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The nation-state of the internet

18:50 | 8 December

The internet is a community, but can it be a nation-state? It’s a question that I have been pondering on and off this year, what with the rise of digital nomads and the deeply libertarian ethos baked into parts of the blockchain community. It’s clearly on a lot of other people’s minds as well: when we interviewed Matt Howard of Norwest on Equity a few weeks back, he noted (unprompted) that Uber is one of the few companies that could reach “nation-state” status when it IPOs.

Clearly, the internet is home to many, diverse communities of similar-minded people, but how do those communities transmute from disparate bands into a nation-state?

That question led me to Imagined Communities, a book from 1983 and one of the most lauded (and debated) social science works ever published. Certainly it is among the most heavily cited: Google Scholar pegs it at almost 93,000 citations.

Benedict Anderson, a political scientist and historian, ponders over a simple question: where does nationalism come from? How do we come to form a common bond with others under symbols like a flag, even though we have never — and will almost never — meet all of our comrades-in-arms? Why does every country consider itself “special,” yet for all intents and purposes they all look identical (heads of state, colors and flags, etc.) Also, why is the nation-state invented so late?

Anderson’s answer is his title: people come to form nations when they can imagine their community and the values and people it holds, and thus can demarcate the borders (physical and cognitive) of who is a member of that hypothetical club and who is not.

In order to imagine a community though, there needs to be media that actually links that community together. The printing press is the necessary invention, but Anderson tracks the rise of nation-states to the development of vernacular media — French language as opposed to the Latin of the Catholic Church. Lexicographers researched and published dictionaries and thesauruses, and the printing presses — under pressure from capitalism’s dictates — created rich shelves of books filled with the stories and myths of peoples who just a few decades ago didn’t “exist” in the mind’s eye.

The nation-state itself was developed first in South America in the decline and aftermath of the Spanish and Portuguese empires. Anderson argues for a sociological perspective on where these states originate from. Intense circulation among local elites — the bureaucrats, lawyers, and professionals of these states — and their lack of mobility back to their empires’ capitals created a community of people who realized they had more in common with each other than the people on the other side of the Atlantic.

As other communities globally start to understand their unique place in the world, they import these early models of nation-states through the rich print culture of books and newspapers. We aren’t looking at convergent evolution, but rather clones of one model for organizing the nation implemented across the world.

That’s effectively the heart of the thesis of this petite book, which numbers just over 200 pages of eminently readable if occasionally turgid writing. There are dozens of other epiphanies and thoughts roaming throughout those pages, and so the best way to get the full flavor is just to pick up a used copy and dive in.

For my purposes though, I was curious to see how well Anderson’s thesis could be applied to the nation-state of the internet. Certainly, the concept that the internet is its own sovereign entity has been with us almost since its invention (just take a look at John Perry Barlow’s original manifesto on the independence of cyberspace if you haven’t).

Isn’t the internet nothing but a series of imagined communities? Aren’t subreddits literally the seeds of nation-states? Every time Anderson mentioned the printing press or “print-capitalism,” I couldn’t help but replace the word “press” with WordPress and print-capitalism with advertising or surveillance capitalism. Aren’t we going through exactly the kind of media revolution that drove the first nation-states a few centuries ago?

Perhaps, but it’s an extraordinarily simplistic comparison, one that misses some of the key originators of these nation-states.

Photo by metamorworks via Getty Images

One of the key challenges is that nation-states weren’t a rupture in time, but rather were continuous with existing power structures. On this point, Anderson is quite absolute. In South America, nation-states were borne out of the colonial administrations, and elites — worried about losing their power — used the burgeoning form of the nation-state to protect their interests (Anderson calls this “official nationalism”). Anderson sees this pattern pretty much everywhere, and if not from colonial governments, then from the feudal arrangements of the late Middle Ages.

If you turn the gaze to the internet then, who are the elites? Perhaps Google or Facebook (or Uber), companies with “nation-state” status that are essentially empires on to themselves. Yet, the analogy to me feels stretched.

There is an even greater problem though. In Anderson’s world, language is the critical vehicle by which the nation-state connects its citizens together into one imagined community. It’s hard to imagine France without French, or England without English. The very symbols by which we imagine our community are symbols of that community, and it is that self-referencing that creates a critical feedback loop back to the community and reinforces its differentiation.

That would seem to knock out the lowly subreddit as a potential nation-state, but it does raise the question of one group: coders.

When I write in Python for instance, I connect with a group of people who share that language, who communicate in that language (not entirely mind you), and who share certain values in common by their choice of that language. In fact, software engineers can tie their choices of language so strongly to their identities that it is entirely possible that “Python developer” or “Go programmer” says more about that person than “American” or “Chinese.”

Where this gets interesting is when you carefully connect it to blockchain, which I take to mean a technology that can autonomously distribute “wealth.” Suddenly, you have an imagined community of software engineers, who speak in their own “language” able to create a bureaucracy that serves their interests, and with media that connects them all together (through the internet). The ingredients — at least as Anderson’s recipe would have them — are all there.

I am not going to push too hard in this direction, but one surprise I had with Anderson is how little he discussed the physical agglomeration of people. The imagining of (physical) borders is crucial for a community, and so the development of maps for each nation is a common pattern in their historical developments. But, the map, fundamentally, is a symbol, a reminder that “this place is our place” and not much more.

Indeed, nation-states bleed across physical borders all the time. Americans are used to the concept of worldwide taxation. France seats representatives from its overseas departments in the National Assembly, allowing French citizens across the former empire to vote and elect representatives to the country’s legislature. And anyone who has followed the Huawei CFO arrest in Canada this week should know that “jurisdiction” these days has few physical borders.

The barrier for the internet or its people to become nation-states is not physical then, but cognitive. One needs to not just imagine a community, but imagine it as the prime community. We will see an internet nation-state when we see people prioritizing fealty to one of these digital communities over the loyalty and patriotism to a meatspace country. There are already early acolytes in these communities who act exactly that way. The question is whether the rest of the adherents will join forces and create their own imagined (cyber)space.

