Memo: That Quiet TikTok Lawsuit

Go back to the year 1988. This has all come about thanks to a former Supreme Court nominee, his Blockbuster video rental history, and a quote from a journalist pursuing insights into the high court’s nominee’s life:

The only way to figure out what someone is like is to examine what that someone likes — take a hard look at the tools of leisure he uses to chip away life’s rough edges. (Harvard law Review)

This was the uneven birth of the VPPA (Video Privacy Protection Act). Now fast forward to the retail media craze, a TikTok and its pixel are under fire and the Michael Kors brand is at the center of the lawsuit. There is a caveat to all of the upside, a specific kind of off-site advertising – which is often supplied by first-party data – is facing legal action. I explained this derivative of retail media in “Step Function.”

Off-site advertising, which refers to ads that are shown to audiences outside of a marketplace’s website or app, has traditionally relied on third-party data to target and measure effectiveness. However, by analyzing the buying patterns, search queries, and preferences of their users, marketplaces’ advertising products have offered a higher rate of success. Additionally, recent changes in privacy regulations and the increasing emphasis on user privacy have led to a shift towards using first-party data in off-site advertising.

Amid rising tensions between the United States and China, concerns have escalated over the protection of American users’ data on TikTok, the popular platform owned by Chinese company ByteDance. As TikTok’s popularity surges, with over 150 million American users as of 2023, its data privacy practices have come under scrutiny, inciting discussions about applying existing laws, such as the Video Privacy Protection Act (VPPA), to modern tech companies.

American politicians are looking for any reason to do away with TikTok’s influence over the nearly half of all Americans who have downloaded the app. If a recently filed lawsuit does its part, the state by state privacy laws (with California leading the trend) may give way to federal privacy actions that can lead to national actions against technology companies.

The California Civil Lawsuit

I read the recently (and quietly) filed case: Gabriella Hernandez v. Michael Kors (USA), Inc. that was filed on June 13, 2023. As the case proceeds, it will surely become a lightning rod for interest in national security and the over-reach of big tech.

This case presents a class action complaint filed by a plaintiff, a resident of California, against a company that operates michaelkors.com. The plaintiff alleges that the defendant, through its website, is violating the Video Privacy Protection Act (VPPA). The primary concern is that Michael Kors allegedly reports viewing activities on its site to TikTok, which is owned by ByteDance. ByteDance, as the complaint suggests, is controlled by the People’s Republic of China (PRC) and is known to have used TikTok to spy on Americans under the PRC’s orders.

Under the VPPA, it is illegal to knowingly disclose a person’s personally identifiable information (PII) based on their video viewing habits to third parties without their consent. The plaintiff, identifying as a “consumer advocate” or a “tester”, claims that Michael Kors is doing precisely this by using TikTok’s Pixel code to report page view events to TikTok, which, in turn, could provide information to the PRC.

The plaintiff and others in the class action suit (defined as all in the United States who played video content on the website and whose PII was disclosed by Kors to any third party during the two years preceding the filing of this action) seek judgment against the Kors for violating the VPPA. The defendant, Michael Kors, potential defense may need to address whether it knowingly disclosed PII, whether such disclosure falls under the VPPA’s definition of “ordinary course of business”, and whether there was any form of consent from the users. But this isn’t the only example of TikTok’s recent VPPA stumbles.

TikTok and Data Protection Concerns

Recent reports from South China Morning Post and Forbes suggest that TikTok may have misled American authorities about the actual location of stored user data, particularly the sensitive information about American creators who sign up to earn money through the app. While TikTok claims that the majority of U.S. user data is stored in the U.S. and Singapore, investigations reveal that the financial information of TikTok’s largest American and European creators is stored on servers in China. Here is a key excerpt from the Forbes report, highlighting TikTok’s potential defense:

In TikTok’s response to their questions, the company said there is a difference between “U.S. user data collected by the TikTok app” and information that creators give to TikTok so they can be paid for content they post. The former is stored in TikTok’s data centers in the U.S. and Singapore, TikTok said. It did not explicitly state where the latter is stored. A trove of internal documents obtained by Forbes, and several people across different parts of the company familiar with the matter, have shown that tax forms, social security numbers and other information from creators and outside vendors has been stored in China; payments to both are managed through tools from TikTok’s China-based parent ByteDance.

