Tech Brew Ride Home - Thu. 12/10 – The Big Facebook Antitrust Cases, Explained

Episode Date: December 10, 2020

I try to give you the outlines of the Facebook antitrust thing, and what it might mean for tech. Airbnb makes its market debut. Crunchyroll finds a safe home away from AT&T. I bet folks at HBO are jealous. Boston Dynamics finds a new guardian as well, that hopefully can find something useful for it to do. And it really is, finally, the end of the road for Flash. Sponsors: Amazon.com/ridehome Tinycapital.com Links: The FTC is suing Facebook to unwind its acquisitions of Instagram and WhatsApp (The Verge) Lawsuits Filed by the FTC and the State Attorneys General Are Revisionist History (Facebook Newsroom) Airbnb shares set to double in IPO — likely to be worth nearly $93 billion (CNBC) Sony’s Funimation acquires anime streaming service Crunchyroll for $1.175 billion (Polygon) Hyundai Motors Reportedly Bought Boston Dynamics For Almost $1 Billion (Gizmodo) Adobe to block Flash content from running on January 12, 2021 (ZDNet) Subscribe to the Kottke Ride Home 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, December 10th, 2020. I'm Brian McCullough today. I try to give you the outlines of the whole Facebook antitrust thing and what I think it means for tech. Airbnb makes its market debut. Crunchyroll finds a safe home away from AT&T. I bet the folks at HBO are jealous. Boston Dynamics finds a new home as well that hopefully can find something useful for it to do. And it is really finally the end of the road for Flash. Here's what you missed today in the world of tech. Well, it did happen.

The FTC in coalition with 46 state attorneys general, plus Guam and the District of Columbia, have sued Facebook alleging the Instagram and WhatsApp acquisitions were used to stifle competition in the marketplace. I'm going to point out that the FTC suit and the state's suit are two different cases. These are not combined, which I think could be important because, number one, Facebook could argue that The FTC is being disingenuous since it already signed off on these acquisitions years ago, so they can be like, you know, no take backsees on this. Whereas the state's never signed off on anything so they can claim harm more directly. And second, the FTC's lawsuit, at least to my reading, is more, you know, throw everything

and the kitchen sink in there. People are reading everything they want to into it. Consumers have seen their privacy harmed. Advertisers have choice limited. The marketplace has been distorted. whereas I think the state's case is more directly about the marketplace being distorted. Conversely, though, the FTC's suit explicitly seeks to unwind the Instagram and WhatsApp acquisitions to make those spun out as independent companies, whereas the state's cases, in my opinion,

more vague about what they're looking for in terms of redress. But I'm not a lawyer, so feel free to correct those takes, but quoting The Verge. For nearly a decade, Facebook has used its dominance and monopoly power to crush. smaller rivals and snuff out competition, New York State Attorney General Letitia James said in a press conference today. James is leading the group of attorneys general, quote, Facebook used vast amounts of money to acquire potential rivals before they could threaten the company's dominance, end quote. The Federal Trade Commission brought a separate lawsuit against Facebook on similar grounds, announced at the same time as the state's lawsuit. The FTC case goes further than the state case,

explicitly calling on the court to unwind the acquisitions of Instagram and WhatsApp, spinning off both into independent companies. Quote, our aim is to roll back Facebook's anti-competitive conduct and restore competition so that innovation and free competition can thrive, said Ian Conner, director of the FTC's Bureau of Competition in a statement. The FTC case also echoes the state attorney general's claim about anti-competitive use of platform power, particularly Facebook's practice of, quote, cutting off API access to blunt perceived competitive threats, end quote.

The FTC case cites Facebook's decision to block Vine's friend finding feature after the Twitter acquisition as a particularly flagrant instance of this behavior, end quote. Facebook, of course, had a response to the lawsuit saying they are revisionist history and that this whole case is unprecedented. Jennifer Neustead, Facebook's general counsel, wrote, quote, The Federal Trade Commission and State Attorneys General Today attacked two acquisitions that we made. Instagram in 2012 and WhatsApp in 2014. These transactions were intended to provide better products for the people who use them,

and they unquestionably did. Both of these acquisitions were reviewed by relevant antitrust regulators at the time. The FTC conducted an in-depth second request of the Instagram transaction in 2012 before voting unanimously to clear it. The European Commission reviewed the WhatsApp transaction in 2014 and found no risk of harm to competition in any potential market. Regulators correctly allowed these deals to move forward because they did not threaten competition. Now, many years later, with seemingly no regard for settled law or

the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over. In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work. No American antitrust enforcer has ever brought a case like this before and for good reason. The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today. And notably two FTC commissioners voted against the action that the FTC has taken today. Now the agency has announced that no sale will ever be final, no matter the resulting harm to consumers or the chilling effect on innovation. When we acquired Instagram and WhatsApp, we believe these companies would be a great benefit to our Facebook users and that we could help transform them into something even better.

