VC has a pivotal role to play in the climate fight, but it can’t do everything

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

The COP26 in Glasgow last week averted disaster but also made clear the private sector’s crucial role in tackling climate change. Besides a few notable political wins to address methane leaks and rekindle frayed cooperation between economies, it was new commitments from the private sector that perhaps hold the most promise.

Back in 2006, Al Gore’s film “An Inconvenient Truth” helped ignited $25 billion of venture investments in clean tech, mostly in the solar and ethanol sectors. Despite investors’ optimism, much of this capital burned out only a few years later, and as a result, many venture investors categorically avoided clean tech for the better part of a decade.

Thanks to our successes in the first clean tech wave, we are naturally optimistic about the role of VC in helping fund and scale game-changing clean tech solutions. Coming out of COP26 and as the world relies on the rapid adoption of clean tech to tackle climate change, it’s important that we understand VC’s further potential — but also its limitations.

VC’s strengths

At its best, the venture model enables young companies to take risks on early technology and pursue innovation in a way that large companies cannot. It might be counterintuitive, but venture-backed startups — beyond the magic created by their highly performing founders and organizations — also often outspend much larger and better-financed companies.

For a decade, Tesla, then an early-stage startup, easily outspent and outthought VW, Ford and the rest of the established car companies on engineering, designing and manufacturing electric vehicles (EVs). Similarly, startups Joby Aviation and Lilium are running circles around Boeing and Airbus on electric vertical takeoff (eVTOL) aircraft and QuantumScape is leading on next generation solid-state batteries.

Read more from the TechCrunch Global Affairs ProjectDue to short-term horizons, CEOs at large companies focus on incremental growth, cost savings and other “market-driven” imperatives and cannot stomach the risks required to develop and commercialize disruptive innovation. Although history is filled with vivid lessons in disruption, big company CEOs still don’t lead. As a result, we continue to find areas where long time horizons, high risks and lack of leadership yield opportunities uniquely tailored to VC. A striking example is that 20 years after Tesla, there are still such opportunities in electrifying the transportation space. For instance, with the EV revolution now underway, the need to recycle EVs and their batteries is becoming critical to sustaining growth; the leadership position in this nascent endeavor to recycle batteries is once more occupied by a startup, Redwood Materials.

Venture investors can push forward climate-friendly disruption in many legacy industries. Take, for instance, the chemical and manufacturing sectors. The incumbent companies in these and other heavy industries are slow to act and culturally inept in reacting to disruption. VC money, on the other hand, is helping to develop technologies that will give them no choice but to adapt, such as sourcing hydrocarbons sustainably by using renewable energy to separate hydrogen from water and carbon from air and combining these elements into all the chemicals that we have until now made from coal, oil and gas. Young companies like Electric Hydrogen and Twelve are doing exactly that.

Venture is also well positioned to provide funding for experimental technologies, like fusion energy. Outside of government, there are essentially no incumbent companies in this area, and with no adjacent companies bold enough to seize the day, the field is reliant on startups. Several startups have this year attracted more than $500 million each of investment capital, including Helion Energy and Commonwealth Fusion Systems.

VC can’t solve everything

Despite my optimism about our ability to have an impact, we must remember that tech, let alone venture funding, is only one piece of the puzzle in addressing climate change. We must scale clean tech solutions unnaturally fast in order to combat the relentless march of climate change, and VC is not well structured as a sector to address some of those key challenges.

First, we need to see giant sums of capital, dwarfing anything in VC, flow to low-risk, already established solar, wind and storage technology, often in countries with weaker currencies and much higher financing costs than the nearly free money we can access in the United States. By our estimates, more than $30 trillion, and therefore more than 10% of all investable capital in the world, needs to be invested in the coming decade, at rates of return of no more than a few percent; otherwise, clean infrastructure will not proliferate fast enough to combat the relentless tide of climate change.

The good news is that giant sums of capital are currently languishing in bonds at rates of return below those in renewables. One of the challenges of this decade is to incentivize other sectors of the financial markets to reallocate some of that capital, especially in emerging markets where demand for power, transportation, materials and food is growing quickly. VC, with its demand for high returns and mismatched scale of capital, will have little bearing on this giant, but pivotal, infrastructure challenge and opportunity.

Many point to “impact investing” as a way around this problem. And it’s true: During our early years, we were often the only capital available to a new startup, and therefore we had the leverage to demand a high return. We could invest in high-impact initiatives without sacrificing our financial incentives.

