Usually, in the lead-up to the holiday season, all the news begins to shift to gadgets and toys and such. This year, though, news about the usual slew of gadgets has been nearly overshadowed by revelations about the US government’s use of fake cell towers and crop dusters to spy on its citizens.
But before I jump into those headlines, I want to congratulate my colleague Marin Katusa on his hit new book, The Colder War. If you’ve been reading these missives or stopped by our website lately, you’ve probably seen our promotions of Marin’s book. Still, proof of its success won’t lie in the noise we’ve made about it, but in its acceptance by paying customers.
And that proof is already apparent: since The Colder War started shipping early last week, it has become #1 on the Barnes & Noble website and #1 in both the investing and public policy categories at Amazon. In Amazon’s investing category, it finished ahead of huge franchises, like Rich Dad, Poor Dad, Graham’s The Intelligent Investor, and even Jim Cramer’s Get Rich Slowly. If you haven’t had a chance to read the riveting tale of the world’s richest man, Vladimir Putin, and the amazing political moves he’s making, I encourage you to grab a copy now. It’s a heck of a read.
Utility Cloud Computing Is Exploding in Potential and Popularity
Last week saw the fifth yearly event for a conference you’ve probably never heard of, yet seems to change the face of computing every time it’s held. It’s not another iPhone/iPad/iWatch/iOS release. It’s called AWS re:Invent and comes complete with obligatory rockstar-like billing for guys you’ve never heard of:
AWS re:Invent is a production of tech giant Amazon. AWS stands for Amazon Web Services, the undisputed king of utility cloud computing services. Amazon’s hosting platform is so big that some estimate it now hosts 20-30% of all Internet traffic. Even gigantic players like Netflix find it easier to host their systems in Amazon’s data centers—so does major league baseball.
That’s because Amazon has managed to take the computers out of computing, making the entirety of Net application development available on demand, priced by the hour. First the company offered just some basic storage and rentable computers. Then it expanded into databases, domain names, and a dozen other areas required to build a complete Internet application.
And the onslaught continues. At this year’s conference, the company announced 11 new advances, from code deployment tools (competing with upstarts like BeanstalkApp) and source control (going against GitHub, which raised $100 million from Andreessen Horowitz et al. and had just announced it was now allowing customers to integrate with AWS—that smarts!) to new database systems meant to replace Oracle’s MySQL to even faster processing (based on Intel chips, which Amazon is publicly saying are still way ahead of ARM’s offerings—maybe in exchange for some price consideration?).
But the most interesting announcement at the conference had to be “Lambda,” an event-driven application model, which I can almost guarantee will soon make Amazon one of the largest stock traders in the world. Lambda allows you to program an algorithm that kicks off whenever a data source changes in a certain way. Just point your code at a database like a list of stock prices, and whenever the data changes in a certain way, Amazon will run your algorithm on its huge server farm. No up-front costs, no servers to maintain; it just charges you by the tenth of a second of computation time your algorithm uses.
Amazon isn’t alone in making all its computing might available by the slice. Google is chasing the company, trying to make sure it gets its piece of the huge utility services pie. In the midst of AWS re:Invent, Google was crowing about its new features that make scaling apps easier. (It’s about time; Amazon did the same in 2009.)
And the companies have been in a veritable price war to drive down the costs of this commodity computing. According to RightScale, a company that specializes in helping developers create sites that scale automatically from supporting a few thousand visitors to a few million, Google had underpriced Amazon by 20-35% for similar instances just a few months ago. Then the same from Amazon became as much as 25% cheaper than Google:
That price war is almost certain to heat up from here, with Microsoft’s Azure cloud platform and follow-on entrants from Oracle, IBM, and dozens of others following in Amazon’s wake.
- Amazon isn’t just immensely powerful in computing; it sells books too! Enough that its fight with publisher Hachette made big waves in the book industry, as Hachette tried to block Amazon’s super-aggressive push for making books cost $0.99, like songs. The two finally settled last week, with a deal that lets Hachette set its own prices, just like it did with Simon & Schuster. Of course, the Department of Justice has already stopped publishers from conspiring with Apple to set prices, so we’ll see how long it lasts.
Spy-Planes, Spy-Hotels, and Massive Flaws: Cyberwarfare Is Heating Up Globally
The tech news of the month has been absolutely dominated by security flaws and cyberspying.
