regulation
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Apple’s control over the App Store is no longer sustainable
Last week, Apple caved to the Chinese government and pulled an app called HKmap.live that was being used by Hong Kong protestors to crowdsource the location of police forces.
While Apple CEO Tim Cook defended Apple’s stance, the move is a reminder that Apple is the only judge and jury regarding what’s acceptable in the App Store — but as mobile devices are integrated into more aspects of our lives, it’s getting harder to justify such tight control over their software.
The current state of the App Store is a great example of the risks of running a marketplace that becomes too big. It also shows that we can expect wide-ranging marketplace regulation in the near future.
The App Store as video game console
Before Apple introduced the App Store in 2008, companies could distribute third-party apps and web services without oversight; consumers could buy floppy disks, download software from the internet or connect to any website.
But with the App Store, Apple decided to control the user experience from approval to distribution. And it has been a massive economic success. There are more than 2.2 million apps in the App Store that have generated over 130 billion downloads.
In many ways, the iOS app ecosystem works more like a video game console than a computer — developers submit games and apps to the maker of the platform, which starts a review process to see if third-party content complies with guidelines. If so, developers may list their game or app on the platform.
The PlayStation 4 has been around for six years and Sony has approved 2,294 games in total, around 380 games per year. Due to the sheer size of the App Store, Apple has faced challenges that console manufacturers have never faced.
Review guidelines are poorly enforced
Apple has written the App Store Review Guidelines, a lengthy document intended to answer all questions about what’s acceptable — but those rules are not enforced consistently, and the App Store isn’t a level playing field, discrepancies I’ve pointed out in the past.
As an example: rule 4.3, titled “Spam:”
Don’t create multiple Bundle IDs of the same app. If your app has different versions for specific locations, sports teams, universities, etc., consider submitting a single app and provide the variations using in-app purchase. Also avoid piling on to a category that is already saturated; the App Store has enough fart, burp, flashlight, and Kama Sutra apps already. Spamming the store may lead to your removal from the Developer Program.
And yet, customers can find plenty of categories with app duplicates and companies trying to game the App Store. For example, I found 13 different VoIP apps released by four companies. Each company had multiple versions of the same app in order to pick different names, keywords and categories to optimize search results.
When I pointed this out to Apple, they removed most of the duplicates in less than 24 hours, but it can’t remain the single source of truth if it doesn’t enforce its own rules properly.
Similarly, as Under the Radar recently pointed out, some developers will always find ways to abuse the App Store. For instance, shady developers acquire apps with a lot of positive ratings, transfer those apps to their own developer account, push updates with expensive weekly recurring subscriptions and take advantage of Apple’s obscure process to cancel subscriptions.
Economic interests first
In its most recent earnings release, Apple reported that Greater China represented 17% of the company’s revenue. The company also manufactures the vast majority of its products in Chinese factories. Apple has a lot to lose in China.
That’s why Apple’s actions in China don’t reflect the company’s principles. Cupertino claims to care deeply about privacy, but it uploads iCloud user data to a state-owned mobile operator in China.
The company says that it cares deeply about privacy but uploads iCloud user data to a state-owned mobile operator in China
Apple first removed HKmap.live from the App Store, then authorized the app again before removing it one more time. The only thing that changed between the first second removal is that the Chinese government started openly criticizing Apple about that specific case.
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Labor leaders and startup founders talk how to build a sustainable gig economy
Over the past few years, gig economy companies and the treatment of their labor force has become a hot button issue for public and private sector debate.
At our recent annual Disrupt event in San Francisco, we dug into how founders, companies and the broader community can play a positive role in the gig economy, with help from Derecka Mehrens, an executive director at Working Partnerships USA and co-founder of Silicon Valley Rising — an advocacy campaign focused on fighting for tech worker rights and creating an inclusive tech economy — and Amanda de Cadenet, founder of Girlgaze, a platform that connects advertisers with a network of 200,000 female-identifying and non-binary creatives.
Derecka and Amanda dove deep into where incumbent gig companies have fallen short, what they’re doing to right the ship, whether VC and hyper-growth mentalities fit into a sustainable gig economy, as well as thoughts on Uber’s new ‘Uber Works’ platform and CA AB-5. The following has been lightly edited for length and clarity.
