Speaker 1: We're going to start this episode with a bit of
Speaker 1: ancient history. On August two, Apple crossed a trillion dollars
Speaker 1: in market value. Paid off big time yesterday when Apple
Speaker 1: became the first publicly traded company in US history to
Speaker 1: hit one trillion bucks in value. That's one with twelve
Speaker 1: zeros after it. To put things in Perspei, Apple held
Speaker 1: onto its stratospheric valuation for all of three months. On
Speaker 1: November two, it closed the trading day at a value
Speaker 1: of nine eight six point six billion dollars. For part
Speaker 1: of a single trading day. In September, Amazon also preached
Speaker 1: the threshold we start with. Amazing Amazon somewhere CEO Jeff
Speaker 1: Bezos is smiling, maybe even laughing, as the company becomes
Speaker 1: a second one ever to hit a trillion dollar valuation,
Speaker 1: coming in right behind Apple a month ago. It's a
Speaker 1: sign of just how much the tech industry has come
Speaker 1: to dominate the economy, but perhaps also represented some kind
Speaker 1: of high water mark for tech. Apple is lost about
Speaker 1: of its market value since the peak. Amazon is down
Speaker 1: around twenty and Wall Street is punishing other tech stocks.
Speaker 1: Alphabet's down about from its peak, Facebook's down twice that much.
Speaker 1: What had been a simmering problem for tech stocks seemed
Speaker 1: to reach a boil just before Thanksgiving, as the tech
Speaker 1: inferno rages on. How much worse can they get? What
Speaker 1: do you do with tech? The closing bell ending one
Speaker 1: of the worst days on Wall Street, a drop of
Speaker 1: over six hundred points on the Dow, bringing financial markets
Speaker 1: to the lowest levels since March two thousand nine. For
Speaker 1: the last decade, Americans have been very enthusiastic about the
Speaker 1: big tech companies, but that mood is shifting. Social media
Speaker 1: undermining democracy. How scared should we be about our loss
Speaker 1: of privacy? And should the government break up the big
Speaker 1: tech companies like Amazon? This market turmoil comes after months
Speaker 1: of these mounting concerns. Now seems like a good time
Speaker 1: to ask if there are leaner times ahead, what does
Speaker 1: it mean for big tech and how does that affect
Speaker 1: the rest of US? I am brab Stone and I'm
Speaker 1: Joshua Brewsting, and this week on Decrypted, we'll take a
Speaker 1: look at what's driving investors on Wall Streets to start
Speaker 1: jumping tech stocks and masks, and if the market continues
Speaker 1: to punish Silicon Valley, what unintended copquence is gonna play out? Elsewhere. Now,
Speaker 1: it is worth noting that predicting a tech shakeout has
Speaker 1: been a pretty sure fire way to be dead wrong
Speaker 1: over the last couple of years. Back in smart people
Speaker 1: warned that Facebook would be laid low by its inability
Speaker 1: to adapt the smartphone. Others at the time said Apple's
Speaker 1: growth would soon hit some basic limits of economics. The
Speaker 1: debate over the bubble in the tech industry continued on
Speaker 1: through last year and straight onto today. So we'll see
Speaker 1: if this time is different. Stay with us, So, Josh,
Speaker 1: we're keeping this on the Tuesday before the Thanksgiving holiday
Speaker 1: here in the US, and uh, the last few weeks
Speaker 1: have been pretty brutal for tik stocks, right. There have
Speaker 1: been some recent events that have caused a real directional shift.
Speaker 1: There were some reports from suppliers to Apple that a
Speaker 1: large customer was reducing its orders, and this really forwarded
Speaker 1: the same narrative that's coming out from Apple itself that
Speaker 1: iPhone sales are probably not going to be what they
Speaker 1: have been in the past. For Facebook. At the same time,
Speaker 1: there have been increasing reports about the way that it's
Speaker 1: really mishandled its response to some of the criticism regarding
Speaker 1: disinformation um and election issues, and those two companies have
Speaker 1: really been hit hard. You've seen the other companies go
Speaker 1: with them. These tech companies, by any tangible standard, have
Speaker 1: been phenomenally successful and continue to be successful. You know,
Speaker 1: Amazon is not going out of business, but at the
Speaker 1: same time, they are entering a period where growth seems
Speaker 1: like it's going to be harder to come by. And
Speaker 1: that's partially just because they are so big and they've
Speaker 1: infiltrated so deeply into our lives that how can they
Speaker 1: really get much deeper? Right, Well, let's take these companies
Speaker 1: one at a time. You mentioned Apple. Obviously, you know
Speaker 1: that the company seems to have cut its own expectations
Speaker 1: for the iPhone. Certainly suppliers have been more public about that.