But as we have been joined by many new funds in pursuing clean tech opportunities, the balance between impact and return has become harder to strike. We need to recognize the potential incongruence between high returns and high impact, and VCs today need to add singular value to justify a higher cost of capital and also remain disciplined amidst great enthusiasm in the sector. It’s very tempting to chase “hot” opportunities and shift focus to proliferating more mainstream technology. From my perspective, clean tech is still ripe for breakthrough technological innovation and the best and most impactful VCs will maintain a contrarian philosophy and focus on areas that are unpopular and unable to otherwise attract capital at an early stage.

Second, the importance of government intervention cannot be overlooked. The market is not pushing incumbents in the energy and other industrial spaces to transition away from dirty, fossil-based systems fast enough. Despite the promises of net-zero pledges and the growing accountability for results demanded by shareholders, government mandates likely remain necessary to speed up this process.

Finally, philanthropy has an important role to play. I am very proud that I helped launch the nonprofit MethaneSAT, an organization that will police methane leaks from oil and gas operations globally through satellite imaging. Though clearly impactful, the initiative’s role as an open and objective policy enforcement tool does not align properly with a for-profit endeavor. There are numerous other important nonprofit interventions to fund and pursue.

It has been a great privilege to have supported from an early stage some of the most iconic and important companies and technologies in clean tech. But enabling these technologies and the startups around them remains only one ingredient in our fight against climate change. We cannot let the excitement about new technology distract us from the monumental infrastructure tasks needed in the near future. A substantial portion of the world’s financial capital needs to turn its attention to this space, and other forms of capital — social, political, philanthropic — must also be deployed if we are to secure a more stable future for generations to come.

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Ant is changing how consumers borrow money from its app

In December 2020, Beijing laid out a guideline for Ant Group to “rectify” its business after calling off its IPO, which could have been the largest initial public offering in history. In the plan, regulators asked Ant to revamp its credit business, among other changes that would make it subject to the same set of regulations overseeing financial institutions. In other words, Ant can no longer get by with its freewheeling practices by calling itself a “tech” firm.

Nearly a year later, the Alibaba-affiliated fintech powerhouse showed that it has almost finished restructuring its popular consumer credit products.

Credit loan products contributed nearly 40% of Ant’s revenues in the six months ended June 2020, according to the firm’s prospectus filed last year. The two main products are Huabei (Spend), which launched in 2014 for daily expenditures by consumers, working like a virtual credit card. A year later Jiebei (Borrow) was introduced as a credit product for larger consumption transactions.

Under the old model, Ant originated loans that were then underwritten by third-party banks and other financial institutions. As of June 2020, about 98% of Ant’s credit balance originated through its platform was underwritten by its partner financial institutions or securitized, according to the firm’s prospectus.

Jiebei has split itself into two brands, users reported earlier this week. Credit lines extended by third-party banks are now called Xinyong Dai (Credit Loan) on Alipay, Ant’s flagship financial services app. Those provided by Ant’s consumer finance company, which was recently established at the behest of regulators, are staying under the Jiebei brand.

Huabei has similarly started a restructuring, which will show users which loans are extended independently by banks and which by Ant’s consumer finance firm. Huabei will focus on “small-ticket” everyday transactions, it said in a Weibo post.

“Following the brand differentiation, users applying for credit loan services will have more information about their credit providers to avoid brand confusion.”

Huabei also noted that it’s now submitting consumer credit information to a database overseen by China’s central bank. It started the routine in September after it established its consumer credit company, which, just like banks, need to report their credit information to the central bank in China.

Head of Instagram Adam Mosseri will testify before the Senate on teen mental heath

Head of Instagram Adam Mosseri will testify before the Senate for the first time as part of a series of hearings about online safety for children and teens. Per The New York Times, Mosseri’s hearing will take place on December 6.

Mosseri’s upcoming testimony comes after Sen. Richard Blumenthal (D-CT) wrote a letter to Facebook (now Meta) CEO Mark Zuckerberg, asking that either he or Mosseri participate in a Senate hearing.

Mosseri posted a video responding to the news of his forthcoming appearance on Capitol Hill. He discussed growing concerns about teen safety online, then outlined past actions Instagram has taken to protect young users, like making young teens’ accounts private by default and restricting the kinds of ads they see.

“I’m going to be talking about these issues with Congress relatively soon,” Mosseri said. “These are important issues, but we all have shared goals. We all want young people to be safe when they’re online.”

When reports leaked in September about Instagram’s knowledge of its dangerous affects on teen girls, the Senate Committee on Commerce, Science, & Transportation didn’t take it lightly. The committee first questioned Facebook Global Head of Security Antigone Davis, who was reticent to answer direct questions from the Senate. Then weeks later, the committee heard testimony from Facebook whistleblower Frances Haugen, a former civic integrity product manager who leaked thousands of internal documents known as the “Facebook Papers.” In her hearing, Haugen told the Senate that Facebook cares more about profits than user safety.