U.S. legislators, concerned about potential data exploitation by the Chinese government, have introduced legislation aimed at preventing American data from being used by foreign adversaries. This legislation, if passed, would control exports of personal data, including data handled by companies like TikTok, directly to restricted foreign governments. SCMP explained:

The bill would direct the Commerce Department to identify categories of personal data that could harm US national security and create a list of high-risk countries where sensitive data exports would be blocked.

In this context, we may consider how the VPPA precedent might become a tool for American politicians, regulators, and judicial activists to address the data protection issues at stake, possibly substantiating a federal ban on TikTok’s practices or a full ban on the platform.

The VPPA and Modern Tech Companies

The VPPA was enacted in 1988 in response to a violation of Supreme Court nominee Robert Bork’s video rental history privacy. The Act prohibits the wrongful disclosure of video tape rental or sale records, making it a landmark piece of legislation in the realm of privacy protection. While the Act was designed to protect physical video rental records, it has been invoked in legal cases involving modern digital streaming services. The reach of the VPPA extends to the data privacy concerns raised by the digital era and could apply to companies like TikTok, which, while not primarily a video rental service, does collect, store, and potentially distribute user data in a similar manner.

The critical aspect here is the unauthorized disclosure of “personally identifiable information” about users’ video consumption habits. In the context of an app like TikTok, if it were found that the company was sharing personally identifiable viewing data with third parties without users’ consent, this could potentially be seen as a violation of the VPPA. However, how the VPPA applies to platforms like TikTok would likely hinge on the specifics of the case and the way the court interprets the law in light of technological advancements.

If lawmakers and legal practitioners interpret the VPPA to cover digital services, there could be significant implications for TikTok and similar platforms. Under the VPPA, TikTok’s collection and overseas storage of data, particularly if disclosed without consent, could potentially be deemed illegal. The acknowledgement by TikTok of storing sensitive American creator information in China could be seen as a violation of the VPPA, if the Act is deemed applicable. This could provide legal grounds to restrict TikTok’s operations in the U.S. or perhaps ban the platform altogether.

The VPPA also provides for civil remedies, allowing individuals to seek redress if their privacy rights are violated. As a result, users whose data is being stored in China could potentially sue TikTok, leading to substantial legal and financial implications for the company. However, applying the VPPA to TikTok is not straightforward and faces significant challenges. The VPPA was drafted long before the advent of social media and may require reinterpretation or amendment to extend its protections to platforms like TikTok. Additionally, the application of the VPPA to foreign companies raises complex jurisdictional issues that courts will need to resolve.

Резюме

As concerns about data privacy grow, there is a strong case for leveraging existing legislative tools like the VPPA to safeguard the data of American citizens. Not only does the VPPA hold potential in challenging TikTok’s practices directly, but it also sets a valuable precedent for how privacy law can evolve to meet the needs of an increasingly digitized society.

By applying the principles of the VPPA to modern tech companies, regulators, politicians, and judicial activists could demonstrate their commitment to data protection, setting the stage for more comprehensive privacy legislation that is in step with today’s technological landscape. While applying the VPPA to TikTok’s practices might necessitate overcoming legal hurdles, the precedent could prove useful in the broader goal of promoting and enforcing data privacy. The TikTok case also serves as a cautionary tale for tech companies operating globally while dealing with the legal rights of individual American states, highlighting the potential consequences of inadequate data privacy practices. The scrutiny that TikTok is currently under is likely to impact its standing in the United States.

While the application of the VPPA to TikTok’s situation may be complex, the potential of this precedent to strengthen the regulation of modern tech companies is undeniable. It emphasizes the necessity of clear, robust legislation to protect data privacy in the era of digital interconnectedness. As this issue unfolds, it will be important to watch for potential changes to privacy legislation and the broader influence this could have on the internet media industry at large.

