Google Discover begins to replace the iconic search box on mobile

It’s not broke, but Google is fixing it. As it announced last month, Google is rebranding Google Feed, its news landing page on Android and in the Google app, to be called Google Discover. Throwing minimalism out the window, Google Discover will replace the iconically spartan Google.com homepage on mobile.

Discover is rolling out now on Google.com across both iOS and Android devices. For Android users, Discover is already baked into the interface, accessible by swiping right from the home screen. Anyone using the Google app on iOS or Android will also be met with the Discover homepage, which should be familiar at this point. We’ve reached out to Google for more details on who will see Discover when.

For a company that at times struggles with filtering disinformation out of its search results, making Discover so prominent might not be a well-timed choice. The Discover results generally resurface stuff that a user has already expressed interest in, but those results are culled from a broad enough pool of sources that they don’t always feel relevant. Hopefully Google has enough sentient humans on its teams to avert future algorithmic catastrophe, though we’re not holding our breath for Google or any social platform on that count.

If you’re using Discover through the Google app, you can customize your feed further, adding topics to subscribe to, weather, commute info and more. If you’re a sports fan, the “teams” feature is genuinely useful. If Google’s vast collective knowledge of your predilections creeps you out (and it should) but you still like the Google app, you can disable “Web & App Activity” for a bit more peace of mind by following these instructions — just do them backward.


Source: Tech Crunch

Assessing IBM’s $34 billion Red Hat acquisition

As you look at the $34 billion IBM-Red Hat deal announced yesterday, if you follow the enterprise closely, it seems like a good move, at least on its face. It could be years before we understand the true value of it for IBM (or lack thereof, depending on how it ultimately goes). The questions stands then, is this a savvy move, a desperate one or perhaps a bit of both. It turns out, it depends on whom you ask.

For starters, there is the sheer amount of money involved, a 63 percent premium on Friday’s closing price of just under $117 a share. IBM spent $190 a share, but as Ray Wang, founder and chief analyst at Constellation Research said, Red Hat didn’t necessarily want to be sold, so IBM had to overpay to get their company.

Wang sees cloud, Linux and security as the big drivers on IBM’s part. “IBM is doubling down on the cloud, but they also are going for a grab in Linux for their largest and most important open source communities and some of the newer tech on Red Hat security,” he told TechCrunch. He acknowledges that it’s a huge premium for the stock, but he believes IBM needs the M&A action to drive down customer acquisition costs and drive up cross sell.

Photo: Ron Miller

IBM is placing a big bet here says Dharmesh Thakker, general partner at Battery Ventures, believing it to be worth 30x its current earnings in the next 12 months. “Needless to say, the hybrid cloud opportunity that we have been working on the last few years, is real and IBM/Cisco/HP/Dell all want a piece of this action going forward as the $300B in datacenter spend gets dislocated by public and hybrid cloud vendors,” Thakker explained in a statement.

He believes this deal could actually trigger a new set of mega mergers between the traditional tech vendors and cloud native, container and DevOps companies over the next few months.

IBM CEO Ginni Rometty was positively giddy at the prospects of a combined IBM-Red Hat in a call with analysts and press this morning, pointing out that only 20 percent of enterprise workloads have been moved to the cloud. She sees a big opportunity, one she projects to be worth $1 trillion by 2020. Keeping in mind you should take market projections with a grain of salt, this is undoubtedly a big market and one that Oracle and Microsoft have also targeted.

She said that Red Hat was a rare company indeed. “Red Hat on its own has been a high value company and has done a great job with strong growth, is highly profitable and generates cash. There are not many companies out there that look like that in this area,” Rometty said.

Slide: IBM

Dan Scholnick, general partner at Trinity Ventures, whose investments have included New Relic and Docker, was not terribly impressed with the deal, believing it smacked of desperation on IBM’s part.

“IBM is a declining business that somehow needs to become relevant in the cloud era. Red Hat is not the answer. Red Hat’s business centers around an operating system, which is a layer of the technology stack that has been completely commoditized by cloud. (If you use AWS, you can get Amazon’s OS for free, so why would you pay Red Hat?) Red Hat has NO story for cloud,” he claimed in a statement.

That might not be an entirely fair assessment. While Red Hat Enterprise Linux is a big part of the company’s revenue, it’s not the only piece. Over the last couple of years it has moved into Kubernetes and containerization and has grown the cloud native side of the business alongside RHEL.

In fact, Forrester analyst Dave Bartoletti sees the cloud native piece as being key here. “The combined company has a leading Kubernetes and container-based cloud-native development platform, and a much broader open source middleware and developer tools portfolio than either company separately. While any acquisition of this size will take time to play out, the combined company will be sure to reshape the open source and cloud platforms market for years to come,” he said.

Photo: IBM

Wang believes the deal could hinge on how long Red Hat CEO Jim Whitehurst, who had led the company for over a decade, stays with the unit. According to IBM, they will maintain the Red Hat brand and operate it as an independent entity inside Big Blue. “If Whitehurst doesn’t stick around for awhile, the deal could go south,” he said. But the company could dangle the CEO job when Rometty decides to leave as incentive to stay.

Regardless, Wall Street was not entirely happy with IBM’s move with their stock down all day. Needless to say the 63 percent premium IBM paid for the stock has driven Red Hat higher today.

The deal must pass shareholder muster, but given the premium IBM has offered, it’s hard to believe they would turn it down. In addition, since these companies operate across the world, they are subject to the global regulatory approval process. They won’t officially come together until at least the second half of next year at the soonest. That’s when we might begin to learn whether this was a brilliant or desperate move by IBM.


Source: Tech Crunch

Original Content podcast: There’s spooky fun in Netflix’s ‘Haunting of Hill House’

The new Netflix series “The Haunting of Hill House” is based on the classic Shirley Jackson novel of the same name, but fans will probably have a better time if they put the book out of their mind.

Yes, the show opens with the same famous passage that begins the novel, and show and book characters have some similarities. But what writer-director Mike Flanagan has really done is use Jackson’s sinister house as the setting for a new story, focused the Crain family — driven from the house by mysterious events back in 1992, and drawn back there due to present-day tragedy.

On this episode of the Original Content podcast, we’re joined (just in time for Halloween) by Devin Coldewey just in time to offer our initial impressions of the show. While we had some reservations (get ready for the most extensive discussion of fill lights that you’ll ever hear on this podcast), it’s clear that “The Haunting of Hill House” managed to scare the heck out of all of us, and we were also impressed by the fact that each of the five Crain children becomes a distinct, memorable character in their own right.

If that’s not enough to convince you, it’s also worth watching the show for all the hidden ghosts, and for the formal ambition of episode six, with its long, single-take scenes that span the past and the present.

In addition to our review, we discuss the release of “Red Dead Redemption 2” and the announcement that WarnerMedia will be shutting down its FilmStruck service for classic films.

You can listen in the player below, subscribe using Apple Podcasts or find us in your podcast player of choice. If you like the show, please let us know by leaving a review on Apple. You also can send us feedback directly. (Or suggest shows and movies for us to review!)


Source: Tech Crunch

IBM to buy Red Hat for $34B in cash and debt, taking a bigger leap into hybrid cloud

After rumours flew around this weekend, IBM today confirmed that it would acquire open source, cloud software business Red Hat for $190 per share in cash, working out to a total value of $34 billion. IBM said the deal has already been approved by the boards of directors of both IBM and Red Hat but is still subject to Red Hat shareholder and regulatory approvals. If all goes as planned, the acquisition is expected to close in the latter half of 2019.

