Can we ever evaluate technical debt?

Every couple of months, I talk to an entrepreneur who is interested in building a marketplace for buying and selling app businesses (i.e. the actual IP and ownership of an app or other piece of software). These markets always seem to suffer from a lack of liquidity, and one reason why is that it’s really hard to know how much technical debt is latent in a codebase.

First, the developer behind the codebase may not even be aware of the technical debt they have piled on. Second, until a software engineer really understands a codebase, they are almost certainly not in a position to answer a question on technical debt authoritatively. That makes it hard to get third-party opinions on anything but the most simple codebases.

This opaqueness isn’t unique to software though. We lack tools for understanding the maintenance quality of assets — physical or digital — across our economy. Even when we do perform maintenance or hire someone to do it for us, it can be hard to verify that the work was performed well. How long does it take for an auto mechanic to truly evaluate the maintenance of a used car?

I was thinking about this challenge of evaluating maintenance when I read this deep dive into the economics of old housing by Akron’s head of planning, Jason Segedy:

It has been suggested to me, on more than one occasion, that indebted, college-educated Millennials could be lured back to the city by selling them these old, poorly-maintained houses for $1.00, and having them “fix up the house.”

People who say this do not have a realistic idea of what “fixing up” an old house entails—neither in terms of the scope of the rehabilitation work that would be required, nor in terms of the level of skill, time, and/or money needed to do the work.

Even in a low cost-of-living market like ours, $40,000 houses are generally not a “good deal.” They are almost always a liability. They are a ticking time bomb of deferred maintenance. They are an albatross.

In his own case:

All told, I have spent $93,400 on improvements to this house over the past 15 years. This works out to an additional $502 per month, above what I was paying in mortgage, taxes, and insurance. When you add all of that together, the total monthly cost works out to $1,439.

[…]

The total monthly cost for the brand-new house? $1,444. Which comes out to exactly $5.00 per month more than my 72-year-old house.

Maintenance is the secret challenge of any asset, physical or digital. We have been talking about the Tappan Zee bridge here a bit this week, and maintenance played an outsized role in forcing New York to spend even more money on a new bridge. From Phil Plotch’s book Politics Across the Hudson:

However, he also recognized that the Authority probably put less money into the bridge after it decided to replace it. “When maintenance folks know that a capital project is under design and will soon deal with the problems they have been battling for years,” he said. “They often back down a bit and turn their attention and resources to other areas.”

That didn’t work out so well:

One of the reasons the Thruway Authority wanted to build a new bridge in the late 1990s was to avoid replacing the bridge’s deck. However, the environmental review process took so long that the authority had to spend $300 million dollars to do exactly that anyway — after five-foot-wide holes started opening up along the length of the bridge.

Back in the software world, we have gotten much better about quantifying test coverage over the years, but we still seem to lack any means by which to evaluate technical debt. And yet, technical debt from my limited experience is hugely determinative on how fast product features can be launched.

It would be hugely helpful to have some sort of reasonably accurate grading system that said “this codebase is really up-to-date and clean” versus “this codebase is radioactive and run away from it.” Right now, so much of product engineering seems to be making decisions in the dark and discovering software quagmires. There has to be a better way.

Why we can’t build anything? (Part 5?)

Image from Honolulu Authority for Rapid Transit

Written by Arman Tabatabai

We’ve been obsessed with the infrastructure crisis in the U.S. lately and the question of “Why can’t we build anything?” In case you thought the California HSR shitshow was an isolated incident, think again.

Construction Dive provided some more details around the DOJ’s subpoena of the Honolulu High-Speed Rail Project (Honolulu Rail Transit) last week, which ordered the project leads to open up their books. Just like in California, after decades of debate, Hawaii’s project has been plagued by delays and cost overruns. Today, the project holds an estimated cost of around $9-10 billion, compared to initial estimates of $3-4 billion, and some academics and industry specialists are even saying that number is more like $13 billion-plus. The court order came just after a state-led audit found that much of the cost overruns could be tied to poor contracting, planning and management practices — just as in California.

Given the similarities here, it’s possible we could see the federal government try and pull back the $1.6 billion it had earmarked for the project if it doesn’t like what it sees. Despite calls for infrastructure improvement, the feds seem to be taking a tougher stance on the use of fed funds for these projects.

Construction Dive also highlighted that the $650 million renovation of Denver International Airport’s Jeppesen Terminal was delayed indefinitely after operators found structural deficiencies in the concrete. Sound familiar? Maybe it’s because in just the last year we’ve seen “structural deficiencies” mar SF’s Transbay Terminal project and DC’s Metrorail extension. Denver’s reclamation project is expected to cost $1.8 billion in its entirety and is a year behind schedule after breaking ground less than nine months ago.

India’s general election might also determine Facebook’s future in the region

Westend61 via Getty Images

Written by Arman Tabatabai

India’s Parliamentary Committee on Information Technology announced it would be meeting with Facebook in early March to discuss “safeguarding citizens’ rights on social or online news media platforms.” The government has approached social media with a cautious eye ahead of the country’s huge upcoming elections, as concern over the use and misuse of social and messaging platforms in global elections becomes a hot-button issue.

The topic came up in our recent conversation with The Billionaire Raj author James Crabtree. He believes the election will be a hugely important period for social platforms in India. Having experienced a number of major historical scandals, India’s citizenry has a fairly harsh — albeit somewhat selective — view on corruption, and Crabtree believes that if Facebook or others were to face blame for any alleged misconduct, the potential fallout from a political, regulatory and public opinion standpoint could be devastating.

The prospect of such an outcome becomes even more alarming for foreign social companies as India has ticked up focus on data localization and movements towards a “national champion” policy that will increasingly favor domestic firms over external players.

I love triangulation negotiation

The trade kerfuffle between China and the U.S. is sort of just continuing at a glacial pace. Literally glaciers, because Greenland got involved over the past few months. Greenland power politics is very far afield of TC, but I wanted to point out one little nuance that offers a worthwhile lesson.

Greenland has wanted to upgrade its airports for some time (there are no roads between major cities in the sparsely populated but huge country). But Denmark, which Greenland is a constituent country, has rebuffed those requests; that is, until the Chinese got involved. From a WSJ article:

After Kalaallit Airports short-listed a Chinese construction firm to build the new airports, Denmark conveyed its alarm to the Pentagon. After Mr. Mattis got involved, Denmark’s government asked a consortium led by Danske Bank to help assemble an alternative financing package.

Officials in Greenland were pleasantly surprised by the terms. “Even Chinese funding is not as cheap as this,” Mr. Hansen said.

Plus this quote:

“He was not into it at all—until the Chinese showed interest,” said Aleqa Hammon, Greenland’s former prime minister, speaking of [Danish Prime Minister] Rasmussen.

This is how you negotiate! Get two larger adversaries lined up on either side of the line, and just start going back and forth between them. This works with Google and Facebook, Sequoia and Benchmark, or any other competitors. At some point, the game isn’t just a deal, it’s also the face-saving that comes from not losing to the competition.

Japan joining the trend of looser fundraising rules for growing companies

Written by Arman Tabatabai

Earlier this week, we talked about how security exchanges around the world were looking to loosen fundraising rules for young companies. The softening of these rules might be indicative of a wider trend, with Japan now proposing revised rules to make it easier for startups to fundraise through traditional brokerages and trade shares of listed companies. While the motivation here may not be to attract IPO deals like it seems to be in the U.S. and China, with the creation of more funding alternatives and with companies opting to stay out of the public markets for longer, national securities industries seem to be trying to brand themselves as the best venue for young companies to grow.

Obsessions

  • More discussion of megaprojects, infrastructure and “why can’t we build things?”
  • We are going to be talking India here, focused around the book “Billionaire Raj” by James Crabtree, who we just interviewed and will share more soon.
  • We have a lot to catch up on in the China world when the EC launch craziness dies down. Plus, we are covering The Next Factory of the World by Irene Yuan Sun.
  • Societal resilience and geoengineering are still top-of-mind.
  • Some more on metrics design and quantification.

