Nov 15, 2018

Axios Login

By Ina Fried
Ina Fried

I've talked a bunch about our "Axios on HBO" show — and hinted that there would be some tech news to come. Well, it's true.

I recently interviewed Bill Gates (with my colleague Amy Harder) and Tim Cook (with Mike Allen.) Be sure to tune in this Sunday and the next at 6:30pm ET/PT to see those interviews and more.

1 big thing: Bruised Facebook moves to contain latest damage

Illustration: Rebecca Zisser/Axios

Reeling from a New York Times investigation that highlights top executives' efforts to hide problems and attack critics, Facebook moved late Wednesday night to end its contract with a Republican consulting firm that had worked to take on the social giant's opponents.

The original story: NYT's "Delay, Deny and Deflect: How Facebook's Leaders Fought Through Crisis" is a long piece, with tons of insight gleaned from more than 50 interviews, but the biggest takeaway is that both CEO Mark Zuckerberg and COO Sheryl Sandberg bear direct responsibility for the company's woes.

"Bent on growth, the pair ignored warning signs and then sought to conceal them from public view. At critical moments over the last three years, they were distracted by personal projects, and passed off security and policy decisions to subordinates, according to current and former executives.”
— New York Times

The portrait of both leaders is negative, but Sandberg looks especially bad, as this paragraph encapsulates.

"While Mr. Zuckerberg has conducted a public apology tour in the last year, Ms. Sandberg has overseen an aggressive lobbying campaign to combat Facebook’s critics, shift public anger toward rival companies and ward off damaging regulation.

Details: The NYT story said that the Republican consulting company, Definers Public Affairs, had distributed materials trying to link Freedom From Facebook, which advocates the breakup of the company, to the liberal donor George Soros, who has been subject to anti-Semitic attacks.

  • Soros' Open Society Foundations funds non-profits that are part of the coalition but has long said it is not funding the specific Facebook breakup campaign itself.
  • A conservative site called NTK Network with ties to Definers also reportedly posted stories critical of Facebook's competitors.

The context: As The Verge's Casey Newton points out, Facebook's PR moves came as the company was trying to manage perceptions inside the company as well as outside. Meanwhile, the Wall Street Journal reported Wednesday that morale is indeed slipping.

What they're saying:

Rep. David Cicilline (D-R.I.), the incoming head of the House Judiciary Committee’s antitrust subcommittee, says Facebook "cannot be trusted" to regulate itself.

"Once they knew the truth, top Facebook executives did everything they could to hide it from the public by using a playbook of suppressing opposition and propagating conspiracy theories."
— David Cicilline

Patrick Gaspard, president of Open Societies Foundations, sent a scathing letter to Sandberg over the company's PR campaign, especially the Soros attack.

"These tactics out of Putin’s playbook have no place in an important debate about the integrity of our elections."
— Patrick Gaspard

Side note #1: Though not as big a deal as the other issues raised in the piece, NYT has an interesting insight into Zuckerberg's temperament, noting that Zuckerberg ordered all his executives to use Android following Apple CEO Tim Cook's statements.

  • My former Recode colleague Walt Mossberg got in a good shot on that, quipping: "So, Zuckerberg remains consistent in always going for the option that’s less private and less secure."

Side note #2: Kanye West put the cherry on the top of Facebook's dreadful sundae, tweeting a picture of Zuckerberg doing karaoke, allegedly to the Backstreet Boys. I'm not sure the context for the photo, but pretty sure Facebook PR didn't want it that way, especially after the day they had.

2. Refurbished smartphones cut into market

Boxes of the trefurbished iPhone 5c from a facility in France. Photo: Charly Triballeau/AFP/Getty Images

As the smartphone market matures, people are holding onto their phones longer in developed countries. What's more, even the phones they are done with are increasingly "good enough" for users in emerging markets.

What's new: According to Counterpoint Technology Market Research, the global market for refurbished phones grew 10% in the second quarter of 2018, compared to the market for new smartphones, which dropped 1% from a year ago.

"The trends are linked," Counterpoint said in a blog post. "As consumers upgrade, they are preferring to sell their old devices into channels and use the value to offset the cost of the upgrade. ... This, in turn, is increasing the volume of devices in the refurb channels."

Details:

  • China is the largest market for refurbished phones.
  • India is the fastest growing market, with refurbished phone sales up 41% from a year ago.
  • Taken together, Apple and Samsung account for a third of the refurbished phones sold globally.

Why it matters: It's a tough one-two punch for the smartphone industry, which is dealing with slowing growth after a decade of massive expansion.

3. LinkedIn boosts Microsoft's gender diversity

Microsoft reported slight gains in employee diversity on Wednesday, with the representation of women significantly higher than in past reports, thanks to the inclusion of LinkedIn.

By the numbers: With the business network included, Microsoft reported that women made up 28% of staff, up 1 percentage point.

Yes, but: When you take out LinkedIn and its nearly 43% female staff, Microsoft's gender numbers are less strong, according to data Microsoft provided to Axios.

  • The representation of women for Microsoft’s global workforce increased 1.1 percentage points, from 25.5% to 26.6%, in the last year (from June 30, 2017, to June 30, 2018).  

Microsoft noted that the company has made steady progress when it comes to increasing the number of women in technical and leadership roles.

Chart: Microsoft

When it comes to ethnic diversity in the U.S., LinkedIn didn't help Microsoft, as its percentage of Black and Latina/o employees are actually slightly lower than the rest of the company.

  • The percentage of African American/black employees increased slightly to 4.1% (up from 3.9% in June 2017).
  • Similarly, the percentage of Hispanic/Latina/Latino employees also increased to 6.0% (up from 5.8% in June 2017).

Microsoft acknowledged it has more work to do. "We are seeing signs of progress, and some of the seeds planted in prior years are beginning to take root, but we know we have more ahead of us than behind us," Microsoft chief diversity officer Lindsay-Rae McIntyre said in a blog post.

Also: Microsoft changed its reporting period. Last year the company reported annual totals through September. This year the numbers go through the end of June. Microsoft said the change was made to map the report to the company's fiscal year.

4. Luxury goods startup sells direct to customers

Photo: Italic

Factories in places like China and Italy quietly manufacture goods for high-end brands like Prada and Burberry, but Axios' Kia Kokalitcheva reports that a new startup called Italic is making it possible for these manufacturers to sell directly to consumers.

The bottom line: Italic says it’s a win-win for buyers and sellers. Consumers can purchase high-quality products at a fraction of the price of the luxury brand, while the factories get higher margins on their goods since they’re not losing profits to multiple middlemen.

How it works:

  • So far, Italic has inked partnerships with 15 factories, according to founder and CEO Jeremy Cai. Products range from handbags to skincare and winter jackets.
  • “The quality of apparel and fashion manufacturers in the US don’t compare to Asia and Europe,” Cai explains.
  • Unlike traditional deals with brands, the factories are assuming the cost of the inventory, since Italic is acting as a marketplace — but it’s providing the marketing, warehouse, design, and connection to customers, Cai says. And for that, it takes a cut from the sales.
  • Italic has also raised $13 million from Comcast Ventures, Global Founders Capital, Index Ventures and Ludlow Ventures, among others.

Go deeper: Kia has more here.

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Normally I'd root for a toddler who was being attacked by a pack of dogs. Not in this case, though.

Ina Fried