On top of the mysterious fake cellphone towers discovered a few weeks back and last week’s revelations of hotel Wi-Fi hacks that China used to target defense contractors and other secret carriers, now comes news that the NSA has been flying around small planes with fake cell towers on them. The cropduster-type planes aren’t spraying mind-control drugs like the conspiracy folks accuse. Rather, they’re intercepting texts and using phones as beacons to locate targets they’re tracking to within a few feet.
A few months ago, our own Doug Hornig put together a fascinating report on the history of the massive war on privacy, complete with steps to take to protect yourself. Those included using Internet anonymizers like Tor to help hide sensitive Web surfing, though we warned not to rely on them as truly private.
And we’ve been proven right. Only last week we learned about “Operation Onymous,” a sting that took down dozens of sites operating on the Darknet. Feds are even hiding the methods they used to crack the network’s code, leading to a community reverse-engineering effort to find the holes and patch them. For now, unlimited budgets and huge supercomputers are winning the war on privacy.
It’s so bad now , nearly the entire tech industry is lobbying the government to put a stop to the spying. It won’t happen, but it’s good PR.
Plus, the NSA and other hackers have been aided by the seemingly continuous stream of flaws emerging in every system these companies make:
- A few months ago, it was half the world’s SSL connections with the “heart bleed” vulnerability.
- A few weeks ago, millions of websites powered by Drupal.
- Now, it’s Microsoft users, who pretty much all found themselves patching the “Schannel” hole this week (then trying to fix the problems the patch caused).
- Apple saw it recently too with the “WireLurker” hack, but thankfully there’s been a rare arrest in that particular case. And its own botched update.
- And then Google updated its Chrome browser to address no fewer than 42 security vulnerabilities, including last month’s “Poodle” hack… where do they come up with these code names?
My advice: If you want something kept private, don’t put it on a computer of any kind… at least not an Internet-connected one. Otherwise, embrace the world with glass walls, because it ain’t going anywhere.*
Uber Exec Advocates Clintonian Tactics, Stalks Journalists
Uber, the white-hot virtual taxi service, is suddenly a magnet for bad press. The ‘Net is awash with negative articles on everything from the company’s poor treatment of drivers to its distasteful marketing efforts, such as free 20-minute rides with attractive women. So how should the company respond? Take the high road? That’s not exactly what management has in mind.
At a recent dinner in New York City, Uber’s senior VP, Emil Michael, floated the idea of hiring a team of researchers to dig up dirt on journalists who have criticized the company. In other words, give the media a taste of their own medicine. Michael even singled out a high-value target, Sarah Lacy, the always-controversial editor of Silicon Valley blog PandoDaily, who has accused the company of being sexist and misogynistic.
In the following days, the press fired back. USA Today called Michael’s remarks disgraceful. TechCrunch says Uber’s moral compass needs recalibration. And virtually every other major news site chimed in as well.
Then came word that the New York-based executive Josh Mohrer is being thrown under the bus investigated for tracking journalists without their permission, using a so-called “god view” in the service that allows them to watch any user’s location at any time during a trip.
But perhaps that’s exactly what the company wanted: more publicity. Too much bad press might ignite a widespread effort to put the brakes on the company’s growth. But we doubt it. The service is just too darn useful, and so much better than the alternatives. Plus, as the saying goes, there’s no such thing as bad publicity. And investor Ashton Kutcher (yep, Kelso from That ‘70s Show turned out to be a decent venture capitalist) seems to agree, coming to his investment’s defense.
* Kutcher agrees about computers allowing no real privacy, tweeting, “we’re all public figures now.” I sure hope he was joking.
Will Tesla Lap the Field? The Smart Money Thinks So.
Tesla Motors has been on a hot streak. The stock is up 66% so far in 2014, on top of a 344% run-up in 2013. At the current price, shares are trading at 10.6 times sales and 80 times forward earnings—expensive by any standard, but especially so for the automotive industry.
Such lofty valuations are based on expectations for extraordinary growth that in turn are based on the assumption that electric vehicles (EVs) will evolve into a mass market. Some bears doubt there will ever be a mass market for electric vehicles. Others think that even if a mass market develops, Tesla’s growth will be limited as the big automakers rush into the space and put the squeeze on Tesla. Ronald Baron, CEO of Baron Funds, rejects the latter argument and does so with an interesting bit of insight.
