Section 230 – The Failure of Facebook and Twitter

You must have heard lawmakers rage about Section 230 and their threats to revoke the protection for Internet companies unless the companies stop alleged biases against their respective bases. Today, I want to share some of my thoughts on the law, what has happened around it and what I consider a failure by Internet companies, specifically Facebook and Twitter, to live up to their responsibilities. Frankly, it’s a highly complicated matter and I am no lawyer, but I just lay out what I read and thought for myself. Have a read, but form your own opinions . First off, have a look at what Section 230 text actually says. Here is the piece that matters the most:

(1)Treatment of publisher or speaker

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

(2)Civil liabilityNo provider or user of an interactive computer service shall be held liable on account of—

(A)any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or

(B)any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph (1)

The term “information content provider” means any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service.

Source: Cornell

From a service provider perspective, what I understand from the text is that companies such as Facebook or Twitter cannot be held liable for user-generated content on their platforms, unless it is the companies themselves that create the content in question. It is also very important that the text of Section 230 exempts service providers from liabilities for content moderation efforts, whether it’s the technical means to content (user accounts) or censoring/take-down of the content itself.

This protection given to service providers is particularly helpful in growing the Internet. From a personal point of view, I have benefited greatly from content sharing by a 3rd party. I have learned a lot from things shared on Twitter by folks other than the content originators themselves and I believe others do too. Were Internet users made reluctant to share content because of the removal of Section 230, the Net wouldn’t be as great as it is right now. From a company perspective, Section 230’s protection enables the building of platforms without investing heavily in content moderation to avoid possible litigation that would happen due to frivolous lawsuits. Imagine that you are an aspiring entrepreneur that wants to build a small forum dedicated to basketball by yourself and with your modest saving, yet has to shoulder legal expenses because some guys sue you for not taking down offensive comments.

While content sharing has its own benefits, it does also have downsides as we now allow the worst, the dishonest and the ones with a harmful agenda to inflict harms on others. In this case, it falls onto service providers to moderate content. Having millions, if not billions, of users, Twitter and Facebook are prime destinations for actors that want to disseminate false and harmful information. Bafflingly, even though the law specifically shields them from legal liabilities for content moderation and they have the resources to conduct the moderation, Facebook and Twitter still fail to do their duties. For instance, when Trump posted false, dangerous and disparaging information on Twitter, the social network labeled his posts, but still kept them on site because according to Twitter, it’s in the public interest to do so. If the point was to let the public know that the President of the United States lied, distributed propaganda and conducted online harassment, it would be sufficient to simply say so and take down the harmful content. Twitter didn’t remove mostly what Trump said because they were afraid of the wrath from Republicans and they didn’t want to lose a significant portion of the user base.

In many cases, Facebook didn’t live up to their duties for keeping their platform safe for users, either. But in the case of Facebook, the reason remains to be seen, whether it’s financially motivated or Mark Zuckerberg is concerned about the political blowback or he actually prioritizes what he considers “free speech”.

While Section 230 isn’t perfect and leaves much to be desired, calling for a revoke of the law, in my mind, inflicts damages to free speech and 1st Amendment. What it needs is an upgrade and revisions designed to solve the shortcomings of Section 230. Sadly, what has transpired is nothing but. Trump signed an executive order that essentially would strip Twitter of Section 230 protection because it labeled his Tweets as harmful and hid them. Senator Hawley introduced a legislation that would require big tech companies to be content neutral, a definition that would be determined by a panel of five FTC commissioners. If a company is deemed to have politically biased content by two commissioners, it will lose Section 230 protection. The problem is that FTC commissioners can be political appointees and as a consequence, there is no guarantee their assessments are not biased. The legislation would create disastrous downstream effects.

Danielle Citron, a law professor at the University of Maryland, proposed a seemingly vague revision to Section 230, which states that “immunity is only available to platforms that take “reasonable steps to prevent or address unlawful uses of its services.”” The specific definition of reasonable will be left up to the courts. While such a suggestion has its upside, the problem again is that the judicial system in the US has been increasingly politicized. As of this writing, there is a huge battle with regard to the appointment of a Supreme Court and a discussion over court packing. Politically appointed judges can’t guarantee fair rulings any more.

