Tech Brew Ride Home - Mon. 12/28 – After Jack Ma, Is China Freezing Its Entire Tech Sector?

Episode Date: December 28, 2020

The Chinese Communist Party is throwing serious cold water on its entire tech sector by continuing to target Jack Ma. Did Elon Musk once try to sell Tesla to Apple? Drones are getting digital license plates, of a sort. And a look at the generation of search engine startups hoping to, you know, maybe strike at Google while the antitrust iron is hot. Sponsors: Tovala.com/ride GetRoman.com/techmeme Links: Beijing launches antitrust investigation into Alibaba (Financial Times) China Tells Ant to Return to Its Payment Roots, Places Curbs (Bloomberg) Alibaba Probe Stirs Global Worry on What’s Next for Chinese Tech (Bloomberg) Kuo: Apple Car Still in Early Stages, Unlikely to Launch Until 2025-2027 at Earliest (MacRumors) Drone-Crowded Skies Get One Step Closer With U.S. Security Rules (Bloomberg) Search engine start-ups try to take on Google (Financial Times) Covid-19 Propelled Businesses Into the Future. Ready or Not. (WSJ) 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 ride home for Monday, December 28th, 2020. I'm Brian McCullough today. The Chinese Communist Party is throwing serious cold water on its entire tech sector by continuing to target Jack Ma.

Did Elon Musk once try to sell Tesla to Apple? Drones are getting digital license plates of a sort. And a look at the generation of search engine startups hoping to, you know, maybe strike at Google while the antitrust iron is hot. Here's what you miss today in the world of tech. So, what did we miss? Well, over the break, the whole Chinese Communist Party versus Jack Ma thing got even more interesting. China's market regulator suddenly announced an antitrust investigation into Alibaba for alleged monopolistic practices. Yes, this sort of thing can happen in China too, I guess, because as far as we know, this is the first.

investigation of its kind in China's internet sector ever, quoting the Financial Times. The market regulator said it was investigating suspected monopolistic practices, including Alibaba's tactic of forcing merchants to sell exclusively on its platform, a practice known as pick one of two in China, among other issues. The brief statement from China's state administration of market regulations said the investigation into Alibaba had been opened recently after complaints. Alibaba's Hong Kong listed shares fell more than 8% in early trading. Alibaba said it, quote, will actively cooperate with the regulators on the investigation, end quote, and that its business operations remain normal.

This is China's first antitrust investigation into a Chinese internet company for abusing its market dominance, said Scott Yu, an antitrust expert at Zhang Loon law firm. In a worst-case scenario, Alibaba could be fined up to 10% of its previous year's sales, end quote. Lawyers said the initiation of a formal investigation meant the government already had some evidence to support its case. Regulators, quote, definitely have evidence, but it is hard to say whether they will ultimately decide this constitutes monopolistic behavior and its punishment, said Yu Jin Hua at Shanghai-based debund law offices, end quote. So this story continues to fascinate me because for years the Communist Party has allowed big tech companies to, to flower in China to show that China could match the West for innovative disruptive capitalism, albeit with the special Chinese Communist Party spin on exactly what that entails.

Implicitly, I suppose, it has always entailed the Communist Party always having the final say on what exactly disruptive capitalism entails. And it's interesting to see them very openly pulling the reins on Jack Ma, one of the earliest and highest profile of the entrepreneurial success stories in tech China. Alibaba was founded all the way back in 1999. It was China's most valuable company for a long time. Though suddenly no more, Alibaba's seen almost all of this year's stock gains erased over the past few weeks

once the hammer began to come down on Ma. It all began with the canceled IPO of Ant Group, the finance affiliate of Alibaba, also run by Jack Ma. And this morning, even more. China's central bank has announced that Ant must overhaul its lending, insurance, and wealth management businesses and come up with a timetable to do so to tweet. Quoting Bloomberg. The central bank summoned Ant executives over the weekend and told them to rectify the company's lending insurance and wealth management services, the People's Bank of China said in a statement Sunday. While it

