This week, I’ve tried to do something new at TechCrunch with this experimental column — getting obsessed about a topic broadly in tech and writing a continuous stream of thoughts and analysis about it.
With my research consultant and contributor Arman Tabatabai, we’ve covered two topics: Form Ds, the filing that startups usually submit to the SEC after a venture round closes (although increasingly do not), and SoftBank, which faces all kinds of strategic pressure due to its debt binging. If you missed the other episodes, here are links to the editions from Monday, Tuesday, Wednesday and Thursday.
We are experimenting with new content forms at TechCrunch. This is a rough draft of something new — provide your feedback directly to the authors: Danny at firstname.lastname@example.org or Arman at Arman.Tabatabai@techcrunch.com if you like or hate something here.
Today, one final round of thoughts on SoftBank and Rakuten (heavily written by Arman) and a lengthy list of articles for your weekend reading.
The Rakuten factor complicates SoftBank’s strategy
Understanding SoftBank’s competitive strategy requires a bit of a deep dive into Japanese e-commence giant Rakuten.
Rakuten has been struggling to compete with Amazon and others like SoftBank’s Yahoo! Japan. So at the end of 2017, Rakuten announced it would be entering the telco space, hoping that operating its own network could generate user growth through better incentives around mobile shopping, streaming and payments.
Today, Japan’s telco space is a relatively cozy oligopoly dominated by NTT DoCoMo, au-KDDI and SoftBank. A major reason why Rakuten feels it can succeed where others have failed to break in is because it has the government on its side.
Rakuten’s plan to offer prices at least 30 percent lower than incumbent rates has led to favorable treatment from Prime Minister Shinzo Abe’s government, which has been looking for ways to stimulate market competition to force lower the country’s high phone prices.
Though a new entrant hasn’t been approved to enter the telco market since eAccess in 2007, Rakuten has already gotten the thumbs-up to start operations in 2019. The government also instituted regulations that would make the new kid in town more competitive, such as banning telcos from limiting device portability.
Rakuten’s partnerships with key utilities and infrastructure players will also allow it to build out its network quickly, including one with Japan’s second largest mobile service provider, KDDI.
Just last week, Rakuten and KDDI announced an agreement where Rakuten will help KDDI utilize its payment and logistics infrastructure as KDDI turns its head toward e-commerce and payments, while KDDI will give Rakuten access to its network and nationwide roaming services, allowing Rakuten to provide nationwide service as its builds out its own infrastructure.
The agreement with KDDI is especially scary for SoftBank, the country’s third biggest telco and one of Rakuten’s e-commerce competitors, and whose customers seem most vulnerable to churn. The partnership also makes it seem even more likely that SoftBank’s competitors are looking to push it out of the market or turn into a dud its upcoming mobile segments IPO.
While Rakuten’s head-first dive into the market won’t ease investors into an IPO, it’s important we note that Rakuten is targeting a much smaller market share than the incumbents, targeting 10 million subscribers by 2028, a number lower than the company’s original 15 million subs goal and significantly lower than the 76 million, 52 million and 40 million subscribers NTT, KDDI and SoftBank (respectively) hold currently. And even with its agreements, Rakuten faces a serious and expensive uphill battle in building out its network infrastructure quickly enough to compete.
Ultimately, Rakuten’s telco initiative is a splash, but one that seems like it will merely make its competitors wet and not drown them. For SoftBank, it is an annoying distraction on its telco IPO roadshow, but a distraction that is easily explained to potential investors.
SoftBank growth over the past two decades
Changing gears from Rakuten, emails from readers this week asked us to look deeper into SoftBank’s performance over the last two decades. As we did so, it became clear that SoftBank has had a long history of price competitions and new entrants across its businesses, and it has proven its ability to operate and consistently grow earnings.
Since 2000, SoftBank has grown earnings at a ~30 percent CAGR and experienced revenue growth in all but one year. When eAccess did enter the telco market and picked up four million subscribers, SoftBank bought it and integrated it into its own system.
