Tech Brew Ride Home - Thu. 07/30 – A Comprehensive (8-Minute) Rundown of the Big Tech Congressional Testimony

Episode Date: July 30, 2020

A comprehensive rundown of the big tech testimony in Congress yesterday. Don’t worry. I tried to keep it brief. Are seller fees quietly twice as big a business for Amazon as AWS is? There’s a new king of the smartphone hill as Huawei surpasses Samsung. And I think we can officially say that the Peacock launch has been a success. Sponsors: Today In Digital Marketing podcast Metalab.co Links: ‘INSTAGRAM CAN HURT US’: MARK ZUCKERBERG EMAILS OUTLINE PLAN TO NEUTRALIZE COMPETITORS (The Verge) Report: Amazon’s Monopoly Tollbooth (ILSR.org) Encrypted Messaging App Telegram Files Antitrust Complaint Against Apple With EU (MacRumors) Google's $2.1 billion Fitbit deal faces EU antitrust probe: sources (Reuters) Canalys: Huawei trumps Samsung for first time in worldwide smartphone market in Q2 2020 (Canalys) TikTok says it will pay creators a total of $2 billion in the next 3 years (Digital Trends) 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, July 30th, 2020. I'm Brian McCullough today. A comprehensive rundown of the big tech testimony in Congress yesterday. Don't worry, I tried to keep it brief. Our seller fees, quietly twice as big a business for Amazon as AWS is. There's a new king of the

smartphone hill as Huawei surpasses Samsung. And I think we can officially say that the Peacock launch has been a success. Here's what you miss today in the world of tech. So I'm glad I, didn't wait for the hearing to end to release the show yesterday because the thing went on for nearly six hours. Although I did listen to most of it, at least in the background, and I continue to stand by the assertion I made yesterday that the questions from at least some of the Congressfolk were very good. Inform, is maybe a better word than good. The Congress folk were clearly, mostly prepped for this hearing. They brought up specific incidents to make pointed assertions that were less nebulous than we've seen in the past. Now, a lot of people seem to have disagreed with me,

saying, again, gee, wouldn't it be nice to have representatives that understood technology? And yes, it was mostly just theater in the end. Don't expect anything really substantive to come out of this. But I think it is worth noting that our elected representatives seemingly can learn. And there were some clear contours to the thing that I think we can tease out to get a sense of where we're at with this whole regulating and maybe breaking up big tech. Even if it was mostly theater, we can see where some of the thinking is going in the Has Tech gotten two powerful circles. In the hearing, for example, Tim Cook was questioned eight times, Bezos was questioned 13 times, and Zuckerberg and Pachai were both questioned 16 times each for a total of 50 minutes each.

I have to say it was Pachai who seemed to get the most pointed questions. If anyone got off relatively lighter than the others. I would say it was Tim Cook and Apple. Though Tim Cook's sharpest questioning came when he was asked about Apple's removal of rival screen time apps from the App Store after Apple released its own screen time app. He parried that well, I think, saying Apple was concerned for kids' privacy. But there was a bit in the way of juicy details for Apple as emails uncovered by the committee between Eddie Q and other Apple execs from 2011 seem to show that Apple considered taking a 40% cut of first-year digital content subscriptions instead of the 30% cut it currently takes. That would fly directly in the face of all

of the times Tim repeated that Apple has never raised prices in the app store. Also, there was an email from Q to Jeff Bezos himself that reveals how Apple convinced Amazon to finally put Prime Video in the app store back in 2017. Apple agreed to only take 15% of revenue from prime video subscriptions made on iOS versus the 30% that they obviously take from everyone else, that would fly directly in the face of Apple treating everyone exactly equally. There were also emails released by the committee showing how Amazon pursued a systematic plan to weaken and undercut diapers.com, undercut them on price, thereby essentially bullying diapers.com and its parent company into selling

out to Amazon. Amazon eventually acquired the company. I mean, that whole saga was a well-known open secret, but it is still striking to see that play out in real time on an actual email chain. Amazon was willing to lose $200 million a month on diapers alone, merely to undercut diapers.com, something, something when you're so big, it's impossible for smaller competitors to beat you. The biggest revelation emails came from Facebook and showed that Facebook indeed wanted to buy Instagram, at least partially, to explicitly avoid competition, which again, big open secret. We knew that. But again, seeing it there in black and white is something.

This is quoting from The Verge, and it quotes a February 2012 email exchange between Zuckerberg and Facebook CFO David Ebersman. Zuckerberg is floating the idea of buying Instagram, path, maybe even Foursquare. Basically, he was wanting to shop around and take out. any rival he could see. Ebersman is skeptical about this, saying he's not sure that much value would accrue to Facebook if Facebook just went out and bought other social networks wholesale, as opposed to integrating them into the Facebook product itself.

