December 7, 2022
Good morning.
Thanks so much for being a loyal subscriber to Braintrust. We’re writing with some unfortunate news: Protocol has ceased publication, and that means that we’re ending the publication of this newsletter.
It has been our absolute pleasure to keep you up to speed with expert insights from across the tech industry. We hope that the newsletter has been useful, and helped you understand the tech landscape a little better.
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Thank you once again for subscribing to Protocol. It’s been a privilege to appear in your inboxes.
Jamie Condliffe
Executive Editor
Jamie Condliffe
Jamie Condliffe ( @jme_c) is the executive editor at Protocol, based in London. Prior to joining Protocol in 2019, he worked on the business desk at The New York Times, where he edited the DealBook newsletter and wrote Bits, the weekly tech newsletter. He has previously worked at MIT Technology Review, Gizmodo, and New Scientist, and has held lectureships at the University of Oxford and Imperial College London. He also holds a doctorate in engineering from the University of Oxford.
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Mobile gaming's surprising slump is dragging down the game market
Mobile game revenue will decline for the first time in history this year, market research firm Newzoo now says in a revised outlook for the 2022 global games market. While the whole game industry is expected to contract by 4.3% — another first since Newzoo began tracking the market in 2007 — the company is predicting a 6.4% decline in mobile game spending on top of a 4.2% decline in console game spending.
Back In May, Newzoo was forecasting a year of growth for the game industry, with its outlook predicting more than $200 billion in global games industry spending thanks to a nearly 6% increase in the mobile gaming sector to a $103.5 billion. But this summer, as warning signs emerged about the effects of inflation and a severe downturn in the digital ads market, analysts and market researchers began to predict a unprecedented decline for the game industry, which in 2020 and 2021 grew at staggering rates due to excess spending on and time spent playing video games. In particular, mobile gaming declined in the first half of the year for the first time ever.
Mobile gaming has typically offset the losses in console and PC gaming and has been the largest and fastest-growing sector in the industry for years. But this year's decline marks a surprising downturn for mobile. “Mobile game spend in the U.S. continues to decline as consumers contend with both economic uncertainties and a new post-pandemic normal,” said Sensor Tower gaming insights lead Dennis Yeh last week. “While there is still a decent chance this year’s U.S. mobile game revenue will surpass 2021 levels, worsening headwinds have firmly shifted the conversation away from the question of by how much.”
A confluence of factors has created a particularly difficult time for game developers, and not just mobile ones. For one, consumers are spending less on gaming due to inflation increasing the price of everyday goods. A number of high-profile console and PC games have also suffered from delays this year, setting up a return to growth in 2023.
"Some of the drivers of the decline include the return of experiential spending, higher prices in everyday spending categories such as food and fuel, the uncertain supply of video game console hardware and certain accessories such as gamepads, and a lighter release slate of games, among others," explained NPD game director Mat Piscatella back in July, when NPD forecast a 8.7% decline in the U.S. game market.
Additionally, the digital advertising market on which many mobile games rely for revenue is also having a tough year, in part because Apple's iOS privacy changes have made it more difficult to track the effectiveness of the install ads through which many mobile developers both acquire new users and also earn money from other app makers. (Many mobile games allow players to earn digital currency by watching ads prompting them to install competing games.)
Advertisers are also simply spending less. "The timing here is clear: The declines take place as the world’s banks increased interest rates and the specter of recession was everywhere in the press,” Unity CEO John Riccitiello said on an earnings call this month. "When we talk with our advertisers, the sense we get is clearly one of caution and reticence to commit to the aggressive campaign spends." Unity, the game engine of choice for mobile developers, also runs a digital ads business. Some major publishers like Zynga owner Take-Two Interactive have also cited mobile when downgrading annual outlooks in recent weeks.
Newzoo in a press release said, "2022 is a corrective year following two years of lockdown-fueled growth, but our long-term outlook for the games market remains positive," and the firm says it still expects gaming to hit surpass $211 billion in global spending by 2025.
"While this may seem like a setback for the games market, we note that the sum of revenues generated from 2020 to 2022 is almost $43 billion higher than we originally forecast pre-pandemic," the company said.
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Amazon will lay off workers ahead of holiday season
Amazon is planning to lay off thousands of employees, Protocol has learned, ahead of what the company has cautioned will be a slow holiday shopping season.
As many as 10,000 workers could be impacted, according to a source familiar with the deliberations. That number could ultimately change. The layoffs could largely affect new hires, including those who have not yet started but who have signed an employment contract, they added. Among those impacted will be employees in the devices, human resources, and retail divisions, according to The New York Times, which first reported the layoffs.
An Amazon spokesperson declined to comment.
Amazon has been in cost-cutting mode for a while. Among other measures, it currently has a hiring freeze in place, according to a note from HR leader Beth Galetti that Amazon published publicly earlier this month.
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Google settles with state AGs over location-tracking disclosures
Google agreed to pay $391.5 million and make changes to its user privacy controls as part of a settlement with a coalition of 40 state attorneys general. The coalition accused Google of misleading customers about location-tracking practices that informed ad targeting.
The deal represents the largest privacy settlement won by states in U.S. history. Even so, the payout amounts to a drop in the bucket for Google’s parent company Alphabet, which reported $13.9 billion in profit from the last quarter alone. In January, a smaller coalition of AGs sued Google over the location-tracking issue. And last month, Arizona attorney general Mark Brnovich won an $85 million settlement from Google over it.