By Web Smith | Art by Alex Remy and Christina Williams 

Part I: Where Natsec Meets Commerce

Deep Dive: Fridman’s Law

On Generative AI and where retail goes next. On most days, I sit in a home office and read, write, think and hope to assimilate all of what I see, experience, and feel into unique human perspectives on complex topics. Unfortunately for me, generative artificial intelligence does much of that to the nth degree. Will we still value human-made creativity? The answer to that question is complicated. In April 2021, computer scientist, podcaster, and artificial intelligence researcher Lex Fridman tweeted the following:

Humans have been gradually merging with AI for 20+ years. At some point in this century, as a collective intelligence system, we will become more AI than human and we won’t notice.

Let’s call this “Fridman’s Law” (not to be confused with Friedman’s Law). We are nearing the point of 50%+ AI as our collective intelligence system. There are few better experts than him. Fridman – an emerging celebrity for his sheer thoughtfulness and openness to debate – is as prescient as ever. Generative AI, or artificial intelligence that can create new content by following prompts, is already making waves in various industries. From writing Drake hits to creating mind-blowing art, AI has already exceed genius levels of creativity. But, what about our shopping habits? How will generative AI shake things up in the world of retail? According to a recent Axios report:

Retail and packaged consumer goods companies would be in line for $660 billion a year in productivity gains, if “use cases were fully implemented” — which would mean a 44% boost to profits.

Picture this: You’re walking down a bustling street, and suddenly, you spot a store that seems to have been designed just for you. The colors, the layout, even the products on display – it’s like someone reached into your brain and pulled out your ideal brand fit. Imagine if this wasn’t a one-time thing, but rather the norm. Generative AI will revolutionize the way brands develop their retail spaces, making them more personalized and tailored to individual consumers by using data. It will analyze droves of information about consumers, from their shopping habits to their social media activity, and use this data to create customized store layouts and product offerings. This means that each store will be unique, catering to the specific needs and desires of its customers.

The rise of generative AI promises to revolutionize the retail and CPG landscape.

In the ongoing narrative of AI’s impact on various industries, retail and consumer packaged goods (CPG) hold a position of considerable interest. The sector stands on the brink of unprecedented transformation as generative AI – systems capable of creating new content – makes its mark. As we stand in 2023, we witness the blossoming of myriad start-ups leveraging this technology, and predict a near-future where more than 50% of consumerism and brand development will be influenced by generative AI.

Let’s dig in to the impact that analysts are anticipating.

Generative AI’s Impact on Brand Development

The traditional model of brand development has been largely human-driven, with marketers and product developers relying on customer surveys, focus groups, and trend analysis to create products and campaigns that resonate with the target audience. The ensuing process involves brainstorming, designing, testing, and iterating – a cycle that can be time-consuming and susceptible to error.

Generative AI promises to revamp this process, accelerating and enriching each step with data-driven insights and automation. For instance, AI’s ability to quickly aggregate and analyze market data allows for rapid testing of concepts, ideas, and models. Businesses are already leveraging these capabilities, using AI to generate style suggestions based on customer preferences, thereby improving their overall customer experience.

Generative AI will also help brands stay ahead of the curve when it comes to trends. The technology will be able to predict what the next big thing is before it even hits the market, allowing brands to develop and stock their stores with the hottest products.

Further, AI’s generative powers extend to creative tasks such as copywriting and visual design, areas previously considered solely human domains. By digitally generating numerous variations of copy and design, AI enables faster, more diverse ideation, allowing brands to quickly adapt to changing market trends and consumer preferences.

With smarter algorithms and predictive analytics, brands will be able to anticipate consumer demand and adjust their inventory accordingly. This means fewer out-of-stock items, less overstock, and an overall smoother shopping experience for everyone involved.

Generative AI and Consumerism

Generative AI also offers a dramatic shift in the consumerism landscape. In an era where personalization is paramount, AI’s ability to tailor experiences to individual preferences revolutionizes how consumers interact with brands. This extends from choosing products to ordering ingredients for a meal or interacting with chatbots for product recommendations.

