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yesJP MangalindanNone
March 22, 2020
Amazon has become a crucial lifeline to the outside world during the global COVID-19 pandemic that's driven millions into their homes, but navigating the demands of this new reality will not be simple for the massive retailer.
The Seattle tech giant faces huge challenges ahead, including delivery and supply chain issues, as it walks a fine line between meeting a surge in online and in-store demand and keeping warehouse workers and store employees safe, all while making sure its Amazon Web Services keep so much of the internet running smoothly. But Amazon is also uniquely well-positioned to thrive because of its diverse businesses, which include cloud, e-commerce, online grocery delivery, and Whole Foods. The company's $13.7 billion acquisition of Whole Foods in 2017 is proving particularly prescient right now, as shoppers empty store shelves — or order delivery. As everyone is stuck at home, Amazon is, more than ever, the place that has what they need.
"We're providing a vital service to people everywhere, especially to those, like the elderly, who are most vulnerable," wrote Amazon CEO Jeff Bezos in a memo sent to Amazon employees and posted on the company's website on Saturday. "People are depending on us."
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Amazon already owns 38.7% of all U.S. e-commerce sales according to the latest estimates from digital research firm eMarketer, and right now people are relying on it even more. Wedbush Securities analyst Michael Pachter conservatively estimates that Amazon orders are up between 10-12% in the U.S, driven by shoppers buying more items online, boosting the company's revenues an additional $800 million per month, at least.
"Amazon stands to be one of the biggest beneficiaries, and they're actually doing a pretty good job getting their ducks in line," said Oweise Khazi, a director and analyst at Gartner.
How is Amazon handling increased demand for goods?
It's tricky. Amazon's core e-commerce offerings have never been more in demand. "The good news [for Amazon] is that people who stay home can't shop elsewhere and that means a lot more business, particularly grocery," Pachter said. "The bad news is that some of us are using their services for the first time, and high demand has slowed delivery. The slower delivery may impair some people's perceptions about speed and reliability."
Increased online and in-store orders are taking a toll on Amazon's usually well-oiled logistics system. Amazon, which has long used fast delivery for online orders — including with Amazon Fresh — as a way to beat out competition, is currently having trouble meeting delivery promises. Orders once routinely delivered same-day or in two days now take several days and up to two weeks to get to customers. Meanwhile, in some cities like Los Angeles and Washington, available delivery windows for Amazon Fresh orders are virtually non-existent.
"Try ordering Amazon Prime Fresh right now — the wait is over a month," Pachter added. "It's supposed to be same-day. But nobody else is doing better. I just ordered at my local supermarket on Monday for Sunday delivery, and they canceled my order the next day without explanation. Nobody can keep up with this."
Amazon is clearly aware of the issue: atop the homepage of Amazon's grocery site, which includes its Amazon Fresh and Whole Foods Market units, the company warns that "inventory and delivery may be temporarily unavailable due to increased demand."
The brunt of this increased consumer demand is falling heavily on Amazon's 800,000-plus full-time and part-time workforce. While many Amazon office employees are able to work from home, warehouse workers, some of whom are being ordered to work "compulsory overtime," report being deeply concerned for their health as they continue to work in fulfillment centers. More than 1,500 U.S. workers have signed a petition calling for the company to take more safety and health precautions, as some workers in Spain and Italy have come down with the virus.
At some Whole Foods locations, all that panic buying translates to "record sales" — at one Texas location, sales have doubled — but it's also stressing out workers, some of whom have been sobbing at work and having panic attacks, according to a Vice report. One disgruntled Whole Foods worker tweeted earlier this week to Bezos: "Where is my overtime pay as a Whole Foods worker during a pandemic!!!"
If Whole Foods can effectively keep up with demand while keeping workers safe, it stands to generate Amazon huge revenues.
"How well stores keep products in stock will determine if they thrive or lose share in this crisis," said Sucharita Kodali, vice president and principal analyst at Forrester Research.
And while Whole Foods may be in higher demand, Amazon's other physical retail locations are likely hurting. The company currently operates more than 20 Amazon Books stores and a dozen or so Amazon 4-Star stores across the U.S. Many are in cities with social-distancing restrictions in place, including New York City, Seattle, Los Angeles and Washington.
Another Amazon product in high demand amid the coronavirus panic is streaming entertainment. And while customers are likely spending money to stream shows and movies, Amazon's original content development is taking a huge hit.
Amazon Studios, the company's TV and film production arm, paused production on all Amazon Original series, an Amazon Studios spokesperson confirmed to Protocol, in order to enable social distancing for the health and safety of its shows' casts and crews. The decision affects Amazon Originals including the upcoming "Lord of the Rings" series, which reportedly cost $1 billion to produce and employs roughly 800 people, as well as production of season 2 of "Carnival Row," which stars Orlando Bloom and films in Budapest. (In an Instagram post Bloom eventually took down, the actor confirmed he and many of crew members were being sent back to the U.S. in the interim.)
For viewers, those production delays may mean having to wait longer for shows to air, but for Amazon it means millions of dollars lost as production crews scatter back to their homes, and simply wait.
OK, but what is Amazon doing about it?
Amazon has made several big changes very quickly: It is beefing up headcount in key areas, temporarily increasing workers' wages and prioritizing the delivery of select, in-demand items.
Amazon has experience significantly ramping up its workforce, as it does every year in the months leading up to the holidays by hiring temporary seasonal workers. Now it's having to do something similar on a moment's notice. To keep up with the current surge in online orders, Amazon announced plans on Monday to hire an additional 100,000 employees in the U.S. That may be welcome news for people newly out of work in hard hit industries like events, hospitality and food service. Amazon said it will also raise pay for warehouse, delivery and Whole Foods employees by $2 an hour through April. After intense criticism for not providing enough sick time to its hourly Whole Foods employees, Amazon changed its policy and will give them unlimited sick days through the end of March, and workers who test positive for the coronavirus have two weeks of sick leave.