Thanks

To every member of Extra Crunch: thank you. You allow us to get off the ad-laden media churn conveyor belt and spend quality time on amazing ideas, people, and companies. If I can ever be of assistance, hit reply, or send an email to danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

Can we ever evaluate technical debt?

Every couple of months, I talk to an entrepreneur who is interested in building a marketplace for buying and selling app businesses (i.e. the actual IP and ownership of an app or other piece of software). These markets always seem to suffer from a lack of liquidity, and one reason why is that it’s really hard to know how much technical debt is latent in a codebase.

First, the developer behind the codebase may not even be aware of the technical debt they have piled on. Second, until a software engineer really understands a codebase, they are almost certainly not in a position to answer a question on technical debt authoritatively. That makes it hard to get third-party opinions on anything but the most simple codebases.

This opaqueness isn’t unique to software though. We lack tools for understanding the maintenance quality of assets — physical or digital — across our economy. Even when we do perform maintenance or hire someone to do it for us, it can be hard to verify that the work was performed well. How long does it take for an auto mechanic to truly evaluate the maintenance of a used car?

I was thinking about this challenge of evaluating maintenance when I read this deep dive into the economics of old housing by Akron’s head of planning, Jason Segedy:

It has been suggested to me, on more than one occasion, that indebted, college-educated Millennials could be lured back to the city by selling them these old, poorly-maintained houses for $1.00, and having them “fix up the house.”

People who say this do not have a realistic idea of what “fixing up” an old house entails—neither in terms of the scope of the rehabilitation work that would be required, nor in terms of the level of skill, time, and/or money needed to do the work.

Even in a low cost-of-living market like ours, $40,000 houses are generally not a “good deal.” They are almost always a liability. They are a ticking time bomb of deferred maintenance. They are an albatross.

In his own case:

All told, I have spent $93,400 on improvements to this house over the past 15 years. This works out to an additional $502 per month, above what I was paying in mortgage, taxes, and insurance. When you add all of that together, the total monthly cost works out to $1,439.

[…]

The total monthly cost for the brand-new house? $1,444. Which comes out to exactly $5.00 per month more than my 72-year-old house.

Maintenance is the secret challenge of any asset, physical or digital. We have been talking about the Tappan Zee bridge here a bit this week, and maintenance played an outsized role in forcing New York to spend even more money on a new bridge. From Phil Plotch’s book Politics Across the Hudson:

However, he also recognized that the Authority probably put less money into the bridge after it decided to replace it. “When maintenance folks know that a capital project is under design and will soon deal with the problems they have been battling for years,” he said. “They often back down a bit and turn their attention and resources to other areas.”

That didn’t work out so well:

One of the reasons the Thruway Authority wanted to build a new bridge in the late 1990s was to avoid replacing the bridge’s deck. However, the environmental review process took so long that the authority had to spend $300 million dollars to do exactly that anyway — after five-foot-wide holes started opening up along the length of the bridge.

Back in the software world, we have gotten much better about quantifying test coverage over the years, but we still seem to lack any means by which to evaluate technical debt. And yet, technical debt from my limited experience is hugely determinative on how fast product features can be launched.

It would be hugely helpful to have some sort of reasonably accurate grading system that said “this codebase is really up-to-date and clean” versus “this codebase is radioactive and run away from it.” Right now, so much of product engineering seems to be making decisions in the dark and discovering software quagmires. There has to be a better way.

Why we can’t build anything? (Part 5?)

Image from Honolulu Authority for Rapid Transit

Written by Arman Tabatabai

We’ve been obsessed with the infrastructure crisis in the U.S. lately and the question of “Why can’t we build anything?” In case you thought the California HSR shitshow was an isolated incident, think again.

Construction Dive provided some more details around the DOJ’s subpoena of the Honolulu High-Speed Rail Project (Honolulu Rail Transit) last week, which ordered the project leads to open up their books. Just like in California, after decades of debate, Hawaii’s project has been plagued by delays and cost overruns. Today, the project holds an estimated cost of around $9-10 billion, compared to initial estimates of $3-4 billion, and some academics and industry specialists are even saying that number is more like $13 billion-plus. The court order came just after a state-led audit found that much of the cost overruns could be tied to poor contracting, planning and management practices — just as in California.

Given the similarities here, it’s possible we could see the federal government try and pull back the $1.6 billion it had earmarked for the project if it doesn’t like what it sees. Despite calls for infrastructure improvement, the feds seem to be taking a tougher stance on the use of fed funds for these projects.

Construction Dive also highlighted that the $650 million renovation of Denver International Airport’s Jeppesen Terminal was delayed indefinitely after operators found structural deficiencies in the concrete. Sound familiar? Maybe it’s because in just the last year we’ve seen “structural deficiencies” mar SF’s Transbay Terminal project and DC’s Metrorail extension. Denver’s reclamation project is expected to cost $1.8 billion in its entirety and is a year behind schedule after breaking ground less than nine months ago.

India’s general election might also determine Facebook’s future in the region

Westend61 via Getty Images

Written by Arman Tabatabai

India’s Parliamentary Committee on Information Technology announced it would be meeting with Facebook in early March to discuss “safeguarding citizens’ rights on social or online news media platforms.” The government has approached social media with a cautious eye ahead of the country’s huge upcoming elections, as concern over the use and misuse of social and messaging platforms in global elections becomes a hot-button issue.

The topic came up in our recent conversation with The Billionaire Raj author James Crabtree. He believes the election will be a hugely important period for social platforms in India. Having experienced a number of major historical scandals, India’s citizenry has a fairly harsh — albeit somewhat selective — view on corruption, and Crabtree believes that if Facebook or others were to face blame for any alleged misconduct, the potential fallout from a political, regulatory and public opinion standpoint could be devastating.

The prospect of such an outcome becomes even more alarming for foreign social companies as India has ticked up focus on data localization and movements towards a “national champion” policy that will increasingly favor domestic firms over external players.

I love triangulation negotiation

The trade kerfuffle between China and the U.S. is sort of just continuing at a glacial pace. Literally glaciers, because Greenland got involved over the past few months. Greenland power politics is very far afield of TC, but I wanted to point out one little nuance that offers a worthwhile lesson.

Greenland has wanted to upgrade its airports for some time (there are no roads between major cities in the sparsely populated but huge country). But Denmark, which Greenland is a constituent country, has rebuffed those requests; that is, until the Chinese got involved. From a WSJ article:

After Kalaallit Airports short-listed a Chinese construction firm to build the new airports, Denmark conveyed its alarm to the Pentagon. After Mr. Mattis got involved, Denmark’s government asked a consortium led by Danske Bank to help assemble an alternative financing package.

Officials in Greenland were pleasantly surprised by the terms. “Even Chinese funding is not as cheap as this,” Mr. Hansen said.

Plus this quote:

“He was not into it at all—until the Chinese showed interest,” said Aleqa Hammon, Greenland’s former prime minister, speaking of [Danish Prime Minister] Rasmussen.

This is how you negotiate! Get two larger adversaries lined up on either side of the line, and just start going back and forth between them. This works with Google and Facebook, Sequoia and Benchmark, or any other competitors. At some point, the game isn’t just a deal, it’s also the face-saving that comes from not losing to the competition.

Japan joining the trend of looser fundraising rules for growing companies

Written by Arman Tabatabai

Earlier this week, we talked about how security exchanges around the world were looking to loosen fundraising rules for young companies. The softening of these rules might be indicative of a wider trend, with Japan now proposing revised rules to make it easier for startups to fundraise through traditional brokerages and trade shares of listed companies. While the motivation here may not be to attract IPO deals like it seems to be in the U.S. and China, with the creation of more funding alternatives and with companies opting to stay out of the public markets for longer, national securities industries seem to be trying to brand themselves as the best venue for young companies to grow.

Obsessions

  • More discussion of megaprojects, infrastructure and “why can’t we build things?”
  • We are going to be talking India here, focused around the book “Billionaire Raj” by James Crabtree, who we just interviewed and will share more soon.
  • We have a lot to catch up on in the China world when the EC launch craziness dies down. Plus, we are covering The Next Factory of the World by Irene Yuan Sun.
  • Societal resilience and geoengineering are still top-of-mind.
  • Some more on metrics design and quantification.

