Tech Brew Ride Home - Tue. 04/02 - YouTube's Turn In The Woodshed

Episode Date: April 2, 2019

The price of bitcoin soars, but is it for real? Walmart wants to let you shop with your voice, Andreessen Horowitz shakes up VC (again) and a scathing look at YouTube’s algorithm problems. Sponsors: Metalab.co LogiAnalytics.com/ride Links: Bitcoin jumps 20 percent, mystery order seen as catalyst (Reuters) April Fools: Traders Chase Another Unexplainable Bitcoin Rally (Bloomberg) Report: ICOs Raised $118 Million in Q1 2019, Over 58 Times Less Than in Q1 2018 (CoinTelegraph) Walmart Unveils Voice-Activated, Google-Powered Grocery Shopping (Bloomberg) Morning Lineup – “It’s Just a Fad” (Bespoke) Andreessen Horowitz Is Blowing Up The Venture Capital Model (Again) (Forbes) YouTube Executives Ignored Warnings, Letting Toxic Videos Run Rampant (Bloomberg) Support the show! Subscribe to the premium, ad-free feed! 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 Ride Home for Tuesday, April 2nd, 2019. I'm Brian McCullough. Today, the price of Bitcoin soars, but is it for real?

Walmart wants to let you shop with your voice. Andresen Horowitz shakes up VC again and a scathing look at YouTube's algorithm problems. Here's what you missed today in the world of tech. So maybe there was some April foolery of consequence yesterday after all. The price of Bitcoin hit its highest level. in five months yesterday, returning above the $5,000 a coin mark in a frenzy of trading that took place all within the space of about an hour. Bitcoin soared as much as 20% in overnight or during the day trading, at least if you're in Asia. It then settled to around $4,700. But that still put

the cryptocurrency up 15% to make it the biggest one-day gain since April of last year. Ethereum's ether, Ripples XRP, the second and third largest coins by market cap also jumped 10%, but they do tend to move in sympathy with Bitcoin's price fluctuations. Was there any news in crypto that could have sparked this surge? No, there wasn't. And as I said, the trading was frantic, six million trades executed in about an hour, or three or four times, the usual amount of trading. So traders are pointing the finger at some mystery buyer, quoting Reuters. Olivier von Landsberg, Sadi, chief executive of London-based cryptocurrency firm BCB Group, said,

the move was likely triggered by an algorithmic order worth about $100 million spread across major exchanges, U.S.-based Coinbase and Cracken and Luxembourg-based Bit Stamp. Quote, there has been a single order that has been algorithmically managed, across these three venues of around 20,000 BTC, he said. If you look at the volumes on each of these three exchanges, they were in concert, synchronized units of volume around 7,000 BTC in an hour, end quote. But other people are wondering about, as I said, April Fool's shenanigans, quoting from Bloomberg. One theory is that a widely circulated spoof article stating the U.S. Securities and Exchange Commission had approved two Bitcoin exchange traded funds,

drove prices higher, while others said it was caused by unwinding of short positions. Few pointed to any fundamental changes. Bitcoin plunged more than 70% in 2018 and has been moribund in 2019 until earlier on Tuesday, putting the brakes on moves by established financial firms to move into the market. Quote, the bounce is not enough to reset crypto winter, as we have no major new products.

and last year's big breakthroughs are still in their nascent stage, said Julian Osharkorne, London-based chief operating officer at XBTO International, a crypto trading and investment firm. Quote, sure, it was a joke, but it showed that the hope is for inflows and institutional infrastructure, end quote. Some other interesting crypto data that came out recently. According to token data, $118 million was raised via initial coin offerings in Q1 of 20. 2019. Sounds impressive, unless you compare that to Q1 of 2018, when the amount of money raised via ICOs was 6.9 billion. So that would be 58 times less year over year. Quoting Coin Telegraph, the recent report also reveals that of the 2,500 projects that token data tracked since 2017, purportedly only 45% successfully raised money. Furthermore, Wall Street Journal also cites token data as saying that only 15% of tokens issued in successful ICOs are

trading at or above their original price, end quote. Walmart has announced voice-activated grocery shopping via Google Assistant. Walmart customers can order groceries through Google Assistant beginning this month, and the company hopes to expand the service to other platforms in the coming months. Apparently, you'll soon be able to say, and again, I have to be able to be. be gentle with this. Hey, G-O-O-G-L-E, talk to Walmart. And boom, you can then begin ordering stuff customized to you based on your past order history with Walmart. So, for example, say, ordering a gallon of milk, the service would know which brand you usually buy, and if you say prefer 2% versus skim milk. Quoting from Bloomberg, the voice shopping service comes out of a partnership between the two