Amazon also told online sellers this week it had made an unprecedented decision in an effort to meet increased demand from shoppers for certain crucial items. Third-party items that don't fall into six categories — baby products, health and household, beauty and personal care, grocery, industrial and scientific, and pet supplies — won't be accepted at Amazon fulfillment centers until April 5. Prioritizing these products, according to an Amazon spokesperson, will let the company move more quickly to restock and ship customer orders.
That's obviously good for Amazon but bad in the short-term for third-party sellers who offer things like books, apparel, electronics other than PC monitors and webcams, and toys, which are not considered "high-demand products" right now.
"A high share of third-party sellers tends to be smaller establishments who might not be able to weather the reduced demand/cancellation of non-essentials products at this point as they depend almost exclusively on Amazon for their revenue," explained Khazi. "Many of them tend to have a single chain of product supply, which has a higher chance of being impacted, especially if they are dependent on Chinese manufacturers."
Translation: third-party vendors that sell products from China will likely run into supply chain issues since China temporarily shuttered factories to deal with the coronavirus. (Industrial output in China plunged 13.5% this January and February versus a year earlier, according to Bloomberg.) Those factory closures may also affect Amazon Basics, the 11-year-old private label behind Amazon-branded housewares, apparel and consumer electronics, which are largely manufactured in Chinese factories, as well. Amazon Basics generated $7.5 billion in sales in 2018 and could grow to $25 billion in annual sales by 2022, according to SunTrust Robinson Humphrey, an investment banking firm.
Related: A coronavirus 'perfect storm' hits Apple
What about Amazon Web Services?
As Amazon grapples with the logistics of increased demand across its retail offerings, it's easy to overlook the fact that the hugely profitable Amazon Web Services is likely to be affected by the broad economic fallout of COVID-19 as well.
AWS represents 11% of Amazon's overall revenues and captured $2.6 billion, or 67%, of the company's operating income during the company's fourth quarter. It remains the company's fastest-growing business segment. In the short-term, experts expect AWS to weather the coronavirus storm quite well, largely because so many businesses rely on the cloud computer giant, and it has locked in large companies —among them Fox Corporation, Pinterest, and the Swiss multinational pharmaceutical company Novartis — into lucrative multi-year contracts that guarantee regular spending by businesses in exchange for discounted services.
The longer coronavirus cripples the economy, though, the more it could be a problem for AWS, as its clients are affected. While big businesses aren't likely to decrease spending, small to medium-sized businesses could delay their transitions to the cloud as part of more frugal spending, or even shut down operations.
And the future of the business?
Though Amazon is primed to emerge from the pandemic intact, and likely having made money, the forecast may not be all positive for the company. Amazon's annual Prime Day is coming up in July, which marketing firm IgnitionOne estimates generated $6.1 billion in sales in 2019. Since its launch in 2015, those sales have been heavily dependent on apparel and consumer products shipped from China, which could still be delayed due to supply chain interruptions. And if the economy is still bad, consumers may be spending less anyway.
The key question for Amazon now is about optics. Will it be seen as having helped the world navigate this turmoil? Or as benefitting from the crisis? Much of that will come down to whether Amazon is able to take care of its workers, who now find themselves at the front lines of a global panic.
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"Enterprises like Amazon will be more essential than ever, but an added challenge at this time will of course be to keep their employees safe and socially distanced," said Khazi.
On Friday, AWS announced a $20 million initiative to fund research and development of diagnosting solutions, which includes working toward a swifter coronavirus test. On Saturday, Bezos stressed that he is trying as hard as he can to get millions of masks for warehouse workers. Yet even the richest man in the world can't get his order fulfilled right now. "I want you to know Amazon will continue to do its part, and we won't stop looking for new opportunities to help," he wrote. If Amazon can keep up with demand and deliver what consumers need, it may very well emerge as the company that kept households stocked — and mouths fed — during a global crisis of unimaginable proportions.
JP Mangalindan
JP Mangalindan (@jpmanga) is a former senior reporter at Protocol. JP most recently covered the intersection of business and technology as Yahoo Finance’s chief tech correspondent. His work has appeared in Fortune, GQ, Mashable, and New York magazine.
People
Beeper built the universal messaging app the world needed
It's an app for all your social apps. And part of an entirely new way to think about chat.
Beeper is an app for all your messaging apps, including the hard-to-access ones.
Image: Beeper
January 22, 2021
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
January 22, 2021
Eric Migicovsky likes to tinker. And the former CEO of Pebble — he's now a partner at Y Combinator — knows a thing or two about messaging. "You remember on the Pebble," he asked me, "how we had this microphone, and on Android you could reply to all kinds of messages?" Migicovsky liked that feature, and he especially liked that it didn't care which app you used. Android-using Pebble wearers could speak their replies to texts, Messenger chats, almost any notification that popped up.
That kind of universal, non-siloed approach to messaging appealed to Migicovsky, and it didn't really exist anywhere else. "Remember Trillian from back in the day?" he asked, somewhat wistfully. "Or Adium?" They were the gold-standard of universal messaging apps; users could log in to their AIM, MSN, GChat and Yahoo accounts, and chat with everyone in one place.
