Taking a break

Posted on 10 August 2020 by Justin Pyvis. About a 1 min read.

With the Western Australian Budget and Mid-year update back-to-back this year due to COVID-19, my time is going to become increasingly limited over the next few months. Unfortunately, that means I've decided to take a break from the weekly newsletter until things calm down a bit (most likely sometime in December).

Archived issues will still be available on the website. As always, if you have any questions feel free to send me an email.

Cheers and have a great week.

— Justin

Issue 89

Congress' Big Tech Bluster

Delivered on 04 August 2020 by Justin Pyvis. About a 6 min read.

Last week the heads of every Big Tech company - Amazon, Apple, Facebook and Google - appeared before Congress to defend themselves against possible antitrust action. Long story short, despite ample evidence being tabled (1.3 million documents!) and 217 questions over 6 hours, the House Judiciary Committee's investigation is unlikely to amount to anything.

Why? Because there is still no evidence of monopoly, such as market dominance (properly defined) and consumer harm through the form of higher prices and restricted supply. If anything, Big Tech has provided people with more options at a lower price.

I know that the lack of anything concrete won't deter lawmakers but it should at least temper their expectations. Markets certainly believe the worst is over, with Big Tech's respective share prices barely changed following the hearing, being swamped by third quarter earnings reports released only a day later:

However, Google has problems

Not just because the US Department of Justice is expected to file a lawsuit against its dominance in digital advertising, but because Google has a management issue:

Mr Pichai’s foremost challenge is to prevent Alphabet from becoming what Mr Brin and Mr Page were so bent on avoiding—a “conventional company” that dies a slow death from lack of innovation and declining growth. The task is as delicate as the technology giant is gargantuan.

Today Alphabet is a conglomerate of businesses that sometimes appear to have little in common—a corporate planetary system or Googleverse, if you will. Commercially, its centre of gravity is Google itself, and particularly its online-advertising business. This generates 83% of the group’s revenue and all its profits.
Online advertising overall is far from a mature market, but growth in search ads, which continue to generate about 60% of Alphabet’s revenues, has slowed. In 2019 sales expanded by 15%, a healthy clip but considerably lower than the 22% a year earlier. General online search is also being “hollowed out” by specialised searches, says Mark Shmulik of Bernstein, a research firm. Mr Shmulik estimates that about 60% of product searches now start on Amazon (whose fast-growing online-ad business is already the world’s third-biggest behind Google and Facebook).
Although Mr Brin, Mr Page and Mr Schmidt remain Alphabet’s biggest individual shareholders—with 13.1% of shares and 56.7% of voting rights—a former senior executive says that the company is now run by a different triumvirate. Besides Mr Pichai it includes Kent Walker, senior vice-president of global affairs, and Ruth Porat, the finance chief poached from Morgan Stanley, an investment bank. Where Mr Brin and Mr Page were technologists and Mr Schmidt a technologist-manager, the new team are simply managers.

Google is now run by investment bankers and appears to be biting off more than it can chew in a million other areas as its core business, advertising, is being eroded. Will they notice in time? This is a bigger issue for Google than the Justice Department.

Success is by no means guaranteed

Jeff Bezos' prepared statement was excellent, and is example #5623 why success is by no means guaranteed:

Amazon's success was anything but preordained. Investing in Amazon early on was a very risky proposition. From our founding through the end of 2001, our business had cumulative losses of nearly $3 billion, and we did not have a profitable quarter until the fourth quarter of that year. Smart analysts predicted Barnes & Noble would steamroll us, and branded us “Amazon.toast.” In 1999, after we’d been in business for nearly five years, Barron’s headlined a story about our impending demise “Amazon.bomb.” My annual shareholder letter for 2000 started with a one-word sentence: “Ouch.” At the pinnacle of the internet bubble our stock price peaked at $116, and then after the bubble burst our stock went down to $6. Experts and pundits thought we were going out of business. It took a lot of smart people with a willingness to take a risk with me, and a willingness to stick to our convictions, for Amazon to survive and ultimately to succeed.

Note that Amazon has lost market share since COVID-19 hit. The digital world is brutally competitive.

Microsoft to buy TikTok

With a little help from the US executive:

President Donald Trump on Friday told reporters he will act soon to ban Chinese-owned video app TikTok from the United States, NBC News reported.

Trump made the comments while chatting with reporters on Air Force One during the flight back to Washington from Florida.

“As far as TikTok is concerned we’re banning them from the United States,” Trump said, calling the action a “severance.”

Trump did not specify whether he will act through an executive order, or another method. such as a designation, according to NBC News.

