OpenAI's GPT-5 Looms, Apple's Antitrust Problem, Sports Betting's Big Scandal

29:18and we're back here on big technology podcast friday edition in this segment we're going to talk about or the really next half hour we're going to talk a lot about this apple case huge antitrust case that the department of justice brought against apple and then we're also going to touch upon the shohei otani betting scandal in baseball which to me is such an amazing story Before I bring in our guests, I just want to say I definitely noticed a lot of reviews come in after last week. And I can't thank you all enough. It's so great to see such an awesome outpouring of support. So many five-star reviews.

29:52That's going to help us a lot. Again, it's the only publicly available metric that people can really see about podcasts. And that helps us show that we actually have listeners and it's worth coming on. So thank you all for that. All right. Joining us for the second half is Steve Kovac. He is the CNBC technology correspondent, someone that I love watching on air. I appear with on air every now and again. Every once in a while, yeah. Steve, you are the guy on Apple and Microsoft at CNBC. So major week for you. I'm sure there hasn't been a lot of sleep. And I'm thrilled that you're here with us. Thanks.

30:24I am quite exhausted. I don't think I've slept much in the last 36 hours, but we're good. Let's see if I can make it through a podcast. Oh, yeah. You're going to be great. The big thing, of course, is that the Department of Justice suing Apple. What exactly is going on in this case? Oh, boy. Let me try to boil down 88 pages. I know you can summarize this well. And antitrust. I've done it on air many times. So high level, the argument here is that the DOJ is making against Apple is, first of all, they establish or try to establish that the iPhone is a monopoly. and therefore the ecosystem around the iPhone is designed such that it keeps you stuck in that ecosystem in that Apple ecosystem so when you're ready to buy a new smartphone they make sure that new smartphone is an iPhone and oh by the way not only do they make sure that happens they've been steadily increasing prices on iPhone over the years Merrick Garland the attorney general of the United States in the announcement of this this week basically said you know he held up an iPhone and said these things cost as much as 1600 bucks now and Apple is going through all these different practices to make sure that happens so part of the argument is the same App Store argument we've been hearing a bazillion times over the last several years it's the only way to download software to the iPhone we've seen this play out in Europe the the complaints from Spotify and so many other app makers about the fees that Apple collects and how that keeps Apple in control over what happens on the platform.

32:05But then some other stuff that we don't hear quite as often, such as accessories, like hardware accessories, smartwatches, Bluetooth headsets, basically saying things like if you buy a third-party smartwatch, maybe a Garmin or one of Google's Fitbits, it doesn't have the full capabilities or features that you might enjoy on Apple Watch, like getting rich notifications, sending iMessages, and things like that. It's kind of like a watered-down version. Same with AirPods. If you're used to having AirPods, you know that really cool feature where you hold it next to the phone, you flip open the case, it automatically pairs.

32:42You put it automatically pairs between your Apple devices. You can't do that on a third-party set of headphones. So they kind of point to instances like that as demonstrations of how Apple is keeping people locked in unfairly and keeping third-party competitors off the platform. And the other thing I'll mention is, and this is like probably the most accessible one, is iMessage. They say that is just a huge lock-in. It keeps people, you know, upset about the good old-fashioned green bubbles and it keeps people either convincing their friends to buy an iPhone or shaming people to buy an iPhone maybe.

33:19And they even referred back to Tim Cook's famous comment, I think it was about two years ago, when someone complained about this issue to him at, I think it was the code conference. And he basically said, well, tell your mom to buy an iPhone if they don't like the green bubbles, if you're messed up with that. So yeah, whoops. And then they also, you know, pointed to some emails, which we've seen before between executives privately saying, if we opened up some of these services, messaging and whatnot, that would just encourage people to buy an Android phone. And that's bad for Apple. So lots of things going on here.

33:51Apple, of course, denies everything. They are going to fight this till the very end. And like we've heard so many times from them, they say so many of their decisions are about privacy, about security, and providing the best experience for their customers on their own products. And that's why they do what they do. Partly true, but there's some holes in that argument too. Yeah. Now, Steve, before we get into the specifics of the case, I need to ask you about the vibe within Apple, because so often, like right now we have Apple, Facebook, not Microsoft, actually Google and Amazon, they all have caught cases from U.S.

