Protection Money

Audio Length: 00:53:30

Cover for Slate Money

Stacy-Marie Ishmael joins as a co-host this week with Felix Salmon and Emily Peck to talk about the pandemic’s Big Tech boom, the car market, and the controversy over Basecamp’s office culture.

Transcript:

S1: This ad free podcast is part of your Slate plus membership. Hello, welcome to the protection money episode of Slate Money, Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. I’m here with Emily Peck. Hello. And Emily, do you want to do the honors? Who are we introducing here?

S2: I’m so excited to introduce Stacey Marie Ishmail. Hello. Most recently, editor in chief of the Texas Tribune. And prior to that, a bunch of stuff and a bunch of stuff.

S1: I’m going to do the deep cut and say F.T. Tilt, which was the greatest publication that the world has ever read.

S3: We were certainly under read for the time.

S1: It was so good. You’re there for a long time and then you embarked upon a long and illustrious career in a bunch of different places. And the highlight of your career, one hundred percent is now slate money. Congratulations for

S3: sure. You know the single best thing I’ve ever done.

S1: You’re not just here this week. You’re going to be here for a while.

S3: Yeah, I’m really excited.

S1: We have a Texas based co-host, so you can be a Texas correspondent.

S3: I’m happy to be a Texas correspondent. This is a fascinating state.

S1: So welcome, Stacey. We are going to talk to you about the crazy tech earnings that we’ve seen this week and this quarter and what that means in terms of the great fight between Tim Apple and Mark Facebook over privacy and other things we’re going to talk about cause how much they cost and why they cost so much and how long that’s going to last. And we’re going to talk about base camp Patreon, the privilege of white founders, and whether they can understand what the hell the employees are talking about. It’s a great one. And I have to say, if you’re not a slate plus member, you probably want to become one, because Stacey is an expert on all things. Why I could and we talk a lot about why a cut in Germany and what’s been going on about short selling bans. It’s a fun, little sleepless segment. It’s all coming up in this week’s episode of Slate Money. So, Stacey, I have been watching the rise and rise of the big tech giants for a long time. And as often happens, their market capitalizations reached the roof a while ago. But now it seems that their earnings are sort of growing into their capitalizations and they are making profits, the likes of which just boggles my mind. I wrote about Google’s earnings this week, which were up like three billion dollars or something from the fourth quarter, like the first quarter never increases in the fourth quarter, but they did. And Apple just had record earnings. Facebook is up there. Can you explain to me like what is going on?

S3: Yesterday I was reading a story from Schiro of The New York Times and it a word that she used, which I fundamentally agree with and which I think explains your head explode killing, which is like bonkers. And the kind of both the rate of growth that you’ve described, but also just the scale of these companies is hard to compare to anything else. Even aside from my usual complaints about comparing stocks and flows. I think one of the things that was interesting, particularly for Apple, is kind of the tripling or quadrupling down on services and the idea that they have fully embraced the complementarity of hardware and software, realizing that there are hard caps on the number of twelve hundred dollar phones that you can necessarily sell. But there’s almost an infinite number of games, books, movies, apps that folks all around the world are willing to engage with. And what I’m really interested in seeing, if I can imagine what the future would look like, is to what extent these numbers really represent the consumption shift that we’ve all had over the past 12 months where it’s like, OK, if you’re not going out, but you will rent or buy a movie or if you’re not going out, but you will rent or buy a game or you’re spending so much more time on Facebook and Instagram. You know, there’s at least in my friend circles, there’s been a lot of anecdotal. Yeah, I like Instagram Target to be really aggressively with this like really cool in an outfit. And I one hundred percent put it in a way that was was not a conversation.

S1: Before I unpack this a little bit, as someone who has spent a large amount of money on movies, thanks largely to sleep, money goes to the movies, second season coming up soon. This all rings true to me. But are you saying that there is a real possibility that Apple’s what you call services revenue is things like movie rentals, App Store cut and that kind of thing could actually really genuinely start rivaling the amount of money that they are making from selling hardware.

S3: That is certainly something that Apple would be interested in having be true. I don’t think it’s just not true. Yeah, right. I think that there is still a lot and it’s one of the reasons that I’ve been paying a lot of attention to their bundling strategy. Right. So if you have spent more than five. Second on Twitter, you’ve probably been targeted with Apple Fitness Plus or Apple TV plus no,

S1: I’m like, no. I wonder if you

S3: really want psychographic profile and see why you think you should be targeted.

S1: I’ve given up on me, but

S3: you don’t spend as much money as they are spending on, like original Apple television, Apple TV plus content without having a grander ambition for, you know, what is often called inside the company, like the ecosystem. Right. It’s like you want somebody watching Apple TV plus on an Apple TV, second screening on an iPad, third scrimping on an iPhone where they might be playing kind of a game that they’ve downloaded. That’s kind of the dream of really holistic services and hardware integration in a way that I think even Microsoft would be envious of.

S2: I do think, though, that their blockbuster bonkers revenue and profits for the first quarter was a lot to do with people, were home and needed more Apple products. A lot of people bought phones, a lot of people bought computers, especially in the education realm. Students needed new stuff. And I think that drove a lot of the money that Apple made, like the long term plan is to make more money from services. But right now, what happened just recently was people bought a lot of stuff, a lot of products from Apple.

S3: You see that in the earnings breakdown, revenue from Mac, like straight hardware, was up 70 percent year over year and revenue from services was up like just under 30 percent year over year.

