Source Code
Maps is where the money is
Your five-minute guide to what's happening in tech this Friday, from how AB 5 has been bad for Uber riders to the latest twists in the internet-provider space race.
source-codesource codeauthorDavid PierceNEWSLETTER LayouttWant your finger on the pulse of everything that's happening in tech? Sign up to get David Pierce's daily newsletter.64fd3cbe9f
×
Get access to Protocol
Your information will be used in accordance with our Privacy Policy
I’m already a subscriber
protocol
Want to better understand the $150 billion gaming industry? Get our newsletter every Tuesday.
Are you keeping up with the latest cloud developments? Get Tom Krazit and Joe Williams' newsletter every Monday and Thursday.
David Wertime and our data-obsessed China team analyze China tech for you. Every Wednesday, with alerts on key stories and research.
Want your finger on the pulse of everything that's happening in tech? Sign up to get Protocol's daily newsletter.
Do you know what's going on in the venture capital and startup world? Get the Pipeline newsletter every Saturday.
Hear from Protocol's experts on the biggest questions in tech. Get Braintrust in your inbox every Thursday.
Get access to the Protocol | Fintech newsletter, research, news alerts and events.
Your guide to the new world of work.
Coverage | Newsletter | Intel | Events
Coverage | Newsletter | Intel
Good morning! This Friday, Google Maps gets an update, how an old privacy law is increasingly important for technology companies, and a developer wants to charge you $1,000 a month for an underground bunk bed.
People Are Talking
AB 5 has been bad for Uber riders, says CEO Dara Khosrowshahi:
- "Service levels to riders have gotten worse" and "prices in California have gone up more than anywhere else in the country."
Existing cybersecurity problems will only get worse with 5G, Akamai security chief Andy Ellis told Protocol's Adam Janofsky:
- "We buy this world full of connected devices, and the mortgage is that at some point we have to secure them before they cause more problems for us."
Russian trolls didn't influence American voters, according to a Russian troll indicted for influencing American voters:
- "I believe that what occurs in another country, it's pretty hard for me to influence it." And later: "Blaming me is the same as blaming Zuckerberg for creating Facebook."
Twitter is looking outside SF to grow its talent pool, says CEO Jack Dorsey:
- "Concentration in San Francisco is not serving us any longer, and we will strive to be a far more distributed workforce, which we will use to improve our execution."
- A Twitter spokesperson told Protocol's Levi Sumagaysay that "there's incredible talent around the world, and we have to be able to work in a way that supports them as employees regardless of where they live."
The Big Story
Google turns on the Maps money tap
Google Maps is 15 years old, and, like any 15-year-old, really ought to start earning its keep. So Google's making some big changes to one of its most quietly important products. Maps has a new icon (not a fan, personally), a new Contribute tab that's going to infuriate everyone at Yelp, and a new focus on helping people find places to go rather than just helping them get there.
- In many ways it makes Maps a more useful real-world search engine, which means it has a straighter path toward making lots of ad money for Google. A Morgan Stanley analyst told Bloomberg last year that "the most under-monetized asset that I cover is Google Maps," and that eventually Google would flip on the money switch. This might be the moment.
- Maps head Jen Fitzpatrick told Wired that "we do see that there is potential to, in a thoughtful utility-focused way, have ads continue to play in the broader maps experience." She emphasized that Google cares about user experience, but still: Get ready for more sponsored pizza places, and a little ad-flagged arrow in your AR view pointing to sweet savings down the block.
For years, Google has obsessed over how it might translate its excellence in searching on a screen to searching in the real world. Glass, Lens and countless other projects have aimed at that same goal. Maps seems to be the obvious place for Google to focus those efforts — and the company knows it.
Does your business advertise on Google Maps? How do you as a user feel about the way it's changed? Send me a note: david@protocol.com.
Regulation
An old privacy law with newfound significance
Last week, Facebook paid $550 million to settle an Illinois lawsuit from 2015 that actually pertains to a law the state passed in 2008. Protocol's Charles Levinson has the story of how the Biometric Information Privacy Act was passed and why 12 years later it matters in a big way.
- BIPA required that companies receive permission from users before collecting biometric facial recognition data.
- Facebook didn't get permission before it rolled out a feature that suggested who might be in that photo you just uploaded, and a suit filed in 2015 alleged that it was violating the law as a result.
