market definition, quote, the court cannot ultimately conclude that Apple is a monopolist under either federal or state antitrust laws, she continued. Nonetheless, the trial did show. show that Apple is engaging in anti-competitive conduct under California's competition laws, end quote. Reached for comment, Apple casts the ruling as a victory for the App Store model. Quote, today the court has affirmed what we've known all along.

Starting point is 00:12:13 The App Store is not in violation of antitrust law, a representative said. Apple faces rigorous competition in every segment in which we do business, and we believe customers and developers choose us because our products and services are the best in the world. We remain committed to ensuring the App Store is a safe and trusted market. place, end quote. On Twitter, Epic CEO Tim Sweeney expressed disappointment in the order, quote, Today's ruling isn't a win for developers or for consumers, Sweeney said. Epic is fighting for fair competition among in-app payments methods and app stores for a billion consumers, end quote. Separately in Epic Games, spokesperson told NPR that the company plans to appeal, end quote.

Starting point is 00:12:52 And indeed, word this morning that Epic has filed its appeal with the U.S. Court of Appeals for the Ninth Circuit. But here's the analysis. I've got a boatload of that. Mark German wrote that the epic ruling is a win for Apple as it costs the company just a few billion dollars to comply with it, and it doesn't force Apple to change its fees or let third-party app stores into iOS. Quote, it's a blow to Apple, but one that the world's most valuable company can likely absorb. And Apple dodged an even bigger risk that the judge might determine that it was a monopolist under either federal or state laws. Apple's commissions, from the App Store generated an estimated $6.3 billion last year in the U.S., with most of it coming from in-app purchases and subscriptions. That money is what's at stake as games and other apps prepare to steer customers away from Apple's payment system. So how much does Apple stand to lose? That all comes down to how many developers try to bypass its payment system. Loop Ventures Gene Munster, a longtime Apple Watcher, put the range at $1 billion to $4 billion,

Starting point is 00:13:54 depending on how many developers take advantage of the new policy. But even if the ruling up costing Apple a few billion dollars a year, that's still a small fraction of its total revenue. In fiscal 2021 alone, the company is estimated to bring in more than $360 billion, meaning the change won't make or break its overall financial performance. And many developers may choose to stick to Apple's payment systems so they don't have to build their own web payments platform. The judge also didn't force Apple to change its fees or let third-party app stores on its platform, which would have been a far larger blow to the company's revenue. The rolling states that Apple must let developers communicate with customers, quote,

Starting point is 00:14:29 through points of contact obtained voluntarily from customers through registration within the app, end quote. Last month, as part of minor concessions designed to settle a class action lawsuit with app makers in the U.S., Apple had already agreed to allow those direct communications between developers and end users, end quote. Yeah, but about that, Nilai Patel wrote that a fair reading of the Epic versus Apple injunction suggests that Apple needs to allow third-part payment methods in the app and not just links to ones on the web. So there is a bit of confusion here. It's a subtle distinction, but an important one in terms of real impact. It all comes down to the idea of a button versus a link. A button is the terminology used in the ruling versus, you know, pure link. It's like arguing over what the definition of is, is. Quote, what does it mean for a button in an app to, quote, direct a customer to purchasing mechanisms,

Starting point is 00:15:24 end quote. Is it a checkout button? Can Amazon add a cart, a checkout button, and payments to the Kindle app now? The court isn't stupid. It's specified buttons and external links, which means they are presumed to be distinct. So a button can't just be an external link that kicks you to Safari. That means that a fair reading of the plain text of this injunction suggests that buttons in iOS apps can direct users to purchasing mechanisms in the app. If the button just kicks you out to the web, it would be an external link. I am confident. A lot of developers, are going to test this language in aggressive ways and that Apple will find itself developing new rules to protect its lucrative in-app purchasing system from competition. And I'm confident Apple will try

Starting point is 00:16:03 to say that button just means what something looks like. While developers will say that button means how something works, there's a lot of irony in this for Apple. But in the end, it won't be up to Apple to decide what this order means. It will be up to the court. And that is a delicate position to be in because the court explicitly thinks the anti-steering rule is very anti-competitive, end quote. Yes, it says in the ruling that the court will retain jurisdiction over the enforcement and amendment of the injunction. So don't expect this to be the end of this story or the debate around it. Likely developers are going to test this in ways that Apple will kick back on, but the judge will be the final judge arbiter of it. Finally, let me include this essay from Friend of the Show, M.G. Siegler.

Starting point is 00:16:50 this should be the end of the argument in MG's thinking, quote. Apple should just take a look around, see which way the wind is blowing, and make some major changes to appease the courts and to please their developers. End this. They should open things up to win these arguments on the product side of the equation, something which they're uniquely situated to do thanks to about two dozen aspects of the iPhone. They should compete on the playing field in which they already have some home field advantage. And that's the craziest part of all this, they would undoubtedly still win far more often than not, both because of those inherent iPhone advantages, but also because their product offerings on the in-app and Apple Pay site are very good.

Starting point is 00:17:28 Let them stand on their merits. That in turn would also likely help Apple in a number of ways, but they don't see it that way. And the bigger fear is that they don't see it at all. Instead, we're about to battle about what the definition of a link is. And if that doesn't work, we'll get into the weeds of MFNs. Appeal after appeal, delay after delay, buy you. time for other revenue to fill in the inevitable gaps. Meanwhile, all of this will just continue the appearance that a two and a half trillion dollar company is nickel and diming their developers to death. Not a great look, end quote. Over the weekend, we had our first semi-final in the hashtag World Cup of Entrepreneurs thing we're doing on Twitter. Elon Musk has defeated Jeff Bezos,

Starting point is 00:18:16 though it was interesting. It was close for a while until Musk pulled decisively ahead overnight. which means we have only one semi-final left. Who will face Musk in the finals? Well, you couldn't have a more classic matchup, really. The competitors are Steve Jobs and Bill Gates. Juicy, right? So make your voice heard. Go vote.

Starting point is 00:18:38 Link in the show notes. But also, it should be the pinned tweet at the top of the at TechMeme podcast Twitter account. Talk to you tomorrow for iPhone Day.

Tech Brew Ride Home - Mon. 09/13 – Is China Dismantling Its Super Apps?

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