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Apple’s Tim Cook warns of adtech fuelling a “social catastrophe” as he defends app tracker opt-in

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Apple’s CEO Tim Cook has urged Europe to step up privacy enforcement in a keynote speech to the CPDP conference today — echoing many of the points he made in Brussels in person two years ago when he hit out at the ‘data industrial complex’ underpinning the adtech industry’s mass surveillance of Internet users.

Reforming current-gen adtech is now a humanitarian imperative, he argued in a speech that took a bunch of thinly-veiled swipes at Facebook.

“As I said in Brussels two years ago, it is certainly time, not only for a comprehensive privacy law here in the United States, but also for worldwide laws and new international agreements that enshrine the principles of data minimization, user knowledge, user access and data security across the globe,” said Cook.

“Together, we must send a universal, humanistic response to those who claim a right to users’ private information about what should not and will not be tolerated,” he added.

The message comes at a critical time for Apple as it prepares to flip a switch that will, for the first time, require developers to gain opt-in user consent to tracking.

Earlier today Apple confirmed it would be enabling the App Tracking Transparency (ATT) feature in the next beta release of iOS 14, which it said would roll out in early spring.

The tech giant had intended to debut the feature last year but delayed to give developers more time to adapt.

Adtech giant Facebook has also been aggressively briefing against the shift, warning of a major impact on publishers who use its ad network once Apple gives its users the ability to refuse third party tracking.

Reporting its Q4 earnings yesterday, Facebook also sounded a warning over “more significant advertising headwinds” impacting its own bottom line this year — naming Apple’s ATT as a risk (as well as what it couched as “the evolving regulatory landscape”).

In the speech to a data protection and privacy conference which is usually held in Brussels (but has been streamed online because of the pandemic), Cook made an aggressive defence of ATT and Apple’s pro-privacy stance in general, saying the forthcoming tracking opt-in is about “returning control to users” and linking adtech-fuelled surveilled of Internet users to a range of harms, including the spread of conspiracy theories, extremism and real-world violence.

“Users have asked for this feature for a long time,” he said of ATT. “We have worked closely with developers to give them the time and resources to implement it and we’re passionate about it because we think it has great potential to make things better for everybody.”

The move has attracted a competition challenge in France where four online advertising lobbies filed an antitrust complaint last October — arguing that Apple requiring developers ask app users for permission to track them is an abuse of market power by Apple. (A similar complaint has been lodged in the UK over Google’s move to depreciated third party tracking cookies in Chrome — and there the regulator has opened an investigation.)

The Information also reported today that Facebook is preparing to lodge an antitrust lawsuit against Apple — so the legal stakes are rising. (Though the social media giant is itself being sued by the FTC which alleges it has maintained a social networking monopoly via years of anti-competitive conduct… )

In the speech Cook highlighted another recent pro-privacy move made by Apple to require iOS developers to display “privacy nutrition” labels within the App Store — providing users with an overview of their data collection practices. Both the labels and the incoming ATT apply in the case of Apple’s own apps (not just third parties), as we reported earlier.

Cook said these moves align with Apple’s overarching philosophy: To make technology that “serves people and has their well-being in mind” — contrasting its approach with a rapacious ‘data industrial complex’ that wants to aggregate information about everything people do online to use against them, as a tool of mass manipulation.

“It seems no piece of information is too private or personal to be surveilled, monetized and aggregated into a 360 degree view of your life,” Cook warned. “The end result of all of this is that you are no longer the customer; you are the product.

“When ATT is in full effect users will have a say over this kind of tracking. Some may well think that sharing this degree of information is worth it for more targeted ads. Many others, I suspect, will not. Just as most appreciated it when we built this similar functionality into Safari limiting web trackers several years ago,” he went on, adding that: “We see developing these kinds of privacy-centric features and innovations as a core responsibility of our work. We always have, we always will.”