companies that began in August 2017, one of several alliances Walmart has made in recent years with technology companies including Microsoft, China's JD.com, and Japan's Rakuten. But the Walmart Google pairing hasn't had much to talk about since then, especially after Walmart withdrew from Google's shopping platform earlier this year. For Alphabet Inc's Google, teaming with the world's largest retailer could help its digital home assistant bridge the gap with Amazon's echo device, commonly known as ALEXA, it wouldn't be easy. Amazon controlled 70% of the 66 million smart speaker devices installed in the U.S. as of December, according to Consumer Intelligence Research Partners. Google Home had just 24%. End quote. Speaking of buying and selling things digitally, a bit of a milestone to take note of. It's some real economic data arcana, but for the first time, online sales have surpassed

physical store sales, at least by certain measures. In other words, when it comes to traditional commerce versus e-commerce, clicks have surpassed bricks for the first time on record. Again, this will be a bit arcane and in the weeds. But quoting from the bespoke morning lineup newsletter, which you should click through for the link in the show notes to actually see this borne out in graph form, quote, the days of the internet and online shopping being just a fad have come a long way over the years, but February's retail sales report release Monday highlighted another of many major milestones that the growth of online shopping has reached over the years. In this case, it was the total share of retail sales that non-store retailers account for.

Over the years, this sector has been sucking up share at the expense of just about every other sector, seeing its total share of sales rise from under 5% in the late 1990s to nearly 12% today. In February, non-store retail accounted for 11.813% of total sales, overtaking general merchandise at 11.807% for the fourth largest sector overall. Sure, we had to go out to three decimal places, so the margin of difference is extremely small. but looking at this chart, the trend remains clear. The share of total sales for each sector are clearly going in opposite directions, end quote. Andresen Horowitz is raising a new $2 billion fund, and as it is want to do,

the firm is going to shake up how venture capital is done again. In a radical departure, all of Andresen Horowitz's 150 employees are going to be registered as financial advisors going forward. Why? So the firm can go deeper in deals and take riskier bets on things like crypto. In fact, it was the interest that the firm has in the crypto space that directly led to this reclassification. Quoting from Forbes, last year, the firm raised a $350 million fund in the up and down area of crypto. But until recently, partners Chris Dixon and Katie Juan would meet in private with Horowitz. their fund technically a separate legal entity from the rest of the firm.

That meant they had different email addresses and their own website because of legal constraints on funds that register as traditional VCs. While Andreessen Horowitz was an early investor in Crypto Marketplace Coinbase and was one of many firms to catch the cryptocurrency fever in 2017, it's one of the few that doubled down even after the price of Bitcoin and Ether flatlined. SEC regulations consider such investments high risk and limit these stakes, as well as secondary purchases and fund or token investments to no more than 20% of a traditional VC fund.

So Andriesen Horowitz spent the spring embarking on one of its more disagreeable moves so far. The firm renounced its VC exemptions and registered as a financial advisor with paperwork completed in March. It's a costly, painful move that requires hiring compliance officers, audits for each employee, and a ban on its investors talking up the portfolio or fund performance in public, even on its own podcast. The benefit? The firm's partners can share deals freely again,

with a real estate expert tag-teaming a deal with a crypto expert on, say, a blockchain startup for home buying, Juan says. And it'll come in handy when the firm announces a new growth fund expected to close in the coming weeks, a source says, that will add a fresh $2 to $2.5 billion for its newest partner, David George, to invest across the portfolio, and in other larger high-growth companies. Under the new rules, that fund will be able to buy up shares from founders

and early-stage investors or trade public stocks. Along with a fund announced last year that connects African-American leaders to startups, the new growth fund will give Andresen Horowitz four specialized funds with more potentially to follow, end quote. Actually, the Forbes piece that I just quoted from is quite lengthy and a really interesting in-depth profile of Andreessen Horowitz. to date by Forbes's Alex Conrad. The piece even includes Mark Andreessen's first sit-down interview in over two years. I go on and on about how things like sovereign wealth funds and the SoftBank Vision