34:27regulators, big antitrust cases. But the vibe within these companies never is all too concerned about what's going on. And maybe that's just because like it's the frog boiling thing where like it's actually a problem, but they don't feel it because it's in the background. But I also think it's an indication that they're dealing with relatively feeble US regulatory bodies who aren't well funded, who don't have, you know, senior staff working on these cases, who they can afford to kind of outlast. And so I'm curious, from your perspective, you know, the vibe within Apple, you talked to Tim Cook, like every quarter after the earnings report.

35:04Are they how is Apple responding to this? Like, are they feeling within the company that this is a problem? Or that this is going to blow over this is a category five hurricane or it's a drizzle the impression i get is they know it's a problem they know this is likely to be a distraction over the next several years um but publicly they're trying to make it seem like everything's hunky-dory and business as usual you'll you'll note for example um at least it didn't leak out if there was one a memo from tim cook to employees they sort of rally the troops type of messaging he didn't even do that he spent And by the way, the day this lawsuit dropped, he was in China just opening up a new Apple store in Shanghai.

35:46He was not focused or did it at least publicly appear to be focused on this. So they're trying to play it both ways. At the same time, and I'm sure you've covered this already, but, you know, in the last couple of weeks in the European Union, very similar allegations and rules and so forth being brought up over there. They have anger on their face. They really had a PR blunder with the Epic Games reversal. You know, they're kind of being, I don't know, humbled in a lot of ways, thanks to these tough regulations in the EU. And I really think they're seeing that as a template for how things could end up here.

36:18But like you said, kind of a toothless regulatory body here in so many ways. We have yet to see Congress pass any meaningful tech legislation. For some reason, they're more interested in banning TikTok than they are potentially, you know, doing some, you know, protecting little kids online. So it really falls to the DOJ and the FTC to do this work, to make any changes if there is an idea that there should be a change. That's what the focus is, I guess. But yeah, they're just trying to pretend this is nothing, even though it's something. And Tim Wu was on CNBC earlier this week talking about how regulatory bodies, was it win or not?

37:01Basically, what he was saying was that they just want to let these companies know that they can't trample on other companies' ability to do business. Do you think that they're fine? The regulatory agencies would be fine just kind of giving Apple like a real headache and letting this drag out for a couple of years? Like, is that a win for them? Potentially. So if you ask Jonathan Cantor, who's the antitrust official who spearheaded this case, or Lena Khan, the chair of the FTC, who is very much in line and of the same thinking with Cantor on this kind of stuff, they would say, even though we haven't been successful in so many of the cases we've brought, even though we failed to do things like block the Activision merger and stuff, they say thematically it's kind of put this chilling effect on some of what they view as you know monopolistic activity so they consider even their losses a win um so that's kind of how it's being viewed on that side side of it too so even if this just causes a headache they can also kind of claim victory and victory at the end of this let's just say we gained this out for four or five years, DOJ loses this case, they can still try to claim victory by saying, well, you know, we made Apple think long and hard about some of these things.

38:18Maybe they grab a concession or two and they still they still consider that a sort of win. I will also note that we have an election this year and there could be a very easily be a Trump administration again next year, a Trump Department of Justice. Now, of course, this Apple case and the Google case started under the Trump administration. A lot of people forget this investigation started back in 2019 and was carried on by this new Department of Justice under the Biden administration. And then, you know, what we saw this week. So there's also a possibility, though, that because Biden did it, Trump won't want to do it.

38:52And he might try to unwind or weaken this kind of stuff. Tim Cook, you know, in the first Trump administration, did a really good job cozying up to Donald Trump, got some relief on China tariffs and things like that. Tim Apple, famous Tim Apple. It works, though. So, yeah, it's going to be really interesting to see how the election plays out to see what the next beat of that looks like, for sure. exactly and so that's from the regulatory side from the apple side is the big problem here this like you mentioned the europe thing they had that big you know two billion dollar fine they also haven't grown very much they've had um i think declines in revenue for the last five quarters and it's going to be five of six right so is this just like the real risk here is that this just kind of adds to a malaise around the company like it doesn't have a good narrative right nvidia has the best narrative in the tech world on the market right now.