Where current gig companies are failing
Arman Tabatabai: What was the original promise and value proposition of the gig economy? What went wrong?
Derecka Mehrens: The gig economy exists in a larger context, which is one in which neoliberalism is failing, trickle-down economics is proven wrong, and every day working people aren’t surviving and are looking for something more.
And so you have a situation in which the system we put together to create employment, to create our communities, to build our housing, to give us jobs is dysfunctional. And within that, folks are going to come up with disruptive solutions to pieces of it with a promise in mind to solve a problem. But without a larger solution, that will end up, in our view, exacerbating existing inequalities.
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Why commerce companies are the advertising players to watch in a privacy-centric world
Justin Choi is the founder and CEO of Nativo, which empowers brands and publishers through its advanced platform for content.
More posts by this contributor
The unchecked digital land grab for consumers’ personal data that has been going on for more than a decade is coming to an end, and the dominoes have begun to fall when it comes to the regulation of consumer privacy and data security.
We’re witnessing the beginning of a sweeping upheaval in how companies are allowed to obtain, process, manage, use and sell consumer data, and the implications for the digital ad competitive landscape are massive.
On the backdrop of evolving privacy expectations and requirements, we’re seeing the rise of a new class of digital advertising player: consumer-facing apps and commerce platforms. These commerce companies are emerging as the most likely beneficiaries of this new regulatory privacy landscape — and we’re not just talking about e-commerce giants like Amazon.
Traditional commerce companies like eBay, Target and Walmart have publicly spoken about advertising as a major focus area for growth, but even companies like Starbucks and Uber have an edge in consumer data consent and, thus, an edge over incumbent media players in the fight for ad revenues.
Tectonic regulatory shifts
Image via Getty Images / alashi
By now, most executives, investors and entrepreneurs are aware of the growing acronym soup of privacy regulation, the two most prominent ingredients being the GDPR (General Data Protection Regulation) and the CCPA (California Consumer Privacy Act).
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The startups creating the future of RegTech and financial services
Marc Gilman
Contributor
Contributor
Marc Gilman is General Counsel and VP of Compliance at Theta Lake. He is also an Adjunct Professor at Fordham University School of Law.
Technology has been used to manage regulatory risk since the advent of the ledger book (or the Bloomberg terminal, depending on your reference point). However, the cost-consciousness internalized by banks during the 2008 financial crisis combined with more robust methods of analyzing large datasets has spurred innovation and increased efficiency by automating tasks that previously required manual reviews and other labor-intensive efforts.
So even if RegTech wasn’t born during the financial crisis, it was probably old enough to drive a car by 2008. The intervening 11 years have seen RegTech’s scope and influence grow.
RegTech startups targeting financial services, or FinServ for short, require very different growth strategies — even compared to other enterprise software companies. From a practical perspective, everything from the security requirements influencing software architecture and development to the sales process are substantially different for FinServ RegTechs.
The most successful RegTechs are those that draw on expertise from security-minded engineers, FinServ-savvy sales staff as well as legal and compliance professionals from the industry. FinServ RegTechs have emerged in a number of areas due to the increasing directives emanating from financial regulators.
This new crop of startups performs sophisticated background checks and transaction monitoring for anti-money laundering purposes pursuant to the Bank Secrecy Act, the Office of Foreign Asset Control (OFAC) and FINRA rules; tracks supervision requirements and retention for electronic communications under FINRA, SEC, and CFTC regulations; as well as monitors information security and privacy laws from the EU, SEC, and several US state regulators such as the New York Department of Financial Services (“NYDFS”).
In this article, we’ll examine RegTech startups in these three fields to determine how solutions have been structured to meet regulatory demand as well as some of the operational and regulatory challenges they face.
Know Your Customer and Anti-Money Laundering
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FCC passes measure urging carriers to block robocalls by default
The FCC voted at its open meeting this week to adopt an anti-robocall measure, but it may or may not lead to any abatement of this maddening practice — and it might not be free, either. That said, it’s a start toward addressing a problem that’s far from simple and enormously irritating to consumers.
The last two years have seen the robocall problem grow and grow, and although there are steps you can take right now to improve things, they may not totally eliminate the issue or perhaps won’t be available on your plan or carrier.