“I am disappointed that Facebook has been unwilling to be fully transparent with me, other members of Congress, and the public, and appears to have concealed vital information from us about teen mental health and addiction,” wrote Senator Blumenthal, who chairs the Senate committee hosting these hearings. “When I sought specific information about Instagram and teens in an August letter, Facebook provided clearly evasive and misleading answers that have now been directly disputed by Ms. Haugen.”

Now, after hearing from executives at Snap, TikTok and YouTube last month, the committee will convene again to hear from the head of Instagram himself. Given the committee’s demonstrated concern about Instagram’s connection to the onset of adolescent eating disorders, it’s expected that Mosseri will be questioned about leaked internal studies that Meta conducted about Instagram’s impact on teen girls.

The internal study, obtained by The Wall Street Journal and later published by Meta itself, found that Instagram makes body image issues worse for one in three teen girls, and that teens blame Instagram for increases in anxiety and depression. Among teens with suicidal thoughts, the study says that 6% of users traced their desire to die by suicide to Instagram. Plus, 32% of surveyed teen girls reported that when they felt bad about their bodies, Instagram made those feelings worse.

Shortly after these documents were leaked, Mosseri announced that Instagram would pause building Instagram Kids. Meta already has products like Messenger Kids, which lets users under 13 chat with people approved by their parents.

“While we stand by the need to develop this experience, we’ve decided to pause this project,” Mosseri wrote. “This will give us time to work with parents, experts, policymakers and regulators, to listen to their concerns, and to demonstrate the value and importance of this project for younger teens online today.”

But critics are skeptical of Meta’s ability to build an Instagram Kids product responsibly. Per research published this month, Facebook allegedly continues to surveil teens for ad targeting.

“It is urgent and necessary for you or Mr. Adam Mosseri to testify to set the record straight and provide members of Congress and parents with a plan on how you are going to protect our kids,” Senator Blumenthal wrote to Zuckerberg.

Ex-Microsoft exec Harry Shum leads ‘digital economy’ research center in Shenzhen

Overlooking a lush wetland in Hong Kong, the International Digital Economy Academy (IDEA) quietly opened last year.

The research institute sits on the northern bank of the Shenzhen River, which separates Hong Kong from mainland China. But technically, it’s located inside a special area straddling the two cities: the Shenzhen-Hong Kong Innovation and Technology Cooperation Zone. The name is self-explanatory. It’s a joint effort by the governments of Shenzhen and Hong Kong, with support from Beijing, to collaborate on scientific and technological research.

IDEA is one of the organizations that have set up inside the 3.89 km² special zone — which is about the size of 540 football pitches — and is a brainchild of Harry Shum. The renowned computer scientist was an executive vice president at Microsoft from 2013 to 2019 and also co-founded Microsoft’s largest research branch outside the U.S., Microsoft Research Asia.

Like his former colleague at Microsoft, Kai-Fu Lee, Shum was active in both the research and business sides of AI. Now at IDEA, his team aims to “develop disruptive innovative technologies based on social needs and give back to society in a way that allows more people to benefit from the development of the digital economy.” Several research directors at IDEA are also Microsoft veterans, including Yutao Xie and Jiaping Wang.

The sweeping regulatory clampdown on China’s internet firms has led to headlines saying Beijing has turned against tech. But the government’s intent is more nuanced. It’s zeroing in on Big Tech deemed harmful to the society and economy, companies that have encouraged financial market risks, gaming addiction, exploitation of gig workers, and other ills.

In the meantime, China remains fixated on its goal to promote fundamental research and reduce reliance on Western technologies. In Shenzhen, home to tech giants like Huawei, DJI and Tencent, the government is recruiting world-class scientists. Harry Shum and his team are among the latest to have joined the raft.

IDEA definitely has a buzzy name (and a great acronym). The term “digital economy” comes up often in President Xi Jinping’s speeches on how technology can be a driving force for the economy. The “digital economy has become a key force in restructuring the global economy and transforming the global competitive landscape in recent years,” the President said in October. “The internet, big data, cloud computing and other technologies are being increasingly integrated into all sectors of economic and social development.”

IDEA is examining how AI can transform industries like finance, manufacturing and medical care. This week, it announced it’s partnering with leading Chinese quant trader Ubiquant on a joint lab to work on “risk monitoring and avoidance for financial transaction markets,” as well as “basic infrastructure for high-performance computing systems.”