In defense of big tech companies like Facebook or Twitter, moderating content for millions of users with different philosophies in complicated matters is no easy feat. It’s labor intensive and expensive, and even with immense investments, it’s highly challenging to cover endless scenarios that can happen in real life. Moreover, political pressure is also a legitimate threat to their business. With that being said, I still stand by my criticisms because:

  • These companies are still benefiting from Section 230 protection, yet they fail their responsibilities to moderate content sufficiently.
  • They have enough financial resources to invest more in content moderation or lobbying for a more fair Congress

With great power come great responsibilities. Facebook and Twitter have millions, if not billions of users. They wield enormous power, yet they are failing us in their responsibilities. I wish they fought in this issue as hard as they did in the issue of immigration.

Weekly readings – 10th October 2020

What I wrote

Please vote!

Ableist culture

Business

Apparently, Airlines’ loyalty programs are highly coveted and valued

How Singapore’s Sea is surfing Southeast Asia’s digital wave

Insider story on Mackenzie Scott, an author and a reclusive $60-billion woman

A deeper look inside the airline industry. It’s true that this is an extremely tough industry to be in with high capital intensiveness. But looking at it from another angle, can we afford not flying any more? If you open a local restaurant, you may have a new competitor the day after. The chance of such a phenomenon happening in the airline industry is slim to none. There are always two sides of a coin.

Venmo announced its first credit card. The concept of tailoring the highest cash back rate to the highest spending category is pretty interesting

Goldman Sachs and Moody forecast that a Biden administration would be better for the economy and the Americans

A great interview with Daniel Elk on leadership, management and decision-making process

Technology

Additional steps that Twitter is taking ahead of the election

What I found interesting

A very damning account of how this country failed a lot of people. You can’t deny that the US has a problem when it has a man worth $200 billion while there are a lot of men like the guy in this article

A sad story on how the eviction system fails citizens in DC

A study on the brand intimacy of the top brands in the US. Amazon, Disney and Apple lead the way

Furthermore, there is good reason to believe that our limited progress in fighting the COVID-19 virus has at least partially caused our continuing high unemployment rate. Had we been as successful in each measure as the other OECD countries, nearly nine million more Americans would be employed and over 100,000 would still be alive.

Source: Brookings Institution

A study on Gen Z

Source: Zebra

Apple’s investment in the App Store and its value

Many folks criticize Apple for taking commissions on the sale of digital content on iOS devices, saying that the company doesn’t do anything in the sale process to deserve the commission. I disagree. I outlined my thoughts on the criticisms of the App Store. In the latest filing as part of its legal battle against Epic Games, Apple provided some data points on what they spent on the App Store and the impact. Because these excerpts come from a legal document submitted to a court, it’s unlikely that Apple made them up. Have a read and decide for yourself if it’s reasonable to ask a company not to benefit from the servers it renders and investments it makes. Also, would you do the same if you were Tim Cook running the company?

Investment in data centers and staff maintaining the App Store

Apple has spent billions of dollars to develop and maintain the App Store. The data centers alone that Apple has established to facilitate the App Store have cost Apple many billions of dollars, and Apple spends hundreds of millions of dollars per year to employ the engineers who contribute to the App Store’s success.

Services that Apple provides under the License Agreement include handling more than 25 million customer support cases a year with a dedicated team of over 5,000 full-time AppleCare advisors; verification of customer accounts to maintain the integrity of the marketplace, including removal of hundreds of millions of fraudulent customer accounts each year; and implementing other measures to combat fraud and refund abuse.

Apple contracts with third-party payment settlement providers to facilitate Apple’s own ability to accept customer payments. During this process, transactions are verified and payments authorized, but this function is just one part of the process and is outsourced to third parties to whom Apple itself pays a fee. 

Source: Apple’s filing

The App Store removes administrative hurdles for developers such as cross-country taxes

While expanding developers’ ability to monetize their apps, IAP also removes administrative burdens and allows developers to effortlessly sell their services to, and receive payments from, customers in the 175 countries where the App Store operates. This support includes collecting and managing payment information from around one billion potential customers around the globe; handling conversions to 45 currencies; and ensuring compliance with local tax laws, and handling tax withholding in scores of countries. Moreover, the records maintained through IAP help Apple provide both routine and customized business analytics to app developers. For many developers, it would be prohibitively complex and costly to carry out these tasks on a similar scale. Yet Apple’s infrastructure makes it effortless for them. 