Quoting from the verge, it's a combination of neutralizing a competitor and improving Facebook, Zuckerberg said in a reply. Quote, there are network effects around social products and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it's difficult for others to supplant them without doing something different, end quote. Zuckerberg continued. One way of looking at this is that what we're really buying is time. Even if some new competitors springs up, buying Instagram, Path, 4Square, etc., now will give us a year or more to integrate their dynamics before anyone can get close to their scale again.

Within that time, if we incorporate the social mechanics they were using, those new products won't get much transfer. actions since we'll already have their mechanics deployed at scale, end quote. 45 minutes later, Zuckerberg sent a carefully worded clarification to his earlier, looser remarks, quote, I didn't mean to imply that we'd be buying them to prevent them from competing with us in any way, he wrote, end quote. Yeah, good catch there, Mark. Maybe he, or someone in legal, realized that one day that email chain could possibly be read before Congress in some sort of antitrust hearing, which, of course, it was. All in all, I'd say that the whole hearing was a mixed bag. The format of trying to grill all four of the CEOs at once was not ideal.

It limited each questioning to five minutes and didn't allow for any drilling down about anything at all. But again, hey, specific pointed questions were raised about each company and their own unique power situations and dynamics. As the official protocol account tweeted, quote, the charge against Facebook is becoming increasingly clear. It's just this. You are too big. None of the details matter because you're too big and have too much power and too much control over how people live their lives online. And that's the crux of the whole thing. Facebook says, we catch most bad stuff. Amazon says we treat most sellers well. Apple says most developers pay nothing. Google says our systems mostly work. Even if that's true, are these companies so big?

the exceptions are too many, end quote. As Casey Newton wrote in the interface late yesterday, quote, the downside of Wednesday's format is that Congress struggled to make airtight antitrust cases while prosecuting four of them simultaneously. The constant attempts by Republicans to derail the hearing with phony bias complaints were unfortunately successful. But the upside is that Congress actually mentioned, often by name, the many businesses that have been squashed as a result of anti-competitive behavior.

by the giants. Amazon was asked why during the pandemic its own ring doorbells were deemed an essential good so as to not interrupt their distribution, where competitors Arlo and Ufi were not. Tim Cook was made to answer for why Basecamp had such a hell of a time getting an email app approved without giving Apple 30% of its revenue. Sundar Pichai had to take questions about the many ways in which the company has made life worse for Yelp. In an age where these tech CEOs can feel all but untouchable, Wednesday showed us the beginnings of accountability. The giants were called on the carpet and interrogated. It was overdue, it was messy, and it was unsatisfying. In other words, it was democracy. And I, for one, was glad to see it, end quote. Sort of a follow-on to something that was addressed in the hearing yesterday.

A report is out from a place called the Institute for Local Self-Reliance that says that Amazon, on average, now collects 30% of each sale made on its platform by independent sellers, and that 30% is up from the 19% take that Amazon took just five years ago. Yes, you know you truly have power in a market when you have pricing power, the power to actually raise prices. But then again, Amazon of course has power in the marketplace because it is the marketplace. Note these amazing details from the report. Quote, seller fees netted Amazon almost $60 billion in 2019, nearly double the $35 billion in revenue from AWS, Amazon's massive cloud computing division.

Since 2014, Amazon's revenue from seller fees has grown almost twice as fast as its overall sales. Cellar fees now account for 21% of Amazon's total revenue. Amazon is extracting more from sellers by tying their ability to general rate sales on its site to their willingness to buy additional Amazon services, including its fulfillment and advertising services, end quote. Yes, that was specifically addressed in questioning yesterday, but Amazon can make a pretty strong argument that advertising and marketplaces has gone on since time in memoriam, but then again, if we're looking for historical analogies,

the whole question about sellers using their fulfillment services would have corollaries to the old railroad examples. And let me add these bits from the report. The opinions expressed here are theirs. Quote, Amazon's high fees make it nearly impossible for sellers to sustain a profitable business. Most fail. Yet Amazon has no risk of running out of sellers. Its monopoly ensures that there's an endless stream of people, both here and abroad, willing to try. The policy solution to Amazon's exploitation of its gatekeeper power must be twofold. First, its marketplace platform should be subject to public utility-like standards of non-discrimination and fair pricing. Second, its various divisions, and here, this is where they're speaking primarily of the logistics

and delivery business, its various divisions must be spun off into separate companies to eliminate conflicts of interest and monopoly leveraging, end quote. And I'm sorry, you must be sick of regulatory news today, but I have to mention real quick that Telegram has filed an EU antitrust complaint against Apple in Europe saying that Apple should allow users to have the opportunity to download software outside of the App Store, quoting Mac Rumors. According to the Paywald Report, Telegram's complaint recounted how in 2016 it was prevented from launching a gaming platform on the App Store because it was deemed to violate Apple's rules. Telegram subsequently dismantled the venture to avoid being deleted from the app store