IDEA is just one of the many research labs that have sprung up across Shenzhen in recent years. The Shenzhen Institute of Data Economy, located on the Shenzhen campus of the Chinese University of Hong Kong with support from the government, is another group working to advance China’s digital economy.

India plans law that will prohibit ‘all private cryptocurrencies’ with ‘certain exceptions’

India plans to introduce, evaluate, and enforce a bill to prohibit “all private cryptocurrencies” in the country, according to a legislative agenda for the winter session.

The Indian government said Tuesday evening that the proposed law will allow “certain exceptions” to promote the underlying technology of cryptocurrency and its uses.

The bill — called Cryptocurrency & Regulation of Official Digital Currency Bill 2021 — will also create a “facilitative framework” for the creation of the official digital currency for the country, the legislative agenda adds.

Lawmakers in India have been discussing risks of cryptocurrency trading and trialing a government digital currency for some time. But the country is yet to have a legislation to oversee the space.

An increasingly growing number of Indians, many of whom have never invested in the stock market or anything else, have started to trade cryptocurrencies in recent quarters, prompting concerns among some that they might end up losing their money.

In the meantime, local cryptocurrency exchanges have reported growing volumes of transactions and userbase and raised capital from high-profile investors. CoinDCX, backed by B Capital, and CoinSwitch Kuber, backed by a16z and Coinbase Ventures, became unicorns this year.

India’s Prime Minister Narendra Modi, and several other lawmakers as well as several industry stakeholders met as recently as earlier this month to discuss the space and some of the recent developments.

Many lawmakers expressed concerns about the nature of ads carried by cryptocurrency exchanges. A consensus was reached in that meeting that these “irresponsible advertisements”, that promised wild profits to consumers by investing in crypto, were misleading youths in the nation and must be stopped, TechCrunch reported earlier.

Several Bollywood stars including legendary Amitabh Bachchan and Ayushmann Khurrana and Ranveer Singh, who have starred in several of the country’s biggest blockbusters, have promoted cryptocurrency trading in TV and newspaper ads.

Lawmakers have also expressed concerns around potential misuse of using crypto trading vehicles for laundering money and financing terrorism efforts.

Shaktikanta Das, Governor of the central bank Reserve Bank of India, said last week that the country needs to have much deeper discussions on the issue of cryptocurrencies.

“When the central bank says that we have serious concerns from the point of view of macroeconomic and financial stability, there are far deeper issues involved,” Das said at an event. “I’m yet to see serious, well-informed discussions in the public space on these issues.”

This is breaking news. More to follow shortly…

Congress must clarify how the infrastructure bill will impact cryptocurrency

The $1 trillion U.S. infrastructure bill, signed into law by President Joe Biden last week, contains provisions that would tax cryptocurrency trades and yield the U.S. government some $2.8 billion a year.

That is, frankly, not a lot of money.

The issue is that the crypto tax element of the law is not clearly written, and the government risks squashing a burgeoning part of the economy.

The infrastructure bill says “a brokerage” needs to keep track of these things. But you can enter into a smart contract without a brokerage, so who is responsible for reporting in that case? Would a miner be considered a brokerage?

There’s no question that, on some level, the government is due taxes earned from cryptocurrency trading like any other investment gain — typically at the time a person liquidates, or like a transfer of property. But the vagueness of the law risks either trading platforms eliminating access for U.S. citizens or simply preventing smaller cryptocurrency investors from joining or remaining in the market.

We’ve seen this before. FATCA, the Foreign Account Tax Compliance Act, caused some financial institutions to block U.S. citizens from using their services because the compliance rules were too burdensome relative to the risk and potential benefit.

Here are a few scenarios — some simple and some complex — that need to be thought through:

  • If you buy a car using bitcoin, the time you use the bitcoin to buy a car would be when you’re taxed. That’s easy enough.
  • If you go to a crypto exchange and use dollars to buy Ether, it should be easy to figure out how to tax. That’s also a straightforward transaction.
  • If you transfer your crypto into a smart contract you’re using to hold an NFT that other people buy, things get messy quickly, running the risk of individuals dealing with taxes that have the complexity of a corporate transaction.

The minimum is $10,000 — a carryover from the Bank Secrecy Act. Transactions below that amount are not taxed, but $10,000 is a fairly low amount of money to have to deal with a complex tax situation.

The tax reporting for trading platforms and investors may be onerous enough to discourage further investment, which ultimately may make the tax worthless, or at least generate far less revenue than estimated.

And for the IRS, this could be a complex tax to audit. They will need a way to tie identities to these transactions. This is already done on trading platforms like Coinbase, but individual miners typically do not.

