Mar 12, 2019

Axios Login

By Ina Fried
Ina Fried

Please contribute to the GoWriteMe that I have set up for today's introduction.

1 big thing: For tech, antitrust is a fatal distraction

Illustration: Lazaro Gamio/Axios

When leaders in Silicon Valley assess the new antitrust fever among candidates and policymakers, it's not the prospect of having their companies broken up that is the biggest worry.

Rather, as tech editor Scott Rosenberg and I report, the biggest fear is missing the next cycle of industry change while being distracted and hounded by regulators.

Why it matters: If executives are busy answering lawmaker inquiries and defending regulator lawsuits, they're less likely to be protecting their businesses from upstart challengers. And if they're under constant regulatory scrutiny, they'll be less able to either elbow aside or snatch up the competition.

Driving the news: Last week, Democratic hopeful Sen. Elizabeth Warren unveiled a broad case for breaking up Big Tech icons like Google, Apple and Amazon, arguing that operators of platform-style marketplaces should not also be participants in those markets.

  • Whether or not Warren's campaign takes off, the combination of privacy scandals, misinformation scares and charges of anti-conservative bias mean tech companies face antitrust action no matter who's in charge of Washington.

Flashback: Microsoft's antitrust fight with the feds two decades ago shows the kind of damage such an assault can wreak.

  • A federal judge initially ordered Microsoft to split in two, with Windows and Office to be part of two separate companies. While that order was overturned on appeal, the combined effects of more limited regulation in the U.S. and prolonged scrutiny in Europe had a profound effect on the company's innovation in the ensuing years.
  • Lawyers became part of the software development process, and the company cautiously separated its products at a time when Google and Apple were further integrating software, hardware and services on new mobile platforms.

IBM fought a similar epic federal antitrust suit from 1969 to 1982, ultimately prevailing. In both instances, the targeted companies found themselves focused on their legal quandaries and missed the next turn of the industry wheel.

Intel, by contrast, cemented its dominant share of the personal computer chip market by playing along with regulators instead of fighting them. Intel's aggressive marketing skated right up to the line, but whenever a regulator balked, the firm settled. (It did miss out on mobile, though, creating a whole new set of headaches.)

The bottom line: No tech giant has ever been split up by courts, regulators or legislators.

Be smart: For antitrust advocates, the corporate breakup endgame may not matter if, even without such a dramatic outcome, they can still achieve a key goal — ensuring that dominant incumbents can't squash or swallow the next wave of tech innovation. 

Go deeper: Scott and I have more here.

2. Microsoft sues Foxconn over unpaid royalties

A Foxconn building in Taipei, Taiwan. Photo: Sam Yeh/AFP/Getty Images

Microsoft is suing a unit of Taiwanese contract manufacturer Foxconn over unpaid patent royalties on the consumer devices it makes for others.

Why it matters: Microsoft has a patent license with Foxconn that calls for it to make payments for smartphones, tablet and other devices, and to provide an annual audit to Microsoft. The software maker says the company has not been doing either in recent years.

Details:

  • Microsoft's suit, filed on Friday in federal court in San Jose, California, seeks to require Foxconn to produce required royalty reports, pay the royalties it owes and open its books to the court.
  • Microsoft has historically gotten significant royalties on Android-based phones and tablets from most key manufacturers.
  • In the suit, Microsoft says Foxconn submitted an inaccurate report for 2014 and issued no report and paid no royalties for 2015 through 2018.
  • What's not clear is why exactly Foxconn stopped making the payments and whether it was at the behest of Google or the device makers.

What they're saying: Microsoft said in a statement to Axios that it values its relationship with Foxconn, also known as Hon Hai Precision Industrial, and is working to resolve the disagreement. Per the statement...

“Microsoft takes its own contractual commitments seriously and we expect other companies to do the same. This legal action is simply to exercise the reporting and audit terms of a contract we signed in 2013 with Hon Hai. Our working relationship with Hon Hai is important and we are working to resolve our disagreement.”

A Foxconn representative was not immediately available for comment.

3. Theranos documentary manages to draw blood

Having told the stories of Scientology, Enron, and Steve Jobs, filmmaker Alex Gibney knows something about captivating personalities and the power of persuasion.

In his latest film, Gibney and his colleagues take on a subject that manages to combine elements of all three prior subjects — Theranos' Elizabeth Holmes.