39:48I mean, I would say Microsoft has the second best. We're not used to a world where Apple is like third place. We're losing the narrative. And when you talk about the narrative, it's artificial intelligence. What is the AI narrative? And I've even noticed a shift. You mentioned that I talked to Tim Cook every quarter on earnings. When I talked to him last quarter, he was almost defensive almost about, well, we have tons of AI in our stuff, you know, and he just started rattling off features like, you know, the fitness detection and the Apple Watch and Vision Pro wouldn't even exist without artificial intelligence.

40:24All this stuff is happening under the hood, though. That's nothing new. In fact, it's just they're calling it something different. I also noticed there's new MacBooks that came out a couple weeks ago. They called it like something to the effect of the best AI PC ever, you know, consumer AI PC you can buy. Val does protest too much situation. Yeah, exactly. Yeah. And so but what they're also doing is really putting enormous pressure on themselves by teasing some sort of AI announcement later this year to really deliver. They call it, you know, Tim Cook is calling it. We're going to say we're going to break new ground in AI.

40:59That's a hefty promise. And so the stakes are quite large. Presumably, it's going to happen at WWDC in June for them to deliver some kind of mind-blowing AI announcement to kind of ease these investor fears amid slumping sales. China looks bad and all these regulatory headwinds. Yeah, and it better not just be we're going to run Gemini on the iPhone. You know, it's got to be more than that. Now let's talk about the actual case, right? Right. Because the DOJ has these weird definitions of monopoly, right? It says that Apple is 65 % of the iPhone market in the US, but 70 % of the performance smartphone market in the US.

41:40Like, dude, did you just make up a new category to add 5 % to the market share? Like, what's going on there? And from what I understand, I mean, 70 % is not a monopoly to me. It's a dominant position, but not monopolistic. Yeah. And then on the other hand, and just to be fair, you have Apple trying to say, oh, we're just a teeny tiny little company here. We only, and they talk about their global market share, which is true. It's, you know, 20%, maybe less. Android is by far the dominant platform, but this is a, this is a United States case. And so therefore we're looking at United States market share.

42:13Let's get that out of the way. This reminds me of the FTC lawsuit against Activision, where they tried to make this case of there are different kinds of video game consoles and there's the high performance video game consoles playstation and xbox and then the i guess lower end consoles like switch and they try to make this argument they're two completely different markets that didn't fly in the courts at the time i don't see how this could fly either if you're using a phone you're using a phone it doesn't matter if it's a phone with a super duper fast chip or if it's a phone that you got for free from at &t for signing up with the contract.

42:51I don't think that seems tough. And that's also the crux of it too, right? You know, they have to prove that they have, you got to have your monopoly position. And, you know, so many comparisons have already been made to the Microsoft case several years ago where they did have a monopoly. It was very hard to find a computer that was not powered by Windows, period. globally, not just in the United States, but globally. That is a monopoly. And it's harder and more difficult to make that argument here, but they're going to try and we'll see what happens and if they buy that. And then another novel thing they could try is, well, most of the money is spent on the iPhone.

43:36Those are the wealthiest customers, so therefore there's more money at stake. I don't know. It's a novel theory. And if they can't even pass that bar, this whole thing's dead. Right. So let's quickly get into a little bit of the harm as we round out this conversation. So the Department of Justice made some interesting accusations and some weird ones. I'll just run by like the most interesting and the most weird one for you. Most interesting to me is this pairing, like you mentioned of smartwatches, how the smartwatches don't pair well to, uh, to the iPhone. And like, that actually is like real harm.

44:13Like it does harm. If you're a smartwatch company, you can't pair well because Apple has the Apple watch that sucks. Um, and it is like real exclusionary conduct. So that is one area where I'm like, ah, okay, I really agree with the DOJ here. Uh, on the other hand, it's like, that is kind of the Apple strategy, right? Is like locking you into their products. Like there was a line, I wrote it down because I was on air super early this morning, like worldwide exchange early. And I was like, we got to talk about this, that Apple locked, they say Apple locked in users and developers while protecting its profits.