The deal is all about IBM — which has long continued to rely on its legacy server business — taking a bigger bet on the cloud, and very specifically cloud services that blend on-premises and cloud-based architectures — something that the two companies have already been working on together since May of this year (which now might be looked at as a test drive). Red Hat will be a distinct unit within IBM’s Hybrid Cloud team — which is already a $19 billion business for IBM, the company said — and it will continue to focus on open-source software. 

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

The combined businesses will be able to offer software in services spanning Linux, containers, Kubernetes, multi-cloud management, and cloud management and automation, IBM said. IBM also added that together the companies will continue to build partnerships with multiple cloud providers, including AWS, Microsoft’s Azure, Google Cloud, Alibaba and others, alongside the IBM Cloud.

While companies like Amazon have gone all-in on cloud, in many cases, a lot of enterprises are making the move gradually — IBM cites stats that estimate that some 80 percent of business workloads “have yet to move to the cloud, held back by the proprietary nature of today’s cloud market.” Buying Red Hat will help IBM better tap into an opportunity to address that.

“Most companies today are only 20 percent along their cloud journey, renting compute power to cut costs,” she continued. “The next 80 percent is about unlocking real business value and driving growth. This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales.”

On top of that, it will give IBM a much stronger footing in open source software, the core of what Red Hat builds and deploys today.

“Open source is the default choice for modern IT solutions, and I’m incredibly proud of the role Red Hat has played in making that a reality in the enterprise,” said Jim Whitehurst, President and CEO, Red Hat, in a statement. “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience –  all while preserving our unique culture and unwavering commitment to open source innovation.”

While IBM competes against the likes of Amazon, the companies will see to remain partners with them with this acquisition. “IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds” said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud, in a statement. “In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world.”

IBM said that Red Hat will add to its revenue growth, gross margin and free cash flow within 12 months of closing.


Source: Tech Crunch

Translating startup-speak for the corporate buyer

Startups salivate at the prospect of entering the enterprise – and for good reason. The enterprise is rife with legacy systems and circuitous processes that frustrate employees and hinder results — and the startup has just the perfect product to fix the problem.

Too often though, the pitch to the enterprise falls flat or a promising pilot gets sidelined. Sometimes there’s a clear obstacle, like a mismatch between product and problem to be solved, an inability to scale, or the loss of an internal sponsor. But more often than one would expect, the startup’s value is simply getting lost in translation.

Even the most forward-looking enterprise leaders are operating in an environment what I like to call “GAAP-based digital strategy.” The budgeting process supports only certain kinds of purchases, like renewable software licensing fees and support contracts with fixed costs. New models, like variable costs for open source development, require workarounds and explanation in the budget process and cause even the most eager internal champion to lose time and energy.

So what’s a startup to do? The more you can help your internal sponsor translate the cost model to adhere to the established norm, the more traction they are likely to get from the hydra of procurement and finance. Once the project has momentum, your champion can work to change the budgeting process – but that’s a tall order before your pilot is launched and showing results.

The concept of GAAP-based digital strategy extends well beyond accounting practices. Consider internal reporting: large organizations spend an inordinate amount of time reporting up, across, and down in an effort to improve transparency and inspire shared ownership of outcomes. What are the KPIs for the department you are serving? How easily will your results translate into their storytelling? Spend some time up front with your client to ensure your results align with (and show up in!) the existing framework for reporting.

Corporations are aware of how hard it is to navigate these control systems, and so they are increasingly creating “innovation departments” with dedicated funding for one-off experiments using new technology. This is often the start of the relationship between a startup and a new client.

For startups, this can be a beneficial approach, since it offers the opportunity to deliver value before wrangling with cumbersome procurement or IT requirements. But too often these divisions lurch from pilot to pilot, and struggle to find line-of-business champions willing to absorb startup technology into their operations. The biggest challenge here is that there’s often no enterprise template for the handoff from the innovation setting – where experiments can operate in a “clean room” apart from procedures and regulations – to ongoing operations.

Here’s how one startup providing augmented reality headsets and software to a complex pharma manufacturing environment crossed over. Their pilot showed clear results: testing with four-five headsets, their AR software measurably helped workers on the floor by augmenting the workflow with voice recording and hands-free capabilities.

The startup team then came on-site, and they partnered with the workers testing the solution to document the improvements and discuss how to ensure the process complied with regulations. This direct interaction fed into their results reporting to make the case for the 30-40 headsets needed on the shop floor. Rather than wait for middle management, the startup developed a grassroots-fortified case for moving into operations.

Similarly, a startup piloting an analytics product in a CPG enterprise was immediately pigeonholed into the IT department’s analytics budget. Surrounded by a range of solutions from business intelligence dashboards to marketing technology tools, their pilot was getting lost.

By closely analyzing results, the startup saw promising early findings in the trade promotions area. They worked through their contacts to reach the executive in charge of trade promotions who took the pilot under her wing – and into her budget. They avoided being locked into a GAAP-based bucket (analytics), and were connected with an executive to unlock a whole different conversation.

In addition to finding your internal champion and changing the GAAP conversation, spend time understanding the larger enterprise backdrop: the initiatives and themes that are driving this quarter’s shareholder value. Help your client position the solution not only in the context of the specific problem to solve, but the overall enterprise goals.

The annual report is your friend here. The focus may be digital transformation or global collaboration or risk management, and aligning to this priority may enable your client to get buy-in internally. Make sure you are fluent in the visible, budgeted, CEO-led, cross departmental initiatives — and how your solution plays a role here.

Take heart: this translation won’t always be a one-way street. The deeper your engagement, the more your enterprise clients will benefit from your startup’s perspective, and change technology, process, and language to reflect that understanding. Ideally, GAAP-based digital strategy recedes as long-established protocols reduce structural lag with how business is conducted today. In the meantime, consider the art of translation as important as pitching the outcome.


Source: Tech Crunch

The tools, they are a-changing

Building web services and smartphone apps, which is most of what I’ve been doing professionally at HappyFunCorp1 for the last decade or so, used to be pretty straightforward. Not easy, but straightforward, especially when the client was a consumer startup, which so many of them were.

The more we did the better we got at it. Design and write two native apps, usually iOS first and Android second. Don’t skimp on the design. Connect them to a JSON API, usually written in Ruby on Rails, which also powered the web site. There’s always a web site; consumers might only see the side which is a minimal billboard for the app, but there’s essentially always also an admin site, to control features and aspects of the app.

Design isn’t as important for the admin site, so you can build that in something crude but effective like ActiveAdmin; why roll your own? Similarly, authentication is tricky and easy to get wrong, so use something like Devise, which comes with built-in hooks to Facebook and Twitter login. Design your database carefully. Use jQuery for dynamic in-browser manipulation since raw Javascript is such a nightmare. Argue about whether to use Rspec or Minitest for your server tests.

All there? OK, roll it out to your Heroku scaling environment, so you can simply “git push” to push to staging and production, with various levels of Postgres support, autoscaling, pipelines, Redis caching, Resque worker jobs, and so forth. If it’s a startup, keep them on Heroku to see if they catch on, if they find the fabled product-market fit, not least because it helps you iterate faster. If so, at some point you have to graduate them to AWS, because Heroku only scales so far and it does so very expensively. If not, well, “fail fast,” right?

