Tech'ed Up

Quick Tech Takes • TikTok & EU's Digital Markets Act

• Niki Christoff

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Founder and CEO of the Chamber of Progress, Adam Kovacevich, joins Niki for a rapid-fire take on the latest tech headlines. They talk about TikTok’s headache in Washington, Europe’s misguided Digital Markets Act, and the state of play in Congress. 

“Even if this bill founders this year, the issue doesn't go away, right? That's the thing. The issue never goes away. There's no path really for TikTok to be a successful app in this country long-term and still be owned by ByteDance.” - Adam Kovacevich

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Niki: I'm Niki Christoff and welcome to Tech’ed Up. Today in the studio, I'm joined by a longtime friend and colleague, Adam Kavakovich, who is the CEO and founder of the Chamber of Progress. We're talking TikTok and we're talking the Digital Markets Act. 

Adam, thank you for coming into the studio today.

Adam: It's great to be here. I think after 28 years of friendship, it was, it's probably good that we're doing a podcast together. 

Niki: I was literally doing the math in my Uber. I was like, have we known each other for almost 30 years? Yeah, I've got my 25th reunion coming up

Adam: Yeah. Yeah. And then we met, your freshman year? 

Niki: My freshman year, 1996. Yeah. You were leading Model Congress. 

Adam: Model Congress [chuckling]

Do we need to share our nerd bona fides with this group? [Niki: Yeah] I guess maybe it's a way of establishing ourselves with the Washington audience. 

Niki: Yeah, we're nerds. We're doing Model Congress and current senator, sitting Senator Tom Cotton was also doing Model Congress with us.

Yes, indeed. 

So anyway, we've known each other a long time, not just as classmates, but then colleagues at Google. We overlapped for eight years and were really in a foxhole together during our antitrust issues. [Adam: That's right] So, you were at Google for a long time before that:  comms, policy, strategy, you were at Lyme running government relations, and now you run a trade association that represents a lot of folks that are involved in the two topics today, which are TikTok and the Digital Markets Act. 

So, if you want to just quickly give a rundown of what the Chamber of Progress does.

Adam: Sure, sure. Well, I started Chamber of Progress three years ago, mostly because I consider myself a pro-tech Democrat. That was kind of my experience in politics before coming to Congress. Coming to the tech industry and I, and I started to see some Democrats take kind of a more negative turn against the tech industry really I think starting with Trump being elected.

But it didn't seem to me that that's where actually most Democratic voters were. And so I wanted to close that gap. 

Niki: So let's just kick it right off with someone that is not a partner of the Chamber of Progress. [Adam: Thanks] TikTok.  [Adam: Yes] 

So, we are taping on a Tuesday. This goes live on a Thursday. It is not a breaking news show, but tomorrow the House of Representatives will be voting on a bill that, it will not ban TikTok, but it would change the ownership structure of the company. It's expected to pass. 

Adam: That's right.

Niki: It's expected to pass, even though a lot of people are saying, “Well, President Trump's against the bill and the House members won't vote for it.”

 I think it's going to pass. 

Adam: Well, they've put it on what's called a suspension calendar, which means it has to pass by, I think, two-thirds or three-quarters of a vote.

So, they know that it will have that many votes. That's right. 

Niki: Okay, yeah, right. It's a signal. Thoughts on the bill? What does it do? 

Adam: Well, they, this challenge of, we've never had before had the situation where one of our most popular social networks or content sites is owned by a Chinese company, which is obligated under Chinese law to really work hand in hand with the Chinese government and advance their aims.

That's, these are all just facts. 

So, this has been a novel situation that we've seen for the last couple of years. And we really seen multiple different attempts to deal with that challenged by policymakers. Trump was pretty ham-handed about it because he was basically trying to engineer the sale of TikTok to his buddies at Oracle and that didn't really work.

And then-  

Niki: Because they ran an ad in the New York Post being like, “Sell it to us!” 

 Adam:Yeah. That's right. 

Niki: Not to impugn Oracle's- 

Adam: No, no, no. But it was just like, it was, It was so cronyistic. It was sort of bound to fail. And then, y’know, the issue didn't really go away. And then, we saw the Biden administration insist through the CFIUS process on the divestiture, but they haven't followed through on the implementation of that.

