Sep 6, 2019

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Situational awareness: A bipartisan group of state attorneys general, led by New York, is opening an antitrust investigation of Facebook.

Today's Smart Brevity count: 1,313 words, a 5 minute read.

1 big thing: Apple's lock-in gets stronger

Apple's Arcade service relies on an Apple device and is probably most appealing if you have several of them. Screenshot:

Many of Apple's latest products and services share a common goal for the company: increasing customers' dependence on the iPhone. As Apple prepares to unveil its latest generation of iPhones next Tuesday, this "ecosystem" strategy is more pronounced than ever.

Why it matters: With the smartphone market stalling, Apple needs to find other ways to make money while also maintaining its share of the market. This approach serves both goals.

How it works: When iPhone customers buy a set of AirPods or sign up for the company's new credit card, they are not only adding lucrative revenue to the company's bottom line, they are also making it more likely that they'll stick with the iPhone for their next device.

A number of Apple's recent and forthcoming products play to this dynamic.

  • Apple Card: While there is a physical card, it is secondary. The main way you pay — and the way you manage your account and pay your bill — lives on the iPhone.
  • Bluetooth-based finder tags: Apple is rumored to be readying a device, similar to Tile, that can be attached to physical items and located using an Apple device.
  • Services: Apple has made a big push in this area. Some of the new services, like Apple TV+ and Apple Music, don't require Apple devices, but certainly appeal more to Apple users. Others really do count on Apple hardware, like Arcade, which is for games that physically run on an iPad, iPhone or Mac.

History lesson: This ecosystem strategy dates back in some ways to when Apple introduced the iPod in 2001. At the time, iPod sales helped boost the Mac in what was dubbed the "halo effect," and it was two years before Apple introduced a Windows version of its iTunes software.

  • The iPhone has helped the Mac, too, but it has always worked with a PC, and these days many people never directly link their phone and computer at all.

Yes, but: In order for the ecosystem benefit to kick in, the latest device has to be compelling on its own. The HomePod is one area where Apple's Apple-first mentality appears to be limiting the company's sales, as its voice-driven home device competes with more full-featured rivals that use Google's Assistant or Amazon's Alexa.

What's next: Apple is set to unveil the next generation of iPhones at an event Tuesday. It will be worth watching what other devices and services accompany the new phones.

2. Public split over police use of face recognition

A new study suggests Americans trust law enforcement more than advertisers or tech companies to use facial recognition responsibly, though many are skeptical of all three groups.

Why it matters: There is a growing debate over the appropriate use of facial recognition, while few laws exist in the U.S. over how and where the technology can be used. Even some tech companies say it is time for Congress to set some rules.

  • The Pew Research study found 56% of Americans trust law enforcement agencies to make appropriate use of facial recognition and 59% are OK with law enforcement using facial recognition tools to assess security threats in public spaces.
  • By contrast, only about one-third of those surveyed trust technology companies to use facial recognition technology appropriately and a mere 18% trust advertisers with these technologies.

The release of the study comes the same day that 30 new groups have joined Fight for the Future's push to ban law enforcement use of facial recognition.

  • Pew said it conducted a "nationally representative survey" of 4,272 U.S. adults, with polling taking place between June 3 and June 17.

Go deeper: Facial recognition surveillance faces new calls for legal limits

3. Tech giants keep legacy ad businesses afloat
Expand chart
Data: eMarketer and Zenith Media; Chart: Axios Visuals

Big tech companies like Google and Facebook, as well as newer direct-to-consumer (DTC) tech upstarts like Away and Peloton, are driving advertising growth for legacy industries, like traditional television and out-of-home (billboard) companies.

Why it matters: The very industry that's upending legacy media companies is also the one that's keeping their ad businesses afloat, Axios Media Trends expert Sara Fischer writes.

Driving the news: Out-of-home (OOH) advertising grew by high-single digits for the third consecutive quarter during Q2 of this year, according to Vincent Letang, executive vice president and director of global forecasting for Magna Global, the media buying unit of global ad agency IPG.

  • The reason for such high growth is increased spending by the tech sector, per Letang. Amazon increased its spending by 130% last quarter, while Apple increased by 22%. Letang notes that DTC brands also increased spend.
  • Last year, a quarter of top OOH spenders were major tech brands, according to the Out of Home Advertising Association of America.
  • Netflix in particular has been increasing ad spend, as it vies to promote movies to critics in Hollywood. One billboard executive says Netflix's out-of-home spending has so far doubled this year compared to last year.

Television networks are also seeing increases, thanks in large part to the commercial spending by tech rivals on linear channels. Both broadcast and cable networks saw their ad businesses grow and stabilize, respectively, last quarter, due in part to the investments made by big tech companies with heavy pockets.

  • "Well over $1 billion this year came from digital-native companies that literally didn't advertise 4 or 5 years ago," NBCUniversal CEO Steve Burke noted on Comcast's second quarter earnings call.
  • "Companies like Amazon, Facebook, Google and Netflix are spending big, big dollars on network television," CBS chief advertising revenue officer Jo Ann Ross said on CBS' second quarter earnings call.
  • Even Thursday's NFL opener got a huge boost from tech companies. As M.G. Siegler noted, advertisers included Google, Apple, Amazon and Facebook.

Be smart: The investments being made by big tech companies and newer companies that are just beginning to join the TV advertising market are a reflection of a healthy economy.

  • "Digital companies like Google, Facebook, Wayfair, etc., have been driving so much growth in the last two years in total advertising," says GroupM's Brian Wieser, one of the top advertising industry analysts.

Yes, but: Wieser notes that as these mega-companies mature, their growth rate, and thus ad spend growth rate, is also likely to slow, which could cut ad growth for the rest of the advertising ecosystem.

Flashback: In the late 90s, spending by dot-com-era tech companies flooded print outlets, particularly magazines and newspapers, with cash. When that market collapsed at the turn of the millennium, print began a long decline that hasn't yet ended.

4. Berlin show spotlights new consumer gear

An Android tablet running in "ambient mode." Photo: Google

Fall's big electronics show, Berlin's IFA, has kicked off with a flurry of announcements.

Among the ones that caught my eye:

  • Google unveiled a new Ambient Mode for Google Assistant, basically a way to turn idle phones and tablets into Smart Displays. Initially it will work with some Lenovo tablets and Nokia phones.
  • Samsung introduced the AirDresser, a steam closet that freshens up your clothes to cut down on trips to the dry cleaner.
  • Garmin has some new smart watches, including a Captain America model.
  • Motorola's One Zoom phone offers four rear cameras, including a 3x Zoom lens, for around $450.

Why it matters: Not only is IFA one of the biggest consumer electronics trade shows in the world, but its early fall timing means it is a key launch point for devices that will arrive before the holidays.

5. Take Note

On Tap

Trading Places

  • Janice Min is leaving Quibi, the second executive to depart the short-form video service in recent weeks. Min, a former co-president of The Hollywood Reporter-Billboard Media Group, joined Quibi last year.
  • PagerDuty hired former Uber and Dropbox marketing executive Julie Herendeen as CMO.


6. After you Login

Step aside, Dumbo. Check out this one-month-old baby elephant.