Thanks

To every member of Extra Crunch: thank you. You allow us to get off the ad-laden media churn conveyor belt and spend quality time on amazing ideas, people, and companies. If I can ever be of assistance, hit reply, or send an email to danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

Microsoft confirms Bing is down in China

Microsoft’s Bing is down in China, according to users who took to social media beginning Wednesday afternoon to complain and express concerns.

The Seattle-based behemoth has confirmed that its search engine is currently inaccessible in China and is “engaged to determine next steps,” a company spokesperson said in a statement to TechCrunch Thursday morning.

Citing sources, the Financial Times reported (paywalled) on Thursday that China Unicom, a major state-owned telecommunication company, confirmed the government had ordered a block on Bing.

Public reaction

The situation appears to be a DNS (domain name system) corruption, one method for China to block websites through its intricate censoring system called the Great Firewall. When a user enters a domain name associated with a banned IP address, the Firewall will corrupt the connection to stop the page from loading.

Several users told TechCrunch they are still able to access Bing by directly visiting its IP address as of Thursday morning.

Other users writing on social media believe the block is a result of Bing’s server crash after a viral article (link in Chinese) attacking Baidu’s search quality directed traffic to its lesser-known American rival. Many referred to a Chinese report that says high traffic from Baidu had crashed Bing. The article, published by Jiemian, a news site under the state-owned Shanghai United Media Group, now returns a 404 error.

Microsoft has long tried to play by China’s rules by filtering out sensitive results from its search engine. It also modified Windows 10 for China back in 2017 through a collaboration with state-owned China Electronics Technology Group to eliminate Beijing’s fears of possible backdoors in the American software. Former Microsoft executive Steven Sinofsky lamented Bing’s blockage in China, writing on Twitter that Microsoft had “worked so hard to be successful there.”

Tight seal

Bing remained one of the few non-Chinese internet firms that still have their core products up and running in a country where Google and Facebook have long been unavailable. Another rare case is LinkedIn, which runs a filtered version of its social network for professionals and caught flack for bending to local censorship.

Bing also censors its search service for Chinese users, so it would be odd if its inaccessibility proves to be a case of government clampdown. That said, China appears to be further tightening control over the cyberspace. Case in point, LinkedIn recently started to run strict identity checks on its China-based users.

Baidu remains the biggest search engine in China with smaller rival Sogou coming in second. Bing, which some users find is a more pleasant alternative to local options that are usually flooded with ads, is active on 320,000 unique devices monthly, according to third-party research firm iResearch. That’s dwarfed by Baidu’s 466 million and Sogou’s 43 million.

Google told the U.S. Congress in December it had no immediate plans to relaunch its search engine in China but felt “reaching out and giving users more information has a very positive impact.” The Mountain View-based firm shut down its search engine in mainland China back in 2010 under pressure over censorship but also cited cyber attacks as a factor in its decision to leave.

Facebook is not equipped to stop the spread of authoritarianism

After the driver of a speeding bus ran over and killed two college students in Dhaka in July, student protesters took to the streets. They forced the ordinarily disorganized local traffic to drive in strict lanes and stopped vehicles to inspect license and registration papers. They even halted the vehicle of the chief of Bangladesh Police Bureau of Investigation and found that his license was expired. And they posted videos and information about the protests on Facebook.

The fatal road accident that led to these protests was hardly an isolated incident. Dhaka, Bangladesh’s capital, which was ranked the second least livable city in the world in the Economist Intelligence Unit’s 2018 global liveability index, scored 26.8 out of 100 in the infrastructure category included in the rating. But the regional government chose to stifle the highway safety protests anyway. It went so far as raids of residential areas adjacent to universities to check social media activity, leading to the arrest of 20 students. Although there were many images of Bangladesh Chhatra League, or BCL men, committing acts of violence on students, none of them were arrested. (The BCL is the student wing of the ruling Awami League, one of the major political parties of Bangladesh.)

Students were forced to log into their Facebook profiles and were arrested or beaten for their posts, photographs and videos. In one instance, BCL men called three students into the dorm’s guest room, quizzed them over Facebook posts, beat them, then handed them over to police. They were reportedly tortured in custody.

A pregnant school teacher was arrested and jailed for just over two weeks for “spreading rumors” due to sharing a Facebook post about student protests. A photographer and social justice activist spent more than 100 days in jail for describing police violence during these protests; he told reporters he was beaten in custody. And a university professor was jailed for 37 days for his Facebook posts.

A Dhaka resident who spoke on the condition of anonymity out of fear for their safety said that the crackdown on social media posts essentially silenced student protesters, many of whom removed from their profiles entirely photos, videos and status updates about the protests. While the person thought that students were continuing to be arrested, they said, “nobody is talking about it anymore — at least in my network — because everyone kind of ‘got the memo,’ if you know what I mean.”

This isn’t the first time Bangladeshi citizens have been arrested for Facebook posts. As just one example, in April 2017, a rubber plantation worker in southern Bangladesh was arrested and detained for three months for liking and sharing a Facebook post that criticized the prime minister’s visit to India, according to Human Rights Watch.

Bangladesh is far from alone. Government harassment to silence dissent on social media has occurred across the region, and in other regions as well — and it often comes hand-in-hand with governments filing takedown requests with Facebook and requesting data on users.

Facebook has removed posts critical of the prime minister in Cambodia and reportedly “agreed to coordinate in the monitoring and removal of content” in Vietnam. Facebook was criticized for not stopping the repression of Rohingya Muslims in Myanmar, where military personnel created fake accounts to spread propaganda, which human rights groups say fueled violence and forced displacement. Facebook has since undertaken a human rights impact assessment in Myanmar, and it also took down coordinated inauthentic accounts in the country.

UNITED STATES – APRIL 10: Facebook CEO Mark Zuckerberg testifies during the Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing on “Facebook, Social Media Privacy, and the Use and Abuse of Data” on Tuesday, April 10, 2018. (Photo By Bill Clark/CQ Roll Call)

Protesters scrubbing Facebook data for fear of repercussion isn’t uncommon. Over and over again, authoritarian-leaning regimes have utilized low-tech strategies to quell dissent. And aside from providing resources related to online privacy and security, Facebook still has little in place to protect its most vulnerable users from these pernicious efforts. As various countries pass laws calling for a local presence and increased regulation, it is possible that the social media conglomerate doesn’t always even want to.

“In many situations, the platforms are under pressure,” said Raman Jit Singh Chima, policy director at Access Now. “Tech companies are being directly sent takedown orders, user data requests. The danger of that is that companies will potentially be overcomplying or responding far too quickly to government demands when they are able to push back on those requests,” he said.

Elections are often a critical moment for oppressive behavior from governments — Uganda, Chad and Vietnam have specifically targeted citizens — and candidates — during election time. Facebook announced just last Thursday that it had taken down nine Facebook pages and six Facebook accounts for engaging in coordinated inauthentic behavior in Bangladesh. These pages, which Facebook believes were linked to people associated with the Bangladesh government, were “designed to look like independent news outlets and posted pro-government and anti-opposition content.” The sites masqueraded as news outlets, including fake BBC Bengali, BDSNews24 and Bangla Tribune and news pages with Photoshopped blue checkmarks, according to the Atlantic Council’s Digital Forensic Research Lab.

Still, the imminent election in Bangladesh doesn’t bode well for anyone who might wish to express dissent. In October, a digital security bill that regulates some types of controversial speech was passed in the country, signaling to companies that as the regulatory environment tightens, they too could become targets.

More restrictive regulation is part of a greater trend around the world, said Naman M. Aggarwal, Asia policy associate at Access Now. Some countries, like Brazil and India, have passed “fake news” laws. (A similar law was proposed in Malaysia, but it was blocked in the Senate.) These types of laws are frequently followed by content takedowns. (In Bangladesh, the government warned broadcasters not to air footage that could create panic or disorder, essentially halting news programming on the protests.)

