Benedict Evans joins Alex for a discussion on tech regulation, protectionism, and antitrust. They discuss current top stories, including TikTok’s U.S. acquisition and Nvdia buying ARM, while also delving into large-scale topics like the media’s coverage of tech, tech protectionism in western democracies, and the shift away from the U.S. leading governance of the internet.
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Originally Aired: 09/15/20
00:00 – Subscribe for Tech & Business News Daily
00:26 – Benedict’s Current Ventures
01:11 – Benedict Evans Tech Newsletter
01:59 – Coverage of Tech by the Media
05:40 – Nvidia’s Acquisition of ARM
07:22 – Geopolicitcs of TikTok Deal
11:01 – Initial reaction to TikTok Regulation
12:27 – The Internet Has By Default Run on US Rules
16:21 – Regulating a Future w/ More Foreign Apps
19:26 – Should The EU Have Adopted Tech Protectionism?
25:21 – European Attitude Towards Data and Privacy
28:56 – Platforms Taking Advantage of Producers
33:57 – Regulating vs Breaking Up Tech Companies
34:47 – Why App Store Issues are NOT a Competition Problem
37:48 – Dealing with Natural Monopolies
41:56 – Specific Regulation for Individual Tech Monopolies
46:22 – Challenges for US regulation
48:41 – Is Netflix Overvalued?
53:13 – Why Netflix is a TV Show Company, Not Tech
54:33 – Don’t Forget to Subscribe For More Winner Take All!
Alex Moazed (00:00):
Good morning. I’m Alex Moazed. And welcome to Winner Take All where we talk about the constant battle between large tech monopolies and traditional incumbents. This morning, I’m really pleased to be joined by Benedict Evans live from London. Good afternoon, Benedict. It’s great to have you.
Benedict Evans (00:25):
Alex Moazed (00:26):
So, Benedict, you’ve had a few kind of life changes. Well, I guess everyone’s had a lot of life changes, but you in particular. If I can brag a little bit about you, were a partner at Andreessen for many years, and then somewhat recently you have now gone back to London. You’ve joined with Entrepreneur First.
Benedict Evans (00:49):
I’m doing a bunch of things. I’m spending some time as a venture partner at Mosaic Ventures in London. And I’m also spending a little bit of time with Entrepreneur First and with a couple of other organizations in the startup community. And I’m doing a bunch of other projects around sort of helping people work out what’s going on in a bunch of different ways.
Alex Moazed (01:11):
You also have a great newsletter here at Ben-Evans.com. You’ve been doing the newsletter for, what, seven plus years now? You’ve got over 100,000 people that are on that.
Benedict Evans (01:24):
Yeah. I started in the beginning of 2013, so not new as newsletters go, but sort of before the current wave of newsletters. And yeah, it seems to be growing a straight line ever since as 150,000 people have subscribed to it. Which always kind of gives me imposter syndrome every time I send it out, but apparently some people find it useful so I keep doing it.
Alex Moazed (01:42):
Yeah, no, it’s quite fantastic. I’ve been a long-time follower and avid reader of what you’ve been publishing, both either with the professional firm you’ve been with or personally. So, wonderful to have you on this morning. There’s certainly a lot of activity of late. I mean, just namely, we’ve got TikTok and Arm that are in the news. Now, when I say in the news, I mean, what’s been very difficult for me personally is to read a variety of different what you would call traditional news source trying to report on the topic of tech and what is right and what is wrong and what’s really going on here.
Alex Moazed (02:30):
I have just continued to be kind of flummoxed by getting good news sources that are out there. Do you share the same sentiment in terms of how has the media been able to actually kind of catch us up on what’s going on with recent kind of current tech events?
Benedict Evans (02:45):
Well, there’s a sort of specific and a general answer here. And I think challenge around the TikTok process is that it’s chaos mixed in with shambles mixed in with kind of grotesque incompetence, so it’s kind of difficult to report. All the reporters can kind of do is try and report on chaos.
Benedict Evans (03:03):
You kind of go sort of up to the sort of 100,000-foot view, there’s sort of a fundamental shift in the nature of technology and technology reporting in sort of the last 10 years in that it wasn’t very long ago that technology was actually not an important part of most people’s lives. When Bill Gates was on every magazine cover, Microsoft’s actual business was selling accounting tools for big companies. And Amazon, we had the dot com bubble, and then it crashed, and everybody thought, “Thank god, we can just forgot about tech now and stop paying attention to that now that’s it all gone away.”
Benedict Evans (03:36):
And in sort of the last 10 years, and then really I suppose in the last 5 years, technology sort of became systemically important to society. There’s about five and a half billion adults on Earth, and about four billion people have got a smart phone. And my favorite statistic here is that in 2017, 40% of all new relationships in the USA started online, 4-0 percent.
Benedict Evans (03:59):
So this stuff has gone from being sort of exciting and interesting, and maybe thought of as something that your children should learn about at school, to being a central part of everybody’s lives very, very quickly, much more quickly than cars or aircraft or electricity, and yet equally important. So journalism around technology sort of went from covering the product and the industry gossip to suddenly having to cover like elections in Myanmar.
Benedict Evans (04:31):
If you think about coverage of other industries, you have people who review new cars. Those aren’t the same people who write about Nissan Renault’s merger, who are also not the same people who write about redesigning car cities around bike lanes. And yet technology somehow is all of … Those are all kind of different conversations. And you can be a great car journalist without having to have an opinion on bike lanes or having an opinion on Tesla’s capital structure.
Benedict Evans (05:02):
And yet in technology all of this stuff sort of happened very quickly and became very big and very important for everybody very quickly. And I think we’re all scrambling to catch up with that. And I think coverage of this is also, frankly, scrambling to catch up with that. And it’s doing that obviously in the context of something of a mall panic, particularly around social media and “big tech,” whatever that means. Some of which is well founded, some of which is nonsense, as is the nature of moral panics. So we’re all sort of scrambling to work out how we talk about this and how we cover it and how we write about it.
