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TikTok Proved Silicon Valley Is Done Innovating
It’s more interested in scooping up or blatantly copying its innovative rivals.
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🏜️ TikTok and Silicon Valley’s innovation drought 🏜️
The Buy/Sell/Hold Analysis
About a month from now, TikTok — the Chinese-owned, video-sharing phenomenon — must sell its U.S. operations. Given the app’s 50 million daily users, this forced divestment by President Trump has ignited a frenzied auction now pitting tech giants Microsoft, Oracle, and Twitter against one another.
The White House and Big Tech are dressing up the TikTok saga as a combined story of national security and opportunistic capitalism amid unfortunate geopolitical tension between the U.S. and China. But the ultimatum to ByteDance, TikTok’s owner, is more accurately understood as a sordid window into Silicon Valley’s utter failure to innovate, and a warning signal of its transformation into a mere guardian of long-established turf. It is the Valley nakedly abandoning its long-argued orthodoxy that it can and should be left alone to invent its way into global tech leadership.
Huawei, another target of the Trump administration’s tech war with China, best foreshadowed the optics. In remarks to reporters in March 2019, chairman Guo Ping said, “The U.S. government has a loser’s attitude. They want to smear Huawei because they can’t compete with us.”
This is about more than just the sale: ByteDance produced the hottest new social media platform on the planet, and Facebook, in typical fashion, responded by unabashedly copying TikTok, adding a feature called Reels to Instagram, just as it has copied older IPs like Snapchat and Twitch or absorbed firms like Oculus and WhatsApp. The rest of the tech community has either remained silent about confiscation as a business practice, or jumped headlong into the fray.
Silicon Valley is just fine with the gun put to the head of ByteDance, whose negotiating leverage is much-diminished given the circumstances — an American tech company will get a sweetheart deal because the Chinese company cannot walk away entirely from the sale. Just another day wringing out profit from vulnerable, innovative rivals for Silicon Valley, once a libertarian-tinged bastion of bootstrapping free enterprise, now a profiteer of the standard shakedown.
— Steve LeVine
⚡ Lightning Round ⚡
⚡ Amazon Expands Its Real Estate Footprint. Another sign that the perma-WFH trend might be overblown: The e-commerce giant revealed it’s expanding its office space by 900,000 square feet across New York, Phoenix, San Diego, Denver, Detroit, and Dallas, as part of a move to add 3,500 corporate jobs to its roster, according to the Wall Street Journal. 2,000 of those new jobs will be based out of Amazon’s New York City offices in the historic building that used to be Lord & Taylor’s flagship store, which Amazon purchased from WeWork in March for more than $1 billion. Coming shortly after Facebook’s decision to lease 730,000 additional square feet of office space in Manhattan, it seems like Big Tech is taking advantage of rising vacancies and dipping real estate costs to score a deal. Buy.
⚡ Uber Unveils Its Monthly Membership. In the midst of threatening to shut down operations in California over a judge’s orders last week to classify its drivers as employees, the ride-sharing company expanded its Uber Pass subscription service from its initial test markets to over 200 U.S. cities on Tuesday. Pass costs $24.99 a month in exchange for an underwhelming variety of discounts, including free Uber Eats delivery on grocery orders over $30. Arriving late to the subscription game at nearly twice the cost of Amazon Prime ($12.99 a month), you’d think Pass would offer members more — especially in the middle of a pandemic when people aren’t going anywhere. Sell.
⚡ Airbnb Files to Go Public. The longtime subject of IPO speculation finally announced it had submitted its S-1 to the SEC on Wednesday, launching what could be one of the biggest, most-anticipated public offering sagas of the decade. Hit hard by pandemic lockdowns, the online rental marketplace was reportedly last valued at $18 billion following a new $1 billion funding round this April — a steep drop from its $31 billion valuation in 2017 — and the following month saw projections that its 2020 revenue would be halved and layoffs of nearly 2,000 employees. But with guest bookings beginning to rebound — and the current stock market surge — 2020 may yet turn out to reward Airbnb for choosing this moment to enter the fray. Hold.
⚡ Seated Raises $30 Million. Of all the startups you might not expect to raise money during a pandemic, a restaurant reservation service offering cashback rewards ranks pretty high. That hasn’t stopped Seated, which on Tuesday announced it had raised $30 million in a deal led by Insight Partners and is acquiring VenueBook, which allows people to reserve venue spaces. With the U.S. currently suffering a singularly apocalyptic crisis for both the restaurant and live events industries, Seated — which now also offers takeout and delivery options through its Seated at Home service — and its investors seem to be playing a very long game. Sell.
📈 The Number: 97%
That’s how much Walmart’s online sales grew in the second quarter of 2020, compared to the same period last year.
It was a remarkable performance for the big-box giant, particularly considering Walmart’s reputation as a laggard when it comes to e-commerce. It has long appeared to be fumbling around in response to rival Amazon’s expansion: That includes its big bet on online retailer Jet.com, a $3.3 billion acquisition that it shut down in May, in a move that might have looked like yet another setback. But now it seems that Walmart’s e-commerce arm (headed by Jet.com’s founder, Marc Lore) has found its footing, adding online-ordered curbside pickup options to the mix. This surprising bump in online orders was an exclamation point on a blowout quarter, with same-store sales up 9.3%. A few other big retailers saw similar boosts: Home Depot’s sales were up 23%, Lowe’s up 35%, and Target’s (which also benefited from embracing curbside pickup) up 24%. Lots of people love to hate on the “big box” store phenomenon (seemingly showing its age as a relic of the ’80s and ’90s), but it seems that when tested, these giants can keep up.
— Rob Walker
📖 Marker’s Long Read: How 3M — the manufacturing giant that makes Post-It notes and Scotch tape — blew its reputation on the N95 mask fiasco.
🔎 Marker’s New Fixation 🔎
If you’re a Netflix user, there’s a sound you probably don’t even realize you’re very familiar with: the two ta-dum beats that play at the start of a Netflix original — its “sonic logo.” A recent episode of Twenty Thousand Hertz — a podcast about sound design — takes a deep dive into how that effective sonic logo was created. Netflix executives wanted something “cinematic” that didn’t use words (à la “This is CNN”), and explicitly wanted to avoid anything that suggested a video game or computer operating system. There were a slew of submissions, many hours of painstaking tweaks, and extensive consumer testing, culminating in listeners who associated the sound with terms like “dramatic,” “interesting,” and (jackpot!) “movie.” Yet another reminder that something that seems so taken-for-granted is often the result of massive time, energy, and creative effort.
— Rob Walker
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