Source: Apple’s filing

The App Store shields consumers from potentially harmful apps

Since January 1, 2020, Apple has processed more than four million app submissions, approving approximately two thirds of them and rejecting approximately one third for noncompliance with the Guidelines and/or the agreements. For example, more than 100,000 app submissions are rejected each year for data collection and storage practices that run afoul of Apple’s strict requirements for consumer privacy protection. Most of these developers whose apps are rejected make changes to their apps to address Apple’s concerns, and ultimately have their apps published to the App Store.

Source: Apple’s filing

Since 2017, Apple has terminated:

more than 75,000 accounts of developers for introducing new features to their apps without going through App Review, i.e., bait-and-switch conduct, in which a developer makes changes post-review to circumvent the app review process, also referred to as Illicit Concept Changes (ICC);

more than 2,000 developer accounts for introduction of a non-IAP payment method for in-app sales of digital content; 

more than 60,000 developer accounts for inclusion of hidden features or obfuscated code or for facilitating the download or installation of executable code; and

more than 175,000 developer accounts for other fraudulent conduct.

Source: Apple’s filing

Disclaimer: I own Apple stocks in my portfolio

Brief thoughts on Apple One & Apple Fitness+

Yesterday, Apple held an event to announce updates on their hardware, software and services. Everything related to Apple should be widely covered. You can read about the event on the news. I just want to share my thoughts on the two notable services: Apple One and Apple Fitness+

Apple Fitness+

It’s a fitness subscription that resides inside the Fitness app and is built for Apple Watch. Essentially, if you’re wearing an Apple Watch and have a screen that can show various workouts developed by Apple, you can see health and exercise data while sweating and hustling through the physical torture :D. According to Apple, there are workouts for everyone, including Cycling, Treadmill, Rowing, HIIT, Strength, Yoga, Dance, Core, and Mindful Cooldown. Each workout is accompanied by curated music, but you can also add your own tunes from Apple Music. Apple claimed that machine learning on device would use your previous workouts as well as health data to personalize suggestions for you. All the data would not leave your devices.

Apple Fitness+ home screen on iPhone 11 Pro.
Figure 1 – Apple Fitness+. Source: Apple
Figure 2 – Apple Fitness+. Source: Apple

Apple Fitness+ will be available at the end of the year in the US, Australia, Ireland, the U, Canada and New Zealand. A subscription will cost $9.99/month or $79.99/year with one month trial and can be shared with up to five people. To gain access to Apple Fitness+, customers need Apple Watch Series 3 or later.

Now, I have seen a lot of comparison with Peloton since the service was announced. Let’s take a look at whom each should be for

Whom it is for
Apple Fitness+ 1/ Those who own an Apple Watch Series 3 or later
2/ Those who don’t want to spend at least $1,400 for a piece of equipment and a subscription on top of that just for workout
3/ Those who don’t have a lot of interior space for a bike or a tread
4/ Those who travel quite a lot and can’t carry equipment
5/ Those who prefer working out without equipment
6/ Those who want to incorporate health data always on Apple devices with workouts
Peloton1/ Those who don’t own an Apple Watch Series 3 or later (Obviously!)
2/ Those who are serious enough about fitness to make a sizable investment in a Peloton bike/tread
3/ Families whose multiple members want to share the same account and bike/tread
4/ Those who have enough space for a bike/tread
5/ Those who stay home often enough

For those who already owned a Peloton machine and subscription, I don’t imagine they will sign up for Apple Fitness+. The sunk cost of a Peloton bike/tread is so high that consumers will try to milk as much out of it as possible. Hence, Peloton shouldn’t have to worry about that. While Apple has many fans, it also has as many, if not more, critics. As Apple Fitness requires an Apple Watch, Peloton shouldn’t worry much about this segment of the market, either. It’s inconceivable to think a non-Apple person would invest in a Watch and iPhone (who has the former without the latter?) just for this fitness subscription.

What should worry Peloton is potential customers who own Apple devices and don’t have a Peloton subscription. To those who are interested in fitness enough to spend $10/month, but not as much to spend $1,400+ for a bike, Apple Fitness+ should be much more appealing as the barriers to entry are much lower. Sure enough, a $350 Apple Watch is still a significant investment, but if historical product rollouts by Apple are nothing but an indication, they will add more health-related functions to their Watches to make them more attractive. Case in point. The new Apple Watch will be able to monitor oxygen level in blood. Hence, compared to a big and expensive bike from Peloton, a combination of a Watch and Fitness+ should be an enticing alternative.