Those were the days, my friends, those halcyon, long-gone days of (checks notes) five years ago. The days of a lot of grief, sure, but very little decision complexity. The smartphone boom was on, and the web boom was settling down, and everyone was still surfing those two tidal waves.

Today? Well, today we still are, neither of those waves have broken, per se, software is still eating the world, but things are … different. More of the world is being eaten, but it’s also happening more slowly, like growing 50% a year from a $1 billion base rather than 500% from $1 million. There are fewer starry-eyed founders with an app idea that they’re sure will change the world and funding enough to give it a shot. Those are still out there, sure, and more power to them, but the landscape is more complex, now.

Instead we see more big businesses, media and industrial and retail alike, realizing they must adapt and be devoured, experimenting with new tech projects with a combination of excitement and trepidation. Or requisitioning custom apps for very specific — but very useful — purposes, and requiring them to interface with their awkward pre-existing custom middleware just so. Or tech companies, even big household-name ones, outsourcing ancillary tools and projects in order to focus their in-house teams purely on their core competencies and business models. Our mix of clients has definitely shifted more towards enterprise in the last few years.

Which is not to say that startups don’t still come through our doors with bright ideas and inspiring PowerPoints on a fairly regular basis. As do super starry-eyed blockchain founders (granted, I’m sometimes a bit starry-eyed about blockchains myself) replacing the consumer-app founders of yore. I doubt we’re alone in having had a spate of blockchain startup projects late last year and early this, which has diminished to only a couple active at the moment. (Not least because the tooling is still so crude it reminds me of 90s command-line hacking.) But I strongly doubt that sphere is going away.

We haven’t dealt with as many AI projects as I would have expected by now, probably partly because AI talent is still so scarce and highly valued, and partly because it turns out a lot of seeming “AI” work can be done with simple linear regressions rather than by building and training and tuning deep-learning neural networks… although if you do those linear regressions with TensorFlow, it’s still “AI” buzzword-compliant, right? Right?

Most of all, though, the tools we use have changed. Nowadays when you want to build an app, you have to ask yourself: really native? (Java or Kotlin? Objective-C or Swift?) Or React Native? Or Xamarin? Or Google’s new Flutter thing? When you want to build a web site, you have to think: traditional? Or single-page, with React or Angular or Vue? As for the server — Go is a lot faster than Rails, you know, and oh, that elegant concurrency handling, but, oh, where is my map/filter/reduce? Javascript is still a clumsy language, but there are certain advantages to having one language across the stack, and Node is powerful and package-rich these days. And of course you’ll want it all containerized, because while Docker definitely adds another layer or two of configuration complexity, it’s usually worth it.

Unless you want to go fully “serverless,” at least for aspects, with Amazon Lambda or Google Firebase? Even if you don’t use Firebase for a datastore, how about for authentication, huh? And if you’re all containerized, and Kubernetized if/as appropriate, though maybe let’s not go the many-microservices route until you’re sure your product-market fit justifies it, then where do you want to roll it out, AWS or Azure or Google Cloud or Digital Ocean? Or do you want to use one of their PaaS services, like App Engine or Beanstalk, which, like Heroku, sorta kinda live between “serverless” and “bare metal virtual machines”?

I oversimplify, but you get my point. We’ve never had more options, as developers, more tools available to us … and we’ve never had to struggle more with analysis paralysis, because it’s awfully hard to determine which of the possible toolsets is the best one for any particular situation. Sometimes — often — we have to be happy with just selecting a good one. And that selection problem doesn’t look like it’s going to get easier anytime soon, I’m afraid. It’s a strange time to be a coder. We live and work all tangled up in an embarrassment of riches.


1Yes, that’s really our name. No, this TC column isn’t a full-time gig. (Which is something people frequently assume, because it’s so much more visible and to some people writing a column every week sounds like a lot of work, but no, I’m really a CTO.)


Source: Tech Crunch

Facial recognition startup Kairos founder continues to fight attempted takeover

There’s some turmoil brewing over at Miami-based facial recognition startup Kairos . Late last month, New World Angels President and Kairos board chairperson Steve O’Hara sent a letter to Kairos founder Brian Brackeen notifying him of his termination from the role of chief executive officer. The termination letter cited willful misconduct as the cause for Brackeen’s termination. Specifically, O’Hara said Brackeen misled shareholders and potential investors, misappropriated corporate funds, did not report to the board of directors and created a divisive atmosphere.

Kairos is trying to tackle the society-wide problem of discrimination in artificial intelligence. While that’s not the company’s explicit mission — it’s to provide authentication tools to businesses — algorithmic bias has long been a topic the company, especially Brackeen, has addressed.

Brackeen’s purported termination was followed by a lawsuit, on behalf of Kairos, against Brackeen, alleging theft, a breach of fiduciary duties — among other things. Brackeen, in an open letter sent a couple of days ago to shareholders — and one he shared with TechCrunch — about the “poorly constructed coup,” denies the allegations and details his side of the story. He hopes that the lawsuit will be dismissed and that he will officially be reinstated as CEO, he told TechCrunch. As it stands today, Melissa Doval who became CFO of Kairos in July, is acting as interim CEO.

“The Kairos team is amazing and resilient and has blown me away with their commitment to the brand,” Doval told TechCrunch. “I’m humbled by how everybody has just kind of stuck around in light of everything that has transpired.”

The lawsuit, filed on October 10 in Miami-Dade and spearheaded by Kairos COO Mary Wolff, alleges Brackeen “used his position as CEO and founder to further his own agenda of gaining personal notoriety, press, and a reputation in the global technology community” to the detriment of Kairos. The lawsuit describes how Brackeen spent less than 30 percent of his time in the company’s headquarters, “even though the Company was struggling financially.”

Other allegations detail how Brackeen used the company credit card to pay for personal expenses and had the company pay for a car he bought for his then-girlfriend. Kairos alleges Brackeen owes the company at least $60,000.

In his open letter, Brackeen says, “Steve, Melissa and Mary, as cause for my termination and their lawsuit against me, have accused me of stealing 60k from Kairos, comprised of non-work related travel, non-work related expenses, a laptop, and a beach club membership,” Brackeen wrote in a letter to shareholders. “Let’s talk about this. While I immediately found these accusations absurd, I had to consider that, to people on the outside of  ‘startup founder’ life— their claims could appear to be salacious, if not illegal.”

Brackeen goes on to say that none of the listed expenses — ranging from trips, meals, rides to iTunes purchases — were not “directly correlated to the business of selling Kairos to customers and investors, and growing Kairos to exit,” he wrote in the open letter. Though, he does note that there may be between $3,500 to $4,500 worth of charges that falls into a “grey area.”

“Conversely, I’ve personally invested, donated, or simply didn’t pay myself in order to make payroll for the rest of the team, to the tune of over $325,000 dollars,” he wrote. “That’s real money from my accounts.”

Regarding forcing Kairos to pay for his then-girlfriend’s car payments, Brackeen explains:

On my making Kairos ‘liable to make my girlfriend’s car payment’— in order to offset the cost of Uber rides to and from work, to meetings, the airport, etc, I determined it would be more cost effective to lease a car. Unfortunately, after having completely extended my personal credit to start and keep Kairos operating, it was necessary that the bank note on the car be obtained through her credit. The board approved the $700 per month per diem arrangement, which ended when I stopped driving the vehicle. Like their entire case— its not very sensational, when truthfully explained.