 


0

The trust dilemma of continuous background checks

19:15 | 6 December

First, background checks at startups, then Huawei’s finance chief is arrested, SoftBank’s IPO is subscribed, and I am about to record our next edition of TechCrunch Equity. It’s Thursday, December 6, 2018.

TechCrunch is experimenting with new content forms. This is a rough draft of something new – provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here.

The dilemma of continuous background checks

My colleague John Biggs covered the Series A round for Israel-based Intelligo, a startup that provides “Ongoing Monitoring” — essentially a continuous background check that can detect if (when?) an employee has suddenly become a criminal or other deviant. That’s a slight pivot from the company’s previous focus of using AI/ML to conduct background checks more efficiently.

Background checks are a huge business. San Francisco-based Checkr, perhaps the most well-known startup in the space, has raised $149 million according to Crunchbase, driven early on by the need to on-board thousands of contingent workers at companies like Uber. Checkr launched what it calls “Continuous Check” which also actively monitors all employees for potential problems, back in July.

Now consider a piece written a few weeks ago by Olivia Carville at Bloomberg that explored the rise of “algorithmic auditors” that actively monitor employee expenses and flags ones it feels are likely to be fraudulent:

U.S. companies, fearing damage to their reputations, are loath to acknowledge publicly how much money they lose each year on fraudulent expenses. But in a report released in April, the Association of Certified Fraud Examiners said it had analyzed 2,700 fraud cases from January 2016 to October 2017 that resulted in losses of $7 billion.

Here’s a question that bugs me though: we have continuous criminal monitoring and expense monitoring. Most corporations monitor web traffic and email/Slack/communications. Everything we do at work is poked and prodded to make sure it meets “policy.”

And yet, we see vituperative attacks on China’s social credit system, which …. monitors criminal records, looks for financial frauds, and sanctions people based on their scores. How long will we have to wait before employers give us “good employee behavior” scores and attach it to our profiles in Slack?

The conundrum of course is that no startup or company wants (or can) avoid background checks. And it probably makes sense to continually monitor your employees for changes and fraud. If Bob murders someone over the weekend, it’s probably good to know that when you meet Bob at Monday’s standup meeting.

But let’s not pretend that this continuous monitoring isn’t ruinous to something else required from employees: trust. The more heavily monitored every single activity is in the workplace, the more that employees feel that if the system allows them to get away with something, it must be approved. Without any checks, you rely on trust. With hundreds of checks, policy is essentially etched into action — if I can do it, it must meet policy.

In China, where social trust is extremely low, it likely makes sense to have some sort of scoring mechanism to substitute. But for startups and tech companies, building a culture of trust — of doing the right thing even when not monitored — seems crucial to me for success. So before signing up for one of these continuous services, I’d do a double take and consider the potentially deleterious consequences.

If I was a startup employee, I would think twice (maybe thrice?) before traveling to China

Photo by VCG/VCG via Getty Images

Last weekend, Trump and Xi agreed to delay the implementation of tariffs on Chinese goods, which led to buoyant Chinese (tech) stocks Monday in Asia time zones. I wrote about how that doesn’t make any sense, since delaying tariffs doesn’t do anything to solve the structural issues in the US/China conflict:

To me the market is deeply misjudging not only the Chinese economy, but also the American leadership as well.

And specifically, I wrote about constraints on Huawei and ZTE:

In what world do these prohibitions disappear? The U.S. national security agencies aren’t going to allow Huawei and ZTE to deploy their equipment in America. Like ever. Quite frankly, if the choice was getting rid of all of China’s non-tariff barriers and allowing Huawei back into America, I think the U.S. negotiators would walk out.

So it was nice to learn (for me, not for her) that the head of finance of Huawei was arrested last night in Canada at the United States’ request. From my colleague Kate Clark:

Meng Wanzhou, the chief financial officer of Huawei, the world’s largest telecom equipment manufacturer and second-largest smartphone maker, has been arrested in Vancouver, Canada on suspicion she violated U.S. trade sanctions against Iran, as first reported by The Globe and Mail.

Huawei confirmed the news with TechCrunch, adding that Meng, the daughter of Huawei founder Ren Zhengfei, faces unspecified charges in the Eastern District of New York, where she had transferred flights on her way to Canada.

If you wanted to know how the Trump administration was going to continue to fight the trade war outside of tariffs, you now have your answer. This is a bold move by the administration, targeting not just one of China’s most prominent tech companies, but the daughter of the founder of the company to boot.

China has since demanded her return.

Here is how this is going to play out. China is preventing the two American children of Liu Changming from leaving the country, essentially holding them hostage until their father returns to the mainland to face a criminal justice process related to an alleged fraud case. America now has a prominent daughter of a major Chinese company executive in their hands. That’s some nice tit-for-tat.

For startup founders and tech executives migrating between the two countries, I don’t think one has to literally worry about exit visas or extradition.

But, I do think the travel security operations centers at companies that regularly have employees moving between these countries need to keep very keen and cautious eyes on these developments. It’s entirely possible that these one-off “soft hostages” could flare to much higher numbers, making it much more complicated to conduct cross-border work.

Quick Bites

SoftBank’s IPO raises a lot of dollars

KAZUHIRO NOGI/AFP/Getty Images

Takahiko Hyuga at Bloomberg reports that SoftBank has sold its entire book of shares for its whopping $23.5 billion IPO. The shares will officially price on Monday and then will trade on December 19. This is a critical and important win for Masayoshi Son, who needs the IPO of his telecom unit to deleverage some of the risk from SoftBank’s massive debt pile (and also to continue funding his startup dreams through Vision Fund, etc.)

