Jul 25, 2019

Axios Login

By Ina Fried
Ina Fried

There was a LOT of tech news yesterday. But somehow I managed to condense it down to 1,538 words (<6-minute read).

1 big thing: The end of tech's laissez-faire era

Illustration: Sarah Grillo/Axios

This week's series of big government moves against Big Tech platforms dropped a curtain on the era of hands-off regulatory policy that shaped the firms.

Why it matters: A generation of firms led by Google and Facebook that grew rich and powerful while the Feds stayed out of their way must now adjust to government action as a way of life.

  • Meanwhile, legislators and regulators will have to figure out how to protect the public while preserving the industry's vitality and creativity.

Driving the news:

  • On Wednesday, Facebook announced settlements with the FTC over a long-running consumer privacy investigation plus a separate deal with the SEC over disclosure issues.
  • On Wednesday afternoon, though, Facebook revealed that it was notified in June about a fresh probe from the FTC's antitrust unit, said to be focused on the company's core social networking business.
  • All that comes just a day after the Justice Department announced its own antitrust probe into Big Tech that appears to be aimed at Amazon, Google and Facebook.
  • Meanwhile, the Justice Department is reportedly poised to OK the T-Mobile-Sprint deal with the proviso that the combined company sell spectrum and its Boost prepaid brand to Dish Network. (See item 3 below.)

The big picture: These moves have multiplied as the result of a rare convergence of bipartisan discontent with Big Tech.

  • Democrats used to love tech's innovation and idealism, and Republicans used to believe in leaving business alone.
  • Now the script has flipped for both.
  • Today, Democrats distrust the rising power of privacy-wrecking surveillance capitalism, and Republicans feel that tech platforms are biased against their conservative politics.

Yes, but: Inquiries and settlements are one thing, and changing behavior is quite another. Critics say the FTC deal with Facebook doesn't substantively change the way the company does business, nor is a $5 billion fine a significant deterrent, given how much Facebook profits from its practices.

  • Some, including Charlie Warzel from NYT, argue that the current U.S. regulatory regime just isn't equipped to handle modern tech companies and that a new agency is needed.
  • In other circles, insiders are beginning to talk about the prospect of a broad new Telecommunications Act-like law that would wrap privacy and data ownership rules, antitrust safeguards and content regulations into one big package.
  • Since the current Congress hasn't even been able to get a bill focused only on privacy moving, either of these scenarios would have to play out on a long horizon.
2. FTC writes Facebook's new privacy rulebook

While Facebook's privacy settlement with the Federal Trade Commission includes a record $5 billion fine, its most important provisions are found in new restrictions it places on the company's practices, Axios' David McCabe reports.

Why it matters: The settlement's effectiveness will lie in whether these terms end up protecting consumers — yet policymakers on both sides of the aisle are already saying they don't go far enough.

Details: The settlement takes steps the FTC's Republican majority hopes will be enough to stop another Cambridge Analytica-style privacy disaster. Requirements for Facebook include:

  • Appoint a "Chief Privacy Offer for Product" to oversee a newly required privacy protection program.
  • Publicly disclose when the data of 500 or more users has been exposed in a way that violates its terms.
  • Bar the use of phone numbers, when they are provided for security features like two-factor authentication, to target advertising or share them with third parties.
  • Take steps to protect the security of user passwords.
  • Notify and obtain consent from users when creating a template for facial recognition based on their faces.
  • Have CEO Mark Zuckerberg sign off on quarterly compliance reports.

Yes, but: Many policymakers (and privacy advocates and the agency's 2 Democratic commissioners) said Wednesday that the agency hadn't been aggressive enough.

  • They note that Facebook's core business of selling targeted ads remained effectively intact, and they maintain that the deal gives Facebook a pass by releasing it from future action related to "all consumer-protection claims known by the FTC prior to June 12, 2019."
  • That immunity does not cover issues likely to be covered by the FTC's new antitrust inquiry.
3. Doubts over Dish's strength as a 4th wireless player

In order to win Justice Department approval for their deal, Sprint and T-Mobile appear poised to sell spectrum and prepaid customers to Dish Network for a reported $5 billion.

Why it matters: Regulators in the past have blocked any deal that would have eliminated 1 of the current Big 4 mobile networks. An asset sale allows them to claim, at least on paper, that there will still be 4 players. But analysts have their doubts just how big a player Dish would be.

