Tech Brew Ride Home - Thu. 03/21 – The DOJ Sues Apple

Episode Date: March 21, 2024

The DOJ opened a lawsuit against Apple. Reddit’s IPO should be happening today. An Epic Games Store on iOS should be coming later this year. Carvana is a Covid-times high-flier that has actually recovered. And Neuralink’s first human patient reveals himself to the world. Links: U.S. Sues Apple, Alleges Tech Giant Exploits Illegal Monopoly (WSJ) Reddit prices IPO at $34 per share in first major social media offering since 2019 (CNBC) The Epic Games Store is coming to Android (9to5Google) Apple Faces Legal Protest From Meta, Microsoft, X, Spotify and Match (WSJ) Carvana makes U-turn away from financial abyss (Financial Times) Amazon’s New Focus: Fending Off Rivals Temu and Shein (WSJ) Watch Neuralink’s First Human Subject Demonstrate His Brain-Computer Interface (Wired) 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 Thursday, March 21st, 2024. I'm Brian McCullough today. The DOJ has opened a lawsuit against Apple. Reddits IPO should be happening right now. An epic games store on iOS should be coming later this year. Carvana is a COVID-time's high flyer that is actually recovered, and Neurrelink's first human patient reveals himself to the world. Here's what you missed today in the world of tech. The U.S. Justice Department has filed a suit against Apple just now, alleging the company blocked rivals from accessing iPhone features, made it difficult for users to switch to other devices, and more. Quoting the journal. The government's antitrust complaint filed in a New Jersey

federal court alleges Apple used its control of the iPhone to prevent competitors from offering innovative services such as digital wallets and limited the functionality of hardware products that compete with Apple's own devices. The suit also claims that Apple makes it difficult for users to switch to devices that don't use Apple's operating system, such as Android smartphones. Consumers should not have to pay higher prices because companies violate the antitrust laws, Attorney General Merrick Garland said in a statement. The case against Apple is the last shoe to drop on the big four tech giants by U.S. antitrust officials. Antitrust enforcers have also filed anti-monopoly lawsuits against Amazon, Google, and meta platforms. The lawsuit against Apple has been in the works for years.

An investigation began in 2019, but picked up momentum following the appointment of the Biden administration's top antitrust official Jonathan Cantor in 2021. Some analysts and investors say Apple's proliferating legal risks may be a problem. The government's case could take years to play out. Still, the litigation is distracting to Apple's management and could make it harder for Apple to grow its subscription services business. While Apple's stock has fallen 7 percent so far this year, it is still the second largest company in the world by market capital. and produces tens of billions of dollars in profit each quarter. In recent years, Apple has relied on growth from its App Store and Associated Services, video and audio streaming, cloud storage, and news, while the pace of iPhone hardware revenue increases has slowed. Oppenheimer analyst Martin Yang

estimated that the App Store has margins as high as 80 percent, end quote. I've got a weird situation today where there is a bunch of big stuff happening that will likely happen later today, but hasn't happened yet exactly. I managed to catch the Apple one, but here's another. The Reddit IPO should happen around the time this episode posts. Reddit priced its IPO overnight at $34 per share, the top of its expected range, raising $519 million for the company and valuing it at about $6.5 billion ahead of its market debut, quoting CNBC. Reddit's public market debut on Thursday, under ticker symbol RDDT, will be the first for a major social media company since P. interest debut in 2019 and one of the very few venture-back tech deals of the past two years.

Reddit sold 15.28 million shares in the offering, while existing shareholders sold another 6.72 million. The company is taking a haircut from its private market valuation of $10 billion in 2021 at the peak of the tech boom. Soaring inflation and rising interest rates pushed investors out of risky assets in 2022, eventually forcing startups to downsize slash their valuations and focus on profit over growth. On Wednesday, Data Center, hardware company Astera Labs went public and saw its shares skyrocket 72% as investors flocked to anything involving artificial intelligence. However, the IPO market has been in an extended dry spell for more than two years with Instacart, Clavio, and Arm Holdings among the few tech

companies to hold offerings over that stretch, end quote. Epic plans to release its Epic Games store on iOS and Android later this year, with the same terms as its PC store, including a 12% Commission on sales. Quoting 9 to 5 Google. Epic explains further that these same fair terms mean that Epic will offer the same revenue split on Android and iOS as it does on PC. Developers will keep 88% of revenue generated by their game with Epic taking a 12% cut. That's well below Apple and Google's cut in their app stores, which is as high as 30%. In 2021, though, Google announced that developers would pay only a 15% cut on the first $1 million in revenue and that same year, Android 12 made third-party app stores more functional.