44:46And it's like, yep, that's the Apple strategy, right? So I'm curious, like, you know, let's do the most interesting, then I'll do the other part. But, you know, as far as the smart watches and wearables go, do you think the DOJ has a point here? And do you think Apple's defense will hold up? yeah it's true that it is exclusionary i mean yes if you've ever tried to attach a fitbit or a garmin which by the way garmin's super popular especially among runners yeah it just doesn't have that full feature set you can get on the iphone um does that cause people to stay locked into the ecosystem i don't know um that's that's that's hard to quantify or say but if they bring out evidence showing we were disabling these features because we built you know to do that then we get then it becomes harder to defend so right that is very interesting i think they talk about smart watches i really think even more popular than the apple watch are these things i'm wearing right now the airpods and that is such a mass market product more so they there are more airpods in the world than there are uh apple watches for sure and so you know if you take all that together just the accessories in general maybe there's an argument to make there um and maybe that's a concession apple would have to make um making pairing easier which would be great for notifications yeah it'd be awesome which would be great for consumers and you know maybe not that bad for apple if you think about it uh the apple watch is by far and away the most popular watch in the world um there are plenty of watches that work with android phones well um but i really want to know the weirdest thing that you thought or the okay how'd you frame it because i have i have one the most ridiculous thing was the bringing up of i message like merrick garland seemed like he seemed seized on this idea that you become a green bubble in android uh or an android becomes a green bubble in the iphone and everyone's like yeah yeah no that's proof of the apple lock-in and for i for a while was on that side as well and was like look look how you know what they're trying to do to make people switch to prevent people from switching to Android.

46:58However, because Apple has been so insistent on this Apple iMessage lock-in and they don't make it interoperable, people have been moving to WhatsApp in the U.S. WhatsApp has really been on the rise in a real way in the U.S. I've reported the data and you could argue that Apple's actually hurt themselves by doing this and it shows there's real competition because people are going to another compatible messaging app and effectively destroying value for Apple because, and that's how a market should work, right? Bad product, you lose your audience. And that's the Apple market or Apple argument, rather, almost verbatim.

47:35They say, I mean, go in the app store, look at the messaging app tab. I mean, there are billions of them, right? And WhatsApp is a perfect one. I personally use WhatsApp when SMS freaks me out, not because it's, it just does. It's also just a worse experience. forget the encryption it's just not good um and so i i whenever i have to text i use iphone for the most part and whenever i have to text someone who has an android phone i just use whatsapp and it's fine and it's great um but all that said i think a couple things are happening here one merrick garland brings it up because it's such an easy to understand accessible thing so many people have experienced that right your group chat gets messed up because someone green bubbles in there whatever we all understand that what they also do though is they show evidence like there are literally emails from apple executives saying we can't put we shouldn't put iMessage on android or we shouldn't open it up or make it more compatible because it's they know it's such a good lock-in and we don't want people going to android phones so that's kind of a smoking gun there that's the apple kind of ignores that part that they said that as well everything's true that they said about messaging apps and you know good experience and so forth the other true part that they don't talk about is that internally they kept it that way in part uh to keep people locked in right now can i share my favorite thing the weirdest thing and the funniest thing the apple tv argument and saying they there's a line in this lawsuit i'm gonna i'm just gonna paraphrase it but basically saying uh apple tv you know because of apple tv plus the service not the box um because of the monopoly power apple has it now has power over the flow of free speech because of apple tv plus which just is a bananas thing to say yeah that's like saying hbo has the control over the flow flow of free speech or cnbc has too much control over the flow right which it does uh i don't think ted lasso really gives a shit um about free speech i think they're just trying to entertain you with Apple TV plus.

49:41And oh, by the way, Apple TV plus is available on Roku. It's available on Android. It's available on Samsung TVs. It's not an Apple only product. I think that just little things like that in this case, uh, just makes me scratch my head. It's like, have these guys ever used an Apple product before? Yeah. This is what I was saying about the junior developer, the junior lawyers. That's probably one of theirs. Yes. Yeah, exactly. yeah so okay before we head out i definitely want to talk about um this shohei otani story have you been following it it's definitely like one of the i have all the stories so uh for folks and also i'm a mets fan i think you are a little disappointed we don't have show and this was not a uh mets scandal but you wanted this to be a mets scandal i i if we had show on our team absolutely dude but he might he might not play so uh i mean there's I think there's a chance he gets suspended from this because there's definitely been a cover-up.

