Tech Brew Ride Home - Wed. 01/25 – Is This Latest Suit The Biggest Threat To Google

Episode Date: January 25, 2023

I’m gonna tell you why I think the latest antitrust suit against Google might be the most important one in terms of the overall tech ecosystem. And maybe the biggest threat Google is facing. Twitter reverses another thing they shouldn’t have broken in the first place. Why aren’t folks paying ransomware ransom as much anymore? And why are consumers not keeping their smart clothes dryers connected? Sponsors: Upside App and use promocode ridehome How To Fix The Internet podcast eff.org/podcast Links: US Sues Google to Break Up Ad Unit in Heated Antitrust Fight (Bloomberg) DOJ's new suit puts Google's ad business at risk (Axios) Google's most serious antitrust challenge to date (Platformer) Microsoft Cloud Strength Drives Second Quarter Results (Microsoft Investor Relations) Twitter for web will now stay on your preferred timeline (The Verge) Riot Games receives ‘ransom email’ for stolen source code following social engineering attack (The Record) Ransomware Revenue Down As More Victims Refuse to Pay (Chainalysis) LG, Whirlpool Target Customers Disconnected From ‘Smart’ Appliances (WSJ) After inking its OpenAI deal, Shutterstock rolls out a generative AI toolkit to create images based on text prompts (TechCrunch) 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 right home for Wednesday, January 25th, 20203. I'm Brian McCullough today. I'm going to tell you why I think the latest antitrust suit against Google might be the most important one in terms of the overall tech ecosystem. Also, maybe the biggest threat Google is facing right now. Twitter reverses another thing they shouldn't have broken in the first place. Why aren't folks paying ransomware ransom as much anymore? And why are consumers not keeping their smart clothes dryers connected? Here's what you miss today in the world of tech. Department of Justice has indeed sued Google calling for the breakup of its ad tech business that allegedly monopolizes the U.S. ad market. They were joined by California and seven other

U.S. states with the suit, quoting Bloomberg. Google's pervasive power over the entire ad tech industry has been questioned by its own digital advertising executives, according to the complaint. The analogy would be if Goldman or Citibank own the NYSE, end quote. Issues raised in the suit include the 2007 acquisition of online advertising giant double-click for $3.1 billion, which the Justice Department is now seeking to unwind, the 2010 deal to buy invite media for $81 million, and the 2011 purchase of ad meld for $400 million. The Justice Department's complaint also seeks damages from Google for allegedly overcharging federal government agencies, such as the U.S. Army that purchased online ads. The agency said the U.S. government has spent more than $100 million

on online display advertising since 2019, but the complaint didn't indicate how much the Justice Department is seeking to recoup, end quote. Now, again, this is basically just me telling you the news that I prepped you for yesterday, but I wanted to spend some extra time on this, not only because I think this is one of the more serious suits Google has faced till now, but also because any structural remedies, as just discussed, would have a major impact on the entire tech ecosystem when it comes to advertising, quoting Axios. The part of Google's ad machine that DOJ wants to see spun out involves the company's network ad business, which sells ads on others' inventory. That category accounts for roughly 12% of parent company

alphabet's overall revenue. Having to spin out key pieces of the company's ad tech structure would be difficult and would certainly hurt revenue and growth potential, but it doesn't constitute breaking up Google, as some have described the government's goal. Google acquired ad tech Pioneer Double-Click in 2007 for $3.1 billion, and over the years, DoubleClick's services became Google Ad Manager, which is what the government now wants Google to divest. The suit seeks to make Google sell off its ad manager suite. It also seeks unspecified monetary damages and an injunction preventing Google from continuing to engage in the alleged anti-competitive practices, end quote. In other words, this suit doesn't want to break up Google search or even

Google paid search, but what would happen to the overall digital landscape if there's there was suddenly a newly independent entity that managed that huge chunk of the ad marketplace and delivery ecosystem that we all now have to play in. In his platformer newsletter, Casey Newton this morning said that the DOJ's case against Google could actually succeed due to being rooted in real harms and a prime example of market consolidation resulting in overcharged customers. The government says that the fees on Google's ad exchanges allow it to keep third 30 cents out of every dollar spent on them, a significant tax on struggling digital publishers.

As a result, the government says it was overcharged for $100 million in spending on online ads for federal agencies, including the Army. These are harms that are very much in line with traditional thinking about the point of antitrust law, which is to protect consumers. Since 2017, some progressives have argued for a more expansive understanding of competition law that takes into account worker wages, unemployment, and other social issues. Lena Khan, who now leads the Federal Trade Commission was an early advocate for this school of thought, which is semi-derisively known as hipster antitrust. I mention all that because the lawsuit filed against Google by the government today is not that kind of case. This is not a bunch of liberals sitting around trying to

redefine antitrust law around some unrelated beef about Google. This is a bunch of Democratic appointees building on the work of their Republican predecessors, arguing that a market got too consolidated, prices went up, and users were harmed. Of course, the case will drag on for years, and the ad industry will continue to evolve, and whatever relief consumers and publishers may experience, if the government wins remains an open question. It would have been far preferable to me had Congress, which spent the last half decade debating what to do about tech giants in an endless series of theatrical hearings, passed new laws regulating the terms on which companies like Google could compete. But they didn't, and so we live in a world where publishers are paying 30% of their revenue to Google for every ad served.