Speaker 1: A Golden Sacks lowered its rating on Apple recently, and
Speaker 1: we're seeing reports of week iPhone demand in China and
Speaker 1: other emerging markets not a great reception for that kind
Speaker 1: of top of the line iPhone X Are Is Apple
Speaker 1: a victim of its own success here? Yeah? I think
Speaker 1: that sounds right. One thing about Apple um is that
Speaker 1: it started making smartphones that people really wanted to buy
Speaker 1: I every two years if they already had one, or
Speaker 1: maybe by their first smartphone, and both of those trends
Speaker 1: have kind of reached, um, you know, they're really reaching
Speaker 1: their limit. People are buying new smartphones much less, and
Speaker 1: people who wanted smartphones pretty much already have one at
Speaker 1: this point. Apple has acknowledged this. In its most recent
Speaker 1: earnings report. It said it was just gonna stop saying
Speaker 1: how many smartphones it selled, and UM, you don't stop
Speaker 1: saying how many smartphones you sell if you think you're
Speaker 1: going to continue to sell more and more and more. Um.
Speaker 1: It also said that it was going to look to
Speaker 1: make more money from services. So Apple's acknowledging that, you know,
Speaker 1: it's reached a point where it's going to be a
Speaker 1: slightly different company going forward. Josh, let's talk about Amazon. Now, certainly,
Speaker 1: you know, one of the companies that has performed the
Speaker 1: best in in in the markets over the last five years,
Speaker 1: and yet since it hit that intra day high of
Speaker 1: a trillion dollars a few weeks ago, it's been really
Speaker 1: nothing but down since. Um. One big component of the
Speaker 1: market pessimism seems to be is that core retail business,
Speaker 1: which grew at just eleven percent in the third quarter.
Speaker 1: You know, things like AWS the cloud business, advertising continue
Speaker 1: to grow so quickly, but you know, maybe they hit
Speaker 1: a saturation point. I mean in the US, I think
Speaker 1: it's like sixty percent of all households are already Amazon
Speaker 1: Prime members, So what room do they have to grow? Yeah,
Speaker 1: I think the story here is that you'd rather be
Speaker 1: Amazon than any other e commerce company, but that eventually
Speaker 1: Amazon is going to reach the limits of its own
Speaker 1: growth in the same way that Apple does. Really, yeah,
Speaker 1: I think Amazon kind of foresaw this moment, and yet
Speaker 1: the things that it was relying on to to save
Speaker 1: it and continue the fast pace of retail growth were
Speaker 1: were businesses like their business in India, the grocery business
Speaker 1: and the acquisition the Whole Foods, and those just haven't
Speaker 1: paid the immediate dividends that Amazon is needed to keep
Speaker 1: growing at in the retail business. And when we talk
Speaker 1: about the kind of hail Mary passes to continue growth,
Speaker 1: it also kind of reminds me of Google, because you know,
Speaker 1: Google sort of the same slowdown as the other tech companies,
Speaker 1: and it's those businesses like um self driving cars with
Speaker 1: the Waymo division, and and and maybe like a revived
Speaker 1: business in China that haven't come in and rescued the
Speaker 1: slowdown in the in the core business. Yeah, I think
Speaker 1: Google has a real disconnect. There are the things that
Speaker 1: people like to talk about that Google is doing, as
Speaker 1: you mentioned, the self driving cars, sort of the moon
Speaker 1: shots as they've been called, and then there's the way
Speaker 1: that Google makes money, and that's selling digital advertising. It's
Speaker 1: a great business for Google, it continues to be, but
Speaker 1: there are is a limited amount of advertising that the
Speaker 1: businesses of the world are willing to buy. And Google
Speaker 1: is such a large proportion of the digital ad sales
Speaker 1: at this point that it's going to have trouble continuing
Speaker 1: to grow at the rates it has in the past.