Alex Moazed (05:37):
They’re certainly struggling. That is for sure. I mean, if we just double click on this Arm topic, right, it’s your traditional software tech, which we’ll talk a lot about on the show. But what was interesting to me is deal was announced Sunday, boom, right away you’ve got not one but two founders saying, hey, there’s real concerns here about should the UK allow this. Or at the very least, if it is approved, we should have restrictions on it to help make sure that jobs stay in the UK, to help ensure that Britain has some strong kind of trade bargaining power with the United States. And you draw that line of comparison to what’s going on with TikTok and the United States, India to a certain extent. Do you see similarities there between this idea of tech protectionism now coming to more Western democracies?
Benedict Evans (06:35):
Yeah. I’d kind of unpack this. I think there’s two very distinct issues here. One of them is there’s a sort of sensitivity in the UK around creating very important primary technology and it getting bought and leaving the country. So you saw sort of the same thing with the Google acquisition of Deep Mind, for example, a couple of years ago. And why aren’t we creating big giant trillion-dollar tech companies in Europe? So that’s sort of one strand within that.
Benedict Evans (07:03):
There’s also, frankly, a whole bunch of other conversations around the Arm acquisition around … There’s an anti-trust question. And what happens if Arm technology is no longer sort of Switzerland but instead becomes part of a company that competes with a lot of its customers? There’s a bunch of interesting conversations around Arm really more for a semiconductor analyst than me, frankly.
Benedict Evans (07:22):
I think the TikTok thing is much more, I think there’s much more profound geopolitical questions in here. I wrote about this the other day, that if you go back to the Sputnik panic, and ever since then the USA has had this very strong idea that it should be a global leader in technology, particularly because people looked at Sputnik and thought, “Oh my god, they could drop atom bombs on us.” But the sense that America should be a global leader in technology. And by and large, it sort of has been.
Benedict Evans (07:51):
And there was a brief panic in the ’80s around Japan. But that, A, faded away pretty quickly. B, Japan is, when all said and done, half the size of the USA, half the population. So if Japan gets as rich as America, well, it’ll be half the size. Same per capita GDP, it will be half the size of America.
Benedict Evans (08:10):
And also, for all the VCRs and TVs and Walkmans [inaudible 00:08:15] they’re not a means for influencing elections or spying on people. They’re just TVs. They weren’t really anything more than that. Same with cars in a sense.
Benedict Evans (08:27):
Whereas now China poses a geopolitical threat to the USA, and there’s a sort of plausible argument that says on a sort of 2050 to 2100 view China will be a larger economic and military power than the USA on any basis. Today, economists argue a lot about what Chinese GDP really means. But all things being equal, if China doesn’t screw up then in 50 or 100 years China should be bigger than America in the same way that America is bigger than Britain or Germany because you’ve got way more people and you’re a much bigger country. And there’s a sort of anomaly of the last 100 years in which the USA was the biggest economy because India and China, despite having more people, were not industrial economies, and that normally meant [inaudible 00:09:07].
Benedict Evans (09:06):
So this is sort of a moment of oh my god, dear in the headlights moment, sort of reaction to that in the USA. And you see that in all sorts of field. I think when you think apply that to something like Huawei or Tencent or TikTok, you have this sense of, well, hang on a second. This is something that’s being basically controlled by the Chinese government, and any Chinese company is ultimately controlled by the Chinese government, and it’s in our country, and it’s important in some way. So Huawei, and theoretically you could use telecom’s equipment for espionage. But it’s also like, do you want a piece of primary infrastructure dependent on the good will of the Chinese state? If the only electricity transformers you could buy came from China, you wouldn’t actually be worried about spying. You’d be worried about them just not selling you any next year, and then you have a major problem.
Benedict Evans (09:52):
The same thing, Tencent is a [inaudible 00:09:56]. So Tencent there’s obviously questions around … Or not Tencent, but WeChat. And TikTok, you could look at it and say, “Look, it’s just videos. It’s YouTube on mobile. It’s better YouTube on mobile. It’s YouTube 2.0.” Which it’s not a social network actually. There’s no messaging in there. They don’t really know who you are. They’re not reading your email. And on an iPhone they can’t read your email.
Benedict Evans (10:19):
But on the other hand, if YouTube was for sale, what would you think about Chinese government or Chinese company buying YouTube? What would you think about Chinese company buying Netflix? What would you think of the Chinese government had indirect control over Netflix or indirect control over Viacom, say? And the US doesn’t let foreign citizens own US TV stations, which is why Rupert Murdoch had to convert to American citizenship, which of course meant that he wasn’t able to create a wildly popular TV news station that would kind of have a major influence on US democracy.
Benedict Evans (10:56):
So there’s reasons why, real reasons why, we’re worried about this stuff. And I think some of the initial reaction in the US, indeed, frankly, in the US tech press was sort of, “This is just Trump being an idiot again.” And there’s certainly a layer to that. And certainly the way the process was handled was not anybody’s idea of a good government or due process or anything else. But I think people’s eagerness to go to think about Trump [inaudible 00:11:23] the last 5 to 10 years and what it means to say China would own this now as opposed to what it might have meant to say China owns this 5 or 10 years ago.
Alex Moazed (11:29):
Benedict Evans (11:33):
At the core of it, there’s a sort of a real concern there. And I’ll say one more thing and then pause for a breath. But I think the other challenge here is it’s not like TikTok is the only one. There’s going to be 10 more of these things. They may not even be Chinese, but presumably, for the sake of argument, they are. There’s eight or nine hundred million people in China with a smart phone now. More people in China have a smart phone than in the US and western Europe combined. And there’s an awful lot of software innovation in China. So the next cool thing might be in America, but it might not.
Benedict Evans (12:02):
So how do you think in a systemic repeatable way about the next cool thing that all American teenagers or all British, or all German, or all Spanish, or Brazilian, teenagers want to use coming from North America? Might be Turkish, might be Indian, might be Vietnamese. Probably Chinese. You need kind of a rule for the next 10 of these. You can’t just fire off ad hoc executive orders over each one. You need to think in a kind of systematic way, “Well, what do we think about a world in which our teenagers are using stuff that doesn’t come from our country?”
