Sep 21, 2020

Axios Login

Scott Rosenberg

Ina is off today, so I'm your guest Login host — but don't worry, I'm wearing a mask.

Join Axios' Erica Pandey tomorrow at 12:30pm ET for a live, virtual event on the digital economy of cities, featuring Dunkin' Brands CFO Kate Jaspon and FCC commissioner Jessica Rosenworcel

Situational awareness: Microsoft announced it would acquire Zenimax Media, owner of popular gamemaker Bethesda Softworks (The Elder Scrolls, Fallout), in a $7.5 billion cash deal.

Today's Login is 1,632 words, a 6-minute read.

1 big thing: The TikTok deal is a Potemkin village

Illustration: Aïda Amer/Axios

The new deal to rescue TikTok from a threatened U.S. ban — full of provisions aimed at creating the temporary appearance of a presidential win — looks like a sort of Potemkin village agreement.

How it works: Potemkin villages were fake-storefront towns stood up to impress a visiting czar and dignitaries. When the visitors left, the stage set was struck.

  • Similarly, many elements of this plan look hastily erected and easily abandoned once the spotlight moves on.

The big picture: TikTok's drama has unfolded as trade and security tensions between China and the U.S. deepen. The process has been driven by three demands from President Trump.

1. ByteDance, TikTok's Chinese owner, must sell it to a U.S. company. After Microsoft's effort to acquire TikTok failed, Oracle emerged as the leading bidder.

  • But the actual deal, according to reporting by Axios' Ina Fried and Dan Primack, involves ByteDance handing TikTok over to a newly constituted U.S. company named TikTok Global.
  • Oracle and Walmart will take 20% ownership of that company — valued, according to many reports, at between $50 billion and $60 billion. The rest of it will be owned by ByteDance's existing shareholders, who include both Chinese and U.S. investors.
  • Yes, but: On Saturday, Trump said of the deal, "It will have nothing to do with China," and that looks simply wrong.
  • ByteDance's Chinese owners will likely own roughly a third of the new firm, and its founder Zhang Yiming will sit on its board.
  • TikTok Global plans a U.S. IPO within the next year, and the deal's backers promise it will make the new company more transparent and ultimately more U.S.-owned.
  • It's still unclear exactly how TikTok Global will get to operate TikTok's coveted recommendation algorithm, or how its U.S. operation will be able to vet it.

2. The deal must secure American users' data. ByteDance, as a Chinese company, can't protect U.S. users' data from Chinese government spying, the firm's critics charge.

  • ByteDance has long insisted that it stores all U.S. data outside of China's reach.
  • Under the new deal, Oracle will take over all of TikTok's cloud operations in the U.S. market.
  • A separate, U.S.-only board and security apparatus will oversee TikTok's U.S. operation to further placate U.S. concerns.
  • Yes, but: TikTok's security threat remained hypothetical, not evidence-based, and it's unclear how different in practice the new arrangement will be from the old.

3. The deal must benefit the U.S. In August, Trump insisted that the U.S. Treasury get a cut of the deal.

  • It was never clear on what legal basis the president made this claim, which sounded like a shake-down to many observers.
  • Oracle's deal announcement cites a promise by TikTok Global to add 25,000 new jobs to its U.S. workforce and says that would ultimately provide the U.S. with $5 billion in new tax revenue.
  • The deal also envisions an educational fund "to develop... an AI-driven online video curriculum." Most of the money for this effort is expected to come post-IPO.
  • Over the weekend Trump claimed that this project would give $5 billion for his recently announced "patriotic education" initiative.
  • Yes, but: That last part was news to ByteDance. The jobs could materialize, but the Trump administration has a long record of extracting promises of jobs that never arrive — as happened with a 2017 Foxconn factory deal in Wisconsin.

The bottom line: Trump blessed the deal this weekend, but he got little of what he wanted.

  • "Make the owners sell to an American firm" has turned into a complex transaction with plenty of Chinese involvement and a lot hanging on an IPO that might never happen.
  • The U.S. won some security concessions, but no one can be sure that the TikTok threat — if it was ever real — has been eliminated.
  • The U.S. cut is deferred and conditional. The terms save the president's face but don't actually give him what he demanded.

Our thought bubble: The murk surrounding this process is a sign of just how far outside the norms of business everything about it has been from the start.

What's next: Between now and a Nov. 12 deadline, the parties will fill in the blanks and navigate U.S. regulators' reviews. China, too, needs to OK the plan. Meanwhile, TikTok users' consumption of short videos and memes will continue undisrupted till after the election.

2. Facebook registers more than 2.5 million voters

An estimated 2.5 million+ Americans have registered to vote on Facebook, Instagram, and Messenger, Facebook announced Monday, while more than 733,000 Americans have registered to vote so far via Snapchat, Axios' Sara Fischer reports.

Why it matters: The broad reach of social media platforms makes them uniquely effective at engaging voters — especially younger voters who may not know how to register to vote or be civically engaged.