According to Baron, Tesla’s competitors don’t really want to build and sell electric cars. They make halfhearted attempts to do so, because that’s what is expected of them. And because their attempts are halfhearted, the development of their electric aptitude is slow, allowing Tesla to build (through its fast-growing staff of Silicon Valley engineers) a nearly insurmountable lead in expertise.
Why would the big car companies drag their feet on EVs? Baron explains:
Car companies don’t want to build electric cars because their existing plants that make engines, transmissions, and drive trains would become “stranded assets.” Their unions don’t want electric cars since they are simpler to manufacture than cars with internal combustion engines (ICE), which means fewer factory assembly workers. Dealers don’t want electric cars, either. Tesla bypasses franchised dealers to sell its cars directly to consumers. Franchised car dealers also make a lot more money servicing cars than selling new ones. Tesla cars need less service than ICE cars. A standard ICE automobile has more than 2,000 moving parts. Tesla cars have 18 moving parts!
It’s a compelling argument. And if Baron’s right, it won’t be the first time institutional thinking has allowed an industry upstart to establish a beachhead.
Movers and Shakers
Twitter stock jumped and got slammed in a matter of days, when it released questionable but huge revenue projections stretching out a decade, then its debt got an unsolicited junk rating from S&P. #BigPromises?
Get ready for a shake-up at Intel. Early next year, the chip maker will merge its PC and mobile divisions and create a new division called the Client Computing Group. CEO Brian Krzanich says the move is in response to changing market dynamics, with the lines between mobile devices and PCs becoming increasingly blurred. But not everyone’s buying it. A bit-tech article claims management is attempting to conceal Intel’s poor performance in the mobile market. Could be, but the company has yet to decide how it will report sales for the unit, so that assertion is premature.
Pandora Media, an Internet radio provider, has been a big underperformer this year. And one of the company’s top executives is jumping in. Pandora CEO Brian McAndrews recently bought 25,000 shares on the open market at an average price of $18.58, a transaction valued at $464,595. The stock popped 16% on the news but is still down 50% over the last six months.
Bigger is better… at least when it comes to smartphones. Based on a recent survey from UBS, Apple’s iPhone 6 is poised to be a huge success, especially the iPhone with the big screen. That’s bad news for the competition, especially Samsung, with 19% of its handset customers contemplating a switch to Apple, according to the survey. The potential market share shift is “stunning,” says UBS. The investment bank upped Apple’s share price target from $115 to $125, about 12% above the current market price.
The Apple Watch is set to be released next spring. And Apple anticipates big sales… 30-40 million units, based on chip orders for the new smartwatch. Bernstein raised Apple’s share price target from $100 to $120 based on the Apple Watch’s potential. We’re less bullish on the glorified fashion accessory. It may start off strong, but we expect it to fall out of favor quickly.
Animal health may not be the most glamorous sector, but that’s not stopping the smart money from moving into the space. Last week, hedge fund manager Bill Ackman took a $2 billion stake in Zoetis, one of the world’s largest animal drugmakers. It’s expected Ackman will push for a sale of the company. But Zoetis is equipped with takeover defenses, so that could be a daunting task.
Meet the company planning to disrupt the lending industry: OnDeck Capital, a Web-based firm that has attracted some of the world’s top venture capital firms, such as Google Ventures. OnDeck caters to small businesses, which the traditional banking system tends to avoid, due to high underwriting and servicing costs. The company claims there is a potential $80-$120 billion in unmet demand for small business lines of credit. On top of the many IPOs discussed last week, OnDeck is preparing to go public before the end of this year.
The race to combat the Ebola virus is on, and GlaxoSmithKline is leading the pack. Glaxos’s Ebola vaccine is poised to be the market leader in 2015 and is “likely to replace” Tekmira Pharmaceuticals’ product, according to a recent report from Frost & Sullivan. How big is the market? Frost & Sullivan’s most likely scenario calls for 20,000 Ebola cases, with an economic impact of $5.9 billion by the end of 2016. In a worst-case scenario, the research firm sees 2.8 million Ebola cases, with an economic impact of an astounding $598.7 billion.