You’ll walk into a store and find exactly what you’re looking for – or perhaps something even better that you didn’t know existed. With the personalized shopping experiences I mentioned earlier, it’s likely that we’ll see a shift towards quality over quantity. Instead of buying a ton of cheap, disposable items, consumers will be more inclined to invest in products that are tailored to their specific needs and preferences. This could lead to a decrease in fast fashion.

This advancement heralds a new era of “hyper-targeting”, where retailers use generative AI to sift through massive amounts of data, identifying precise segments of consumers that are a perfect fit for their products. The information derived from such analyses allows for highly targeted advertising, ensuring that consumers are exposed to products and services they are likely to be interested in.

The Transition and Challenges

The transition to a world where AI significantly influences brand development and consumerism is not without challenges. The deployment of AI systems raises important questions around the accuracy and veracity of generated content. Brands need to ensure the quality and reliability of AI-produced material, and instigate safeguards against potential adversarial attacks.

Moreover, AI’s ability to analyze and utilize personal data opens a Pandora’s box of privacy concerns. As retailers move towards a new form of hyper-targeting that we believed we’d left behind with the eschewing of third-party data usage, they need to balance personalization with respect for consumer privacy, a task that requires stringent data governance and ethical AI practices.

Резюме

By 2030, the retail and CPG landscape is set to undergo a paradigm shift, driven by the capabilities of generative AI. It will change the very fabric of brand development, accelerating ideation, and enriching creativity. It will also redefine consumerism, paving the way for hyper-personalized, data-driven consumer experiences.

Yet, as we navigate this shift, the need for a human touch remains paramount but expect that shift to happen faster than any of us will appreciate. AI should augment human creativity, not replace it. Ethical considerations, especially regarding data privacy, must be central to AI deployment.

The journey towards this AI-dominated future will be fraught with challenges and opportunities. But, if navigated thoughtfully, the impact of generative AI on brand development and consumerism could usher in a new era of retail – one marked by enhanced creativity, efficiency, personalization, and above all, value for both businesses and consumers.

As we approach 2030, the retail industry stands poised to become a testament to the potential of generative AI. Yet, as we journey forward, we must remember that this technology should serve as a tool to amplify human potential, not replace it. Retailers and CPG companies that can strike this balance will thrive in the new era, crafting brands that resonate on a personal level and fostering a customer-centric model of business. The veracity and quality of AI-generated content must be held to high standards. As AI begins to create everything from product designs to ad campaigns, businesses must ensure that this content is not just compelling but also truthful and reliable.

Additionally, while generative AI offers many opportunities for streamlining operations and improving customer interactions, it also brings potential risks. As these AI models become more integral to business operations, they also become attractive targets for adversarial attacks. Thus, robust security measures will be paramount to protect both businesses and consumers.

The rise of generative AI promises to revolutionize the retail and CPG landscape. By 2030, it is likely that over half of all brand development and consumerism will be influenced by this technology. Yet, as we navigate this transition, we must ensure that the human element remains central to all developments. Only by balancing the potential of AI with a respect for human creativity and ethical considerations can we truly unlock the transformative power of AI in the retail sector. And if we don’t see it this way, there may not be a place left for us at all. The technology is already that good, years earlier than anticipated. Sooner than expected, organic, human-made content like this will be in the minority of collective intelligence – Fridman’s Law.

Автор Веб Смит | Под редакцией Хилари Милнс с иллюстрациями Кристины Уильямс и Алекса Реми

Memo: Amazon Wireless

It was a shift that changed the technological world. It’s been analyzed, written about, and even adapted into a recent film (which was pretty great, I might add).

First, the Blackberry came along and changed handheld computing forever. And then Steve Jobs gave one speech in 2007 that led to the demise of the company that once possessed 45% of the smartphone market. Founded in 1984, Blackberry released its first phone in 1999. With 85 million users, Research In Motion (Blackberry’s creator) peaked in 2013. By 2016, that number was down to 23 million.