The company also claims Brackeen has interfered with the company and its affairs since his termination. Throughout his open letter, Brackeen refers to this as an “attempted termination” because, as advised by his lawyers, he has not been legally terminated. He also explains how, in the days leading up to his ouster, Brackeen was seeking to raise additional funding because in August, “we found ourselves in the position of running low on capital.” While he was presenting to potential investors in Singapore, Brackeen said that’s “when access to my email and documents was cut.”

He added, “I traveled to the other side of the world to work with my team on IP development and meet with the people who would commit to millions in investment— and was fired via voicemail the day after I returned.”

Despite the “termination” and lawsuit, O’Hara told TechCrunch via email that “in the interest of peaceful coexistence, we are open to reaching an agreement to allow Brian to remain part of the family as Founder, but not as CEO and with very limited responsibilities and no line authority.”

O’Hara also noted the company’s financials showed there was $44,000 in cash remaining at the end of September. He added, “Then reconcile it with the fact that Brian raised $6MM in 2018 and ask yourself, how does a company go through that kind of money in under 9 months.”

Within the next twelve days, there will be a shareholder vote to remove the board, as well as a vote to reinstate Brackeen as CEO, he told me. After that, Brackeen said he intends to countersue Doval, O’Hara and Wolff.

In addition to New World Angels, Kairos counts Kapor Capital, Backstage Capital and others as investors. At least one investor, Arlan Hamilton of Backstage Capital, has publicly come out in support of Brackeen.

As previously mentioned, Brackeen has been pretty outspoken about the ethical concerns of facial recognition technologies. In the case of law enforcement, no matter how accurate and unbiased these algorithms are, facial recognition software has no business in law enforcement, Brackeen said at TechCrunch Disrupt in early September. That’s because of the potential for unlawful, excessive surveillance of citizens.

Given the government already has our passport photos and identification photos, “they could put a camera on Main Street and know every single person driving by,” Brackeen said.

And that’s a real possibility. In the last couple of months, Brackeen said Kairos turned down a government request from Homeland Security, seeking facial recognition software for people behind moving cars.

“For us, that’s completely unacceptable,” Brackeen said.

Whether that’s entirely unacceptable for Doval, the interim CEO of Kairos, is not clear. In an interview with TechCrunch, Doval said, “we’re committed to being a responsible and ethical vendor” and that “we’re going to continue to champion the elimination of algorithmic bias in artificial intelligence.” While that’s not a horrific thing to say, it’s much vaguer than saying, “No, we will not ever sell to law enforcement.”

Selling to law enforcement could be lucrative, but that comes with ethical risks and concerns. But if the company is struggling financially, maybe the pros could outweigh the cons.


Source: Tech Crunch

The SaaS VC gap: China & other markets trail the US

Chinese startups rule the roost when it comes to total reported venture dollars raised so far in 2018. That is, mostly. In one key category at least — software-as-a-service, better known as SaaS — they do not.

Ant Financial raised the largest-ever VC round in June, a mind-boggling $14 billion in Series C funding. And nearly a dozen privately held Chinese companies, including SenseTimeDu Xiaoman FinancialJD Finance and ELEME, raised $1 billion (yes, with a “b”) or more in single venture rounds thus far in 2018.

But if there’s one thing to note from that shortlist of 2018’s largest China venture rounds, it’s this: almost all of them involve consumer apps and services. Despite being one of the largest economies in the world and currently holding the top spot in the national venture dollar ranks, China doesn’t seem to have too much in the way of enterprise-focused software funding.

But why trust your gut when the trend is borne out in the numbers? In the chart below, we show the top five global markets for SaaS investment (plus the rest of the world). We compare each market’s share of SaaS-earmarked funding against their share of total venture dollars raised in 2018 so far.

As of mid-October (when we pulled the data for the above chart), Chinese companies accounted for about 39.3 percent of venture funding raised in 2018. Compare that to 38.4 percent for U.S.-based companies, overall. In this respect, the venture markets in the U.S. and China are running neck-and-neck.

Yet for SaaS funding, the China-U.S. gap is about as wide as the Pacific Ocean. The U.S. — top ranked by this measure — accounted for approximately 70.1 percent of known SaaS startup funding. China, by contrast, accounted for just 11.7 percent. No even matchup here. It’s not even close.

This asymmetry goes beyond just aggregate dollar figures. The contrast is starker when we use a slightly more exotic measure for the market.

One of our favorite (if somewhat arbitrary) metrics at Crunchbase News is the count of supergiant venture rounds. These VC deals weigh in at $100 million or more, and they’re reshaping both sides of the venture market for founders and funders alike.

Whereas the United States played host to at least 15 supergiant SaaS VC rounds so far this year, just four rounds raised by three different Chinese SaaS companies crossed the nine-figure mark:

Keep in mind that, in general, U.S. and Chinese markets are fairly even in their output of supergiant venture rounds. However, that’s not the case when we look specifically at SaaS rounds, where the counts and dollar volumes involved are so different.

These disparities suggest a structural difference, not just between the U.S. and Chinese markets, but between the U.S. and the rest of the world when it comes to building and backing SaaS businesses.

At this point it’s unclear, apart from funding metrics, what differentiates the U.S. SaaS market from the rest of the world’s. What conditions exist in this market that don’t exist elsewhere? And are those conditions replicable in a local market with a still-nascent SaaS ecosystem? These are questions meriting a follow-up. Even though its cause might be unclear, for now, it’s nonetheless important to mind the gap. 🚇


Source: Tech Crunch

Big tech must not reframe digital ethics in its image

Facebook founder Mark Zuckerberg’s visage loomed large over the European parliament this week, both literally and figuratively, as global privacy regulators gathered in Brussels to interrogate the human impacts of technologies that derive their power and persuasiveness from our data.

The eponymous social network has been at the center of a privacy storm this year. And every fresh Facebook content concern — be it about discrimination or hate speech or cultural insensitivity — adds to a damaging flood.

The overarching discussion topic at the privacy and data protection confab, both in the public sessions and behind closed doors, was ethics: How to ensure engineers, technologists and companies operate with a sense of civic duty and build products that serve the good of humanity.

So, in other words, how to ensure people’s information is used ethically — not just in compliance with the law. Fundamental rights are increasingly seen by European regulators as a floor not the ceiling. Ethics are needed to fill the gaps where new uses of data keep pushing in.

As the EU’s data protection supervisor, Giovanni Buttarelli, told delegates at the start of the public portion of the International Conference of Data Protection and Privacy Commissioners: “Not everything that is legally compliant and technically feasible is morally sustainable.”

As if on cue Zuckerberg kicked off a pre-recorded video message to the conference with another apology. Albeit this was only for not being there to give an address in person. Which is not the kind of regret many in the room are now looking for, as fresh data breaches and privacy incursions keep being stacked on top of Facebook’s Cambridge Analytica data misuse scandal like an unpalatable layer cake that never stops being baked.

Evidence of a radical shift of mindset is what champions of civic tech are looking for — from Facebook in particular and adtech in general.

But there was no sign of that in Zuckerberg’s potted spiel. Rather he displayed the kind of masterfully slick PR manoeuvering that’s associated with politicians on the campaign trail. It’s the natural patter for certain big tech CEOs too, these days, in a sign of our sociotechnical political times.

