Tech Brew Ride Home - Thu. 8/23 - The Backlash Against the “App Store Tax”

Episode Date: August 23, 2018

Australia bans Chinese telecoms equipment, Microsoft might offer an Xbox subscription that includes the whole console, new DJI drones, Alex Stamos on hacking the 2018 election and the backlash against the “app store tax.” Links:Australia Bars China’s Huawei From Building 5G Wireless Network (NYTimes)'Xbox All Access' looks like a new subscription service with Xbox Live, Game Pass, and a console (Windows Central)DJI Mavic 2 Pro, Mavic 2 Zoom add Hasselblad quality and optical zoom to folding drones (CNET)How the U.S. Has Failed to Protect the 2018 Election--and Four Ways to Protect 2020 (Lawfare)Apple and Google Face Growing Revolt Over App Store ‘Tax’ (Bloomberg)The 30% Tax (Fred Wilson/AVC) 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 Thursday, August 23, 2018. I'm Brian McCullough. Today, Australia bans Chinese telecoms equipment. Microsoft might offer an Xbox subscription that includes the whole console.

New DJI drones are released. Alex Stamos writes about hacking the 2018 election and the backlash against the App Store tax. Here's what you miss today in the world of tech. It turns out it's not just the Trump administration that fears allowing foreign tech companies to produce hardware and software infrastructure for modern telecommunications networks could be a national security threat. Australia has apparently banned Huawei and ZTE from providing 5G equipment to build out that country's new telecom networks, citing risks of foreign interference and hacking. Quote, in a statement on Thursday, two Australian ministers indicated that the government would move to exclude certain equipment vendors from the nation's 5G networks. Companies that, quote, are likely to be subject to extrajudicial directions from a foreign government, end quote, pose unacceptable security risks, the ministers said. Neither Huawei nor ZTE were specifically named in the Australian statement, but the two companies' ties to Beijing have long been seen.

cited by United States officials to justify keeping them out of American mobile networks, end quote. On Twitter, Huawei, Australia posted the following, quote, We have been informed by the government that Huawei and ZTE have been banned from providing 5G technology to Australia. This is an extremely disappointing result for consumers. Huawei is a world leader in 5G, has safely and securely delivered wireless technology in Australia for close to 15 years. If you're old enough to remember renting an entire NES system from Blockbuster for a long weekend, this news will make you feel all warm and nostalgic. Sources have told Windows Central that Microsoft is set later this month to unveil what is likely to be called Xbox All Access,

a contract-based U.S. monthly subscription product that will include access to Xbox Live, Xbox Game Pass, and an entire Xbox One console. The subscription would cost around $22 per month with the included Xbox 1S, and for $35 per month you could get yourself an Xbox 1X. Quote, paying up front an Xbox 1S costs around $230 on the Microsoft Store with a free game. Xbox Live currently costs $5999 on the Microsoft Store for a year, with Xbox GamePass costing $999 per month. You can often get Xbox Live cards cheaper through Amazon or other associated deals, but at the retail price, Xbox All Access should work out a little cheaper over time than paying for all of these services outright.

After the two-year contract period has been fully paid, users will own their consoles as expected. If accurate, Xbox All Access will debut for U.S. customers in the near future through the Microsoft Store and possibly other retailers. It could be the easiest, cheapest way yet to access the Xbox One family, spreading the cost out over two years, while also guaranteeing developers a boost in long-term Xbox GamePass subscriptions, guaranteeing a larger player base on the service, end quote. Man, people are so in love with subscriptions as a business model,

they're willing to turn basically anything into a subscription at this point. DJI this morning officially launched the 14,000, $1,449, Mavik 2 Pro drone, which comes with an embedded Hasselblad camera, as well as the $1,249 Mavik2 Zoom, which features two times optical zoom. Both are available for order today. Quote, the $149 Pro is the world's first drone with an integrated Hasselblad camera, known for its high-end medium-format cameras. Haslblad co-engineered the pro's shooter, which uses a large 20-machixel 1-inch sensor, like the one in DJI's Phantom 4 Pro. Hasselblad helped with lens definition, image optimization, and processing as well as