“Well, I have that authority. I can do it with an executive order or that,” Trump said.

Trump can't actually ban TikTok, but he can (and has) set the wheels in motion:

“These Chinese software companies doing business in the United States, whether it’s TikTok or WeChat — there are countless more . . . are feeding data directly to the Chinese Communist party, their national security apparatus,” Mr Pompeo told Fox News.

“President Trump has said 'enough' and we're going to fix it and so he will take action in the coming days with respect to a broad array of national security risks that are presented by software connected to the Chinese Communist party.”

Microsoft looks set to be the winner (provided the price is right):

[Microsoft will] move quickly to pursue discussions with TikTok parent ByteDance Ltd. of Beijing and aims to complete the negotiations by Sept. 15. The statement, the software giant’s first confirmation it was interested in acquiring TikTok’s U.S. business, said the deal talks also entail the app’s service in Canada, Australia, and New Zealand.

“Microsoft appreciates the U.S. Government’s and President Trump’s personal involvement as it continues to develop strong security protections for the country,” the company said in its statement.

It added it would ensure that the data of American TikTok users is transferred to the U.S., where it would remain. Microsoft said TikTok operations under its ownership would build on the popular user experience while adding privacy and security protections.

Apparently discussions were taking place prior to Trump's statement, which nearly derailed the process. What has amazed me this whole time is how successful TikTok has been in the United States even with its dubious links to the Chinese government and dodgy stance on privacy. The average person really, really doesn't care about those issues. National security though? Sure, because you don't actually need evidence.

Another question is, will Microsoft actually manage the acquisition properly? It famously botched video chat the last time it tried (Skype), despite have a 10-year head start over the competition. Might Microsoft's governance structures be too antiquated to manage a youth-focused, rising star in such a dynamic sector?

Australia bans news articles on social media

Not quite, but that is one possible outcome of this proposed law:

Facebook and Google will have to pay traditional news media to publish their content under a new code of conduct developed by the Australian Competition and Consumer Commission (ACCC) that could be implemented by the end of this year.

These media platforms could be liable for up to $1 billion per annum just for displaying news articles:

Mr Sims would not comment on how much revenue Google and Facebook would be forced to share under the code, saying the ACCC had a number in mind but the negotiating parties might have very different ideas, so he did not want to prejudice talks.

Nine, owner of The Australian Financial Review, has previously said it believes the number is about 10 per cent of local revenue – about $600 million based on 2018 numbers in the Digital Platforms Inquiry. News Corp has suggested the number is closer to $1 billion.

Why, you might ask? Lobbying by local media monopolists:

Media companies including News Corp Australia, a unit of Rupert Murdoch’s News Corp, lobbied hard for the government to force the U.S. companies to the negotiating table amid a long decline in advertising revenue.

If Big Tech play ball, this is just a protectionist subsidy for local media. But I don't think this will end the way News Corp thinks it will. Big Tech won't just hand over the $1 billion. If it goes ahead, the likes of Google and Facebook will stop showing news articles in Australia (a tiny market), News Corp's advertising revenue will be decimated and the media scene in Australia will become even more barren.

Issue 88

The latest AI hype: GPT-3

Delivered on 28 July 2020 by Justin Pyvis. About a 4 min read.

I say this a lot but the term artificial intelligence (AI) is designed to mislead. What people call AI is really just human-calibrated algorithms scanning enormous datasets for the most appropriate response. It's great for certain things - such as loading containers on a ship - but not so good at, say, driving on roads with pesky, unpredictable humans.

For some, the ambiguity can be profitable. Take ScaleFactor, which promised "artificial intelligence-powered tools that could replace the accountant", and raised over $100m prior to COVID-19. Turns out it was snake oil:

Instead of software producing financial statements, dozens of accountants did most of it manually from ScaleFactor’s Austin headquarters or from an outsourcing office in the Philippines, according to former employees. Some customers say they received books filled with errors, and were forced to re-hire accountants, or clean up the mess themselves.

Then there's OpenAI, a company which last week launched "GPT-3" (Generative Pretrained Transformer 3), its latest AI model that had even the normally sensible economist Tyler Cowen salivating:

This year is likely to be remembered for the Covid-19 pandemic and for a significant presidential election, but there is a new contender for the most spectacularly newsworthy happening of 2020: the unveiling of GPT-3.
The core of GPT-3, which is a creation of OpenAI, an artificial intelligence company based in San Francisco, is a general language model designed to perform autofill. It is trained on uncategorized internet writings, and basically guesses what text ought to come next from any starting point. That may sound unglamorous, but a language model built for guessing with 175 billion parameters — 10 times more than previous competitors — is surprisingly powerful.