Facebook agreed to the settlement after the Supreme Court declined to hear its appeal. Privacy advocates are now using the hefty settlement to make the case to legislators debating privacy laws in other states that they should emulate the tough provisions in the Illinois law, like an individual's private right to sue companies.
- "It underscores why you have to have meaningful access to justice for an individual," Washington representative Norma Smith told Charles. "We should have a meaningful voice in how our personhood is sliced and diced and monetized." (Facebook's legal team at Mayer Brown LLP declined to comment for the article.)
- Facebook, of course, is hardly new to receiving large fines for questionable practices. And even the big ones don't seem to ding the company's spirits — or its share price.
Read Charles' story for the full details on BIPA, the fight over privacy legislation, and what it might take for these questions to actually be answered in court.
A MESSAGE FROM NASDAQ
Reimagining Markets Everywhere
Nasdaq Technology is reshaping the future of global markets by redefining what a marketplace can be.
Space
The internet-provider space race is taking off
It's still not clear if the future of internet connection involves balloons or drones hovering above us, but it definitely involves satellites. And there's a bit of an arms race going on:
- SpaceX is reportedly thinking about spinning off its Starlink satellite-internet business, as it presses ahead with its plan to launch almost 1,500 satellites this year. (SpaceX is trying to get approval to launch as many as 30,000 in all.)
- Meanwhile, OneWeb plans to launch several hundred of its own, including 34 that were launched on Thursday from Kazakhstan.
Both companies are planning to offer a service in the next year or so, though with very different business models: Starlink plans to compete directly with Comcast and Verizon, while OneWeb plans to partner with them to extend their range to hard-to-reach places.
If you're counting, that's a lot of satellites heading into the skies. And the Times reports that some astronomers are worried about radio interference — and all that machinery getting in the way of their view of the stars.
Making Moves
- Michael Murphy is the new CEO of vaping company Pax Labs. No word on Murphy's favorite oil flavor or how big a cloud he can blow.
- WeWork shook up its board. Three members have been dropped from the group Adam Neumann bossed around, and will be replaced in part by SoftBank's Kirthiga Reddy — WeWork's first female board member.
- Amazon is hiring. A lot. Again. The company says it plans to create 15,000 jobs in Bellevue, Washington, and build "its biggest tower ever" in the town. Unlike other Amazon real-estate plans, this was announced without months of public buildup and competition.
- Okta named Craig Weissman as its new chief architect. Weissman was formerly CTO at Salesforce, and told Business Insider that part of his job is to help turn Okta into a "true platform."
- Jan Chong, longtime senior director of engineering at Twitter, is now VP of engineering at the financial-automation firm Tally.
In Other News
- Google turned its endless supply of free food into a five-year study on healthy eating. The company changed plate sizes, moved snacks and coffee farther apart, and found it could subtly lead employees to better habits. Please, someone, come to the Protocol office and do the same to me.
- Uber and Lyft drivers continue to share articles, tips and warnings about coronavirus in Facebook groups, sometimes to problematic effect. "Please do NOT post bogus crap just to get people riled up," the moderator of one large San Francisco group wrote recently. "Do your research before posting, and if it's just a photo without a supporting article it will be deleted. No racist Asian comments will be tolerated."
- Jeff Bezos posted a truly glorious sub-'gram on Thursday, asking what to do in a nightmarish business situation. Turns out he may have been referring to organizing a meeting with the White House adviser Peter Navarro. (To answer your question, Jeff, the answer is (E): Yell "Alexa, save me!" and have your private Prime Air plane swoop you away.)
- The FCC announced its plans to reuse chunks of spectrum, currently claimed by satellite providers, for various 5G purposes. There's an auction for the spectrum planned for the end of this year, and the spectrum could be back in use by 2021.
- A D.C. appeals court said it won't reconsider last year's net neutrality repeal. The appeal had been brought forward by 15 states and various trade groups, including one representing Amazon, Microsoft, Facebook, and Alphabet.
- The U.S. offered its first safety exemption for self-driving cars — to Nuro, a startup that now plans to launch as many as 5,000 vehicles onto American streets. Their first job will be the most important thing any vehicle can ever do: delivering Domino's pizza.