With that being said, I do think the market is big enough for these two players. The hardware requirement limits Apple in the same way as it does Peloton. But if a non-Apple phone or smart watch manufacturer jumps into the fitness market and offers the same service, it can spell trouble for Peloton because in that case, the manufacturer wouldn’t be limited by the hardware requirement any more.

Apple One

This is one of the badly kept secrets. On Tuesday, Apple announced its long anticipated umbrella subscription bundle called Apple One. Basically, an Apple One subscription offers consumers access to multiple Apple services such as iCloud, Apple Arcade, Apple Music, Apple TV+, Apple Fitness+ and Apple News+. Below are the tiers and prices

Figure 3: Apple One Tiers. Source: Apple

A bundle is to encourage consumers to use more individual services, usually at a discount. Apple One is no exception. If you buy services individually and add them all up together, Apple One offers a great value for money. Morgan Stanley had a great summary below

Image
Figure 4 – How much money is saved with Apple One. Source: Ben Bajarin

Premier offers an astounding 45% discount and if your family is already using most, if not all, of the included services, Premier tier is a no-brainer. Additionally, it’s worth pointing out that customers with Apple Card will get 3% cash back from Apple One, on top of the already incredible discount.

What gets me excited about a bundle like this is what lays ahead. If you think about it, I believe that Apple must have had this vision for a while. First they rolled out iCloud. Then Apple Music. Then Apple News+, Apple Arcade, Apple TV+ and Apple Fitness+. There is no way that Apple will stop here. I am confident that they already have something in the pipeline already. It won’t surprise me if they add more and more services to their flagship bundle and make it the Amazon Prime of Apple Services. A few options I can think of:

  • Apple Care?
  • A service related to books as they already have iBooks
  • Something related to cars as iPhone can replace car keys for the new BMW already

Apple is known for incremental yet effective progress over time, proven by its approach to hardware and software. So don’t be surprised that it is taking the same path here with Apple One

Disclaimer: I own Apple stocks in my portfolio.

Weekly readings – 4th July 2020

What I wrote

I wrote a bit how relying on one metric, such as revenue, can be very misleading

A feature that I wish were available in iBooks

A very excellent and inspiring speech of Steve Jobs

I reviewed this book on Essentialism and this book on Personal Finance

An excellent conversation between Patrick O’Shaughnessy and Brad Gerstner

Business

New Competition Poses Limited Risk to Tesla’s US Marketshare

More than two-thirds of McDonald’s business is earned through its drive-thru operations. And internal figures suggest that nearly ten percent of many franchisee’s 2018 sales were attributed to third-party deliveries from: Uber, Amazon, Delivery Hero, Zomato, Postmates, Deliveroo, Swiggy, DoorDash, and Grubhub.

Source: 2pm

Apple’s Relentless Strategy, Execution, and Point of View

The house servant who pioneered the franchising business model

Average Target store generated $300 in revenue per square foot. The top 25% stores averaged $430 per square foot

Google revealed that news publishers kept 95% of ads revenue when using Google Ads Manager

The fall of Quibi: how did a starry $1.75bn Netflix rival crash so fast?

The real cost of Amazon

Harvard Business Review on rewards

In order for a rewards program to be a profit center instead of a cost center, the payout must be inextricably linked to desired behaviors

Investing in the unknown and the unknowable

Technology

After iOS 14, there’s almost no reason to buy an Android phone anymore

The Fasinatng… Fascinating History of Autocorrect

A cool tool to work with numbers, build models and share them more easily

What I think is interesting

The Consultant: Why did a palm oil conglomerate pay $22m to an unnamed ‘expert’ in Papua?

The value of downtime and enoughness

The true cost of dollar stores

An unprecedented investigative report by Reuters on the misconduct of judges and how the system is unfairly lenient on those judges. Have a read and see if you are not enraged by what is currently going on

How the Chinese government allegedly hacked the then leader in wireless technology from Canada and led to the demise of that company.

A good piece on how money flowing to the local police is invested. Police serve and protect the people, but they are equipped with gears and tools for wars. Who are they going to wars against internally????

