Tech Brew Ride Home - Wed. 10/26 – Meta Calls Apple On Its "Rentier Capitalism"

Episode Date: October 26, 2022

Meta and Spotify both call Apple out on their recent App Store aggressiveness. Soft earnings from Microsoft and worrying earnings from Alphabet. Twitter seems to already be hemorrhaging its power users. LinkedIn fights its own bot war. And are unicorns back to becoming a rare thing? Sponsors: Akamai.com Links: Apple’s new App Store tax on ads is a direct shot at Meta (The Verge) Spotify says Apple is ‘choking competition’ and ruining its audiobook store (The Verge) Spotify Boosts Subscribers and Revenue, Says 2023 Price Increases Likely (WSJ) Microsoft Plunges on Forecast for Lackluster Azure Growth (Bloomberg) Twitter Asks: Where Have All the Tweeters Gone? (Gizmodo) Alphabet misses on earnings as YouTube shrinks; company will cut headcount growth by half in Q4 (CNBC) Intel unit Mobileye prices IPO above range to raise $861 mln (Reuters) Developers Complain About Gambling Ads Appearing in Their App Store Listings (MacRumors) First on CNN: LinkedIn knows there are fake accounts on its site. Now it wants to help users spot them (CNN Business) The billion-dollar tech unicorn is becoming rare again (The Washington Post) 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 Wednesday, October 26, 2022. I'm Brian McCullough today. Meta and Spotify both call Apple out on their recent App Store aggressiveness, soft earnings from Microsoft and worrying earnings from Alphabet. Twitter seems to be already hemorrhaging its power users.

LinkedIn fights its own bot war and are unicorns back to becoming a rare thing? Here's what you missed today in the world of tech. Remember how yesterday I told you Apple has decided to expand its apps. store Vig into other people's advertising products by specifically requiring in-app purchases for social media boosts? Well, Meta has responded, quoting the verge. Company spokesperson Tom Chanick sent the Verge the following statement, quote, Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy. Apple previously said it didn't take a share of developer advertising revenue and now apparently changed its mind. We remain committed

to offering small businesses simple ways to run ads and grow their businesses on our apps, end quote. Paying to boost posts is a common feature across not just meta's apps, but other social apps like Twitter and TikTok. The difference for Facebook and Instagram is that they currently don't use Apple's in-app purchase system for boosting posts, while Twitter, TikTok, and others do. I'm told that several years ago, Apple pressured Facebook to start routing these boosted post payments through the app store and Facebook resisted. Still, meta is accurate to say that this policy on paid boosts is, at least publicly, in about face from Apple. Last May, during the Epic v. Apple antitrust trial, App Store boss Phil Schiller testified that the company had never taken a cut of iOS developer ad revenue.

Going forward, that won't be true anymore, end quote. Spotify has responded as well, quoting the verge again, but different article. Spotify says Apple is making it harder to sell audiobooks than offering Spotify just introduced last month. The company called Apple's practices anti-competitive and said it was choking competition in a blog post published just before the company revealed its earnings report on Tuesday. Spotify says Apple's rules make the process of buying an audiobook on Spotify, quote, far too complicated and confusing, adding that Apple changes its, quote, rules arbitrarily making them impossible to interpret, end quote. As outlined in a webpage, Spotify specifically made to support its

cause, the company says Apple rejected its proposed audiobook purchasing process. three times because it went against the App Store's policies. To comply with Apple's rules, Spotify hides the price of its audiobooks and doesn't let users buy content in the app. Instead, you select the book you want to buy, and Spotify then emails you a link to check out on the web. This makes it harder to compare prices, which you only find out about through the email. Spotify says this process, quote, harms not only consumers, but this time, also authors and publishers who now find themselves under Apple's thumb, end quote. Anyone out there have any speculation as to why Apple feels like it can be more aggressive now in this moment? I mean, this feels like it's just

pouring more gasoline on the fire that has been regulators taking a look at Apple's App Store practices. You heard Spotify earnings mentioned there. Spotify reported Q3 revenue up 21% year over year, monthly active users up 20% year over year, and premium subscribers up 13%. But the stock dropped 4% on apparently missing ad growth numbers. I guess they're having a harder time selling ads against their podcasts than they expected. Maybe I'm not the only one seeing an ad slowdown in podcasting. More importantly, this. Spotify CEO Daniel Eck says U.S. subscribers can expect price hikes in 2023 after recent increases by competitors, Apple Music, and YouTube. Spotify premium has cost $9.99 a month since it launched in the U.S. in 2011. Quoting the Wall Street

Journal. Spotify has implemented dozens of price increases in markets around the world without losing customers, said Mr. Eck. Mr. Eck said Apple's App Store policies have hampered the rollout of its audiobook offerings rejecting Spotify's prompts to direct users to make purchases through a web browser instead of inside the app. The move means Apple won't be taking a 30% commission for downloads. Spotify has been fighting Apple over its in-app purchase policies for years. This was an issue we anticipated, but what we didn't anticipate was how stringent Apple would be in rejecting it, said Mr. Eck. It highlights the absurdity of the current App Store regime we're seeing at the moment, end quote.

