Tech Brew Ride Home - Mon. 10/14 - Apple's Chinese Conundrum

Episode Date: October 14, 2019

More China related controversy for Apple, for gaming, for all of tech really… but why Apple suddenly finds itself in a unique bind. More iPhone SE 2 rumors, the latest installment of “Will We Actually Ever See Libra?” and why nobody can play Fortnite right now. Sponsors: WeWorkRemotely.com MintMobile.com/ride Links: How safe is Apple’s Safe Browsing? (Matthew Green) Chinese app on Xi’s ideology allows data access to users’ phones, report says (The Washington Post) Kuo: iPhone SE 2 Launching in Q1 2020 with A13 at $399 Price (MacRumors) Facebook’s libra cryptocurrency coalition is falling apart as eBay, Visa, Mastercard and Stripe jump ship (CNBC) SoftBank is reportedly seeking to take control of WeWork through a financing package (CNBC) ‘Fortnite’ Goes Dark: A Masterful Marketing Stroke by Epic Games (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 Monday, October 14th, 2019. I'm Brian McCullough today. More China-related controversy for Apple, for gaming, for all of tech, really. But why Apple specifically suddenly finds itself in a unique bind. More iPhone SE2 rumors, the latest installment of

will we actually ever see Libra, and why nobody can play Fortnite right now. Here's what you miss today in the world of tech. All right. At this point, I don't. have any idea what is going on here. You know how Google has that safe browsing program, which keeps track of malicious sites and then warns you if you try to visit them. Well, Apple has used those APIs for Google Safe Browsing to warn browsers using Mobile Safari on iOS if it thinks, or at least Google Safe Browsing thinks, you're about to visit a bad site with malware and stuff like that on it. Now, you can say, what you want about Google being a trustworthy source for this sort of information. Safe browsing has

had some issues, mostly related to people being concerned that Google servers were receiving the full URL of the site you were visiting and your IP address, but Google did make changes to address some of that. And as far as I could tell, no one has had cause to complain really about Safari using Google Safe Browsing up until now, aside from those vague privacy concerns. Well, researchers have discovered that as of iOS 13, the language in the fraudulent website warning that pops up in Safari when you visit one of these sketchy websites, now says that Safari will ping not only Google Safe Browsing, but also Chinese conglomerate Tencent and their Tencent Safe Browsing system. So now you will be sending at least some information to Google Safe Browsing

and Tencent Safe Browsing. People assumed that the Tencent part of that equation would only apply to iOS users in mainland China, which Apple did confirm late this morning. But so far as we know, Apple didn't tell anyone about Tencent Safe Browsing joining the party here. And at least at the time of this recording, the setting appears to be on for all users by default, quoting security expert Matthew Green. At the very least, users should learn about these changes before Apple pushes the feature into production and thus asks millions of their customers to trust them. When Apple wants to advertise a major privacy feature, they're damned good at it. As an example, this past summer, the company announced the release of the privacy preserving Find My feature at WWDC to widespread a claim. They've also been happy to claim credit for their work on encryption, including technology such as ICloud keychain. But lately, there's been a troubling silence out of Cupertino, mostly related to the company's

interactions with China. Two years ago, the company moved much of iCloud server infrastructure into mainland China for default use by Chinese users. It seems that Apple had no choice in this since the move was mandated by Chinese law, but their silence was also deafening. Did the move involve transferring key servers for end-to-end encryption? Would non-Chinese users be affected? Reporters had to drag the answers out of the company, and we still don't know many of them.

In the safe browsing change, we have another example of Apple making significant modifications to its privacy infrastructure largely without publicity or announcement. We have learned about this stuff from the fine print. This approach to privacy issues does users around the world a disservice, end quote. Now again, late today, Apple did come out with a statement that read that the Tencent Safe Browsing Partnership only applies to mainland China users and only hashes of URL prefixes and IP addresses are being shared with Tencent. But here's the bottom line.

As with that recent Hong Kong app take-down controversy, this increasingly looks like Apple is being forced to do things that it knows would look bad because it had to, because China told them to, or at least forced them to. And it's being forced to do things that maybe it otherwise wouldn't want to do. To say this is not a good look at the moment is putting it mildly. And more on that in the next segment. Yeah, the Chinese tech controversies roll on and on. I could read you a ton of headlines about how Blizzard is trying to walk back that

hearthstone player controversy a bit. I could tell you how Riot Games has said that its broadcasters shouldn't discuss politics or religion when live streaming games, while Epic says political speech is okay. Interestingly, who owns Riot, Tencent, who has a 40-per- stake in Epic Tencent. So as we discussed last week, suddenly the entire gaming world finds itself caught up in a Chinese political morass. And that seems to be because, as we said, while at least those of us not in the gaming world weren't looking, Chinese interests own or at least have a stake in like the entire modern gaming ecosystem. But it's not just games.

