Our savior returns, Spotify protests, startup sushi, ride-hailing redux, and Indonesian badminton
August 14, 2020 Edition
Hi gang, and a very happy Friday to all! Congratulations on making it through another week.
“Later, son—right now Daddy is busy sowing disinformation.”
Source: New Yorker, August 2020
Return of the…Jio
Source: Mark Morrison, Return of the Mack
I was starting to get rather anxious about the lack of Jio news but, like Christmas in August, my prayers have been answered. Apparently, ByteDance has approached Reliance (Jio Platforms’ parent company) about a financial investment in TikTok’s India business (Tech Crunch). The discussion follows the famous India app ban from late June, in which TikTok and 58 other Chinese apps were prohibited from operating in India.
On the surface, it makes sense that Reliance would consider the investment; TikTok is a well-built product with a passionate, global userbase, and one that appeals greatly to the next generation of young Indian consumers. As Reliance’s digital ventures broaden their scope—and as the company moves up the pyramid of needs from access (internet connectivity) to core utilities (payments, communications) to entertainment (streaming media and other consumer apps)—it’s hard to overstate the potential value of TikTok as part of their portfolio.
For ByteDance and TikTok, they gain an incredibly powerful partner in India, and one with ties to the Modi administration. If there’s any chance at preserving their business in India, it will be through this type of partnership with a local, highly connected Indian corporation. I do wonder, though, about the longer-term dynamics at play. As mentioned in past issues of Trillium, I find it concerning to see governments developing an itchy trigger finger with regard to bans of foreign tech products (#ban-demic). If you play this trend to its logical conclusion, you might encounter a world in which there are many different branches of the internet, with correspondingly less competition and thus less global (in the economic sense of the term) improvement and equal access to best-in-class products.
The current remedy to these bans seems to be a spate of corporate arranged marriages, spin-offs, NewCos, and other structural engineering best left to the bankers and consultants out there. The concern, though, is that we are effectively creating local chokepoints in each market. What happens if there becomes only one practical means of expanding to or operating in a market: a local partnership, for which there is essentially just one real candidate? What will that do to the speed of innovation, and to the ability of new companies to get off the ground across the globe?
Obligatory TikTok round-up
It’s becoming impossible to escape this story. More ink need not be spilled speculating about what might happen here, so let me simply serve as your humble link sherpa and bring you a few good TikTok pieces that I saw this week. If you’re at the “how did we get here” stage of wondering how a charming social media app became a major national security concern, let me suggest Zeyi Yang and Andrew Deck’s excellent primer in Rest of World. For more of a perspective on potential dealmaking, check out this WSJ piece on the “tech and financial firms” that are hoping to preserve TikTok’s operations in the US.
It hasn’t been an easy week for TikTok. Even amidst multiple reports of various spin-off or acquisition possibilities, it came to light that TikTok was tracking Android users’ MAC addresses until late last year (WSJ), without user knowledge or opt-in. Because MAC addresses are fixed identifiers for a connected device, they have multiple uses in enabling tracking for advertising purposes. Meanwhile, it seems that any TikTok ban would include blocking downloads via the U.S. app stores (Reuters), effectively crippling the app’s ability to function. I suppose the silver lining is that Facebook’s TikTok “clone,” Instagram Reels, has been widely panned thus far, including in this NYT deep-dive written by Brian X. Chen and Taylor Lorenz.
It’s worth noting that the potential ban on doing business with Chinese tech companies impacts not just ByteDance/TikTok but also Tencent/WeChat, amongst others. Indeed, Tencent lost $66bn over a two-day period earlier this week (Bloomberg), while Hong Kong’s Hang Seng Tech Index saw declines approaching ~4% on Monday of this week. While the TikTok ban has captivated the minds of many Americans—fittingly, as it’s the China-originated app that most of us have actually used—the impact of deteriorating relationships between U.S. and China, and each country’s tech sector, will continue to have a broader market impact.
Probably could have predicted this one
Last week, I referenced an odd interview given by Spotify CEO Daniel Ek (Music Ally) in which he essentially said that artists had outmoded views of their own worth and the rate at which they should produce content. You will be absolutely shocked to hear this, but artists—who, again, are the primary producers of the material that Ek’s company relies upon to function—did not like this very much!
