India's app ban, influencer credit, and companies that are not what they seem
July 3, 2020 Edition
Hi everyone, and welcome to another Friday. Apparently, it is July. Happy Independence Day to everyone in the US of A!
“Enough of this. Let’s go shred a sofa.”
Source: New Yorker Humor & Cartoon, July 2020
India bans Chinese apps
In mid-June, there were numerous reports of skirmishes (NYT) between Indian and Chinese troops stationed near the India-China border in the Galwan Valley. Two weeks later, as tension continues along the “Line of Actual Control” that separates the territories, India has announced a ban of 59 Chinese apps (Indian Express), including household names like TikTok and WeChat. While the geopolitical maneuvering of these two global superpowers is compelling enough in its own right, I’ve been interested in this story as an example of tech’s role in economic competition between nation-states and the inclusion of ostensibly self-contained tech companies in the national security apparatus.
India’s official Press Information Bureau announced that the app ban was motivated by “activities…prejudicial to sovereignty and integrity of India, defence (sic) of India, security of state and public order.” While it might be hard, at first, to understand the pernicious threat posed by Clash of Kings or SelfieCity, the government’s reasoning is that “malicious apps…are stealing and surreptitiously transmitting users’ data in an unauthorized manner to locations outside of India.” The ban is motivated by the fear that data on Indian citizens is being collected by foreign entities who might use it for nefarious purposes. The Indian government has asked Apple and Google to block downloads from the iOS & Play stores, and also has the ability to block ongoing usage at the internet service provider level.
This concern about data collection practices by foreign apps is not unique to India. Indeed, you may recall the profusion of articles written late last year about FaceApp: the Russian app whose “aging filter” caused viral growth in the US and abroad. At the time, the FBI even substantiated concerns about FaceApp’s enablement of counterintelligence (Reuters). More recently, a Redditor has gotten exposure for an investigation of TikTok (Input); the work highlights the vast range of data collected by the app, whose parent company (ByteDance) is headquartered in China. Notably, there is no tangible, reported proof of data misuse in these cases.
Certainly, the suspicions of FaceApp and TikTok should be read in context of US-Russia and US-China relations. In the latter case, TikTok is hardly the only example of a Chinese company that has come under scrutiny. Recently, the FCC designated Huawei and ZTE as national security threats (NYT). The role of the Chinese telcos in establishing 5G and related infrastructure globally has been cited as a risk by countless political figures in the US and elsewhere over the past several years. The reasoning is that, if a Chinese company owns the pipes through which digital activity passes, they (and the Chinese government) would have unparalleled insight into a vast range of communications and transactions. On a related note, this week also saw the Trump administration announce new restrictions on US exports (NYT) of specific tech products to Hong Kong, in light of China’s reassertion of their control over the territory (NYT).
As the tech sector continues to grow in terms of its economic impact, and the percentage of citizens who use its products multiple times every single day, it stands to reason that we will see more of these types of bans, censorship, and investigations. Some have suggested that bans like the one in India might have the productive effect of catalyzing local entrepreneurship and thus increasing the nation’s GDP in the long-run. I suppose it’s a possibility, but the practical reality of a world where the “Indian internet” is distinct from, say, the “Chinese” or “American” internet feels unlikely to be as vibrant.
Of course, the internet itself has roots in a US government (DARPA) project, ARPANET: a 1960s era network for sharing digital resources amongst geographically separated computers. For many of the intervening years, it was easy (if likely incorrect) to see much of the internet economy as self-contained in the private market and divorced from geopolitical implications, particularly as many of the most-used products were developed in one country (the US). This is no longer the case, as tech ecosystems have blossomed globally and governments have become more sophisticated at deploying tech products and strategies covertly or explicitly to advance their agendas. With 3.5bn smartphone users globally, and millions more coming online each day, the global impact of technology is only deepening, as is the potential for weaponization of these same products and services. We’ll leave the question of where a government ends and a “private” company begins for another day.
What could go wrong?
This Forbes story about Karat’s new Black Card caught my eye. In essence, it is peak 2020: a credit card for social media influencers. Apparently it “looks at at an applicant’s social stats along with income as part of their underwriting criteria.” I’m all for attempts to rethink credit scores to include a broader range of consumers, but this strikes me as highly questionable…
Boomerang: stories from weeks past
Guess who?: Fresh off raising $15.2bn and building a fully functional version of the Millennium Falcon in which he commutes to his office, Mukesh Ambani (of Reliance Jio) announced the launch of JioMeet (Tech Crunch), a video conference product brought to India by Jio Platforms. The product includes features like free, uninterrupted video calls that “can last up to 24 hours,” which sounds more like the plot of a Black Mirror episode than something you’d want to experience. Tech Crunch’s article suggests that JioMeet intends to add a platform functionality upon which vertical applications—think telemedicine or virtual classrooms—could be built. If so, JioMeet could provide the infrastructure for a broader swath of digital services commerce, analogous to JioMart/Whatsapp Pay’s enablement of online-offline retail. Regardless, I was legitimately concerned that this was going to be the first week since I started writing Trillium in which I didn’t have a piece of news to share about Jio. It wasn’t.