Details: Facebook says it determined that more than 2.5 million people have registered to vote across its apps, based on conversion rates it calculated from a few states that it has already partnered with.

  • The number so far beats its record of more than 2 million people registered for elections in 2016 and again in 2018.
  • The company's CEO Mark Zuckerberg said in July that Facebook's 2020 goal is "to help 4 million people register to vote."
  • Facebook also said Monday that it has launched a consumer marketing campaign to inform more users about how to register and participate in the elections.

The big picture: After four years of criticism of their performance in 2016, tech companies want to show their commitment to civic engagement.

What's next: National Voter Registration Day is on Tuesday.

3. Tech's new prominence in the climate fight

The tech industry is playing a growing role in fighting climate change, from zero-carbon commitments to investments in startups and pushing for the use of data to encourage energy efficiency, Axios' Amy Harder reports.

Why it matters: Tech leadership in helping to address climate change — and reckon with its role in contributing to it — could be transformative, given the industry's wealth and power.

Driving the news: Amazon and Shopify revealed the first recipients of their investment funds this week, comprising $2 billion and $5 million, respectively. Microsoft has a similar fund of $1 billion.

  • CarbonCure Technologies, which makes climate-friendly concrete, announced investments this week from Amazon and Microsoft (among others). Shopify is backing the firm by buying offsets, credits of CO2 stored in the concrete made by its technology.
  • Other startups receiving tech money this week include Pachama, which uses artificial intelligence to preserve forests, and TurnTide Technologies, which makes more efficient motors for a range of purposes, including HVAC and refrigerators.

"Each one has something very different to offer," Kara Hurst, Amazon's global lead on sustainability, said at a virtual Axios event Thursday. "But, there is a unifying theme that they are driving decarbonization and they have the potential to lower our carbon footprint."

But, but, but: Tech giants are under pressure from their employees and the public about their own carbon footprints, and especially their deals with oil and gas companies helping them extract more fossil fuels.

  • In what is likely at least a partial acknowledgement of that pressure, Microsoft announced this week it was partnering with BP to help the oil giant cut its emissions. BP would also supply renewable energy for the tech giant.
  • Google announced this week that it's aiming to run all of its data centers and corporate campuses around the world on 100% carbon-free power by 2030.

Between the lines: The amount the firms are investing is tiny compared to their bottom lines, and PR is likely a driving factor too.

Meanwhile, there's a new coalition led by Intel and Johnson Controls called the Digital Climate Alliance. It will lobby lawmakers on ensuring digital solutions are part of climate policy.

How it works: One idea proposed in a recent peer-reviewed study is for tech companies to shift digital requests like web searches to data centers in locations where excess electricity, such as from solar in the middle of the day, is otherwise wasted.

4. Unity CEO explains the gaming firm's offbeat IPO

CEO John Riccitiello virtually ringing the NYSE bell as Unity shares began trading on Friday. Photo: Unity

Unity Technologies was just one of many companies with blockbuster IPOs last week, but it took a decidedly different approach, using data rather than handshakes to decide who got to invest and at what price. CEO John Riccitiello explained why in an interview with Ina.

How it works: Traditionally, bankers and companies set IPO prices based on conversations and expectations. Riccitiello and other Unity executives pushed a process that collected more data on potential investors, getting a sense of how much they would invest and at what price.

  • The company chose a variation on the Dutch auction process that Google and others have championed in the past. Here, investors set how many shares they would be willing to purchase at different prices, and Unity ultimately chose who it wanted to sell to.
  • The result, Riccitiello said, was not only a better price for the company, but also a better slate of investors.

Catch up quick: Unity's engine powers more than half of all mobile games and is also being used in a growing range of non-gaming uses, including in the automotive, architecture and manufacturing industries.

Between the lines: One of the questions for investors is how far Unity can grow beyond its gaming roots.

  • The pandemic has doubtlessly sped up adoption of digital technologies, Riccitiello notes.
  • "More people are engaging (digitally) and a good chunk of them are going to stay forever," he said. "It's brought the future into the present a little faster."

Gaming is where the company gets its energy and passion, Riccitiello said, but its business is also expanding into everything from manufacturing to movies to healthcare as 3D digital worlds take center stage.

Go deeper for more of Ina's interview.

5. Take note

On Tap

Trading Places:

  • Trevor Milton, founder of electric truck startup Nikola, is stepping down as the firm's executive chairman following fraud allegations. 

ICYMI

  • A federal judge ordered a temporary halt to the Commerce Department's order barring WeChat from app store downloads in the U.S. (Axios)
  • How chipmaker Nvidia built its success in graphics processors on "Huang's Law," an update of Moore's Law. (Wall Street Journal)
  • After users complained of a pattern in which Twitter's photo previews seem to favor white people's faces over those of Black people, the company said it would investigate. (Mashable)
  • Github will drop the label "master" from its code directories beginning Oct. 1, substituting "main." (ZDNet)
6. After you Login

If the weekend's news left you feeling a little worn out and dry, feast on this slow-motion video of a water balloon bursting. It's positively balletic.

Scott Rosenberg