Aug 7, 2020

Axios Login

By Ina Fried
Ina Fried

Who says August is a slow news month? Today's Login is 1,613 words, a 6-minute read.

1 big thing: New Trump orders ratchet up pressure on China

Illustration: Aïda Amer/Axios

President Trump escalated his campaign to claw apart the Chinese and American tech worlds Thursday evening, issuing executive orders that threaten to ban both TikTok and massive global messaging app WeChat, Axios' Kyle Daly and I report.

The big picture: Trump's orders come against a backdrop of heightening tension with China, the steady unfolding of a hard "decoupling" between the world's two largest economies, and the Trump campaign's effort to wave a "tough on China" banner.

Driving the news: Trump seeks to bar Americans from transacting in any way with TikTok or WeChat starting 45 days from the signing of the orders.

  • That's effectively a shot clock for Microsoft or other U.S.-based suitors to try to close a deal to acquire TikTok and adds legal weight to Trump's threat to ban the social video app if a deal that fully severs any Chinese ties isn't reached.
  • Trump now appears to be doing something similar for WeChat, owned by Chinese tech giant Tencent. A White House official told the L.A. Times the order doesn't apply to Tencent's other American holdings. (Tencent invests widely in tech companies like Reddit, Spotify and Fortnite publisher Epic Games, and is the full owner of League of Legends maker Riot Games.)

Yes, but: WeChat is not only huge inside China but serves to connect users there with friends and family abroad, and shutting it down in the U.S. would be a major disruption to the Chinese diaspora. Beijing's internet surveillance and censorship means most Chinese communication platforms stay domestic, and American tech platforms don't extend into the country.

  • Unlike TikTok, which doesn't operate in China, WeChat can't be cleanly severed from China, so there's no path to a domestic acquisition, and the executive order likely amounts to a ban.
  • And if American companies can't do any commerce involving WeChat, which is widely used for a vast range of functions within China, that could demolish the Chinese business of companies like Apple, observers note.

Details: Trump's edicts cite "emergency powers" as the basis for the unusual order targeting individual foreign companies.

  • Both orders say the apps' "data collection threatens to allow the Chinese Communist Party access to Americans' personal and proprietary information," in the case of TikTok "potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage."
  • TikTok has long said that it stores all data belonging to U.S. customers in facilities outside of China that are not subject to Chinese law.

Between the lines: The emergency powers Trump is invoking have been used in the past to block assets of hostile foreign powers or to target terrorist organizations after 9/11.

  • Security experts have raised real concerns over the prospect of TikTok exposing U.S. users' data to Chinese authorities, but as even the president's order concedes, this is a "potential" threat, not an imminent danger.
  • Some observers believe that the urgency of the president's deadline is largely about pressuring TikTok parent ByteDance to make a deal fast. The firm could sue to challenge the order, but courts move much slower.

Of note: Nowhere does the executive order mention Trump's outlandish suggestion that the U.S. Treasury should get a cut of any deal between TikTok and a U.S. acquirer.

Meanwhile: The orders come the same week that the State Department debuted the "Clean Network" initiative, which marshals under one umbrella a set of initiatives to edge out Chinese tech, including the push against Chinese apps.

What's next: TikTok's secret sauce is its hugely popular and effective machine-learning-based recommendation algorithm. One question for any potential acquirer will be whether that key system comes with any deal.

  • Tencent and WeChat's 1.2 billion users around the world for now just face massive uncertainty.
  • Also next: China is almost certain to retaliate in some way against U.S. companies.
2. Video gaming growth soars thanks to pandemic

Illustration: Aïda Amer/Axios

Video game usage in the U.S. has skyrocketed during the pandemic, leading to record revenues and profits for gaming companies like Nintendo, Epic Games and Electronic Arts, Axios' Kyle Daly and Sara Fischer report.

Why it matters: The pandemic has sped the rise of video gaming as a core consumer pastime, and the trend is unlikely to reverse even after life returns to normal.

"What we're seeing is an acceleration of pre-existing trends," NPD Group gaming analyst Mat Piscatella told Axios. "It's like we jumped ahead two years."

Driving the news: Gaming companies are blowing past analyst earnings estimates and are attracting huge investment interest thanks to the stay-at-home lockdowns that have driven major increases in gaming.

Between the lines: Gaming has become both a key solo hobby for millions of people stuck at home and a social lifeline, letting people connect and compete with friends while remaining socially distant.

By the numbers:

  • 244 million Americans, or roughly three-quarters of the population, play video games, 32 million more than in 2018, according to 2020 Gamer Segmentation Report, the most recent study from The NPD Group.
  • NPD also found that the people who are gaming are spending on average 14 hours a week doing so, up from 12 hours a week in June 2018.

The pandemic's role seems to be huge.