<p>Migicovsky has spent the last two years building a modern equivalent. It's called Beeper, and it pulls 15 different messaging services — including WhatsApp, Slack, Instagram and iMessage — into a single app. The app launched this week, and will cost $10 a month for anyone who wants to use it. Migicovsky said roughly 40 people have been using the app for the last few months, and that he's come to rely on it completely. "Beeper went down for me a couple of weeks ago, and I had to fix it," he said. "And for the hours I was fixing it, I had to open up Slack, Telegram, Signal, everything. It was like going back to the Stone Ages." </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>To explain how Beeper works, and why Migicovsky thinks it's valuable, you have to understand the protocols. In the early days of online messaging (otherwise known as The Adium Era), many messaging services were based on a protocol called Extensible Messaging and Presence Protocol, or XMPP. When it was designed, XMPP intended to make all kinds of communication on the internet, from text to video to file transfers, into decentralized systems. For a while, it worked: From AIM to Google Talk to the early days of Facebook Chat, some of the biggest messaging services used XMPP. </p><p>A few years later, Google and Facebook — and soon others — decided to stop supporting XMPP. Some argued XMPP was too complicated a protocol and simply didn't work; others said they could develop features more quickly by keeping everything in-house. "Today, group conversations, sharing your day with stickers or emojis and messaging across multiple devices have become second nature to many of us," Google product manager Mayur Kamat <a href="https://web.archive.org/web/20150704141805if_/https://plus.google.com/+MayurKamat/posts/ETBvtp9VYav" rel="noopener noreferrer" target="_blank">wrote in 2015</a> announcing the switch from Google Talk (which supported XMPP) to Hangouts (which didn't). Whatever the reason, messaging apps soon became walled gardens, with everything run — and stored — in one place.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>In the last few years, though, a group of developers has been building a new protocol, one they hope can offer all the openness and decentralization of XMPP but with all the modern features people need now: encryption, voice and video, integrations with other apps and the like. It's called Matrix. "Matrix is our effort to right the balance" after decades of great tech being turned into walled gardens, said Matthew Hodgson, Matrix's technical co-founder. "If you were going to build the holy grail of messaging," the team asked themselves several years ago — a service where anyone can participate, where everything is encrypted, where nothing is locked off from the ecosystem — "what would it look like?" Some of this tech has been built in the past, but always inside a single company or service. They wanted to build it and give it to the internet.</p><p>Ultimately, Hodgson said, Matrix is more than a messaging protocol. "It's a real-time database for any kind of information," he said, from financial tickers to drone flights to VR streams. "Matrix just gives you the building blocks to synchronize it between different deployments." Messaging just happens to be something with which Hodgson and his team have plenty of experience. Not to mention, it's kind of a killer app. Matrix-based messaging can support a whole ecosystem of apps, the way email protocols do. It's all end-to-end encrypted, and it's resilient by virtue of not being housed in a single data center. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>"When Slack goes down for six hours," Hodgson said, "or Signal goes down for 24 hours, people realize, 'hang on, all my eggs are in one basket.'" There are already decentralized, harder-to-kill apps like Slack or Signal running on Matrix, where there's less security risk or possibility of downtime. He added: "The narrative is swinging in our direction." Millions of users use Matrix messaging tools already, he said, including the entire French government, which uses a Slack-like tool called Element that is built by the Matrix team.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTUxMjQ3Mi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY3MDIzNzU0NX0.NPrsWaIEy9RUG90_cIsyZMFW7foaGyiuP_vHdD2T-Ok/img.png?width=980" id="ce4ab" class="rm-shortcode" data-rm-shortcode-id="37ea800dd363bb5c0c588b2727990131" data-rm-shortcode-name="rebelmouse-image" alt="Beeper chats">
<small class="image-media media-caption" placeholder="Add Photo Caption...">Beeper tries to wrangle lots of messaging apps into one. Eventually, that might not be necessary.</small><small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Image: Beeper</small></p><p>Matrix is key to Beeper, but in a slightly different way. Migicovsky isn't trying to build a brand-new chat service to compete with WhatsApp; he's trying to wrangle all the services people use into a system that feels more open. So he's taking advantage of a Matrix feature called Bridges, which pulls other apps into the Matrix ecosystem. Sometimes this is easy: Migicovsky said IRC and Telegram have great APIs, making it easy to send and read messages from other apps. Most others are a bit hackier, though Migicovsky said it's rarely impossible: "If you can open something in a browser, we can get to it."<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p>One of Beeper's most enticing integrations is with iMessage, which would mean users could access their iMessages on Android or Windows through the Beeper app. This one is stupendously hacky. If a Beeper user has a Mac that's always on and connected to the internet, it's easy; Beeper just connects to the same relay that delivers messages to all your Apple devices, and sends them to Beeper. But if you don't have a Mac that fits the description, there's only one way in. "We wrote an app for jailbroken iPhones that acts as a relay," Migicovsky said. "There's a database on the iPhone called sms.db. And so we just read and write to that." </p><p>But wait, it gets hackier! There's no way to get everyone to jailbreak their iPhones, so Migicovsky found a workaround. "I buy used old cracked-screen iPhones for cheap," he said. "I jailbreak them, and send them to people with the app installed. And they just set it up and leave it somewhere connected to Wi-Fi." There's a box full of semi-busted iPhones, all the way back to the iPhone 4, on his desk right now. The plan works, though it doesn't exactly scale. "We tried a lot of different things," Migicovsky said. "It might not be like this forever." </p><p>There's one part of this setup that Migicovsky actually quite likes. "You control the phone," he said. All the code is open source, and Beeper encrypts all messages; only users have their passwords to access them. But if you really don't want Beeper getting your texts anymore, just unplug that jailbroken iPhone, and you're done.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p>Migicovsky has lots of ideas for how to improve Beeper as a product, and messaging in general. "No one has really innovated in chat in the last 10 years," he said, before allowing that maybe Slack and Discord get a little credit. But that's it. He's not sure what better looks like, though. He's intrigued by new ways to sort and organize messages, even how threads could look. "I'm really just excited about having this ... not a blank canvas, a malleable canvas," he said.</p><p>The list of places people message seems to get longer every day, and Migicovsky wants Beeper to support them all. "I want to build LinkedIn and Snapchat, and I'm not dating but a lot of people want Tinder messages on this," he said. He's not trying to replace those apps entirely, though. "Discord's amazing," he said, by way of example. "It has cool animations, you have the audio chat that's really good, it's got this social element." For Discord things, people should use Discord. But texting with friends or sharing photos shouldn't be a Discord thing. Or an Instagram thing, or a WhatsApp thing, or a Signal thing, or a Slack thing. It definitely shouldn't be all of those, separately.</p>"It would be wonderful if we didn't have to build what we built," Migicovsky said. "And you could just look me up, like in a phone book or something, and say, 'I want to talk to Eric.'" In the long run, Matrix might help make that possible — already, it appears some of Twitter's decentralization work through Project Bluesky is <a href="https://twitter.com/bluesky/status/1352302821140549632" rel="noopener noreferrer" target="_blank">being done on Matrix</a>, and Hodgson said he's had conversations with a number of big players in the tech world about build a more open and interoperable messaging ecosystem. For now, the best anyone can do is put everything in one place. It's hacky, but it's progress.