There have been questions in Congress about whether the administration needs more legal authority to do that. There was a bill by Senator Warner, the RESTRICT Act that got some momentum last year, but not too much. And this new bill, interestingly enough, has bipartisan support, but it was also drafted by Lisa Monaco, who is a senior official in the Biden Department of Justice, who has a lot of experience with this.

And they've, they've drafted in a way that they believe makes it less susceptible to some illegal challenges that have, have popped up in the past because it, it requires the app stores and the ISPs not to carry, apps controlled by a foreign entity unless they are divested. 

Niki: Right. So specific foreign entities. So, Iran, North Korea, Russia. China, right?  

Although at the moment, we're not using any North Korean apps, right? So, it does essentially single out TikTok. But the idea is not to ban TikTok, but they have to be sold by ByteDance, the parent company. [Adam: That's right] 

And one of the things I'm finding frustrating in my casual cocktail conversations about this, and by the way, that's why no one invites me to cocktail parties [chuckling]

Adam: I don't get to go to cocktail parties. Three kids!  

Niki: You have three kids, I go and then I start fights about TikTok. But what people, I think, probably- 

Adam: half the people, the cocktail party on a retainer right now. 

Niki: Well, in DC, definitely! We'll get to their strategy in Washington and what we think about that.

But basically, the concept is, as you said, under a 2017 law, there are no independent Chinese companies. If you are a company in China, you must give data to the Chinese Communist Party. Period. Full stop.

ByteDance, a Chinese company, owns TikTok. So, this bill would just say, “Hey, ByteDance can't own this company. They have to divest it.” An American company could buy it. Y’know, there was some talk at one point of like, “Walmart might buy it” or whatever. It's not a ban. 

But I think the reason it's not getting support among voters is voters don't really get it. Like, it's a little complicated. So, when you say, “Well, under the CFIUS process, they were looking at a divestiture, but they didn't get it done. Does the president have the authority…”  Like, zoned-out!! Adam: No, I agree with that. Nobody cares. 

Niki: A spy balloon floating across the United States, everyone loses their goddamn minds, but 170 million Americans have a propaganda machine and a surveillance device on their phone and they're not thinking about it.

Adam: I agree with you. I think this may not actually, divestiture may not actually happen in terms of being followed through until there is almost a “spy balloon moment” of high visibility.

We would have never let the Soviets own a TV station in the U. S. in the middle of the Cold War. [Niki: Right!]

So, I understand it's probably never going to be a voter issue until there's a moment, unless there's a moment where TikTok, ByteDance, Chinese government are so overt in their propaganda that they do something that everybody even, y’know, the skeptics of this bill rise up and sort of say, “Well, yeah, obviously that's sort of crossed the line.”

Niki: Part of the issue is that the messengers of the problematic content are often American influencers, right? And so it's very hard to describe to parents who aren't on TikTok that it's designed totally differently than the other apps. It does not start out with the content you're following.

It starts with the “For You” page. So, your kids, and young people are being fed a firehose of content that they didn't sign up for. And they know it's sticky. It's unbelievably addictive. It's designed totally differently. And I think, so, one is they don't understand necessarily how it's different because parents aren't necessarily using it, even though their kids are and young people are.

And two, it's a problem to me that the Osama Bin Laden “Letter to America” is trending on TikTok and young people are like, “Yeah, right on. I agree with this.”

 I don't think people know that. 

Adam: No, I don't think people do. And one of the interesting things about the political debate is TikTok has to make the debate about being banned. [Niki: Yes] And that's why in their communication to their users they say, “This bill is going to ban it.”  But of course that's not what the bill does. [Niki: Right]  No user in America really cares if TikTok continues to be owned by ByteDance. But all the TikTok US employees who have to protect ByteDance's ownership , that's their mission.

And so you end up in this really interesting thing where again, if US users really knew what this was about, if they said, “Would you accept a bill that allowed TikTok to continue operating the United States and be owned by some non-Chinese company?” That would have 90 percent support among TikTok users, right?

Niki: It's a communications issue!  So, let's talk about their strategy in Washington. What are the, you made a joke about, if you're at a cocktail party, you're probably talking to someone who works for TikTok. Not wrong. They are carpet bombing this town. What have they done? And what do you think of their strategy? 