SoftBank Vision Fund math, part 2

Arman and I talked yesterday about the complicated math behind just how many dollars are in SoftBank’s Vision Fund. More details, as Jason Rowley pointed out at Crunchbase News:

In an annual Form D disclosure filed with the Securities and Exchange Commission this morning, SBVF disclosed that it has raised a total of approximately $98.58 billion from 14 investors since the date of first sale on May 20, 2017. The annual filing from last year said there was roughly $93.15 billion raised from 8 investors, meaning that the Vision Fund has raised $5.43 billion in the past year and added six new investors to its limited partner base.

I said yesterday that the fund size should be “$97 billion or $96.7 billion with precision, assuming this $5 billion reaches a final close.” So let’s revise this number again to $99 billion or $98.6 billion with precision, since it seems the $5 billion did indeed close.

What’s next

I am still obsessing about next-gen semiconductors. If you have thoughts there, give me a ring: danny@techcrunch.com.

Thoughts on Articles

Hopefully more reading time tomorrow.

Reading docket

What I’m reading (or at least, trying to read)

  • Huge long list of articles on next-gen semiconductors. More to come shortly.

 


0

Australia rushes its ‘dangerous’ anti-encryption bill into parliament, despite massive opposition

14:39 | 5 December

Australia’s controversial anti-encryption bill is one step closer to becoming law, after the two leading but sparring party political giants struck a deal to pass the legislation.

The bill, in short, grants Australian police greater powers to issue “technical notices” — a nice way of forcing companies — even websites — operating in Australia to help the government hack, implant malware, undermine encryption or insert backdoors at the behest of the government.

If companies refuse, they could face financial penalties.

Lawmakers say that the law is only meant to target serious criminals — sex offenders, terrorists, homicide and drug offenses. Critics have pointed out that the law could allow mission creep into less serious offenses, such as copyright infringement, despite promises that compelled assistance requests are signed off by two senior government officials.

In all, the proposed provisions have been widely panned by experts, who argue that the bill is vague and contradictory, but powerful, and still contains “dangerous loopholes.” And, critics warn (as they have for years) that any technical backdoors that allow the government to access end-to-end encrypted messages could be exploited by hackers.

But that’s unlikely to get in the way of the bill’s near-inevitable passing.

Australia’s ruling coalition government and its opposition Labor party agreed to have the bill put before parliament this week before its summer break.

Several lawmakers look set to reject the bill, criticizing the government’s efforts to rush through the bill before the holiday.

“Far from being a ‘national security measure’ this bill will have the unintended consequence of diminishing the online safety, security and privacy of every single Australian,” said Jordon Steele-John, a Greens’ senator,

.

Tim Watts, a Labor member of Parliament for Gellibrand, tweeted

slamming the government’s push to get the legislation passed before Christmas, despite more than 15,000 submissions to a public consultation, largely decrying the bill’s content.

The tech community — arguably the most affected by the bill’s passing — has also slammed the bill. Apple called it “dangerously ambiguous”, while Cisco and Mozilla joined a chorus of other tech firms calling for the government to dial back the provisions.

But the rhetoric isn’t likely to dampen the rush by the global surveillance pact — the U.S., U.K., Canada, Australia and New Zealand, known as the so-called “Five Eyes” group of nations — to push for greater access to encrypted data. Only earlier this year, the governmental coalition said in no uncertain terms that it would force backdoors if companies weren’t willing to help their governments spy.

Australia’s likely to pass the bill — but when exactly remains a mystery. The coalition government has to call an election in less than six months, putting the anti-encryption law on a timer.

 


0

Investors still don’t understand the fundamentals of US/China relations

18:34 | 3 December

This weekend, Presidents Donald Trump and Xi Jinping agreed to something of a détente around American tariffs on Chinese goods. Stocks across Asia swooned, for reasons that make no sense to me. Plus, Bloomberg’s spy story redux and Berlin airport fun.

We are experimenting with new content forms at TechCrunch. This is a rough draft of something new – provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here.

Chinese stocks swoon over tariff slowdown – but why?

Trump and Xi agreed to delay the implementation of tariffs for 90 days while China offered to buy more American goods (particularly agricultural) as the two administrations try to hammer out a longer-term agreement.

In Asia, stocks rallied. Chinese stocks have been pummeled over the past few months as the trade dispute between the Chinese and the Americans crescendoed. Tencent, as one example, has lost about a third of its value from its peak back in January. ZTE has lost about half of its value on its Hong Kong ticker since the beginning of the year. It makes complete sense for these stocks to take a bit of a breather now that the tariffs are going to slow down.

Actually, no not really. Here’s the challenge: what exactly has changed? To me the market is deeply misjudging not only the Chinese economy, but also the American leadership as well.

Chinese stocks like Tencent have slid not because of tariffs, but because of new regulations from government agencies that have limited the launch of new video games in China. Video games is at the core of the company’s revenue mix, and new rules and controls on the industry has crushed its stock far more than a distant trade conflict.

It is clear that the Chinese government is going to continue tightening social and technological controls over the country, whether through the ballyhooed social credit system, VPN restrictions, or cloud infrastructure policies. These controls are predominantly about keeping the state in charge over social and economic affairs, although also have the key benefit of preventing American internet companies from entering the Chinese market.

In what world do these controls disappear? The White House said in its statement about the dinner that “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.” (Emphasis mine). I am sure they will discuss these issues, but I am just very, very skeptical that anything will change.

Meanwhile, ZTE stock is up almost 10% today on its Hong Kong ticker. But tariffs have never really been the challenge for the company, which faces tremendous scrutiny from American as well as Five Eyes countries around whether its telecommunications equipment is really just a spying front for Beijing. ZTE was nearly shut down this year due to American export bans (mostly as retaliation for industrial espionage). More recently, ZTE and Huawei have faced renewed prohibitions from entering markets like Australia and just this weekend, New Zealand.