An Apple spokesperson said the Spotify app was rejected for not following the guidelines regarding explicit in-app communications to direct users outside the app to make digital purchases, quote, we provided them with clear guidance on how to resolve the issue and approve their app after they made changes that brought it into compliance, the spokesperson said, end quote. Microsoft reported Q1 revenue up 11% year-over-year, net income down 14% year-over-year, office commercial revenue up 7% year-over-year, LinkedIn revenue up 17%, but the stock is dropping this morning, maybe because Windows OEM revenue declined 15%, which is pretty big, though they did say that cloud revenue was up 24% year-over-year to $25.7 billion, though Bloomberg tells me that

the market doesn't like the overall revenue growth across the board at Microsoft, which is the lowest seen in five years, and because Microsoft is forecasting that Azure growth might slow a bit. Microsoft also said GitHub has achieved a $1 billion annual recurring revenue rate and more than 90 million active users up from a reported 200 million to 300 million in ARR and 28 million active users back when Microsoft acquired GitHub in 2018. So that was a pretty good acquisition, huh? Not earnings, but interesting numbers. Reuters apparently saw an internal memo suggesting that Twitter has been losing, quote, heavy tweeters who tweet three to four times a week ever since the pandemic began, a drop in power usage that has been masked by an overall growth

in daily active users, quoting Gizmodo. The platform is apparently hemorrhaging its most active users with heavy tweeters in absolute decline, quoting the report, since the start of the COVID-19 pandemic, based on an internal document reportedly titled, Where Did the Tweeters Go? Heavy tweeters make up less than 10% of the site's monthly users, but produce about 90% of all the content and half of the company's revenue, according to Reuters. The company reportedly defines these posters as those who log on to Twitter daily or near daily and tweet about three to four times weekly, which admittedly seems like a low bar to some of us. Plus, on top of the decline of peak poster numbers, the type of content on the site seems to be shifting to. Cryptocurrency and not safe for work material, i.e. porn, are apparently.

the fastest growing interest sectors among frequent English-speaking users of the platform. Unfortunately, for Twitter's finances, porn and crypto-bro posts are difficult to monetize. The proliferation of blockchain scams likely makes advertisers hesitant to associate with the topic, and many companies don't want to advertise anywhere near nudity. Conversely, interest in more easily monetized sectors like news, sports, entertainment, and fashion seems to be slipping, end quote. The big earnings news came from Alphabet yesterday, whose results combined with Microsoft's soft numbers. My morning Wall Street Journal headline phone alert told me

is probably responsible for the NASDAQB being down this morning. Alphabet reported Q3 revenue up 6% year over year, but only $13.91 billion in net income, down from 18.94 billion a year ago. So they had $5 billion in income just disappear, and it just got worse from there. They missed estimates on overall ad sales and YouTube's ad revenue. actually dropped 1.9%, which is sort of startling because that had been a big gross story for Alphabet recently and probably represents the first time ever that YouTube ad revenue had declined. Also, Alphabet tallied 186,779 employees up from 150,000 year over year. So for all of this talk of belt tightening, I believe this means they're hiring actually accelerated

last quarter. That's odd. They do swear they're going to cut headcount growth in half this quarter. One more thing, though, their other bets unit lost $1.16 billion, so the red ink was up 25% there on only $209 million in revenue. So this means seven years after forming Alphabet, the other bets now account for just 0.3% of sales. Making note of this, because I said it's worth keeping an eye on if the IPO market is viable right now, and especially because this is a category leader in the self-driving car space. Intel's Mobilai priced its 41 million shares at $21 each above its $18 to $20 target, raising $861 million at a $16.7 billion valuation for their forthcoming IPO. Intel had hoped for a $50 billion valuation, of course. But as we said,

comparable self-driving companies have gotten absolutely crushed after spacking over the last year, so it will be interesting to see how this stock actually trades. Back to Apple. I didn't mention it, but Apple recently rolled out new App Store ad units, and since it has done so, some prominent developers have been complaining about gambling ads appearing in their app listings with no way to stop that from happening. Quoting Mac rumors, now my app's product page shows gambling ads, which I'm really not okay with, tweeted Marco Arment. Apple shouldn't be okay with it either, end quote. As noted by Arment, Apple provides advertisers with the choice to have their ads shown in app categories different than their own apps category, allowing ads for gambling apps to appear in listings for unrelated apps like the podcast app overcast.