Under fire for not acting quickly enough in the face of a nationwide epidemic of scam calls, the FCC has taken action about as fast as a federal regulator can be expected to, and there are two main parts to its plan to fight robocalls, one of which was approved today at the Commission’s open meeting.
The first item was proposed formally last month by Chairman Ajit Pai, and although it amounts to little more than nudging carriers, it could be helpful.
Carriers have the ability to apply whatever tools they have to detect and block robocalls before they even reach users’ phones. But it’s possible, if unlikely, that a user may prefer not to have that service active. And carriers have complained that they are afraid blocking calls by default may in fact be prohibited by existing FCC regulations.
The FCC has said before that this is not the case and that carriers should go ahead and opt everyone into these blocking services (one can always opt out), but carriers have balked. The rulemaking approved basically just makes it crystal clear that carriers are permitted, and indeed encouraged, to opt consumers into call-blocking schemes.
That’s good, but to be clear, Wednesday’s resolution does not require carriers to do anything, nor does it prohibit carriers from charging for such a service — as indeed Sprint, AT&T, and Verizon already do in some form or another. (TechCrunch is owned by Verizon Media, but this does not affect our coverage.)
BREAKING: The @FCC votes to authorize call blocking to help stop #robocalls. That’s good news. Now the bad news: it refuses to prevent new consumer charges and fees to block these awful calls. That’s not right. We should stop robocalls and do it for FREE.https://t.co/6bay6cnujN
— Jessica Rosenworcel (@JRosenworcel) June 6, 2019
Commissioner Starks noted in his approving statement that the FCC will be watching the implementation of this policy carefully for the possibility of abuse by carriers.
At my request, the item [i.e. his addition to the proposal] will give us critical feedback on how our tools are performing. It will now study the availability of call blocking solutions; the fees charged, if any, for these services; the effectiveness of various categories of call blocking tools; and an assessment of the number of subscribers availing themselves of available call blocking tools.
A second rule is still gestating, existing right now more or less only as a threat from the FCC should carriers fail to step up their game. The industry has put together a sort of universal caller ID system called STIR/SHAKEN (Secure Telephony Identity Revisited / Secure Handling of Asserted information using toKENs), but has been slow to roll it out. Pai said late last year that if carriers didn’t put it in place by the end of 2019, the FCC would be forced to take regulatory action.
Why the Commission didn’t simply take regulatory action in the first place is a valid question, and one some Commissioners and others have asked. Be that as it may, the threat is there and seems to have spurred carriers to action. There have been tests, but as yet no carrier has rolled out a working anti-robocall system based on STIR/SHAKEN.
Pai has said regarding these systems that “we [i.e. the FCC] do not anticipate that there would be costs passed on to the consumer,” and it does seem unlikely that your carrier will opt you into a call-blocking scheme that costs you money. But never underestimate the underhandedness and avarice of a telecommunications company. I would not be surprised if new subscribers get this added as a line item or something; watch your bills carefully.
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Google Play cracks down on marijuana apps, loot boxes and more
On Wednesday, Google rolled out new policies around kids’ apps on Google Play following an FTC complaint claiming a lack of attention to apps’ compliance with children’s privacy laws, and other rules around content. However, kids’ apps weren’t the only area being addressed this week. As it turns out, Google also cracked down on loot boxes and marijuana apps, while also expanding sections detailing prohibitions around hate speech, sexual content and counterfeit goods, among other things.
The two more notable changes include a crackdown on “loot boxes” and a ban on apps that offer marijuana delivery — while the service providers’ apps can remain, the actual ordering process has to take place outside of the app itself, Google said.
Specifically, Google will no longer allow apps offering the ability to order marijuana through an in-app shopping cart, those that assist users in the delivery or pickup of marijuana or those that facilitate the sale of THC products.
This isn’t a huge surprise — Apple already bans apps that allow for the sale of marijuana, tobacco or other controlled substances in a similar fashion. On iOS, apps like Eaze and Weedmaps are allowed, but they don’t offer an ordering function. That’s the same policy Google is now applying on Google Play.
This is a complex subject for Google, Apple and other app marketplace providers to tackle. Though some states have legalized the sale of marijuana, the laws vary. And it’s still illegal according to the federal government. Opting out of playing middleman here is probably the right step for app marketplace platforms.