Other governments in the Middle East and North Africa — such as Egypt, Algeria, United Arab Emirates, Saudi Arabia and Bahrain — clamp down on free expression on social media under the threat of fines or prison time. And countries like Vietnam have passed laws requiring social media companies to localize their storage and have a presence in the country — typically an indication of greater content regulation and pressure on the companies from local governments. In India, WhatsApp and other financial tech services were told to open offices in the country.

And crackdowns on posts about protests on social media come hand-in-hand with government requests for data. Facebook’s biannual transparency report provides detail on the percentage of government requests with which the company complies in each country, but most people don’t know until long after the fact. Between January and June, the company received 134 emergency requests and 18 legal processes from Bangladeshi authorities for 205 users or accounts. Facebook turned over at least some data in 61 percent of emergency requests and 28 percent of legal processes.

Facebook said in a statement that it “believes people deserve to have a voice, and that everyone has the right to express themselves in a safe environment,” and that it handles requests for user data “extremely carefully.”

The company pointed to its Facebook for Journalists resources and said it is “saddened by governments using broad and vague regulation or other practices to silence, criminalize or imprison journalists, activists, and others who speak out against them,” but the company said it also helps journalists, activists and other people around the world to “tell their stories in more innovative ways, reach global audiences, and connect directly with people.”

But there are policies that Facebook could enact that would help people in these vulnerable positions, like allowing users to post anonymously.

“Facebook’s real names policy doesn’t exactly protect anonymity, and has created issues for people in countries like Vietnam,” said Aggarwal. “If platforms provide leeway, or enough space for anonymous posting, and anonymous interactions, that is really helpful to people on the ground.”

BERLIN, GERMANY – SEPTEMBER 12: A visitor uses a mobile phone in front of the Facebook logo at the #CDUdigital conference on September 12, 2015 in Berlin, Germany. (Photo by Adam Berry/Getty Images)

A German court in February found the policy illegal under its decade-old privacy law. Facebook said it plans to appeal the decision.

“I’m not sure if Facebook even has an effective strategy or understanding of strategy in the long term,” said Sean O’Brien, lead researcher at Yale Privacy Lab. “In some cases, Facebook is taking a very proactive role… but in other cases, it won’t.” In any case, these decisions require a nuanced understanding of the population, culture, and political spectrum in various regions — something it’s not clear Facebook has.

Facebook isn’t responsible for government decisions to clamp down on free expression. But the question remains: How can companies stop assisting authoritarian governments, inadvertently or otherwise?

“If Facebook knows about this kind of repression, they should probably have… some sort of mechanism to at the very least heavily try to convince people not to post things publicly that they think they could get in trouble for,” said O’Brien. “It would have a chilling effect on speech, of course, which is a whole other issue, but at least it would allow people to make that decision for themselves.”

This could be an opt-in feature, but O’Brien acknowledges that it could create legal liabilities for Facebook, leading the social media giant to create lists of “dangerous speech” or profiles on “dissidents,” and could theoretically shut them down or report them to the police. Still, Facebook could consider rolling a “speech alert” feature to an entire city or country if that area becomes volatile politically and dangerous for speech, he said.

O’Brien says that social media companies could consider responding to situations where a person is being detained illegally and potentially coerced into giving their passwords in a way that could protect them, perhaps by triggering a temporary account reset or freeze to prevent anyone from accessing the account without proper legal process. Some actions that might trigger the reset or freeze could be news about an individual’s arrest — if Facebook is alerted to it, contact from the authorities, or contact from friends and loved ones, as evaluated by humans. There could even be a “panic button” type trigger, like Guardian Project’s PanicKit, but for Facebook — allowing users to wipe or freeze their own accounts or posts tagged preemptively with a code word only the owner knows.

“One of the issues with computer interfaces is that when people log into a site, they get a false sense of privacy even when the things they’re posting in that site are widely available to the public,” said O’Brien. Case in point: this year, women anonymously shared their experiences of abusive co-workers in a shared Google Doc — the so-called “Shitty Media Men” list, likely without realizing that a lawsuit could unmask them. That’s exactly what is happening.

Instead, activists and journalists often need to tap into resources and gain assistance from groups like Access Now, which runs a digital security helpline, and the Committee to Protect Journalists. These organizations can provide personal advice tailored to their specific country and situation. They can access Facebook over the Tor anonymity network. Then can use VPNs, and end-to-end encrypted messaging tools, and non-phone-based two-factor authentication methods. But many may not realize what the threat is until it’s too late.

The violent crackdown on free speech in Bangladesh accompanied government-imposed internet restrictions, including the throttling of internet access around the country. Users at home with a broadband connection did not feel the effects of this, but “it was the students on the streets who couldn’t go live or publish any photos of what was going on,” the Dhaka resident said.

Elections will take place in Bangladesh on December 30.

In the few months leading up to the election, Access Now says it’s noticed an increase in Bangladeshi residents expressing concern that their data has been compromised and seeking assistance from the Digital Security hotline.

Other rights groups have also found an uptick in malicious activity.

Meenakshi Ganguly, South Asia director at Human Rights Watch, said in an email that the organization is “extremely concerned about the ongoing crackdown on the political opposition and on freedom of expression, which has created a climate of fear ahead of national elections.”

Ganguly cited politically motivated cases against thousands of opposition supporters, many of which have been arrested, as well as candidates that have been attacked.

Human Rights Watch issued a statement about the situation, warning that the Rapid Action Battalion, a “paramilitary force implicated in serious human rights violations including extrajudicial killings and enforced disappearances,” and has been “tasked with monitoring social media for ‘anti-state propaganda, rumors, fake news, and provocations.’” This is in addition to a nine-member monitoring cell and around 100 police teams dedicated to quashing so-called “rumors” on social media, amid the looming threat of news website shutdowns.

“The security forces continue to arrest people for any criticism of the government, including on social media,” Ganguly said. “We hope that the international community will urge the Awami League government to create conditions that will uphold the rights of all Bangladeshis to participate in a free and fair vote.”

Nvidia’s limited China connections

Another round of followups on Nvidia, and then some short news analysis.

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Nvidia / TSMC questions

Following up on my analyses this week on Nvidia (Part 1, Part 2) , a reader asked in regards to Nvidia’s risk with China tariffs:

but the TSMC impact w.r.t. tariffs doesn’t make sense to me. TSMC is largely not impacted by tariffs and so the supply chain with NVIDIA is also not impacted w.r.t. to TSMC as a supplier. There are many alternate wafer suppliers in Taiwan.

This is a challenging question to definitively answer, since obviously Nvidia doesn’t publicly disclose its supply chain, or more granularly, which factories those supply chain partners utilize for its production. It does, however, list a number of companies in its 10-K form as manufacturing, testing, and packaging partners, including:

To understand how this all fits together, there are essentially three phases for bringing a semiconductor to market:

  1. Design – this is Nvidia’s core specialty
  2. Manufacturing – actually making the chip from silicon and other materials at the precision required for it to be reliable
  3. Testing, packaging and distribution – once chips are made, they need to be tested to prove that manufacturing worked, then packaged properly to protect them and shipped worldwide to wherever they are going to be assembled/integrated

For the highest precision manufacturing required for chips like Nvidia’s, Taiwan, South Korea and the U.S. are the world leaders, with China trying to catch up through programs like Made in China 2025 (which, after caustic pushback from countries around the world, it looks like Beijing is potentially scrapping this week). China is still considered to be one-to-two generations behind in chip manufacturing, though it increasingly owns the low-end of the market.

Where the semiconductor supply chain traditionally gets more entwined with China is around testing and packaging, which are generally considered lower value (albeit critical) tasks that have been increasingly outsourced to the mainland over the years. Taiwan remains the dominant player here as well, with roughly 50% of the global market, but China has been rapidly expanding.

U.S. tariffs on Chinese goods do not apply to Taiwan, and so for the most part, Nvidia’s supply chain should be adept at avoiding most of the brunt of the trade conflict. And while assembly is heavily based in China, electronics assemblers are rapidly adapting their supply chains to mitigate the damage of tariffs by moving factories to Vietnam, India, and elsewhere.