During an on-stage Q&A after the Silicon Valley premiere of "The Inventor," I had a chance to ask Gibney where Holmes fits in, as we spoke in front of a packed auditorium at Lucasfilm's offices in the Presidio.

  • “If you really look at it hard, what [Holmes] shared with [Jobs] was that she was a magnificent storyteller,” Gibney said.
  • Unlike Apple co-founder Jobs, whom Holmes idolized, Gibney said the Theranos CEO didn’t surround her herself with people who were willing to give her bad news.
  • “I think Elizabeth was very much a prisoner of belief,” he said.

Yes, but: Fellow panelist Phyllis Gardner, with whom Holmes shared her initial idea while she was still a student at Stanford University, had harsher words: “I think she’s a sociopath, I think she’s a liar of the deepest kind.”

  • More than anything, Gardner expressed anger at Holmes for her actions. “I think it’s been devastating for women,” Gardner says of her possible impact on the ability for female entrepreneurs to be taken seriously.
  • Both in the movie and during the on-stage panel, Gardner also pointed out that Holmes’ biggest blind believers were older men. “It’s so crazy that she had this wizardry over them,” she said on stage.

The big picture: Since the Wall Street Journal published its first report on the company’s misleading practices in October 2015, Theranos has become the poster child for Silicon Valley’s worst frauds.

  • And the HBO premiere drew quite the crowd, including a wide range of executives, venture capitalists and reporters.
  • Among those in attendance were Salesforce CEO Marc Benioff and wife Lynne, along with rapper-turned-investor MC Hammer (whose song “U Can’t Touch This” was featured in the film), eager to watch the new movie.

(Thanks to my Axios colleague Kia Kokalitcheva for taking notes and writing this up while I chatted up the filmmakers and posed for selfies.)

4. Instagram founders talk Facebook

Months after their departure from Facebook, Instagram's co-founders took to the stage at SXSW to explain why they sold their company to Facebook, and why they left the social network, Kia reports.

The big picture: “The idea behind it was that we wanted to make a bet on the company,” Instagram co-founder Kevin Systrom said of the decision to sell to Facebook. And if the goal was to pick a company that would help Instagram continue to grow, that bet paid off, he said.

While a lack of autonomy may have driven Systrom and co-founder Mike Krieger to leave Facebook, it was also inevitable.

  • "In some ways, there being less autonomy is a function of Instagram winning,” Systrom said. “It got to a size where it was meaningfully important to the company. It’s just an unavoidable thing if you’re successful.”

More from the interview:

  • Adding ads to Instagram: “To be clear, we were the ones pushing monetization, not the other way around,” Systrom said.We believed Instagram has to make money somehow... Whether you like ads or not, put that aside, we have to make money somehow.”
  • Warren’s proposal to break up tech: “I’d like to see … more specificity on … what problem are we solving… what integrations and problems we’re talking about… and think through what the externalities would be,” Krieger said. Systrom added that some problems like rising economic inequality and Russian election meddling are serious but are better addressed with real solutions than simply riding the anti-tech wave.
  • Whether there can be a new social media hit: “I think it’s possible,” Systrom said. “It comes in waves and you’d be surprised how determined consumers are to have another good solution. … I’d be really surprised if there wasn’t another.”

What's next: Systrom and Krieger were coy on their next move, but seemed to indicate they might be game for another startup.

5. Take Note

On Tap

  • SXSW continues in Austin.
  • A House Judiciary subcommittee will hold a hearing on the Sprint/T-Mobile deal and competition in the wireless market.

ICYMI

  • Apple has made the March 25 date official for a press event where it is expected to introduce new video and news services. (Axios)
  • A lawsuit charges that Alphabet CEO Larry Page didn't get board approval before giving Andy Rubin a $150 million stock grant as Rubin departed the firm while under investigation for sexual harassment. (Bloomberg)
  • The U.S. has threatened to limit intelligence sharing with Germany if the country continues using Huawei to supply cellular network equipment. (Axios)
  • Facebook deleted — then restored — ads from Warren calling for the company's breakup. (Axios)
  • As first reported by Axios' David McCabe, Amazon is ending a pricing policy that some had said violated antitrust law. (Axios)
6. After you Login

New York City's metro cards now come to life, thanks to the magic of Snapchat and augmented reality.

Ina Fried