That said, we understand Google has no intention of outright banning marijuana ordering and delivery apps.
The company knows they’re popular and wants them to stay. It’s even giving them a grace period of 30 days to make changes, and is working with the affected app developers to ensure they’ll remain accessible.
“These apps simply need to move the shopping cart flow outside of the app itself to be compliant with this new policy,” a spokesperson explained. “We’ve been in contact with many of the developers and are working with them to answer any technical questions and help them implement the changes without customer disruption.”
Another big change impacts loot boxes — a form of gambling popular among gamers. Essentially, people pay a fee to receive a random selection of in-game items, some of which may be rare or valuable. Loot boxes have been heavily criticized for a variety of reasons, including their negative effect on gameplay and how they’re often marketed to children.
Last week, a new Senate bill was introduced with bipartisan support that would prohibit the sale of loot boxes to children, and fine those in violation.
Google Play hasn’t gone so far as to ban loot boxes entirely, but instead says games have to now disclose the odds of getting each item.
In addition to these changes, Google rolled out a handful of more minor updates, detailed on its Developer Policy Center website.
Here, Google says it has expanded the definition of what it considers sexual content to include a variety of new examples, like illustrations of sexual poses, content depicting sexual aids and fetishes and depictions of nudity that wouldn’t be appropriate in a public context. It also added “content that is lewd or profane,” according to Android Police, which compared the old and new versions of the policy.
Definitions that are somewhat “open to interpretation” is something that Apple commonly uses to gain better editorial control over its own App Store. By adding a ban of “lewd or profane” content, Google can opt to reject apps that aren’t covered by other examples.
Google also expanded its list of examples around hate speech to include: “compilations of assertions intended to prove that a protected group is inhuman, inferior or worthy of being hated;” “apps that contain theories about a protected group possessing negative characteristics (e.g. malicious, corrupt, evil, etc.), or explicitly or implicitly claims the group is a threat;” and “content or speech trying to encourage others to believe that people should be hated or discriminated against because they are a member of a protected group.”
Additional changes include an update to the Intellectual Property policy that more clearly prohibits the sale or promotion for sale of counterfeit goods within an app; a clarification of the User Generated Content policy to explicitly prohibit monetization features that encourage objectionable behavior by users; and an update to the Gambling policy, with more examples.
A Google spokesperson says the company regularly updates its Play Store developer policies in accordance with best practices and legal regulations around the world. However, the most recent set of changes err on the side of getting ahead of increased regulation — not only in terms of kids’ apps and data privacy, but also other areas now under legal scrutiny, like loot boxes and marijuana sales.
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What does ‘regulating Facebook’ mean? Here’s an example
Many officials claim that governments should regulate Facebook and other social platforms, but few describe what it actually means. A few days ago, France released a report that outlines what France — and maybe the European Union — plans to do when it comes to content moderation.
It’s an insightful 34-page document with a nuanced take on toxic content and how to deal with it. There are some brand new ideas in the report that are worth exploring. Instead of moderating content directly, the regulator in charge of social networks would tell Facebook and other social networks a list of objectives. For instance, if a racist photo goes viral and is distributed to 5 percent of monthly active users in France, you could consider that the social network has failed to fulfill its obligations.
This isn’t just wishful thinking as the regulator would be able to fine the company up to 4 percent of the company’s global annual turnover in case of a systemic failure to moderate toxic content.
The government plans to turn the report into new pieces of regulation in the coming months. France doesn’t plan to stop there. It is already lobbying other countries (in Europe, the Group of 7 nations and beyond) so that they could all come up with cross-border regulation and have a real impact on moderation processes. So let’s dive into the future of social network regulation.
Facebook first opened its doors
When Facebook CEO Mark Zuckerberg testified before Congress in April 2018, it felt like regulation was inevitable. And the company itself has been aware of this for a while.
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Startup Law A to Z: Regulatory Compliance
Startups are but one species in a complex regulatory and public policy ecosystem. This ecosystem is larger and more powerfully dynamic than many founders appreciate, with distinct yet overlapping laws at the federal, state and local/city levels, all set against a vast array of public and private interests. Where startup founders see opportunity for disruption in regulated markets, lawyers counsel prudence: regulations exist to promote certain strongly-held public policy objectives which (unlike your startup’s business model) carry the force of law.