In what world do these prohibitions disappear? The U.S. national security agencies aren’t going to allow Huawei and ZTE to deploy their equipment in America. Like ever. Quite frankly, if the choice was getting rid of all of China’s non-tariff barriers and allowing Huawei back into America, I think the U.S. negotiators would walk out.

And so the market misjudges all the fundamentals. Good to know we have become sophisticated on the most important economic relationship of the 21st century.

Bloomberg spy story keeps trundling along

WaPo media critic Erik Wemple reported this weekend that Bloomberg is still investigating its bombshell story on Chinese chip spying:

One person who spoke with [Bloomberg reporter Ben] Elgin told the Erik Wemple Blog that the Bloomberg reporter made clear that he wasn’t part of the reporting team that produced “The Big Hack.” The goal of this effort, Elgin told the potential source, was to get to “ground truth”; if Elgin heard from 10 or so sources that “The Big Hack” was itself a piece of hackery, he would send that message up his chain of command.

I think there are a couple of points worth hashing out here:

  1. I am still on the (very lonely) side that the original report was accurate. Bloomberg is a reputable news organization with very strict editorial controls. The story would have gone through extensive reviews from editors and lawyers to be published, particularly given that it graced the front cover of its magazine. It still hasn’t retracted the story, which tells me that the sources underpinning its original reporting — whether people or documents — are sufficiently credible to make the company denials from Apple, Elemental, and Amazon circumspect.
  2. That said, it’s smart for them to do an additional deep dive investigation with a separate team to try to understand what’s happening here. My hunch is that there is way more to this story than meets the eye.
  3. We should be careful not to take too much insight from outreach emails from journalists about their true intentions. Journalists rarely are direct in asking their key questions in an outreach email, particularly in sensitive investigation work.

This to me remains one of the most fascinating slow burn stories of the year. Can’t wait to see what ends up happening here.

Observations on Berlin prices and airports

Berlin cityscape. Photo by Reinhard Link used under Creative Commons via Flickr.

I was at TechCrunch Disrupt Berlin last week, which was my first time in the city. Berlin is trending among hipster circles, as well as Chinese dissidents. I can see why: great cultural institutions from high brow to street, cheap but great food, and reasonable cost of living all things considered.

Berlin’s airports are also something of a national disgrace. The city has two airport relics, and its third airport, Brandenburg, has been under construction for almost two decades and still hasn’t managed to open. Compare that to China, which will construct Beijing’s second airport in about five years and is slated to handle almost 72 million passengers by 2025.

But an unintentional side effect of having a world-class city connected to others through airports that make LaGuardia’s main terminal seem hospitable is that it really prevents the global moneyed class from reaching the city. As one American VC mentioned to me at dinner, Berlin “is just impossible” to get to, and he visits “rarely.” There are very few direct flights between American cities and Berlin, as most carriers fly through their alliance hub (Delta through SkyTeam’s Amsterdam hub, etc.)

I talk about “infrastructure” a lot particularly when it comes to startups and perhaps one of the most important lessons is that convenience matters. Whether it is a direct flight or a first check for a startup, those little conveniences add up very, very quickly. A little friction in the system can cause disproportionately large outcomes for a company and a region.

 


0

The economics and tradeoffs of ad-funded smart city tech

20:00 | 1 December

In order to have innovative smart city applications, cities first need to build out the connected infrastructure, which can be a costly, lengthy, and politicized process. Third-parties are helping build infrastructure at no cost to cities by paying for projects entirely through advertising placements on the new equipment. I try to dig into the economics of ad-funded smart city projects to better understand what types of infrastructure can be built under an ad-funded model, the benefits the strategy provides to cities, and the non-obvious costs cities have to consider.

Consider this an ongoing discussion about Urban Tech, its intersection with regulation, issues of public service, and other complexities that people have full PHDs on. I’m just a bitter, born-and-bred New Yorker trying to figure out why I’ve been stuck in between subway stops for the last 15 minutes, so please reach out with your take on any of these thoughts: @Arman.Tabatabai@techcrunch.com.

Using ads to fund smart city infrastructure at no cost to cities

When we talk about “Smart Cities”, we tend to focus on these long-term utopian visions of perfectly clean, efficient, IoT-connected cities that adjust to our environment, our movements, and our every desire. Anyone who spent hours waiting for transit the last time the weather turned south can tell you that we’ve got a long way to go.

But before cities can have the snazzy applications that do things like adjust infrastructure based on real-time conditions, cities first need to build out the platform and technology-base that applications can be built on, as McKinsey’s Global Institute explained in an in-depth report released earlier this summer. This means building out the network of sensors, connected devices and infrastructure needed to track city data. 

However, reaching the technological base needed for data gathering and smart communication means building out hard physical infrastructure, which can cost cities a ton and can take forever when dealing with politics and government processes.

Many cities are also dealing with well-documented infrastructure crises. And with limited budgets, local governments need to spend public funds on important things like roads, schools, healthcare and nonsensical sports stadiums which are pretty much never profitable for cities (I’m a huge fan of baseball but I’m not a fan of how we fund stadiums here in the states).

As city infrastructure has become increasingly tech-enabled and digitized, an interesting financing solution has opened up in which smart city infrastructure projects are built by third-parties at no cost to the city and are instead paid for entirely through digital advertising placed on the new infrastructure. 

I know – the idea of a city built on ad-revenue brings back soul-sucking Orwellian images of corporate overlords and logo-paved streets straight out of Blade Runner or Wall-E. Luckily for us, based on our discussions with developers of ad-funded smart city projects, it seems clear that the economics of an ad-funded model only really work for certain types of hard infrastructure with specific attributes – meaning we may be spared from fire hydrants brought to us by Mountain Dew.