This is all of tech suddenly. No one knows how to play this. No one knows how to play this. No one knows where the landmines are. And that's a huge problem suddenly for Apple more than anybody else. Until now, Apple's ability to do business in China, while Google and Facebook and Amazon and others could not or would not, has been seen as a boon. Apple had been able to tap into that huge Chinese market to sell roughly $43 billion in eye devices and eye services per year up until this point. And then, of course, Apple's entirely dependent on China. for the majority of its supply chain, right? And that was great for them, allowed them to provide amazing devices at prices others couldn't match. But suddenly, none of that looks good. It didn't look

good for most of the year because of trade war concerns. Apple has managed to whistle past the graveyard on that, at least so far. And now, even that first bit is not looking so good, providing actual web-based digital services as Apple moves to a services company and having all of those services intermeshed into one iOS and I-whatever system doesn't look so hot either. The problem is suddenly not just potential tariff fears. The problem is now apps and services and even livestream and content, anything that the Chinese government does not like for political reasons. How can Apple extricate themselves from that? I mean, you can move your production factories out of a given country. It's not easy. It's expensive. It takes time, but it's possible. But the problem suddenly becomes if you want to do business in China and you want to do business the same way all around the world, what happens if China has a fundamentally different view of what the Internet and digital technology can and should be used for? And what happens when that is in opposition to everything you claim to stand for?

or at least claim to stand for for marketing purposes. Here in America, Apple says that privacy and control of your own data are paramount, are what they stand for, or what makes them different. If the police ask Apple to unlock their phone, they won't do it. They don't even want to be able to do it. But it's increasingly looking like the ability to do business in China and Apple's continued willingness to do so in China is in complete opposition to that stance. Apple has to accede to a fundamentally different set of standards and practices in China to conform with this different philosophy about technology that the Chinese government seems to favor. How much longer can that continue? And what do I mean by a fundamentally different philosophy?

Well, it turns out there was an instructive example just this past weekend. The Chinese government has developed its own news app called, and again, I'm going to apologize for this pronunciation. association. Chessi Quanyo. It's been heavily promoted in China. It's become the most downloaded app in that country. It's how tons of folks in China get their news now. Or at least the news that the government wants them to get. Some people call this a glorified propaganda app. Oh, and according to an article in this weekend's Washington Post, that same app essentially enables a super user backdoor on any phone that downloads it. Quote, An examination of the coding of the app used by phones running the Android operating system

shows it enables authorities to retrieve messages and photos from users' phones, allows them to browse contacts and internet history, and activate an audio recorder inside the devices. Quote, The Chinese Communist Party essentially has access to over 100 million users' data, said Sarah Aoun, director of technology at the Open Technology Fund, an initiative funded by the U.S. government under Radio Free Asia. quote, that's coming from the top of a government that is expanding its surveillance into citizens' day-to-day lives, end quote. That is what I mean by a different philosophy. Again, this is not

an Apple-specific problem. It is an all-of-tech problem. No one seems to know where the political, the moral, even the business landmines are when dealing with China all of the sudden. But Apple has made so much noise about having this pure philosophy. So let me come back to the previous segment and read you Matthew Green's final paragraphs in his post where he outlined the discovery of Safari suddenly using Tencent Safe Browsing. This is Apple's dilemma suddenly, quote, It increasingly feels like Apple is two different companies, one that puts the freedom of its users first and another that treats its users very differently. Maybe Apple feels it can navigate this split personality disorder and still maintain its integrity.

I very much doubt it will work, end quote. More details from Minchi Quo on what seems to be becoming an almost likely lower end phone, the iPhone SE2, which seems to be coming in Q1 of next year. Specifically, quote details that the SE2 will define the lower end in this regard. It will have three gigabytes of RAM between 64 and 128 gigabytes of storage, will not have 3D touch, will have lower-end cameras, of course, and all of that will allow Apple to price the phone starting at $399. Again, according to Quo, the idea is that Apple will use these lower-end phones to target existing

iPhone 6 and 6S users that maybe have not upgraded yet. However, the form factor, according to Quo, will remain similar to. that of the iPhone 8. This was a big Friday news dump that I was so pissed that I missed. It is old news now, but I feel like I can't just not mention this. Visa, MasterCard, eBay, Stripe, and Mercado Pago are all dropping out of Facebook's Libra Association. Quoting CNBC, in statements following the news, the company said they respect and see potential in the project, but have chosen to focus on other efforts. A Stripe spokesperson said in a statement that the company, quote, is supportive of projects that

aimed to make online commerce more accessible for people around the world, end quote. Stripe will, quote, remain open to working with the Libra Association at a later stage, the spokesperson said. A visa spokesperson said the company, quote, will continue to evaluate and our ultimate decision will be determined by a number of factors, including the association's ability to fully satisfy all requisite regulatory expectations. VISA's continued interest. interest in Libra stems from our belief that well-regulated blockchain-based networks could extend the value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets, end quote.