and claim that it was, quote, an example of Apple's capacity to curb innovation thanks to its monopolistic power on the app market, end quote. Telegram is the third company after Spotify and Rakuten to formally complain to the EU commission, which is already conducting two investigations into Apple's App Store and Apple Pay, end quote. And sources are telling Reuters that EU antitrust regulators are set to open a full-scale investigation of Googles, $2.1 billion attempted acquisition of Fitbit, quote, Alphabet unit Google this month offered not to use Fitbit's health data to help it target ads in an attempt to address EU antitrust concerns.

The opening of a full-scale investigation suggests that this is not sufficient. The deal announced last November would see Google compete with market leader Apple and Samsung in the fitness tracking and smartwatch market alongside others, including Huawei and Jalmi. The European Commission, which will launch the probe following the end of its preliminary review on August 4th, is expected to make use of the market. the four-month-long investigation to explore in-depth the use of data in health care, one of the people said, end quote. Worth noting that there is a new king of the smartphone hill, a report from Canales, says that Huawei is now the world's top smartphone vendor, having shipped 55.8 million devices in Q2 of this year.

While that was down 5% year-over-year for Huawei, it did allow them to overtake Samsung because Samsung's shipments were down 30% year over year. Samsung only shipped 53.7 million units, and this is all the more eyebrow-raising because remember this. Quote, Huawei is still subject to U.S. government restrictions, which have stifled its business outside of mainland China. Its overseas shipments fell 27% in Q2,

but it has grown to dominate its domestic market, boosting its Chinese shipments by 8% in Q2, and it now sells over 70% of its smartphones in M. mainland China. China has emerged strongest from the coronavirus pandemic with factories reopened, economic development continuing, and tight controls on new outbreaks. This is a remarkable result that few people would have predicted a year ago, said Kanoly's senior analyst Ben Stanton. If it wasn't for COVID-19, it wouldn't have happened. Huawei has taken full advantage of the Chinese economic recovery to reignite its smartphone business. Samsung has a very small presence in China

with less than 1% market share and has seen its core markets such as Brazil, India, the United States, and Europe ravaged by outbreaks and subsequent lockdowns, end quote. Taking first place is very important for Huawei, said Kanois, analyst Mo Gia. Quote, it is desperate to showcase its brand strength to domestic consumers, component suppliers, and developers. It needs to convince them to invest and will broadcast the message of its success far and wide in the coming months. But it will be hard for Huawei to maintain its lead in the long term. Its major channel partners in key regions such as Europe are increasingly wary of ranging Huawei devices, taking on fewer models and bringing in new brands to reduce risk. Strength in China

alone will not be enough to sustain Huawei at the top once the global economy starts to recover, end quote. And let's end today with a sort of grab bag segment that will allow me to give you follow up on two different narratives we've been following. First, remember how it's become clear that Facebook is gunning for TikTok via its soon to launch Reels product. So much so that Instagram has reportedly been trying to poach big name TikTok creators, offering them big dollar figure advances. Yeah, well, TikTok ain't taken that lying down, announcing that they will pay U.S. creators more than $1 billion over the next three years,

which is up from the $200 million that it had previously said it would set aside to fund creators. So yeah, TikTok Gold Rush coming for all you creators out there, quoting digital trends. In addition to celebrate its second anniversary, TikTok has unveiled a separate fund for financing creators in the UK and select European regions. The company claims that in the first year, it will distribute $70 million in funds and expects to raise to a total of at least $300 million within three years. This is likely part of the $2 billion global fund, but we've reached out to TikTok for more clarity. TikTok will share more details on these funds and how creators can apply in the, quote, next few weeks, end quote. TikTok's second anniversary.

That's right. When this podcast launched, TikTok was not even a thing yet, which is a little mind-blowing to realize. But finally, in the details of Comcast's earnings report yesterday, we also got some firm official peacock numbers. 10 million people have signed up for the Peacock streaming service since July, which I think means we can officially call the Peacock launch a success. So as you hear these words, remember basically all of the big tech companies will be reporting their earnings after the bell. If it's just what we expect, i.e., hey, they're just all still raking in the cash, then I'll try not to hammer you over the head with all.

of the earnings numbers tomorrow, because otherwise we'd only basically have room for two segments, the earnings segment and the long read segment. But you never know. Maybe there's a surprise in store today. Again, this podcast is sort of a time machine for me. You, listener in the future, know if there's been a surprise, me speaking in my present, which is your past. I don't know what is already old news in your present, which is my future. Talk to you tomorrow.