Currently, there's no word on what games would populate an Epic Game Store on Android or iOS, that is besides Fortnite, which has been distributed via the Epic Games launcher since 2019. That was originally supposed to turn into a full store launch on the platform, an effort that had clearly been abandoned. The final look of the Epic Games store on Android is also unknown as the image above the company shared is Concept Only. As for a timeline, Epic says the store is set to arrive, quote, later this year, end quote. Back to Apple legal issues for a second.

Meta Microsoft X and Match Group have filed an amicus brief in Epic versus Apple, protesting Apple's plan to charge a commission for payments made outside of the App Store, quoting the journal. The briefing underscores the extent to which Apple's rivals and other technology partners intend to continue fighting to force the iPhone maker to loosen its tight controls over third-party software. Apple charges up to a 30% commission for purchases in the App Store for Services or one-time fees, a rate that developers say is too high. Apple has defended its right to charge the fees and said it invests in privacy and security measures that protect users.

Apple in January announced plans to allow developers to process purchases outside of its app store, but the company drew sharp criticism from software makers when it said it would charge a 27% commission in such cases. policy came after the U.S. Supreme Court declined to hear appeals of a 2021 ruling that ordered Apple to allow software makers to direct users to alternate ways to pay for services or apps outside the app store. Some of those alternatives are cheaper for customers. Earlier this month, Epic filed a petition in the Northern California District Court asking U.S. District Judge Yvonne Gonzalez-Rogers, who oversaw the 2021 case, to enforce her decision. Rogers has previously said she would be watching how Apple complies

with her order and could decide at some point to amend her ruling. In a joint amicus briefing filed Wednesday, Meta, Microsoft X, and Match Group argue that Apple's response essentially leaves in place the existing rule governing how software makers steer users to alternative options. It also says that it places new restrictions on app developers. Quote, the Apple plan comports with neither the letter nor the spirit of this court's mandate, the filing says. In a separate filing, Spotify wrote that, quote, Apple's conduct shows that it has no intention of complying with this court's directive, end quote. The ruling said Apple couldn't prevent developers from including buttons or links to alternate payment methods. The amicus briefing says Apple only allows them one option for an

external link that is still tightly controlled. The provision of even the most basic information about alternatives remains forbidden under the Apple plan, the briefing says. If a developer wanted to say, for example, that a customer, quote, can buy this feature at a 30% discount on our website, website, it cannot do so, the briefing says. In the joint filing, Meta argues that it should be able to steer users to alternate methods to pay for boosted posts, a kind of advertising in which users on Facebook or Instagram can amplify the reach of their content. Apple began requiring a 30% commission for such posts purchased on Apple devices in 2022, and Meta has also sought to steer users to alternate options. Microsoft said it is limited in its ability to offer subscriptions

and discounts under Apple's new policy. Acts called Apple's 27% commission a tax on purchases and said it eliminates any incentive to include an external link. Match Group said in the filing that Apple's plan will impact thousands of developers and millions of users and will impede the court's effort to improve price competition in digital transactions, end quote. I've told you about companies that were huge in COVID times, only to fall on hard times subsequently.

So I feel like I should let you know about the survival success. stories as well. Used car marketplace Carvana, whose stock fell from $360 a share to $4, has now rallied to $86 a share, thereby avoiding a financial abyss after restructuring its $9 billion in debt. Full disclosure, I do not own any Carvana stock, though. I wish I did, since I heard my friend Eric Jackson talk about investing in it like a year ago, so that one's on me. Quoting the Financial Times, Ernie Garcia insisted for years, Carvana would become the world's most profitable used car dealer by selling millions of vehicles online. But by the end of 2022, the company's co-founder instead looked like another tech bro,

whose operating chops failed to match his bravado. Carvana's share price had fallen to $4 from $360 at its peak. Wall Street's biggest vulture funds were circling in anticipation of a potential bankruptcy, surging interest rates worsened affordability for used cars. A company that had enticed investors as a digital disruptor, dispensing vehicles from illuminated glass Towers instead was at risk of becoming another victim of a low interest rate environment that rewarded revenue growth at any cost. Garcia vowed a high-speed U-turn. His company would slash costs and its heady ambitions for growth would take a backseat to proving efficiency. Remarkably, Carvanna has avoided a looming financial abyss. In 2023, Carvana reached its highest ever gross