(See also: Facebook hiring ex-UK deputy PM, Nick Clegg, to further expand its contacts database of European lawmakers.)

And so the Facebook founder seized on the conference’s discussion topic of big data ethics and tried to zoom right back out again. Backing away from talk of tangible harms and damaging platform defaults — aka the actual conversational substance of the conference (from talk of how dating apps are impacting how much sex people have and with whom they’re doing it; to shiny new biometric identity systems that have rebooted discriminatory caste systems) — to push the idea of a need to “strike a balance between speech, security, privacy and safety”.

This was Facebook trying reframe the idea of digital ethics — to make it so very big-picture-y that it could embrace his people-tracking ad-funded business model as a fuzzily wide public good, with a sort of ‘oh go on then’ shrug.

“Every day people around the world use our services to speak up for things they believe in. More than 80 million small businesses use our services, supporting millions of jobs and creating a lot of opportunity,” said Zuckerberg, arguing for a ‘both sides’ view of digital ethics. “We believe we have an ethical responsibility to support these positive uses too.”

Indeed, he went further, saying Facebook believes it has an “ethical obligation to protect good uses of technology”.

And from that self-serving perspective almost anything becomes possible — as if Facebook is arguing that breaking data protection law might really be the ‘ethical’ thing to do. (Or, as the existentialists might put it: ‘If god is dead, then everything is permitted’.)

It’s an argument that radically elides some very bad things, though. And glosses over problems that are systemic to Facebook’s ad platform.

A little later, Google’s CEO Sundar Pichai also dropped into the conference in video form, bringing much the same message.

“The conversation about ethics is important. And we are happy to be a part of it,” he began, before an instant hard pivot into referencing Google’s founding mission of “organizing the world’s information — for everyone” (emphasis his), before segwaying — via “knowledge is empowering” — to asserting that “a society with more information is better off than one with less”.

Is having access to more information of unknown and dubious or even malicious provenance better than having access to some verified information? Google seems to think so.

SAN FRANCISCO, CA – OCTOBER 04: Pichai Sundararajan, known as Sundar Pichai, CEO of Google Inc. speaks during an event to introduce Google Pixel phone and other Google products on October 4, 2016 in San Francisco, California. The Google Pixel is intended to challenge the Apple iPhone in the premium smartphone category. (Photo by Ramin Talaie/Getty Images)

The pre-recorded Pichai didn’t have to concern himself with all the mental ellipses bubbling up in the thoughts of the privacy and rights experts in the room.

“Today that mission still applies to everything we do at Google,” his digital image droned on, without mentioning what Google is thinking of doing in China. “It’s clear that technology can be a positive force in our lives. It has the potential to give us back time and extend opportunity to people all over the world.

“But it’s equally clear that we need to be responsible in how we use technology. We want to make sound choices and build products that benefit society that’s why earlier this year we worked with our employees to develop a set of AI principles that clearly state what types of technology applications we will pursue.”

Of course it sounds fine. Yet Pichai made no mention of the staff who’ve actually left Google because of ethical misgivings. Nor the employees still there and still protesting its ‘ethical’ choices.

It’s not almost as if the Internet’s adtech duopoly is singing from the same ‘ads for greater good trumping the bad’ hymn sheet; the Internet’s adtech’s duopoly is doing exactly that.

The ‘we’re not perfect and have lots more to learn’ line that also came from both CEOs seems mostly intended to manage regulatory expectation vis-a-vis data protection — and indeed on the wider ethics front.

They’re not promising to do no harm. Nor to always protect people’s data. They’re literally saying they can’t promise that. Ouch.

Meanwhile, another common FaceGoog message — an intent to introduce ‘more granular user controls’ — just means they’re piling even more responsibility onto individuals to proactively check (and keep checking) that their information is not being horribly abused.

This is a burden neither company can speak to in any other fashion. Because the solution is that their platforms not hoard people’s data in the first place.

The other ginormous elephant in the room is big tech’s massive size; which is itself skewing the market and far more besides.

Neither Zuckerberg nor Pichai directly addressed the notion of overly powerful platforms themselves causing structural societal harms, such as by eroding the civically minded institutions that are essential to defend free societies and indeed uphold the rule of law.

Of course it’s an awkward conversation topic for tech giants if vital institutions and societal norms are being undermined because of your cut-throat profiteering on the unregulated cyber seas.

A great tech fix to avoid answering awkward questions is to send a video message in your CEO’s stead. And/or a few minions. Facebook VP and chief privacy officer, Erin Egan, and Google’s SVP of global affairs Kent Walker, were duly dispatched and gave speeches in person.

They also had a handful of audience questions put to them by an on stage moderator. So it fell to Walker, not Pichai, to speak to Google’s contradictory involvement in China in light of its foundational claim to be a champion of the free flow of information.

“We absolutely believe in the maximum amount of information available to people around the world,” Walker said on that topic, after being allowed to intone on Google’s goodness for almost half an hour. “We have said that we are exploring the possibility of ways of engaging in China to see if there are ways to follow that mission while complying with laws in China.

“That’s an exploratory project — and we are not in a position at this point to have an answer to the question yet. But we continue to work.”

Egan, meanwhile, batted away her trio of audience concerns — about Facebook’s lack of privacy by design/default; and how the company could ever address ethical concerns without dramatically changing its business model — by saying it has a new privacy and data use team sitting horizontally across the business, as well as a data protection officer (an oversight role mandated by the EU’s GDPR; into which Facebook plugged its former global deputy chief privacy officer, Stephen Deadman, earlier this year).

She also said the company continues to invest in AI for content moderation purposes. So, essentially, more trust us. And trust our tech.

She also replied in the affirmative when asked whether Facebook will “unequivocally” support a strong federal privacy law in the US — with protections “equivalent” to those in Europe’s data protection framework.

But of course Zuckerberg has said much the same thing before — while simultaneously advocating for weaker privacy standards domestically. So who now really wants to take Facebook at its word on that? Or indeed on anything of human substance.

Not the EU parliament, for one. MEPs sitting in the parliament’s other building, in Strasbourg, this week adopted a resolution calling for Facebook to agree to an external audit by regional oversight bodies.

But of course Facebook prefers to run its own audit. And in a response statement the company claims it’s “working relentlessly to ensure the transparency, safety and security” of people who use its service (so bad luck if you’re one of those non-users it also tracks then). Which is a very long-winded way of saying ‘no, we’re not going to voluntarily let the inspectors in’.

Facebook’s problem now is that trust, once burnt, takes years and mountains’ worth of effort to restore.

This is the flip side of ‘move fast and break things’. (Indeed, one of the conference panels was entitled ‘move fast and fix things’.) It’s also the hard-to-shift legacy of an unapologetically blind ~decade-long dash for growth regardless of societal cost.

Given the, it looks unlikely that Zuckerberg’s attempt to paint a portrait of digital ethics in his company’s image will do much to restore trust in Facebook.

Not so long as the platform retains the power to cause damage at scale.

It was left to everyone else at the conference to discuss the hollowing out of democratic institutions, societal norms, humans interactions and so on — as a consequence of data (and market capital) being concentrated in the hands of the ridiculously powerful few.

“Today we face the gravest threat to our democracy, to our individual liberty in Europe since the war and the United States perhaps since the civil war,” said Barry Lynn, a former journalist and senior fellow at the Google-backed New America Foundation think tank in Washington, D.C., where he had directed the Open Markets Program — until it was shut down after he wrote critically about, er, Google.