Where it gets tricky is the Chinese market itself, which imports a huge number of semiconductor chips, and represents roughly 20% of Nvidia’s revenues. Even here, many analysts believe that the Chinese will have no choice but to buy Nvidia’s chips, since they are market-leading and substitutes are not easily available.

So the conclusion is that Nvidia likely has maneuvering room in the short-term to weather exogenous trade tariff shocks and mitigate their damage. Medium to long-term though, the company will have to strategically position itself very carefully, since China is quickly becoming a dominant player in exactly the verticals it wants to own (automotive, ML workflows, etc.). In other words, Nvidia needs the Chinese market for growth at the exact moment that door is slamming shut. How it navigates this challenge in the years ahead will determine much of its growth profile in the years ahead.

Rapid fire analysis

Short summaries and analysis of important news stories

Saudi Arabia’s Crown Prince Mohammed bin Salman. FETHI BELAID/AFP/Getty Images

US intelligence community says quantum computing and AI pose an ’emerging threat’ to national security – Our very own Zack Whittaker talks about future challenges to U.S. national security. These technologies are “dual-use,” which means that they can be used for good purposes (autonomous driving, faster processing) and also for nefarious purposes (breaking encryption, autonomous warfare). Expect huge debates and challenges in the next decade about how to keep these technologies on the safe side.

Saudi Arabia Pumps Up Stock Market After Bad News, Including Khashoggi Murder – A WSJ trio of reporters investigates the Saudi government’s aggressive attempts to shore up the value of its stock exchange. Exchange manipulation is hardly novel, either in traditional markets or in blockchain markets. China has been aggressively doing this in its stock exchanges for years. But it is a reminder that in emerging and new exchanges, much of the price signaling is artificial.

A law firm in the trenches against media unions – Andrew McCormick writes in the Columbia Journalism Review how law firm Jones Day has taken a leading role in fighting against the unionization of newsrooms. The challenge of course is that the media business remains mired in cutbacks and weak earnings, and so trying to better divide a rapidly shrinking pie doesn’t make a lot of sense to me. The future — in my view — is entrepreneurial journalists backed up by platforms like Substack where they set their own voice, tone, publishing calendar, and benefits. Having a close relationship with readers is the only way forward for job security.

At least 15 central banks are serious about getting into digital currency – Mike Orcutt at MIT Technology Review notes that there are a bunch of central banks, including China and Canada. What’s interesting is that the trends backing this up including financial inclusion and “diminishing cash usage.” Even though blockchain is in a nuclear winter following the collapse of crypto prices this year, it is exactly these sorts of projects that could be the way forward for the industry.

What’s next

More semiconductors probably. And Arman and I are side glancing at Yelp these days. Any thoughts? Email me at danny@techcrunch.com.

This newsletter is written with the assistance of Arman Tabatabai from New York

Robinhood said to not be properly insured to offer checking & savings

Robinhood’s new high-interest, zero-fee checking and savings feature seems to be too good to be true. Users’ money may not be fully protected. The CEO of the Securities Investor Protection Corporation, a non-profit membership corporation that insures stock brokerages, tells TechCrunch its insurance would not apply to checking and savings accounts the way Robinhood claims. “Robinhood would be buying securities for its account and sharing a portion of the proceeds with their customers, and that’s not what we cover” says SIPC CEO Stephen Harbeck. “I’ve never seen a single document on this. I haven’t been consulted on this.”

That info directly conflicts with comments from Robinhood’s comms team, which told me yesterday users would be protected because the SIPC insures brokerages and the checking/savings feature is offered via Robinhood’s brokerage that is a member of the SIPC.

If Robinhood checking and savings is indeed ineligible for insurance coverage from the SIPC, and since it doesn’t qualify for FDIC protection like a standard bank, users’ funds could be at risk. Robinhood co-CEO Baiju Bhatt told me that “Robinhood invests users’ checking and savings money into government-grade assets like US treasuries and we collect yield from those assets and pay that back to customers in the form of 3 percent interest.” But Harbeck tells me that means users would effectively be loaning Robinhood their money, and the SIPC doesn’t cover loans. If a market downturn caused the values of those securities to decline and Robinhood couldn’t cover the losses, the SIPC wouldn’t necessarily help users get their money back. 

Robinhood’s team insisted yesterday that customers would not lose their money in the event that the treasuries it invests in decline, and that only what users gamble on the stock market would be unprotected as is standard. But now it appears that because Robinhood is misusing its brokerage classification to operate checking and savings accounts where it says users don’t have to invest in stocks and other securities, SIPC insurance wouldn’t apply. “I have an issue with some of the things on their website about whether these checking and savings accounts would be protected. I refered the issue to the SEC” Harbeck tells me. TechCrunch has reached out to the SEC and will update if we hear back about its perspective on the issue.

Robinhood planned to start shipping its Mastercard debit cards to customers on December 18th with users being added off the waitlist in January. That might need to be delayed due to the insurance problem. We’ve repeatedly asked Bhatt and Robinhood’s team for a formal statement and clarification this morning, but have not heard back.

Robinhood touted how its checking and savings features have no minimum account balance, overdraft fees, foreign transaction fees, or card replacement fees. It also has 75,000 free-to-use ATMs in its network, which Bhatt claims is more than the top five US banks combined. And its 3 percent interest rate users earn is much higher than the 0.09% average interest rate for traditional savings, and beats  most name brand banks outside of some credit unions.

But for those perks, users must sacrifice brick-and-mortar bank branches that can help them with troubles, and instead rely on a 24/7 live chat customer support feature from Robinhood. The debit card has Mastercard’s zero-liability protection against fraud, and Robinhood partners with Sutton Bank to issue the card. But it’s unclear how the checking and savings accounts would be protected against other types of attacks or scams.

Robinhood was likely hoping to build a larger user base on top of its existing 6 million accounts by leveraging software scalability to provide such competitive rates. It planned to be profitable from its margin on the interest from investing users’ money and a revenue sharing agreement with Mastercard on interchange fee charged to merchants when you swipe your card. But long-term, Robinhood may use checking and savings as a wedge into the larger financial services market from which it can launch more lucrative products like loans.

But that could fall apart if users are scared to move their checking and savings money to Robinhood. Startups can suddenly fold or make too risky of decisions while chasing growth. Robinhood’s valuation went from $1.3 billion last year to $5.6 billion when it raised $363 million this year. That puts intense pressure on the company to grow to justify that massive valuation. In its rush to break into banking, it may have cut corners on becoming properly insured.

[DIsclosure: The author of this article knows Robinhood co-founders Baiju Bhatt and Vlad Tenev from college 10 years ago]

Why Oath keeps Tumblring

I dig on my employer Oath, and then Tencent Music notes and a major loss for the NYC ecosystem and what it means for open source.

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My three word Oath? I’m with stupid

It goes without saying that this piece about my employer is my work alone, doesn’t reflect management’s views, and is done under the auspices of TechCrunch’s independent editorial voice. No usage of internal information is assumed or implied.

This is a piece about TechCrunch’s parent company, formerly known as “Oath:” (okay just Oath, but who am I to flout a mandatory colon?) and now ReBranded™ as Verizon Media Group / Oath (See what they did there? They literally slashed Oath. Poetic).

Oath is essentially the creature of Frankenstein, a middle-school corporate alchemy experiment to fuse the properties of the companies formerly known as AOL and Yahoo into the larger behemoth known as Verizon. You can feel the terrible synergy emanating from the multiple firewalls it takes to get to our corporate resources.

Oath has a problem:* it needs to grow for Wall Street to be happy and for Verizon not to neuter it, but it has an incredible penchant for making product decisions that basically tell users to fuck off. Oath’s year over year revenues last quarter were down 6.9%, driven by extreme competition from digital ad leaders Google and Facebook.

The solution apparently? Drive page views down. If that logic doesn’t make sense, well then, maybe you should fill out a job application.

The kerfuffle is over Tumblr, which is among Oath’s most important brands, in that people actually know what it is and kind of still like it. Tumblr, which Yahoo notably acquired under Marissa Mayer back in 2013, has been something of a product orphan — one of the few true software platforms left in a world filled with editorial content like TechCrunch and HuffPost (Oath sold off Flickr earlier this year to SmugMug — which also seems to be going through its own boneheaded product decision phase).