Seattle-based Big Fish Games was gobbled up by an even bigger fish last week. The maker of faux gambling games for mobile devices was purchased by real gambling concern, Churchill Downs, for $885 million. The horse-racing company has recently expanded into running slot machines and an online pony-betting site, TwinSpires.
Bits and Bytes
Silk Road’s alleged founder Ross Ulbricht—who has yet to be convicted of or offer a plea to any crime—is paying for a bunch of new guns—for the government this time. The second auction for his personal stash of bitcoins is underway, estimated to be worth $50 million. The last one went for $19 million to venture capitalist Tim Draper, who has since lost over $6.8 million of that as the price has sagged more than 35%. No wonder the Marshals Service would rather have dollars. (If you’re new to civil forfeiture’s huge controversy, start with this amazing rundown from John Oliver’s great new HBO show.)
Microsoft is chasing Apple in the mobile space, releasing video editing apps for its Windows Phones. Ironically, writers are chastising Microsoft for only offering the apps for its own house-made Lumia phones, while letting Apple slide for only offering home-baked phones and never licensing its software for other devices. Sometimes you have to feel bad for Redmond—damned if they do, damned if they don’t.
If you’ve been to Home Depot lately, you’ve probably seen a half-dozen endcaps covered in fancy new thermostats. These connected home devices are all meant to compete with the crazy cool (and crazy expensive) Nest, which Google bought last year for a few billion. Honeywell’s got one to defend its turf. And now GE is in the game, thanks to its recently acquired division, Quirky, which put out seven new connected home devices, including smart power sockets… does everything have to be smart?
Sony’s going to try to turn the millions of PlayStations it has installed around the world into competition for Netflix and Hulu with a new TV streaming service. Whether it gets lost in the sea of new offerings from CBS, HBO, Verizon, Dish, etc., remains to be seen. It’s almost like we need one company from which we can buy all the stations we want in one convenient bundle… hmmm.
Hip alternative news startup Vice, whose investors include comedian Bill Maher, just hired a former Obama staffer as its COO.
In the music biz, Taylor Swift of all people has been publicly sparring with hit music service Spotify to push for more money from its service to the artists it serves up on demand.
While everyone else is focused on traditional media, nVidia is upping its standalone gaming offerings with a new, upgraded tablet and a streaming games service. Unfortunately, sales have been weak so far for its gadgets as tablets cool off, and the company has yet to break out of being a chip supplier to the companies it’s trying to compete with here.
Facebook appears to be moving onto LinkedIn’s turf, with plans to launch a business networking site: Facebook at Work. The service will allow users to message colleagues, connect with other people in their professional network, and collaborate on work. Users will be able to keep their professional profiles separate from their personal Facebook profiles. The service will be free of charge, at least initially. LinkedIn fell nearly 5% on the news.
It’s been just over a year since Nokia sold its ailing handset unit to Microsoft, and in strange turn of events, Nokia is jumping back into the hardware game with the release of an Android-powered tablet that will retail for $249. The new gadget enters a hotly contested and commoditized space. But the tablet contains at least one unique feature: a reversible USB connector.
Fortune has named Google’s Larry Page the most ambitious CEO in the universe. No argument here. After all, Page has green-lighted many of the most ambitious projects in the corporate world, such as self-driving cars. And for that, Page has received plenty of flak, with critics arguing that the company is neglecting its core search business. But longtime shareholders aren’t complaining. The stock has increased nearly 500% over the last decade.
The FCC wants to improve Internet connectivity in the nation’s school system. To that end, the agency is proposing that the annual cap on spending for school Internet needs be raised from $2.4 billion to $3.9 billion, a 62% increase. Subscribers to voice-communication services will foot the bill, which the FCC estimates works out to about an extra $2-$6 per household per year.
What do you do with thousands of obsolete payphone booths? Transform them into Wi-Fi kiosks—at least, that’s the plan in New York City. The kiosks, which will be rolled out over the next few years, will provide Big Apple dwellers with blazing-fast Internet service and domestic phone calls free of charge. The project will cost $200 million but generate for the city more than $500 million over the next 12 years. The profits will surely be wisely spent.
And in odder news (with a legal theme this week):
- A judge found that civil courts cannot steal all of a country’s domain names… amazing that had to go to an appeal to begin with.
- The EU pressured Apple to change the “Free” button in iTunes for downloading, well, free stuff, to “Get.” Really.