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David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
About Protocol | Enterprise
‘It’s not OK’: Elastic takes aim at AWS, at the risk of major collateral damage
Elastic's long-running dispute with AWS entered a new chapter last week with big changes to two of its open-source projects. AWS now plans to take those projects under its wing.
"I don't know why this is surprising to people," Elastic CEO Shay Banon said in an interview with Protocol.
Photo: Michael Nagle/Getty Images
January 22, 2021
Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
January 21, 2021
Fed up with what he sees as unfair competition from AWS, Elastic CEO Shay Banon felt he had no choice but to restrict the way third parties can use two important open-source projects developed by his company. Yet much of enterprise tech thinks he just threw the baby out with the bathwater.
Last Thursday, Elastic published a blog post — curiously titled "Doubling down on open, Part II" — announcing that Elasticsearch and Kibana, two widely used open-source projects in enterprise tech, would no longer be available under the permissive Apache 2.0 license. Instead, all subsequent releases to those projects will only be available under either a controversial new license known as the SSPL, or the Elastic License, both of which were designed to make it difficult for cloud companies to sell managed versions of the open-source projects they're applied to.
<p>Elastic has never tried to hide its disdain for AWS, a feud that dates back to the <a href="https://aws.amazon.com/blogs/aws/new-amazon-elasticsearch-service/" rel="noopener noreferrer" target="_blank">2015 launch of Amazon Elasticsearch Service</a>. The introduction of that AWS service, a managed version of the Elasticsearch open-source project, was arguably the low point in <a href="https://www.geekwire.com/2018/open-source-companies-considering-closed-approach/" rel="noopener noreferrer" target="_blank">the strained history</a> between enterprise tech companies based around open-source projects and AWS.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>It is, <a href="https://mostlycloudy.substack.com/p/for-the-new-york-times-a-swing-and" rel="noopener noreferrer" target="_blank">of course</a>, completely legal for AWS — or any company — to build its own service around any permissively licensed open-source project. In fact, <a href="https://aws.amazon.com/blogs/opensource/stepping-up-for-a-truly-open-source-elasticsearch/" rel="noopener noreferrer" target="_blank">AWS reacted to Elastic's decision Thursday afternoon</a> by announcing plans to <a href="https://opensource.com/article/18/7/forks-vs-distributions" rel="noopener noreferrer" target="_blank">fork</a> the two projects, or to take them in a new AWS-led direction, under the same permissive Apache 2.0 license.</p><p>But a generation of open-source enterprise companies (and their venture capitalist backers) see AWS as an anticompetitive gorilla stomping on their opportunity to monetize innovative software, and Elastic took particular offense to AWS' use of the Elasticsearch trademark.</p><p>"I don't know why this is surprising to people," Banon said in an interview with Protocol. "I'm making a stand here. I'm drawing a line and saying this is not OK."</p><p>However, critics argued Banon's decision paved the way for Amazon to turn its open-source distribution of the Elasticsearch project, the <a href="https://opendistro.github.io/for-elasticsearch/" rel="noopener noreferrer" target="_blank">Open Distro for Elasticsearch</a>, into a proper fork. The move had enormous potential to disappoint contributors to the Elasticsearch and Kibana projects who expected their work would be freely available to the community, only for that promise to be discarded once it was no longer economically comfortable for its corporate backer.</p><p>"Choosing to fork a project is not a decision to be taken lightly, but it can be the right path forward when the needs of a community diverge — as they have here. An important benefit of open-source software is that when something like this happens, developers already have all the rights they need to pick up the work themselves, if they are sufficiently motivated," AWS said in the post announcing its decision.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>After AWS published its decision, Banon issued an additional statement: "<em></em>When we announced the change, we sadly expected this. This what made it so hard. But I am also relieved. Relieved we are free to focus on products vs. battle abuse. Relieved that I can trust our community will see through this misinformation & confusion.<em>"</em><br></p><p>While legal experts believe Banon has a solid trademark case against AWS, the licensing changes clearly did not deter AWS, and they have no effect on companies like Microsoft and Google Cloud, which have signed deals with Elastic.</p><p>"They are aiming to hit Amazon, but what they are doing is throwing a boulder at Amazon floating peacefully in a pond of an ecosystem," said <a href="https://www.vmbrasseur.com/" rel="noopener noreferrer" target="_blank">VM (Vicky) Brasseur</a>, a corporate strategist and former vice president of the <a href="https://opensource.org/" rel="noopener noreferrer" target="_blank">Open Source Initiative</a>. "I don't think it's worth it. They are going to destroy their ecosystem."</p><h3>Quite a stretch</h3><p><a href="https://www.elastic.co/enterprise-search" rel="noopener noreferrer" target="_blank">Elasticsearch</a> is an open-source search engine first released in 2010 by Banon, who would go on to co-found Elastic in 2012. It is often used alongside two other Elastic open-source projects, Logstash and Kibana, to form the "<a href="https://www.elastic.co/what-is/elk-stack" rel="noopener noreferrer" target="_blank">ELK stack</a>," which is well known in enterprise tech circles among companies that want to build search capabilities for their websites while also using those search capabilities to pursue their system logs for events such as errors.