Adam: I think around the hearing, the CEO hearing last year, they did a lot of the conventional stuff that you would do. They blanketed Union Station and the newspapers with ads. They brought creators to town. They recruited some, a few members of the squad in the House, the House Democrats, to be kind of vocal skeptics.

They talked about their economic impact. They did all of those things. And I don't, I think that was their best approach. That was their best strategy. If I was working with him, which I wouldn't, I would probably advise the same thing. You would probably too. But it only gets them so far. I mean, the thing about the China issue is it's always going to be present for them.

So long as TikTok is owned by ByteDance and ByteDance is subject to Chinese law to be conscripted for the Chinese government's aim, this issue is always going to be there. 

Niki: Right. 

Adam: And so with their strategy in terms of advocacy. amounts to kicking the can down the road, but it's not a sustainable strategy because the China concern will never go away.

Niki: Right. 

Adam: And so, you know, I think one of the things that they had done last week, they mobilized their users, and there were all these reports of, you know, 12-year-olds, 13-year-olds calling Hill offices and, and, y’know, threatening self-harm if the app was banned. 

Niki: Right. Which did not endear these offices to - 

Adam: No! And I think probably backfired because it showed that, y’know, that maybe the app had too much control. 

In the last week, What we've seen, what I've seen is, I think they've almost pivoted to a pure MAGA Trump strategy. As the vote in the House has come up, they think, “Oh, well we have all these retained lobbyists, but they're not really actually achieving very much for us. We know House Republicans are enthralled to Trump and MAGA. Let's pursue this strategy of, of, y’know, Jeff Yass, getting, y’know, to donate to Trump, getting him to, to change positions and hope that works.”

 It's it's frankly, I think what it, what it sort of shows me is that like, they know that they might be screwed under Biden, but at least with Trump, they got a 50/50 chance.

And I sort of wonder if their new strategy is just “go all in on Trump.” 

Niki: I think they are going all in on Trump. Kellyanne Conway is now advising them. I actually think that's going to backfire too, and here's why: there are 42 members of the House who've already announced they're going to retire.

There are a number of very significant Senators who are not beholden to Donald Trump, who see the national, who get those Intel briefings about what this app is doing, and I think by President Trump coming out hard against this bill, it actually creates urgency. [Adam: Yeah] They've got to get it done and signed into law now.

And if it passes the House with 300 votes, they might alter it in the Senate. The Senate wants to make sure it's really protected from any legal challenges. If anything, he's creating a sense of urgency. If you want to get it done, you got to get it done now. 

So I think that also might backfire.

And additionally, all that President Trump cares about is he's mad at Mark Zuckerberg and Facebook for banning him temporarily. He doesn't really care about protecting TikTok, but you're right. Big investors in ByteDance are also now donating to him. 

Adam: I think the bill has some emerging headwinds in the Senate. I do think if it was, if Schumer decided he wanted to bring, bring the bill to the floor and use up floor time. It would get 60 votes. There's no, there's no question about that. But under the, the, the bar of, y’ know, the unanimous consent, he would have objectors.

Rand Paul's already made it clear. Elizabeth Warren- 

Niki: Sorry. No, no, it's involuntary. [cross talk]  Someone says Rand Paul,

Adam:  I know. I know!  Well, I'm just stating the facts for your listeners. I'm not defending his view here, 

Point being there would be at least be one objector. So, the path of this bill in the Senate is Schumer would have to say, “I need, I, I face enough member pressure to bring this to the floor.” The thing in an election year that really matters to the majority leader is “Do my vulnerable incumbents want to vote yes on this bill?”

 I don't know if that's true. That, that'll be the interesting question. Does Sherrod Brown, John Tester, people like that, do they want to vote, yes on a TikTok divestiture? Democrats are concerned about young voters and getting sort of mixed messages and, and using TikTok as a mobilization tool...

So, I don't know. I think that's going to be the interesting thing. But again, even if this bill flounders this year, the issues doesn't go away, right? That's the thing.The issue never goes away. There's no path really for TikTok to be a successful app in this country longterm and still be owned by ByteDance.