“A Lesson on Elementary, Worldly Wisdom” by Charlie Munger

Cobranded Credit Cards and Apple Card

In this post, I’ll try to deduce the reasons why Apple and Goldman Sachs decided to collaborate on Apple Card. What follows in this entry is my deduction from available information and based on my experience working in the credit card industry. First, I’ll touch on the concept of cobranded credit cards and what brands and issuers often get out of a partnership. Second, I’ll talk a bit about Apple Card. Last, I’ll give my thoughts on why Apple and Goldman Sachs may benefit from their relationship. These are my own thoughts only and if you have any thought or material that can contribute to the topic, I’ll appreciate it that you share with me.

Cobranded Credit Cards

You probably have seen a few cobranded credit cards before at popular stores or when you fly with domestic airlines

Source: Google Images

So, what exactly do brands and issuers get for working on cobranded credit cards?

Every brand wants to establish as close a relationship with consumers as possible. One of the popular methods is through a credit card with exclusive benefits. However, brands would be subject to a lot of regulations if they issued credit cards on their own. There would be also a lot of expenses that’d go into servicing accounts. No brand wants that extra burden in addition to running their own business. That’s why they need financial partners.

To compensate an issuer for bearing the risks and operational expenses, a brand usually takes care of the cost of exclusive brand-related benefits. For instance, shoppers receive 5% cash back at Target when they use Target credit cards. I don’t know the exact detail, but my guess is that Target will be responsible for most of the cash back, if not all. Additionally, brands can assist issuers with acquisition costs. Issuers spend thousands of dollars, if not much more, every year to acquire new customers. Brands have an already established relationship with their customers, brand awareness and financial resources that can help issuers in this regard.

On the other hand, issuers are responsible for dealing with financial regulations and servicing accounts. That’s why issuers try to sign as many partners as possible to leverage economies of scale. A small number of partners wouldn’t make operational expenses justified.

Issuers also have to compensate partners for leveraging their brand names. Agreements between issuers and partners vary on a case-by-case basis, but I wouldn’t be surprised if an agreement featured:

  • An issuer pays a partner for each new acquired account and a smaller fee for a renewal
  • An issuer pays a partner a fixed percentage on total purchase volume
  • An issuer pays a partner a fee when accounts make the first purchase outside partners’ locations

What do issuers get in return?

Issuers, of course, keep all financial charges and fees such as annual fees, cash advance fees or late fees. Besides, issuers can generate revenue from interchange fees. In every transaction, a merchant bank which works with a merchant has to pay an issuing bank which issues a credit card to the consumer who shops at the merchant a small fee for accepting credit cards as payment. Payment networks like Visa or Mastercard act as a middle man between a merchant bank and an issuing bank, and decide how big the fee, which is called interchange, should be. What I just describe is a gross simplification of what transpires behind the scenes in a couple of seconds or less in a transaction. There is a lot more to it. Essentially, for the sake of simplicity, just imagine that for every transaction, an issue bank receives 2% of the transaction volume in interchange fees. So if an issuing bank handles $1bn in transaction a month, that bank will get $20 million in interchange fees. Lastly, as mentioned above, issuers can also leverage partners in terms of acquisition costs.

IssuersPartner Brands
Responsibilities– Service accounts and handle regulatory compliance
– Bear risks of charge-off
– Compensation to partners 
– Additional rewards expenses as selling points to consumers
– Assistance in acquiring new accounts
Benefits– Financial charges and fees
– Interchange fees
– Marketing leverage from partners’ outreach
– Deepen relationships with customers
– Compensation from issuers
Table 1

Apple Card

Apple Card is an Apple-branded credit card issued by Goldman Sachs. You can only apply for an Apple Card via your wallet app on Apple-produced devices such as iPhone or iPads. The Card is so synonymous with Apple that you can barely hear about Goldman Sachs.

Apple reportedly will offer monthly payment plans for iPads and ...
Source: The Verge

Apple Pay’s selling points include:

  • No fees
  • Simple application process
  • Premium look and feel
  • Unlimited 2% cash back when you pay with Apple Card using your Apple Watch or iPhone
  • 3% cash back from select merchants such as Uber, T-Mobile, Nike, Walgreens, Duanereade and of course, Apple itself
  • Security as each transaction must be verified either by Touch or Face ID
  • Apple and Goldman Sachs promise not to sell consumer data with a 3rd party for marketing purposes

What’s in it for Apple and Goldman Sachs in launching this Apple Card?