As we discussed earlier this week, despite having always held on to a clunky amount of debt, SoftBank has managed to deliver consistent growth by making sure its revenue and operating growth outpaced the upticks in its debt and interest expense.
A great example of this came after SoftBank’s acquisition of Vodafone in 2006, when it saw a huge spike in its interest expense, but also in its operating income.
Over the following five years, SoftBank managed to reduce its interest expense at an annual rate of 12 percent while growing its operating income at 16 percent. And regardless of its debt balances, SoftBank has always seemingly been able to secure funding one way or another, as shown by its ability to raise $90+ billion for the Vision Fund in less than a year from when plans for the fund were first reported.
The Vision Fund itself started as a way for SoftBank to continue to invest while its balance sheet was tight due to nearly back-to-back massive acquisitions of Sprint and Arm. Just look at how Rajeev Misra, who oversees the Vision Fund, discussed its creation in an interview with The Economic Times:
We had just bought ARM in June for $32 billion and Masa felt we are on the cusp of a technology revolution over the next 5-10 years with machine learning, AI, robotics and the impact of that in disrupting every industry – from healthcare to financial services to manufacturing.
We felt the world was going through a new industrial revolution. We were constrained financially given that we just did a $32-billion acquisition.
SoftBank, historically over the last 20 years, has invested from its own balance sheet. So, we had two options.
Either monetise some of the gains we made in Alibaba which we decided has a lot more upside… Alibaba has more than doubled in the last 12 months. So we decided to keep it which turned out to be good decision. The second option was to go out and raise money and co-invest with others. We prepared a presentation, went out, and by god’s grace we raised the fund.
Even before the Vision Fund, SoftBank has always had a strategy to make big bets in industries of the future. And while many have failed, the several that have paid off, like its $20 million investment in Alibaba, had massive cash outs that have driven consistent earnings growth for decades. SoftBank seems to be banking its future on the same strategy and, frankly, it’s unclear how much they even care about how competitive their telco is, as shown by this exchange in the same interview with Misra:
Question: What about sectors like telecom?
Misra: Let the dust settle.
Our obsession with SoftBank this week is probably going to subside, and we are in the market for our next deep dive topic in tech and finance. Have ideas? Drop us a line at email@example.com and firstname.lastname@example.org
Thoughts on articles (i.e. weekend reading)
The CIA’s communications suffered a catastrophic compromise. It started in Iran. This is a great follow-up from Yahoo News’ Zach Dorfman and Jenna McLaughlin on one of the most important espionage stories this past decade. The CIA, using an internet-based communications system to connect with spies and sources in the field, failed to keep the security of the system intact, leading to the dismantling of its Iranian, Chinese and potentially other espionage rings. This article advances the story as we know it from the New York Times’ original piece, and Foreign Policy’s excellent follow up also written by Zach Dorfman. Definitely worth a read from a security/technical audience. (3,200 words)
The $6 Trillion Barrier Holding Electric Cars Back. Don’t read — the answer is infrastructure. (1,000 words, but should be one)
The Rodney Brooks Rules for Predicting a Technology’s Commercial Success. A a good reminder that some technologies are much closer to reality than others, and that the key difference between them is our collective experience handling the technology. Rodney Brooks is the right person to cover this subject, although one can’t help but feel that every example is Musk-inspired. (2,800 words)
Uber’s economics team is its secret weapon by Alison Griswold & Soon there may be more economists at tech companies than in policy schools by Roberta Holland, both in Quartz . Griswold does a great job giving an overview of how Uber is using economists not just to improve its product for end users, but also to shape the discussion of public policy around the company. Clearly, Uber is not alone; as Holland notes in her piece, academic economists are very popular in Silicon Valley right now, with salaries that can match the top machine learning experts. (2,750 words and 1,200 words, respectively)