stopped short of directly asking for a breakup of the company, the central bank stressed that Ant needed to, quote, understand the necessity of overhauling its business, end quote, and come up with a timetable as soon as possible. The series of edicts represent a serious threat to the expansion of Ma's online finance empire, which has grown rapidly from a PayPal-like operation into a full suite of services over the past 17 years. Before regulators intervened, Ant was poised for a public listing that would have valued it at more than $300 billion with existing backers including Carlisle and Silver Lake. The Hongzhou-based, firm now needs to move forward with setting up a separate financial holding company to ensure it

has sufficient capital and protect personal private data, the central bank said. Authorities also blasted Ant for subpar corporate governance disdain toward regulatory requirements and engaging in regulatory arbitrage. The central bank said, Ant used its dominance to exclude rivals, hurting the interest of its hundreds of millions of consumers, end quote. As Dr. Trey, who knows way more about China than I do, said on Twitter, quote, I'm still perplexed why they decided to kill Ant the day before its IPO. It seems like a genuine mystery to everyone, whether this was a crazy power play to show they can put the brakes on something as large as that with the snap of a finger, or if they, like, just didn't really look at Ant closely until IPO day, end quote. But it's not just about Jack Ma,

though, isn't it? Quoting Bloomberg, Alibaba Group holding led a second day. a frenetic selling among China's largest tech firms, driven by fears that antitrust scrutiny will spread beyond Jack Ma's internet empire and engulf the country's most powerful corporations. Alibaba and its three largest rivals, Tencent, food delivery giant Maytwan, and JD.com have shed nearly $200 billion over two sessions since Thursday when regulators revealed an investigation into alleged monopolistic practices at Ma's signature company. That marked the formal start of the Communist Party's crackdown not just on Alibaba, but also, potentially the wider and increasingly influential tech sphere, end quote.

If the CCP is seeming to throw cold water on the entire internet sector in China, our good friend Ming Chi Kuo is throwing cold water on my prediction that we'd see an Applecar in some form within the next five years. In a new research report, Kuo says that Apple car's unclear development schedule means it would only launch in a 2025 to 2027 time frame, while changes in the whole EV-slash self-driving market in the meantime, could even push any hypothetical launch beyond that, quoting Mac rumors. We predicted in a previous report that Apple will launch Applecar in 2023-20205. However, our latest survey indicates that the current development schedule of Applecar is not clear. And if development

starts this year and everything goes well, it will be launched in 2025 to 2025 at the earliest. due to changes in the EV-slash-driving market and Apple's high-quality standards, we would not be surprised if Apple car's launch schedule is postponed to 2028 or later. Quo said the market is overly bullish about the Apple car's launch schedule, and he has advised investors to avoid buying Apple-car-related stocks at this time. While he does not believe that the Apple car has no chance of success, Quo said there is uncertainty about how competitive Apple would be in the EV-slash-driving vehicle market due to the company lagging behind in deep learning slash

artificial intelligence, quoting from Quo's memo again. The market has high expectations for Apple car. Still, we remind investors that although Apple has a variety of competitive advantages, it is not always successful in new businesses. For example, Apple failed to enter the smart speaker market. The demand for HomePod and HomePod Mini were lower than expected, and the development of new smart speaker models had been temporarily suspended. The competition in the EV-slash-self-driving market is fiercer than that for smart speakers, so we think it's perilous to jump to the conclusion that Apple Car will succeed. If Apple Car wants to succeed in the future, the key success factor is big data slash AI, not hardware. One of our biggest concerns about Apple Car is that when Apple Car is launched,

the current self-driving car brands will have accumulated at least five years of big data that could be conducive to deep learning slash AI. How does Apple, a latecomer, overcome this lagging gap, end quote? Yeah, but maybe that's why John G. and Andrea has has been elevated recently at Apple. He's the AI guru, right? Also, you might have heard that Elon Musk responded to Applecar rumors last week on Twitter stating that the rumored monocel battery that Apple is supposed to be developing is, quote, electrochemically impossible, end quote. And that, quote, during the darkest days of Model 3 production, he reached out to Apple CEO Tim Cook to discuss the possibility of Apple acquiring Tesla only for Cook to apparently decline the meeting.