Snapshot of the regulatory and public policy ecosystem. Image via Law Office of Daniel McKenzie
Although the canonical “ask forgiveness and not permission” approach taken by Airbnb and Uber circa 2009 might lead founders to conclude it is strategically acceptable to “move fast and break things” (including the law), don’t lose sight of the resulting lawsuits and enforcement actions. If you look closely at Airbnb and Uber today, each have devoted immense resources to building regulatory and policy teams, lobbying, public relations, defending lawsuits, while increasingly looking to work within the law rather than outside it – not to mention, in the case of Uber, a change in leadership as well.
Indeed, more recently, examples of founders and startups running into serious regulatory issues are commonplace: whether in healthcare, where CEO/Co-founder Conrad Parker was forced to resign from Zenefits and later fined approximately $500K; in the securities registration arena, where cryptocurrency startups Airfox and Paragon have each been fined $250K and further could be required to return to investors the millions raised through their respective ICOs; in the social media and privacy realm, where TikTok was recently fined $5.7 million for violating COPPA, or in the antitrust context, where tech giant Google is facing billions in fines from the EU.
Suffice it to say, regulation is not a low-stakes table game. In 2017 alone, according to Duff and Phelps, US financial regulators levied $24.4 billion in penalties against companies and another $621.3 million against individuals. Particularly in today’s highly competitive business landscape, even if your startup can financially absorb the fines for non-compliance, the additional stress and distraction for your team may still inflict serious injury, if not an outright death-blow.
The best way to avoid regulatory setbacks is to first understand relevant regulations and work to develop compliant policies and business practices from the beginning. This article represents a step in that direction, the fifth and final installment in Extra Crunch’s exclusive “Startup Law A to Z” series, following previous articles on corporate matters, intellectual property (IP), customer contracts and employment law.
Given the breadth of activities subject to regulation, however, and the many corresponding regulations across federal, state, and municipal levels, no analysis of any particular regulatory framework would be sufficiently complete here. Instead, the purpose of this article is to provide founders a 30,000-foot view across several dozen applicable laws in key regulatory areas, providing a “lay of the land” such that with some additional navigation and guidance, an optimal course may be charted.
The regulatory areas highlighted here include: (a) Taxes; (b) Securities; (c) Employment; (d) Privacy; (e) Antitrust; (f) Advertising, Commerce and Telecommunications; (g) Intellectual Property; (h) Financial Services and Insurance; and finally (i) Transportation, Health and Safety.
Of course, some regulations may touch on multiple regulatory areas, for example, the “Fair Credit Reporting Act” is a law ultimately about privacy, but it impacts many financial and employment-related services as well. Certain laws may therefore be cross-listed in more than one regulatory area. Also, since we can’t look at every U.S. state and city, this article will focus primarily on the federal and California state laws.
After you focus on the particular regulatory areas that may implicate your business, next reference the short quotations and links to relevant primary and secondary sources below, then work to identify the specific compliance risks you face. This is where other Extra Crunch resources can help. For example, the Verified Experts of Extra Crunch include some of the most experienced and skilled startup lawyers in practice today. Use these profiles to identify attorneys who are focused on serving companies at your particular stage and then seek out any further guidance you need to address the regulatory matters pertinent to your startup.
