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1 big thing: Behind Apple's bombshell warning

Illustration: Sarah Grillo/Axios

There was a collective thud Wednesday as Apple warned that its holiday quarter revenue would fall billions short of expectations amid exceptionally weak business in China.

There are two important factors to consider when trying to make sense of the news: The problems Apple saw in China go far beyond just Apple. But Apple's iPhone problems extend far beyond China, too.

On China: The Chinese economy is weak and perhaps weaker than previously realized. This is probably the biggest takeaway from the news.

  • Apple CEO Tim Cook said that weakness in Greater China (which Apple defines as China, Taiwan and Hong Kong) accounted for nearly all of the company's revenue miss (though it did see other pockets of weakness).
  • Some of that was likely share picked up by other smartphone makers, but it also suggests significant slowness in the Chinese economy, particularly at the high end of the market.

On iPhone: While things were especially bad in China, Apple saw weak iPhone demand in other places, too.

  • Apple blamed a range of factors, from currency exchange rates to people choosing a discounted battery replacement for their old phone rather than buying a new iPhone.
  • All of those points are likely valid, but miss the fundamental issue: the smartphone market has matured. People are happy with a battery upgrade because they are generally happy with their phone.
  • This is problematic for Apple not just because the iPhone generates the bulk of company revenue and profits, but also because Apple tends to do best when innovation is rapid rather than incremental.

What they're saying:

  • Apple CEO Tim Cook: "While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China."
  • Bloomberg's Shira Ovide wrote an article, headlined "Apple's iPhone warning comes years too late," saying that Apple missed clear warning signs that the smartphone business was slowing down. "This should have been absolutely predictable to anyone who was able to peer outside of Apple’s bubble."
  • The Verge's Tom Warren: "I think Apple is hitting a difficult iPhone period. People are upgrading less, carrier subsidies aren’t enough, and $1,000 phones are making consumers pause and consider. Mix that in with fears of a recession, and 2019 could be challenging for Apple and many others."

What's next: Apple will report full results at the end of the month and will likely go into greater detail.

  • Meanwhile, we will also hear from other smartphone makers as well as others with big business in China.
  • That should help show how much of Apple's experience was universal and how much it was uniquely its own.
2. Digesting what Facebook knows about you

Yesterday's story on just how much Facebook knows about its users garnered a lot of feedback, both on Twitter and in my inbox.

Here are a few follow-up points...

1. Instagram: Facebook owns Instagram, and the two services share a common data policy. There are some differences, though.

  • Most notably, most of what is done on Instagram is public, versus limited to friends. This means not only are your Instagram posts public by default, but your comments and followed accounts are public too. (There are options to keep accounts private as well as ways to send direct or small group messages.)
  • Users can choose to link their Facebook and Instagram profiles, but even when they don't, Facebook associates activity across the two services, much as it does across other properties, such as Facebook and Messenger.

2. Lookalike targeting: Some readers point out that while demographic information is one way to target advertising, the real power of the information Facebook collects is how it lets marketers advertise to "lookalikes" — Facebook users who resemble their known customers.

  • Such ads, one marketer told me, are far more effective than targeting ads by demographics or specific interests. (Google and Amazon have their own twists on this notion as well.)

Go deeper: Listen to my interview on Cheddar, where I talked more about Facebook's knowledge of us.

3. Scoop: Google acquires Q&A app company

Google Assistant signage displayed during CES 2018. Photo: Ethan Miller/Getty Images

Google has quietly acquired Superpod, a startup that had built a question-and-answer mobile app, Axios' Kia Kokalitcheva reports.

What's new: Google paid less than $60 million to “acqui-hire” the founders and purchase some of Superpod's assets, according to a source.

The bigger picture: The search giant hasn’t been shy about its ambitions for Google Assistant, the voice-activated virtual assistant that it debuted in 2016. Superpod, which let users ask questions and receive answers from experts, could bolster Google Assistant's ability to answer users’ questions.

  • Superpod isn’t the first to tackle this concept. Twitter co-founder Biz Stone’s startup Jelly had a similar approach, though the company ultimately sold to Pinterest in 2017 and folded.
  • Jelly’s premise was that there was still a need for human answers to people’s questions, something that became evident through social media, where users frequently crowdsource answers from others.

Superpod’s founders have joined the company, a Google spokesperson confirmed, while declining to comment further about the deal. Superpod shut down its app in September.

Read more of Kia's story.

4. T-Mobile gears up for hearing over Sprint deal

Among the regulatory approvals that T-Mobile needs to seal its purchase of Sprint is one from the California Public Utilities Commission.

I knew this in the back of my head, but was reminded Wednesday, thanks to a message T-Mobile blasted to its customers, linking to its pro-merger website (as seen in screenshot above).

Why it matters: T-Mobile and deal opponents are gearing up for the final fights before regulators, including the Federal Communications Commission, who have to sign off before the deal can be finalized.

5. Take Note

On Tap

  • Unless Washington's funding logjam breaks, the FCC says it is expected to shut down "most operations" midday today. As we noted in Login yesterday, the Federal Trade Commission — including its probe of Facebook's privacy practices — is already shut down.

Trading Places

  • Netflix hired former Activision Blizzard financial chief Spencer Neumann as its new CFO. Neumann was fired from Activision earlier this week, and, according to CNBC, that was because he was pursuing another job.
  • The Senate brought the FCC up to its full complement of commissioners, confirming Democrat Geoffrey Starks and appointing Republican Brendan Carr to a new, full term. Also confirmed by the Senate was Kelvin Droegemeier to be director of the White House's Office of Science and Technology Policy.
  • The Recording Industry Association of America said former House staffer Mitch Glazier has taken office as the group's CEO. The music trade group also promoted Michele Ballantyne to be its COO.

ICYMI

  • Windows 10 finally passed Windows 7 to become the most used operating system on the internet, according to Net Applications. (VentureBeat)
  • Google got FCC approval to test a radar-based system that allows devices to be controlled through hand gestures. (Reuters)
  • Dozens of channels owned by Tribune Broadcasting have gone dark for 6 million customers of Charter's Spectrum TV as the two sides fail to reach a deal. (Axios)
6. After you Login

Screenshot of Reggie Cunningham's Twitter feed

If you want to see some incredible photography, check out this thread.