“This threat is the consolidation of power — mainly by Google, Facebook and Amazon — over how we speak to one another, over how we do business with one another.”

Meanwhile the original architect of the World Wide Web, Tim Berners-Lee, who has been warning about the crushing impact of platform power for years now is working on trying to decentralize the net’s data hoarders via new technologies intended to give users greater agency over their data.

On the democratic damage front, Lynn pointed to how news media is being hobbled by an adtech duopoly now sucking hundreds of billion of ad dollars out of the market annually — by renting out what he dubbed their “manipulation machines”.

Not only do they sell access to these ad targeting tools to mainstream advertisers — to sell the usual products, like soap and diapers — they’re also, he pointed out, taking dollars from “autocrats and would be autocrats and other social disruptors to spread propaganda and fake news to a variety of ends, none of them good”.

The platforms’ unhealthy market power is the result of a theft of people’s attention, argued Lynn. “We cannot have democracy if we don’t have a free and robustly funded press,” he warned.

His solution to the society-deforming might of platform power? Not a newfangled decentralization tech but something much older: Market restructuring via competition law.

“The basic problem is how we structure or how we have failed to structure markets in the last generation. How we have licensed or failed to license monopoly corporations to behave.

“In this case what we see here is this great mass of data. The problem is the combination of this great mass of data with monopoly power in the form of control over essential pathways to the market combined with a license to discriminate in the pricing and terms of service. That is the problem.”

“The result is to centralize,” he continued. “To pick and choose winners and losers. In other words the power to reward those who heed the will of the master, and to punish those who defy or question the master — in the hands of Google, Facebook and Amazon… That is destroying the rule of law in our society and is replacing rule of law with rule by power.”

For an example of an entity that’s currently being punished by Facebook’s grip on the social digital sphere you need look no further than Snapchat.

Also on the stage in person: Apple’s CEO Tim Cook, who didn’t mince his words either — attacking what he dubbed a “data industrial complex” which he said is “weaponizing” people’s person data against them for private profit.

The adtech modeus operandi sums to “surveillance”, Cook asserted.

Cook called this a “crisis”, painting a picture of technologies being applied in an ethics-free vacuum to “magnify our worst human tendencies… deepen divisions, incite violence and even undermine our shared sense of what is true and what is false” — by “taking advantage of user trust”.

“This crisis is real… And those of us who believe in technology’s potential for good must not shrink from this moment,” he warned, telling the assembled regulators that Apple is aligned with their civic mission.

Of course Cook’s position also aligns with Apple’s hardware-dominated business model — in which the company makes most of its money by selling premium priced, robustly encrypted devices, rather than monopolizing people’s attention to sell their eyeballs to advertisers.

The growing public and political alarm over how big data platforms stoke addiction and exploit people’s trust and information — and the idea that an overarching framework of not just laws but digital ethics might be needed to control this stuff — dovetails neatly with the alternative track that Apple has been pounding for years.

So for Cupertino it’s easy to argue that the ‘collect it all’ approach of data-hungry platforms is both lazy thinking and irresponsible engineering, as Cook did this week.

“For artificial intelligence to be truly smart it must respect human values — including privacy,” he said. “If we get this wrong, the dangers are profound. We can achieve both great artificial intelligence and great privacy standards. It is not only a possibility — it is a responsibility.”

Yet Apple is not only a hardware business. In recent years the company has been expanding and growing its services business. It even involves itself in (a degree of) digital advertising. And it does business in China.

It is, after all, still a for-profit business — not a human rights regulator. So we shouldn’t be looking to Apple to spec out a digital ethical framework for us, either.

No profit making entity should be used as the model for where the ethical line should lie.

Apple sets a far higher standard than other tech giants, certainly, even as its grip on the market is far more partial because it doesn’t give its stuff away for free. But it’s hardly perfect where privacy is concerned.

One inconvenient example for Apple is that it takes money from Google to make the company’s search engine the default for iOS users — even as it offers iOS users a choice of alternatives (if they go looking to switch) which includes pro-privacy search engine DuckDuckGo.

DDG is a veritable minnow vs Google, and Apple builds products for the consumer mainstream, so it is supporting privacy by putting a niche search engine alongside a behemoth like Google — as one of just four choices it offers.

But defaults are hugely powerful. So Google search being the iOS default means most of Apple’s mobile users will have their queries fed straight into Google’s surveillance database, even as Apple works hard to keep its own servers clear of user data by not collecting their stuff in the first place.

There is a contradiction there. So there is a risk for Apple in amping up its rhetoric against a “data industrial complex” — and making its naturally pro-privacy preference sound like a conviction principle — because it invites people to dial up critical lenses and point out where its defence of personal data against manipulation and exploitation does not live up to its own rhetoric.

One thing is clear: In the current data-based ecosystem all players are conflicted and compromised.

Though only a handful of tech giants have built unchallengeably massive tracking empires via the systematic exploitation of other people’s data.

And as the apparatus of their power gets exposed, these attention-hogging adtech giants are making a dumb show of papering over the myriad ways their platforms pound on people and societies — offering paper-thin promises to ‘do better next time — when ‘better’ is not even close to being enough.

Call for collective action

Increasingly powerful data-mining technologies must be sensitive to human rights and human impacts, that much is crystal clear. Nor is it enough to be reactive to problems after or even at the moment they arise. No engineer or system designer should feel it’s their job to manipulate and trick their fellow humans.

Dark pattern designs should be repurposed into a guidebook of what not to do and how not to transact online. (If you want a mission statement for thinking about this it really is simple: Just don’t be a dick.)

Sociotechnical Internet technologies must always be designed with people and societies in mind — a key point that was hammered home in a keynote by Berners-Lee, the inventor of the World Wide Web, and the tech guy now trying to defang the Internet’s occupying corporate forces via decentralization.

“As we’re designing the system, we’re designing society,” he told the conference. “Ethical rules that we choose to put in that design [impact society]… Nothing is self evident. Everything has to be put out there as something that we think we will be a good idea as a component of our society.”

The penny looks to be dropping for privacy watchdogs in Europe. The idea that assessing fairness — not just legal compliance — must be a key component of their thinking, going forward, and so the direction of regulatory travel.

Watchdogs like the UK’s ICO — which just fined Facebook the maximum possible penalty for the Cambridge Analytica scandal — said so this week. “You have to do your homework as a company to think about fairness,” said Elizabeth Denham, when asked ‘who decides what’s fair’ in a data ethics context. “At the end of the day if you are working, providing services in Europe then the regulator’s going to have something to say about fairness — which we have in some cases.”

“Right now, we’re working with some Oxford academics on transparency and algorithmic decision making. We’re also working on our own tool as a regulator on how we are going to audit algorithms,” she added. “I think in Europe we’re leading the way — and I realize that’s not the legal requirement in the rest of the world but I believe that more and more companies are going to look to the high standard that is now in place with the GDPR.

“The answer to the question is ‘is this fair?’ It may be legal — but is this fair?”

So the short version is data controllers need to prepare themselves to consult widely — and examine their consciences closely.

Rising automation and AI makes ethical design choices even more imperative, as technologies become increasingly complex and intertwined, thanks to the massive amounts of data being captured, processed and used to model all sorts of human facets and functions.

The closed session of the conference produced a declaration on ethics and data in artificial intelligence — setting out a list of guiding principles to act as “core values to preserve human rights” in the developing AI era — which included concepts like fairness and responsible design.