Apple’s CEO pointed out that advertising has flourished in the past without the need for privacy-hostile mass surveillance, arguing: “Technology does not need vast troves of personal data stitched together across dozens of websites and apps in order to succeed. Advertising existed and thrived for decades without it. And we’re here today because the path of least resistance is rarely the path of wisdom.”

He also made some veiled sideswipes at Facebook — avoiding literally naming the adtech giant but hitting out at the notion of a business that’s built on “surveilling users”, on “data exploitation” and on “choices that are no choices at all”.

Such an entity “does not deserve our praise, it deserves reform”, he went on, having earlier heaped praise on Europe’s General Data Protection Regulation (GDPR) for its role in furthering privacy rights — telling conference delegates that enforcement “must continue”. (The GDPR’s weak spot to date has been exactly that; but 2.5 years in there are signs the regime is getting into a groove.)

In further sideswipes at Facebook, Cook attacked the role of data-gobbling, engagement-obsessed adtech in fuelling disinformation and conspiracy theories — arguing that the consequences of such an approach are simply too high for democratic societies to accept.

“We should not look away from the bigger picture,” he argued. “At a moment of rampant disinformation and conspiracy theories juiced by algorithms we can no longer turn a blind eye to a theory of technology that says all engagement is good engagement, the longer the better. And all with the goal of collecting as much data as possible.

“Too many are still asking the question how much can we get away with? When they need to be asking what are the consequences? What are the consequences of prioritizing conspiracy theories and violent incitement simply because of the high rates of engagement? What are the consequences of not just tolerating but rewarding content that undermines public trust in lifesaving vaccinations? What are consequences of seeing thousands of users join extremist groups and then perpetuating an algorithm that recommends even more,” he went on — sketching a number of scenarios of which Facebook’s business stands directly accused.

“It is long past time to stop pretending that this approach doesn’t come with a cost. Of polarization. Of lost trust. And — yes — of violence. A social dilemma cannot be allowed to become a social catastrophe,” he added, rebranding ‘The Social Network’ at a stroke.

Apple has reason to appeal to a European audience of data protection experts to further its fight with adtech objectors to its ATT, as EU regulators have the power to take enforcement decisions that would align with and support its approach. Although they have been shy to do so so far.

Facebook’s lead data protection supervisor in Europe, Ireland’s Data Protection Commission (DPC), has a backlog of investigations into a number of aspects of its business — including its use of so-called ‘forced consent’ (as users are not given any choice over being tracked for ad targeting if they wish to use its services).

That lack of choice stands in stark contrast to the change Apple is driving on its App Store, where all entities will be required to ask users if they want to be tracked. So Apple’s move aligns with the principles of European data protection law (which, for example, requires that consent for processing people’s data be freely given in order to be legally valid).

Equally, Facebook’s continued refusal to give users a choice stands in direct conflict with EU law and risks GDPR enforcement. (The kind Cook was urging in his speech.)

2021 looks like it could be a critical year on that front. A long running DPC investigation into the transparency of data-sharing between WhatsApp and Facebook is headed for enforcement this year — after Ireland sent a draft decision to the other EU data protection agencies at the back end of last year.

Last week Politico reported WhatsApp could be on the hook for a fine of between €30M and €50M in that single case. More pertinently for the tech giant — which paid a $5BN fine to the FTC in 2019 to settle charges related to privacy failings (but was not required to make any material changes to how it operates its ad business) — WhatsApp could be ordered to change how it handles user data.

A regulatory order to stop processing certain types of user data — or mandating it ask users for consent before it can do so — could clearly have a far greater impact on Facebook’s business empire.

The tech giant is also facing a final verdict later this year on whether it can continue to legally transfer European users’ data out of the bloc.

If Facebook is ordered to suspend such data flows that would mean massive disruption to a sizeable chunk of its business (in 2019 it reported 286M DAUs in the region in Q1).

So — in short — the regulatory conditions around Facebook’s business are certainly ‘evolving’.