Benedict Evans (12:35):
The irony, of course, is that everyone else in the world has had to deal with that for 25 years. It’s just that it was American. And you’re seeing a whole other side of this which is Europeans and Australians and everybody else [inaudible 00:12:45]. The last 25 years, we let the internet run by default on American rules, and now that doesn’t work anymore because it’s important, so we’re going to have our own rules around how this stuff works. And that’s kind of the other side of the TikTok story is rules the EU or the UK or Australia pass. So we move from a world where it was theoretically a global internet, but in practice it was a San Francisco internet that everybody else used, to a world in which now everybody else sets their own rules too.
Alex Moazed (13:13):
Yeah. There’s a lot there. We’re going to get to Europe in a second on this. It’s going to come full circle. But that’s the interesting thing. You’re making the points here. And going back to the point about the media, this is the stuff that’s kind of confusing yet frustrating to me is you’ve got smart people. You’ve got Larry Summers, “Well, I don’t really know if Huawei is using their tech maliciously,” or, “I don’t really know if there’s a linkage between the CCP and what TikTok is doing.” It’s like a desired naivete that, “There’s no absolute truth of this, even though I think there is absolute proof of it.” But everyone wants to kind of turn a blind eye.
Alex Moazed (14:04):
And I think you hit it on the head. Right? There is an inherent linkage between any large tech business, whether it’s hardware tech Huawei, software tech Tencent, WeChat, Alibaba. We’ve seen just in the past few years a myriad of examples of where the CCP wields its power through these large tech businesses, and that they’re absolutely an extension of the Chinese Communist Party. And you would say, “Oh, well, what’s wrong with that?” Well, the problem with what’s wrong with that is when you have a totalitarian communist government that uses technology basically as a dragnet to police its citizens and enforce its will upon its country and its influence abroad. There’s a disconnect there between how you would want to allow private enterprise to operate.
Alex Moazed (14:56):
And the value that comes from platforms, you understand the value that comes from platforms better than anyone else, right, that values starts to get polluted and diluted very quickly when used in the hands of a government to enforce its political will. That’s kind of one point.
Alex Moazed (15:12):
The other point is that there’s no reciprocity. Right? Where a US company can’t go into China. We can’t go launch a business there and operate with any sort of freedom, or are even allowed to operate. So to me it’s those two things where I feel like the media and a lot of the commentary on TikTok, Tencent ban, is saying, well, what’s going to happen? Is every foreign company going to have an issue operating in the United States? And I think that’s where the media trips up over itself. It’s if you really just look at what’s going on with China to begin with, where you have a massive tech community there, a massive VC community, very smart, brilliant entrepreneurs that are hustling and building great companies, but there is no reciprocity, and you have this challenge between CCP linkage and these now large kind of monopolistic tech companies. So to your point, right, calling that into question, saying, “No, there’s now going to be rules around this,” is appropriate.
Benedict Evans (16:22):
I think the challenge here is that you have to sort of assume a world in which there will be many apps that are not American anymore. And the US has sort of operated by default without any regulation at all. So you have the sort of slightly bizarre situation in which Apple is sort of America’s privacy regulator by default, and California tries to and keeps messing it up. And then you have the EU passing rules as well which get applied globally. And part of the challenge or the sort of due process question around TikTok is you can’t point to a rule that it’s breaking because you don’t know if you don’t have any rules. And if you were to say, “Well, data has to be stored in this way, and algorithms have to be transparent in such and such a way.” If you were to actually make a list of things …
Benedict Evans (17:06):
This is kind of my point. Either you just say, look, Americans aren’t allowed to use foreign apps, which is what you do with TV stations or newspapers, but doesn’t really seem viable in the world of the internet. Or you say, actually, we’re going to have to have a set of repeatable rules, and then we can say, well, you have to follow this rule. And that rule might be the data has to be stored locally, and that’s certainly the approach that the EU has taken, that you actually have to store data in the EU. Or it might be around transparency of recommendation systems or right to access your data. But you kind of have to construct a set of rules that would apply towards these things.
Alex Moazed (17:44):
Why is it foreign versus just Chinese?
Benedict Evans (17:48):
Well, there’s multiple layers in here, because you could equally well argue that this stuff should be applied to Facebook. There’s a layer of concern that is specific to China. There’s also a layer of concern [inaudible 00:18:02]. And then you’re going to get into all sorts of really weird like, well, this company’s technically Vietnamese, but who really owns it?
Alex Moazed (18:10):
I would get into Zoom, because technically it’s a US company, but all the operations are in China.
Benedict Evans (18:15):
You need to get to something that’s repeatable, because it’s not that there’s only going to be one of these. There may only be one TV station that’s for sale this decade, so you can kind of do a process on that one buyer. But there’s not only going to be one cool app on the app store next year.
Alex Moazed (18:31):
If all Chinese apps were banned in the United States, good or bad?
Benedict Evans (18:36):
I don’t think that would be good for anybody. You just want to shut off American consumers’ access to a whole layer of innovation, the vast majority of which has no kind of immediate issues at all.
Alex Moazed (18:46):
Isn’t that basically what’s happened to US companies wanting to operate in China for the past 20, 30 years?
Benedict Evans (18:52):
Well, no. It’s happened to a tiny subset of US companies in China. You could name them on the fingers of one hand.
Alex Moazed (18:58):
I mean tech companies.
Benedict Evans (19:00):
Yeah. Yeah. Tech companies.
Alex Moazed (19:01):
Or larger software companies.
Benedict Evans (19:02):
I think you could name maybe three or maybe four US companies that can’t operate in China on that basis. And either way, I don’t think … There’s an old line about protectionism that just because somebody else puts rocks in your harbor that doesn’t mean that you should put rocks in yours. Clearly there’s a bargaining position in there. But you’re not going to bargain China into turning off censorship of the internet. That’s not a terribly productive position.
Alex Moazed (19:27):
Should the EU have done some level of tech protectionism 10, 20 years ago?
Benedict Evans (19:35):
Well, protectionism against what?
Alex Moazed (19:37):
Against large tech monopolies coming in. Right? I attribute a lot of China’s tech community today because they had strong tech protectionism. Right? Because there’s a vacuum. And you didn’t have these large tech monopolies in there.