While many factors influence the viability of a project, smart infrastructure projects seem to need two attributes in particular for an ad-funded model to make sense. First, the infrastructure has to be something that citizens will engage – and engage a lot – with. You can’t throw a screen onto any object and expect that people will interact with it for more than 3 seconds or that brands will be willing to pay to throw their taglines on it. The infrastructure has to support effective advertising.  

Second, the investment has to be cost-effective, meaning the infrastructure can only cost so much. A third-party that’s willing to build the infrastructure has to believe they have a realistic chance of generating enough ad-revenue to cover the costs of the projects, and likely an amount above that which could lead to a reasonable return. For example, it seems unlikely you’d find someone willing to build a new bridge, front all the costs, and try to fund it through ad-revenue.

When is ad-funding feasible? A case study on kiosks and LinkNYC

A LinkNYC kiosk enabling access to the internet in New York on Saturday, February 20, 2016. Over 7500 kiosks are to be installed replacing stand alone pay phone kiosks providing free wi-fi, internet access via a touch screen, phone charging and free phone calls. The system is to be supported by advertising running on the sides of the kiosks. ( Richard B. Levine) (Photo by Richard Levine/Corbis via Getty Images)

To get a better understanding of the types of smart city hardware that might actually make sense for an ad-funded model, we can look at the engagement levels and cost structures of smart kiosks, and in particular, the LinkNYC project. Smart kiosks – which provide free WiFi, connectivity and real-time services to citizens – have been leading examples of ad-funded smart city projects. Innovative companies like Intersection (developers of the LinkNYC project), SmartLink, IKE, Soofa, and others have been helping cities build out kiosk networks at little-to-no cost to local governments.

LinkNYC provides public access to much of its data on the New York City Open-Data website. Using some back-of-the-envelope math and a hefty number of assumptions, we can try to get to a very rough range of where cost and engagement metrics generally have to fall for an ad-funded model to make sense.

To try and retrace considerations for the developers’ investment decision, let’s first look at the terms of the deal signed with New York back in 2014. The agreement called for a 12-year franchise period, during which at least 7,500 Link kiosks would be deployed across the city in the first eight years at an expected project cost of more than $200 million. As part of its solicitation, the city also required the developers to pay the greater of either a minimum annual payment of at least $17.5 million or 50 percent of gross revenues.

Let’s start with the cost side – based on an estimated project cost of around $200 million for at least 7,500 Links, we can get to an estimated cost per unit of $25,000 – $30,000. It’s important to note that this only accounts for the install costs, as we don’t have data around the other cost buckets that the developers would also be on the hook for, such as maintenance, utility and financing costs.

Source: LinkNYC, NYC.gov, NYCOpenData

Turning to engagement and ad-revenue – let’s assume that the developers signed the deal with the expectations that they could at least breakeven – covering the install costs of the project and minimum payments to the city. And for simplicity, let’s assume that the 7,500 links were going to be deployed at a steady pace of 937-938 units per year (though in actuality the install cadence has been different). In order for the project to breakeven over the 12-year deal period, developers would have to believe each kiosk could generate around $6,400 in annual ad-revenue (undiscounted). 

Source: LinkNYC, NYC.gov, NYCOpenData

The reason the kiosks can generate this revenue (and in reality a lot more) is because they have significant engagement from users. There are currently around 1,750 Links currently deployed across New York. As of November 18th, LinkNYC had over 720,000 weekly subscribers or around 410 weekly subscribers per Link. The kiosks also saw an average of 18 million sessions per week, or 20-25 weekly sessions per subscriber, or around 10,200 weekly sessions per kiosk (seasonality might even make this estimate too low). 

And when citizens do use the kiosks, they use it for a long time! The average session for each Link unit was four minutes and six seconds. The level of engagement makes sense since city-dwellers use these kiosks in time or attention-intensive ways, such making phone calls, getting directions, finding information about the city, or charging their phones.   

The analysis here isn’t perfect, but now we at least have a (very) rough idea of how much smart kiosks cost, how much engagement they see, and the amount of ad-revenue developers would have to believe they could realize at each unit in order to ultimately move forward with deployment. We can use these metrics to help identify what types of infrastructure have similar profiles and where an ad-funded project may make sense.

Bus stations, for example, may cost about $10,000 – $15,000, which is in a similar cost range as smart kiosks. According to the MTA, the NYC bus system sees over 11.2 million riders per week or nearly 700 riders per station per week. Rider wait times can often be five-to-ten minutes in length if not longer. Not to mention bus stations already have experience utilizing advertising to a certain degree.  Projects like bike-share docking stations and EV charging stations also seem to fit similar cost profiles while having high engagement.

And interactions with these types of infrastructure are ones where users may be more receptive to ads, such as an EV charging station where someone is both physically engaging with the equipment and idly looking to kill up sometimes up to 30 minutes of time as they charge up. As a result, more companies are using advertising models to fund projects that fit this mold, like Volta, who uses advertising to offer charging stations free to citizens.

The benefits of ad-funding come with tradeoffs for cities

When it makes sense for cities and third-party developers, advertising-funded smart city infrastructure projects can unlock a tremendous amount of value for a city. The benefits are clear – cities pay nothing, citizens are offered free connectivity and real-time information on local conditions, and smart infrastructure is built and can possibly be used for other smart city applications down the road, such as using locational data tracking to improve city zoning and congestion. 

Yes, ads are usually annoying – but maybe understanding that advertising models only work for specific types of smart city projects may help quell fears that future cities will be covered inch-to-inch in mascots. And ads on projects like LinkNYC promote local businesses and can tap into idiosyncratic conditions and preferences of regional communities – LinkNYC previously used real-time local transit data to display beer ads to subway riders that were facing heavy delays and were probably in need of a drink. 

Like everyone’s family photos from Thanksgiving, the picture here is not all roses, however, and there are a lot of deep-rooted issues that exist under the surface. Third-party developed, advertising-funded infrastructure comes with externalities and less obvious costs that have been fairly criticized and debated at length. 