Fund have scrambled the chessboard of the traditional very state and, well, traditionalist venture capital industry. But quite simply, Andresen Horowitz pioneered what a modern VC firm looks like they were the first disruption, and lots of other firms have basically adopted the A16Z model of embracing marketing and promotion of itself and providing essentially venture and networking as a service. Quoting again from the piece, while they may be unwilling to credit Andries and Horowitz publicly, other firms have clearly followed suit from bloggers and podcast experts to resident finance officers and security experts, the number of non-investor professionals in the venture industry has swelled in recent years. The idea of providing services, that feels like a table

stakes item now, says Samil Shah, general partner at venture firm Haystack. A lot of firms copied that, end quote. A16Z's first and third funds are already expected to return five times their money to the original investors, and the second and third funds are expected to return three X on the original invested money, which is good for placing A16Z's results in the original. And the second, the top quartile of VC firms. And guess what? You know that wave of unicorns expected to go public this year. Andresen Horowitz has stakes in five of them. Lyft, of course, as we mentioned yesterday, but also Airbnb, PagerDuty, Pinterest, and Slack. Facebook might get all the headlines, but as I've said before, a scandal that should be getting more attention is the atrocity that has been YouTube's

algorithms over the last few years. According to Bloomberg, YouTube execs ignored internal warnings and concerns about the spread of toxic videos on the site. Instead, they focused on, according to Bloomberg, what else? Engagement, which has led to the current quagmire of the rabbit hole of questionable videos that you are suggested after you watch even just one video and then are suggested another and another and another by YouTube algorithms until God knows what you're watching. Quoting from Bloomberg. In recent years, scores of people inside YouTube and Google, its owner, raised concerns about the mass of false, incendiary, and toxic content that the world's largest video site surfaced and spread. One employee wanted to flag troubling videos,

which fell just short of the hate speech rules, and stop recommending them to viewers. Another wanted to track these videos in a spreadsheet to chart their popularity. A third fretful of the spread of alt-right video bloggers created an internal vertical that showed just how popular they were. Each time they got the same basic response, don't rock the boat. The company spent years chasing one business goal above others. Engagement. A measure of the views, time spent, and interactions with online videos. Conversations with over 20 people who work at or recently left YouTube reveal a corporate leadership unable or unwilling to act on these internal alarms for fear of

of throttling engagement. Wojiki would never put her fingers on the scale, said one person who worked for her. Her view was, my job is to run the company, not deal with this. This person, like others who spoke to Bloomberg News, asked not to be identified because of a worry of retaliation, end quote. Wojiki, of course, refers to Susan Wajiki, who is YouTube's CEO. Wichickie declined to talk to Bloomberg about the issue. The piece goes into some depth about YouTube's history. For years, YouTube was unprofitable and known for basically frivolous content.

Indeed, many of us wondered if YouTube could ever be monetized in a meaningfully profitable way. But then, according to Bloomberg's timeline around 2009, Google took tighter control of YouTube and around 2012, the site started recommending videos to watch next. A goal was set to reach a metric of one billion hours of viewing a day. a goal that YouTube hit by October of 2016. More views, more ads that can run alongside the videos, right? Quoting again, in the race to one billion hours, a formula emerged. Outrage equals attention. It's one that people on the political fringes have easily exploited, said Britton Heller,

a fellow at Harvard University's car center. They don't know how the algorithm works, she said, but they do know that the more outrageous the content is, the more views, end quote. People inside YouTube knew about this dynamic. Over the years, there were many tortured debates about what to do with troublesome videos. Those that don't violate its content policies and so remain on the site. Some software engineers have nicknamed the problem bad virality, end quote. The piece describes internal staffers trying to fix the problem only to be met with incredulity by management and suggestions that there wasn't a problem to be fixed.

Then the 2016 election happened, and accusations of filter bubbles started flying, and now we are in the modern era with content controversies, prominent YouTube stars being banned, and questions surrounding content like anti-vaccination videos. And while YouTube has been making some efforts recently to police content in a more active way, the company has been loath to do much previously for reasons that we've discussed previously, quoting from the piece. again. Quote, lawyers verbally advise employees not assigned to handle moderation to avoid searching on their own for questionable videos, like the viral lies about Chief Justice Ginsburg, according to one former executive upset by the practice. The person said the directive was never put in writing, but the message was clear. If YouTube knew these videos existed, its legal grounding grew thinner. Federal law shields YouTube and other tech giants from liability for the content on their sites, yet the companies risk losing the protection of this law if they take too active in

editorial role, end quote. That's all for today. I've been your host, Brian McCullough. Follow me on Twitter at Brian MCC. Our show's subreddit is at R slash ride home, where you can tip stories at me. If you feel like supporting the show directly and saving some time while you do it, you can subscribe to the ad-free version of the show directly from your podcast app by tapping the link at the very bottom of the show notes. Talk to you tomorrow.