Few would argue that a powerful AI-based technology such as facial recognition isn’t inherently in tension with a fundamental human right like privacy.

Nor that such powerful technologies aren’t at huge risk of being misused and abused to discriminate and/or suppress rights at vast and terrifying scale. (See, for example, China’s push to install a social credit system.)

Biometric ID systems might start out with claims of the very best intentions — only to shift function and impact later. The dangers to human rights of function creep on this front are very real indeed. And are already being felt in places like India — where the country’s Aadhaar biometric ID system has been accused of rebooting ancient prejudices by promoting a digital caste system, as the conference also heard.

The consensus from the event is it’s not only possible but vital to engineer ethics into system design from the start whenever you’re doing things with other people’s data. And that routes to market must be found that don’t require dispensing with a moral compass to get there.

The notion of data-processing platforms becoming information fiduciaries — i.e. having a legal duty of care towards their users, as a doctor or lawyer does — was floated several times during public discussions. Though such a step would likely require more legislation, not just adequately rigorous self examination.

In the meanwhile civic society must get to grips, and grapple proactively, with technologies like AI so that people and societies can come to collective agreement about a digital ethics framework. This is vital work to defend the things that matter to communities so that the anthropogenic platforms Berners-Lee referenced are shaped by collective human values, not the other way around.

It’s also essential that public debate about digital ethics does not get hijacked by corporate self interest.

Tech giants are not only inherently conflicted on the topic but — right across the board — they lack the internal diversity to offer a broad enough perspective.

People and civic society must teach them.

A vital closing contribution came from the French data watchdog’s Isabelle Falque-Pierrotin, who summed up discussions that had taken place behind closed doors as the community of global data protection commissioners met to plot next steps.

She explained that members had adopted a roadmap for the future of the conference to evolve beyond a mere talking shop and take on a more visible, open governance structure — to allow it to be a vehicle for collective, international decision-making on ethical standards, and so alight on and adopt common positions and principles that can push tech in a human direction.

The initial declaration document on ethics and AI is intended to be just the start, she said — warning that “if we can’t act we will not be able to collectively control our future”, and couching ethics as “no longer an option, it is an obligation”.

She also said it’s essential that regulators get with the program and enforce current privacy laws — to “pave the way towards a digital ethics” — echoing calls from many speakers at the event for regulators to get on with the job of enforcement.

This is vital work to defend values and rights against the overreach of the digital here and now.

“Without ethics, without an adequate enforcement of our values and rules our societal models are at risk,” Falque-Pierrotin also warned. “We must act… because if we fail, there won’t be any winners. Not the people, nor the companies. And certainly not human rights and democracy.”

If the conference had one short sharp message it was this: Society must wake up to technology — and fast.

“We’ve got a lot of work to do, and a lot of discussion — across the boundaries of individuals, companies and governments,” agreed Berners-Lee. “But very important work.

“We have to get commitments from companies to make their platforms constructive and we have to get commitments from governments to look at whenever they see that a new technology allows people to be taken advantage of, allows a new form of crime to get onto it by producing new forms of the law. And to make sure that the policies that they do are thought about in respect to every new technology as they come out.”

This work is also an opportunity for civic society to define and reaffirm what’s important. So it’s not only about mitigating risks.

But, equally, not doing the job is unthinkable — because there’s no putting the AI genii back in the bottle.


Source: Tech Crunch

Should cash-strapped Snapchat sell out? To Netflix?

Snapchat needs a sugar daddy. Its cash reserves dwindling from giant quarterly losses. Poor morale from a battered share price and cost-cutting measures sap momentum. And intense competition from Facebook is preventing rapid growth. With just $1.4 billion in assets remaining at the end of a brutal Q3 2018 and analyst MoffetNathanson estimating it will lose $1.5 billion in 2019 alone, Snapchat could run out of money well before it’s projected to break even in 2020 or 2021.

So what are Snap’s options?

A long and lonely road

Snap’s big hope is to show a business turnaround story like Twitter, which saw its stock jump 14 percent this week despite losing monthly active users by deepening daily user engagement and producing profits. But without some change that massively increases daily time spent while reducing costs, it could take years for Snap to reach profitability. The company has already laid off 120 employees in March, or 7 percent of its workforce. And 40 percent of the remaining 3,000 employees plan to leave — up 11 percentage points from Q1 2018 according to internal survey data attained by Cheddar’s Alex Heath.

Snapchat is relying on the Project Mushroom engineering overhaul of its Android app to speed up performance, and thereby accelerate user growth and retention. Snap neglected the developing world’s Android market for years as it focused on iPhone-toting US teens. Given Snapchat is all about quick videos, slow load times made it nearly unusable, especially in markets with slower network connections and older phones.

Looking at the competitive landscape, WhatsApp’s Snapchat Stories clone Status has grown to 450 million daily users while Instagram Stories has reached 400 million dailies — much of that coming in the developing world, thereby blocking Snap’s growth abroad as I predicted when Insta Stories launched. Snap actually lost 3 million daily users in Q2 2018. Snap Map hasn’t become ubiquitous, Snap’s Original Shows still aren’t premium enough to drag in tons of new users, Discover is a clickbait-overloaded mess, and Instagram has already copied the best parts of its ephemeral messaging.

SAN FRANCISCO, CA – SEPTEMBER 09: Evan Spiegel of Snapchat attends TechCruch Disrupt SF 2013 at San Francisco Design Center on September 9, 2013 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)

As BTIG’s Rich Greenfield points out, CEO Evan Spiegel claims Snapchat is the fastest way to communicate, but it’s not for text messaging, and the default that chats disappear makes it unreliable of utilitarian chat. And if WhatsApp were to add an ephemeral messaging feature of its own, growth for Snapchat could get even tougher. Snap will have to hope it can hold on to its existing users and squeeze more cash out of them to keep reducing losses.

All those product missteps and and market neglect have metastasized into a serious growth problem for Snapchat. It lost another 2 million users this quarter, and expects to sink further in Q4. Even with the Android rebuild, Spiegel’s assurances for renewed user growth in 2019 seem spurious. That means it’s highly unlikely that Snapchat will achieve Speigel’s goal of hitting profitability in 2019. It needs either an investor or acquirer to come to its aid.

A bailout check

Snap could sell more equity to raise money. $500 million to $1 billion would probably give it the runway necessary to get into the black. But from where? With all the scrutiny on Saudi Arabia, Snap might avoid taking money from the kingdom. Saudi’s Prince Al-Waleed Talal already invested $250 million to buy 2.5 percent of Snap on the open market.

Snap’s best bet might be to take more money from Chinese internet giant Tencent. The massive corporation already spent around $2 billion to buy a 12 percent stake in Snap from the open market. The WeChat owner has plenty of synergies with Snapchat, especially since it runs a massive gaming business and Snap is planning to launch a third-party developer gaming platform.

Tencent could still be a potential acquirer for Snap, but given President Trump’s trade war with China, he might push regulators to block a sale. The state of American social networks like Twitter and Facebook that are under siege by foreign election interference, trolls, and hackers might make the US government understandably concerned about a Chinese giant owning one of the top teen apps. The same goes for fellow Chinese giants like Alibaba, or Musically/TikTok owner ByteDance.