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Customers can buy a managed version of this stack <a href="https://www.elastic.co/pricing/" rel="noopener noreferrer" target="_blank">called Elastic Cloud</a>, which runs on all three major U.S. cloud providers, or manage it themselves on either their own hardware or clouds. But there are also some companies and individual users that are happy to take on the burden of managing <a href="https://github.com/elastic/elasticsearch" rel="noopener noreferrer" target="_blank">the open-source version</a>.</p><p>The new licensing changes, however, mean that companies using this open-source version must now agree that they won't use Elasticsearch and Kibana as part of their own cloud service, and that has raised questions. The changes are directed at big cloud providers, but there are many small and medium businesses that could be using the open-source projects as part of their own software stack in a way that may or may not be infringing on the new licenses, depending on the quality of the lawyers involved in any dispute.</p><p>"If you're using them, please look at how they fit into your software supply chain, look at how this is going to impact your product and your projects. Don't just overlook it and assume it's nothing," Brasseur said.</p><p>Banon said "the vast majority" of Elasticsearch and Kibana users will not be affected by these licensing changes, but he acknowledged there will be valid concerns felt inside the Elasticsearch community.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p>"I'm very worried about [alienating community members]; this is why we didn't make this change lightly," Banon said. "Regardless of how much we try to relax our user base, some people will end up being alienated, and others, which I'm more worried about, might be fed by FUD," the tried-and-true "fear, uncertainty and doubt" campaigns that have been part of enterprise tech marketing for decades.</p><p>Brasseur agreed that the licensing move comes with significant risks to Elastic's goodwill inside its community of contributors.</p><p>"They're now taking these contributions, which were given by external contributors freely and openly with the assumption that their contributions would be freely and openly available, and now they're locking them up behind a non-open license," she said. "It's perfectly fine to do that. But you better be talking to your community up front and telling them how and why, and then I think it's probably wise for you to be then compensating people for the value that they have provided to your company. Otherwise, you're just using them."</p><h3>Off the mark</h3><p>The root cause of the dispute between Elastic and AWS mostly centers on the trademark issue, which prompted <a href="https://searchaws.techtarget.com/news/252471650/AWS-faces-Elasticsearch-lawsuit-for-trademark-infringement" rel="noopener noreferrer" target="_blank">a lawsuit from Elastic in 2019</a> that continues to work its way through the court system.</p><p>The use of that trademark caused a great deal of confusion among Elastic's customers, according to Banon, who believed that the AWS service was the result of collaboration between the two companies when it was really just a repackaging of the open-source Elasticsearch project. <a href="https://twitter.com/Werner/status/649738362086027265?s=20" rel="noopener noreferrer" target="_blank">A tweet from Amazon CTO Werner Vogels</a> calling the new service a "partnership" certainly did not help.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p>"To modify Elastic's product and call it Amazon Elasticsearch is, in my view, a pretty clear trademark infringement," said Pamela Chestek, <a href="https://chesteklegal.com/" rel="noopener noreferrer" target="_blank">a trademark attorney</a> and former intellectual property attorney at IBM's Red Hat.</p><p>But when <a href="https://www.geekwire.com/2019/elasticsearch-distribution-amazon-web-services-sends-shockwaves-open-source-software/" rel="noopener noreferrer" target="_blank">AWS launched the Open Distro for Elasticsearch in 2019</a>, the trademark dispute also turned into a dispute over code.</p><p>AWS charged that Elastic was co-mingling open-source code with proprietary code, making it hard for users to know if they required a paid subscription or not to use certain features. The Open Distro was pitched as a way to get the benefits of open-source Elasticsearch with the features needed to make it work properly, and it was released under the Apache 2.0 license.</p><p>Elastic denied that it was trying to confuse its users, and alleged that AWS was using third-party code in that distribution that was a copy of its own work.</p><p>"Recently, we found more examples of what we consider to be ethically challenged behavior. We have differentiated with proprietary features, and now we see these feature designs serving as 'inspiration' for Amazon, telling us their behavior continues and is more brazen," <a href="https://www.elastic.co/blog/why-license-change-AWS" rel="noopener noreferrer" target="_blank">Banon said in a blog post Tuesday</a>.</p><h3>License to print money</h3><p>As with all disputes in enterprise software, this one really comes down to money. Elastic doesn't make money when people use the open-source versions of its software, and all things considered, would prefer they pay for the licensed versions.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="6">
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</div></p><p>From the outside it's hard to pinpoint exactly how much money AWS has made from its Elasticsearch services, but it's a non-zero amount: AWS likely recorded more than $12 billion in overall cloud revenue during the fourth quarter of 2020. At the same time, Elastic's own cloud services are growing quite strongly as the world shifts to cloud-based software.</p><p><a href="https://s2.q4cdn.com/265747582/files/doc_financials/2021/q2/Q2-FY21-Earnings-Press-Release.pdf" rel="noopener noreferrer" target="_blank">Elastic revenue rose 43% in its most recent quarter</a>, with SaaS subscription revenue for Elastic Cloud driving much of that growth. Over the course of 2020, Banon wasn't worried enough about the competitive threat from AWS to mention it during the quarterly conversations with the financial community.</p><p>In fact, in answering a question about competition with the cloud providers from a financial analyst during Elastic's December earnings conference, Banon said: "We feel like we're ahead of the pack on all three when it comes to the maturity and the future readiness of our products, and that's reflected, I think, by the usage of it." Elastic's stock has more than doubled in the last 12 months.</p><p>"We're doing well as a business, and I'm not going to sit here and apologize for it," Banon said. "It's not about doing well or not doing well as a business, it's about doing what's right."</p><p>In the aftermath of the licensing changes, however, what's "right" for Elasticsearch users, open-source contributors, and Elastic shareholders takes on different meanings, depending on where you sit.</p><p>"I would have been a lot more sympathetic to Elastic if they said, 'look, these choices we made when we were very young, they aren't working out for us anymore. They aren't working out with our business plan,'" Chestek said. "A lot of people would be unhappy with that, but it would be honest."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="7">