Niki: I think that's a great summation of it. We'll see what happens.Okay. Hard segue

Let's shift to Europe. Europe has passed and now just started enforcing the Digital Markets Act, which essentially targets U.S. companies, although not by definition, but by the construct that it applies to. You have to have a gajillion-dollar market cap, essentially, to be able to do that, be regulated by this bill. 

Can you just really quickly explain what happened in the last week and what that means for for users in Europe? And then we'll talk about what it means for some of your partners. 

Adam: Sure. So there's six or seven companies have been designated gatekeepers under the Digital Markets Act.

These are the biggest tech companies, Apple, Amazon, Google, Meta, but also Microsoft, ByteDance. And they are obligated to conduct their business in Europe in accord with the Digital Markets Act. 

We had a two-year debate in this country about Amy Klobuchar's antitrust legislation, which was mostly about banning vertical integration and what she called self-preferencing. Digital Markets Act does all that and more. 

It requires the companies to proactively restructure their products and their business. So, just as a practical example, If you want, go on to Google in Europe now and you search for, y’know, hotels in Paris, Google now is obligated to show more links to online travel agencies. Middlemen like Booking.com. And as a result, they're showing fewer links to the hotels themselves. That's because Booking.com was one of the companies that lobbied for the Digital Markets Act. 

So all throughout the Digital Markets Act, there is a pretty clear intent to help what I would call middlemen companies like, like a Booking.com, like Yelp, TripAdvisor, and their European companions. 

Niki: And they would consider themselves weaker competitors, essentially. 

Adam: That's right. Yeah. So they would say essentially that, y’know, it's a little bit of a, kind of a debate between, a little bit of a debate about, like, equal opportunity versus equal outcomes. 

We've seen this a lot in Europe over the years. Y’know, Yandex, the Russian search engine, successfully, y’know, persuaded the European Commission to create a ballot screen on Android devices. So, when you start up an Android device, you're asked for which choice of search engine you want to use as your default, and it says Google, Yandex, and other options, right?

Niki: LULZ. I wonder if Europe regrets that. 

Adam: Probably, probably. This kind of ballot screen approach, y’know, is basically something that Digital Markets Act requires in multiple different ways throughout Big Tech products.

And what I think you're going to see, cause you're already seeing it is the companies that these things were designed to help, like a Yandex, are going to say, “This is not successful unless it results in more traffic for us.” And they're already saying that. And that's been the sort of the through line of European regulation for 20 years.

Niki: You're just creating friction for the users. You're not actually necessarily going to get Yandex to get more people using a Russian search engine. 

Adam: That's exactly right. A lot of this seems to be designed to like re engineer consumer preferences, but what if the consumer continues to prefer the thing that they've always known?

Is that a failure? I mean, Spotify, Yelp will say, “Yes, it's a failure.” And what I think you'll see them do is say, “Okay, well, they have to, y’know, require Apple, Google to do more. Y’know, you have to do more. You have to tell them, you have to put more information about y’know what, what this other search engine could do for them.”  Right?

And again, I think that gets more into the regulating equal outcomes as opposed to equal opportunity. 

Niki: So, what do you think that the Big Tech companies are going to do? So this is, I mean, this is onerous for them. Most of the bigger companies actually have the ability to comply with this, but it's, the fines are huge.

Potential fines are huge, which is a problem, and it's annoying for their product teams. It's not just that it creates fewer users. It maynot, actually, as you said. It just is irritating. It's a cost. It's a drag on efficiency. What are they likely going to do? 

Adam: They've all had to, by the deadline of last week, re-engineer the relevant products.

And so, they've now all done that. They've also had to file these long reports with the EU saying, “Here's everything we've done.”

 The next step is there's going to be these workshops in Brussels starting next week, where every company has a workshop. And all of the rivals of those companies can come and speak and say, why they aren't happy with the remedies, and the EU will come back and say, “Okay, well, y’know, we've decided that you have to take these five steps.”

The European system isn't like the American system in terms of a court. This is not a judicial system. It's very one sided, and so if the EU decrees that, y’know, Apple or Amazon have to do something, they really do have to do it. I think what you've seen the companies saying, and especially Apple has done a lot of this, is they've said, “Okay, we're going to do this, but just so you know, it's going to create this effect.”