Speaker 1: Um And that's a similar dynamic with Facebook because it's
Speaker 1: the other kind of big player in the digital ad market.
Speaker 1: But Brad uh, Facebook's also had some other problems which
Speaker 1: I think are kind of the leading edge of sort
Speaker 1: of broader concerns about tech and and those are the
Speaker 1: social problems. What do you think about those? Well, I
Speaker 1: mean I think they're existential for Facebook. I mean people
Speaker 1: spend so much other lives on on the service, on
Speaker 1: you know, ancillary services like Instagram and WhatsApp, and you know,
Speaker 1: part part of the like The contract I think Facebook
Speaker 1: has with its users is that you know that the
Speaker 1: service like improves their lives. It helps them connect to
Speaker 1: uh to friends and family and and there it's a
Speaker 1: productive use of their time. And I think all the criticism,
Speaker 1: criticism and scandals around the company has made people feel
Speaker 1: a lot more ambivalent about about the service, you know,
Speaker 1: And so I think Facebook faces some real challenges and
Speaker 1: we're seeing the impact of these controversies in its quarterly numbers.
Speaker 1: You know, the membership growth has slowed, the revenue growth
Speaker 1: is now slower than investors expected. So I think we're
Speaker 1: beginning to see the impact from what has really been
Speaker 1: a year of NonStop conflict and controversy. Yeah. Think Facebook
Speaker 1: kind of represents the extreme view of a number of
Speaker 1: dynamics that are sort of broadly within the tech company.
Speaker 1: You know, people don't necessarily feel good about using Facebook. Um,
Speaker 1: there have been Facebook has been sort of front and
Speaker 1: center and the questions about its role in democracy and
Speaker 1: the political debate, and then also its response to these
Speaker 1: problems has been kind of the most tenured, uh the
Speaker 1: most bungled of of any company really, and so you
Speaker 1: have all of the things that are bothering people about
Speaker 1: tech in general seem to be happening at Facebook to
Speaker 1: the greatest extent. But Facebook doesn't have a monopoly on
Speaker 1: those concerns. And and speaking of monopoly, I think it's
Speaker 1: another thing that it's maybe worrying investors and kind of
Speaker 1: challenging some of the expectations of growth around these companies
Speaker 1: that you know, they're now being thought of as kind
Speaker 1: of monolithic companies who whose impacts on communities might not
Speaker 1: be great. The appetite for new regulation is rising to
Speaker 1: a certain extent in Washington, in d C. But certainly
Speaker 1: in in Europe, where you know, Google is appealing a
Speaker 1: five billion dollar fine. Uh, it's not. The discussion hasn't
Speaker 1: completely connected to the stock price issue, but I mean,
Speaker 1: I do think that the weight in the worry of
Speaker 1: regulation is beginning to kind of impact the growth prospects
Speaker 1: of these companies. Okay, Josh, So calls for regulation of
Speaker 1: big tech are getting louder, But people are calling for
Speaker 1: different things, right, and they fall into a couple of
Speaker 1: different buckets. Yeah. I think the first one's antitrust, and
Speaker 1: that's just the idea that a company that is the
Speaker 1: size of a Google or an Amazon is just going
Speaker 1: to be able to use its market power to um
Speaker 1: to disadvantages competitors in one way or another. One typical
Speaker 1: remedy is breaking up the company's I personally find that
Speaker 1: to be a kind of wildly impractical solution. You know,
Speaker 1: it took it took like two decades for the Microsoft
Speaker 1: antitrust case to wing its way through the courts. I
Speaker 1: think it also took a couple of decades for the
Speaker 1: IBM anti trust case before then, tech moves so quickly
Speaker 1: right now. And I don't know about you, but I
Speaker 1: have not heard a coherent plan for what breaking up
Speaker 1: any of these companies would look like. You know, Donald
Speaker 1: Trump has made some comments about how he thinks that
