On Monday, the US Supreme Court sided with Google in the Google v. Oracle case that has been ongoing since 2010. In the landmark decision, the Supreme Court said that Google’s reimplementation of Oracle’s Java SE APIs (application programming interfaces) in its development of Android was fair use under US copyright law. In so doing, it reversed prior rulings by the Federal Circuit that could have awarded Oracle $9B. One IP attorney called it “the biggest copyright decision in a generation.”

The case is reverberating through the technology industry because it clarifies for developers the legality of the common practices of reusing and reimplementing APIs – affirming that the practice falls under fair use. APIs are the defined interfaces that let developers call upon applications written by other developers, without needing to know what’s inside each black box.

Notably, however, the Supreme Court did not weigh in directly on whether APIs could be copyrighted. It did say, however, that the “declaring code” defining the interface is bound up with concepts – e.g. labeling tasks (or “methods”) and organizing them into “packages” and “classes” – that are not copyrightable. It also said “task-implementing code” is copyrightable (but was not copied in this case).

The legal issue in the case goes back to 2005, when Google acquired Android and continued work on the open-source mobile operating system that today has 72% of the market. Google developed the “vast majority” of the code (millions of lines) for Android’s API, including the declaring code for most of the software packages and all the task-implementing programs. However, for 37 packages of the Java API, Google – without a license – copied 11.5K lines of declaring code from the Java API (0.4%) so that Java programmers could use the familiar language to adapt existing software to run on Android.

Java was a widely used programming language used by millions of developers, which was originally created and owned at the time by Sun Microsystems. In early 2010, Oracle closed on its acquisition of Sun Microsystems (including Java), and soon thereafter sued Google.

Google’s use was considered to have met the Copyright Act’s 4 guiding factors for fair use of a copyrighted work: (1) The nature of the work as a user interface was deemed appropriate for fair use; (2) the purpose and character of the use was deemed “transformative” and limited to what was needed to allow developers to apply their prior knowledge; (3) the amount and substantiality of the portion used was only a tiny fraction of Java’s API; and (4) the effect of the use upon the potential market for or value of the copyrighted work was also decided in Google’s favor as Android was not considered a direct substitute for the Java SE platform (though the dissenting opinion does point to competitive harm of Oracle’s business).

While Oracle was not happy, the technology industry as a whole breathed a sigh of relief. APIs are now essential to most modern software and many technology businesses (e.g. Stripe), allowing developers to build software more quickly and tap ecosystem capabilities. Generally, the reuse and reimplementation of APIs are practices that support greater standardization and interoperability between different software platforms. And given the declaring code’s role in defining the interface, there are usually only so many ways to reimplement the API.

The clarification offered by the Supreme Court decision helps de-risk open-source business models. Had Oracle won the case, it could have opened the door for copyright trolls to acquire old software on the cheap and threaten anyone that used a version of the API. The case as decided, however, could spill over into other fair use cases – encouraging copyright violations, for instance, and making it harder for creators to protect their work.

While startups can benefit from compatibility, we should keep in mind that interoperability can cut both ways – and often favors the owners of the dominant ecosystems. While interoperability can foster innovation (at least in the short run), it can also apply pressure to coalesce around the largest platforms and deter the emergence of new ecosystems.

Aug 5 2020 (Brief #37): What's new & interesting in low-code/no-code

Aug 21 2020 (3 Shifts): Oracle & Salesforce face GDPR lawsuit for their 3rd-party cookies’ role in real-time bidding

Apple recently led a $50M Series B round in music-distribution startup UnitedMasters at a $350M valuation, alongside Alphabet and Andreessen Horowitz (a follow-on investment for both). UnitedMasters positions itself as an alternative to a major music label, enabling independent artists to directly upload their music to all the major music-streaming platforms.

Artists can also promote their music, create a free website, and gain insights on streams through an analytics portal. UnitedMasters’ goal from the start was to help create more intimacy between artists and fans. Artists can pay $60 per year for the SELECT membership and keep 100% of their royalties, or opt not to become a SELECT member and instead give up a 10% share of revenue.

UnitedMasters has released music from 1M+ artists to date (up from 400K artists less than a year ago) and is already profitable since launching in 2017. In 2020, it signed a torrent of partnerships (including TikTok, ESPN, Apple Music, the NBA, Cash App, and Twitch) and has ambitions to expand to South America, India, and Africa.

Notably, UnitedMasters allows musicians on its service to retain full ownership and control over their music. This is in contrast to traditional deals with music labels, who typically take ownership of music in exchange for distribution, marketing, and an upfront advance. The ownership of artists’ music by record labels has become a more prominent topic in recent years as high-profile artists such as Taylor Swift and Kanye West have spoken out against labels owning “masters” (official original recordings).

UnitedMasters takes direct aim at the Big 3 labels (Universal Music, Sony Music, Warner Music), which still dominate the industry and capture 68.5% of streaming revenue. Independent artists, however, are currently the fastest-growing segment of the music business, with the number of independent artists growing 34% in 2020.