And we did. This lawsuit risks sowing doubt and uncertainty about the U.S. government's own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process, end quote. So here are two takes from folks that are smarter than I. First, Ben Thompson, quote, the FTC's case at its core is that Facebook was acting anti-competitively when it acquired Instagram and WhatsApp. The lawsuit also alleges that Facebook was acting anti-competitively when it selectively denied access to its platform API based on whether or not a third-party app was determined to be a competitor. For now, I am focusing on the Instagram and WhatsApp acquisition. The lawsuit seems to have a clear smoking gun, incredibly incriminating emails from multiple Facebook executives, including Zuckerberg, end quote.

He goes on to quote that email exchange we've quoted before, wherein Zuckerberg and a lieutenant talk about how buying Instagram buys them time before features like Instagram reach scale. Then he emails back a while later to be like, of course I'm not saying we're taking them out because they're a competitor. Ha ha, JK, JK. Quoting Thompson again. Now the FTC can see that yes, Instagram would have an advertising business that would compete with Facebook. On the other hand, Facebook built said business. So is the problem that the company did a good job. The first challenge facing the FTC will be showing that what Instagram became was inevitable with or without Facebook. I think it was, but I'm not sure if a court will agree.

I do have serious rule of law reservations about undoing a deal eight years on, particularly given the fact that it appears that the advertising-supported space is doing better than I thought a few years ago. Snapchat in particular is building a great business. LinkedIn is doing much better and TikTok is obviously on its way. Honestly, I wonder to what extent Twitter's endemic poor management has made the advertising space seem worse than it actually was, end quote. Yeah, Facebook is definitely going to try to claim the high ground by defining the market that they think they're in. here's Casey Newton in his newsletter this morning. Quote, I think the government's case has a hard road ahead of it. As I wrote this month, the lawsuit would have felt much more vital two or three years ago. In the time it took the government to

flesh out these arguments, many of which have been made in some form since at least 2014, TikTok was born and acquired 800 million users around the world. Now the government argues that apps like TikTok aren't relevant to the market. Quote, personal social networking is distinct from and not reasonably interchangeable with online video or audio consumption, focused services such as YouTube, Spotify, Netflix, and Hulu it writes, though TikTok itself is never mentioned. I expect the lawsuit that follows will be a years-long affair. Mark Zuckerberg said as much in a note to employees Wednesday. In the end, I think the government will likely fail in its attempt

to break Facebook up, but I think it will succeed in preventing Facebook from making anti-competitive mergers in the future, and that the ongoing rise of TikTok and whatever comes after TikTok, will begin to restore balance to sectors of the economy that Facebook dominated for the next decade, end quote. Yes, if anything, that would be the point I would make, if you really want my two cents. The entire tech ecosystem, as we know it today, with all of these big platforms, I would argue it is where it is today because Microsoft, 20 years ago, was hobbled with antitrust issues. You don't think Microsoft wanted to buy Amazon from day one. You don't think they would, have done so for sure in like 2002 or 2003 after the bubble burst when Amazon was briefly a $5

stock. We know Microsoft wanted to kill Google forever. Facebook itself, heck, all of social media, I would argue, was able to flower and grow to prominence and dominance because there briefly was this decade or so period of time where there wasn't an 800-pound gorilla in the tech space to kneecap anybody, as I always talk about. I'd remind you, Microsoft lost their antitrust case. But they were never actually broken up, even though that was the government's original and favored remedy. Nonetheless, those years that they spent fighting the government, took their eye off the ball in a way, led to a decade or more in the wilderness as a virtual irrelevancy in the tech world, as we know it today. And during that time, the tech world,

as we know it today, came to maturity. At the very least, we can be certain that Facebook won't be able to kneecap any major up-and-comers with acquisitions for a while. And they, they, too might take their eye off the ball while they're distracted like the eye of Sauron looking towards Gondor. It is possible that a whole new generation of tech companies, tech products, tech trends can flower. So even if Facebook wins its case ultimately and is never broken up, the truth is the reality on the ground in the tech industry is now very, very different merely because this case exists. Today is Airbnb's IPO day and I've been waiting all morning for them to actually hit the tape so we could learn if they were going to get a pop similar to

what DoorDash saw yesterday, but they've made me wait. So I'm going to go with what I know now. They priced at $68 a share last night, so cresting the wave, as we've been saying, since the previous range, was $56 to $60 a share. At those numbers, the company added $3.5 billion to its coffers, giving it a fully diluted valuation of $47.3 billion. Again, a big win, for all investors, even those that build Airbnb out at the beginning of the pandemic for less than a $20 billion valuation. As for the potential of a pop, as of noon, there was this, quoting CNBC. Shares were priced at $68 a share on Wednesday and are now expected to reach about $155.50 when the stock starts trading, according to early indications ahead of the first trade.