Dish has been a potential wireless entrant for some time, having scooped up a significant amount of spectrum in recent years — spectrum it is under pressure to use soon or risk losing. Back in 2013, Dish lost out in a bidding war with SoftBank for control of Sprint.

So it's not surprising that Sprint and T-Mobile are looking in Dish's direction, nor that regulators see it as a potential way to avoid admitting the deal will reduce competition.

Be smart: Even if the DOJ signs off on the deal, several states have already sued to block the merger, so they would have to be persuaded as well.

And many experts doubt that Dish alone will be a significant rival.

  • It's not so much a question of whether Dish can compete, but rather if it has the stomach to do so, New Street Research argued in a report Wednesday.
  • If Dish builds a low-cost network, the firm argues, such a network can probably get customers. But whether Dish has the interest or skill to really build a network is far from certain.

The bottom line: Even if Dish does build a network, wireless consultant Chetan Sharma predicted that it won't want to be in the business for the long haul. Instead, Dish would look to run it for a few years and ideally sell it back to one of the big 3 operators.

  • Even with the added spectrum, Sharma said Dish won't have much market share — around 2% of industry revenue vs. Sprint's current 12%. Also, he said Dish lacks the capital to invest long term.
4. Tech giants still crush the ad market
Expand chart
Data: eMarketer and Zenith Media; Chart: Axios Visuals

Despite the ongoing efforts to reel in the dominance of Big Tech companies, a few major firms still manage to eat up more ad revenue than most other publishers (and publishing industries) combined, Axios' Sara Fischer reports.

Why it matters: The continued strength of these companies, particularly in the data-based advertising sector, has shifted the focus in Washington over the past 3 years from holding firms accountable for bad policies or sloppy mistakes to taking action against them as monopolies.

Driving the news: The businesses of the three biggest ad giants continue to grow, although concerns are starting to rise about future growth slowing down.

  • Facebook reported positive advertising growth during its second-quarter earnings report Wednesday, and it saw its stock pop in response. But the company warned that there will be "pronounced deceleration" in the fourth quarter and into 2020, "partially driven by ad targeting related headwinds and uncertainties" associated with privacy regulation.
  • Alphabet, the parent company of Google, is expected to again disappoint investors Thursday when it reports its second-quarter earnings after market close. The company reported slowed advertising growth for the first time in its last quarterly report, and it's expected to continue in that direction. Alphabet makes the vast majority of its revenue from Google ads.
  • Amazon, which has the fastest-growing advertising business of the 3 companies, is expected to continue to grow its ads business at a strong pace this quarter, even though that business is still tiny compared to that of Google and Facebook. But Amazon's main focus for now is still driving e-commerce sales on its site, so most of the ads it sells are to merchandisers looking to promote their products on Amazon's platform.

The big picture: As these companies continue to grow their advertising footprints, legacy businesses are consolidating in an effort to simply keep up.

5. Take note

On tap

Trading places

  • Tesla said CTO JB Straubel is shifting to an advisory role.
  • Uber said 2 more of its directors are leaving the board: Arianna Huffington and Matt Cohler. Huffington helped steer an inquiry into the company's ethics and culture, while Cohler took over Benchmark's board seat, after his business partner Bill Gurley participated in the ouster of former Uber CEO and co-founder Travis Kalanick. Early employee and initial CEO Ryan Graves left the board in May,
  • Best Buy named Matt Bilunas as CFO, filling the spot created when prior CFO Corie Barry was named chief executive.
  • Mapbox has hired Amazon finance executive Nitin Agrawal as CFO, per the WSJ.

ICYMI

  • Samsung said that its $2,000 Galaxy Fold, delayed for months, will ship in September after changes were made to the foldable smartphone. (Axios)
  • Treasury Secretary Steve Mnuchin argues that Amazon has destroyed the retail industry. (Axios)
  • Meanwhile, Mnuchin said he has seen no evidence that Google's work with China represents a national security risk. (WSJ)
  • Stock trading firm Robinhood acknowledged storing some customer passwords in plain text. (ZDNet)
  • A look at how Google Photos managed to survive and turned into a billion-user product as the rest of Google+ tanked. (Fast Company)
6. After you Login

I have a 6-year-old and cover the tech industry, so I don't have much free time. But, if you do, the Internet Archive has this amazing free collection of retro LCD games, playable via a web browser. I admit I do own several of the games in question, including a vintage Speak & Spell and the mini-arcade version of Frogger.

Ina Fried