The full reason, of course, was more than the speech. We all know that. Sure, the phone was amazing. It was coveted; back then AT&T was the aspirational carrier because only it could serve you an iPhone on a silver platter. The deal that Apple struck with then-Cingular Wireless funded its own investment into its wireless data infrastructure. I would posit that it was the reformatting of carrier economics that determined the next 15 years of computing. Jackie McNish, author of Losing The Signal: The Extraordinary Rise and Spectacular Fall of Blackberry wrote:

If the rise and fall of BlackBerry teaches us anything it is that the race for innovation has no finish line, and that winners and losers can change places in an instant.

The recent reports of Amazon exploring the possibility of offering a wireless plan for Amazon Prime subscribers have sparked significant interest and speculation. There are several reasons why Amazon would pursue such a deal, drawing parallels to Apple’s strategy with Cingular to outmaneuver the market leader in 2007. On January 10, 2007, one day after the fateful speech, the New York Times explored the deal and its merits:

They considered an Apple-branded mobile phone service that would piggyback on the Cingular network, but rejected the idea. Then, a year ago, they settled on the final concept, an Apple-made phone for subscribers of Cingular, which is owned by AT&T.

In that spirit, this essay examines the potential implications for Amazon Prime and the broader data and hardware industries.

Rationale behind Amazon’s Wireless Idea

Let’s dive right into the why. Here’s what Amazon wants to do.

Enhance Prime Membership: Amazon’s primary objective is to bolster loyalty among its Amazon Prime subscribers, who are its most valuable customers. By offering a wireless service as an additional benefit, Amazon seeks to increase the value proposition of Prime membership and reinforce customer retention. In shades of Apple’s original deal with Cingular, Bloomberg reports lead one to believe that Amazon would be welcomed with opened arms.

The carriers aren’t really in a position to say no to Amazon. Having poured billions of dollars into super-fast, high capacity 5G wireless networks, the mobile operators have

Gain a strategic competitive advantage: With the emergence of Walmart+ as a lower-cost alternative to Prime, Amazon faces intensified competition. A wireless service offering could serve as a differentiating factor, positioning Amazon ahead of its competitors and attracting new customers.

Leverage existing infrastructure: Amazon has a vast infrastructure through its AWS division, which provides cloud computing services. By collaborating with wireless carriers, Amazon can leverage this infrastructure, minimizing the need for costly network development and accelerating its entry into the wireless market.

Comparing This to Apple’s Strategy with AT&T

To draw a parallel between Amazon’s potential wireless venture and Apple’s partnership with AT&T, we need to examine Apple’s early dealings and its resulting impact on the market.

Apple’s approach was a departure from the prevailing smartphone strategy dominated by Blackberry. While Blackberry focused on providing a secure and efficient platform for email and messaging, Apple envisioned a device that could seamlessly integrate multiple functions and deliver an unparalleled user experience. Key factors that contributed to Apple’s success were four-fold.

The iPhone introduced a revolutionary touch-based interface with a large, vibrant display and intuitive gestures, replacing the physical keyboards and stylus-based systems common at the time. This simplified and enhanced the user experience. Apple also introduced the App Store, a platform that allowed third-party developers to create and distribute applications for the iPhone. This vast ecosystem of apps expanded the capabilities of the device, attracting both developers and users.

Unlike Blackberry, which primarily focused on productivity features, Apple emphasized multimedia capabilities. The iPhone offered an integrated iPod for music playback, a robust web browser, and a high-quality camera, appealing to a broader consumer base. And Apple’s iconic design, sleek form factor, and cohesive branding contributed to the iPhone’s desirability.

Apple’s innovative approach disrupted the market, capturing the attention of consumers who sought a more versatile and engaging smartphone experience, as well as a more stylish and premium device. Blackberry, caught off guard by the iPhone’s success, struggled to adapt quickly, leading to a decline in market share and eventual loss of its leadership position.