Benedict Evans (19:52):
I think that’s an incomplete explanation. I think it’s sort of productive to look, for example, at Japan, which does not have a firewall. Let’s sort of look at this as sort of a way of thinking about this systematically again, which is that you have some markets where basically you have a big domestic market, and so you can create a big either domestic champion or even a global champion. And then you ask, well, is it hard or easy to get in? So Japan is, whatever it is, 120, 160 million people. I can’t remember now. Japan is half the size of the USA. It’s a big market. There’s a whole bunch of language, culture, business structure, or kind of operational structure issues where it makes it very hard to just take a foreign business model and apply it. Some of that is deliberate protectionism. And yeah, EU has protectionism. The US has an awful lot of protectionism. Most of it is actually like you can’t sell an American fire engine in Tokyo because it will just get stuck. There’s an awful lot of that. You actually just can’t apply that business model directly in Japan because it’s different.
Benedict Evans (20:58):
I had a friend of mine work for a company that was deploying a political software in Europe. You had to explain very slowly in words of one syllable that actually, no, you can’t ask Europeans whether they’re Jews. That’s actually really profoundly not okay. And record that in a database in France or Germany. Let me explain to you why you can’t do that.
Benedict Evans (21:22):
So, yes, there’s a bit of protectionism. Most of it is just the other country is just completely different. My point is, therefore you have big Japanese internet companies. Most of those actually failed to go out, leave Japan, because the market everywhere else is so different from Japan. In Europe, you have relatively small markets, and it’s relatively easy for a global giant to get in, which means you have some European internet companies going to be one per country. You don’t have global giants, and the American giants got in quite easily.
Benedict Evans (21:48):
India is sort of an interesting case because it’s somewhere in between in that it’s bigger than Europe. It’s not a billion people. It’s like 150 million people, any kind of internet company. And it’s harder to get into than Europe, but it’s not as hard to get into as Japan. South Korea is also interesting here because it’s kind of a small-ish market, but it’s also very hard to get into because it’s, again, so kind of unique.
Benedict Evans (22:06):
And I think some of China is about the firewall, yes, and about a bunch of other issues around that. But I think a lot of China is also like it’s just a completely different market. There’s the first tier cities and the third tier cities. And the third tier cities, nobody had ever organized retail. Like they’re all 150 years of department stores and supermarkets. Nobody has a bank account because they killed all the bankers and they don’t have any banks. You can’t just take an American retail model and just do it in China in the same way.
Benedict Evans (22:38):
And so I think quite a lot of the China thing is the firewall, but I think a lot of it also it’s just a radically different market. This is also incidentally why Chinese internet companies have all completely failed to go overseas. So it’s this whole story like four years ago, oh my god, WeChat’s going to take over the world. No, it didn’t. Because it was so specific to how the Chinese internet market worked. And they tried to launch all the way across Africa and all of west Europe, and completely failed, for the same reason that 20 years ago all these Japanese consumer companies trying to launch everywhere completely failed, because the product was designed for Japan. And the engine and the product team that comes to Britain or South Africa, maybe not the office in Japan in this case, because all the WeChat people in India find people in China, and they can get anyone’s attention, because what’s going on in China is always so much more important than anything they’re trying to do in India.
Benedict Evans (23:24):
All this kind of point is sort of getting into, it started by asking about protectionism, I think there is an element of protectionism to TikTok, clearly. There’s also an element of protectionism to things like GDPR. But there’s I think much more profound it’s just like sort of the Westphalian point that it’s our country and we decide what the rules are. And the fact that you built this based on what people at the EFF and Berkeley think, I don’t care. And you come to us and say, “Well, we’re not doing that because the second amendment says,” and I’m like, “Well, which one’s the second amendment? Is that the one that says you’re allowed to own a machine gun? Is that the one that says black people are worth two-thirds of a white person? Is that one about … ” Right? I don’t care what it is. We have our own rule of laws here. Thank you very much.
Benedict Evans (24:06):
And I think Americans sometimes don’t quite understand that and think that it’s all protectionism. And basically, it kind of isn’t. It’s like it’s our country, and everyone in our country is using this stuff now so we have rules.
Alex Moazed (24:17):
Yeah. Look, I mean, I’m not going to be able to oversimplify it and capture it in one point, but I would say you are arguing some of the points that I think it’s one parcel of a broader picture. But I would say generally we’ve seen protectionism on the West help engender a stronger tech community, and over on the East and Europe I think they could’ve benefited from a little bit more of that. And GDPR, I like your term on GDPR, it was a known goal. GDPR, I actually think Facebook and Google should be kissing the feet of the European legislators because GDPR just killed off their smaller competition or made it much harder for the smaller competition to compete. And post-GDPR, Google and Facebook had a bigger share of European advertising dollars.
Benedict Evans (25:12):
And everywhere else, because GDPR effectively applies globally. I think that there’s two things here. One of them is that there is, well, we can kind of come back to this, a European attitude to privacy and data and your ownership of your data that can sometimes seem very alien in the USA. We’ve got a very small kind of microcosm … We go into a bar in San Francisco, and I just moved there, and the guy asked to see my driving license. I mean, I don’t look like I’m 19 anymore. And I kind of looked this up and realized that they’re scanning that against a national database run by a private company. Do you have any idea how many different ways you would get sent to prison if you tried to do that in Europe? And in America it’s just fine because it’s not the government. So anyone else can fuck with your liberty any way they like as long as it’s not the government. So there’s just kind of very profound cultural differences in what should be allowed within that. I think that’s one thing. The second thing, the point of the GDPR as being an end goal, absolutely. That’s partly kind of massive regulatory arrogance. It’s partly, frankly, a problem of unintended consequences.
Benedict Evans (26:16):
So I was at a competition regulators conference at the beginning of this year. And one of the people from both Europe, and there were a bunch of other places, Singapore, and South Africa, and Brazil, and so on, and one of the comments was, “We go to a company as a competition regulator and we say, ‘You must do this.’ The company then goes down the street to the privacy regulator, and the privacy regulator says, ‘You absolutely must not do that.'”
Benedict Evans (26:41):
And GDPR is kind of a perfect case study of this because setting aside how effective you think it actually is, opposed to theoretically is, in protecting privacy and all the kind of practical problems with actually complying with it, presume that all of that worked, it wasn’t about competition, it was about privacy. It was about all sorts of random companies you’ve never heard of raking your data and sending it this, that, and the other way. It wasn’t intended to say Google can’t do that or Facebook can’t do that with its own data. It was like I bought something on a website, and now they sold it to my health insurance. It was that kind of a law.