The data industrial complex’s fight back against the looming privacy enforcement at Apple’s platform level involves ploughing legal resource into trying to claim such moves are anti-competitive. However EU lawmakers seem alive to this self-interested push to appropriate ‘antitrust’ as a tool to stymie privacy enforcement.

(And it’s notable that Cook referred to privacy “innovation” in the speech. Including this ask: “Will the future belong to the innovations that make our lives better, more fulfilled and more human?” — which is really the key question in the privacy vs competition regulation ‘debate’.)

Last month Commission EVP and competition chief, Margrethe Vestager told the OECD Global Competition Forum that antitrust enforcers should be “vigilant so that privacy is not used as a shield against competition”. However her remarks had a sting in the tail for the data industrial complex — as she expressed support for a ‘superprofiling’ case against Facebook in Germany.

That case (which is continuing to be litigated by the German FCO) combines privacy and competition in new and interesting ways. If the regulator prevails it could result in a structural separation of Facebook’s social empire at the data level — in a sort of regulatory equivalent of moving fast and breaking things.

So it’s notable Vestager dubbed that piece of regulatory innovation “inspiring and interesting”. Which sounds more of a vote of confidence than condemnation from Europe’s digital policy and competition chief.

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Daily Crunch: A huge fintech exit as the week ends

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To get a roundup of TechCrunch’s biggest and most important stories delivered to your inbox every day at 3 p.m. PDT, subscribe here.

Our thanks to everyone who wrote in this week about the format changes to the newsletter! Feedback largely sorted into two themes: Some people really like the more narrative format, and some folks really want a more link-list styled missive. What follows is an attempt to balance both perspectives.

Starting today we’ll bold company names, so that you can more quickly pick out startups, add more bulleted points to sections, and, per a different piece of feedback, include more regular descriptors of companies that are not household names.

That said, we’re not going to abandon chatting with you every day, as TechCrunch is nothing if not full of things to say. So here’s a blend of what the new, updated Daily Crunch team had in mind, and your notes. A big thanks to everyone who wrote in!

Alex @alex on Twitter

A mega-exit for American fintech

The news that public fintech company Bill.com will buy Divvy, a Utah-based startup that helps small and midsized businesses manage their spend, was perhaps the biggest startup story of the week. Breaking late Thursday, the $2.5 billion transaction was long expected. Divvy had raised more than $400 million from PayPal Ventures, New Enterprise Associates, Insight Partners and Pelion Venture Partners.

TechCrunch covered the impending sale, rumors of which sprung up before Bill.com reported its Q1 earnings. To see the company drop the news at the same time as its earnings was not a surprise. For the burgeoning corporate payment space (more here on startups in the space like Ramp, Airbase and Brex).

I got to noodle on the financial results that Bill.com detailed regarding Divvy — they are pretty key metrics to help us value the startups that are competing to go public or find a similarly feathered corporate nest. In short, the corporate spend startup cohort is doing great. It’s even spawning new startups like Latin American-focused Clara, which raised $3.5 million earlier this year.

Broadly, the fintech market had a huge Q1 and is blasting its way toward a record venture capital year, like AI startups and the rest of the VC world.

Startups and venture capital

5 investors discuss the future of RPA after UiPath’s IPO

Much ink (erm, pixels) has been spilled about robotic process automation (RPA) recently, particularly in the wake of UiPath’s IPO last month.

But while some of the individuals Ron interviewed about the future of RPA believe the technology is in its “early infancy,” the pandemic increased attention toward things we can let robots handle for us. And it’s hard to argue that repetitive tasks like billing and spreadsheeting and paper-pushing should not be outsourced to robots.

“RPA allows companies to automate a group of highly mundane tasks and have a machine do the work instead of a human,” Ron writes. “Think of finding an invoice amount in an email, placing the figure in a spreadsheet and sending a Slack message to accounts payable. You could have humans do that, or you could do it more quickly and efficiently with a machine. We’re talking mind-numbing work that is well suited to automation.”