There's a new regulatory game in town for U.S. drone operators, the FAA, which of course regulates stuff in the air, has outlined its plans for remote ID broadcasts from drones. In other words, drones are about to get essentially license plates, quote, all but the smallest drones will have to broadcast a radio signal identifying them and their location under new Federal Aviation Administration regulations, according to a summary of the action reviewed by Bloomberg News. The new regulations, portions of which will come into play after 30 months of them becoming effective, are an important foundation required before drone deliveries and other commerce can occur. They mark the most significant regulatory expansion in drone capability

since the devices first trickled into civilian markets starting about a decade ago. The new rules will be, quote, an essential building block toward safely allowing more complex drone operations, the agency said in the summary. The new regulation will require drones weighing more than 0.55 pounds or 0.25 kilograms to broadcast their identity on a lower power radio frequency such as Wi-Fi or Bluetooth. In that way, police or other authorities can monitor nearby drones. The regulations also allow for existing drones to be retrofitted with such a system. The rule doesn't require that the devices broadcast on a signal that can be transmitted by mobile phone networks to a national tracking network, a measure that was originally included in a proposal unveiled last year. Hobbies who fly the devices at government-approved sites can seek exemptions so long as they're flown in restricted areas identified to the FAA. The new rules are an attempt to address the explosion of drone use. The FAA has registered almost 1 million recreational drone users, and they owned 1.3 million of the devices as of last.

last year. An additional 385,000 commercial drones have been registered with the agency according to its data, end quote. Google is facing, what is it, five antitrust actions in the U.S. alone at this point. Lord knows, I'm not even keeping track of what the company is facing around the world. Maybe I need to do one of those cork boards that you see in that Pepe Sylvia meme from It's Always Sunny in Philadelphia with a red string connecting all of the activity and me smoking in the foreground like a maniac. Well, this regulatory action all just happens to be coincident with a whole bunch of new startups arising in the search engine space to challenge Google's dominance. I'm talking about companies like Mojik, U.com, and Neva. A lot of these have been founded

by former Googlers, quoting the Financial Times. Though their odds of success are long, each sees a different opportunity for a new approach to Google's familiar list of links and results, which has evolved only incrementally in recent years. They also hope that a string of recent antitrust cases against Google at both the state and federal levels may result in an opening up of the field. In many ways, it's surprising, given how large of an industry search is, that it hasn't been fundamentally rethought, said Richard Sotcher, U.com's chief executive, who left Salesforce's artificial intelligence research team in July.

Google's share of the global search market has held at more than 90% for most of the past decade, Today, it remains close to its all-time highs of more than 92%, according to Stat Counter, which tracks web activity, followed by Bing on 2.9% and Yahoo at 1.5%. Nevertheless, long-standing Google competitors such as DuckDuckGo are making slow but steady gains. According to Stat Counter, DuckDuck Go's market share has grown from 0.3% to 1.9% in North America in the past five years, end quote. A lot of these new startups are focusing on AI as a differentiator to source different. Ideally, one would think better search results.

But that would be something that, if proved successful, Google could just easily incorporate into its own operations, right? No, the key, it would seem to me, would be to triangulate against the one thing Google can't give up. That's the classic disruption from below vector, right? If you really want to disrupt Google, just take a slice of their enormous. pie. I mean, even a tiny slice could be worth billions a year. Who wouldn't be happy with that? Quoting again. Bill Cochran, a former Google executive and now Niva investor at venture capital