Let's put aside the fact that there is nothing open about OpenAI - GPT-3 is closed source and provided via a paid API - and instead focus on GPT-3 itself.

In terms of AI, GPT-3 is an enormous upgrade if for no other reason than the sheer number of parameters in its database (it has 175 billion versus say Google's T5, which had ~11 billion). But the fundamental technology is unchanged from anything in the last few years and as Tyler notes, GPT-3 does not try to pass the Turing test by being indistinguishable from a human in its responses. It's a big improvement on existing AI models, but it's not a step forward in terms of the technology nor in addressing the more fundamental flaws with AI that restrict its potential applications.

One of those applications is autonomous vehicles, which are being developed using similar AI technology to GPT-3, with the same limitations. But it seems the sector has finally acknowledged the reality of the situation, moving from the robotaxi dream to finding practical uses for it:

The sector is experiencing “autonomous disillusionment”, says Prescott Watson, principal at Maniv Mobility, an early-stage venture capital firm. Now, “the pitch is, ‘robotaxis are a pipe dream’, but let’s take this technology to do something more lucrative,” he adds.

Investors are still interested in autonomy but the focus has shifted towards practical services such as grocery delivery, automated warehouse robots, and autonomous functions restricted to highways.

Highway automation is plausible with the current AI technology. You don't have to dodge the dog in the driveway (or worse, the toddler) like a robotaxi might, and authorities could even designate a specific lane for automated vehicles, as they currently do for buses. According to Chuck Price, chief product officer at TuSimple, the biggest autonomy start-up devoted to trucking:

“Trucks go on a very predictable route, every day, all the time,” he says. “So if I want to build a profitable trucking business with autonomy, I map [the highway] from Los Angeles to Jacksonville, Florida, and I’ve got billions of dollars of revenue available on that route.”

I think it's wise to avoid the AI hype that surrounds products such as OpenAI's GPT-3 or Tesla robotaxis given the technology hasn't really progressed (note Elon Musk was a founder of OpenAI, which might explain its excellent marketing), but still be optimistic about the productivity improvements on offer when automation is properly-applied, such as to freight.

RIP digital tracing

It has been three months since Apple and Google released their contact tracing framework yet governments still can't get it right. Germany's app (built using the framework) somehow still cost ~€20 million. Ambiguous privacy policies have kept some users away. South Korea's database was exposed.

The only positive development lately is that Ireland donated the code for its COVID Tracker app (based on the Apple/Google framework) to the not-for-profit Linux Foundation. Hopefully some kind of completely decentralised, global tracing app will now be possible.

Slack tries to antitrust Microsoft

No surprise that it's happening in Europe. When you can't compete ... sue?

Slack surprised Microsoft with a competition complaint in Europe yesterday. After arguing for months that Microsoft Teams isn’t a true competitor to Slack and is more akin to Zoom, Slack finally admitted what was clear all along: Microsoft Teams is a competitor, and Slack is finding it hard to compete with Microsoft. It’s not a surprising admission, but if Slack is finding it hard to compete with Microsoft, then it’s going to face even greater headaches once Google finally gets its act together. After fumbling with communications apps for years, there are early signs that Google is now ready to take on Slack, Microsoft Teams, and Zoom.

I do worry about the return of antitrust around the world. Formerly dynamic, boundary-pushing businesses are now hiring lawyers, economists and content moderators instead of developers. The end result will be the utilitisation of the sector.

Genealogy breach

Please don't give your DNA away to a company or government. They will, eventually, get breached:

First GEDmatch, the DNA database that helped identify the Golden State Killer, was hacked. Then email addresses from its users were used in a phishing attack on another leading genealogy site, MyHeritage.

Issue 87

Treading water until November

Delivered on 21 July 2020 by Justin Pyvis. About a 6 min read.

If you don't think China knows how US-style 'capitalism' works, think again:

[TikTok], which one year ago had virtually no lobbying presence in the nation’s capital, has hired a small army of more than 35 lobbyists to work on its behalf, including one with deep ties to President Trump.
In the past three months, lobbyists working on behalf of TikTok have held at least 50 meetings with congressional staff and lawmakers, including those on top committees like commerce, judiciary and intelligence. Those meetings have included a slick presentation that includes an organizational chart showing that TikTok does not operate in China and that most of its top leaders reside in the United States and are American citizens. For instance, TikTok’s new chief executive, Kevin Mayer, a former executive of Disney, lives in Los Angeles, they say.

