South Korea Hits Apple and Google Where it Hurts
By Keith Teare • Issue #272 • View online
Apple agrees to modify App Store rules in Japan in a week where South Korea passes a law forcing Apple and Google to create a billing back-door for developers who want to avoid paying for carriage.
- The App Store War
- The Theranos Trial
- Creator Economy
- Mainstream Blockchain
- Venture Trends
- Startup of the Week
- Tweet of the Week
It is incredible how silly we humans can be and how short our memories are. The first iPhone emerged in 2007 and the first Android phone in 2008–9. Apple’s App Store debuted in July 2008, Google’s Play Store in August 2008, branded as Android Market.
The software business before that was mainly an internet, browser-based business, or a desktop software business. I remember clearly how expensive and difficult it was to distribute software before the app stores and smartphones. Even distributing in a single country was hard, forget about global distribution and forget about free distribution.
After investing billions of dollars in a hardware platform, a software operating system, a developer infrastructure, and a distribution platform, and offering all this to developers for free, Apple is under attack for wanting to charge a percentage of revenue to developers who make money from it. Currently 15% for developers who earn less than $1m a year and 30% for those who earn more. Google is similarly under attack.
The iOS and Android ecosystems are a major advance for humanity. Developers, Users, and pretty much every element of our civilization, benefit from them. In 2020 $643 billion in billings were issued by developers on Apple’s store. Google’s Play Store is not as lucrative but it too paid out $114 billion to developers between 2012 and 2020.
By now these amounts together are well over $1 trillion. As a four decades-long software industry participant I can tell you that all of this revenue only exists because of the mobile ecosystem created by the two giants.
The social good that comes with the exosystem adds many trillions of value more to the world. Think of the educational apps, productivity apps, media consumption apps, and more, penetrating every aspect of society and mostly free.
And think of how global the ecosystem is. There are almost 4 billion potential users of an app that can be distributed for free in 24 hours. Today’s billion-dollar and 10 billion dollar startups exist because of the scale and speed of growth that this ecosystem brings.
Yet we want to focus on the fact that these companies charge higher earners a 30% fee for using their platforms for making revenue. The government of South Korea has passed a law forcing the app stores to allow developers to point to alternate billing systems than those built into Android and iOS. Thus giving them a method of avoiding paying Apple or Google a share of revenues. The word is that similar laws will appear elsewhere. This is wrong and short-sighted. All one has to do is imagine Apple or Google discontinuing sales in South Korea in order to see who it would hurt.
My guess is that most developers would rather pay a fee and benefit from all that these companies bring to the table than seek to reinvent the wheel in their own apps. I suspect the revenues of both Apple and Google to grow along with their ecosystems and be barely touched by government interference. More in this week’s video.
The App Store War
Google, Apple Hit by First Law Threatening Dominance Over App-Store Payments
The companies will have to open their app stores to alternative payment systems in South Korea under newly passed legislation there, threatening their lucrative commissions on digital sales.
SEOUL — Google and Apple Inc. will have to open their app stores to alternative payment systems in South Korea, threatening their lucrative commissions on digital sales.
A bill passed Tuesday by South Korea’s National Assembly is the first in the world to dent the tech giants’ dominance over how apps on their platforms sell their digital goods. It will become law once signed by President Moon Jae-in, whose party strongly endorsed the legislation.
The law amends South Korea’s Telecommunications Business Act to prevent large app-market operators from requiring the use of their in-app purchasing systems. It also bans operators from unreasonably delaying the approval of apps or deleting them from the marketplace — provisions meant to head off retaliation against app makers.
Companies that fail to comply could be fined up to 3% of their South Korea revenue by the Korea Communications Commission, the country’s media regulator.
“As bills with similar implications are being proposed in the U.S. and Europe, South Korea’s bill will become a cornerstone for legislating app market platform regulations world-wide,” commission Chairman Han Sang-hyuk said.
Japan Fair Trade Commission closes App Store investigation — Apple
Apple will let developers of “reader” apps around the world link to an external website to set up or manage an account beginning early next year.
The App Store is too big to change
Illustration by Alex Castro / The Verge
Apple made waves this week by announcing a $100 million settlement with small app developers who sued the company. But despite the changes announced yesterday, nothing is really changing for developers — the App Store is too big and too reliant on in-app purchase fees for that to happen.
Apple’s settlement includes several new policies that it says “clarif[y]” the App Store’s rules. Developers can now contact customers about alternative payment methods using data collected from their app (so long as the notification itself is done outside their apps), which they had previously been barred from doing. Apple promises to keep the App Store Small Business Program, which reduces Apple’s revenue cut down to 15 percent for developers who make less than $1 million a year, in its current state for three years.