profit per car sold, as well as a record, if modest operating profit of $300 million. These results came even as it sold fewer cars, $300,000 compared with roughly $425,000 in 2021. A deal cut with bondholders has given the company some financial breathing room. Carvana's stock has rallied to $86, including an almost 10% jump on Wednesday. Critics on social media have gone mostly silent. Carvana remains the most shorted stock in the automotive retail sector with a third of its share float borrowed and sold, but bets against Garcia's moves have proved painful. Short sellers have taken more than $3 billion in losses in the

past 15 months, according to calculations from research firm S3 partners. Pressure makes you better, Garcia 41 said in an interview. Pressure forces prioritization and forces you to address things you might not have otherwise addressed, end quote. Sources are telling the journal that Temu and Shien have supplanted Walmart and Target as focal points for internal Amazon meetings related to retail as Amazon explores new promo campaigns to combat these Chinese upstarts. Quote, the companies with Chinese roots are expanding in the U.S. and targeting Amazon customers.

Temu has gone on an advertising blitz, spending billions of dollars and becoming the top advertiser by revenue on meta-platforms in 2023. The Wall Street Journal reported this month. Amazon executives are concentrating in part on two aspects of their business they believe will continue to give them a competitive advantage, customer trust and fast deliveries. Employees are working to increase the selection of items available for same-day delivery in categories such as electronics, and the company is exploring promotional campaigns that would emphasize reliability and delivery speeds, the people said. Recent Amazon video ads have focused on emotional moments for customers receiving or using products

ordered on the platform. Temu's recent ads, including during the Super Bowl, urged users to, quote, shop like a billionaire. Amazon executives paid close attention to the Temu campaign, people familiar with the matter said, end quote. And finally today, Neurrelink has revealed its first brain implant patient, a 29-year-old man paralyzed from the shoulders down, who is now able to play online chess using the Neurrelink device. Quoting Wired, in a brief live stream on the social media platform X, the man introduced himself as Nolan Arbaugh and said he's able to play online chess and the video game civilization

using the neuralink device. If you all can see the cursor moving around the screen, that's all me, he said during the live stream as he moved a digital chess piece. It's pretty cool, huh? In the live stream, Arbaugh describes learning how to use the brain computer. computer interface. I would attempt to move, say my right hand left, right, forward, back, and from there, I think it just became intuitive for me to start imagining the cursor moving, he said. While the live stream contained relatively few details, a Neurrelink engineer said in the video that more information would be released in the coming days. Arbaugh added that he feels lucky to be part of the Neurrelink study. I just can't even describe how cool it is to be able to

do this, he said. The company received a green light from the U.S. Food and Drug Administration last year to move ahead with an initial human trial and began recruiting paralyzed participants in the fall to test the device. Neurrelink's device is implanted in the brain using a surgical robot the company developed. It is cosmetically invisible once in place. The company has designed software that analyzes brain signals and translates them into output commands to control external devices. Some neuroscientists and ethicists have criticized NeurLink's previous lack of transparency around the trial. What's publicly known about Neurlink's study comes from social media posts and a brief brochure the company published last year. Neurlink has not revealed the number of subjects that will be enrolled in the study, the trial site,

or outcomes that will be assessed. And the company has not registered on clinical trials.gov, a government repository that contains information on medical studies involving human subjects. The company has also faced controversy over the alleged treatment of animals used in its research. A wired investigation last year detailed how some of its monkeys died as a result of the company's brain implant testing. Our boss seemingly addressed the safety concerns surrounding the device, quote, I think like there's nothing to be afraid of, he said. The surgery was super easy. I literally was released from the hospital a day later. He said he has no cognitive impairments following the surgery as well. Several other companies are racing to commercialize brain computer interfaces.

One competitor, Synchron, is developing a stent-like device that is inserted into the jugular vein and pushed up so that it lays against the brain. The New York-based company, The company implanted its first subject in 2019 and since has shown that the device is safe and has enabled people with paralysis to browse the web and do online shopping and banking. The FDA hasn't approved any BCI yet. They are all still experimental. Arbaugh acknowledged that he has run into some issues using the device. I don't want people to think that this is the end of the journey. There's still a lot of work to be done, he said, but it has already changed my life, end quote. P.S. There is also a Microsoft hardware event happening at around the same time this episode reaches. your ears. That one I'm definitely going to hold to tell you about tomorrow. Talk to you then.