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</div></p><p><strong><em>Update:</em></strong><em> This article was updated at 3:45 p.m. PT to include a statement from Elastic following the release of AWS' blog post.</em></p>
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Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
Protocol | Enterprise
January's Slack outage started with an AWS networking error
And problems with Slack's infrastructure meant things got far, far worse from there.
This sign was about as interactive as Slack's software on Jan. 4.
Photo: Justin Sullivan/Getty Images
January 20, 2021
Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
January 20, 2021
The hours-long outage that kicked off the 2021 working year for Slack customers was the result of a cascading series of problems initially caused by network scaling issues at AWS, Protocol has learned.
According to a root-cause analysis that Slack distributed to customers last week, "around 6:00 a.m. PST we began to experience packet loss between servers caused by a routing problem between network boundaries on the network of our cloud provider." A source familiar with the issue confirmed that AWS Transit Gateway did not scale fast enough to accommodate the spike in demand for Slack's service the morning of Jan. 4, coming off the holiday break.
<p>Slack declined to comment beyond confirming the authenticity of the report. AWS declined to comment.</p><p>Over the next hour, packet loss caused by the networking problems led Slack's servers to report an increasing number of errors. That forced healthy servers to handle an increasing amount of demand as more and more servers were tagged as "unhealthy" due to their lack of responsiveness, thanks to the networking issues. Slack engineers were not alerted to the problems until around 6:45 a.m. PT.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>"By 7:00am PST there were an insufficient number of backend servers to meet our capacity needs," according to the report, and Slack went down hard across the world.</p><p>Slack had a backup reserve of servers ready to go, but began to discover problems with the provisioning service it used to spin up and verify those backup servers, which was not designed to handle the task of trying to get Slack up and running on more than 1,000 servers in a short period of time. It was also unable to debug the issues properly because <a href="https://www.protocol.com/enterprise/observability-monitoring-software" target="_self">its observability service</a> was also affected by the networking issues, according to the report.</p><p>Between 7 a.m. PT and roughly 8:15 a.m. PT, AWS increased the capacity of AWS Transit Gateway, and moved Slack from a shared system to a dedicated system, Slack told customers. Once Slack's problems with its provisioning system were fixed, the new servers found they had stable network connections, and service began to come back to normal over the next hour.</p><p>In its report, Slack promised customers it would improve several aspects of its architecture over the next few months, starting with a better alert system for packet loss and closer ties between its observability system and its provisioning service. It will also redesign the server-provisioning service to handle a similar type of event and set new rules around how its servers automatically scale in response to demand.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>One thing that isn't yet clear is how folks at AWS coordinated their response to the outage: AWS, after all, is actually a Slack customer, since <a href="https://techcrunch.com/2020/06/05/slacks-new-integration-deal-with-aws-could-also-be-about-tweaking-microsoft/" rel="noopener noreferrer" target="_blank">the two companies signed a sweeping partnership deal</a> last June. For its part, <a href="https://www.geekwire.com/2019/slack-renegotiated-deal-amazon-web-services-2018-will-spend-least-212m-2023/" rel="noopener noreferrer" target="_blank">Slack signed a five-year deal with AWS in 2018</a> that appears to cover the majority of its cloud computing needs through 2023.</p><p>Slack has run into problems in the past when a disproportionately large number of people try to log into its service all at once. A similar outage occurred on Halloween in 2017 when a coding error kicked Slack users offline and everybody tried to log back in at the same time. "It's similar to DDoSing yourself," former Slack director of infrastructure Julia Grace <a href="https://www.geekwire.com/2017/slacks-julia-grace-lessons-learned-downtime-responsibility-pay-forward/" rel="noopener noreferrer" target="_blank">told me at the time</a>.</p>
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Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
People
Amazon’s head of Alexa Trust on how Big Tech should talk about data
Anne Toth, Amazon's director of Alexa Trust, explains what it takes to get people to feel comfortable using your product — and why that is work worth doing.
Anne Toth, Amazon's director of Alexa Trust, has been working on tech privacy for decades.
Photo: Amazon
January 18, 2021
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
January 18, 2021
Anne Toth has had a long career in the tech industry, thinking about privacy and security at companies like Yahoo, Google and Slack, working with the World Economic Forum and advising companies around Silicon Valley.