Benedict Evans (27:19):
So this is sort of the inherent problem in both regulation technology, but, frankly, it’s like welcome to policy, because all regulation is like this. There’s always unintended consequences and trade-offs. The classic one that comes up a lot in America is 50, 75, 100 years of public policy basically made it very hard for black people to buy homes and build that as a wealth creating access class. So black people are shut out of that. On the other side, houses are too expensive, and we’re needing house prices to come down. Well, fine, but you’re going to need to pick one of those, at least one of those in each city. You can’t both want house prices to go up and want house prices to go down. And that’s how policy works.
Benedict Evans (28:03):
And we’re still sort of halfway through that discussion in technology. The analogy I often use here is like regulating the car industry, where you can go to GM and tell them that the cars have to be safer. You can’t go to them and say you have to make gasoline that doesn’t burn. And we’re still sort of having those conversations in technology where we’re kind of … And you also can’t tell them to fix parking. GM would kind of agree, yeah, parking’s a problem, but that’s not on us.
Alex Moazed (28:34):
And the regulators, presumably, can understand how a car works much better than how technology and the internet works. They’re still struggling on that. That’s why if we go to anti-trust for a second here, this is where I would give the EU … I would say the EU kind of has a shotgun blast approach when it comes to anti-trust. One of the things I like with this Ms. Vestager that I think she’s on the right thread here, and we kind of saw this in the House Judiciary Committee maybe a month or two ago, focusing on this relationship of producers, and saying that platforms when they get to that monopoly size, they take advantage of the producers first. Would you agree with that sentiment and that direction in terms of focus on anti-trust? And do you think that that’s directionally happening in Europe?
Benedict Evans (29:35):
I’ll make sort of a general observation and sort of specific one. I think the general observation is, and this is probably an hour-long conversation in its own right, that anti-trust in the USA, and indeed regulation in general in the USA, tends to be focused on crime. It tends to be, “This is a law. You broke this law.” Most obviously, does this break the Sherman Anti-Trust Act. So it’s fascinating that Tim Wu was watching the hearing, and he said, “That’s a breech of the Sherman Anti-Trust Act.” The Sherman Anti-Trust act was written in 1890. I’d be surprised if there’s any law still in action in Britain that were written in the 19th century. It’s like the inversion of the American self-image that Europe is all older than America. No, actually America was all founded on laws written 75 years ago, and you’ve got these people pawing over them like Torah scholars. “Does the app store break the Sherman Anti-Trust Act?” And the European attitude is, who cares? Is it a problem? If it’s a problem, we’ll change it.
Benedict Evans (30:28):
So the US attitude is we’ll look for the law, and has the law been broken, and then we’ll go to court. And the European attitude is, is this an important market? Does it lack competition? Does a lack of competition cause consumer harm? If it does, then how do we add more competition? What do we do to insert more competition? And that doesn’t involve going to court or fining anybody necessarily. It may. But it doesn’t involve proving a crime. You just sit and do the analysis and say, “Well, we think it would be better if this market was more competitive, so we’re just going to do this.”
Benedict Evans (31:00):
And that’s a very alien attitude for Americans who are used to thinking in terms of finding a law that’s been broken. Europe, it’s just, “Okay, we’ll just make a new law then. Sorry.” America doesn’t really do laws anymore, which is kind of a separate conversation.
Benedict Evans (31:15):
So that’s sort of the general pretty profound kind of cultural difference in understanding what it is that you’re looking at.
Alex Moazed (31:21):
Who do you think is harmed more? Is it your average consumer, or is it the suppliers?
Benedict Evans (31:27):
Well, it’s interesting, and this is the other kind of philosophical difference which has sort of been coming up recently, is that the US has sort of evolved this idea that the only thing you’re looking for is low prices for consumers. And that’s now being challenged. And the EU and the UK have much more generally had the view that competition is also an objective of itself because competition might produce new kinds of products with better experiences. And that even if that might result in different pricing, it’s not necessarily automatically a good thing.
Benedict Evans (31:57):
So, very obviously we had this case around e-books sort of five or six years ago, where everyone who’s involved in the publishing industry still say that it was all nonsense and they just had to settle because they didn’t have a choice, which is another point about the US legal system. They still say it was just not true. But the DOJ’s case was the publishers got together to try and create more competition in the market by raising prices. So if there were more prices, if the prices were higher, you could have more competition because you wouldn’t all be squeezed out by Amazon’s low prices. So more competition comes with high prices. That was the DOJ’s theory of harm. More competition came with high prices, therefore bad. And the EU would not look at that and automatically say, “Well, that’s therefore bad.” The EU would say, “Well, maybe high prices would be good if that meant more competition.” So, again, there’s the sort of fundamental difference in the philosophy of what it is that you’re trying to achieve, and of course the mechanism for how you would get there, because, again, the US mechanism is crime, and the EU would not necessarily [inaudible 00:33:03].
Benedict Evans (33:02):
But you asked another question sort of within that, which was about if you want to run a platform you can’t compete on it kind of conversation. I think there’s a sort of profound confusion in this, and I think there’s two layers of confusion. The first one of them is you’ve just banned Google Maps. Google makes Android. You’ve just banned Google Maps. They’re not allowed to make a maps platform on that device. Also, there’s no Gmail app allowed, no search app allowed, no maps app, no photos app. In fact, no Google apps were allowed on that except maybe a calendar or an address book.
Benedict Evans (33:39):
This is of course the argument that we had 20-25 years ago with Microsoft. What are you allowed to include in Windows? And clearly, Office wasn’t included in Windows. But this sort of logic if you own the platform you can’t compete in it would also of course ban Microsoft Office. Or it would force them to split Microsoft Office apart.
Alex Moazed (33:56):
You make this point really well, that it’s not about breaking up these companies, it’s more about how do you regulate their operations, how do you fine tune the operation. Right?