With that as context, the Startup Law A to Z – Regulatory Compliance checklist is below:
Taxes
- Federal
- California
Securities
- Federal
- California
Employment
- Federal
- Affordable Care Act
- Age Discrimination in Employment Act of 1967 (ADEA)
- Americans with Disabilities Act of 1990 (ADA)
- Civil Rights Act of 1964
- COBRA Requirements
- Employee Retirement Income Security Act of 1974 (ERISA)
- Equal Pay Act of 1963
- Federal Fair Labor Standards Act (FLSA)
- Genetic Information Nondiscrimination Act
- Immigration Reform and Control Act
- National Labor Relations Act
- Pregnancy Discrimination Act
- California
Privacy
- Federal
- California:
- Consumer Privacy Act of 2018
- Online Privacy Protection Act of 2003 (Cal-OPPA)
- Confidentiality of Medical Information Act
- Consumer Credit Reporting Agencies Act
- Electronic Eavesdropping, Invasion of Privacy Act
- Insurance Information and Privacy Protection Act
- Privacy Rights for California Minors in the Digital World
- Shine the Light Law
- Student Online Personal Information Protection Act
- International:
Antitrust
- Federal
- California
Advertising, Commerce and Telecommunications
- Federal
- Federal Trade Commission Act
- Clarifying Lawful Overseas Use of Data Act
- Communications Decency Act, Section 230
- Computer Fraud and Abuse Act
- Controlling Assault of Non-Solicited Pornography & Marketing Act (CAN-SPAM)
- Electronic Communications Privacy Act
- Export Administration Regulations
- Restore Online Shoppers’ Confidence Act
- Telecommunications Act
- California
Intellectual Property
- Federal
- Anticybersquatting Consumer Protection Act
- Copyright Act, Copyright Revision Act of 1976
- Digital Millennium Copyright Act
- Defend Trade Secrets Act of 2016
- Economic Espionage Act of 1996
- Electronic Communications Privacy Act of 1986 (ECPA)
- Prioritizing Resources and Organization for Intellectual Property Act of 2008
- Lanham (Trademark) Act of 1946
- Leahy-Smith America Invents Act
- No Electronic Theft Act
- Patent Act
- California
Financial Services and Insurance
- Federal
- California
Transportation, Health & Safety
- Federal
- California
Before diving into further detail, it may be helpful for some readers to note the distinction between a law and a regulation. Simply put, regulations provide more detailed direction on how certain laws should be followed. So regulations are not technically laws, but they carry the force of law (including penalties for violation), since they are adopted by governmental agencies under authority granted by statute. Beyond that, understanding how laws and regulations are actually enacted is helpful to illustrate the extent to which the process is politically driven.
In the U.S., a bill must first pass both legislative branches of government, then, if signed by the executive branch, it will be codified in statute as law (Schoolhouse Rock anyone?). Once codified, the legislative branch will authorize the relevant executive department or agency to determine whether specific regulations are necessary to give the law effect. If so, those executive departments or agencies will determine what further rules are needed, and in turn, work to enforce them.
At the federal level, for example, proposed regulations are developed first through a “Notice of Proposed Rulemaking,” listed in the Federal Register and filed in the corresponding executive agency’s official docket (available at Regulations.gov). This affords the public an opportunity to comment on the regulations. After receiving comments, the filing agency may revise the proposed regulation before final rules are issued, which again will be published in the Federal Register and then filed in the agency’s official docket at Regulations.gov, before they are codified in the Code of Federal Regulations (CFR).
At nearly every step in this process then, institutions, government, and interest groups are working – sometimes at cross purposes – to shape what the law will be and how it will impact your startup.
The Startup Law A to Z – Regulatory Compliance reference guide is below:
A. TAXES
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How to handle dark data compliance risk at your company
Lisa Hawke is VP of Security and Compliance at Everlaw, and Vice Chair of Women in Security and Privacy.
Slack and other consumer-grade productivity tools have been taking off in workplaces large and small — and data governance hasn’t caught up.
Whether it’s litigation, compliance with regulations like GDPR or concerns about data breaches, legal teams need to account for new types of employee communication. And that’s hard when work is happening across the latest messaging apps and SaaS products, which make data searchability and accessibility more complex.
Here’s a quick look at the problem, followed by our suggestions for best practices at your company.
Problems
The increasing frequency of reported data breaches and expanding jurisdiction of new privacy laws are prompting conversations about dark data and risks at companies of all sizes, even small startups. Data risk discussions necessarily include the risk of a data breach, as well as preservation of data. Just two weeks ago it was reported that Jared Kushner used WhatsApp for official communications and screenshots of those messages for preservation, which commentators say complies with record keeping laws but raises questions about potential admissibility as evidence.
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Instagram founders say losing autonomy at Facebook meant “winning”
Rather than be sore about losing independence within Facebook, Instagram co-founder Kevin Systrom told me it was an inevitable sign of his app’s triumph. Today at South By South West, Systrom and fellow co-founder Mike Krieger sat down for their first on-stage talk together since leaving Facebook in September. They discussed their super hero origin stories, authenticity on social media, looming regulation for big tech, and how they’re exploring what they’ll do next.