What’s somewhat noteworthy about this particular bill is that while tax laws will almost always be problematic initially, they usually get clarified over time. This infrastructure bill seemed to go the opposite direction. Congress started with the impact number ($1.1 trillion) — and then tried to find ways to generate enough taxes to match the number.

This is unusual in a few ways, but perhaps indicative of our current political climate. Politicians used to start with the specific programs they wanted to fund, then tried to make the cost as small as possible. This time, both parties were fighting to promise a larger number when their party was in power. (Trump, after all, worked on a $2 trillion infrastructure bill, though it was never signed into law.)

It’s a bit of a strange time in the U.S. politically, with mayors from Miami to New York and across the political spectrum offering to take their paychecks in cryptocurrency. Meanwhile, on the national level, there’s no clear guidance on the federal government’s long-term plans.

Ultimately, cryptocurrency is here to stay in one form or another, and the federal government needs to get serious about an approach by talking to experts like economists, academics and cryptocurrency platform developers.

A ‘techlash’ with Chinese characteristics

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

This is the second in a pair of articles comparing the impact of the U.S. and Chinese tech crackdowns. Yesterday, Special Series Editor Scott Bade wrote about the geopolitical consequences of each country’s respective approaches. In this piece, Nathan Picarsic and Emily de La Bruyère examine how China’s “techlash” is driven by domestic politics.

In November 2020, Chinese regulators abruptly suspended Ant Group’s IPO in Hong Kong and Shanghai. In July 2021, immediately after ride-hailing service Didi went public on the New York Stock Exchange, Chinese authorities announced sweeping investigations into the company, removing 25 of its apps from China’s app stores — and sending share prices plummeting. The next month, Chinese state media attacks slashed Tencent’s valuation by $60 billion.

These companies effectively represent China’s PayPal, Uber and Facebook. They constitute the highest-profile targets of the Chinese Communist Party’s crackdown on its domestic Big Tech companies. That crackdown stands to transform the Chinese commercial landscape, and thus has huge implications for the wider world, including the U.S. tech sector.

Yet right now, the CCP’s tech crackdown is being misunderstood. Framed as an effort to cripple the Chinese commercial sector, it is being seen as an anti-monopoly effort similar to that underway in Washington. Beijing has deliberately encouraged this interpretation, couching its effort in antitrust language that resembles U.S. rhetoric as well as privacy language that echoes that of Europe.
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But Beijing’s crackdown is not akin to U.S. antitrust efforts. Beijing is focused not on creating a competitive marketplace, but rather on quashing any challenge to its authoritarian power — in order to strengthen both its domestic control and its standing in geopolitical competition. Beijing is also focused on asserting a new definition of privacy, decidedly unlike that of European regulators; one in which the CCP has private governance over all data. These are the objectives driving China’s techlash.

The goal is to subjugate the domestic Chinese technology landscape to the CCP — and to ensure that the former serves as a vehicle of power projection for the latter. This makes Beijing’s actions the opposite of an anti-monopoly effort. China is reining in its leading tech players in order to support a bigger, more controlling monopoly: the CCP.

Perversely, Washington’s ongoing antitrust push risks playing directly into Beijing’s ambition. Any U.S. break up of Big Tech would exacerbate the asymmetries of scale and centralization that skew today’s tech competition in China’s favor.

The gulf between China’s crackdown and that underway in the United States is evident in the regulatory foundation underpinning Beijing’s latest moves. The CCP’s actions draw on an emerging legal and regulatory architecture for the governance of data — including, most recently, the Data Security Law (DSL) formally implemented in September. U.S. analyses tend to describe it as a “data privacy law.” However, the DSL does not foster “privacy” the way U.S. conceptions — or the European Union’s GDPR — might interpret the term.

The DSL neither restricts companies’ ability to collect data nor ensures the anonymization of information. Rather, the law restricts their ability to export data outside of China or share it with entities that are not the Chinese government (including, notably, foreign governments). At the same time, the DSL locks in Beijing’s access to companies’ information. In doing so, it provides the CCP domestic control over data.

Under the DSL, private data cannot be bought, sold or shipped at will. It is not private — unless, of course, you consider the CCP to be a member of your inner circle of trust.

The Didi case is instructive. Did’s crime was not collecting user information, but allegedly storing that data outside of China and sharing it with overseas regulators as a part of its IPO process. This is worlds apart from proposals in Washington to introduce sweeping data portability and interoperability requirements aimed at increasing consumer privacy and competition.

As the CCP sees it, information technology is catalyzing a new industrial revolution: the digital revolution. This revolution, which is characterized by data as a new factor of production, will reshape the global system. The player, whether government or industry, that can control the production, distribution and consumption of data will be able to lead that reshaping, in effect claiming global hegemony. The CCP believes this is the path to unmatched Chinese military and economic power — and an unrivaled international surveillance state.