Speaker 1: Amazon is too big, are Google is too powerful, But
Speaker 1: the Republican Party is generally not one that will take
Speaker 1: such actions. So it would really be Congress or regulators
Speaker 1: that would step in here. And it's hard to see
Speaker 1: the GOP really taking that on as a crusade. So
Speaker 1: the other avenue of antitrust enforcement is merger approval, and
Speaker 1: it's difficult for me to see um, you know, an
Speaker 1: Amazon buying another company like Whole Foods, or or Google
Speaker 1: buying a YouTube or Facebook buying and Instagram without you know,
Speaker 1: some serious scrutiny and maybe even even the federal government
Speaker 1: blocking such an acquisition. Yeah. And I think this could
Speaker 1: be an interesting area because when I talk to people
Speaker 1: about what might be the impacts of a slower market
Speaker 1: for tech, a lot of them said, look, these companies
Speaker 1: have a lot of cash, their current forms of growth
Speaker 1: are slowing, and so on. Logical thing for them to
Speaker 1: do is to try to buy new companies. But as
Speaker 1: they go to do that, as you said, the next
Speaker 1: acquisition that looks kind of like the Instagram acquisition, it
Speaker 1: probably won't sail through quite so easily. So that's the
Speaker 1: potential for antitrust enforcement against the big tech companies. But
Speaker 1: the other big bucket of regulatory enforcement is likely to
Speaker 1: come around privacy, um and data protection. We saw a
Speaker 1: few months ago a major data protection law take effect
Speaker 1: in Europe called g DPR. Tell us a little bit
Speaker 1: about that. Yeah, g DPR tries to come in and
Speaker 1: address the concern that the way that the technology companies
Speaker 1: use private data, mostly to target ads, has just gone
Speaker 1: too far. You saw California actually pass its own privacy
Speaker 1: law in the wake of g DPR passage, and there's
Speaker 1: the general idea that there's going to be more of
Speaker 1: this going ahead in the future. UM. The big tech
Speaker 1: lobby in Washington is actually really prepping up to try
Speaker 1: to pass a national privacy law under the idea that
Speaker 1: UM what it's going to get if it doesn't work
Speaker 1: on this law will be worse. And I think there's
Speaker 1: more tension ahead here. Basically, when you have more privacy,
Speaker 1: these tech companies are going to become less profitable because
Speaker 1: they use your personal data to target ads. And as
Speaker 1: these companies are squeezed, they're really going to find more
Speaker 1: urgency into not allowing some of the more rigorous privacy
Speaker 1: protections to take place. Although Josh, there is an argument,
Speaker 1: and you often hear it from the tech companies themselves,
Speaker 1: that regulation could actually be good for them because it
Speaker 1: would harm smaller players. It would hurt it would hurt competition, UM,
Speaker 1: it would strengthen perhaps even their monopolistic positions. Do you
Speaker 1: buy that. I think that there's something intellectually satisfying about that.
Speaker 1: It does make sense generally that smaller competitors UM would
Speaker 1: face uh more challenge nges and trying to deal with regulations.
Speaker 1: On the other hand, it's just so transparently self serving
Speaker 1: that it's hard to think that that's really their concern here. So, Josh,
Speaker 1: one of the one of the salves for you know,
Speaker 1: some of the regulatory pressure that might slow growth for
Speaker 1: these companies is pushing in the new businesses. So where
Speaker 1: do you see say, Google and Facebook, you know, trying
Speaker 1: to grow their business and make up some of the
Speaker 1: some of the shortfalls in their core areas. Yeah. I
Speaker 1: think the one thing for Google and Facebook that's probably
Speaker 1: a commonality between them is that they've both taken a
Speaker 1: large part of the digital ad market, but there's this
Speaker 1: huge bucket of television advertising that both of them would
Speaker 1: love to get into UM, and that's money that's already
Speaker 1: being spent that they could take away from other advertisers.