Benedict Evans (34:06):
Yeah. So you’ve had this conversation in the EU around app stores, which, again, is this crime versus regulation conversation. And the EU has passed a law, which is sort of going through the implementation phase, that says there has to be independent appeal process for the app store. And that’s a very different question from like Apple isn’t allowed to make a music service. Because when you get right down to it, 98% of all the problems that occur on the app store are not because you’re competing directly with Apple. Yes, there’s Spotify, yeah, maybe Kindle. You could argue that Fortnite competes with an Apple product, Apple arcade, but that’s really tenuous. It’s a completely different kind of game.
Benedict Evans (34:48):
But you go and talk to developers about their horror stories of the app store, and it’s not that they were making something that Apple did, it’s just something the Apple app store review process was all screwed up and the rules keep changing. So it’s not a competition problem.
Alex Moazed (35:01):
Yeah. The two general gripes, again, I’m overgeneralizing here, across all producers, whether you’re a driver on Uber, a seller on Amazon, a website on Google Search, a app developer on Apple, two biggest gripes, hey, you penalized me. I need an independent way to challenge that because you didn’t get the full story. You never listened to me. I have no way to rebut this.
Benedict Evans (35:25):
Yeah. It’s not that they were trying to screw … The complaint is mostly not that they’re trying to screw you, the complaint is that their internal process failed.
Alex Moazed (35:34):
Exactly. And you need to give me an audience to make my side of the story, because in many of these like Uber I don’t even get to talk to a human ever. But you need to give me that audience.
Benedict Evans (35:47):
It’s like we have the police department, and then we have a judge. And the purpose of the judge is to check whether the police have screwed up. And there’s no-
Alex Moazed (35:53):
Benedict Evans (35:54):
There’s none of that separation in the app store, in Google search, in Facebook. Now, to be fair, none of this existed 10 years ago. And if you make all of it, and it’s hard to scale, and if you make all of this public then you create all sorts of opportunities for people to game the system, including of course big newspaper companies and big software companies. We would all love to game the system. So there’s a challenge, and there’s this sort of naïve idea, “Oh, so they should just publish all the processes.” Yeah, that might not be a great idea. But that is sort of the core of it is it’s not a competition problem, it’s an execution problem.
Benedict Evans (36:28):
Back to the you can’t own the platform and compete in it, something like 30% of US grocery sales are own label. There’s arguments where like I disagree, but I understand what you’re saying. There’s arguments where I agree and I think you’re wrong, or maybe I might agree with you, but I understand the argument. The argument Amazon should not have a private label, I just don’t understand what the argument is. That’s been a basic part of retail for 150 years. You go into Walgreens, they sell Band-Aids, and they sell their own label Band-Aids. Are you banning that? Why? And if you’re going to ban it on Amazon, why aren’t you banning it in Walgreens? Why is Walgreens not allowed to sell own label Band-Aids? What is the logic here? And it seems to me very hard to avoid.
Benedict Evans (37:15):
There’s this sort of trope of people criticizing a tech company where they say, “You dumbass, you’ve just invented buses,” or, “You just [inaudible 00:37:22],” or, “You just invented vending machines.” Well, here it’s like the critics of Amazon have just discovered retail. That’s what retail does. They do own label. It’s been around for 150 years. Like welcome to the retail industry. That is one of the rare cases where I just think there’s no coherent argument at all. Everything else, there are areas that you can argue about it.
Benedict Evans (37:41):
But it’s again to that point, you can’t own a platform and compete on it. Well, that’s what Sears Roebuck did. That’s what Macy’s does.
Alex Moazed (37:49):
Second gripe is, you just raise prices on me arbitrarily. You’re one or two only players in town. I’m an Uber driver. It’s the holiday season. Now you take 25% instead of 20. I’m an Amazon seller. It’s the holiday season. Same deal. Right?
Benedict Evans (38:04):
Wait ’til you discover what Walmart does.
Alex Moazed (38:07):
Well, again, it’s not saying break them up, but how do you provide protections for these suppliers where there’s only one main employer or channel for what they’re selling or the value they’re creating, which I think is a lot of what you’re getting at.
Benedict Evans (38:29):
It’s interesting. I wrote a piece recently about … I’ve written several pieces about regulation recently, and I wrote a piece specifically about break them up. And sort of the first half of the piece was explaining why half the problems we worry about are not competition problems, and most of the rest wouldn’t actually get solved if we broke them up anyway.
Benedict Evans (38:45):
But the second piece was to sort of dig into, and the analogy that I used was the breakup of AT&T. Breaking up AT&T meant that you had competition in long distance. And if you were an equipment company, you now had competing buyers. But if you were a normal consumer in New York or Chicago you had a national monopoly replaced by a monopoly. They were still a local monopoly. And that was because local phone service is a natural monopoly, and you can’t break it up; you have to do something else.
Benedict Evans (39:10):
So you then contrast that with their breaking up AT&T with sort of very mixed success actually. Now, you then contrast that with what everybody outside America did with broadband in the early 2000s, which is to say, yes, a piece of copper going into your house is a natural monopoly. We can’t split it into five different parts. But what we can do is whole sell it and say you have what’s called unbundling the locals, or in the USA it was called UNEP, where a third-party broadband provider can put their own equipment into the telephone exchange, run fiber to that building, and then physically connect to the piece of copper that goes from your home to the telephone exchange. And the economics of that actually do make sense.
Benedict Evans (39:48):
So as I’m speaking to you in London now, I have the phone company, British Telecom, and a cable company, Virgin Media, and I have eight other companies that will sell me broadband on wholesale access over that piece of copper from British Telecom. And, in fact, British Telecom has a minority of broadband supply in the UK because there are so many wholesale providers. And that’s not the UK, that’s how everybody else did that, everyone. Everyone except America did that. And the result is that everyone outside America has massively competitive broadband markets, and the USA kind of doesn’t.
Benedict Evans (40:16):
The other example that I think is super interesting just happened in the last couple of years, is regulating credit card exchange. When you swipe your card, Visa or MasterCard take a cut, and the merchant doesn’t get a choice which card you use, and they also don’t get to decide they’re not going to have Visa or MasterCard. They’ve got to take the card. This is why some people don’t do Amex, because Amex charges more. But they can’t not take cards, so they don’t get to decide that they’re going to give that company 3%. And that 3% pays for your credit card rewards.