All was well and good — well, at least quiet — in the Tumblr world until Apple pulled the plug on Tumblr’s app in the App Store a few weeks ago over claims of child porn. Now let’s be absolutely clear: child porn is abhorrent, and filtering it out of online photo sharing sites is a prime directive (and legally mandated).

But Oath has decided to do something equally obnoxious: it intends to ban anything that might be considered “adult content” starting December 17th, just in time for the holidays when purity around family gatherings is key.

In Tumblr’s policy, “Adult content primarily includes photos, videos, or GIFs that show real-life human genitals or female-presenting nipples, and any content—including photos, videos, GIFs and illustrations—that depicts sex acts.” You’ll notice the written legerdemain — “primarily” doesn’t exclude the wider world of adult-oriented content that almost invariably is going to be subsumed under this policy.

Obviously, adults (and presumably teens as well) are pissed. As users are starting to see what photos are getting flagged (hint: not the ones with porn in them), that’s only making them more angry.

Oath is attempting to compress the content moderation engineering and testing of Facebook down to a span of a few weeks. And Facebook hasn’t even figured this one out yet, which is why people are still being murdered across the world from viral messages and memes it hosts that incite ethnic hatred and genocide.

I get the pressure from Apple. I get the safety of saying “just ban all the images” à la Renaissance pope. I get the business decision of trying to maintain Tumblr’s clean image. These points are all reasonable, but they all are just useless without Tumblr’s core and long-time users.

What flummoxes me from a product perspective is that it’s not as if banning all adult content is the singular solution to the problem. There is an entire spectrum of product, policy, legal, and product cultural ingredients that could be drawn upon. There could be more age verification, better separation of “safe for children” and “meant for adults content,” and more focus on messaging to users that moderation was meant to help the product and focus audiences rather than to puritanically filter.

Or you can just kill the photos, the somehow still loyal core user base, a safe space for expression via nudity and sexuality and, well, traffic along with it. And then you look at -6.9% growth and think: huh, I wonder if there is a connection.

*Mandatory colon

Tencent Music reintroduces its IPO

Tencent Music. Photo by Zhan Min/VCG via Getty Images

Maybe the IPO markets are thawing a bit after the crash of the last few weeks and…tariffs. From my colleague Catherine Shu:

Tencent Music Entertainment’s initial public offering is back in motion, two months after the company reportedly postponed it amid a global selloff. In a regulatory filing today, the company, China’s largest streaming music service, said it plans to offer 82 million American depositary shares (ADS), representing 164 million Class A ordinary shares, for between $13 to $15 each. That means the IPO will potentially raise up to $1.23 billion.

My colleague Eric Peckham wrote a deeper dive behind the lessons of Tencent Music for the broader music industry:

At its heart, Tencent Music is an interactive media company. Its business isn’t merely providing music, it’s getting people to engage around music. Given its parent company Tencent has become the leading force in global gaming—with control of League of Legends maker Riot Games and Clash of Clans maker Supercell, plus a 40 percent stake in Fortnite creator Epic Games, and role as the top mobile games publisher in China—its team is well-versed in the dynamics of in-game purchasing.

Tencent Music has staked out a very differentiated business model from Spotify, Pandora, Apple Music, etc. It has used an engagement-based product model to make live-streaming and virtual gifts huge business lines, without dealing with the product marketing logistics of subscription. Where the West always asks you to pay for access, Tencent is asking you essentially to pay to have fun and be part of an experience.

Eric asks I think a deep question: why hasn’t this model (which seems particularly obvious in music given the overall events component of that business) been back-ported from China to the Western world? He sees a world where Facebook buys Spotify (I don’t) but I think there is absolutely a gap in the market for a music platform to really own this model.

NYC loses an open-source superstar

Photo: Amanda Hall / robertharding / Getty Images

Wes McKinney is a major open-source star and the engineer behind pandas, which is one of the fundamental Python data libraries, as well as a founding engineer of Apache Arrow, which is an in-memory data structure specification.

So it is big news that he has decided to decamp from New York City, where has has lived for ten years, to Nashville. Writing on his personal blog:

I’ve increasingly felt that open source development is at odds with the values that are driving a large portion of the corporate world, particularly in the United States. Many companies won’t fund open source work because there is no “return on investment”. This is deeply frustrating, and being surrounded by people whose actions align with profit-motive can be pretty discouraging. It’s not necessarily that people who work in NYC or SF are greedy or amorally concerned with making money. In many cases they are just responding to incentives coming from pretty low on the hierarchy of needs.

And

Full-time open source developers in many cases will make less money than their peers who work at Google, Facebook, Microsoft, Apple, or another major tech company. If we are to enable more people to do open source development as a full-time vocation, we need to grow supportive tech communities in places that are more affordable. (emphasis his).

I think this is a very interesting trend to watch in the coming years. It’s not just the small business and art types who want to move to lower cost locales to match their lifestyle spending to the (economic) value of their work. Software developers who want to work on more meaningful projects outside of advertising and finance will also increasingly need to consider these sorts of geographical adjustments.

As I wrote a few months ago about digital nomads:

From cryptocurrency millionaires in Puerto Rico to digital nomads in hotspots like Thailand, Indonesia, and Colombia, there is increasingly a view that there is a marketplace for governance, and we hold the power as consumers. Much like choosing a cereal from the breakfast department of a supermarket, highly-skilled professionals are now comparing governments online — and making clear-headed choices based on which ones are most convenient and have the greatest amenities available.

Economic migration — whether from cost-of-living, ecosystem or governance culture, or just for new horizons — is the watchword of this century. It’s a huge loss for NYC that people like McKinney can no longer find their work compatible with the city.

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

Imagined Communities – a major classic book of social science thought, it’s amazing how well it has held up, and the lessons it holds for us in the cyber age. Intending to write a review of it for this weekend, so expect more notes later.

Quietly, Japan has established itself as a power in the aerospace industry – I love industrial policy and national economic development, and Eric Berger has done a great job on both fronts with his dispatch in Ars Technica. Japan is roaring back into space, increasing its launch capabilities and also preparing to deploy its own GPS infrastructure. An important contextual read for those who follow SpaceX.

Why we stopped trusting elites — a compelling deep dive by William Davies in The Guardian into how populism is animated by the failures of elites. Couldn’t agree more that elites have lost significant trust over the last few decades, mostly from hubris, corruption, and outright fraud (the financial crisis being just the largest). Elites need to hold themselves to much higher standards if we want to ask our fellow citizens for their support.

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.

Amazon did exactly what it should have with its HQ2 process

I love my colleague Jon Shieber, he’s a great guy. But his arguments against Amazon’s HQ2 process are just wrong, and are part of an increasingly poisonous atmosphere around employment growth and prosperity in America.

Our normally-scheduled analysis of AI and semiconductors will (hopefully) restart tomorrow.

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A tale of three arguments

Shieber’s pointed argument yesterday falls in line with the wider debate about gentrification and the steep inequality of today’s digital economy. “Amazon played everyone involved in the process: the governments that pandered to it and the media that covered it (including us),” he wrote. “Now it looks like the residents of these communities that will have to live with their new corporate neighbor are going to be left to pay for it.”

Shieber sees essentially three problems with Amazon’s HQ2 process and announcement:

  1. Amazon’s wealth drives its corporate power, which forces governments to do its bidding by applying to its reverse RFP process.
  2. The incentive packages lined up by NYC and Northern Virginia are a form of corporate welfare that would be better used for everyday citizens, plus Amazon would have come anyway.
  3. Amazon is not-transparent about its data or process, even while it collected data from hundreds of city governments.

Let’s take a look at that analysis.

Cities win and lose

In the normal world of economic development, cities post potential projects as Requests for Proposals (RFPs) and then wait for applications to come in, read through them, and select a winner. This is the process that New York City went through recently in selecting a group of firms to operate its new cybersecurity initiative. It’s reasonably transparent, and it is theoretically meritocratic, urban machine politics aside.

Increasingly though, companies have learned that cities will come far and wide to fight for jobs. In fact, rather than bidding for projects and having city governments or their economic development agencies select winners, companies can propose projects, have cities bid, and then the CEO can make the call. I call this a “reverse RFP.”