Last August she took on a new job as the director of Alexa Trust, leading a big team tackling a big question: How do you make people feel good using a product like Alexa, which is designed to be deeply ingrained in their lives? "Alexa in your home is probably the closest sort of consumer experience or manifestation of AI in your life," she said. That comes with data questions, privacy questions, ethical questions and lots more.
<p>During CES week, when Toth was also on a popular panel about the future of privacy, she hopped on a Chime call to talk about her team, her career and what it takes to get users to trust Big Tech. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p><em>This interview has been edited and condensed for clarity.</em></p><p><strong>How does the Trust team work? That's what it's called, right?</strong></p><p>Yeah. I work on the Alexa Trust org, it's part of the Alexa organization overall. The team that I work on is responsible for building all the privacy features, all the privacy controls and settings, and thinking about privacy across Alexa, as well as accessibility. So the aging teams, the accessibility teams, Alexa for Everyone, all reside within this organization. And we're thinking about content issues and the whole gamut. So really all of the all of the policy dimensions and how they manifest in consumer-accessible controls and features is what this team thinks about.</p><p><strong>Why is that one team? You just named a bunch of different, equally important things. What is the tie that binds all of those things?</strong></p><p>Well … I think it's trust, right? It's, how do we develop trustworthy experiences? We are very much a horizontal organization that works throughout the Alexa org. </p><p>And the Alexa org actually is much larger than I even anticipated. When I first was interviewing with the organization, I was really surprised at how big and how quickly it's grown. So it's truly a horizontal effort to think about the customer experience, and all of these areas where there are potential trust issues, and try to deal with them very proactively. </p><p><strong>That's a much bigger definition of trust than I would have guessed. I feel like we talk about trust a lot as sort of synonymous with privacy, and so "what do you do with my data" is the core question. But then when you put things like accessibility and ethics in there, it broadens the definition of what you're looking at in this really interesting way.</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>Yeah, it's a very expansive view. I have worked on privacy for most of my career. It often presents as a defensive issue for companies, right? And even the word "privacy" brings up a sort of connotation that makes you think about all the things you don't want people to know. </p><p>But I think of it really as an opportunity to innovate and to try to create more positive experiences, rather than to think of it as a defensive posture. How are we enabling the usage of data to help create better experiences for customers? Because that's really, ultimately what customers want: for you to use data to make this better for me. And I'm totally good with that. The concern is when I'm not sure what I'm getting out of you using my data, and you have it, and why do you have it? That's the area that's problematic. And what I see, and what we're trying to do, is to be very transparent, and to demonstrate time and again how your data is actually benefiting you in this product experience.</p><p><strong>That's actually one of the things I wanted to talk about. You said in another interview that so much of privacy and security is basically just, like, don't screw up. There's no positive experience, it's just there until you ruin it. It's interesting to think about it the other way: to say, "What does it look like to be more proactive about privacy and data security?" What does that look like for you, in terms of how to actually put it in front of people in a way that feels useful, instead of just having pop-ups that say, "Don't worry, we're not using your data for bad things?"</strong><br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Designing for privacy, or designing for trust more specifically, is about baby steps. It's like developing a relationship with a person, right? You have to earn the trust. And you have to do things in the beginning that over time become less important. So the wake word: We rely very heavily on the wake word. You have to invoke Alexa. But the use of the wake word, and the training around that, is in order to make people comfortable with the fact that we are only streaming your requests to the cloud once the wake word has been invoked. </p><p>That is about interjecting some conscious friction, to create a trusted experience so that later when we have more advanced features, more advanced conversational-type elements, you'll be in a place where you're comfortable with that experience. It moved you along that learning curve, and got to that place where you trust us to do that for you effectively. </p><p>I think it was on Twitter or on LinkedIn, I saw that there was an article that had gone viral. There was a security organization that did a breakdown of an Echo device because there was a theory the mic-off button was in fact just cosmetic. So they did a whole breakdown and sort of mapped out the electronics to prove, in fact, if the red light is on, the wiring to the mic is disabled. The red light and the mic cannot both be on at the same time and vice versa. That was a design choice. There are a lot of choices that are about getting people comfortable with the device, and feeling that degree of trust so that later down the road, we can introduce more features that people will be more likely to use. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p><strong>But it's telling even that those sort of conspiracy theories exist, right? People think the same thing about Facebook turning on their microphone. Does it feel like there is this perception hole that every big tech company is in right now? That you, as Alexa, have to go out of your way to convince people that you're doing the right thing, as opposed to even starting in a neutral place? It just feels like we're in this place where people are learning to be suspicious about things that they don't understand.</strong></p><p>I'm kind of a hardened cynic. That's just my natural disposition on things. So yes, I think we are in a period of time right now where skepticism is at an all-time high. And I think deservedly so, in the world we're living in at the present moment.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p>But what I'm often heartened by is that people have put this device into their homes, into their most sacred private spaces with their families with their loved ones. To do that is a big leap of faith and trust in Amazon and Alexa. So the mere fact that we're there is already a sign that people have extended to us the benefit of the doubt and have said "we trust you." </p><p>So it's not even so much about having to earn that trust in the first place as it is having to be worthy of that trust, right? Or be worthy of that privilege of being in that space. That's the goal for me: to make sure that we continue to be worthy of the trust they've already placed in us, which is not a hurdle everyone gets over. </p><p><strong>What about as you think about things like default settings versus giving people choice? You can give people all the options in the world, but we know for a fact that most people are never going to change anything. So I'm suspicious of the idea that that's a solution to these problems, but it's definitely part of the solution. How do you think about making good decisions for people versus letting people make decisions?</strong> </p><p>First of all, no two people have the exact same notions of privacy. It's different generations, different cultures, different backgrounds, different experiences, all driving different expectations. No matter where you set a default, it's not going to be right for everybody. So there has to be the ability to change it. And you have to make that easy to find. <br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="6">