To get there, Beijing has committed to building and internationalizing digital architectures, including networks like 5G and the industrial Internet of Things (IoT), as well as platforms like ride-share apps and e-commerce hubs. These systems demand scale: Their integration and growth are to be encouraged. But to deliver competitive returns to China as geopolitical assets, these systems must exist under government control.

So, while China will continue to promote the growth of digital platforms and networks, the CCP will make sure that they do so at Beijing’s behest. Beijing doesn’t want an Apple, Facebook or Google. It wants a super integrated Apple-Facebook-Google that is part and parcel of the CCP.

This approach might manifest in tactical moves that look like antitrust efforts, such as investigations into AliPay and WeChat. But the operative objective is not increased competition. Rather, Beijing seeks to wrap these players into the larger monopoly that is the CCP. Should, as Didi founder reportedly suggested will happen, the Chinese government take over the company, Didi will become part of a far larger and more pernicious platform than Apple, Facebook or Google.

The U.S. will fail to prevent the relative rise and unrivaled influence of Beijing’s tech champions as long as it assumes Beijing is mirror-imaging the American approach. In fact, the U.S. will facilitate Beijing’s ambitions: The only real, credible alternatives to the CCP’s tech ambitions are firms like Apple, Facebook and Google. But instead of turning to them as critical national assets in waging a determinative economic and geopolitical contest, the United States is focused on kneecapping them. Instead of paying attention to China’s global tech offensive and the domestic agenda that propels it, the United States is fixated on overly broad regulation of its own tech sector.

The CCP’s crackdown on Big Tech is about competition, but not fair competition. It’s about strengthening Beijing’s hand as it competes to shape tomorrow’s world — and make it, for any player that is not the Chinese Communist Party, perfectly unfair. Washington and Silicon Valley have the tools to prevent this: It’s time for U.S. political leaders to engage the U.S. tech ecosystem in a new kind of conversation about regulation. What we need now is competitive strategy informed by geopolitical realities and the importance of the private technology sector to national security.
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China and US tech crackdowns set the stage for the next phase of competition

The TechCrunch Global Affairs Project examines the increasingly intertwined relationship between the tech sector and global politics.

This is the first in a pair of articles comparing the impact of the U.S. and Chinese tech crackdowns. This piece, by Special Series Editor Scott Bade, considers the geopolitical consequences of each country’s respective approaches. Tomorrow, Nathan Picarsic and Emily de La Bruyère examine how China’s “techlash” is driven by domestic politics.

It’s not a good time to be a tech giant. In China, high-flying tech firms were once some of the few able to operate with relative independence. Tech leaders like Alibaba’s Jack Ma and Didi’s Jean Liu were mainstays of Davos and became global symbols of Chinese innovation. No longer.

After Ma gave a speech critical of Chinese regulators last year, his company’s record IPO was suspended and he was effectively “disappeared” for months. Tencent was then hit with numerous fines for antitrust violations; since last year both firms have lost about 20% of their respective value — a combined total reaching over $300 billion. Meanwhile Didi’s shares tumbled 40% after they were ordered off of the country’s app stores. More recently, Chinese regulators have imposed new restrictions on edtech and gaming — and banned cryptocurrency altogether.

Read more from the TechCrunch Global Affairs Project

America’s tech tycoons may have their freedom, but they and their businesses are also coming under government scrutiny. Leading antitrust advocates like Lina Khan, Tim Wu and Jonathan Kanter have all landed senior roles in the Biden administration. Meanwhile Congress is considering new legislation that would regulate tech on issues ranging from privacy to age restrictions.

In both Beijing and Washington (not to mention Brussels, which has been battling tech giants for years), the consensus is increasingly clear: Big Tech has grown too powerful and too unaccountable. Government, politicians across the global ideological divide believe, must now exert some measure of control in the name of the public good. For founders, executives and investors, political risk has never been higher.

But while on the surface both crackdowns look similar, the implications of the two countries’ antitrust strategies couldn’t be more different. In China, antitrust enforcement is being wielded as the sharp end of the stick of the ruling Communist party. The goals of the U.S. antitrust movement, however, are far from uniform.

Yes, China is taking decisive action where the U.S. is just getting started. But Chinese government paeans to data privacy and limiting kids’ screen time are fig leaves to its real agenda: complete political and economic control. In a country with effectively no independent civil society, the tech sector has been one of the few places where power has accrued outside the ruling Communist Party. In the ever-more repressive regime of Xi Jinping, such independent sources of power are unacceptable (see: Hong Kong). The message is clear: Toe the party line or face the might of the Chinese state.