Google’s App Store Profits No Plaything
It seems only to be a matter of time before Apple and Google have to give up the tight controls they exercise over their mobile app stores, given the onslaught of litigation, investigation and legislation they each face around the world. And that means investors need to start thinking about the bottom line impact of the potential changes.
We got some assistance in that analysis with a new version of the states’ antitrust action against Google over its app store, Google Play, filed on Saturday, with some of the prior redactions lifted. It stated that Google Play generated $11.2 billion in revenue in 2019 and booked $7 billion in operating income. (Credit to Reuters’ Paresh Dave for working on a Saturday to report this.)That means the Play Store accounted for 20% of what Alphabet reported in operating income that year, a startlingly high number.
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The app store model is crumbling
The App Store and Google Play as we know them may not be long for this world. The mobile marketplaces of Apple and Google are currently facing a wave of assaults from regulators, governments and the courts both at home and overseas. The latest challenge: a landmark law passed in South Korea on Tuesday allowing the use of alternative payment systems for in-app purchases, in effect threatening the ever-lucrative 30% cut.
The South Korean law is a fierce repudiation of the mobile app store business model, and also offers a roadmap for regulators in the EU and the U.S. to adopt similar approaches to reining in Big Tech.
- At the heart of the antitrust battle around Apple and Google is the level of control the companies exert over the financial livelihood of their developers, with the sticking point being the 30% cut that keeps profits flowing to store owners in perpetuity.
- The legislation in South Korea, which is expected to be signed into law in short order by President Moon Jae-in, would open the door to alternative payment systems. Those would let developers transact directly with consumers, bypassing the commission.
- It’s not clear how Apple and Google will adjust their businesses. Google said it would “reflect on how to comply with this law,” while Apple said only that the law would make it difficult to combat fraud and protect user privacy.
The Theranos Trial
Theranos on trial
The Big Story
What became of Theranos employees?
The fraud trial of Theranos founder Elizabeth Holmes kicks off today with jury selection. Once arguments start on Sept. 8, the case will decide the fate of the woman whose very name has become a stand-in for Silicon Valley hubris and misguided founder worship — an astounding fall from grace for the person once hailed as the next Steve Jobs.
- How much is this a Silicon Valley story? That’s a debate you’ll hear a lot in the next few weeks. Theranos was based in Palo Alto and working on high-tech stuff, but most of its investment came from outside the traditional VC world. (VCs will happily remind you of that fact.)
- Holmes’s defense will largely pin blame on her second in command, Sunny Balwani, who’s facing his own fraud charges. And the question will be, over and over: What did she know wasn’t working? And what did she do about it?
Whether Theranos was a Silicon Valley-wide failure — or a tech company at all — it had a huge ripple effect on the industry. We heard from a number of former employees who are still, all these years later, being asked to answer for their bosses’ actions.
Trial of Theranos founder Elizabeth Holmes begins in California | Financial Times
Miles Kruppa in San Francisco AUGUST 31 2021
Elizabeth Holmes, founder of the blood testing start-up Theranos, appeared in court on Tuesday as jury selection began in one of the biggest trials involving alleged fraud in Silicon Valley. Holmes faces charges of defrauding investors and patients by making false claims about Theranos’s blood tests and the company’s financial position. Her trial is being held in federal court in San Jose, California, with opening arguments expected to be heard next week. Ramesh Balwani, the one-time president of Theranos and Holmes’s former boyfriend, will go on trial separately next year. Both have pleaded not guilty. Holmes’s trial marks a long-awaited coda to the saga of Theranos, which had been valued at $9bn by investors and hailed as revolutionary before crumbling as evidence accumulated against the accuracy of its blood-testing technology.
Salman Rushdie Is Now on Substack
The Booker Prize-winning author has reached a deal with the newsletter platform, where he plans to publish fiction and interact with readers.
There is Salman Rushdie in real life, and then there is Salman Rushdie in virtual gear, the one who posts limericks about Kim Kardashian, fights with Facebook over his proper name and blocks people on Twitter. He has even had a Tumblr account.
He can now count Substack among his many adventures in digital publishing.
Mr. Rushdie, the celebrated novelist and Booker Prize winner, plans to publish his first dispatch on the newsletter platform on Wednesday as part of an effort to “try things I haven’t done before,” he said breezily in an interview.
Callin — Social Podcasting on the App Store
Read reviews, compare customer ratings, see screenshots, and learn more about Callin — Social Podcasting. Download Callin — Social Podcasting and enjoy it on your iPhone, iPad, and iPod touch.