You don't have to be a progressive firebrand to wonder what sort of web we might have and what kind of digital publishing world might be sustainable in a world where they got to keep 80 or even 90% of the money they took in. I hope we find out. The government has filed its share of weak antitrust cases in recent years, but at first blush, this doesn't look to be one of them. Google has managed to swat away other regulators for years now with relative ease, but with the Justice Department now trained on its ad business, the company may be facing its most serious challenge yet, end quote. Quick note that Microsoft reported Q2 revenue yesterday, up 2% year-over-year, net income down 12% year-over-year. Dynamics, 365 revenue was up 21% year-over-year,

and LinkedIn revenue was up 10%. All-important cloud revenue grew 22% year-over-year to $27.1 billion, including intelligent cloud being up 18%, which was driven largely by Azure and other cloud services, up 31% year-over-year. Also, gaming continues to be in the doldrums post-pandemic. Devices revenue was down 39% Xbox hardware revenue down 13%, Xbox content and services revenue down 12% and Windows OEM revenue down 39%, which is again a post-pandemic thing. Everyone bought new laptops and stuff to work from home a few years ago, and there's not been enough time yet for an upgrade cycle to kick in. Remember when I told you that Twitter for Web was going to default to the algorithmic feed instead of who you follow? And remember how I said that old Twitter had tried this

time and time again, only to find that people hated it and then had to reverse course. Well, Twitter for Web no longer defaults to the algorithmic feed, and now remembers which timeline the user had opened last and serves that up. A similar update is coming to iOS and Android soon, quoting the verge. The update brings back functionality that existed before the tab UI was introduced. There used to be a button that let you choose which version of the timeline you wanted to see if you're the type of person who occasionally pops over to for you from following or vice versa. The new version with the ability to remember which tab you left off on should make that easier. This change probably won't do much to appease users who would rather just

set it and forget it, though, end quote. Quoting Matt Navarra on Twitter, Twitter has reversed the decision again to make the algorithmic for you tab default, yet another Elon Musk U-turn. Twitter had already come to the same conclusion years ago, end quote. Possible trend alert for you. Remember when Riot Games had to admit that hackers had exfiltrated source code for League of Legends, team flight tactics, and what they called a legacy anti-cheat platform. I think it was last week. Well, guess what? They're not going to pay the ransom, quoting the record. Riot Games, the video game developer and e-sports organizer said on Tuesday that it had received a ransom email following a social engineering attack last week. Needless to say, we won't pay.

The company's official Twitter account announced both its internal security teams and a, quote, globally recognized external consultant are evaluating the attack and auditing rioting systems, the company said, adding that it had notified law enforcement and was, quote, in active cooperation with them as they investigate the attack and the group behind it, end quote. Now, I'm noting this because chain analysis recently suggested this is something of a thing now. Chain analysis says that ransomware attackers received at least $456 million in 2022 in terms of ransom, but that would be down 40% from the 765 million. in ransom paid in 2021 and 765 million paid in 2020. Victims of ransomware are increasingly

refusing to pay up. Quote, the trend is highly encouraging. Since 2019, victim payment rates have fallen from 76% to just 41%. But what exactly accounts for this shift? One big factor is that paying ransoms has become legally riskier, especially following an OFAC advisory in September 2021, on the potential for sanctions violations when paying ransoms. With the threat of sanctions looming, there's the added threat of legal consequences for paying ransomware attackers, said recorded future intelligence analysts and ransomware expert Alan Liska. Ransomware expert Bill Siegel agreed, telling us that his firm refuses to pay ransoms if there's even a hint of connection to a sanctioned entity. Another big factor is the outlook of cyber insurance firms who are usually the

ones reimbursing victims for ransomware payments. Quote, cyber insurance has really taken the lead, in tightening not only who they will insure, but also what insurance payments can be used for, so they are much less likely to allow their clients to use an insurance payout to pay a ransom, said Liska. Michael Phillips, Chief Claims Officer of Cyber Insurance Firm Resilience, echoed this sentiment in his remarks to us, quote, Today, companies have to meet stringent cybersecurity and backup measures to be insured for ransomware coverage. These requirements have proven to actively help companies bounce back from attacks rather than pay ransom demands. An increased focus on underwriting against

factors that contribute to ransomware has led to lower incident costs for companies and contributed to a decreasing trend in extortion payments, end quote. Another possible trend to take note of Whirlpool and LG, say only around 50% of their smart appliances, remain internet connected after purchase, hindering their efforts to sell parts and subscriptions. Quoting the Wall Street Journal. Amid pressure from weaker demand and rising materials costs, internet-connected appliances, including dishwashers and ovens that linked to a customer's home Wi-Fi network, could help manufacturers such as LG and Whirlpool recast what has traditionally been a one-time purchase business model into ongoing relationships with customers. Internet-connected appliances provide

manufacturers with data and insights about how customers are using their products, allowing them to sell relevant replacement parts or subscription services. They also enable manufacturers to send over the air updates that enhance the functionality of appliances. We want to continue to leverage the technology in the product, said Whirlpool Chief Information Officer Danny Brown. Development of these smart devices is a core priority for Whirlpool and LG, the company said, but the proposition only works if consumers keep their smart appliances connected to Wi-Fi, and many aren't. The challenge is that a consumer doesn't see the true value that manufacturers see in terms of how that data can help them in the long run, so they don't really care for spending time just to connect it.

