Tim’s Tech Tidbits #8
Hi friends,
It has been another tumultuous week for the markets. We saw US inflation heating up to a 40-year high at 7.9% last month. The recent spike does not even include the surge in oil and commodity prices driven by supply chain disruptions resulting from the Russia-Ukraine conflict — so most likely this number will worsen. At this week’s FOMC meeting, the Fed faces a major dilemma: should they keep interest rates low and risk an inflation spiral, or raise rates at the worst possible time?
In previous newsletters I’ve covered my view on inflation and interest rates, which still stands. I’ve also unpacked several narratives surrounding the Russia-Ukraine conflict, whether it be government reactions or the consequences the situation has on Russian and Ukraine citizens as well as the global economy. As an extension to these topics, I want to discuss how large corporations and big tech are responding to the situation and its accompanying impact.
Today’s topics
- The real dilemma — to pull out or not?
- The war on (mis)information — the role of big tech and their stance
- Behind the curtains of Apple and Google’s privacy moves
The real dilemma — to pull out or not?
- From F&B companies to retail, oil and gas and finance, foreign companies are shutting down their businesses in Russia in the wake of mounting political pressure to act. Even British American Tobacco announced plans to divest its business in Russia. Nonetheless, a small handful of companies are maintaining operations, albeit in reduced or slightly modified forms. Pepsi said it was halting sales of global brands but will continue to offer other products. Food companies like Nestle mentioned they would continue to provide essentials, despite halting further investment
- The move to halt or terminate operations is partially driven by practical reasons. Sanctions has limited forms of payment, and with ruble falling by a third against the US dollar, has made the business climate extremely challenging. Uniqlo had said initially that it would keep its shops open since clothing is a necessity, but quickly changed its stance as operational challenges made it impossible to guarantee delivery of goods and receipt of cash. Firms might also find it harder to extricate themselves as the situation worsens
- In retaliation against the sanctions from western countries, Russia has banned corporations from exiting their Russian assets via sale. The Russian government is also considering nationalizing assets of foreign firms that are exiting the country and have passed a bill allowing firms with more than 25% foreign ownership from “unfriendly states” to be put into external administration. This means that existing local, Russian operators can continue business with local staff and supply chains even if foreign owners decide to leave the country
The war on (mis)information — the role of big tech and their stance
- The premise of most tech companies is to create an economic moat by making their product as pervasive and widespread as possible. In their bid to embed their services across countries to reach greater scale and market dominance, tech firms have generally taken great pains to accommodate (begrudgingly at times) onerous regulations in the countries they operate in, such as Apple’s move to ban an app used by Hong Kong protesters, or Netflix censoring sensitive content that are culturally inappropriate or may be critical of the country’s incumbent leadership
- This time, it seems that lines have been drawn in the sand, and most big tech company have sided with Ukraine in some way. The Russian government has been banned on platforms like Youtube and Facebook from buying ads to promote itself. Reddit banned links to Russian state-sponsored media, and Twitter paused ads in Russia and Ukraine. We have started to recognize the tremendous amount of control these large tech firms have over the way we think and act. By cutting Russia’s ability to push their narrative, while at the same time allowing NATO and its allies to promote their version of the story, arguably creates an uneven playing field
- In response, Russia has effectively banned foreign media such as Facebook and Twitter domestically. As such, VPN apps have risen to the top of both App Store and Google Play in Russia. Since the invasion began, VPN apps were downloaded more than 1.3 million times, growing by a staggering 1,200%. It appears that Tim Cook’s mantra that “privacy is a human right” is somewhat selective when Apple removed VPNs from the Chinese App Store at the behest of the Chinese government to prevent users from bypassing China’s “Great Firewall” back in 2017…
Behind the curtains of Apple and Google’s privacy moves
- Last year, Apple introduced a series of privacy changes that made it significantly harder to show users relevant ads or calculate return on ad spent. I mentioned here that this was one of the contributing factors that caused the single biggest drop in Meta’s share price Two weeks ago, Google announced the Privacy Sandbox, which is similar to what Apple had done for iOS, but expected to be rolled out gradually over several years
- Initial announcements suggest that the Privacy Sandbox will limit sharing of user data across both mobile and desktop devices. However, there are no concrete plans at this stage and it is difficult to say how this will eventually pan out. Google has also stated its willingness to work in tandem with developers and the ad industry and will incorporate feedback accordingly. The idea of letting Apple and Google — which collectively own practically 100% of mobile OS share in western countries — dictate the future of online advertising is problematic in itself
- One does not have to look far than the App Store distribution model to get a glimpse of how this will evolve. Apple continues to assert its 30% commission on the App Store despite increasing consensus that this move is anti-competitive and the company should allow app developers to accept payments from other alternatives. Apple’s underlying position has been that it runs a store and should receive corresponding rent. If this continues, Apple and Google may confer a huge advantage to their own in-house advertising and effectively cripple their competitors
If you found this useful, please feel free to share with a friend or colleague who may find this interesting and/or relevant. If there is any topic you would like me to cover or expand on, please let me know and I will see what I can do.
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