Can the Metaverse Thrive If It’s Fully Owned by Facebook?
This week, we step into the social network’s vision of the metaverse, where reality and the simulated world become one. Kinda.
The fall of the SPAC market has digital media companies in disagreement about best path forward — CNBC
- There’s disagreement among digital media founders about whether or not to pursue SPACs as the market has soured.
- Forbes announced plans to go public via SPAC this week at a $630 million valuation.
- Penske Media Group has rejected eight SPAC approaches and calls SPACs “an investor fad.”
Jack Dorsey’s Square Moves Closer to a Bitcoin Exchange
Jack Dorsey’s Square has gotten a step closer to starting a decentralized exchange dedicated to bitcoin, a move that will set Square apart from other payments companies such as PayPal and Stripe — and could mark the first time a major company outside crypto delves into decentralized finance.
On Friday, Dorsey tweeted details about Square’s decentralized financial services division, saying that the new business will work on building “an open platform to create a decentralized exchange” dedicated to bitcoin. A decentralized exchange, or DEX, relies on blockchain technology and allows for peer-to-peer crypto trading by using automated contracts.
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Investing in Syndicate
Conceptually, DAOs are simple, but their implications are profound. The team at Syndicate is building the protocols and tools that will enable DAOs to reach their full potential. That’s why today we’re announcing that we’re leading Syndicate’s Series A.
The post Investing in Syndicate appeared first on Andreessen Horowitz.
Carta Redefines Private Fund Raises
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Andreessen Horowitz launches new $400M seed fund — SiliconANGLE News
Prominent venture capital firm Andreessen Horowitz today revealed that it’s launching a new $400 million fund to back seed-stage startups.
The move follows a significant jump in venture capital investments during the first six months of 2021.
Andreessen Horowitz, known informally as a16z, is looking to back startup teams across “any areas of tech” through the new fund, the firm detailed in a blog post. Andreessen Horowitz is no stranger to backing early-stage startups: It was among the first investors in major enterprise software firms such as Databricks Inc., Apptio Inc. and Okta Inc., to name a few portfolio companies.
The firm also has a strong track record backing consumer technology startups. Andreessen Horowitz led a $112 million funding round for Airbnb Inc. in 2011 at a valuation that was believed to be around $1 billion at the time. Today, Airbnb is publicly traded and has a market capitalization of nearly $100 billion.
Because of its strong investing track record, Andreessen Horowitz’s launch of the new seed fund is good news for early-stage startups. Andreessen Horowitz General Partner Martin Casado told TechCrunch in an interview ahead of the announcement that the venture capital firm usually leads investments of around $6 million for seed-stage startups it backs. The firm also provides business support alongside the capital.
Why corporate VCs want to ditch the label
Biz on BizShedding the corporate (VC) label
When I talked with Alex Kayyal this week, it was clear his ambitions as the new leader of Salesforce Ventures wasn’t about making it one of the top corporate venture capital firms out there.
Kayval doesn’t want to mess with what’s made his operation a success. But he does want to redefine it. As the new managing partner overseeing its investments, Kayyal hopes Salesforce Ventures will be known as one of the best enterprise software investors out there — no “corporate” qualifier needed.
- “In many ways, we’ve kind of stopped thinking of ourselves as [corporate venture capital], and I think that’s a big change for us. As I looked at a lot of the companies that we’re investing in today, it’s remarkable how our remit has grown and our aperture for what kinds of companies we’re excited about backing has really expanded tremendously,” said Kayyal, who took over as Salesforce’s lead after longtime lead Matt Garratt left in June to join Palo Alto-based venture firm CRV.
Corporate venture capital hasn’t been immune from the crazy market. Deals involving CVCs already reached $79 billion globally in the first half of 2021, according to CB Insights. That’s more than the entire total of 2020.
- The top five corporate VCs in terms of deal activity in the first half were Alphabet’s GV, Salesforce Ventures, Coinbase Ventures, Intel Capital and Microsoft’s M12.
- When it comes to snagging unicorn horns, Salesforce Ventures, GV, Citi Ventures, CapitalG and Siemens’ Next47 were the top five for the first half of the year, CB Insights said.
- “Our capital deployment has increased a lot; our number of companies has increased a lot,” Salesforce Ventures’ Kayyal said. “That’s a reflection of the opportunity, but certainly it’s also a reflection of our aspiration and what we want to do.”
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Startup of the Week
Amazon and Affirm: A Deeper Dive Into A Strategic Partnership — Work From Home Adviser
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The story of Kathryn Joosten.