When infrastructure funding is derived from advertising, concerns arise over whether services will be provided equitably across communities. Many fear that low-income or less-trafficked communities that generate less advertising demand could end up having poor infrastructure and maintenance. 

Even bigger points of contention as of late have been issues around data consent and treatment. I won’t go into much detail on the issue since it’s incredibly complex and warrants its own lengthy dissertation (and many have already been written). 

But some of the major uncertainties and questions cities are trying to answer include: If third-parties pay for, manage and operate smart city projects, who should own data on citizens’ living behavior? How will citizens give consent to provide data when tracking systems are built into the environment around them? How can the data be used? How granular can the data get? How can we assure citizens’ information is secure, especially given the spotty track records some of the major backers of smart city projects have when it comes to keeping our data safe?

The issue of data treatment is one that no one has really figured out yet and many developers are doing their best to work with cities and users to find a reasonable solution. For example, LinkNYC is currently limited by the city in the types of data they can collect. Outside of email addresses, LinkNYC doesn’t ask for or collect personal information and doesn’t sell or share personal data without a court order. The project owners also make much of its collected data publicly accessible online and through annually published transparency reports. As Intersection has deployed similar smart kiosks across new cities, the company has been willing to work through slower launches and pilot programs to create more comfortable policies for local governments.

But consequential decisions related to third-party owned smart infrastructure are only going to become more frequent as cities become increasingly digitized and connected. By having third-parties pay for projects through advertising revenue or otherwise, city budgets can be focused on other vital public services while still building the efficient, adaptive and innovative infrastructure that can help solve some of the largest problems facing civil society. But if that means giving up full control of city infrastructure and information, cities and citizens have to consider whether the benefits are worth the tradeoffs that could come with them. There is a clear price to pay here, even when someone else is footing the bill.

And lastly, some reading while in transit:

 


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GCHQ’s not-so-smart idea to spy on encrypted messaging apps is branded ‘absolute madness’

14:22 | 30 November

Nobody wants to be a third wheel. Unless you’re a British spy.

Two of the most senior officials at British eavesdropping agency GCHQ say one way that law enforcement could access encrypted messages is to simply add themselves to your conversations.

“It’s relatively easy for a service provider to silently add a law enforcement participant to a group chat or call,” said Ian Levy, technical director of the U.K.’s National Cyber Security Center, and Crispin Robinson, cryptanalysis director at GCHQ, in an op-ed for Lawfare.

“The service provider usually controls the identity system and so really decides who’s who and which devices are involved — they’re usually involved in introducing the parties to a chat or call,” they said. “You end up with everything still being end-to-end encrypted, but there’s an extra ‘end’ on this particular communication.”

Law enforcement and intelligence agencies have long wanted access to encrypted communications, but have faced strong opposition to breaking the encryption for fears that it would put everyone’s communications at risk, rather than the terror suspects or criminals that the police primarily want to target. In this case, two people using an end-to-end encrypted messaging app would be joined by a third, invisible person — the government — which could listen in at will.

This solution, Levy and Robinson say, would be “no more intrusive than the virtual crocodile clips” that lawmakers have already authorized police to use to wiretap communications.

Presumably that would require compelled assistance from the tech companies that built the encrypted messaging apps in the first place, like Apple, Facebook’s WhatsApp, Signal, Wire and Wickr. That poses not only an ethical problem for the companies, which developed their own end-to-end encrypted services so that even they can’t access people’s communications, but also a technical one, which would require the government to ask a court to compel the companies to rework their own technologies to allow government spies in.

It wouldn’t be the first time the government’s pushed for compelled assistance.

Only recently that the U.S. government lost its bid to force Facebook to re-architect its Messenger app to allow the government to listen in on suspected gang members. And not just the U.S. or the U.K.. Russia, the west’s favorite frenemy, forced Telegram, another encrypted messaging app, to turn over its private keys in an effort to allow its intelligence agencies to snoop in on possible kompromat.

Suffice to say, the U.K.’s plan has drawn strong criticism.

The conversation on exceptional access is a non-starter until the pro- side actually can come up with schemes that work that would satisfy them… this is weak sauce: https://t.co/rYGBizvr9J

— Joseph Lorenzo Hall (@JoeBeOne)

This proposal for an encryption backdoor by Ian Levy and Crispin Robinson is deeply troubling. Among other concerns, it will severely undermine trust in the services that are subject to any such order – an equity the authors claim to prioritize. https://t.co/zovrsXJFm6

— Robyn Greene (@Robyn_Greene)

And NSA whistleblower Edward Snowden, an outspoken commentator and critic of global surveillance, branded the move “absolute madness.”

Absolute madness: the British government wants companies to poison their customers' private conversations by secretly adding the government as a third party, meaning anyone on your friend list would become "your friend plus a spy." No company-mediated identity could be trusted. https://t.co/8CwoZfBM3K

— Edward Snowden (@Snowden)

“No company-mediated identity could be trusted,” said Snowden, suggesting that the move would effectively render the trust in any end-to-end encrypted messaging app redundant.

Exactly what the U.K.’s solution looks like isn’t entirely clear, but Mustafa Al-Bassam, a PhD student at University College London, said that the ability for users to verify their keys — which proves the identity of a person in a conversation — in an end-to-end messaging app is “is going to be increasingly important” to prevent government manipulation.

WhatsApp and Signal, for example, tell you when a user’s key changes, indicating that a new device is in use — and requires verification — or that a device has been manipulated by a third-party and that the conversation isn’t secure.

“They’re proposing to exploit the fact that users don’t verify each other’s public keys, and inject bad keys,” said Al-Bassam.

 


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ACLU asks court to release a secret order forcing Facebook to wiretap Messenger

22:00 | 28 November

Earlier this year, the U.S. government tried to force Facebook to secretly recode its Messenger app to allow the feds to listen into an encrypted, real-time voice call on suspected members associated with the notorious MS-13 gang.