firm Sequoia, sees his former employer's reliance on ads as its greatest vulnerability. Quote, the biggest issue is you start to see more and more ads and it is becoming more complex for the user to understand what is advertising and what is not, he said. NEVA, which has raised $37.5 million in funding, also combines results from a user's emails and other online information with what it hopes will be higher-quality web results in specific niches such as product search. We envision a search engine very differently, said Sidhar Ramaswami, Google's former head of advertising and co-founder of NEVA. The two new ventures have emerged this year as Google faces a barrage of regulatory complaints, including two state-led antitrust lawsuits and a federal case in the U.S. about what Critics such as Yelp allege is monopolistic behavior. Its would-be rivals hope that could create new opportunities if only by distracting Google with legal cases or constraining its ability to launch new products. For us, antitrust, I think, will be helpful, said Mr. Sotcher.

It depends on how it is executed. But he added, I don't think antitrust is going to create happy users and customers. Ultimately, you have to create an amazing experience, end quote. And finally today, sort of a long read from the Wall Street Journal. in a sort of end-of-year rapper story. It's a piece that looks at what we've been saying all year, how due to the pandemic, trends that may have taken years to unfold,

things like remote work or the acceleration toward virtual commerce, happened this year in a matter of months. Quote, the shift from physical to virtual commerce went hand in hand with the rise of remote and contactless payments and the decline of cash. The virus prompted some bastions of cash such as casinos, to introduce more cashless technology.

The virus-driven shift to online naturally increased remote payments. For example, the card not present share of total credit card spending rose from about 40% in February to more than 50% in early December, according to J.P. Morgan Chase and Company. For many merchants, the pandemic made that shift a matter of survival. Before COVID-19, the website of M. Flynn Jewelry, a boutique jeweler based in the south end of Boston, mostly helped people to figure out if it was worth making the trip to see the store, said co-owner Megan Flynn. Now we're seeing how important it is because people may not want to come in for many different reasons, end quote. Since June, about 30% of the store's sales have been transacted

directly through the website or via text and telephone calls initiated over the site compared with 3% a year earlier. Web visitors can ask a store employee to try on a piece of jewelry. Ms. Flynn's clientele used to be almost entirely local. Now, some 20% come from outside the Boston area. They, quote, might be looking for a certain designer on the internet. They find it through us and then start shopping with us, end quote. The surge in the number of consumers, merchants and brands online creates what Mr. Sebastian calls a network effect. The more users there are, the more compelling it is for others to follow. Quote, it would be surprising if we didn't see the majority of that shift sustained beyond the pandemic,

he says. Digitization doesn't obviate the need for physical assets. Amazon's U.S. capital spending in 2019 was more than any other company, according to the Progressive Policy Institute, a center-left think tank. Rather, it changes the sort needed. Online stores invests primarily in technology and logistics, such as fulfillment centers and delivery vehicles, not stores, offices, or machinery. Whereas retail stores are designed around customers who may browse multiple aisles in search of a few items, fulfillment centers, are designed around employees handling items nonstop. They thus use labor and space more efficiently. Amazon's sales per employee are 50% higher than Walmarts. This year, businesses spent more on

almost everything related to logistics and technology and less on everything else. The amount of net warehouse space absorbed by tenants through the first nine months was similar to last year, according to CBRE, while more office and retail space was vacated than least. air freight volumes are up this year, even as passenger traffic is down sharply. Business spending on software and information technology rose in the third quarter from a year earlier, but almost every other type of capital spending fell, end quote. Hope you had a rejuvenating holiday weekend, everyone. Over the break, I saw a couple of you telling the world about the podcast,

including Justin Cohn on Twitter, who said, quote, I devour tech news and podcasts like my life depends on it. The best daily tech news podcast right now is TechMeme Ride Home, 10 out of 10 recommended. It's always appreciated when folks do things like that. I mean, if you listen to me every single day, then I mean I'm in your head more than anybody else, right? So if anyone in your life even remotely mentions podcasts, don't be shy. Tell the world about the ride home. Tweet it, Facebook it, TikTok it, maybe.

I don't know. However you do it, spread the word. Always appreciated. Talk to you tomorrow.