So, for example, parental controls on iPhones. The whole parental control on iPhone, in terms of, like, me being able to approve my son's app that he wants to install, depends on the app store being the only way you can install an app on the iPhone. But Digital Markets Act mandates sideloading of apps so you can bypass the app store.

Adam: All of a sudden, my son can completely bypass the iPhone parental control. By the way, same thing with content moderation. Apple kicked off Parler after January 6th. Apple kicked off InfoWars after Alex Jones was doing, y’know, Sandy Hook denialism. Under the Digital Markets Act, InfoWars, Parler can get right back on the iPhone through an alternative app store.

By the way, the EU also has a separate law, the Digital Services Act, that's about content moderation. The mandates that companies like Apple take, take timely action, y’know, on, bad content. So their goal, their aim with the Digital Services Act is actually directly in conflict with their aim of the Digital Markets Act.

They haven't reconciled this at all. So, I think what you're going to see is the company saying, “Okay, yeah, we can do this. But by the way, it's going to create this effect. And don't say we didn't warn you.”

Niki: Right. Don't say we didn't warn you that kids are going to be able to sideload, whatever. Say, say that TikTok, which we were just talking about, say that the app stores, that maybe just in the US, but maybe in general, they take TikTok off the, off of the app store. We'll still be able to get it. 

Adam: That's right. That's right. 

Niki: So, it undermines their own attempts to control other things. 

Adam: And I think that, y’know, Europe doesn't have a very robust system of like grappling with the consequences. They don't really want to hear those criticisms when the bill is being debated.

They view that as, “That's just American obstructionism and blah, blah, blah.” Y’know, they just tune it out. And then when you get to this enforcement stage, these issues come up. And they, seem to want, y’know, everything. I saw a great analogy on this and, y’know, us working in companies, we can relate to this.

Sometimes you might have product teams go to a CEO and say, “Okay, well we have two options here. We could do option A and it would have these trade-offs. We could have option B and it would have these trade-offs.” And the CEO says, “Let's do option C.” The best of both worlds. And the team actually knows that option C is impossible.

But that's kind of what the European Commission has done here. They've done option C, and I think we'll see all of the consequences of option C coming up. 

Niki: That's a really good synopsis of what's going to happen. And one thing I'll just end on is, y’know, we're starting to see in the U.S. this flirtation with the European style of regulating companies, which is to preference it's competitors. Our absolute clear rule of law is that we're worried about consumer harm. I don't see any consumers complaining that they can't get side loaded apps in the app store. Like, I don't see any consumers complaining about that.

Adam: Last week there were people tweeting that European users, that all of a sudden the maps in Google search results were non-clickable. Oh, why? Because of the Digital Markets Act. But the EU is pretty insulated from consumer opinion.  

Niki: Yeah. Yeah. It really is. I know, it really is. 

Adam: So, I just think that kind of thing is just gonna keep happening.

Niki: So, they've just created, essentially, huge regulatory costs. 

Adam: They've created, also, a much worse version of products for themselves, but interestingly, there's no real, like, consumer backlash. Like, you don't see Europeans, y’know, marching on the EU buildings in Brussels saying, y’know, “Give me back my clickable Google Maps, right?”

It's not really happening. So, it's just like these ordinary everyday, like, just, “Oh yeah, that's the EU again.”

 Niki: Right. Exactly. It makes my products worse. I mean, I feel that way, GDPR. Suddenly it's like, “Do you accept all cookies to read this Guardian article?”  I'm like, “Sure. Yeah.” 

Adam: Yeah, one more thing to click. 

 Niki: That's right. Just, y’know,the sands in the hourglass of our lives. 

Adam: Right. This is Europe's legacy to global, the global internet. 

Niki: I mean, we're in violent agreement on this. 

Adam: No, we are, but I just think it is interesting because here in the U.S. you at least see some pushback on these ideas, but you don't really see that in the EU. 

Niki: Yeah, it's a good take. Okay, well, we've talked TikTok, we've talked DMA, those are the biggest stories this week. 

You're back in two weeks and we'll break down whatever else is happening in the headlines. 

Adam: Great. 

Niki: Thanks, Adam, for coming in.



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