implementing its natural color selection for JPEG and raw images for more accurate color details. DJI's 10-bit D-Log as well as hybrid log gamma for high dynamic range 4K video is also part of the feature set. The $1,249 Mavik2 zoom features a smaller 12 megapixel sensor, which is the size typically found in consumer camera drones. What's different is the 24 to 48 millimeter optical zoom lens, which DJI says makes it the world's first foldable consumer drone with optical zoom capability. Add to that a two-time digital zoom that's lossless when recording video at 1080P, and you can go from 49 millimeters to 96 millimeters. or a 35 millimeter equivalent. It does shoot 4K video 2 at 30 frames per second with a bit rate of 100 megabits per second, end quote. Both drones have 8 gigabytes of onboard storage, but of course you can top that up with a micro SD card.

Top speed for these bad boys is 44 miles per hour and you can get flight time of up to 31 minutes. Both drones also feature a new shooting mode that can capture what are known as hyperlapses, sped-up time-lapse videos. Remember Alex Stamos, Facebook's chief security officer, through the teeth of the Cambridge Analytica scandal and the 2016 election shenanigans. Stamos recently left Facebook, of course, as we've discussed at length previously,

and is now an adjunct professor at Stanford University's Freeman Spogley Institute of Public Policy. Well, as his first public act as a private state, citizen, as it were. Stamos yesterday wrote a piece for the Lawfare blog, and the headline of the piece pretty much sums it up. It's too late to protect the 2018 elections, but here's how the U.S. can prepare for 2020. Stamos is pessimistic that foreign actors working to sway elections in democracies will slow down their efforts anytime soon for the simple reason that it's a method that seems to have been proven to work, and the impacted governments have responded in Stamos's

words, weekly. Quote, stymied by a lack of shared understanding of what happened, the government's sclerotic response has left the United States profoundly vulnerable to future attacks. As a security leader in my former role at Facebook, my personal responsibility for the failures of 2016 continue to weigh on me, and I hope that I can help elucidate and amplify some hard-learned lessons so that the same mistakes will not be made again and again, end quote. Stamos specifically called out the Obama administration for responding weekly when presented with the first evidence of foreign-based attacks targeting elections, and the Republican administration, according to Stamos, has followed up by, in his words, quote, helping a hostile

foreign power cover up attacks against their domestic opposition. quote, Republican efforts to downplay Russia's role constitute a dangerous gamble. It is highly unlikely that future election meddling will continue to have such an unbalanced and positive impact for the GOP. The Russians are currently the United States's most visible information warfare adversaries, but they are not alone. Their proven playbook is now in the wild for anyone to use. Recent history has shown that once a large, powerful nation-state actor demonstrates the effectiveness of a technique, many other groups rush to build cheaper, often more nimble versions of the same capability, end quote. It would seem we saw evidence of that yesterday with that news that Iranian agents were attempting something similar surrounding public opinion concerning sanctions against the government in Tehran, something that is a priority of the Trump administration.

There are many other U.S. adversaries with well-developed cyber warfare capabilities such as China or North Korea that could decide to, push candidates and positions amenable to them, including those supported by Democrats and opposed by Republicans. There are also domestic groups that could utilize the same techniques, as many kinds of manipulation might not be illegal if deployed by Americans, and friendly countries might not sit idly by as their adversaries work to choose an amenable U.S. government. In short, if the United States continues down this path, it risks allowing its elections to become the World Cup of Information Warfare in which U.S. adversaries and allies battle to impose their various interests on the American electorate, end quote. Stamos concludes by arguing for technical standardization

of advertising archives and setting of guidelines for the use of massive voter databases by campaigns and political parties. Also for democracies to coordinate their security responses around elections, for immediate and transparent disclosure of attacks so voters can know as soon as possible how they've been manipulated and by whom, and for all 50 states to enact regulations to set strong standards for verifiable voting. In other words, an old-fashioned paper trail. With the recent news that Netflix is testing an end run around the app store, tax as it were, with even a standalone game like Fortnite, choosing to forego the, Google Play Store because it doesn't want to cough up 30%.