The future’s so bright, I gotta wear blinders. A short piece by Nicholas Carr fighting back against the notion that computing is still “at the beginning.” Many of our devices and pieces of software are already decades old — if they haven’t had an effect on human behavior or productivity, when are they going to? A useful antidote to some ideas we hear from the Valley every single day. (900 words)
The future of photography is code. Yes, yes, I am very late to this — blame Pocket disease. TechCrunch’s own Devin Coldewey writes a candid essay on the transition from improving photography through hardware like lenses to improving photos through computation. The future is looking very bright for beautiful photos, indeed. (2,400 words)
Freedom on the Net 2018 | Freedom House. And if you are looking for some depressing news, Freedom House’s report (which I am also a bit late to) is dreary. China is now increasingly the source of authoritarian internet control technology, and countries across the world are backtracking on internet freedom (including the U.S.). Sobering, but with so much riding on the openness of the internet, we all need to pay attention and build the kind of future for this technology that we want. (32 page PDF with exec summary)
What we are reading (or at least, trying to read)
TikTok introduces a strike system for violations, tests a feature to “refresh” the For You feed • TechCrunch
TikTok today is announcing several changes to its service, including what it claims will be increased enforcement against bad actors as well as tests of new user-facing tools that will force a refresh of the app’s main algorithmic feed, known as the For You feed. The company said the changes are focused on keeping the platform both safe and entertaining for its users and creators alike.
While all major social media companies have content guidelines, their enforcement varies. As is often the case, people who violate the rules and are subject to takedowns of their content or bans, don’t always learn from their mistakes — they just become repeat violators. Today, TikTok’s enforcement system includes a variety of penalties, like temporary bans on posting or commenting, designed to reduce harmful content on the platform.
However, admits TikTok’s Global Head of Product Policy, Julie de Bailliencourt, in an announcement, creators complain that the current system can be confusing to navigate — especially if they don’t typically break TikTok’s rules or have unknowingly violated policy, and aren’t sure why they’ve been penalized. What’s more, this system is not efficient at deterring repeat violators, the exec explained
“Repeat violators tend to follow a pattern – our analysis has found that almost 90% violate using the same feature consistently, and over 75% violate the same policy category repeatedly,” de Bailliencourt wrote.
As a result, TikTok will move instead to a strike system, similar to YouTube. In all but the most severe cases, creators will accrue strikes as their content is removed. If they then reach a threshold of strikes within either a product feature (like comments or TikTok LIVE), or policy (like bullying or harassment), they will be permanently banned. The company said the threshold will vary depending on the violation and its potential to harm community members. It said, for instance, there may be a lower threshold for violating hateful content policies than there would be for posting low-harm spam.
TikTok will still issue permanent bans for severe violations, like videos that are “promoting or threatening violence, showing or facilitating child sexual abuse material (CSAM), or showing real-world violence or torture,” the post said.
The accumulated strikes will expire from an account’s record after 90 days, but accounts that “accrue a high number of cumulative strikes across policies and features” will be permanently banned. TikTok did not detail what a “high number” would be, nor did it share more information about what the thresholds are in the various areas. That could potentially cause more confusion among creators as they try to reverse engineer the system based on which accounts received strikes and why.
Creators will soon be able to track their own strikes and their account’s standing in the app, TikTok said, through an update to the Safety Center for creators. Here, they can view their own status and the status of the reports they’ve made on other videos or accounts. They’ll also be able to appeal strikes from this Safety Center if they feel they were given out in error. If the creator is close to a permanent ban, TikTok will notify them.
Related to this, the company said it will also begin to test a new feature in select markets that will inform creators which videos of theirs have been marked as ineligible for recommendation to users’ For You feeds, and why.
For end users, however, another new test may be more interesting.