For Snap, the dream would be getting a minority stake investment from one of these that doesn’t come with voting rights. But regardless of who would invest, they’d be wise to demand a say in the business — something Snap has denied investors through a governance structure. Spiegel and his co-founder Bobby Murphy both get 10 votes per share. That’s estimated to amount to 89 percent of the voting rights. Shares issued in the IPO came with zero voting rights.

Snap could raise debt, but with the user base shrinking that could come on onerous terms.

Evan Spiegel and Bobby Murphy, developers of Snapchat (Photo by J. Emilio Flores/Corbis via Getty Images)

But that surely wouldn’t sit well with any investor willing to pour hundreds of millions of dollars into the beleaguered company. Spiegel has taken responsibility for pushing the disastrous redesign early this year that coincided with a significant drop in its download rank. It also inspired a tweet from mega-celebrity Kylie Jenner bashing the app that shaved $1.3 billion off the company’s market cap.

Between the redesign flop, stagnant product innovation, and Spiegel laughing off Facebook’s competition only to be crushed by it, the CEO no longer has the sterling reputation that allowed him to secure total voting control for the co-founders. That means investors will want assurance that if they inject a ton of cash, they’ll have some recourse if Spiegel mismanages it. He may need to swallow his pride, issue voting shares, and commit to milestones he’s required to hit to retain his role as chief executive.

A Soft Landing Somewhere Else

Snap could alternatively surrender as an independent company and be acquired by a deep-pocketed tech giant. Without having to worry about finances or short-term goals, Snap could invest in improving its features and app performance for the long-term. Social networks are tough to kill entirely, so despite competition, Snap could become lucrative if aided through this rough spot.

Combine that with the $637 million bonus Spiegel got for taking Snap public, and he has little financial incentive or shareholder pressure compelling him to sell. Even if the company was bleeding out much worse than it is already, Spiegel could ride it into the ground.

Again, the biggest barrier to this path is Spiegel. Combine totalitarian voting control with the $637 million bonus Spiegel got for taking Snap public, and he has little financial incentive or shareholder pressure compelling him to sell. Even if the company was bleeding out much worse than it is already, Spiegel could ride it into the ground. The only way to get a deal done might be to make Spiegel perceive it as a win.

Selling to Disney could be spun as a such. It hasn’t really figured out mobile amidst distraction from super heroes and Star Wars. Its core tween audience are addicted to YouTube and Snap even if they shouldn’t be on them. They’re both LA companies. And Disney already ponied up $350 million to buy kids desktop social networking game Club Penguin. Becoming head of mobile or something like that for the most iconic entertainment company ever could a vaulted-enough position to entice Spiegel. I could see him being a Disney CEO candidate one day.

What about walking in the footsteps of Steve Jobs? Apple isn’t social. It failed so badly with efforts like its Ping music listeners network that it’s basically abdicated the whole market. iMessage and its cutesy Animoji are its only stakes. Meanwhile, it’s getting tougher and tougher to differentiate with mobile hardware. Each new iPhone seems closer to the last. Apple has resorted to questionable decisions like ditching the oft-missed headphone jack and reliable TouchID to keep the industrial design in flux.

Increasingly, Apple must rely on its iOS software to compete for customers with Android headsets. But you know who’s great at making interesting software? Snapchat. You know who has a great relationship with the next generation of phone owners? Snapchat. And do you know whose CEO could probably smile earnestly beside Tim Cook announcing a brighter future for social media unlocked by two privacy-focused companies joining forces? Snapchat. Plus, think of all the fun Snapple jokes?

Amazon could swoop in to turn Snapchat into a product discovery and demand generation hub. Amazon already rules in ecommerce when you know what you want, but doesn’t have a strong destination property that inspires people to lust for new purchases. Amazon already partnered with Snapchat to power product results for its new visual search feature. Spiegel could view becoming part of the world’s most valuable company as a success even if he’d prefer Snap stay independent. And Amazon’s acquisition of Twitch shows it’s not afraid to assimilate large consumer software businesses.

There’s a chance to take revenge on Facebook if Snapchat wanted to team up with Mark Zuckerberg’s old arch nemesis Google . After Zuck declared “Carthage must be destroyed”, Google+ flopped and its messaging apps became a fragmented mess. Alphabet has since leaned away from social networking. Of course it still has the juggernaut that is YouTube — a perennial teen favorite alongside Snapchat and Instagram. And it’s got the perfect complement to Snap’s ephemerality in the form of Google Photos, the best-in-class permanent photo archiving tool. With the consume side of Google+ shutting down after accidentally exposing user data, Google still lacks a traditional social network where being a friend comes before being a fan.

What Google does have is a reputation for delivering the future. From Waymo’s self-driving cars to Calico’s plan to make you live forever, Google is an inventive place where big ideas come to fruition. Spiegel could frame Google as aligned with its philosophy of creating new ways to organize and consume information that adapt to human behavior. He surely wouldn’t mind being lumped in with Internet visionaries like Larry Page and Sergei Brin. Google’s Android expertise could reinvigorate Snap in emerging markets. And together they could take a stronger swing at Facebook.

But there are problems with all of these options. Buying Snap would be a massive bet for Disney, and Snap’s lingering bad rap as a sexting app might dissuade Mickey Mouse’s overlords. Apple rarely buys such late-stage public companies. CEO Tim Cook has been able to take the moral high ground because Apple makes its money from hardware rather than off of  personal info through ad targeting. If Apple owned Snap, it’d be in the data exploitation business just like everyone else.

And Google’s existing dominance in software might draw the attention of regulators. The prevailing sentiment is that it was a massive mistake to let Facebook acquire Instagram and WhatsApp, as it centralized power and created a social empire. With Google already owning YouTube, the government might see problems with it buying one of the other most popular teen apps. While Amazon also owns a top teen app in Twitch, and it’s status as the world’s most valuable company might also trigger regulatory scrutiny.

That’s why I think Netflix could be a great acquirer for Snap. They’re both video entertainment companies at the vanguard of cultural relevance, yet have no overlap in products. Netflix already showed its appreciation for Snapchat’s innovation by adopting a Stories-like vertical video clip format for discovering and previewing what you could watch. The two could partner to promote Netflix Originals and subscriptions inside of Snapchat. Netflix could teach Snap how to win at exclusive content while gaining a place to distribute video that’s under 20 minutes long.

With a $130 billion market cap, Netflix could certainly afford it. Though since Netflix already has $6 billion in debt from financing Originals, it would have to either sell more debt or issue Netflix shares to Snapchat’s owners. But given Netflix’s high-flying performance, massive market share, and cultural primacy, the big question is whether Snap would drag it down.

So how much would it potentially cost? Snap’s market cap is hovering around $8.8 billion with a $6.28 share price. That’s around its all-time low and just over a quarter of its IPO pop share price high. Acquiring Snap would surely require paying a premium above the market cap. Remember, Google already reportedly offered to acquire Snap for $30 billion prior to its final funding round and IPO. But that was before Snap’s growth rate sunk and it started losing the Stories War to Facebook. A much smaller offer could look a lot prettier now.

Social networks are hard to kill. If Snap can cut costs, fix its product, improve revenue per users, and score some outside investment, it could survive and slowly climb. If Twitter is any indication, aging social networks can reflower into lucrative businesses given enough time and product care. But if Snapchat wants to play in the big leagues and continue having a major influence on the mobile future, it may have to snap out of the idea that it can win on its own.

[Update: Thoughts about Amazon and ByteDance added.]


Source: Tech Crunch