Benedict Evans (40:49):
And the EU over the last five years said, “Hang on a second, this is monopoly,” or duopoly. And the prices are now capped at I think 0.5%. So European credit card rewards have gone away, which is like tough. But I think that’s a much more interesting model to think about, for example, how internet advertising works. How does Facebook advertising work? How does Google advertising work? How does search work? The UK’s competition authority has proposed that competing search engines should get access to clickstream data from Google search. And they’re not going to get that, and that’s … And their point is, again, this is a monopoly. How do we insert more competition?
Alex Moazed (41:29):
How can you invite other competitors into the market, right, and kind of open up data, for example. I think you, one of your articles was talking about one of the UK commissions promoting that for Facebook, opening up data for other social networks. Right? So how do you promote more literal direct competition from other, say, tech startups? That’s a great point. And then the other thing we’re talking about is protecting suppliers and producers. But all of these things require a very deep and nuanced understanding of not just platform business models at a high level, but each specific company.
Alex Moazed (42:08):
And the irony of this, as I was listening to a talk by Steve Ballmer a few years ago, and he had kind of exited from Microsoft at this point and was just dreaming about basketball. But his point was, if you just pass one big law it’s going to backfire. These companies are so big, and they’re actually very unique, you need to have very targeted regulation to tweak their operations on an individual one by one basis. Otherwise, if you just try and have something apply to Facebook, Amazon, Google, and Apple, and Microsoft, it’s just never going to work.
Benedict Evans (42:52):
I think it’s useful to compare with, say, banks or, indeed, cars. We regulate banks, but actually we don’t. We regulate credit cards and mortgages and capital adequacy ratios and deposit insurance and futures and options and bank note printing. And you could go to the Chicago Board of Options and ask them for their opinion on frozen concentrated orange juice futures and they’ll have opinions. But don’t ask them about redlining or mortgages, because they’ve read about it in the Wall Street Journal, but that’s not what they do.
Benedict Evans (43:22):
The same thing in cars. You can go to GM and say the cars have to be safer. You can also go to them and say, “You’re screwing your suppliers, and we’re going to do something about that.” You can’t tell them to stop criminals using cars. You can’t tell them to put a congestion charge in Manhattan. You can’t tell them to solve parking.
Benedict Evans (43:42):
We also, incidentally, we have speed limits, but we don’t force the car companies to enforce speed limits, although we could, which is interesting as a sort of piece of sociology. Why are you allowed to sell a car that can drive at 150 miles an hour? And we enforce safety measures in cars. But we don’t force you to sell your car and buy a new one that’s got an airbag. So there’s like 45 different problems around cars, and some of it’s on GM, some of it’s on the city council, some of it is on financial … like your loans to buy cars. Well, is that on GM or is that on the financial regulator? Maybe both. I don’t know. I don’t know how [inaudible 00:44:18]. But that’s not the same question as car safety. It’s not for the [inaudible 00:44:23], whatever it’s called, National Highway Safety, whatever. You know the one I mean. The five-letter acronym. I can never remember what it is. But it’s a different problem.
Benedict Evans (44:30):
And the same thing for banks, the same thing for food. There’s all sorts of regulation about food, but health inspection of restaurants is not the same as who decides whether hormones are safe for milk. It’s a different problem. Or animal safety or animal welfare or slaughterhouse standards. They’re all different problems. And we’re sometimes I’m afraid at the stage of shouting tech. But what is tech? It’s like saying food or cars or banking. It just doesn’t mean anything. You have to actually go and find a specific problem and say, “We’re going to solve that specific problem.” Very often, that’s not a national question.
Benedict Evans (45:10):
One of the topics that comes up around Airbnb, for example, and I should say as a former Andreessen-Horowitz employee I have financial interest in Airbnb, but there are questions around Airbnb impact on house prices and questions around, for example, people buying an apartment building and renting out all the apartments as Airbnb, basically bypassing all sorts of existing regulation and creating situations that are clearly not what anybody had in mind. And how do you regulate that?
Benedict Evans (45:34):
And the answer is, you don’t have a big tech regulator that regulates how Facebook deals with Snapchat and also regulates Airbnb’s vetting of [inaudible 00:45:42]. Like that’s not the same problem. Who deals with that Airbnb question? Well, London, and Venice, and Barcelona. Venice says no one in the old town … you can’t rent for more than 70 weeks a year. Well, that’s for the Barcelona city council.
Alex Moazed (45:54):
Yeah. It’s very localized.
Benedict Evans (45:56):
Well, some of it’s localized, some of it’s global, but they’re different questions. And you have to kind of get to that specificity of what actual problem are you going to try and solve here.
Alex Moazed (46:05):
That’s what I think we’re lacking in kind of the US DOJ FTC. I feel like the EU probably has a little bit better handle on it from what I’ve seen from Ms. Vestager and other kind of statements they’ve made. But I think the US, from a conceptual grasping of this, is just not there.
Benedict Evans (46:24):
I think there’s a set of specific challenges around, for example, a theory of anti-trust that encompasses pricing around a theory of privacy that basically there is no privacy law. There’s no law around free speech, for example, that’s just sort of only for the government. There’s sort of a lack of institutional cultural and institutional frameworks. There’s a lack of sort of a cultural presumption that you regulate things.
Benedict Evans (46:50):
It’s funny to say this because in many ways America is a very, very highly regulated country. But it’s something that sort of comes in jumps. You get the FDA-
Alex Moazed (47:04):
Right. Yeah. Big leaps.
Benedict Evans (47:05):
And then you get the FCC 20 years later. For whatever reason, whatever the history of it, there isn’t that culture of just looking at problem and saying, “Well, we’ll just regulate that.” You have to have an existing regulatory agency for it. So I think that’s a challenge.
Benedict Evans (47:20):
I think there’s also the downside of this is one can sound like sort of endless process [inaudible 00:47:27] it’s like the old joke in the army that if it moves, salute it, and if it doesn’t move, paint it. And that’s sort of how the EU thinks of our companies. If it moves, regulate it. And if it doesn’t move, subsidize it. And that produces just presumptions of, well, of course you would regulate that, and of course the answer to this is regulation.
