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Used at top MBA programs including
Stanford Graduate School of Business
University of Chicago Booth School of Business
Wharton School of the University of Pennsylvania
Kellogg School of Management at Northwestern University
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1. The US Supreme Court rules that copying APIs is fair use
  • 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.
Related Content:
  • 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
2. UnitedMasters is helping musicians capture a bigger piece of the streaming-revenue pie
  • 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.
Related Content:
  • 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
3. Social platforms embed new payments capabilities
  • This week, 3 different social platforms – Signal, Clubhouse, and Facebook – announced new payments-oriented features:
  • 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.
  • 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.
Related Content:
  • 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
Disclosure: Contributors have investment interests in Microsoft and Apple. Amazon, Google, and Stripe are vendors of 6Pages.
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