It was only when reporters revealed that when Facebook declined, the feds pushed the court to hold the company in contempt. The case collapsed, but details of the case remain under seal and out of the public eye.

Now, the ACLU wants to know how the feds tried to pull it off.

The rights and civil liberties group filed a motion in California on Wednesday to ask the judge to unseal the case to reveal exactly what the government asked that was enough to convince the court to demand Facebook dismantle Messenger’s encryption in the first place. The motion also wants to know what legal grounds the Justice Department had to compel Facebook to undermine the security in its own product — and for what reason the court pushed back.

Jennifer Granick, ACLU’s surveillance and cybersecurity counsel, said the public “deserves to know why the government thought it could dismantle measures that protect their right to privacy online.”

“The outcome of this legal dispute between Facebook and the Justice Department has the potential to affect the private communications of millions of Americans who use communication services such as Messenger, WhatsApp, Skype, and Microsoft Outlook,” she said.

It’s the latest in several attempts in recent years to compel a company to rework its products to help the government conduct surveillance. But because Facebook won its legal challenge in private, experts warn that other companies facing similar efforts to undermine their products will not be able to use Facebook’s legal precedent in their own defense.

“In a world constantly changing due to rapid advances in technology, the American legal system must keep pace,” said Kara Brandeisky and Kristin Mulvey, two law students at New York University’s School of Law, who helped write the motion. “That can’t happen if we don’t even know what the law says about our right to privacy and security.”

The ACLU’s motion was joined by the Electronic Frontier Foundation and Stanford’s Riana Pfefferkorn.

Facebook declined to comment. A spokesperson for the Justice Dept. also declined to comment.

 


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Justice Department indicts two Iranians over SamSam ransomware attacks

18:55 | 28 November

U.S. federal prosectors have indicted two Iranian nationals for creating and deploying the notorious SamSam ransomware.

Faramarz Shahi Savandi, 34, and Mohammad Mehdi Shah, 27, were indicted by a federal grand jury in New Jersey on Monday on hacking and fraud charges. The case was unsealed Wednesday, shortly before a press conference announcing the charges by U.S. deputy attorney general Rod Rosenstein.

“The Iranian defendants allegedly used hacking and malware to cause more than $30 million in losses to more than 200 victims,” said Rosenstein. “According to the indictment, the hackers infiltrated computer systems in ten states and Canada and then demanded payment. The criminal activity harmed state agencies, city governments, hospitals, and countless innocent victims.”

Among those victims included the City of Atlanta, which was knocked offline earlier this year, and projected to spent at least $2.6 million in recovery following a SamSam infection. It was later discovered that the city’s computers had long been vulnerable to leaked exploits developed by the National Security Agency — later stolen and leaked online for anyone to use.

Other victims included clinical lab testing giant LabCorp, and the Port of San Diego, attacked in late-September — which prosecutors said was the most recent attack.

Several city municipalities, hospitals and medical centers were also hit by the ransomware.

Prosecutors said that nearly every U.S. state had at least one victim — some, including most of the eastern seaboard, had more than six victims.

According to the indictment, Savandi and Mansouri created SamSam in late-2015 and refined it over the following two years. The two allegedly conducted reconnaissance to try to determine potential victims, and launched attacks outside business hours to maximize the damage by preventing mitigations.

Justice Dept. prosecutors say that the SamSam infections caused $30 million in losses and damages.

As Iranian nationals and residents, it’s unlikely that the two will ever face justice in the U.S., but the indictments serve as a “name and shame” effort employed by the Justice Dept. in recent years.

The indictments likely won’t result in extraditions or convictions, but does make it difficult for the alleged ransomware authors to travel freely — running the risk of being detained in a country that has an extradition policy with the U.S.

Savandi and Mansouri remain wanted by the FBI.

 


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China leaves Huawei founder off honor roll marking 40 years of economic success

10:37 | 28 November

In the lead up to China’s 40th anniversary of reforms and opening up, People’s Daily, the mouthpiece of the ruling Communist Party, published a list on Monday commending 100 extraordinary contributors to the country’s economic development.

Familiar names like Jack Ma of ecommerce operator Alibaba as well as Pony Ma of gaming and social networking firm Tencent made it to the short list, while one heavyweight was conspicuously missing: Ren Zhengfei, the 74-year-old founder and CEO of Chinese telecommunications behemoth Huawei.

While People’s Daily did not reveal the algorithms behind its nominating process, industry observers grappled with Ren’s absence and speculated why the father of the world’s largest telecom equipment manufacturer and second-largest smartphone maker was left off the rank.

One widely cited reason is the intentional coverup of Huawei’s alleged ties to the Chinese government in the backdrop of increasing US-China trade tensions. In August, US President Donal Trump signed a bill that would ban government agencies from using products and services from Huawei and its Chinese competitor ZTE over national security concerns.

Australia and New Zealand subsequently banned Huawei and ZTE as they joined a band of western countries that are increasingly wary of China’s influence around the world. In response, Huawei said it had never been asked to engage in intelligence work on behalf of any government.

As technology journalist Zheng Jun wrote on Weibo, Twitter’s Chinese equivalent, the attempt to “depoliticize” Huawei and “distance” it from the Chinese government may benefit the telecom giant.

Veteran media scholar Qian Gang echoed that view while suggesting an alternative explanation: perhaps the Chinese authority didn’t see Huawei’s achievement as being remarkable enough.

“Either [Ren] is in the unfortunate position of accepting his lot as one whose efforts do not constitute ‘outstanding achievement’ within the Party’s reform and opening pantheon (a political indignity), or he must eat the bitter fruit of concealment, tacitly accepting his compromisingly close links with the government,” Qian writes in an op-ed for the China Media Project.