Apple’s exclusive agreement with what is now AT&T was a strategic move that enabled it to focus on a single carrier and create a seamless user experience. This approach allowed Apple to negotiate favorable terms and collaborate closely with AT&T to invest in digital data infrastructure, supporting the iPhone’s success. Remember, there were critics who suggested that this partnership was ill-advised:

Iain Gillott, analyst with IGR, speculates that users will get frustrated with the slower EDGE network particularly since some of the new smartphones operate over higher-speed networks such as HSDPA or 1xEV-DO. “It makes no sense to me,” Gillott says. While the iPhone boasts Web surfing, Yahoo email and other slick-looking applications, an EDGE network connection – with average speeds ranging from 80 kbps to 110 kbps – is not appropriate support for what is supposed to be a game-changing handset.

Apple’s subsidization strategy helped to broaden its user base and provide new revenue via the monthly payments for hardware. But more importantly, it helped AT&T raise the capital required to improve upon its Edge Network.

If Amazon were to follow a similar path, it could choose to acquire a wireless carrier or invest in its own infrastructure. This would grant Amazon greater control over the network and allow for tailored services, aligning with its customer-centric approach. Alternatively, Amazon could collaborate with existing carriers, providing them with access to its extensive customer base and leveraging their existing technologies.

Implications for Prime and the Data Plan Industry

If Amazon were to go through with this plan, there would be a ripple effect throughout the industry – as there always is when Amazon makes a bold move. Here’s what would happen.

Strengthen Prime Membership: By adding a wireless service to its Prime subscription, Amazon would further differentiate its offering from competitors, potentially increasing Prime membership growth and retention. Prime members would benefit from a seamless integration of services and an affordable wireless plan, amplifying their loyalty to Amazon.

Disrupt the data plan industry: Amazon’s entry into the wireless market has the potential to disrupt the existing data plan industry. By leveraging its immense customer base, Amazon could attract customers away from traditional carriers, leading to potential subscriber loss for established players. The introduction of lower-cost or even free plans for Prime members could significantly alter market dynamics and pricing structures.

Boost wholesale revenue for carriers: While Amazon’s entry may pose a threat to traditional carriers, it could also present an opportunity for them. Collaborating with Amazon as a wholesale partner would enable carriers to tap into Amazon’s vast customer base, potentially generating increased revenue from wholesale deals. Moreover, carriers could benefit from increased traffic to their 5G networks, providing a boost to their investments in network infrastructure.

As Amazon explores the possibility of launching a wireless cell phone plan for Prime subscribers, the strategic motivations become clear. By enhancing the value proposition of Prime membership and disrupting the data plan industry, Amazon aims to solidify its position as a leader in the e-commerce and entertainment sectors. By drawing parallels to Apple’s successful approach with AT&T, Amazon could utilize a similar strategy to forge deeper connections with customers and gain a competitive advantage.

If Amazon proceeds with its wireless initiative, it would likely capitalize on its existing infrastructure, collaborate with established carriers, and leverage its vast customer base. This would allow Amazon to offer Prime members affordable wireless plans or even free options, attracting and retaining a large user base while potentially disrupting the data plan industry.

Amazon’s potential move into the wireless market holds significant strategic implications for both Amazon Prime and the data plan industry. It could further solidify Amazon’s position as a dominant player in the digital spaces, increase customer loyalty and engagement, and potentially disrupt traditional carriers’ market share. As the negotiations and discussions continue, it will be intriguing to observe how the market reacts and how the wireless industry responds to the potential entry of one of the world’s largest retailers.

With one of the largest membership bases in all of the digital industries, this development has the potential to follow behind the advent of the Blackberry and the iPhone’s eventual disruption of the space. Amazon’s involvement in this business could further the iPhone’s lead, it could provide Android with the volume to gain on Apple, or it could even provide Amazon with the platform to re-launch its own phone (maybe a phone with physical buttons, who knows). Either way, carriers are unnerved by the news.

Автор Веб Смит | Под редакцией Хилари Милнс с иллюстрациями Алекса Реми и Кристины Уильямс