Goldman Sachs isn’t know for consumer banking. It’s known for its investment banking business. Apple Card is the first attempt at consumer banking from the renowned company. As the issuer, Goldman Sachs (GS) will have to deal with all regulatory and security challenges while bearing the risk of charge-off. They will also take part in servicing accounts, but the work is shared with Apple as Apple Customer Service agents handle upfront communication with users. Since Apple Card has no fees whatsoever, what GS can benefit from this collaboration, I allege, include

  • Interchange fees
  • Insane marketing power from Apple and its global footprint in the form of millions of installed iphones
  • I imagine that if this collaboration succeeds, GS will want to sign more partners to achieve economies of scale, leveraging what they learn from operating Apple Card

Apple allegedly wants to launch Apple Card for two reasons: 1) to deepen relationship with users, to motivate them to buy their hardware more 2) to generate more service revenue. As a technology partner, I don’t imagine Apple will have to deal with fraud, regulatory or security concern. In exchange, Apple provides marketing outreach and technical assistance in incorporating Apple Card into its ecosystem. Additionally, from what I read, customers who need technical assistance will reach out to Apple Customer Service agents. Hence, that’s also what Apple brings to the table. Also, the company may allegedly be responsible for Apple-only rewards and interest free payment plans when customers buy Apple products. In terms of rewards with 3rd parties such as Nike or Uber, I can’t find any relevant information. If I have to guess, my money will be on Apple taking the bill for extra rewards as well.

Goldman SachsApple
Responsibilities– Service accounts and handle regulatory compliance
– Bear risks of charge-off
– Compensation to partners 
– Market Apple Card to users 
– Offer technology to make the card work with Apple Pay and its devices
– Help service accounts 3% cash back on Apple products and services
– Interest-free payment plan for customers when buying Apple products
Benefits– Interchange fees
– Leverage marketing power from Apple and its footprint
– Deepen relationships with customers
– Compensation from Goldman Sachs
Table 2

According to Apple, the number of transaction through Apple Pay has grown substantially since it was launched. As of Jan 2020, the annual run rate for Apple Pay reached 15 billion transactions. Not all Apple Pay transactions are through Apple Card. The card debuted only in August 2019. Since Apple doesn’t offer details on Apple Card transactions, let’s run some scenarios by assuming that the annualized transaction count for Apple Card is 500 million to 2 billion. If average ticket size (dollar amount per transaction) ranges from $20 to $60, the transaction volume will be as follows

 Annualized Apple Card Transactions
             500,000,000                         1,000,000,000                2,000,000,000 
$20$10,000,000,000$20,000,000,000$40,000,000,000
$40$20,000,000,000$40,000,000,000$80,000,000,000
$60$30,000,000,000$60,000,000,000$120,000,000,000
Table 3

Interchange fee rate varies depending on numerous factors. However, if we assume that the rate is 2% of purchase volume, based on the scenarios above in Table 3, GS would receive the following as interchange fees

Annualized Apple Card Transactions
             500,000,000                         1,000,000,000                2,000,000,000 
$20$200,000,000$400,000,000$800,000,000
$40$400,000,000$800,000,000$1,600,000,000
$60$600,000,000$1,200,000,000$2,400,000,000
Table 4

As you can see, the more Apple Card transactions, the bigger the interchange fees for GS. Given that Apple has legendary marketing prowess, an installed base of millions of devices and rising demand for contactless payments, the numbers may even grow bigger in the near future.

On Apple’s side, it is reported that Apple takes 0.17% cut on each Apple Pay transaction. In terms of Apple Card transactions, I think the cut will be even bigger, but won’t be bigger than GS’ interchange fee rate. Since we assume that GS receives 2% in interchange fee rate, let’s say Apple receives somewhere from 0.2% to 1% on purchase volume. How much would Apple receive, using the lowest purchase volume for each scenario of transaction count (first row respectively in Table 3)?

 Annualized Apple Card Transactions
             500,000,000                         1,000,000,000                2,000,000,000 
0.20%$20,000,000$40,000,000$80,000,000
0.50%$50,000,000$100,000,000$200,000,000
1%$100,000,000$200,000,000$400,000,000
Table 5

A few days ago, Apple and Walgreens announced that new Apple Card customers would receive $50 bonus in Apple Cash after spending at least $50 at Walgreens using the card. The promotion is valid till the end of June. It signals to me that 1) Apple wants to acquire more customers for Apple Card and 2) Apple may also receive a fee whenever a new customer comes on board. I don’t imagine $50 bonus would be paid for Walgreens or GS. Why would they do so when there is no sustainable benefit? If Apple shoulders the cost of the acquisition bonus, or at least most of it, it will likely not make financial sense to just rely on fees from card purchases to recoup the investment.