S1: Wow. So the hardware was growing even faster than this, like supposedly fast growing software, although that the services stuff might be a bit more recurring. The other thing, of course, that’s happened, the big change in Apple is that they started making their own chips and that is fantastic for profits. The new and one chip, which everyone just adores and thinks is amazing, is much, much faster than anything they can buy from Intel or Motorola or anyone else. But more to the point, it’s also cheaper. So they can it helps them really increase their profit margins and become even more.

S2: But to Stacy’s point, we wanted to talk about this, too. I think the big rumble now between Tim Apple and Mark Facebook is to do with Estévez, with the O’Leary titles, her recent episode of What’s Next TBD. Their feud has to do with this push into services. I think Apple and we can go into this now if we like. Apple just released a new iOS update. And the big news is that now apps have to ask your permission to track you. And long term, it seems like part of the reason Apple is doing this, besides, it’s like stance on privacy, is that it’s going to try and this is what Facebook kind of is saying. It’s going to try to make more money from apps. So like if apps aren’t able to track you and make money and please stop me if this sounds insane, if apps aren’t able to track you and and advertisers can’t make money that way, then somehow the apps will now start charging you more money on the front end. And that benefits Apple. Is that why they’re doing this?

S3: That is one of the more convoluted explanations that is floating around. I listen to Lizzie’s podcast and I thought that is one of the things that is true is this is also kind of a clash of world views. Right. And one of the things that I often have to remind myself about large tech companies is, you know, this is something that she emphasized in the podcast. It’s like they really do believe in the message. Right. And sometimes the message almost defines the strategy. And so Apple is absolutely militantly religiously committed to privacy and Facebook is absolutely militantly committed to scale. And those are and have been positioned as really fundamentally opposite worldviews. I do think that when Apple says we want people to be aware of the privacy tradeoffs that they’re making in as much as there are potential benefits to their own services ecosystem, that’s also really true. Right? It’s also very true that Apple’s privacy lawyers are not to be messed with, that there are entire teams of people who are always looking at things and saying, how are we making sure that this is good for the consumer? And there are absolutely legitimate criticisms about when and under what circumstances. You know, Apple is willing to make certain kinds of trade offs for whatever those things might be. But I do think that they have shown themselves much more than Facebook to have privacy as a value in in the way that Facebook has had connecting people and. Recently connecting people with advertisers as a value.

S1: So I feel like this is absolutely true and no one’s really disputing that, but it does feel more than a little self-serving. Oh, cool. Like, people would take this privacy zealotry from Apple. I think there would be more there would be more admiration of it were it not for the 30 percent App Store take. So, Stacey, can you just bring us up to speed on why people like why that feels a little bit icky, the combination of that with the high minded devotion to privacy?

S3: I want to go back to something that Emily said, which is the idea that there’s this tradeoff between privacy and the upfront cost. Right. In the phrase that everybody has been throwing around for years and years. It’s like you’re not paying for the product and you are the product. And one of the things that Apple has argued and that is very much kind of part of the internal discussion, is that the services fee, which they’re lawyers and testimony, will also say most developers on the App Store never pay because they’re not selling the kinds of things through the App Store that require you to pay 30 percent or they’re paying the lower rates of 15 percent. But that is very much kind of a reflection. This is the Apple perspective on this. It’s very much a reflection of we are keeping you safe

S1: if protection money

S3: it. One of the things I’ve always found interesting is when you look at the Android store versus the Apple App Store is kind of like the Wild West versus very curated nature of the Apple App Store versus the Android App Store, to an extent that Apple will argue, well, one of the things that you can feel pretty confident, again, from a privacy perspective, that when you download the up or you buy it up or you sign up for a subscription, it’s less likely to be something that silently is stealing all of your information or that you’re going to end up with four hundred ninety nine dollars that you weren’t expecting on a credit card. And that’s the argument about the trade off. It’s like you trust us to provide you with a certain kind of protected ecosystem that has your privacy at heart. And that’s expensive. Whether it’s actually 30 percent expensive is what a lot of developers have a real hard time believing.

S1: This reminds me a little bit of the interchange fee for American Express card where we will charge the merchants more because the people just trust using the Amex. And so they’re going to spend that happy to spend money in a way they’re not with. They’re just using a MasterCard.

S2: It’s also not clear to me that anyone cares that much about privacy.

S3: I mean, I disagree.

S1: No, I’m OK. I’m totally Emily on this one. Like there is there are journalists who one hundred percent there are like a bunch of sort of open sourced from places like that. But in the real world of normal people who are scrolling through their Instagram feeds, they are not sitting there going, oh no, every time I like an Instagram post, I’m giving up a quantum of privacy to Mark Zuckerberg.

S3: Well, I think we’re about to find out, right. Because one of the reasons you didn’t know that is because, one, there’s a bunch of research that shows that even since Instagram rebranded would be brought to you by Facebook, there’s a large number of people who don’t know that Instagram and WhatsApp or Facebook apps. If you recall, WhatsApp was trying to do an update and they had all of this messaging about like by opting into this update, certain elements of your data will be available to other people. And that’s when signal saw and a significant uptick from, quote unquote, normal non journalist types, not open source types switching to signal. And Facebook and WhatsApp were sufficiently aware of the move away from WhatsApp that they kind of one delayed the timing of the pregnancy updates. And then when they reintroduced it, if you use WhatsApp, you’d have seen some new messaging. They communicated a lot more explicitly and clearly what it was actually about. And I think with this Apple change and iOS and the latest iOS update, when people are going to be confronted with, hey, by the way, did you know this was happening kind of in the same way that in a previous update it was like this? You know, literally everyone is tracking your location at all times. I’ll be interested to see whether that increase of awareness also translates to more assertive prime desire for privacy as opposed to just the absence of awareness. You’re like,

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