Krieger grew up hitting “view source” on websites while Systrom hacked on AOL booter programs that would kick people off instant messenger, teaching both how code could impact real people. As Instagram grew popular, Krieger described the “incredi-bad” feeling of fighting server fires and trying to keep the widely loved app online even if that meant programming in the middle of a sushi restaurant or camping retreat. He once even revived Instagram while drunk in the middle of the night, and woke up with no memory of the feat, confused about who’d fixed the problem. The former Instagram CTO implored founders not to fall into the “recruiting death spiral” where you’re too busy to recruit which makes you busier which makes you too busy to recruit…
But thankfully, the founders were also willing to dig into some tougher topics than their scrappy startup days.
Kevin Systrom and Mike Krieger (from left) drive to Palo Alto to raise their Series A, circa January 2011
Independence vs Importance.
“In some ways, there being less autonomy is a function of Instagram winning. If Instagram had just been this niche photo app for photographers, we probably would be working on that app for 20 year. Instead what happened was it got better and better and better, and it improved, and it got to a size where it was meaningfully important to this company” Systrom explained. “If this thing gets to that scale that we want it to get to which is why we’re doing this deal, the autonomy will eventually not be there as much because it’s so important. So in some ways it’s just an unavoidable thing if you’re successful. So you can choose, do you want to be unsuccessful and small and have all the autonomy in the world, or no?”
AUSTIN, TX – MARCH 11: Mike Krieger speaks onstage at Interactive Keynote: Instagram Founders Kevin Systrom & Mike Krieger with Josh Constine during the 2019 SXSW Conference and Festivals at Austin Convention Center on March 11, 2019 in Austin, Texas. (Photo by Chris Saucedo/Getty Images for SXSW)
Krieger followed up that “I think if you study . . . all the current companies, the ones that succeed internally eventually have become so important to the acquiring company that it’s almost irresponsible to not be thinking about what are the right models for integration. The advice I generally give is, ‘are you okay with that if you succeed?’ And if you’re not then you shouldn’t do the deal.” If the loss of autonomy can’t be avoided, they suggest selling to a rocket ship that will invest in and care for your baby rather than shift priorities.
Asked if seeing his net worth ever feels surreal, Systrom said money doesn’t make you happy and “I don’t really wake up in the morning and look at my bank account.” I noted that’s the convenient privilege of having a big one.
The pair threw cold water on the idea that being forced to earn more money drove them out of the company. “I remember having this series of conversations with Mark and other folks at Facebook and they’re like ‘You guys just joined, do not worry about monetization, we’ll figure this out down the road.’ And it actually came a lot more from us saying “1. It’s important for us to be contributing to the overall Fb Inc . . . and 2. Each person who joins before you have ads is a person you’re going to have to introduce ads to.” Systrom added that “to be clear, we were the ones pushing monetization, not the other way around, because we believed Instagram has to make money somehow. It costs a lot to run . . . We pushed hard on it so that we would be a successful unit within Facebook and I think we got to that point, which is really good.”
But from 2015 to 2016, Instagram’s remaining independence fueled a reinvention of its app with non-square photos, the shift to the algorithm, and the launch of Stories. On having to challenge the fundamental assumptions of a business, “You’ve got maybe a couple years of relevance when you build a product. If you don’t reinvent it every quarter or every year, then you fall out of relevance and you go away.”
That last launch was inspired by wanting to offer prismatic identity where people could share non-highlights that wouldn’t haunt them. But also, Systrom admits that “Honestly a big reason why was that for a long time, people’s profiles were filled with Snapchat links and it was clear that people were trying to bridge the two products. So by bringing the two products [Feed and Stories] into one place, we gave consumers what they wanted.” Though when I asked anyone in the crowd who was still mad about the algorithm to hiss, SXSW turned into a snake pit.