In sum, I hope that the information I shared and my thoughts are useful in helping you understand more about the credit card world that is complex yet fascinating. I spent quite some time thinking about the collaboration between Apple and Goldman Sachs as the presence of a tech giant and an investment bank in the consumer banking area is quite interesting. There isn’t much information out there so I would love to learn from whoever has useful information to contribute to the topic at hand.

Disclaimer: I own Apple stocks in my personal portfolio

A few notable graphs from Amazon and Apple earnings

Tech giants reported their earnings this week and proved how resilient their businesses are amid arguably the most challenging environment ever. In this post, I’d like to demonstrate with visuals how important AWS is to Amazon, and how China, Wearables and Services are to Apple while it has become less of an iPhone company.

Amazon

Apple

Teams vs Zoom and the art of reporting confusing numbers

Since the stay-at-home order started around the globe, demand for videoconferencing has skyrocketed. Facebook even introduced a new video service for its users. What has caught my interest, though, is the battle between Zoom and Teams by Microsoft. Zoom stock has surged significantly for the past two months, especially after it reported that it had 300 million daily active users. Or so we thought

Zoom has confused the comparisons, though. Zoom originally stated it had “more than 300 million daily users” and that “more than 300 million people around the world are using Zoom during this challenging time.” Zoom later quietly deleted these references from its blog post, and it now only claims “300 million daily Zoom meeting participants.”

The differences are important, as is Zoom’s transparency around them. Daily meeting participants counts multiple meetings, so if you have five Zoom or Teams meetings in a day, then you’re counted five times. Zoom has not yet revealed exact daily active user counts, and it looks like Microsoft could be a lot closer to Zoom usage than many had assumed.

Source: The Verge

For comparison, Microsoft announced today that it reached 200 million daily meeting participants in April. Since the two use the same label, does that mean Zoom has taken Teams’ lunch? Not quite there yet.

The daily meeting participant count can be misleading. For example, Teams doesn’t have a limit on call duration, to the best of my knowledge, while Zoom puts a 40-minute limit on calls that involve more than three participants. So if the participants are willing to set up another call after the free 40 minutes expires, it will bloat up the daily meeting participant count, even though it’s still one meeting that has the same folks involved.

Daily usage can be misleading as well. For instance, I use Jabber at work and it is powered up automatically on my work station. If I don’t interact with anyone on the app, does it mean I am among the daily users still? To be fair, the two companies don’t elaborate on this, but there is one comment from a Microsoft executive

It’s been phenomenal, if I’m honest with you. Let me just start with the DAU thing because there’s a lot of needling on this and we define the DAU. Daily active user for us is the maximum number of users who take an intentional action over a 24-hour period. That’s really important for me to hit. What we call passive actions do not count. So auto boot does not count. Minimizing a window does not count. Closing the app does not count. We also got a lot of questions about that. Skype does not count. So when we release our numbers, we just don’t feel like we want to get in the weeds of kind of argue with people, but the DAU very real.

Source: Microsoft

Another reason is the mix of added users/usage. In its latest investor call in March, Zoom’s CFO commented the following

Image

Granted, there may have been more development since the comment. Frankly, it’s unclear how the surge in usage benefits Zoom financially without the company’s disclosure. Nonetheless, it’s not surprising that the majority of the increased usage comes from the free tier.

On Teams side, it’s not particularly providing a clearer picture either. Back in January, during the Q2 earnings call, Microsoft announced they had 20 million daily active users. 3 months later, the figure stands at 75 million. Quite an achievement. But like Zoom, Microsoft has a free tier that allows video or calls. As a result, barring a comment from the Seattle-based company, it’s not clear how many Microsoft added as paying customers.

Source: Microsoft

The point is that it’s really hard to determine which videoconferencing tool is the better performer between the two leaders Zoom and Teams. The way data is reported by the two companies makes it really challenging to have an apple-to-apple comparison.

Contactless and card penetration trend from Visa.

In this post, I want to share with you what I found while I was doing some research on credit card trends.