  • The number of people who say they are playing video games more now specifically due to the pandemic is up 46% in the U.S. since late March, according to Nielsen Video Game Tracking (VGT).

The big picture: The gains are being felt across the industry, with usage rising on mobile, consoles, PC, VR and portable devices, per NPD. Video game streaming is also up, as is viewership of esports, or competitive gaming.

3. Enterprise tech gets popularity boost from coronavirus
Expand chart
Data: The Harris Poll; Graphic: Axios Visuals

The coronavirus pandemic has been a boon to enterprise technology companies that don't typically get as much attention and recognition as their social media counterparts.

Driving the news: Computer, electronics and video companies like Zoom, IBM, Dell, Samsung, Apple and Microsoft lead the way when it comes to consumers' opinion of their ethics, trust and vision, while social networks like Facebook and Twitter lag because of concerns about misinformation, according to a new Axios/Harris 100 poll.

Details: The poll ranks the top 100 companies, based on consumers' scores across seven qualities: Affinity (trust), citizenship, ethics, culture, vision, growth and products and services. Affinity is weighted higher than all other categories.

Leading the index are companies that have focused on solving problems related to the coronavirus, like grocers and pharmacies. In the tech world, companies that have helped connect people to their loved ones or work remotely also rank well.

  • Streaming tech giants, like Netflix, Hulu and Disney, all ranked in the top 25.
  • Computer companies like Microsoft, Dell and IBM, as well as computer store Best Buy, all increased their positions within the top 30 spots.
  • Video companies like Zoom are also experiencing bumps. Prior to the pandemic, Zoom wasn't even in the top 100 list of companies ranked; now it's No. 28, just one spot behind Apple.
  • Social companies like Facebook and Twitter ranked in the bottom 10 of the top 100 list, slightly lower than they did prior to the pandemic. Those companies also ranked in the bottom 10 on qualities like ethics, culture, citizenship and trust.
  • Telecom companies like Comcast, AT&T and Charter Communications rank in the bottom 20 of the index.

Between the lines: Companies that toe the line between social media and enterprise, like Google, tend to fare better than pure-play social media companies like Facebook and Twitter.

  • Google's reputation score is now slightly higher than it was prior to the pandemic.
  • Amazon's remains the same — it has the third-best reputation of all companies.

Go deeper: The pandemic has made big corporations a lot more popular

4. How the U.S. tech economy is expanding
Expand chart
Data: Information Technology Industry Council; Map: Andrew Witherspoon/Axios

The technology sector increasingly underpins the U.S. economy, with signs of its growth becoming more woven into local economies far outside iconic innovation hubs like Silicon Valley and New York, Axios' Kim Hart and Andrew Witherspoon report.

Why it matters: A new district-by-district report out today from the Information Technology Industry Council makes the case that an economy infused with high-tech workers, startups and exports is a more resilient one, with higher wages and productivity.

What's new: Drilling into the data by congressional district yields some surprising findings:

  • The average congressional district now has about 400 high-tech startups employing around 3,400 workers.
  • Texas and Florida are home to four times the number of high-tech startups as the average U.S. state.
  • In Alabama, startups make up 16% of high-tech employment — the highest share in the country.
  • In Vermont, high-tech manufacturing exports make up 5.5% of the state economy — the largest share in the country.

"There is demand for skilled STEM workers, there is demand for public R&D funding, and even for high-tech startups in states across the country — not just in states we hear so much about," said ITI president and CEO Jason Oxman.

Yes, but: Many districts are still struggling to find a solid foothold. And there's concern that the COVID-19 pandemic will stunt some areas' tech-related growth.

Kim and Andrew have more here.

5. Take note

On Tap

  • It's a Friday in August! Go converse amongst yourselves.

Errata

  • In Thursday's Login we reported that Australia was still investigating TikTok over security concerns, but Australian Prime Minister Scott Morrison announced Wednesday that the nation would not ban the app, though he urged caution in its use. 

Trading Places

  • Rob Strayer joins the the Information Technology Industry Council as its EVP of policy, coming from the State Department, where he was deputy assistant secretary for cyber and international communications. 

ICYMI

  • T-Mobile says that after its acquisition of Sprint, it's in second place for U.S. wireless carriers, ahead of AT&T. (Axios)
  • Facebook employees are asking CEO Mark Zuckerberg how the company would respond if President Trump uses the network to undermine election results. (Buzzfeed News)
  • Uber, hit hard by the pandemic slowdown, missed its earnings predictions. (Axios)
  • Snapchat adds in-app voter registration targeted at young people. (Axios)
  • New York state proposes an update to its antitrust laws allowing it to act against individual companies, rather than only when companies conspire. (CNBC)
6. After you Login

Here is what fingerpaintings by a raccoon look like. The raccoon looks pretty proud.

Ina Fried