Regulating Big Tech
With Systrom and Krieger gone, Facebook is moving forward with plans to more tightly integrate Instagram with Facebook and WhatsApp. That includes unifying their messaging system, which some say is designed to make Facebook’s apps harder to break up with anti-trust regulation. What does Systrom think of the integration? “The more people that are available to talk with, the more useful the platform becomes. And I buy that thesis . . . Whether or not they will in fact want to talk to people on different platforms, I can’t tell the future, so I don’t know” Systrom said.
AUSTIN, TX – MARCH 11: Josh Constine, Mike Krieger and Kevin Systrom speak onstage at Interactive Keynote: Instagram Founders Kevin Systrom & Mike Krieger with Josh Constine during the 2019 SXSW Conference and Festivals at Austin Convention Center on March 11, 2019 in Austin, Texas. (Photo by Chris Saucedo/Getty Images for SXSW)
Krieger recommended Facebook try to prove users want that cross-app messaging before embarking on a giant engineering challenge of merging their backends. When I asked if Systrom ever had a burning desire to Instagram Direct message a WhatsApp user, he admitted “Personally, no.” But in a show of respect and solid media training, he told his former employer “Bravo for making a big bet and going for it.”
Then it was time for the hardest hitting question: their thoughts on Presidential candidate Senator Elizabeth Warren’s proposal to regulate big tech and roll back Facebook’s acquisition of Instagram. “Do we get our job back?” Systrom joked, trying to diffuse the tension. Krieger urged more consideration of downstream externalities, and specificity on what problem a break up fixes. He wants differentiation between regulating Facebook’s acquisitions, Amazon white-labeling and selling products, and Apple’s right to run the only iOS App Store.
Acquisition vs Competition
“We live in a time where I think the anger against big tech has increased ten-fold — whether that’s because the property prices in your neighborhood have gone up, whether it’s because you don’t like Russian meddling in elections — there are a long list of reasons people are angry at tech right now and some of them I think are well-founded” Systrom confirmed. “That doesn’t mean that the answer is to break all the companies up. Breaking companies up is a very specific prescription for a very specific problem. If you want to fix economic issues there are ways of doing that. If you want to fix Russian meddling there are ways of doing that. Breaking up a company doesn’t fix those problems. That doesn’t mean that companies shouldn’t be broken up if they get too big and they’re monopolies and they cause problems, but being big in and of itself is not a crime.”
attends Interactive Keynote: Instagram Founders Kevin Systrom & Mike Krieger with Josh Constine during the 2019 SXSW Conference and Festivals at Austin Convention Center on March 11, 2019 in Austin, Texas
Systrom then took a jab at Warren’s tech literacy, saying “part of what’s surprised me is that generally the policy is all tech should be broken up, and that feels to me again not nuanced enough and it shows me that the understanding of the problem isn’t there. I think it’s going to take a more nuanced proposal, but my fear is that something like a proposal to break up all tech is playing on everyone’s current feeling of anti-tech rather than doing what I think politicians should do which is address real problems and give real solutions.”
The two founders then gave some pretty spurious logic for why Instagram’s acquisition helped consumers. “As someone who ran the company for how many years inside of Facebook? Six? There was a lot of competition internally even and I think better ideas came out because of it. We grew both companies not just one company. It’s really hard question. What consumer was damaged because it grew to the size that it did? I think that’s a strong argument that in fact the acquisition worked out for consumers.” That ignores the fact that if Instagram and Facebook were rivals, they’d have to compete on privacy and treating their users well. Even if they inspired each other to build more engaging products, that doesn’t address where harm to consumers has been done.
Krieger suggested that the acquisition actually spurred competition by making Instagram a role modeI. “There was a gold rush of companies being like ‘I’m going to be the Instagram of X . . . the Instagram of Audio, the Instagram of video, the Instagram of dog photos.’ You saw people start new companies and try to build them out in order to try to achieve what we’ve gotten to.” Yet no startup besides Snapchat, which had already launched, has actually grown to rival Instagram. And seeing Instagram hold its own against the Facebook empire would have likely inspired many more startups — some of which can’t find funding since investors doubt their odds against a combined Facebook and Instagram
As for what’s next for the college buddies, “we’re giving ourselves the time to get curious about things again” Krieger says. They’re still exploring so there was no big reveal about their follow-up venture. But Systrom says they built Instagram by finding the mega-trend of cameras on phones and asking what they’d want to use, “and the question is, what’s the next wave?”
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