Avatars Abroad: Facebook is bringing its Avatars to India (Times of India), enabling users to create digital versions of themselves. Think Snapchat’s Bitmoji, but Facebook-ized. Over the past several weeks, the product’s availability has expanded beyond its launch markets (AU & NZ) to Europe and the United States (Tech Crunch). When Travis Scott creates his Avatar and performs an India-only livestream concert via JioMeet, my life’s work will be complete.
Speaking of VR livestreams: Rolling Stone’s Ethan Millman wrote a good piece on the trend towards live musical performance in virtual reality. As CV-19 cases continue to spike, it seems plausible that some of the more speculative artistic ventures that emerged over the past several months might become more entrenched. I am personally not convinced by the idea of “virtual drugs” that change a viewer’s experience of the digital event, but perhaps that is my own limitation. Anyway, Millman’s article touches upon Wave—the VR concert-enabling startup that raised $30M this spring (Crunchbase)—and the idea that concertgoers can create their own virtual avatars with which to attend these events. Everything’s coming up avatars! While I agree that the “artist with a guitar livestreaming from a living room” paradigm might be a bit tired by this point in the pandemic, I’m not sure that these VR events are going to be a meaningful substitute for live music experiences anytime soon. Now that many of us are spending more “entertainment hours” at home, VR concerts are competing with every other type of entertainment experience, including Netflix, traditional video-gaming, cable TV, and many more. More to the point, while VR companies are hyping the communal elements of their products, these VR experiences are still quite isolating for a user who lives with other humans. Is a couple likely to attend a VR concert together, from their home? Or just to watch yet another obscure Scandinavian Netflix show? Time will tell.
Wirecard v2.0: The NYT’s Liz Alderman and Christopher Schuetze wrote a piece on Wirecard’s collapse. It’s well worth a read, with anecdotes about CEO Markus Braun (a “pathological optimist,” which should perhaps be cause for investor concern these days), threatening corporate agents in tuktuks, and a variety of other delightful details. Meanwhile, the Philippines is promising a thorough review of local payment firms (Reuters) that might have been used by Wirecard to facilitate its rather elaborate accounting fraud.
[Insert painful pun about Luckin Coffee]: I exhausted puns involving Luckin’s brand name, and, unfortunately for me, they’re still in the news. I struggled with whether to write about them given the lack of a suitable headline. Luckily, Tech Crunch’s Danny Crichton provided an unusually saucy article title and thus freed me from this paralysis: “After grinding investigation, Luckin Coffee confirms $300 million revenue fraud.” I guess when your level of fraud can be measured as “a fraction of Wirecard’s,” there’s still humor to be found. In summary: Luckin’s revenue inflation has been confirmed in an SEC filing; the fraudulent accounting was coincident with the firm’s IPO (illegal & public obfuscation?). Luckin is now attempting (unsuccessfully, per MarketWatch) to force its chairman to resign, along with one of the independent board directors. The company was delisted from the Nasdaq, and has a market cap of $636M. The stock is down to $2.52, from a 52-week high of $51.38. This is not really the chart you want to see:
All jokes aside, the Luckin story has captivated my attention in part because of the swiftness of the company’s rise and fall. It truly is a case of “too good to be true” and of how investor confidence can be buoyed by unfounded, positive press coverage. A few months ago, we were reading articles about how Luckin was a serious threat to Starbuck’s global dominance (market cap: ~$86bn)! On the advice of reader and gleeful short-seller RW, I read the “Luckin Coffee: Fraud + Fundamentally Broken Business” report that was originally cited by Muddy Waters Research. As you might guess from the title, the report has a distinctly direct and bearish perspective on the company. It’s a fascinating read, partially because of the deep analysis done on store videos, customer receipts from Luckin locations, and a number of other elements (shady executives, falsified digital media plans, etc). In some ways, this story reminds me of the WeWork saga, which contained similar elements, including an incredible valuation trajectory, a “growth at all costs” mentality, and a mis-application of tech company valuation methodologies to a largely non-tech business built on a shaky foundation.
WeAreStillMakingNews: Speaking of “The We Company”—the Softbank-funded real estate company whose self-proclaimed mission is “to elevate the world’s consciousness” and whose valuation swooned from $47bn to <$10bn for various reasons (New Yorker)—I read that Rebekah Neumann (wife of WeWork founder Adam Neumann and the company’s former chief brand and impact officer) is buying back the assets of WeGrow (Bloomberg), the $40k+ school that was incubated inside of the company. The school is being re-branded as “Students of Life for Life,” to be abbreviated as SOLFL…and pronounced as “soulful.” That pretty much sums things up. I am waiting for the Goop collab.
For your ears only
Been enjoying this live version of Leon Bridges, Terrace Martin, and Robert Glasper’s track, “Sweeter.” It looks like proper social distancing protocols were followed, so I consider that a bonus above and beyond the pure musical talent on display.
A few weeks back, I wrote about Bridges’ Texas Sun EP, which the singer recorded with Khruangbin as his backing band. If you didn’t listen to that record yet, there’s no time like the present. If you did, and liked it, Khruangbin just released a new full-length album called Mordechai. It’s very Khruangbin-y; somewhere between dub, Southeast Asian, and desert instrumentals, and perhaps best consumed as background music, with a few tracks that call for more focused attention (“Connaissais de Face,” which has a weird but fun waltz feel and appropriately campy dialogue interspersed throughout).
See you all next week.
N