It is a bit hard to be righteous when your platform is paying artists something like $0.00437 per stream, but there you have it. Vice published a good article by Russell Dean Stone summarizing various artist reactions, including this gem from (very talented) British singer Shura: “He’s got a point, it’s just that his point sucks.” Indeed.
All jokes aside, I do think it’s interesting to read this press-mediated exchange between Ek and artists as representative of a growing awareness amongst creators that relying upon a “walled garden” or platform is not a viable way to build a sustainable career as an artist. Indeed, this seems to be especially true for many mid-tier (and smaller) independent artists, whether the platform pays per-stream royalties or generates ad revenue for creators. As a result, many artists are beginning to explore and champion direct-to-consumer fan funding models (Spin). While fan funding might still be considered a relatively emergent consumer behavior on a global scale, I personally believe that it will become much more dominant in the next few years, particularly as media and creator voices coalesce in support thereof.
HeadSpin’s tailspin […]
Rule #1 if you plan to falsify your revenue numbers is to never name your company in such a way that it can be easily used against you in a punny headline. The Information broke the news that well-funded HeadSpin (a mobile app testing company valued at >$1bn) now plans to return $95M to investors after a review of its finances revealed some “irregularities.” Euphemisms! Apparently, back in February, HeadSpin forecast $100M in annual recurring revenue, but is only on track to post $15M by the end of 2020 (~4 months away).
Honestly, it is not much of a secret that this type of chicanery goes on more than occasionally in Silicon Valley and beyond, often in the “gray areas” of private market valuation and revenue forecasting in support of venture fundraising. What is unusual—in a good way, I suppose—is that the company is returning the funding and has lowered the valuation of its Series C stock nearly 80%, along with removing the CEO/co-founder. In this case, the board apparently caught wind of numerous underlying issues in the company’s financials and launched an investigation. This type of behavior strikes me as a function not just of greed and poor operating oversight but also of the sort of “creative writing” approach to fundraising that Silicon Valley has condoned over the past 5+ years.
Quibi’s boring headline
Quibi has done many things less-than-spectacularly. But, one thing that they did quite effectively was name the company something that I am entirely unable to turn into a pun-headline of any sort ( 👏 👏 👏). I’ve tried! If I missed an easy one, hit me offline.
Anyway, based on the number of “EXCLUSIVE” Quibi content that has hit my desk recently, it seems that they’re embarking upon another PR blitz, with the goal of preserving whatever relevance remains from their splashy launch earlier this spring. If you’ve forgotten what Quibi is, the summary is that it’s an excessively over-funded ($1.75bn in capital raised!) US-based shortform video streaming app founded and run by producer/media mogul Jeffrey Katzenberg and former HP CEO Meg Whitman. It was widely reported to have <10% of its free trial users convert to paid subscribers; my analysis: not a good number. In one of my all-time favorite examples of “accountable leadership,” Katzenberg famously said: “I attribute everything that has gone wrong to coronavirus. Everything. But we own it.” That is the second time I have cited that exact quote in Trillium, but it really is outstanding, even if Katzenberg apparently softened that stance as less-than-delighted user reviews rolled in. Unfortunately, the initial arrogance of Quibi’s executive team has resulted in a slightly less favorable press outlook (shall we say).
Anyway, according to Deadline, Quibi is looking to buy its way back into the conversation through a concerted media campaign focused on shows as opposed to the Quibi brand itself. I harbor no ill will towards Quibi, but am not holding my breath.
The obvious impact of cheeky names on company valuation (or, my future dissertation)
One day when I have nothing else to do except play bocce in a small village square somewhere on the Mediterranean and cultivate my olive trees, I would like to commission some academic research that explores the correlation between the eccentricity of a brand name and the company’s financial outcome. This has been a desire of mine for many years, and was recently sharpened by a couple of news items. Specifically, AT&T apparently wants to sell Crunchyroll (an anime streaming service) to Sony for something approaching $1.5bn (Bloomberg). Another good candidate for this research might be Dubsmash, a company that I had never heard of until yesterday but that is apparently a rival of TikTok’s that “might” be an acquisition target for Facebook and Snap (Reuters). What a world!