Tap to pay

  • As of March 2020, one in three card present transactions by Visa is tap to pay, up from one in four a year ago (1)
  • In 2019, excluding the US, 55% of Visa transactions were contactless (1)
  • In the US, there are 145 million contactless credit cards in circulation and Visa expects that the number will reach 300 at the end of 2020 (1)
  • 17 out of the top 25 issuers are fully issuing tap to pay cards. 8 out of the top 10 merchants are accepting tap to pay. 60% of all in-store transactions in the U.S. are now taking place at terminals that are enabled for tap to pay. (1)
  • Globally, tap-to-pay has resulted in 20% life in card transactions. (2)
  • In the US, tap-to-pay cards led to plus 4 more transactions per month and $160 increase of spend per month (2)
  • “CEMEA now has the highest tap to pay penetration of any Visa region. 2 of our CEMEA countries, Russia and Georgia, are in the top 10 tap to pay countries in the world. Georgia is, in fact, number one, with an incredible 96% tap to pay penetration.” (2)
  • 77% of active terminals in South America are contactless-enabled. Tap-to-pay penetration was doubled in one year. Chile and Costa Rica have a leading 50% contactless penetration
  • “For example, on transit for London services, we saw double the transactions and 70% higher growth in spend by tap to pay transport for London users versus those not using tap to pay. In New York City, Visa is partnering with Chase to promote tap to pay in and around subway stations that are contactless enabled. As a result, Visa has crossed 4 million taps within the MTA system and contactless payments will be accepted system-wide by the end of 2020.” (2)’
  • In Asia Pacific, tap to pay penetration increased from 29% in 2016 to 41% in 2019. Post activation, tap-to-pay card saw 3.8 times more transactions and 1.8 times more spend per card. Specifically, tap-to-pay cardholders made 3.9 times more transactions at fast food restaurants and 2.3 times more at supermarkets and grocery stores
Source: Visa

Card Penetration

  • On average, an American makes 12 cash transactions a month. 55% of all transactions under $10 were made in cash (2)
  • In daily segments such as gas or supermarkets, card penetration stood at 60% for the US (2)
  • Retail digital spending has grown at CAGR of 23% since 2016, yet it still only makes up 14% of global retail spending (2)
  • Cash and check penetration remains at 92% for Sub-Saharan Africa, excluding South Africa (2)
  • “The macro trends are incredible. It (Sub-Saharan Africa) has the fastest-growing population among major regions, double the global average and half of sub-Saharan Africa is under 18 years of age. It has 46 countries, and 6 of which are in the top 10 fastest-growing economies in the world. The market is still greenfield. Cards have only penetrated 3% of PCE, and 2/3 of the population does not have a bank account. Yet Africa is home to nearly half of all mobile money users. Sub-Saharan Africa is mobile first. People use their mobile phones daily to make and receive payments. This opens immense, immediate and long-term opportunities for Visa.” (2)

References

  1. Visa Inc at Wolfe Research FinTech Forum (11th March 2020)
  2. Visa 2020 Investor Day

Disclaimer: I own Visa stocks in my personal portfolio

Kindle App vs iBooks on iOS 13

Amazon isn’t exactly known for its design capability, yet I am relatively pleased with the Kindle App on iOS 13. Below is a brief comparison between the two apps in terms of features and UX.

Appearance

The Kindle app offers different options to adjust the font, the theme, the spacing between rows, the brightness and the view.

With the exception of the ability to change spacing between rows, all the other features are very similar to what iBooks provides. Personally, I appreciate the green theme available on Kindle.

Looking up and translating words

Additionally, readers can translate, look up unknown words and learn more about them via Wikipedia inside the Kindle app handily. All readers need to do is to select the word and the features are automatically presented.

On iBooks, it’s a little bit different. After clicking on a word and choosing “Look up”, readers will be taken to a page that includes various options related to the word in question

Taking notes

It’s a little bit frustrating to take and copy notes on iOS. As the short video shows, users have to select a block of text manually again for any use.

If users want to use the copied text somewhere, iOS has a default footnote that comes with every single copy. The note itself reminds users of the title and author at hand, but it creates another step that becomes annoying if repeated.

On Kindle, taking notes is a bit easier. A whole block of text can be chosen and copied with only a touch of your fingertip. Additionally, there is no default footnote as in the case of iBooks.

Flashcard

Kindle has one feature that is absent on iBooks: Flash Cards. It’s pretty handy for those that like to take notes and come back later to test their memory.

In short, the two apps provide very similar core functionalities. The difference comes, I suspect, mainly from special use cases. Personally, because I often copy quotes and notes from books to this blog in my book review entries, I prefer Kindle to iBooks.