Streaming has become the most important contributor and growth driver for the music industry. In the US, streaming revenue grew 13.4% in 2020 to reach $10.1B – or 83% of US music industry revenue. The Big 3 labels collectively generated $9B+ in streaming and digital revenue last year.

While musicians’ contracts with traditional labels are individually negotiated and not publicly available, the artist cut might be anywhere from 5-27% of total streaming revenues, while the labels keep 26-47% (and potentially more with newer artists). About 31.5% is retained by the streaming platforms.

Musicians have become increasingly discontent with their cut of streaming revenue. (Platforms like Spotify pay out to rights holders, which often means a music label or distributor, who may then allocate to artists.) While reports vary, streaming platforms typically pay a fraction of a cent per stream. Spotify is estimated to pay out $3,000-6,000 per 1M plays, Apple Music pays $5,000-5,500, and YouTube pays $1,700. And not all royalties find their way to artists – in Feb 2021, it was revealed that $424M in streaming revenue had not been able to be matched with the respective artists.

Streaming platforms are increasingly seeking to position themselves as creator-friendly. Spotify last month, in an effort to quell growing discontent (e.g. Justice at Spotify movement backed by 28K+ artists), launched a new website that provides more transparency into how streaming revenue is allocated. Spotify is generally not profitable yet, largely due to margin pressure from royalties negotiated with the big labels as well as its focus on growth. Apple’s deal with UnitedMasters is also likely, in part, an effort to position itself as artist-friendly, in addition to throwing its weight behind a new industry paradigm that could shift the balance of power in its favor.

This could be the beginning of a power shift in which we see more pressure being placed on labels to give up a bigger piece of the pie to artists – or risk being disintermediated. UnitedMasters isn’t the only up-and-coming music distribution platform either. Companies such as UnitedMasters-analog Amuse (whose revenue grew 209% in 2019) and Bandcamp (which takes a 15% cut of digital sales but waives its cut on the first Friday of the month) are also looking to attract the groundswell of independent artists.

Jan 22 2021 (3 Shifts): Will Apple launch a paid podcast subscription?

Dec 3 2019 (Brief #15): Spotify’s podcast-driven growth & the trajectory of podcasting

This week, 3 different social platforms – Signal, Clubhouse, and Facebook – announced new payments-oriented features:

Encrypted-messaging app Signal (40M+ users as of Jan 2021), announced it was testing peer-to-peer crypto payments on its latest beta for users in the UK. In line with Signal’s emphasis on privacy, it opted to integrate support for the privacy-focused cryptocurrency MobileCoin. Users will be able to connect to a MobileCoin digital wallet to send and receive funds with other Signal users. Signal will not have access to users’ balance, funds, or transaction history. Industry watchers, however, have expressed concern about MobileCoin’s volatility and liquidity (it is currently sold on only one crypto exchange).

Clubhouse, the buzzy audio-based social platform currently fending off an array of competitor copycats, launched Clubhouse Payments on Monday. It will let users send payments to creators (e.g. tipping after a good conversation). A small group of creators have been selected to test the ability to receive payments. As of now, 100% of each payment will go to creators (i.e. Clubhouse will not take a cut), though individuals sending money will be charged a card fee through Stripe. This is Clubhouse’s first monetization feature for its creators, which it is hoping will help keep high-profile members engaged.

Facebook – which launched Facebook Pay in Nov 2019 to facilitate payments to individuals and businesses across its ecosystem of apps (e.g. Facebook Marketplace/Shop, Messenger, Instagram) – was recently discovered to have added a QR code feature to Facebook Pay. The QR code, similar to Venmo, will let users scan their friends’ codes with their phones to send or request payments. It can also be used outside of Facebook Pay in the real world (e.g. on a physical sign at a business). Facebook confirmed the QR code is being tested in the US on its Messenger app.

We continue to see a broader theme around “embedded finance” – non-bank players bringing more financial services closer to customers and workflows. These different payment features from Facebook, Clubhouse, and Signal align with this growing trend towards offering users a more complete and engaging experience – facilitating discovery, making it easier to transact, and ultimately keeping users on their platform.

According to Andreessen Horowitz, “[T]he best version of every consumer product is the one that’s intrinsically social.” Products with strong social components (e.g. Fortnite for gaming) have higher engagement, stronger retention, and lower cost of customer acquisition. The social platforms would like to flip that script and make their ecosystems the already-social destination. While privacy-focused Signal is arguably the least social of the three, even it is adding new ways to interact with contacts.

While social networks like Facebook have had payments for a while, they have yet to deeply embed financial services into the social experience. Players like Venmo and Cash App may be more established but if the big social players can get past the headwinds of consumer trust and regulatory scrutiny, their massive base of users (e.g. Facebook’s 2.8B monthly active users vs. Venmo’s 70M users and Cash App’s 36M users) would position them to become leaders.

Apr 2 2021 (3 Shifts): Everyone wants to build their own Clubhouse

Aug 14 2020 (3 Shifts): Facebook brings payments and financial services under a new Facebook Financial umbrella