Sunday, December 4, 2022

Elon Musk prioritizes Twitter's present over Tesla's future in peace deal with Apple, accepts App Store tax in exchange for ad spend: TSLA investors should keep an eye on this

Long-term Tesla (NASDAQ:TSLA) investors should be concerned about a manifest conflict of interest between Elon Musk's troubled Twitter buyout and his role with the automaker that goes far beyond the enormous distraction that his intense crisis management at the social network entails. A few hours ago, Mr. Musk made a public statement that Apple--Twitter's largest ad customer--has resumed its Twitter ads, which in combination with his visit to Apple Park a few days ago suggests that he gave up his public resistance to Apple's monopoly abuse--which had massive political repercussions--only to secure a short-term cash influx for Twitter.

The day before Mr. Musk confirmed that Apple had resumed its Twitter ads, I already viewed this as one of only two possible explanations for Mr. Musk's recent tweet that it had all been a misunderstanding and Apple never actually considered "removing" Twitter from the App Store:

Now, Matt Stoller reasonably believes that what happened is exactly the bargain I had outlined as the second possibility:

This is unsurprising as Mr. Musk's series of tweets antagonizing Apple started with ad budget allocation and then raised App Store issues. That would have been inconducive to Twitter's credibility in a hypothetical antitrust clash. But it was, as we now know, simply Mr. Musk's agenda to use one as a bargaining chip for the other.

Even if the potential for a Twitter-Apple clash over the App Store monopoly (app tax and app review) lingers on as the rejection of a single major Twitter update by Apple's app reviewers could make the conflict flare up again, Apple has been able to appease Mr. Musk--arguably one of the most formidable App Store opponents--at a critical time. The Congressional term is almost over, so the Open App Markets Act--which the White House would like to see adopted now--may slip into the next term. It's not just about another ten months or so that Apple might be able to delay the OAMA's enactment, and the risk that the next Congress might not do anything about it. There's a lot happening around the globe, with the EU now beginning to implement, step by step, its Digital Markets Act (which I've previously described as the kind of legislative-regulatory intervention that is automakers' only chance to prevent Apple and Google's "carjacking"); with antitrust investigations in various jurisdictions; with the UK's DMU plans; and with the Ninth Circuit working on its Epic Games v. Apple appellate opinion. U.S. legislation would not be a requirement for any of the foregoing to do away with the App Store monoppoly, but would definitely pave the way. At this pivotal juncture, Mr. Musk could have kept up the pressure and maximized the chances of the OAMA being passed into law this very month.

Instead, he sold his birthright for a bowl of stew like a Biblical character. Or as the famous Spanish saying goes, pan para hoy y hambre para maƱana (bread for today, hunger for tomorrow).

As long as those who backed Twitter's reprivatization are in favor, there is nothing wrong with Twitter prioritizing today's revenues over tomorrow's app tax load--but what if Mr. Musk either had to promise to Mr. Cook that Tesla, too, would refrain from challenging Apple's platform monopoly abuse or Tesla's strategic interests in combating Apple's "digital carjacking" (before it's too late) were not discussed, but Mr. Musk is restricted in his ability to vigorously defend Tesla's interests because Twitter needs Apple's advertising dollars?

That's where the apparent horse trade between Twitter and Apple becomes a serious problem for Tesla.

No company poses a greater threat to Tesla than Apple. Google is number two, while the aggregate of all other car makers is a distant third: they can only compete (more or less), but they can't leverage monopoly power.

Mr. Musk's repeatedly stated concerns that Twitter might go bankrupt make him personally somewhat dependent on Apple and Google. In the short term, this won't impact Tesla's revenues or earnings. What is at stake, however, is Tesla's ability to defend its turf against a future Apple Car and Tesla's control over the cockpit and all the digital revenue streams in the self-driving vehicles of the future. Moreover, if Mr. Musk strikes a deal with Mr. Cook that gives Twitter a short-term influx of cash but compromises Mr. Musk's ability to defend Tesla's turf and its long-term strategic interests against the mobile operating system duopoly, there is considerable risk that other third parties may also influence Tesla's decisions through their dealings with Twitter.

For the avoidance of doubt, I am not at all saying that Mr. Musk should do what's bad for Twitter because it's good for Tesla, such as waging war on Apple over the app tax because it benefits Tesla in the long run to loosen the duopolists Apple and Google's death grip on their respective mobile ecosystems. The cooncern here is that Mr. Musk had three reasons to fight Apple's and Google's app distribution monopolies, and the third one of them--which is arguably the most important one for the long haul--is all about Tesla. It seems that Twitter, which has huge problems because many advertisers have defected or slashed their spend (which is why Mr. Musk now has to be grateful to those advertisers who return to Twitter), is on intravenous life support from a part of Apple's ad budget, and that this compromises his ability to do what's best for Tesla, given that at the end of the day he can only speak with one voice and even he can't say "I'm wearing Twitter's hat now and we still have an entente with Apple" and subsequently raise issues concerning Apple's monopoly abuse (and the way it is impacting the automotive industry) in Tesla's name.

While Google does secret deals with potential challengers to its app distribution monopoly all the time, Apple has so far given sweetheart terms only to the likes of Amazon. Now Tim Cook has sort of applied Google's "Project Hug" approach to Elon Musk. (I'll talk more about Google's Project Hug later or tomorrow: it also involves advertising, but in a different way.)