Although RPA is the fastest-growing category in enterprise software, the market remains surprisingly small. Ron spoke to five investors about where the sector is headed, where there are opportunities and the biggest threats to the RPA startup ecosystem.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

The tech giants

It was a quieter day from the tech giants, who made plenty of news earlier in the week. The good news is that their relative calm means we can take a look at news from other Big Tech companies, those that don’t quite crack the $1 trillion market cap threshold yet:

Community

Some of us are mourning the shutdown of Nuzzel, so we asked … would you pay for it (and why)? Let us know what you think!

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Tesla refutes Elon Musk’s timeline on ‘full self-driving’

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What Tesla CEO Elon Musk says publicly about the company’s progress on a fully autonomous driving system doesn’t match up with “engineering reality,” according to a memo that summarizes a meeting between California regulators and employees at the automaker.

The memo, which transparency site Plainsite obtained via a Freedom of Information Act request and subsequently released, shows that Musk has inflated the capabilities of the Autopilot advanced driver assistance system in Tesla vehicles, as well the company’s ability to deliver fully autonomous features by the end of the year. 

Tesla vehicles come standard with a driver assistance system branded as Autopilot. For an additional $10,000, owners can buy “full self-driving,” or FSD — a feature that Musk promises will one day deliver full autonomous driving capabilities. FSD, which has steadily increased in price and capability, has been available as an option for years. However, Tesla vehicles are not self-driving. FSD includes the parking feature Summon as well as Navigate on Autopilot, an active guidance system that navigates a car from a highway on-ramp to off-ramp, including interchanges and making lane changes. Once drivers enter a destination into the navigation system, they can enable “Navigate on Autopilot” for that trip.

Tesla vehicles are far from reaching that level of autonomy, a fact confirmed by statements made by the company’s director of Autopilot software CJ Moore to California regulators, the memo shows.

“Elon’s tweet does not match engineering reality per CJ,” according to the memo summarizing the conversation between regulators with the California Department of Motor Vehicles’ autonomous vehicles branch and four Tesla employees, including Moore.

The memo, which was written by California DMV’s Miguel Acosta, states that Moore described Autopilot — and the new features being tested — as a Level 2 system. That description matters in the world of automated driving.

There are five levels of automation under standards created by SAE International. Level 2 means two primary functions — like adaptive cruise and lane keeping — are automated and still have a human driver in the loop at all times. Level 2 is an advanced driver assistance system, and has become increasingly available in new vehicles, including those produced by Tesla, GM, Volvo and Mercedes. Tesla’s Autopilot and its more capable FSD were considered the most advanced systems available to consumers. However, other automakers have started to catch up.

Level 4 means the vehicle can handle all aspects of driving in certain conditions without human intervention and is what companies like Argo AI, Aurora, Cruise, Motional, Waymo and Zoox are working on. Level 5, which is widely viewed as a distant goal, would handle all driving in all environments and conditions.

Here is an important bit via Acosta’s summarization:

DMV asked CJ to address from an engineering perspective, Elon’s messaging about L5 capability by the end of the year. Elon’s tweet does not match engineering reality per CJ. Tesla is at Level 2 currently. The ratio of driver interaction would need to be in the magnitude of 1 or 2 million miles per driver interaction to move into higher levels of automation. Tesla indicated that Elon is extrapolating on the rates of improvement when speaking about L5 capabilities. Tesla couldn’t say if the rate of improvement would make it to L5 by end of calendar year.

Portions of this commentary were redacted. However, Plainsite was able to copy and paste the redacted part, which shows up as white space on a PDF, into another document.

The comments in the memo are contrary to what Musk has said repeatedly in the public sphere.

Musk is frequently asked on Twitter and in quarterly earnings calls for progress reports on FSD, including questions about when it will be rolled out via software updates to owners who have purchased the option. In a January earnings call, Musk said he was “highly confident the car will be able to drive itself with reliability in excess of a human this year.” In April 2021, during the company’s first quarter earnings call, Musk said “it’s really quite, quite tricky. But I am highly confident that we will get this done.”