Benedict Evans (47:50):
In the same way that you talk to an anti-trust lawyer that of course the answer is anti-trust. It’s the boy with a hammer that thinks everything is a nail. And I think we started this with TikTok, and it would be good if some of the outcome of this in the next few years was the sort of systemic thinking about privacy regulation. [inaudible 00:48:11] California are trying to do that by default, and the California sort of laws are drawn up in such a way that they kind of apply nationally anyway.
Benedict Evans (48:18):
But the flip side of this is of course California drew up its law on privacy in such a way that nobody has a clue what it means. You’re not allowed to sell my data. Okay, what does that mean? Does Facebook sell my data? Well, then my data doesn’t leave Facebook. So are they selling it? Nobody knows. No one knows what it means.
Alex Moazed (48:36):
We’re going to go out with a bang here. Let’s close out the media conversation with, let me just cite a couple stats to you. CBS, market cap $18 billion, seven PE multiple. Disney, $237 billion market cap. They lost roughly 37 PE. They lose some money, so it’s a little hard to calculate, but 37 PE. Netflix, $210 billion market cap, 80 PE multiple. Do you think Netflix is overvalued?
Benedict Evans (49:10):
So, look, I haven’t been an equity analyst since sort of 2005 or thereabouts. So I don’t do [inaudible 00:49:18] forecasts anymore. Of statement to the blindingly obvious, companies are worth a value of their future cashflow. And so PE implies expectations that they will get much bigger than they are now. A PE says that’s how much bigger they’re going to get. It’s a bet on future growth.
Benedict Evans (49:37):
How does one think about what Netflix is doing? I usually compare Netflix with Sky in the UK, which many of your audience may not be familiar with. What Sky did was they said, well, there’s now this satellite thing, and football is free. And if we buy football, then we can sell it on satellite, which no one has ever done before. We might be able to charge massively more for football than anyone imagines it’s worth. We might be able to sell football.
Benedict Evans (50:06):
First of all, I was like, “Wait, what are you talking about?” Secondly, we might be able to pay massively more for it than anybody has ever thought it was worth. So they created this vast new business paying for football and then selling it at $100 a month. And half of the UK signs up to Sky, and they buy the football pack, and there’s a sort of fire hose of money going into Premiership League, which is why it’s the most popular football league on Earth, much more than the NFL on the USA.
Benedict Evans (50:37):
And there’s a sort of parallel point about Netflix, which is Netflix says there’s this new distribution channel which means we can go direct, and we can build our own revenue platform, our own purchasing platform, into that. And we could buy drama and sell it at massively more than anybody thought you could before. And therefore we can spend massively more. And you get this flywheel of spending more money to get more and more shows and better and better shows.
Benedict Evans (51:02):
So the amount of money that’s spent on TV is massively more than it was in the past. You remember there was this anniversary of Miami Vice recently, the TV show. You go look it up, Miami Vice was showing against something called Faulken Crest that nobody remembers now. It’s a soap opera. And the other competition was a show about a Texas millionaire who was a private eye in his spare time. Are you kidding me? Can you imagine those shows being on primetime now, like those being the shows? And that was TV.
Benedict Evans (51:35):
So Netflix realized that you could spend massively more on much more and much better TV than anyone had done before. I’m not going to belabor the point. The point is I haven’t mentioned technology once. Not a software company, it’s a TV company. It’s a TV company that’s using this new technology as a crow bar to break into technology with a new distribution model and a new revenue model. But it’s a TV company. Is it going to work? I don’t know. Ask a TV person. What is their maximum potential audience in the next 10 years? How many people in Europe, in Latin America, in South Asia, in Indonesia are going to sign up for Netflix? I don’t know. Ask a TV person. Ask someone at Star TV. They know. They’ve got a view on that.
Benedict Evans (52:12):
I have no clue what the addressable market for Netflix is in India. As we said earlier, it’s not a billion people. It might be 10 or 20 million people. I have no clue. Run that model up, all the way up. What is the world’s first global TV channel worth? How many shows do you need to buy? How many local shows? What are your local operations? How many subscribers do you get? How many customers does it get? If Netflix in n years time, if Netflix has 500 million customers, what’s that worth? Say the average customer isn’t spending $2, so the average customer’s spending $2. I don’t know. What is an Indian customer going to spend? A dollar, two dollars, I don’t know. You can run that model. I’m sure there’s a way you can run that model that gets you to Netflix’s share price.
Alex Moazed (52:57):
No, it’s a great point. I think in your Sky example, the infrastructure to do satellite versus over the top streaming versus-
Benedict Evans (53:10):
But it wasn’t their satellite, so it was even cheaper.
Alex Moazed (53:14):
Yeah. Me, personally, I think Netflix, the competitive landscape relative to, say, a YouTube, for example, whether I want to own Netflix or YouTube would be another way to talk about it. Right? I’m taking YouTube every day of the week just because of that supply side network effect where it’s just a race to spend more money on content, Netflix. And yes, they were the first one. But Disney Plus getting 100 million subscribers in, what, nine months of launch, yes, it’s Disney, but still, I think Netflix is still under 200 million subs.
Benedict Evans (53:47):
There’s no technology there. Let me rephrase that, because that’s going to sound really stupid. Because actually there’s kind of a super interesting point here. If you’re a retailer, the store has to be great, but that doesn’t mean you’re in the real estate business. Now your website has to be great. If you’re a retailer and now you have a website, the website has to be great. That doesn’t make you a tech company. It’s still about the bags and the merchandising and the customer acquisition and the advertising. Netflix, the website has to be great. And maybe the website’s better. Maybe the streaming’s better. I don’t really know. Maybe it’s better. Who cares? It’s still about the TV shows. If there was nothing on Netflix except reruns of Cheers and Friends, would it be at a PE of 80? No. So that just tells you, it’s not a software company, it’s a TV company.
Alex Moazed (54:36):
Exactly. Let’s end it on that point. Funny enough, Amazon Luxury just launched this morning. I know you have some thoughts on that, but-
Benedict Evans (54:43):
It’s a contradiction in terms.
Alex Moazed (54:45):
Yes. Right? An oxymoron.
Benedict Evans (54:47):
It’s like the Social Democratic Republic of Germany.
Alex Moazed (54:51):
Love it, Benedict. We’d love to have you back on and join us. This was really great. Thank you so much for spending the time.
Benedict Evans (54:57):
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