Better yet, project Chinese power. China has long aimed to control the next generation of technology and has aggressively moved to set standards for a host of critical industries and sectors, from 5G and AI, to renewable energy and advanced manufacturing as part of its China Standards 2035 project. While a key part of this strategy has been to quietly dominate international standard-setting bodies, Beijing recognizes that controlling companies developing these technologies are just as critical. Huawei, Xiaomi and TikTok might not actively spy on Westerners, as many Western politicians fear, but the more widespread their usage, the more Chinese standards become global default.

Thus contrast the fate of Jack Ma with that of the founding family of Huawei, China’s 5G leader. Ma might be a Communist Party member, but Huawei’s success making Chinese technology the default 5G kit in much of the world burnishes Chinese technological credibility. Huawei has of course traded on its closeness to Beijing — choosing Huawei has become synonymous with a vote of confidence in China — but been willing to endure the risks. Concern over its ties to Chinese security services has made it the target of an American campaign against it that culminated in the arrest in Canada of CFO Meng Wanzhou, daughter of the company’s founder, over accusations that Huawei violated U.S. sanctions against Iran.

But loyalty doesn’t go unrewarded. Beijing arrested two Canadians and successfully leveraged their detention to cut a deal for Meng’s release. If Huawei wasn’t beholden to Beijing before, it certainly is now. The lesson for China’s other tech moguls? The party takes care of its own.

China’s crackdown has chilled investment, squandered talent and perhaps killed the entrepreneurial spirit that has built its formidable tech sector. But it has unequivocally succeeded in bringing its tech giants to heel in the service of Chinese power.

If Beijing is chastening its tech giants to serve the national interest, the U.S. is rebuking its own to do what, exactly? U.S. trustbusters might be concerned with overweening tech power, but they hardly have a strategic vision for what a more competitive sector would look like. While American tech giants have occasionally made the (credulous) argument that their size is essential to American competitiveness, neither they nor the government see them as agents of American power. Indeed, you’d be hard-pressed to determine whether Congress sees tech giants or China as the greater adversary.

The hope of antitrust supporters is that breaking up or at least regulating the likes of Google and Apple will allow greater competition, which would in turn benefit the body politic and the U.S. tech sector more broadly. But while splitting off AWS from Amazon or Instagram from Facebook might benefit consumers, would it help the U.S. maintain technological primacy? It is entirely unclear.

Until now America’s hands-off, capitalist system — open, flat, democratic — has produced the best innovators in the history of the world. It has benefited from government-supported research but the industry has succeeded despite its government associations not because of it. And that has been a good thing — U.S. firms are (mostly) trusted worldwide because they are known to adhere to the rule of law and not the vicissitudes of whichever administration holds power.

The U.S.-China tech race promises to fundamentally test this premise: Can a decentralized, uncoordinated industry operating independently of government maintain its edge against an industry being marshaled by a superpower?

I remain optimistic that American (and allied) innovation will succeed where it always has. Openness breeds ingenuity. Our research and startups are second to none. And a proper focus on competition suggests a boom to come.

But that doesn’t mean there isn’t room for at least a limited national strategy. I’m not saying the U.S. needs an industrial policy like China’s; after all, China’s top-down model has produced epic waste that could well weigh down its economy for decades. And a blunt “break them up” mentality would likely do more harm than good.

Instead, American lawmakers — now that they are coming around to the European view on antitrust — should work across the Atlantic to develop a sensible framework for global competition standards. The new U.S.-EU Trade and Technology Council and Quad technology working group can lay the groundwork to create a bona fide democratic technology bloc that both fosters cooperation and preserves fair play.

This middle way — provide government support without dictating commercial outcomes — has precedence (see: the Cold War origins of Silicon Valley). It’s also the best policy to provide guardrails for America’s tech industry without smothering its entrepreneurial spirit.

As Congress and the administration consider how to handle tech competition now, they should keep in mind that it’s not just about rectifying current harms but about charting the future of American technology itself. Nothing less than American economic leadership is at stake.

Read more from the TechCrunch Global Affairs Project

Pentagon announces new cloud initiative to replace ill-fated JEDI contract

The Pentagon announced a limited request for bids for a new cloud initiative today that replaces the cancelled $10 billion, decade-long JEDI contract initiative. You may recall (or not) that it previously ran a winner-take-all bid it had dubbed JEDI (short for Joint Enterprise Defense Infrastructure). The new initiative goes by the much less catchy name, Joint Warfighting Cloud Capability, or JWCC for short.