Almost three decades ago, United ran a reverse RFP process for the creation of a $1 billion maintenance facility which ended up being a fight between Oklahoma City and Indianapolis. As The Oklahoman wrote at the time: “United Airlines on Wednesday chose Indianapolis as the site of its $1 billion aircraft maintenance center, making Oklahoma City a loser in the race for what some termed the biggest industrial development project of the decade.” Sound familiar?

Last year, Foxconn extracted up to $4.8 billion in subsidies from Wisconsin as part of a process to build a new display manufacturing plant. And of course, Amazon ran its very public process over the past months.

Shieber wrote:

That Amazon felt comfortable enough to flip the script and instead have cities bid for the largesse of a corporation was galling enough. The fact that cities across America actually did the company’s bidding was proof of just how feckless, toothless, and seemingly powerless government at every level in this country has become.

Here’s the thing: Amazon is its own entity. It can make decisions for itself, in any way it chooses. Typically, corporate offices expand based on the personal decision of the CEO, maybe with some feedback from the board. When Square launched a customer operations office, it chose St. Louis, where its CEO Jack Dorsey is from. Such decisions get made every day with little input from cities.

Instead, Amazon opened that process up. It allowed cities to apply and provide information on why they might be the best location for its new headquarters. Maybe the company ignored all of the applications. Maybe it only ran the process to collect data. Maybe it just wanted the publicity. Maybe all of the above, and more. Regardless, it allowed input into a decision it has complete and exclusive control over.

Are cities “feckless” for applying? Should cities avoid competing tête-à-tête for jobs? Of course not. Cities compete every single day for individuals to move in, for small businesses to start, for federal tax funding. That competition is fundamentally a force for good, since it disciplines cities to make their residents — and future residents — happy. That’s one reason why Americans approve their local governments at 70%, and Congress remains mired in the single digits.

Amazon’s process hopefully woke up a number of slumbering city governments to the reality that their hometowns are not relatively as attractive as other cities.

Jobs and incentives

Photo: Chris Hepburn/Getty Images

Much of the ire over the Amazon announcement yesterday originated from the company’s combined multi-billion dollar incentive packages that it received from NYC and the DC metro. Amazon is already one of the wealthiest companies in the world, so why then does it need further incentives that divert tax dollars from other worthy causes?

As Shieber wrote:

As housing prices climb in Queens for rentals, cooperatives and condominiums, the neighborhood’s existing residents will likely be unable to afford the higher property prices. They’ll be moved out and essentially Amazon will be paying for infrastructure upgrades likely to be enjoyed solely by the company’s employees — again, at the expense of the broader tax base.

The challenge to that line of reasoning, which was common in many of the arguments against the HQ2 process, is failing to look at economic development holistically as a system. Opponents spend too much time focused on the tax receipts from income from new Amazon employees versus incentives, and not nearly enough time on all the spillover effects that will take place in these two regions.

These spillover effects are at the heart of agglomeration economies. With Amazon’s arrival, more software engineers will locate to NYC. They will start companies, join other tech firms, and expand the vitality of the community. As Edward Glaeser argues convincingly in his book The Triumph of the City, density of talent matters enormously for the success of the city. Amazon thickens the market for tech talent, and that is a huge win for both NYC and DC.

For a concrete example, Cornell Tech officially launched last year on NYC’s Roosevelt Island, which is located one subway stop from the proposed Amazon headquarters. What will the opening up of Amazon mean for the future of that new campus and its graduates? Does Cornell Tech have a better shot now at being a leading university in the computer sciences? Will more talent be drawn to Cornell Tech and ultimately into the NYC economy because of this co-location? It’s really hard to know or quantify, but the answer is almost certainly not zero.

Besides the lack of focus on spillovers, there is also this anti-gentrification line though that always grates on me. If Amazon’s plans are realized, it will deliver thousands of six-figure jobs into the city. As Enrico Moretti notes in his own book The New Geography of Jobs, it is exactly these sorts of jobs with high incomes that drive the economic vitality in cities. Killing the economy may be one way to lower housing prices, but it is a pretty foolish one.

Plus, I think there is a massive scale problem in people’s analysis of the incentives. Amazon’s incentive package for New York comes out to $1.5 billion or so. As a cost comparison, the East Side Access rail project, for instance, costs $3.5 billion a mile. New York’s incentive package is about 2,300 feet of rail, or roughly the distance between 2nd Ave and 6th Ave.

Tech jobs are bringing new wealth to cities, and obviously there are huge challenges with housing prices and affordability. But what a luxurious problem to have.

Transparency

The final point is about transparency and political decision-making. Shieber writes:

The question is less about whether Amazon’s decision to site its satellite offices in certain cities will be a boon to those cities. Instead, it’s whether the residents who already live there should be able to have a say in whether or not Amazon can come in and reshape their cities in radical ways.

But the residents in these cities did have a say — they elected mayors and governors to steer their cities and create widespread wealth. Hundreds of those elected leaders thought it prudent to apply for Amazon’s reverse RFP and sell their cities as great places for jobs.

If voters hate economic development incentives, then they can vote for politicians that will dismantle these programs. But the reality — which should be obvious — is that voters like jobs and income and employment. And they want their cities to compete and win the opportunity to bring large corporate offices to their cities, sometimes at a relatively high cost.

I frankly would love to see a more bottoms-up approach from cities around economic development, but there are frankly limits on how much the government can help small businesses. Plus, the math is often terrible — small businesses may create some local wealth, but they don’t create the kind of high-paying jobs that drive economies.

Ultimately, Amazon’s HQ2 process is a microcosm of larger forces, of technology, inequality, and democracy. The arguments against the reverse RFP are often just arguments for much broader structural change. That’s fine, but ultimately counter-productive from the municipal viewpoint. Cities aren’t going to lead the charge around structural reform — that has to happen at the federal level, and possibly even at a global context to be effective. Just ask Seattle about its city headcount tax and why Amazon might be looking at a second headquarters in the first place.

Why we lie to ourselves, every day

Human action requires motivation, but what exactly are those motivations? Donating money to a charity might be motivated by altruism, and yet, only 1% of donations are anonymous. Donors don’t just want to be altruistic, they also want credit for that altruism plus badges to signal to others about their altruistic ways.

Worse, we aren’t even aware of our true motivations — in fact, we often strategically deceive ourselves to make our behavior appear more pure than it really is. It’s a pattern that manifests itself across all kinds of arenas, including consumption, politics, education, medicine, religion and more.

In their book Elephant in the Brain, Kevin Simler, formerly a long-time engineer at Palantir, and Robin Hanson, an associate professor of economics at George Mason University, take the most dismal parts of the dismal science of economics and weave them together into a story of humans acting badly (but believing they are great!) As the authors write in their intro, “The line between cynicism and misanthropy — between thinking ill of human motives and thinking ill of humans — is often blurry.” No kidding.

Elephant in the Brain by Kevin Simler and Robin Hanson. Oxford University Press, 2018

The eponymous elephant in the brain is essentially our self-deception and hidden motivations regarding the actions we take in everyday life. Like the proverbial elephant in the room, this elephant in the brain is visible to those who search for it, but we often avoid looking at it lest we get discouraged at our selfish behavior.

Humans care deeply about being perceived as prosocial, but we are also locked into constant competition, over status attainment, careers, and spouses. We want to signal our community spirit, but we also want to selfishly benefit from our work. We solve for this dichotomy by creating rationalizations and excuses to do both simultaneously. We give to charity for the status as well as the altruism, much as we get a college degree to learn, but also to earn a degree which signals to employers that we will be hard workers.

The key is that we self-deceive: we don’t realize we are taking advantage of the duality of our actions. We truly believe we are being altruistic, just as much as we truly believe we are in college to learn and explore the arts and humanities. That self-deception is critical, since it lowers the cost of demonstrating our prosocial bona fides: we would be heavily cognitively taxed if we had to constantly pretend as if we cared about the environment when what we really care about is being perceived as an ethical consumer.