Source: Crunchyroll’s new logo, designed by Trillium (…Pinterest)
Ride-hailing’s messy future
In last week’s Trillium edition, I wrote about Gojek & Grab (the dominant ride-hailing players in Southeast Asia) and how they are diversifying their revenue mix by introducing new lines of business. Specifically, both companies have realized that providing mobile payments and other fintech products (including micro-loans and credit scoring) might actually be a much better long-term business than operating an on-demand ride-hailing platform. Delivery (food and otherwise) has also emerged as a significant line of business for these companies and for their American peers like Uber, whose delivery business now generates more revenue than its pandemic-compromised core rides business.
I’m interested generally in the evolution of these companies, because it’s relatively rare to see an example of companies who hit upon such a high-frequency, high-value daily need (on-demand mobility), only to see that particular product become a loss-leader. Come for the sedan, stay for the savings account and the sandwich? I dunno. Nonetheless, these companies have become so much a part of the fabric of our daily lives that it’s hard to envision them going anywhere.
It is certainly the case that Uber (and its rivals) has fundamentally reshaped significant portions of today’s labor market, along with providing a very popular and tangible manifestation of the gig economy. Now, as these companies reckon with their changing business dynamics, they also face questions around what their broader responsibility might be to their drivers and other service providers.
This week, Uber’s CEO (Dara Khosrowshahi) wrote an editorial for the NYT in which he expressed Uber’s support for laws that would provide a safety net for gig workers. It’s a thoughtful piece, and worth a read. Essentially, Khosrowshahi supports the idea that gig economy companies establish “benefits funds” that provide cash to workers for use towards healthcare, time off, and other perks that are typically the province of “full-time employees.” The suggestion is made, too, that this is not just Uber’s problem, and not just a question of how drivers should be treated; it pertains to all gig economy companies, and the many types of workers in service thereof. Providing cash, as opposed to providing benefits, will certainly be debated. But, this is a worthwhile discussion, particularly given the current state of the labor market in the US and abroad, and the reality that, today, there is no support system in place for these workers.
Of course, the news comes (not coincidentally) during the same week that Uber and Lyft are threatening to shut down operations in California (The Verge), in response to increasing attempts to enforce California’s AB5 bill, which extends employee classification to gig workers including Uber/Lyft drivers. While this battle was always going to be complicated, it would be difficult to imagine a more challenging moment to establish the expectations for proper gig worker treatment, particularly as CV19 continues to drive tremendous job loss and economic uncertainty while exerting particular pressure on the ride-hailing businesses for which these companies became known.
An unapologetic non sequitur
Here at Trillium, we have a deeply held tradition of having no immediately discernible theme. In that spirit, allow me to present an amazing NYT article on badminton in Indonesia. Did you know that badminton is the only sport in which Indonesia has won a gold medal (seven times!)? I did not, shamefully, though I now understand why so many people I met in Jakarta had evening plans that somehow included playing badminton (a sentence that I have not once heard uttered in North America). What does this have to do with media, markets, or music? Absolutely nothing! But, I have a soft spot for Indonesia, and I couldn’t give Bangladesh a shout out last week without paying my respects to its not-so-distant Southeast Asian comrade.
For your ears only
I have no choice but to turn to NPR in a desperate attempt to class this newsletter up. Luckily for me, and for your ears, NPR has great music content this week! First, I highly recommend giving Moses Sumney’s Tiny Desk Concert a spin. I wrote about Sumney’s latest album, grae, a few months back. He is a truly unique voice as both singer and songwriter.
And, because it is summertime, I feel compelled to pass along this NPR feature on standouts from the Southern Rap canon over the past ~30 years. If you are going to pick and choose, allow me to serve as your sonic sommelier and to recommend:
Geto Boys, “Mind Playing Tricks On Me”
Scarface, The Diary
Goodie Mob, “Cell Therapy”
DJ Screw, “3 ‘N The Mornin’ Part Two”
Ludacris, Word Of Mouf
UGK ft. Outkast, “Int’l Players Anthem (I Choose You”)
Big K.R.I.T., K.R.I.T Wuz Here
Jay Electronica, “Exhibit C”
Isaiah Rashad, Cilvia Demo
DJ Screw, “25 Lighters Freestyle”
Classics! See you all next week.
N
P.S. As always, all views (including those on DJ Screw) represent my own personal perspective.