- Huawei, Xiaomi and BBK are building a platform to rival Google's Play Store, Reuters reports. The "Global Developer Service Alliance" would allow non-Chinese developers to upload to all three of the companies' app stores at the same time, chipping away at Google's services revenue.
One More Thing
I found you a new place to sleep in SF
You know those SF real estate stories that pop up every now and then, where you can buy a bunch of broken boards that someone calls a "house" for the low, low price of $9 million? I can beat that: A developer wants to build 88 underground "sleeping pods" underneath apartment buildings in the city — and charge $1,000 a month in rent. Key amenities: No doors and no windows, but you do get a "privacy curtain" and plenty of company from the five other people sleeping in fancy bunkbeds right next to yours. Want your own bathroom? Too bad, that's only for the upstairs people paying twice as much for hardly any more space. Don't get your hopes up, though, because the project hasn't cleared the city yet — and rent will probably double before it does.
A MESSAGE FROM NASDAQ
Reimagining Markets Everywhere
Nasdaq Technology is daring to think differently.
Thoughts, questions, tips? Send them to me, david@protocol.com, or our tips line, tips@protocol.com. See you tomorrow.
Correction: An earlier version of this newsletter incorrectly characterized Facebook's recent settlement related to Illinois' Biometric Information Privacy Act. The settlement is being used to argue in favor of a right to sue in privacy laws being debated elsewhere; it did not end any private citizens' right to sue. An earlier version also misspelled the name of Protocol reporter Levi Sumagaysay. This story was updated Feb. 7, 2020.
It's not clear what might fall through the cracks if most of the biggest game studios transition away from selling individual games and instead embrace a mix of free-to-play and subscription bundling.
Image: Christopher T. Fong/Protocol
Subscription services have existed in gaming for decades, both for individual games like World of Warcraft and for console platform services like Sony's PlayStation Plus. But a new wave of game subscriptions — Netflix-style, all-you-can-play buffets — have only just begun emerging in the last few years. Now, as these subscriptions are married to nascent but fast-growing cloud gaming services that allow you to stream games to almost any screen, the industry is bracing itself for a potential paradigm shift akin to what happened to television, film and music.
"It's probably the likes of Netflix and Spotify that have ended up pushing us to this point in games," said Craig Chapple, an industry analyst with the firm Sensor Tower. "How many times have you heard, 'When's the Netflix of gaming coming?'" (Netflix, it turns out, is getting into gaming itself, although it's tempered expectations by saying it will focus on mobile games first.)
It's not clear the industry is ready, or that the economics of gaming today can withstand a full-blown switchover to a subscription and streaming-only world. Video games come in many shapes and sizes, and monetize in vastly different ways. One game might cost $4.99, another $69.99. Some are free, while others charge as much as $14.99 a month just to access.
It's unlikely the whole industry would ever shift to subscription bundling because of these factors. But it's also not clear what might fall through the cracks if most of the biggest game studios do transition in some way away from selling individual games and instead embracing a mix of free-to-play and subscription bundling.
"I am reluctant about subscription services. It's worse than in music. The potential risks here are huge," said Rami Ismail, an independent game developer and consultant who co-developed a series of hit games under the label Vlambeer. "The amount of money that goes into a video game compared to an album is relatively large. There are more people working on them, and it takes more time to make them."
Unlike Hollywood or the music industry, which can standardize pricing because the length and presumed value of a single song or movie is more or less agreed upon, the video game industry has resisted distribution models other media adopted more than 10 years ago. Many consumers still buy games on Blu-ray discs sold in shrink-wrapped plastic boxes at brick-and-mortar retail stores.
"We're looking at the same model [as the music industry]," Ismail added. "People aren't going to pay more for the game subscription than they are for the Spotify subscription. I don't think I could meaningfully argue that people play more games than they listen to music."
The perils of subscription gaming
The game industry's slow adoption of new distribution models has helped create an atmosphere of apprehension around subscription services. It's not necessarily because everyone is resisting change, but rather because it seems an almost Herculean task to yank a ship as large as the nearly $200 billion video game business into the future all at once.