The memo released this week provided other insights into Tesla’s push to test and eventually unlock greater levels of autonomy, including the number of vehicles testing a beta version of “Navigate on Autopilot on City Streets,” a feature that is meant to handle driving in urban areas and not just highways. Regulators also asked the Tesla employees if and how participants were being trained to test this feature, and how the sales team ensures that messaging about the vehicle capabilities and limitations are communicated.

As of the March meeting, there were 824 vehicles in a pilot program testing a beta version of “city streets.”  About 750 of those vehicles were being driven by employees and 71 by non-employees. Pilot participants are located across 37 states, with the majority of participants in California. As of March 2021, pilot participants have driven more than 153,000 miles using the City Streets feature, the memo states. The memo noted that Tesla planned to expand this pool of participants to approximately 1,600 later that month.

Tesla told the DMV that it is working on developing a video for the participants and that the next group of participants will include referrals from existing participants. “The new participants will be vetted by Tesla by looking at insurance telematics based on the VINs registered to that participant,” according to the memo.

Tesla also told the DMV that it is able to track when there are failures or when the feature is deactivated. Moore described these as “disengagements,” a term also used by companies testing and developing autonomous vehicle technology. The primary difference worth noting here is that these companies only use employees who are trained safety drivers, not the public.

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Betting on upcoming startup markets

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Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday? Sign up here.

Ready? Let’s talk money, startups and spicy IPO rumors.

Betting on upcoming startup markets

This week M25, a venture capital concern focused on investing in the Midwest of the United States, announced a new fund worth $31.8 million. As the firm noted in a release that The Exchange reviewed, its new fund is about three times the size of its preceding investment vehicle.

I caught up with M25 partner Mike Asem to chat about the round. Asem joined M25 in 2016 after partner Victor Gutwein spearheaded the effort with a small $1 million fund. Asem and Gutwein have led the firm since its first material, if technically second fund.

Asem said that his team had targeted a $25 million to $30 million fund three, meaning that they came in a bit higher than anticipated in fundraising terms. That’s not a surprise in today’s venture capital market, given the pace at which capital is both invested into VC funds and startups.

The investor told The Exchange that M25 has been investing out of its third fund for some time, including CASHDROP, a startup that I’ve heard good things about regarding its growth rate. (More here on the CASHDROP round that M25 put capital into.)

All that’s fine, but what makes M25 an interesting bet is that the firm only invests in Midwest-headquartered startups. Often when I chat to a fund that has a unique geographical focus, it’s merely that, a focus. As opposed to M25’s more hard-and-fast rule. Now with more capital and plans to take part in 12-15 deals per year, the group can double down on its thesis.

Per Asem, M25 has done about a third of its deals in Chicago, where it’s based, but has put capital into startups in 24 cities thus far. TechCrunch covered one of those companies, Metafy, earlier this week when it closed more than $5 million in new capital.

Why does M25 think that the Midwest is the place to deploy capital and generate outsize returns? Asem listed a number of perspectives that underpin his team’s thesis: The Midwest’s economic might, the network that his partner and him developed in the area before founding M25, and the fact that valuations can prove to be more attractive in the region at the stage that his firm invests. They are sufficiently different, he said, that his firm can generate material returns even with exits at around the $100 million mark, a lower threshold than most VCs with larger capital vehicles might find palatable.

M25 is not alone in its bets on alternative regions. The Exchange also chatted with Somak Chattopadhyay of Armory Square Ventures on Friday, a firm that is based in upstate New York and invests in B2B software companies in what we might call post-manufacturing cities. One of its investments has gone public, and the group’s latest fund is a multiple of the size of its first. Armory now has around $60 million in AUM.

All that’s to say that the venture capital boom is not merely helping firms like a16z raise another billion here, or another billion there. But the generally hot market for startups and private capital is helping even smaller firms raise more capital to take on less traditional spaces. It’s heartening.