TikTok is in the throes of the Chinese government. I suspect the Chinese strategy here is simply to delay any action by the US government until at least November (when the US has an election that may produce a less tariff-happy, nationalist-heavy administration). That certainly seems to be the United Kingdom's strategy:

The British government privately told the Chinese technology giant Huawei that it was being banned from Britain’s 5G telecoms network partly for “geopolitical” reasons following huge pressure from President Donald Trump.
As part of the high-level behind-the-scenes contacts, Huawei was told that geopolitics had played a part, and was given the impression that it was possible the decision could be revisited in future, perhaps if Trump failed to win a second term and the anti-China stance in Washington eased.

But that's easier said than done. I'm not sure how easy it will be to unwind these decisions (and there have been many). Even if Biden wins, November is still four months away and while supply chains are relatively rigid, a fair bit of adjustment has happened over the past few 'tariff war' years. Not just because of actual decisions, either; even the perception of elevated risks of doing business in China (and Hong Kong) as a foreign entity is enough to affect decision makers. And the attacks seem to be intensifying:

Secretary of State Mike Pompeo on Wednesday announced visa restrictions on employees of Chinese technology companies, including Huawei, in the latest Trump administration move against Beijing.

The US "will impose visa restrictions on certain employees ... of Chinese technology companies like Huawei that provide material support to regimes engaging in human rights violations and abuses globally," Pompeo told reporters at a State Department press briefing, [but] did not elaborate on which employees would be targeted or how many people would be affected.

China-sympathising 'morals only apply when they don't hurt movie sales' Hollywood also copped some flak from, you guessed it, William Barr:

U.S. Attorney General William Barr took aim at Hollywood companies, including Walt Disney Co (DIS.N) on Thursday as well as large technology firms like Apple, Alphabet’s Google and Microsoft Corp over company actions with China.

“Corporations such as Google, Microsoft, Yahoo, and Apple have shown themselves all too willing to collaborate with the (Chinese Communist party),” Barr said. He added that Hollywood has routinely caved into pressure and censored their films “to appease the Chinese Communist Party.”

“I suspect Walt Disney would be disheartened to see how the company he founded deals with the foreign dictatorships of our day,” Barr said in a speech at the Gerald R. Ford Presidential Museum in Michigan.

I'm not sure how this will play out, except that the US administration's actions and rhetoric will likely intensify and wane in line with the polls, which are currently against Trump (although as 2016 showed, that doesn't necessarily mean anything). It will be difficult for China to hold out to November without copping some permanent damage, both from the public which might suddenly start caring about privacy and data security and the shift of global supply chains to more politically 'secure' countries.

Twitter was hacked

Centralised systems often have a single point of failure. Twitter's was remarkably vulnerable, with the administrative login information apparently 'stickied' in a Slack chat.

Twitter is lucky the hacker simply asked for Bitcoin rather than starting a diplomatic crisis. That in itself raises further questions - if you're in a position of power, say the US President, should you really be using a centralised social media system when some teenager or disgruntled employee could cause serious damage to your nation with a few clicks? Hillary Clinton was rightly chastised for using a personal, insecure email server in her apartment, but a 'verified', blue-tick Twitter account isn't much better (maybe blue-tick accounts should have to sign each tweet cryptographically, or perhaps the best solution is avoidance of centralised, single-point-of-failure systems altogether).

This is how big consultancies work

The Markup released an exposé on two big technology consulting companies, IBM and Deloitte. Apparently they were hired by states such as California to overhaul and modernise their unemployment payment systems but (1) have failed to deliver working systems and (2) continue to be paid to fix the mess:

Some of those systems have struggled to keep up with the wave of claims across the country, leaving thousands of people without help. In some cases, the technology broke down; in others, the work was never even completed. But those companies continue to win contracts for improving unemployment systems, despite serious questions about the quality of their work.

The states are acting surprised, with Florida governor Ron DeSantis describing "the overwhelmed system as 'a jalopy in the Daytona 500' and ordered an investigation into how the state could have paid so much for so little".

Hiring a big consultancy will usually get you little bag for your buck. The problem for governments is they have little choice: only big consultancies can meet all of the government's mandatory tendering requirements, which are theoretically in place to protect the taxpayer but in reality are there to support big consultancies. It also allows the bureaucrats making the decisions to deflect responsibility and avoid risks. After all, who could be blamed for hiring world renowned companies such as IBM or Deloitte?