Curiously, Ren was nominated by a similar list in October that commemorated China’s economic reforms, though the judges were different: the All-China Federation of Industry and Commerce, a non-governmental chamber of commerce; and the United Front Work Department, an organ tasked with spreading the Party’s influence at home and abroad.

That winning the Party paper’s honor list is on par with an affinity with the government is little more than speculative. But Chinese companies, private or state-owned, are linked to the government to various extents.

A raft of internet firms have instituted internal Party committees — up to 65 percent in Jack Ma’s native Zhejiang Province per a party paper — and the central authority is reportedly taking small stakes in industry leaders including Tencent and Alibaba, according to the Wall Street Journal.

Many have been taken aback by Jack Ma’s Communist Party affiliation, which the honor list mentioned. A Party school professor described the reaction as “a lack of knowledge” of the Party’s involvement in private businesses.

“Membership of the Party and corporate management are two unrelated things,” Su Wei, a professor at a Party School in the city of Chongqing, told Global Times, a paper under the People’s Daily. “The board of shareholders is in charge of decision-making and daily operations, while Party cells are set up to make sure the company’s operations are in line with the principles and policies of the CPC.”

For those who watch China closely, Ma’s political affiliation may come as no surprise as the fact came to light when Ma became the head of Zhejiang Merchants Association in 2015. It’s also worth noting that the bosses of Alibaba’s close competitors Pony Ma and Baidu’s Robin Li are non-Party members, the honor list shows.

 


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Facebook denies report that election war room was disbanded

01:57 | 27 November

Facebook’s election war room monitors and dashboards remain, since so does the threat of election interference. Facebook has confirmed to TechCrunch that its election war room that it paraded reporters through in October has not been disbanded and will be used again for future elections. That directly contradicts a report from Bloomberg today about the war room that claimed “it’s been disbanded”, citing confirmation from a Facebook spokesperson. That article has not received a formal correction or update despite the Facebook’s VP of product for election security

tweeting to Bloomberg’s Sarah Friar that “The war room was effective and we’re not disbanding it, we’re going to do more things like this.”

“Our war room effort is focused specifically on elections-related issues and is designed to rapidly respond to threats such as voter suppression efforts and civic-related misinformation. It was an effective effort during the recent U.S. and Brazil elections, and we are planning to expand the effort going forward for elections around the globe” a Facebook spokesperson tells TechCrunch. It seems there was a miscommunication between Facebook PR and Bloomberg.

Facebook created the war room at its Menlo Park HQ to monitor for election-related violations of its policies ahead of the Brazilian Presidential race and the US midterms. The room features screens visualizing the volume of foreign political content and voter suppressions efforts to a team of high-ranking teammates from Facebook as well as Instagram and WhatsApp. The goal was to speed up response times to sudden spikes in misinformation about candidates or how to vote to prevent the company from being caught flat-footed as it was in the 2016 presidential election when Russian agents pumped propaganda into the social network.

Facebook tells me that the way the war room works is that a few weeks before key elections, it’s staffed up. Interdisciplinary teams work through election day to identify and respond to threats. After an election concludes, staffers return to their teams where they continue 24/7 monitoring for policy-violating activity across the board. That’s because there’s typically much fewer voter suppression attempts and other surges of propaganda when elections are still many months or years away.

But when future key elections arise, the war room will buzz with activity again. The company plans to invest more in the effort since it succeeded in enhancing coordination between Facebook’s security teams. A spokesperson tells me that while the room might move locations to allow more space or be closer to a specific product group, the war room strategy remains.

The Verge sells an anti-Facebook t-shirt

“The war room will be operational ahead of major events, and it still stands. It was effective for our work in both the Brazil and US elections which is why it’s going to be expanded, not disbanded”

d. “Bottom line is the war room we built originally for the US midterms and for Brazil was effective. Going forward we’re expanding not disbanding the effort.”

Bloomberg had reported that “Facebook says [the war room] was never intended to be permanent, and the company is still assessing what is needed for future elections. The strategic response team is a more-permanent solution to crisis problems, a Facebook spokesperson said.” Rosen’s comment that “the headline is incorrect” referred to news aggregator Techmeme’s manually re-written headline “Facebook disbands its widely publicized “War Room”, says it wasn’t a permanent solution, touts Strategic Response Team as its way to handle future crises”, not Bloomberg’s headline “Facebook’s Sheryl Sandberg Is Tainted by Crisis After Crisis”.

The original Bloomberg story had caused such a stire because it came merely five weeks after Facebook had lured scores of reporters to “tour” the war room, shoot video, and report on it. The company was eager to impress on the public that it was taking election security seriously and fighting hard against misinformation. The PR campaign succeeded, with the “war room” name proving especially tantalizing. The words appeared in headlines from many outlets including TechCrunch.

The whole situation has made the Facebook press corps more cynical and skeptical about how the company tries to manipulate their coverage. The idea that Facebook might have just made the war room for show and since shut it down left many with a sour taste, even if that didn’t end up being true. That feeling was only fueled by the New York Times’ report about how Facebook had hired opposition research firm Definers, whose employees tried to seed stories with journalists that defamed the social network’s critics, and wrote their own biased takes for Definers-affiliated publication NTK Network.

It’s clear that Facebook’s relationship with the press remains contentious. Some believe Facebook sucked ad dollars away from news sites before dialing down its referral traffic to those sites, possibly leaving outlets with a grudge. The Verge currently sells an anti-Facebook t-shirt in its merchandise store, showing protestors toppling its logo like a dictator’s statue. But Facebook does plenty to deserve the tough criticism, from failing to protect the 2016 elections, to its ruthless PR strategies, to how it’s allowed polarizing and sensational content to flourish, to how its growth hacking seeks to devour our attention.

As long as the “days since the last Facebook scandal” counter keeps getting reset to zero, it will remain in the hot seat. The systemic change necessary to put society’s well-being above its own growth may take years of rehiring, training, and a fundamental rethinking of its engagement-seeking business model.

 


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