"It's very hard to launch a $120 million game on a subscription service charging $9.99 a month," Shawn Layden, a former PlayStation exec in charge of its internal studios, told Gamesindustry.biz this week. Layden's concern is that the kinds of games that are most at home on subscription services — big-budget console games sold for between $60 and $70 nowadays (like the kind Sony still makes) — aren't catering to a large enough customer base to recoup development costs through a subscription service. That's especially true, he said, as the cost of making those AAA games has ballooned in recent years, all while the price has remained in the same $10 range.
A subscription service doesn't necessarily work for all types of games.
Image: Microsoft
"You pencil it out, you're going to have to have 500 million subscribers before you start to recoup your investment. That's why right now you need to take a loss-leading position to try to grow that base," Layden added. "But still, if you have only 250 million consoles out there, you're not going to get to half a billion subscribers. So how do you circle that square? Nobody has figured that out yet."
Layden's math may be a bit of an exaggeration. Microsoft's Xbox Game Pass most likely does not need half a billion subscribers to make it a profitable and sustainable enterprise. But it does need tens of millions, and perhaps even hundreds of millions, to become a true Netflix-for-games platform, one that can recoup investments on all the games Microsoft wants to include on release day, and the many more games from non-Xbox owned studios it will need to pay for to keep people subscribed.
Take-Two President Karl Slatoff expressed similar concerns last fall, saying on an investor call, "We're highly skeptical that subscriptions will be the only way or the primary way that interactive entertainment is distributed." He added that the typical consumption of video games vastly dwarfed how much consumers pay for them, making them a better deal when sold individually than when bundled. "That's because of the way people consume it. And the price point for owning a title, which is very reasonable and very, very low, actually, on a per-hour basis."
Microsoft bought Bethesda Softworks parent company ZeniMax Media last fall for $7.5 billion as part of a strategy to bring more game studios under its wing and release those developers' backlogs and future games on Game Pass. If Microsoft owns the intellectual property, it can release a new title on Game Pass on the same day it's sold for $60 or $70 everywhere else, as it plans to do with upcoming hits like Bethesda Game Studios' Starfield. That's a huge incentive to sign up for Game Pass, and it's a viable strategy because Microsoft earns enough revenue through its other products and services to make up for it.
"Now, Microsoft can say, 'Subscribe to us. We've got all these first-party studios and also third-party studios,'" Chapple said. "Subscription potentially also makes gaming a bit more accessible. You're not forking out that $60 or $70 to play one game. You're forking out a monthly fee that's quite low to access a whole variety of games." But Microsoft will still have to convince many more third-party developers to join Game Pass to keep subscriber numbers growing, and that means compensating them fairly so they keep coming back.
Microsoft declined to answer individual questions for this story, but it did provide Protocol a statement on its stance on subscription gaming and the way it compensates developers who join Game Pass. "We strive to build a platform where our creative partners can find success," a company spokesperson said. "Our model for how we support and compensate developers who participate in Game Pass is designed to be flexible and was built based on partner feedback. This includes options like fees, bonuses based on usage, and more."
The big free-to-play question
Game developers have offset rising development costs over the years through the use of microtransactions, such as loot boxes and the selling of cosmetic items like character skins. In fact, many developers have simply taken the path of least resistance and opted to design their games as entirely free to play, monetizing the experience through in-game purchasing. Those kinds of games — Fortnite, Roblox, Call of Duty: Warzone, to name a few — do not require subscription platforms at all because they are already at everyone's fingertips for free.
"Free-to-play doesn't fit into a subscription," Chapple said. He noted that there could be a world in which subscription services cover the cost of some in-game microtransactions, but that would "destroy the design of the game, and just cap revenue." Genshin Impact and PUBG Mobile didn't need Xbox Game Pass to become some of the highest-grossing games in the world. All they needed were apps on multiple platforms and a free-to-play business model.
It's likely more games in the future are modeled after those free-to-play hits rather than designed to be bundled into a subscription platform. But there will always be an appetite for big-budget console titles like Sony's upcoming sequels to Horizon Zero Dawn and God of War that cannot be given away for free.
The same is true for breakout indie hits like developer Acid Nerve's new action-adventure title Death's Door, which launched exclusively this month on Xbox devices and PC for $19.99. Critically, the deal Acid Nerve and publisher Devolver Digital struck with Microsoft did not include availability on Xbox Game Pass.