Elephant in the Brain is a bold yet synthetic thesis. Simler and Hanson build upon a number of research advances, such as Jonathan Haidt’s work on the righteous mind and Robert Trivers work on evolutionary psychology to undergird their thesis in the first few chapters, and then they apply that thesis to a series of other fields (ten, in fact) in relatively brief and facile chapters to describe how the elephant in the brain affects us in every sphere of human activity.

Refreshingly, far from being polemicists, the authors are quite curious and investigatory about this pattern of human behavior, and they realize they are pushing at least some of their readers into uncomfortable territory. They even begin the book by stating that “we expect the typical reader to accept roughly two-thirds of our claims about human motives and institutions.”

Yet, the book is essentially making one claim, just applied in a myriad of ways. It’s unclear to me who the reader would be who accepts only parts of the book’s premise. Either you have come around to the cynical view of humans (pre or post book), or you haven’t — there doesn’t seem to me to be a middle point between those two perspectives.

Worse, even after reading the book, I am left completely unaware of what exactly to do with the thesis now that I have read it. There is something of a lukewarm conclusion in which the authors push for us to have greater situational awareness, and a short albeit excellent section on designing better institutions to account for hidden motivations. The book’s observations ultimately don’t lead to any greater project, no path toward a more enlightened society. That’s fine, but disappointing.

Indeed, for a book that arguably strives to be optimistic, I fear its results will be nothing more than cynical fodder for Silicon Valley product designers. Don’t design products for what humans say they want, but design them to punch the buttons of their hidden motivations. Viewed in this light, Elephant in the Brain is perhaps a more academic version of the Facebook product manual.

The dismal science is dismal precisely because of this cynicism: because as a project, as a set of values, it leads pretty much nowhere. Everyone is secretly selfish and obsessed with status, and they don’t even know it. As the authors conclude in their final line, “We may be competitive social animals, self-interested and self-deceived, but we cooperated our way to the god-damned moon.” Yes we did, and it is precisely that surprise from such a dreary species that we should take solace in. There is indeed an elephant in our brain, but its influence can wax and wane — and ultimately humans hold their agency in their own hands.

Why the Pentagon’s $10 billion JEDI deal has cloud companies going nuts

By now you’ve probably heard of the Defense Department’s massive winner-take-all $10 billion cloud contract dubbed the Joint Enterprise Defense Infrastructure (or JEDI for short).
Star Wars references aside, this contract is huge, even by government standards.The Pentagon would like a single cloud vendor to build out its enterprise cloud, believing rightly or wrongly that this is the best approach to maintain focus and control of their cloud strategy.

Department of Defense (DOD) spokesperson Heather Babb tells TechCrunch the department sees a lot of upside by going this route. “Single award is advantageous because, among other things, it improves security, improves data accessibility and simplifies the Department’s ability to adopt and use cloud services,” she said.

Whatever company they choose to fill this contract, this is about modernizing their computing infrastructure and their combat forces for a world of IoT, artificial intelligence and big data analysis, while consolidating some of their older infrastructure. “The DOD Cloud Initiative is part of a much larger effort to modernize the Department’s information technology enterprise. The foundation of this effort is rationalizing the number of networks, data centers and clouds that currently exist in the Department,” Babb said.

Setting the stage

It’s possible that whoever wins this DOD contract could have a leg up on other similar projects in the government. After all it’s not easy to pass muster around security and reliability with the military and if one company can prove that they are capable in this regard, they could be set up well beyond this one deal.

As Babb explains it though, it’s really about figuring out the cloud long-term. “JEDI Cloud is a pathfinder effort to help DOD learn how to put in place an enterprise cloud solution and a critical first step that enables data-driven decision making and allows DOD to take full advantage of applications and data resources,” she said.

Photo: Mischa Keijser for Getty Images

The single vendor component, however, could explain why the various cloud vendors who are bidding, have lost their minds a bit over it — everyone except Amazon, that is, which has been mostly silent, happy apparently to let the process play out.

The belief amongst the various other players, is that Amazon is in the driver’s seat for this bid, possibly because they delivered a $600 million cloud contract for the government in 2013, standing up a private cloud for the CIA. It was a big deal back in the day on a couple of levels. First of all, it was the first large-scale example of an intelligence agency using a public cloud provider. And of course the amount of money was pretty impressive for the time, not $10 billion impressive, but a nice contract.

For what it’s worth, Babb dismisses such talk, saying that the process is open and no vendor has an advantage. “The JEDI Cloud final RFP reflects the unique and critical needs of DOD, employing the best practices of competitive pricing and security. No vendors have been pre-selected,” she said.

Complaining loudly

As the Pentagon moves toward selecting its primary cloud vendor for the next decade, Oracle in particular has been complaining to anyone who will listen that Amazon has an unfair advantage in the deal, going so far as to file a formal complaint last month, even before bids were in and long before the Pentagon made its choice.

Photo: mrdoomits for Getty Images (cropped)

Somewhat ironically, given their own past business model, Oracle complained among other things that the deal would lock the department into a single platform over the long term. They also questioned whether the bidding process adhered to procurement regulations for this kind of deal, according to a report in the Washington Post. In April, Bloomberg reported that co-CEO Safra Catz complained directly to the president that the deal was tailor made for Amazon.

Microsoft hasn’t been happy about the one-vendor idea either, pointing out that by limiting itself to a single vendor, the Pentagon could be missing out on innovation from the other companies in the back and forth world of the cloud market, especially when we’re talking about a contract that stretches out for so long.

As Microsoft’s Leigh Madden told TechCrunch in April, the company is prepared to compete, but doesn’t necessarily see a single vendor approach as the best way to go. “If the DOD goes with a single award path, we are in it to win, but having said that, it’s counter to what we are seeing across the globe where 80 percent of customers are adopting a multi-cloud solution,” he said at the time.

He has a valid point, but the Pentagon seems hell bent on going forward with the single vendor idea, even though the cloud offers much greater interoperability than proprietary stacks of the 1990s (for which Oracle and Microsoft were prime examples at the time).

Microsoft has its own large DOD contract in place for almost a billion dollars, although this deal from 2016 was for Windows 10 and related hardware for DOD employees, rather than a pure cloud contract like Amazon has with the CIA.

It also recently released Azure Stack for government, a product that lets government customers install a private version of Azure with all the same tools and technologies you find in the public version, and could prove attractive as part of its JEDI bid.

Cloud market dynamics

It’s also possible that the fact that Amazon controls the largest chunk of the cloud infrastructure market, might play here at some level. While Microsoft has been coming fast, it’s still about a third of Amazon in terms of market size, as Synergy Research’s Q42017 data clearly shows.

The market hasn’t shifted dramatically since this data came out. While market share alone wouldn’t be a deciding factor, Amazon came to market first and it is much bigger in terms of market than the next four combined, according to Synergy. That could explain why the other players are lobbying so hard and seeing Amazon as the biggest threat here, because it’s probably the biggest threat in almost every deal where they come up against each other, due to its sheer size.

Consider also that Oracle, which seems to be complaining the loudest, was rather late to the cloud after years of dismissing it. They could see JEDI as a chance to establish a foothold in government that they could use to build out their cloud business in the private sector too.

10 years might not be 10 years

It’s worth pointing out that the actual deal has the complexity and opt-out clauses of a sports contract with just an initial two-year deal guaranteed. A couple of three-year options follow, with a final two-year option closing things out. The idea being, that if this turns out to be a bad idea, the Pentagon has various points where they can back out.

Photo: Henrik Sorensen for Getty Images (cropped)

In spite of the winner-take-all approach of JEDI, Babb indicated that the agency will continue to work with multiple cloud vendors no matter what happens. “DOD has and will continue to operate multiple clouds and the JEDI Cloud will be a key component of the department’s overall cloud strategy. The scale of our missions will require DOD to have multiple clouds from multiple vendors,” she said.

The DOD accepted final bids in August, then extended the deadline for Requests for Proposal to October 9th. Unless the deadline gets extended again, we’re probably going to finally hear who the lucky company is sometime in the coming weeks, and chances are there is going to be lot of whining and continued maneuvering from the losers when that happens.