The presence of gambling ads in the app store as a whole has prompted some criticism with some accusing Apple of being greedy and moving away from policies that the company upheld under former CEO Steve Jobs. Apple earns revenue from both the ad placements and its 15 to 30 percent cut of in-app purchases in gambling apps. Beyond upsetting some developers, Apple allowing apps to run ads in other apps listings, has already led to the company facing accusations of anti-competitive behavior. In a tweet last week, legal expert Florian Mueller, argued the ads are, quote, another means of increasing the effective app tax rate forcing developers to buy ads on their own app pages in order to avoid that others steer customers away from there, end quote. In August, Bloomberg's Mark German said Apple wanted to nearly triple its current advertising revenue to at least $10 billion

per year in the future. German said keyword-based search result ads are coming to the Apple Maps app starting next year, end quote. Actually, though, to back up a bit, I think Marco's full tweet is worth quoting because it kind of relates to the segment on Apple previously in the show. quote, the App Store has corrupted such a great company so deeply. They make so much from gambling and manipulative in-app purchases that they don't even see the problem anymore, end quote. LinkedIn has started letting users verify their profiles with a work email address or phone number and has plans to alert users if a message they receive seems suspicious. I haven't mentioned this previously, but AI-based spam has been a growing problem on Link.

apparently, quoting CNN Business. The professional networking site has in the past year faced criticism over accounts with artificial intelligence-generated profile photos used for marketing or pushing cryptocurrencies and other fake profiles listing major corporations as their employers or applying for high-profile job openings. Now LinkedIn is rolling out new features to help users evaluate the authenticity of other accounts before engaging with them, the company told CNN Business in an effort to promote trust on a platform that is often key to job searching and making professional connections.

LinkedIn, which is owned by Microsoft, says it already removes 96% of fake accounts using automated defenses. In the second half of 2021, the company removed 11.9 million fake accounts at registration and another 4.4 million before they were ever reported by other users, according to its latest transparency report. LinkedIn does not disclose an estimate for the total number of fake accounts on its platform. Starting this week, however, LinkedIn is rolling out to some users the opportunity to verify their profile using a work email address or phone number. That verification will be incorporated into a new about this profile section that will also show when a profile was created and last updated to give users additional contacts about an account they may be considering connecting with.

If an account was created very recently and has other potential red flags, such as an unusual work history, it could be a sign that users should proceed with caution when interacting with it. The verification option will be available to a limited number of companies at first, but will become more widely available over time, and the About This Profile section will roll out globally in the coming weeks, according to the company. The platform will also begin alerting users if a message they have received seems suspicious, such as those that invite the recipient to continue the conversation on another platform, including WhatsApp, a common move in cryptocurrency-related scams, or those that ask for personal information, end quote. Finally today, I guess we shouldn't be surprised, given what we've been talking about all year,

but it's worth noting, remember when we spoke about Be Real and how it was the hot social media app of the moment this summer and early fall, what you might not have noticed was that when they raised their latest round, it was only at a $600 million valuation. So the hottest social media app of the moment a year ago, it would have easily gotten a billion dollar valuation or significantly more than that. But maybe the reason that they didn't become unicorns was because, as the Washington Post notes, unicorns are becoming a rare thing again. Quote, more than a decade ago, the $1 billion unicorn startup became an aspirational marker of success in Silicon Valley. It reflected the exuberance and optimism of a near mythical bastion of the economy where

the boom times never seemed to end. The term unicorn was adopted in 2013 by the venture capitalist Eileen Lee and was meant to denote the fact that a start. that crossed that threshold was extremely rare. In 2021, unicorn companies were being created at a rate of more than two per business day, according to CB Insights, becoming almost commonplace. But as employee layoffs, CEO resignations, and belt tightenings eliminate some of the exclusive perks for which tech companies are known, investors here minted only 25 companies worth over $1 billion each in the third quarter of 2022, according to the venture capital

research firm CB Insights. A year ago, there were more than five times as many new unicorns. Once prolific investors, including the venture firm Andresen Horowitz, which invested in B-REL's first funding round, have pared back their investments. The amount of venture capital funding going into late-stage startups fell by nearly 50% in the third quarter compared with the second quarter, according to the venture capital research firm pitch book data, and some are bracing for a cultural shift from abundance to survival mode. There are exceptions to the gloom. Artificial intelligence startups are attracting a lot of interest and funding on the strength of several tech breakthroughs in the field. Stability AI, for example, which has released software to the public that can create elaborate images from simple text prompts,

raise more than $100 million at a $1 billion valuation, according to Bloomberg News, end quote. So I'm thinking of letting Santa get my kids their own Nintendo switches for Christmas, but the question is, well, I have to re-buy them all of the games we have on our original switch? What about their saved games? I see that you can create child accounts if you pay for a full Nintendo account, which we have. But can I assign those child accounts to their own devices? And if I do so, can I send them not only their saved games, but the games themselves? Basically, I'm trying to figure out, do I have to buy additional copies of Breath of the Wild?

And what's really got me worried is, will I have to help Max start fresh on his own Breath of the Wild progress? You just beat his fourth divine beast. Anyone out there have kids with their own switches? Can you tell me how it works? If it works? DMs or emails are welcome. Talk to you tomorrow.