Under the terms of the RFP, Amazon, Microsoft, Google and Oracle have been invited to bid. That multi-vendor approach is markedly different from the JEDI RFP, where just a single vendor was going to walk away with the prize. In fact, the Pentagon makes clear that while it favors Amazon and Microsoft, any of the qualified (invited) vendors could get a piece of this deal.

As the RFP states, “The Government anticipates awarding two IDIQ contracts — one to Amazon Web Services, Inc. (AWS) and one to Microsoft Corporation (Microsoft) — but intends to award to all Cloud Service Providers (CSPs) that demonstrate the capability to meet DoD’s requirements.”

It appears it limited the number of vendors involved because after researching its requirements, the Pentagon found that there were a limited number of companies out there capable of meeting them. “Market research indicates that a limited number of sources are capable of meeting the Department’s requirements. Currently, the Department is aware of only five U.S.-based hyperscale CSPs (cloud service providers). Furthermore, only two of those hyperscale CSPs — AWS and Microsoft — appear to be capable of meeting all of the DoD’s requirements at this time, including providing cloud services at all levels of national security classification.”

The government is still working out the pricing for this one, but with multiple vendors involved, it’s entirely possible that it will exceed the $10 billion price tag of the now-defunct JEDI contract. “The Department is still evaluating the contract ceiling for this procurement, but anticipates that a multi-billion dollar ceiling will be required. The contract ordering ceiling will be included in any directed solicitations issued to vendors.”

It’s worth noting that each company that wins an award under the terms of the RFP will get a three-year contract for its piece, with two one-year option periods.

JEDI was mired in controversy from the start as top cloud vendors jockeyed for position, and lesser ones also tried to get into the act. There was much drama, complaints to the president, complaints from the president, complaints about presidential interference, formal inquiries galore and several lawsuits. In the end, in spite of everyone believing that Amazon would win the bid, it didn’t. Microsoft did.

But that wasn’t the end, and the two companies went to the mat over the decision, ending up in court, of course. Eventually the Pentagon tired of the whole thing and decided to scrap the project altogether.

That didn’t mean, however, that the military’s requirement to modernize its computing systems went away just because the contract did. That’s why today, the Pentagon announced the new initiative to push technology modernization involving cloud infrastructure back to the forefront.

It’s worth noting that according to Synergy Research, as of Q3 earnings reports, the top three vendors — Amazon, Microsoft and Google account for 70% of the market share. Amazon leads the cloud infrastructure market with 33% market share, Microsoft follows with around 20% and Google is in third with 10%. Oracle is in the low single digits, according to Synergy.

US says Iran-backed hackers are now targeting organizations with ransomware

The U.S. government, along with counterparts in Australia and the U.K, have warned that Iranian state-backed hackers are targeting U.S. organizations in critical infrastructure sectors — in some cases with ransomware.

The rare warning linking Iran with ransomware landed in a joint advisory Wednesday, issued by the Cybersecurity and Infrastructure Security Agency (CISA), the Federal Bureau of Investigation (FBI), the Australian Cyber Security Centre (ACSC), and the U.K’s National Cyber Security Centre (NCSC).

The advisory said that Iran-backed attackers have been exploiting Fortinet vulnerabilities since at least March and a Microsoft Exchange ProxyShell vulnerability since October to gain access to U.S. critical infrastructure organizations in the transport and public health sectors, as well as organizations in Australia. The aim of the hackers is ultimately to leverage this access for follow-on operations such as data exfiltration, extortion and ransomware deployment.

In May this year, for example, the hackers abused Fortigate gear to access a web server hosting the domain for a U.S. municipal government. The following month, CISA and the FBI observed the hackers exploiting Fortinet vulnerabilities to access the networks of a U.S.-based hospital specializing in healthcare for children.

The joint advisory has been released alongside a separate report from Microsoft on the evolution of Iranian APTs, which are “increasingly utilizing ransomware to either collect funds or disrupt their targets.” In the report, Microsoft said it has been tracking six Iranian threat groups that have been deploying ransomware and exfiltrating data in attacks that started in September 2020.

Microsoft singles out one particularly “aggressive” group it calls Phosphorus, also known as APT35, which the company has been tracking for the past two years. While it previously used spear-phishing emails to lure victims, including presidential candidates during the 2020 U.S. election, Microsoft says the group is now employing social engineering tactics to build rapport with their victims before using BitLocker, a full-disk encryption feature built into Windows, to encrypt their files.

CISA and the FBI are urging organizations to take a series of actions to mitigate the threats posed by the Iranian attackers, including updating operating systems, implementing network segmentation, and using multi-factor authentication and strong passwords.