Speaker 1: So I think you'll see them look there. For Google,
Speaker 1: there's obviously the moon shots. It really is moving ahead
Speaker 1: on autonomous vehicles, and hopefully we'll be able to do
Speaker 1: UM more with that in the next year or so
Speaker 1: and also move into other markets. As you mentioned, China
Speaker 1: is a problematic one, but clearly it wants to get
Speaker 1: in there. UM. Google CEO soon Dar Pachai, has not
Speaker 1: backed away from UM from China very much, even after
Speaker 1: some pushback from employees. With Facebook, most of its growth
Speaker 1: is already coming from these acquisitions like Instagram and What's
Speaker 1: App that looked like pretty rich at the time but
Speaker 1: have really paid off for the company. Um. Instagram is
Speaker 1: a big place that it's focusing on, and it's looking
Speaker 1: to develop new kinds of ad products that it can
Speaker 1: use not in the timeline but in other places. And
Speaker 1: so I think that's really where it's going to go.
Speaker 1: And Brad, you're the Amazon expert, So why don't you
Speaker 1: tell us about where Amazon might go from here? Yeah,
Speaker 1: I mean, I think, uh, they're all already planning for
Speaker 1: kind of slowing growth in that core business, particularly in
Speaker 1: the US, you know, which is kind of quite saturated.
Speaker 1: Amazon already accounts for I think sixt of online sales
Speaker 1: in the in the US. Um, I think, you know,
Speaker 1: the future is overseas. It's in countries like India and
Speaker 1: Australia and Brazil. Uh, you know, where they have just
Speaker 1: started new businesses and they're really kind of struggling. You know,
Speaker 1: we've heard a lot about Amazon's entrance into the healthcare market.
Speaker 1: You know, that's very new and very long term and
Speaker 1: I think physical stores, you know, the bookstores and the
Speaker 1: Amazon Go grocery stores, the four Star gift stores are
Speaker 1: popping up all over the country. That could be another
Speaker 1: major avenue for growth. And then you know Apple, I
Speaker 1: think we talked a little bit already about the service
Speaker 1: business making up for the shortfall of iPhones. But you know,
Speaker 1: just as like Waymo is the great hope for Google,
Speaker 1: for Alphabet in the long term. I think, you know,
Speaker 1: you can't discount Apple's ambitions and cars. You know, they
Speaker 1: hired an engineer from Tesla named Doug Field, and there
Speaker 1: has long been a rumor that Apple is working on
Speaker 1: kind of autonomous vehicle software who knows, maybe even an
Speaker 1: actual Apple automobile. And so as these companies prepare for
Speaker 1: slowing growth and more regulatory scrutiny, I think they're probably
Speaker 1: pinning at least some of their hopes on some of
Speaker 1: these future, more futuristic businesses. What about kind of their
Speaker 1: role in society. I think one of the big one
Speaker 1: of the big draws to work at these companies, aside
Speaker 1: from the money obviously, in the past, has been that,
Speaker 1: you know, they've really been kind of mission driven companies
Speaker 1: that felt like they were changing the world. Everybody loved them,
Speaker 1: and now they're kind of getting it from all sides.
Speaker 1: How do you think that Silicon Valley is going to
Speaker 1: deal with not being sort of the darling of American
Speaker 1: business going forward. I don't know that Silicon Valley is
Speaker 1: ready to accept that, to be honest. You know, I
Speaker 1: think it's why Amazon works on things like drones, and
Speaker 1: Facebook's working on VR and the apples, you know, building
Speaker 1: a car, and and Google, you know, is trying to
Speaker 1: help people live longer. I mean, they thank the solution
Speaker 1: for all these challenges, these perceptual challenges, is to go
Speaker 1: and like start inventing again. And that's it for this week. Decrypted,
Speaker 1: thanks for listening. We always want to know what you
Speaker 1: think of the show. You can email us at Decrypted
Speaker 1: at Bloomberg dot net or I'm a Twitter at Joshua
Speaker 1: Broosting and I'm at brad Stone. If you're a fan
Speaker 1: of the show, please take a moment to rate and
Speaker 1: review us. It helps new listeners find the show. This
Speaker 1: episode was produced by Pio Gudkari and Magnus Hendrickson. Our
Speaker 1: story editor was Aka Eto. Thanks also to Ann Vandermay,
Speaker 1: Emily Buso, and Liz Smith, Francesco Levi is ahead of
Speaker 1: Bloomberg Podcasts. We'll see you next week.