A couple things to note. There was apparently a Libra Association meeting today where the formal governance and organization of the association was supposed to be formalized. So this was literally the last moment that these companies could have cut bait. And again, look, as I've said before, it's worth considering that it was maybe if you think of it in a certain way odd that any of these payment companies wanted to participate in Libra at all, aside from the keep your enemy's close sort of philosophy being in play here, since Libra is potentially so disruptive to what they already do.

And yes, look, bottom line, why do these payment players and banks need any sort of global regulatory scrutiny? So, brave or pragmatic or chicken, you can read this a million different ways. Leader of the Libra Project David Marcus read it this way, tweeting, quote, Special thanks to Visa and MasterCard for sticking it out until the 11th hour. The pressure has been intense, understatement, and I respect their decision to wait until there's regulatory clarity for Libra to proceed versus the invoked threats by many to their biz. I would caution against reading the fate of Libra into this update.

Of course, it's not great news in the short term, but in a way it's liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you're on to something when so much pressure builds up, end quote. And late yesterday, CNBC was reporting that SoftBank is seeking to take control of WeWork through a new financing package. Remember that many believe that WeWork is running out of cash, that it had been depending on that canceled IPO for a cash infusion. And if rumors are to be believed, that might be worse than we thought because WeWork might have been ramping up to get that IPO out the door, ramping up spending. Here's Dan Premack in this morning's ProRata newsletter, quote, I'm told that WeWork significantly increased spend in Q3, partially due to the lumpy nature of real estate CAPEX, believing it would be absorbed by $9 billion in proceeds from the IPO and concurrent debt deal. One source says that there's probably enough money to get through Thanksgiving, but not to Christmas, end quote. So here's CNBC.

Quote, SoftBank already owns one third of WeWork but is aiming to invest several billion dollars in additional equity and debt in the company, sources told the journal. The potential deal would shift founder and former CEO Adam Newman's already diminished voting power to the Japanese conglomerate, according to the journal. This would give SoftBank a bigger role in turning around the company's operations. The situation is fluid and there's no guarantee that a deal will be reached, end quote. Finally today, in my capacity where I try to keep you updated on stuff you might have been hearing about all day and all weekend, at the time of this writing, the game Fortnite has been down for nearly a day as players speculate about what's next after seeing their maps sucked into a black hole following the season 10 event. Quote, at around 2 p.m. Eastern Time on October 13th, a meteor in season 10 of

Fortnite that had been biting its time set off a cataclysmic chain reaction that sucked up everything on the island and eventually wiped out the entire map. Publisher Epic Games, exhibiting supreme marketing skills, left millions of fans wondering what the hell just happened. Epic told players that Sunday's Fortnite event was the end. and made good on that promise, literally, as far as season 10, dubbed out of time goes. The official Fortnite account on Twitter offered no explanation for the wipeout. Instead, it pinned a tweet showing a live video feed of the black hole, accompanied by a space AG soundtrack. All of the account's previous posts on Twitter were deleted and its icon turned black, end quote.

Now, of course, this is a PR stunt. and in this post-lost, post-game of Thrones media environment, creating mystery and getting people to feverishly try to read the clues and tea leaves and then debate it on Reddit is how you build attention and suspense. Quoting Variety, in an era of always-on connectivity, the Fortnite blackout creates a sense of artificial scarcity. The baller moved by Epic Games ensured that the event would become a blazing hot trending topic on social media, generating the kind of buzz and anticipation of a major movie release or product reveal. To be sure, others have engaged in such nuclear option marketing tactics, such as when Taylor Swift in 2017, wiped out her social accounts ahead of her sixth studio album reputation, end quote. Again, by the time you hear this, probably everyone will be able to play Fortnite again,

and it won't be a story. But there you go. If you've been hearing about this from your Gabor friends all this weekend, that is what has been happening. Get ready for the big Google event tomorrow, which again I will be covering in person, so be prepared for the show to be a tiny bit late. Not terribly late, but it's possible I'll miss 5 p.m. by a few minutes. I think the day of the Microsoft event, we went live at 508 or something like that. We've got you covered. Just slight patience request. Talk to you tomorrow.