"There's always a bag of money somewhere involved that entices people to take that risk with their work. A lot of those deals are what are keeping a lot of beloved studios open right now," Ismail said. "For a lot of developers this is sort of the new reality. We're not in the business of selling to consumers. We're in the business of selling to platforms, and platforms monetize those games and hopefully give a kickback."
Still, Ismail said it's not clear how that translates to subscription services, which risk undervaluing games as consumer products in the same way streaming music and television made it easier for more people to stop buying CDs and DVDs.
"I have no idea where this is going. I understand how exclusives work and how people make money off exclusives. But with the subscription models, things are obviously new and shifting to a new place," Ismail said. "That's where we're headed, whether we like it or not. On Xbox, people pay $9.95 or $15. How am I going to compete with my $10 game?"
What's fair compensation in a subscription gaming future?
Concern for indie developers has been a focal point of recent discussions around subscription gaming, especially regarding how those services share revenue. One model, an engagement-based revenue-sharing system, is one that might gain traction.
Google Stadia recently implemented it for its Pro subscription tier, offering developers 70% of revenue based on how many days a subscriber signs into the game on Stadia. It's extra revenue for game makers, but it also evokes controversial models like that of Spotify, in which musicians are paid fractions of a penny per stream.
"I feared this day. I warned about this for years and feel no one really took it seriously. Devs being paid based on playtime is the true horror of the subscription-based future — it's the death of creativity, of shorter experiences. I hate this with every fibre of my being," gaming news curator Ryan Brown tweeted on the day of the announcement.
Brown told Protocol he now understands that Stadia Pro also involves other financial incentives brokered directly with Google, and that the revenue a game developer earns isn't solely from the revenue share. But, he said, "I still have very serious concerns regarding monetizing playtime like that. Seems inevitable that'll become the future focus of streaming subscription services."
It should be noted that Stadia Pro is much different than Game Pass, and concerns about its revenue-sharing model do not foretell what Microsoft might implement, though the company did tell Protocol it has "bonuses based on usage." Unlike Game Pass or other cloud offerings, Stadia Pro adds a small number of free games every month and advertises its $9.99 subscription mostly as a way to get discounts on full-price purchases and added benefits like 4K resolution support. In that way it is more similar to platform services like Sony's PlayStation Plus and Microsoft's Xbox Live Gold.
"Our goal while creating Stadia's new 70% revenue-share program was to be as fair as possible, with engagement measured via session days to ensure that different types of game genres weren't adversely impacted," said Alan Joyce, Google Stadia's senior product manager. "For example, if we had merely measured engagement based on total time played, then partners offering narrative-focused RPGs might see drastically more revenue than those with games from pick-up-and-play genres like roguelikes."
Joyce said that "ultimately, no one measure approach is perfect," and the company says it has other methods for generating revenue, like a new affiliate program and a more generous revenue share on full-game purchases.
Still, if the industry does shift toward subscription models en masse, it will likely involve standardized rates, something gaming platforms have resisted and game developers clearly fear. "Even if it's daily, a player might finish [an indie game] in one day or several days. They're not coming back day after day every month. That developer gets a small share of the pie," Chapple said. "It's up to the developer to see if that undervalues their product."
"Platforms right now need to aggressively court developers. At some point they're going to hit a critical mass, and they wouldn't need to do that anymore. At that point, we're at the mercy of the people running those platforms," Ismail said. It's not exactly a rosy future, and he admitted it's not one small developers are being given much of a choice about. But he added the silver lining is that game makers are used to maneuvering such tectonic shifts in the business, and that one way or another, the people who create video games will figure out how to survive.
"Games are woefully unorganized. We don't have the protections that movies or music have," Ismail said. "But we are relatively flexible and pretty adaptive."
The crypto maturity model
Level 1: Open for business
The first step for banks is to train staff so that they understand which cryptocurrency businesses their customers are most likely to interact with and the varying amounts of risk those businesses would introduce.
Crypto-friendly banks can also begin taking on cryptocurrency businesses as clients. Silvergate Bank became one of the first banks to work with cryptocurrency businesses in 2013 and, since then, has onboarded over 900 cryptocurrency businesses as clients. In 2018, the bank rolled out the Silvergate Exchange Network, which allows institutional investors to buy cryptocurrency assets from several different exchanges. The bank's stock price has risen over 1,500% in the last year as bitcoin and other crypto assets have rallied.