There has been a lot of chatter about app stores and this infamous 70-30 revenue split. Is it sustainable? Traditionally, commissions for things like agents or brokers have always been in the neighborhood of 15%. Payment processing fees typically max out at 5%. Even credit card companies usually charge only in the neighborhood of 3% to collect money for you. So in the grand scheme of things, 30% is something of an outlier. And also, I mean, 30% of your sales right off the top, that's meaningfully significant. Actually, I've never heard how or why exactly Apple settled on that 30% number when they started the App Store back in the day.

If anybody knows the backstory on that, please feel free to get in touch with me. My email address can be found on the Internet History Podcast website or get in touch over Twitter. Anyway, people have long speculated as to whether or not that 30% revenue share number can hold. Obviously, for smaller players, it's all about distribution. You go where the people are, so 30% can be a reasonable cost of doing business. Apple and Google and other app stores already have people's credit card numbers. They make it easy to install things, easy to manage programs. But bigger players can obviously run the numbers and be like,

for just a little more friction, we could retain half of that 30% we're losing, maybe more? Surely, lots of people have been thinking about doing end runs around the app stores for a long time now, as Ben Thompson writes, quote, the thing about blatant rent-taking, which is exactly what Apple and Google's 30% tax is, is that it spurs a tremendous amount of activity to work around it. That this activity has already begun, at least with the big players, should cast at least the faintest shadow on the services narrative, end quote. He's referring to Apple talking up their services revenue over the last few quarters or so.

Bloomberg has a piece up about what it calls the growing backlash against the App Store tax. Quote, it feels like something bubbling up here, said Ben Shachter, an analyst at Macquarie. The dollars are just getting so big. They just don't want to be paying Apple and Google billions. end quote. So in the Bloomberg piece, they talk about a recent report authored by this Ben Shachter, and there are some interesting numbers in there. Quote, if App Store commissions fell to a blended rate of 5% to 15%, that would knock up to 21% off of Apple's earnings before interest in tax by fiscal 2020. Macquarie estimated. Google could lose up to 20% by the same measure, according to the

brokerage firm. The technology giants are expected to earn more than $50 billion each before interest and tax in 2020, according to analyst forecast data compiled by Bloomberg. This is particularly worrying for Apple investors who are expecting the App Store to support the growth of the company's services business. Apple often highlights the financial success of its App Store on conference calls with analysts. Alphabet's Google is susceptible given its legal problems. A recent European Union antitrust ruling requires the to stop automatically installing its app store on Android phones in Europe." End quote.

And your friendly neighborhood VC, Fred Wilson, chimed in on his blog to make a super interesting point. Maybe this isn't so much about rent avoidance so much as it might be an inevitable evolution in the universe of subscriptions that we're all hurtling headlong towards. Quoting Fred at length. Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account, which you pay for directly on the web outside of the app stores, or imagine if Amazon offered something similar.

The economics of that relationship for a smaller company could be more attractive than the economics of the current Apple and Google channels, and most companies would likely participate in multiple channels, including the app stores as well as Sell Direct. It seems inevitable that subscription bundling is going to happen. It already does via the Apple and Google App Stores, but that's a crude version of what I'm thinking is on the horizon. Consumers have demonstrated a willingness to pay for the apps and content they value most. The subscription business model is a terrific one that aligns the interests of a company and its customers.

But managing dozens of subscriptions via multiple payment systems is annoying, and there should be attractive economics for both bundlers and bundled apps. So while I'm not predicting the end of the 30% tax anytime soon, I do think we will see Apple and Google's largest competitors build significant bypass user bases and potentially start competing with Apple and Google in the subscription bundling business. There is a lot of money up for grabs, and I think at least some of it is available for companies

other than Apple and Google, end quote. Thanks for listening to the TechMeme Ride Home podcast. That's all for today. I've been your host, as always, Brian McCullough. Follow me on Twitter at Brian MCC. Get the latest tech news headlines anytime day or night at techmeme.com. Talk to you tomorrow.