Soon, TikTok will allow some users to tap a new “Refresh” button to receive an updated set of For You feed recommendations. Though TikTok’s feed is highly personalized and fairly addictive, many complain the content becomes stale as it doesn’t add enough variety after some time. With the new refresh button, which will be available in account settings, users will be able to force the app to bring “new, diversified content not based on previous activity or interactions” to their For You feed.
After hitting the button, users will then begin to see content that’s based on their new interactions, a TikTok spokesperson told TechCrunch. In addition to providing a refreshed feed, the company noted that the feature could serve as a way to support potentially vulnerable users who want to distance themselves from their current content experience.
The changes to TikTok’s policies and product come on the heels of increased concern over the app’s ties to China and the risks it poses. Across the U.S., TikTok has been banned on government devices after executive orders from governors prohibited the app. Several universities have banned the app on their Wi-Fi networks as well. And the Biden administration banned TikTok from government devices in a bill signed at the end of December. In response, TikTok has been taking meetings with officials, think tanks, and public interest groups in Washington, The New York Times reported, and this week invited media to tour its Transparency and Accountability Center in L.A.
Amid the increasing calls for a nationwide ban in the U.S., TikTok has been working to convince the public of its platform safety and rolling out new transparency tools that inform users why videos were recommended or allow them to filter out specific content. However, with every new announcement, there comes a bit of bad press, too. For instance, it was revealed last month the company had a secret heating button to make videos go viral, and just before that, Forbes reported TikTok had spied on its journalists. These reveals have tarnished the company’s image further at a time when it’s trying to increase trust.
TikTok says the refresh button will roll out in the “coming days” while the policy update is currently rolling out globally and users will be notified as it’s available to them.
Roblox to host a free virtual Super Bowl concert featuring Saweetie • TechCrunch
Hip-hop artist Saweetie is performing exclusively in Roblox for the NFL’s Super Bowl LVII pregame on February 10, the National Football League announced today.
The virtual concert will take place at 7:00 pm ET in Warner Music Group’s Rhythm City, a new destination on Roblox that was announced earlier this week. Rhythm City is set to launch on February 4 and offers mini-games and social roleplaying experiences like becoming a musician and owning a house and car.
The NFL claims that Saweetie will give a “family-friendly,” fully motion-captured performance and sing her hit songs like “Tap-In.” The concert will re-air every hour until Sunday, February 12.
Fans that virtually attend the Saweetie Super Bowl Concert can also get digital items on the Roblox marketplace or win items by finishing challenges. The digital collection includes wearable hairstyles, hats, boots, headphones, and sweatsuits, which are based on Saweetie’s merchandise and her album looks.
“I’m really excited to bring this iconic moment to the metaverse and share my music with a whole new audience in such a unique way! As an artist, innovator, and football fan, to be able to perform during Super Bowl LVII weekend in this new world – Rhythm City on Roblox – is something I never imagined that I would be involved in. I am very grateful and happy about this opportunity,” Saweetie said in a statement.
The NFL is also launching Super NFL Tycoon within Roblox. The metaverse experience allows users to pretend that they’re NFL team owners, draft a team, and build a stadium. Super NFL Tycoon will launch on February 4 to coincide with the virtual Super Bowl concert. Users can move between Super NFL Tycoon and Rhythm City through a designated portal.
Interestingly, the experience–which is presented by the global financial technology platform Intuit—is also an attempt to teach younger users “important financial concepts in a fun and engaging manner,” said Lara Balazs, Intuit’s Chief Marketing Officer and General Manager of Strategic Partner Group. So, while users fantasize about owning an NFL team, they can also learn how to manage cash flow, payroll, taxes, and customer acquisition (because that’s supposed to be fun somehow).
The concert, Super NFL Tycoon, and Rhythm City are also developed in partnership with Gamefam, a gaming company across metaverse platforms.
“Bringing a cultural moment like the Super Bowl to the metaverse with such innovative partners marks a shift in how brands are coming together to create the next generation of metaverse gaming experiences,” said Ricardo Briceno, Chief Business Officer of Gamefam.