Financial institutions are also now able to offer many more products and services to cryptocurrency firms. We've recently seen banks like Citi, JPMorgan Chase and Goldman Sachs offer M&A services and advise on IPOs. Many cryptocurrency businesses now also need foreign exchange services and more robust global settlement mechanisms.
Banks can tap into a huge opportunity by taking on cryptocurrency businesses as clients, but only if they do it safely. Luckily, risk assessment in cryptocurrency is actually easier than in most other industries due to the inherent transparency of most blockchain-based assets. Unlike with fiat currency, most cryptocurrency transactions are recorded on a public ledger. That means that with the right tools, banks can monitor cryptocurrency businesses' transactions, ensuring every client they take on fits into their desired risk profile.
Banks can tap into a huge opportunity by taking on cryptocurrency businesses as clients, but only if they do it safely.
Level 2: Synthetic cryptocurrency products
Once a financial institution has become comfortable working with cryptocurrency businesses, it may want to help both retail and institutional customers get exposure to cryptocurrency markets. That doesn't mean they have to enable direct trading of cryptocurrency. Instead, they can offer synthetic, cryptocurrency-based investment products that allow customers to capture some of cryptocurrency's upside without setting up custody infrastructure.
Asset management firm BlackRock recently invested in bitcoin futures, a useful way to test the cryptocurrency market and attract potential clients interested in crypto assets. Firms like Grayscale Bitcoin Trust allow investors to trade shares the same way they would any other public asset.
Long considered a possible game changer in the industry, no cryptocurrency ETFs have received SEC approval yet, though Canadian investment firm Purpose Invest recently launched North America's first ever bitcoin ETF. And asset manager VanEck recently launched an alternative ETF that holds shares in cryptocurrency infrastructure providers like exchanges, miners and storage providers.
Level 3: Custodial services
Custodial services represent the biggest chasm for banks to cross in their cryptocurrency journey, and only a few traditional financial institutions have rolled out such offerings.
However, those that have begun work on cryptocurrency custodial services offer a helpful model for others. BNY Mellon announced plans to launch a custodial platform in partnership with Fireblocks, a cryptocurrency custodial services provider, and digital asset custody company Northern Trust and Standard Chartered Bank announced plans to partner on a similar solution called Zodia Custody. Asset manager Fidelity took a different approach, using its early start to build its own custodial platform from scratch.
So far, traditional financial institutions have mostly steered clear of offering custodial services for retail customers, but fintech platforms offer an example of how they might do so. Square launched its cryptocurrency custody solution in 2018 by building its own cryptocurrency custody platform called Subzero, allowing its customers to buy over $4.5 billion worth of cryptocurrency in 2020.
The key lesson: While Square and Fidelity show that it's possible to go it alone, many financial institutions are partnering with companies that already have deep cryptocurrency expertise to launch their custodial services. That allows them to test a radical new offering with fewer resources invested, while also drawing on outside cryptocurrency expertise.
Level 4: Beyond custody
Very few financial institutions have gone beyond custodial services in their adoption of cryptocurrency. Fidelity recently announced plans to provide institutional clients the ability to pledge bitcoin as collateral in DeFi-based loans in partnership with BlockFi.
Payments are another place traditional financial institutions can incorporate cryptocurrency. Visa recently partnered with BlockFi to roll out the first ever credit card to give customers bitcoin rewards on all purchases they make, and has a partnership with Crypto.com to release a debit card that allows customers to use their cryptocurrency holdings for purchases.
Cryptocurrency trading is the next service we expect to see mainstream financial institutions offer. Goldman Sachs has already made some cryptocurrency trading possible for institutional clients through its cryptocurrency trading desk. But with the success of exchanges like Coinbase, we expect financial institutions to offer these services to retail clients as well.
Good times ahead
With cryptocurrency becoming increasingly mainstream, banks are no longer viewing it as money for criminals or looking for ways to ban it. Instead, they're recognizing the ways it can help their customers while driving revenue and trying to incorporate it into their larger strategies.
Want to learn more about how funds move around the cryptocurrency ecosystem? Check out Chainalysis Market Intel for real-time metrics to inform investment decisions and improve your understanding of the industry landscape. Sign up for the Market Intel Report and get our latest data and analysis delivered straight to your inbox every week.
Latest Stories