Airbnb will trade under the ticker ABNB on the NASDAQ. The stock is expected to begin trading around 1.30 p.m. Eastern Time, a well-placed source told CNBC's Leslie Picker. Speculation that it would join one of the major indexes in the next couple years seems to be driving interest, the source said, end quote. Weird day for acquisition news. AT&T has agreed to sell Japanese anime streaming service Crunchyroll to Sony's Funimation Global Group for $1.18 billion. This is not a space I'm super familiar with, but it seems like good news to a lot of people because a lot of people were worried about the future of Crunchyroll in AT&T's hands, since what does AT&T know or care about anime? What do they know about entertainment in general? Something, something, Warner Media,

quoting Polygon. At first glance, Sony's acquisition of Crunchyroll from AT&T might put them in a better position to compete with Netflix, but the move actually grows their influence over Japan's anime industry by adding Crunchyroll's 70 million free members and 3 million pay. subscribers to their portfolio of anime streaming and production companies, the company intends to reap the rewards of anime's growth overseas, which in both 2017 and 2018, grew to nearly half of the industries, about $19 billion in total revenue. Although Sony's move into anime streaming might seem sudden, the company has been involved in anime production for decades. In 1995, Sony Music Entertainment Japan established Aniplex, a subsidiary created for managing anime and music

productions. In 2005, AniPlex started its own animation studios, A1 Pictures, which would go on to animate shows like the Kaguyaama Love Is War and Sword Art Online, end quote. And Hyundai Motor Group has agreed to purchase Boston Dynamics, the maker of that spot quadruped terminator, I mean robot, from Softbank for around $921 million. I say this one is weird, too, because Boston Dynamics has been all over the place. Google X bought them, and then Alphabet sold them on to SoftBank, and every time the transactions happened, it was always for an undisclosed sum that we, nonetheless always assumed had to have been in the billion or at least hundreds of millions of dollars range. Everyone has always seemed to be excited about what Boston Dynamics does. Everyone always seems to see value in what they do,

but no one seems to know what to do with what they do, quoting Gizmodo. Boston Dynamics is World renowned for developing some of the most advanced and capable robots the industry has ever seen, but outside of research applications such as providing humanoid bots for the DARPA Robotics Challenge finals back in 2015, its owners haven't done much to parlay the company's creations into more than just unsettling hardware demos. Unlike Google, SoftBank was able to turn at least one of Boston Dynamics' creations into a commercially available product when its spot quadruped robot officially went on sale in June earlier this year with applications such as performing inspections in places where it's not easy or safe for humans to tread.

According to the robot report, over 400 of the $74,000 spot explorer development kits were sold around the world generating over $30 million in revenue for SoftBank. Over the past couple of years, Hyundai has been investing more and more in its robotics pursuits as well as autonomous vehicles, including a joint venture with Aptive, but it remains to be seen what the company's plans are for Boston Dynamics. Could Atlas be fitted with one of those fancy valet vests turning any vehicle into an autonomous car? Let's hope so, end quote. Finally today, it is, as I say, the end of the road for Flash.

Adobe has released its final scheduled Flash player update for all regions outside of mainland China and says it will block flash content beginning on January 12, quoting ZDNet. A new update brings an actual date to Flash. actual demise in the form of January 12, 2021, the date after which any type of flash content won't run inside the Flash app. Skipping this last Flash update won't remove this time bomb, however. Adobe told ZDNet that the KillSwitch Code was added months before in previous releases and that this last Flash update only modifies the language used in the prompt that will ask users to uninstall the app. While once an unthinkable thought, currently the Flash end of

life is expected to have minimum impact on the web ecosystem, where according to Web Technology Survey site W3 Techs, only 2.3% of today's websites utilize Flash code, a number that is plummeted from a 28.5% market share it had at the start of 2011. Besides deprecating Flash in its browsers, Microsoft has also released an optional Windows update last month, which, once applied, will remove all traces of Flash player at the entire OS level. Despite being marred by criticism for all of its security bugs, Flash player played a crucial role in the history of the entire internet, helping usher in and popularize interactive content like web animations, multimedia players, and streaming technologies, all of which were first supported by Flash

before being ported to CSS, JavaScript, and HTML 5, end quote. Hey, I haven't mentioned this in a while, but remember, we have a sister podcast called the Kotki Ride Home. If you've never given that a listen, it's a hell of a a great compliment to this show because it's a daily. It's only 15 minutes long, and it talks about all the cool science and art and, like, culture stuff that happens every day. I always joke we should probably name it the cool shit right home, but we ended up partnering with Jason Kotke, which is also cool shit. Every day, Jackson Bird knocks it out of the park on that show, but he's been on fire lately. Like, on Tuesday's show, he talked about how not only have we gotten the COVID-19

vaccine in record time, but also how that might point the way to us being able to gin up vaccines for the next pandemic in as little as eight weeks. In fact, did you know that we technically had this vaccine all the way back in January? And we could pre-test and pre-produce vaccines for like 90% of the potential viral threats out there if we just spent the money. But also he's been doing stuff on competitive Tetris athletes, China's recent moon landing, and he's been all over that whole monolith story this fall. Anyway, if you've never checked it out before, I recommend you do so. It's the cocky ride home, K-O-T-T-K-E ride home. Just search Ride Home in your podcast app and you'll find it. Talk to you tomorrow.