Regulation ≠ proper regulation

"We need to regulate the [insert industry name here]!" Familiar? Regulation is a delicate fish and needs to be clear, succinct and well enforced. Unfortunately, it's usually vague, bloated and poorly enforced. It can also be easily captured by those it's supposedly designed to regulate (concentrated interests have a huge incentive to do so):

Germany’s top financial supervisor received detailed warnings about deceptive financial practices at Wirecard AG starting in 2008 but repeatedly declined to investigate the allegations, turning instead against the accusers.
BaFin’s role includes ensuring that listed companies abide by securities law, for instance by communicating truthfully with their shareholders. But BaFin didn’t look into the lawsuit’s allegations against Wirecard because there was no evidence the company had provided misleading information, the spokeswoman said.

Instead, BaFin opened a probe into the accusers. Wirecard had filed a complaint with the agency and the Munich prosecutor after the suit caused its stock to slump. Two former officials of the small shareholders’ association were charged, convicted of market manipulation and handed suspended prison sentences.

A VPN is not foolproof

Yes, you should use a VPN. No, you should not assume it provides you with perfect cover:

A string of "zero logging" VPN providers have some explaining to do after more than a terabyte of user logs were found on their servers unprotected and facing the public internet.

This data, we are told, included in at least some cases clear-text passwords, personal information, and lists of websites visited, all for anyone to stumble upon.

It all came to light this week after Comparitech's Bob Diachenko spotted 894GB of records in an unsecured Elasticsearch cluster that belonged to UFO VPN.

You should also pay for a VPN - anything free simply means you're choosing to trade your browsing data to the VPN provider instead of your ISP/government.

Issue 86

Virus tracing apps are malware

Delivered on 13 July 2020 by Justin Pyvis. About a 3 min read.

Virus tracking apps are all the rage. Or at least they were, until global governments almost unilaterally messed up the delivery. It turns out they are - almost without exception - awful in terms of data privacy and security. Unfortunately that means they won't work, because a 'critical mass' of people will avoid installing them. Here's the New York Times:

In fact, “the vast majority” of virus-tracing apps used by governments lack adequate security and “are easy for hackers” to attack, according to a recent software analysis by Guardsquare, a mobile app security company.

“It’s a cautionary tale for governments aggregating such an enormous amount of data,” said Claudio Guarnieri, the head of Amnesty International’s Security Lab, who identified the problems with the Qatari app.
Source: Guardsquare

People will tolerate their data being siphoned off provided they're adequately compensated (e.g. a good search engine, email service, or social network). For many, government contact tracing apps fail that trade-off, which is why it's so important to use the right framework from the start (hint: decentralised, open sourced).

Have a great week. Cheers,

— Justin

Other bits of interest

Australia's COVIDSafe app is one big fail

  • It has no active user data "due to privacy provisions".
  • It is still "plagued with technical bugs… mostly related to the app's struggles when getting iOS and Android devices to ‘talk’ to each other with Bluetooth".
  • It does not notify users if they've been in contact with someone infectious, rather "they'll be notified but it will be by a manual tracer".

This statement by Minister Stuart Rober's office about why the government won't consider the Apple and Google framework was disturbing because it's a lie:

Public health officials won’t have access to [contact tracing] information, which will reside with Google and Apple.

The data will reside on people's phones, not with Google and Apple. Public health officials will still receive data but only at the users' discretion.

COVID-19 spreads very, very easily

Yikes. According to a new paper published in The Lancet, following a mass testing campaign in Belgium's long-term care facilities, 74.8% of those who reported a positive COVID-19 test were either pre-symptomatic or asymptomatic, with the authors concluding:

Similar viral loads have been reported between symptomatic and asymptomatic cases, making the transmission and spread of the virus possible for both groups.

If true, it certainly goes some way to explaining how this coronavirus spreads so easily.

SoftBank was an investor in Wirecard

Of course SoftBank jumped in right before the crash:

Wirecard said last year that the Rajah & Tann investigation found no conclusive proof of fraud or corruption. The company never released the full version of the final report. The company characterized the investigation as independent.

The Financial Times first reported the whistleblower’s claims in early 2019, causing the company’s share price to fall sharply. A few months later, a $1 billion investment arranged by executives of Japanese tech conglomerate SoftBank Group Corp. gave the company a boost. That October, Financial Times articles questioned Wirecard’s relationships with third-party partners.

There are no good answers

Activity everywhere slowed significantly prior to government-mandated restrictions. People don’t want to catch and spread the virus.

Successfully controlling the virus means life can return to something resembling normal relatively quickly, albeit at a greater short-term cost.

Doing little and 'living with' the virus means people will remain cautious and economic activity will be subdued until an effective treatment/vaccine is developed (e.g. Sweden).

Attempting to do something but failing leaves you with the worst of both worlds.

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