50:37So this is from ESPN. Dodgers fire Shohei Ohtani's interpreter amid allegation of a massive theft. So basically, they found out that he made$4.5 million in wire transfers from Ohtani's bank account to a bookmaking operation. And his translator, a longtime friend and interpreter, they say that he incurred debts. Now, the amazing thing about this story is he sat down with ESPN and gave this entire basically deposition talking about how, yes, I incurred all the debts and Shohei was good enough to pay them. And I'm thankful, but he had nothing to do with it. And then they basically had to go back and say, actually, Shohei had no idea that this was happening and he stole all this money.

51:23And it was a massive theft. and there's like a video of him and the interpreter hanging out in the dugout like 90 minutes before this news breaks and everything is fine. So like did that all happen within that moment? So for those, by the way, Shohei is a$700 million batter and pitcher for the Los Angeles Dodgers. He's the biggest star in baseball. I think this is interesting for a number. In sports, arguably, in a lot of ways. Yeah, and so I think this is interesting for a number of reasons. A, the crime is fascinating. but really it's just like we've seen all these tech companies FanDuel and DraftKings bring betting into the mainstream right next to the broadcasts and sports leagues and stuff like that and maybe it's become so commonplace that now it's starting to have that negative effect where it's kind of starting to blend into the leagues.

52:17I'm curious what you think about this story and what the takeaway is from your end. Yeah, it's also, So it's gliding into the leagues. I mean, we've seen this at the NFL, you know, players getting in trouble for betting and so forth. And this is something that's kind of concerned me basically since the beginning of gambling apps. And, you know, I know it's state by state. Was it North Carolina that just approved it? I forget. Anyway, my point being just seeing how, you know, the companies that you and I cover every day use their apps, you know, to get you sticky, to get you to stay in. Yeah. That's one thing.

52:52you know scrolling through tiktok every day i'm sure they're but at least tiktok's not sucking money out of your bank account and like i understand vanduul and all these guys they have you know you could set your own limits and and things like that but just the ease of use i mean this is just right for stricter regulation uh just gambling apps in general um the showy thing the showy atani and his interpreter thing is an extreme example um and whether or not you know And those are also league rules, too. But, you know, a lot of bet on yourself or your own games and your own league. But, I mean, this is this just is the kind of thing it's I'm almost shocked like regulators haven't taken such a deeper look at gambling apps because it is so easy to lose money.

53:35And, you know, what kind of gamemanship are they using to kind of encourage betting and, you know, sign up now and get$100 free and so forth? That's that's really my takeaway. way. I feel like the shoe is yet to drop on gambling apps. And that could be coming. It is interesting because it is sort of the product of a recent Supreme Court case that legalized sports betting across, well, allowed states to make their decisions about whether they would legalize it or not and not prohibit it on a federal level. We'll definitely have more on that. It's a really fascinating backstory. But last question for you.

54:10Do you think Shohei was participating in this gambling. Oh, man. Because I think I... It's hard to tell. Yeah. This is just my own guess. I think he was. Yeah, he must have. I mean, even my closest friends, I don't give them access to my bank account. Right. Story makes no sense. Yeah. I mean, the only people you give access to your bank account are maybe your accountant or, like, if you're married, maybe your partner. That's it. Right. so so he knew he had to have known which is bad I mean he's such an amazing guy like otherwise such an incredible athlete what a what a guy to watch I mean he just he's like not even human to watch him on the field everything he can do and oh poor Dodgers right and now the question becomes will Major League Baseball their loss is my game well Major League Baseball has been is in this moment where it's losing audience and losing fans it needs to do anything it can to make it exciting and now they're faced with like, do we suspend our biggest star and stand on principle or do we allow this to slide and let the games go on?

55:19And it reminds me of this amazing moment in The Simpsons where Mark McGuire is caught doing some terrible things and he goes up to the town and he goes, you want to know the deep, dark truth about Major League Baseball or do you want to see me hit some dingers? And the whole town is like, dingers. I remember that one, yeah. Right, right. Right. Yeah. So that could be it too. But anyway, anything that's bad for the Dodgers is potentially good for the Mets. Yeah. I'm cheering it. Let's go to a game this year. It'll be fun. Hell yeah. Citi Field. As soon as it warms up. Yeah. I'm there. Okay. Sounds good.

55:52Steve, I know you got to go on air. Thanks so much for joining us. Yes. All right. Thanks, Ox. Take care. All right, everybody. Thanks for listening. And we'll see you next time on Big Technology Podcast.