This is the second year in a row that NFL and Roblox are offering the NFL Tycoon experience. For the 2022 Super Bowl, Roblox users could attend an interactive event called “Destruction House,” inspired by the Super Bowl LVI commercial. Also, in 2021, Roblox launched a virtual NFL storefront, giving users NFL-themed digital items to dress up their Roblox avatars.
The NFL’s foray into the metaverse points how the league tries to cater to a younger demographic.
“Working with Roblox has enabled us to create interactive shared experiences and with the virtual concert and Super NFL Tycoon, we will unlock deeper fan engagement,” said Ed Kiang, VP of Video Gaming at the NFL.
Roblox reported that its third quarter saw the fastest year-over-year growth in daily active users that range from 17 to 24 years old, which saw an increase of 41%. Roblox’s daily active users that are older than 13 years old grew by 34% year-over-year and accounted for 54% of all daily active users.
The streaming rights deal with Amazon has proven to attract a younger audience for the NFL. Amazon reported that Thursday Night Football (TNF) on Prime Video delivered an audience eight years younger than last year’s average TNF audience. The NFL also recently struck a deal with YouTube for the Sunday Ticket.
Super Bowl LVII will take place next Sunday, February 12, with the Kansas City Chiefs playing against the Philadelphia Eagles.
In September, Apple Music announced it is the official sponsor of the Super Bowl Halftime Show.
Netflix to include more EVs in its TV shows and movies as part of new partnership with GM • TechCrunch
Netflix and General Motors announced today that the streaming service will join the automaker’s “Everybody In” campaign that aims to accelerate mass adoption of electric vehicles. As part of the partnership, Netflix says it will increase the presence of EVs in Netflix-produced shows and films, where relevant over the course of the next year, while also taking steps to enable more sustainable productions.
To kick off the new alliance, the two companies will air a new commercial during the Super Bowl on February 12 that will see Will Ferrell enter the world of some of Netflix’s popular shows and films, including “Army of the Dead” and “Squid Game,” in various GM EVs.
The automaker’s EVs will be also seen in select Netflix shows and films, including “Love Is Blind,” “Queer Eye” and “Unstable,” which will feature the Chevrolet Bolt EUV, GMC HUMMER EV Pickup and Cadillac LYRIQ, respectively.
A spokesperson for GM told TechCrunch that the company is not paying Netflix for placement of its vehicles in the streaming service’s content. While GM is a partner on Netflix’s ad-supported tier, the company said that the strategic alliance between the two companies is separate from any advertising deal. The goal of the alliance is to expose people to EVs in a natural way.
GM says the two companies don’t have an end date in mind for the alliance, and that the automaker is looking forward to working with Netflix as it builds up its advertising business. As for the Super Bowl ad, GM says it’s unclear if the two will partner on another similar ad in the future.
The automaker says it will educate show runners about EVs so that they can find a way to integrate them naturally into storylines in a way that doesn’t make them feel out of place when they appear in TV shows and movies.
Netflix has been incorporating EVs into the TV shows and movies that it produces over the past year. The streaming service included EVs from Hyundai and Audi in its content, along with EVs from GM, as well. Now, Netflix will have access to even more EVs as part of its new alliance with GM.
“Entertainment has a huge impact on culture. We want to make EVs famous on streaming, small and silver screens to build an EV culture through storytelling that incorporates the experiences of driving and owning an EV,” said GM Global Chief Marketing Officer Deborah Wahl in a press release. “Netflix is a great partner because of the company’s compelling storytelling, commitment to sustainability and track record of sparking conversations that shape cultural trends. We are united in creating a better, more sustainable future for our world as we bring everybody in on EVs.”
Netflix says it’s also planning to become more sustainable behind the camera within its productions by optimizing energy use, then electrifying it, and decarbonizing the rest.
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