said Mr. Kim. Even if appliances are connected to the internet when they are initially installed, there are a number of reasons why they might end up disconnected, according to Bill Ray, an analyst at research and consulting firm Gartner. If a customer changes their service provider or router or even their password, that could cause the device to disconnect, he said. The smart home trend began gaining traction around 2014, according to Mr. Kim, and has grown since then. While not all appliances sold today have smart features at LG, they represent 80 to 90 percent of appliances sold with the remainder being basic low-cost models. World Pool declined to comment on the percentage of its sales represented by smart appliances. The stakes are high for finding new lines of

revenue in the manufacturing sector as companies contend with weakening consumer demand and increasing costs for materials, energy, and other expenses. World Pool cut production by 35% during the third quarter of 2022 to shrink inventories. In a preview this month of its 2022 financial results, which are set for release January 30th, the company said it expects full-year sales to be down 10% from 2021. According to Marat Gank, WorldPools Global Data Experiences and Transformation Officer, smart appliances are generating data from consumers and are producing new revenue opportunities. For example, he said, consumers can sync their smart ovens with the company's Yomley Pro subscription recipe app, which can communicate with the oven to provide step-by-step

cooking instructions, end quote. So this is interesting to me. It's not just the Amazon Echo that seems to be suffering from the problem that for a lot of smart home things, the only real utility consumers see is for setting timers, and that's about it. Smart devices, as just pointed out, could potentially be a revenue revolution for legacy, what we think of as dumb device and appliance manufacturers, but do consumers actually need this? It makes me think of that famous essay about smart devices, making the analogy to win electrification change to the home appliance ecosystem in the 20th century. Electrifying dishwashers made sense as opposed to just using elbow grease, electrifying hairbrushes, not so much. But people tried. Sure, electric can opener exist,

but when you need to open a can, a non-electric can opener works just fine. Same thing with smart devices. Not everything needs to be smart. And manufacturers are just now in the process of figuring that out. Finally, today, the generative AI beat marches on. Aorton school professor claims OpenAI's chat GPT was able to pass a final exam for the school's MBA program, scoring between a B-minus and a B. And there have been stories about various tests being passed, even do not pay, experimenting with making AI argue an actual case in court. I could tell you about fun little stories like that every day at this point, but I'm trying to focus on news you can maybe use, news like this, quoting TechCrunch. When Shutterstock and OpenAI announced a partnership to

help develop OpenAI's Dolly to artificial intelligence image-generating platform with shutterstock libraries to train and feed the algorithm, the stock photo and media giant also hinted that it would soon be bringing its own generative AI tools to users. Today, the company took the wraps off that product. Customers of Shutterstock's Creative Flow Online Design Platform will now be able to create images based on text prompts powered by OpenAI and Dolly 2. Key to the feature, which does not appear to have a brand name as such, is that Shutterstock says the images are ready for licensing right after they're made. This is significant, given that one of Shutterstock's big competitors, Getty Images, is currently embroiled

in a lawsuit against stability AI, maker of another generative AI service called Stable Diffusion, overusing its images to train its AI without permission from Getty or rights holders. In other words, Shutterstock Service is not only embracing the ability to use AI, rather than the skills of a human photographer to build the image you want to discover, but it's setting the company up in opposition to Getty in terms of how it is embracing the brave new world of artificial intelligence. Stability AI has been backed with significant funding, but as of Y, yesterday, not as much as OpenAI, which closed a massive $10 billion round and extended partnership

with Microsoft. In addition to Shutterstock's work with OpenAI, the company earlier this month announced an expanded deal with Facebook, Instagram, and WhatsApp parent meta, which will be similar to OpenAI using Shutterstock's photo and other media libraries, it also has video and music, to build its AI datasets and train its algorithms. You can expect more generative AI tools to be rolling out as a result. What's interesting is that while we don't know the financial terms of those deals with OpenAI, Meadow or another partner, LG, there is a clear commercial endpoint with these services. Shutterstock's bet seems to be that it's worth jumping in and getting involved with these new technologies and try to build a business around them rather than

stand by and let itself get cannibalized by those tools. The big question will be whether, what shutterstock offers will have a clear enough differentiation and unique selling point from others offering generative AI tools for making images. Yes, the licensing is currently one aspect that will be compelling. But longer term, if all are built on the same platform, what will set one apart from the other? In image libraries, the idea is that one might simply have a better selection, better pricing, better discovery, and better overall experience for the paying customer and for the photographer uploading images, will those parameters remain the same in the AI world or be obliterated, end quote. Nothing for you today. Talk to you tomorrow.