State AGs had been working on this case since 2018, following an Associated Press report that found Google tracked users’ location data even when they explicitly turned off “Location History” tracking in Android or iOS settings. At the time, Google denied wrongdoing and maintained that users could further limit location-tracking services by turning off “Web and App Activity.” The AGs weren’t convinced, likely in part because Google’s in-house copy at the time told customers that “with Location History off, the places you go are no longer stored.”
A Google spokesperson told Protocol that the settlement was consistent with improvements made in recent years, and that the case involved “outdated product policies that we changed years ago.” As part of the settlement, Google will further clarify location-tracking disclosures beginning next year, The New York Times reports.
“The transparency requirements of this settlement will ensure that Google not only makes users aware of how their location data is being used, but also how to change their account settings if they wish to disable location-related account settings, delete the data collected and set data retention limits,” Michigan attorney general Dana Nessel wrote in a press release.
State AGs have had to compensate for a lack of online privacy regulation at the federal level. That may soon be changing, however, as Politico reported on Monday that a bipartisan group of lawmakers intends to push the American Data Privacy and Protection Act through in the lame duck session.
ADPPA includes provisions protecting user geolocation data, including its transfer to third parties. The bill leaves enforcement up to the FTC, state AGs, state privacy authorities, and the California Privacy Protection Agency.
Figures such as House Speaker Nancy Pelosi and Reps. Fred Upton and Billy Long shared concerns over ADPPA preempting state legislation. ADPPA sets out to supersede the existing patchwork of state laws, but in so doing it could crystalize the legislative landscape and make it more difficult for relatively nimble state legislatures to respond to evolving technologies.EXPANDShow less
FTX files for bankruptcy and Sam Bankman-Fried is out as CEO
FTX has filed for bankruptcy and the crypto company also announced that founder Sam Bankman-Fried has resigned as CEO.
FTX, Bankman-Fried's trading firm Alameda Research, and roughly 130 affiliated companies have begun bankruptcy proceedings “to begin an orderly process to review and monetize assets for the benefit of all global stakeholders,” the company announced on Twitter Friday.
The filing includes FTX.US, a separate operation Bankman-Fried had previously claimed was isolated from the parent group's woes. FTX.US had recently warned customers that it would have to stop trading in the coming days.
John J. Ray III, a lawyer who helped run Enron post-bankruptcy, has been named CEO of the FTX Group. Bankman-Fried, often known as SBF, will remain “to assist in an orderly transition,” the company said.
FTX's fall was a sudden, jarring collapse of a crypto powerhouse, evident in Ray’s initial statement as CEO. He appealed to stakeholders to “understand that events have been fast-moving and the new team is engaged only recently.”
“I want to assure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder[s] that we are going to conduct this effort with diligence, thoroughness and transparency,” Ray said in a statement.
The announcement capped a wild week for FTX and the entire crypto industry.
FTX had been one of crypto’s largest exchanges. But disclosures about its questionable finances triggered a meltdown. Binance announced early this week that it had agreed to buy the company but then announced that FTX had financial issues that were “beyond our control or ability to help.”
Even before its filing, FTX's woes were having spill-on effects on other companies. BlockFi, a crypto lender FTX had agreed to backstop earlier this year with a credit line and an option to buy the company, said Thursday it could not conduct "business as usual" and had stopped customer withdrawals.
The broader crypto market, which was already reeling from a dramatic crash that wiped out $2 trillion in value, took another hit as the market value of issued tokens fell below $900 million. The price of bitcoin dipped below $17,000.
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Salesforce adjusted its HR policies to make firing workers easier
Salesforce recently updated its internal policies to make it easier for managers to terminate employees for performance issues without HR involvement, Protocol has learned, a move that comes as the software giant looks to shed as many as 2,500 jobs.
Previously, Salesforce’s employee relations team was heavily involved behind the scenes in the process of putting employees on performance improvement plans or terminating them for failing to hit certain metrics, including prior to any formal discussions with workers.
Now, managers will be able to put employees on performance improvement plans, or PIPs, and ultimately terminate them with little HR oversight, according to sources with knowledge of the deliberations. Managers were recently asked to sign a document indicating that, under this new system, they would treat employees fairly, one source added.
A Salesforce spokesperson and Chief People Officer Brent Hyder did not respond to request for comment.
Salesforce’s HR team was scrambling last week to update the company’s policies ahead of Monday’s layoffs, according to sources and internal documents reviewed by Protocol. As part of the so-called “Performance Improvement Framework” revisions, internal resources including “Termination Talking Points” and the “Global PIP Template” were changed to reflect the greater authority given to managers and provide additional resources to help leaders act with a degree of autonomy.
By empowering managers, Salesforce can more easily shed its ranks as it looks to trim potentially thousands of jobs. Such a system is not unheard of in the industry, but it could open Salesforce up to legal challenges if, for example, someone in a protected class believes they are wrongly terminated.
Salesforce is taking cost-cutting measures seriously. Salespeople who were laid off on Monday were given two months' severance, according to both a current and former employee, a much less lucrative package than the company previously provided. It’s also noticeably less generous than others. Meta, for example, offered 16 weeks of pay to the 11,000 employees it laid off this week.
And while Meta based a portion of the severance on tenure, Salesforce employees who had been at the company for over a decade received the same package as those who had been there for much less time, the sources said.
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