On-demand pricing, and grokking the insurance game

This week The Exchange chatted with Twilio CFO Khozema Shipchandler about his company’s earnings report. You can read more on the hard numbers here. The short gist is that it was a good quarter. But what mattered most in our chat was Shipchandler riffing on where the center of gravity at Twilio will remain in revenue terms.

Briefly, Twilio is best known for building APIs that allow developers to leverage telecom services. Those developers and their employers pay for as much Twilio as they used. But over time Twilio has bought more and more companies, building out a diverse product set after its 2016-era IPO.

So we were curious: Where does the company stand on the on-demand versus SaaS pricing debate that is currently raging in the software world? Staunchly in the first camp, still, despite buying Segment, which is a SaaS service. Per Shipchandler, Twilio revenue is still more than 70% on-demand, and the company wants to make sure that its customers only buy more of its services as they sell more of their own.

Startups, then, probably don’t have to give up on on-demand pricing as they scale. Twilio is huge and is sticking to it!

Then there was Root’s earnings report. Again, here are the core numbers. The Exchange is keeping tabs on Root’s post-IPO performance not only because it was a company we tracked extensively during its late private life, but also because it is a bellwether of sorts for the yet-private, neoinsurane companies. Which matters for fellow neoinsurance player Hippo, as it is going public via a SPAC.

Alex Timm, Root’s CEO, said that his firm performed well in the first quarter, generating more direct written premium than anticipated, and at better loss-rates to boot. The company also remains very cash-rich post IPO, and Timm is confident that his company’s data science work has lots more room to improve Root’s underwriting models.

So, faster-than-expected growth, lots of cash, improving economics and a bullish technology take — Root’s stock is flying, right? No, it is not. Instead Root has taken a bit of a public-market pounding in recent months. The Exchange asked Timm about the disparity between how he views his company’s performance and future, and how it is being valued. He said that the insurance folks don’t always get its technology work and that tech folks don’t always grok Root’s insurance business.

That’s tough. But with years and years of cash at its current burn rate, Root has more than enough space to prove its critics wrong, provided that its modeling holds up over the next dozen quarters or so. Its share price can’t be great for the yet-private neoinsurance companies, however. Even if Next Insurance did just raise another grip of cash at another new, higher valuation.

Corporate spend’s big week

As you’ve read by now, Bill.com is buying corporate-spend unicorn Divvy for $2.5 billion. I dug into the numbers behind the deal here, if that’s your sort of thing.

But after collecting notes from the CEOs of Divvy competitors Ramp and Brex here, another bit of commentary came in that I wanted to share. Thejo Kote, the corporate spend startup Airbase’s CEO and founder did some math on Divvy’s results that Bill.com shared with its own investors, arguing that the company’s March payment volume and active customer account implies that the company’s “average spend volume per customer was $44,400 per month.”

Is that good or bad? Kote is not impressed, saying that Airbase’s “average spend volume per customer is almost 10 [times] that of Divvy,” or around “$375,000 per month.” What’s driving that difference? A focus on larger customers, and the fact that Airbase covers more ground, in Kote’s view, than Divvy by encompassing software work that Bill.com itself and Expensify manage.

I bring you all of this as the war in managing spend for companies large and small is heating up in software terms. With Divvy off the table, Ramp is now perhaps the largest player in the space not charging for the software it wraps around corporate cards. Brex recently launched a software product that it charges for on a recurring basis. (More on Brex at this link, if you are into it.)

Various and sundry

Two final notes for you, things that should make you either laugh, grimace, or howl:

  1. The Wall Street Journal’s Eliot Brown tweeted some data this week from the Financial Times, namely that amongst the roughly 40 SPACs that completed deals last year, a dozen and a half have lost more than half their value. And that the average drop amongst the combined entities is 38%. Woof.
  2. And, finally, welcome to peak everything.

More to come next week, including notes on the return of the Kaltura and Procore IPOs, and whatever it is we can suss out from the Krispy Kreme S-1 filing, as donuts are life.

Alex

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