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</div></p><p>So in the Alexa context, voice-forward commands to try to make it as easy as possible to be able to say, "why did you do that," or "delete what I just said," or "delete everything I have ever said" — those kinds of interactions help reduce the friction in privacy, they make it easier for people to exercise those those options. </p><p>Your default settings generally represent your organizational bias, in one way or the other. And in this case, the default settings that we have reflect our ability to use data in a way that's going to improve the product and make it better for the customer. So that's where they are. And that's how they've been determined. But they're not immovable. And that's the most important part. </p><p><strong>Well, that education piece seems hard, though. We've seen Facebook, for instance, try to explain why it collects a lot of data. And it doesn't necessarily track for a lot of people. There was this big dustup with WhatsApp, people lost their minds. Is it harder than you're making it sound to help people understand what you're doing with their data?</strong></p><p>In some ways, I think that this product gives you a more immediate example of that data benefit than other products. I mean, I spent a lot of my career talking about the benefits of targeted advertising, and how if you're going to get an ad, better to get a targeted ad than one that's irrelevant. But the relative benefit to you as a customer, as an individual, for that use of your data doesn't really feel as meaningful as the types of experiences or improvements we're able to make. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="7">
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</div></p><p>And there's lots of data, particularly looking at introducing Alexa into new countries and languages and dialects, where the ability to use that voice data to dramatically improve our responses and our accuracy is something that is noticeable by people over time. I think people would recognize that, that trajectory.</p><p><strong>That's fair. And it does seem like most people, when you explain it to them, will understand pieces of it like that.</strong> </p><p>This is why I love "Alexa, why did you do that?" Because Alexa doesn't always get it right the first time, and to be able to actually ask and get a response about what that reasoning was, and you can see it in real time — you can't do that with a lot of other experiences. That's a cool one that I hope more people use. </p><p>But we are faced with some real challenges under regulation about explainable AI. These technologies are getting more and more sophisticated, and when they work really well, sometimes we're delighted, and sometimes we're creeped out. It's that balancing act of like, "Wait a minute, that was really useful … should I be worried?" Which is why trust is so important to develop, so that when you get to that moment, you can offer a customer benefit without it being intrusive, or invasive or feeling somehow uncomfortable. Devices should learn!</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="8">
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</div></p><p><strong>You're a privacy person, so I have a current events question for you: We're in the middle right now of this privacy versus transparency debate, where it's either better to let people use encrypted services because they can't be watched or becomes a problem because bad people can do bad stuff in those encrypted services and nobody can find them. And obviously, this shows up in lots of scary ways recently. Where do you fall on the debate?</strong></p><p>I will have to speak to this on a personal level, but all the messaging apps I use are end-to-end encrypted for primary messaging. I think it's important, and I think that there's a role that they play that is important. There are lots of people who think that people aren't really concerned about privacy in the world, and we've passed that moment where privacy is an issue. Just based on the number of people that I've seen crop up on Signal and Telegram in the last week, I can tell you that people really are paying attention. So I think that if that's the indicator that we should be looking at, then I would say privacy is not dead. People really do care. And it's something everybody should be paying attention to.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="9">
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David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Power
The NYSE China flip-flop: A battle between profit and accountability
Western investors want transparency. But what if guaranteeing that closes a door on the U.S. profiting from China's tech success?
The New York Stock Exchange can't decide whether to delist certain Chinese tech apps.
Photo: Julien Chatelain
January 7, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
January 7, 2021
The New York Stock Exchange's flip-flopping statements this week over the delisting of Chinese tech stocks highlight a longstanding dispute over how much access Chinese corporations should have to U.S. capital markets. It's a debate that some experts say pits profit against accountability, and one that will likely continue under the Biden administration.
The confusion began last week, when the NYSE announced that it would delist the stocks of three Chinese telecom companies — China Telecom, China Mobile and China Unicom — to comply with the Trump administration's order in November barring U.S. companies and individuals from investing in Chinese firms that work with the Chinese military.
<p>The NYSE reversed that decision on Monday, only to change it again on Wednesday when it reaffirmed the plan to delist the stocks. Trading in the Chinese telecom company shares will cease at 4 a.m. Eastern Time on Jan. 11, <a href="https://ir.theice.com/press/news-details/2021/NYSE-Announces-Suspension-Date-for-Securities-of-Three-Issuers-and-Proceeds-with-Delisting/default.aspx" target="_blank">the NYSE said</a>.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>The NYSE could not be reached for further comment. </p><p>Stephen Diamond, a law professor at Santa Clara University, said the exchange may have been caught flat-footed by yet another unexpected move by the Trump administration, which has been waging a bitter trade and economic war against China. "The NYSE just got caught in this whole mess that is Trump," he told Protocol. "It's like every other administrative effort. It's driven by Trump's ego, not by rational policy."</p><p>A <a href="https://www.wsj.com/articles/u-s-considers-adding-alibaba-tencent-to-china-stock-ban-11609961075?mod=tech_lead_pos2" rel="noopener noreferrer" target="_blank">report by The Wall Street Journal</a> on Thursday suggested that U.S. officials are also considering a ban on Americans investing in Alibaba and Tencent.</p><p>The NYSE announced that its delisting would be pushed through after Treasury Secretary Steven Mnuchin told it that he disagreed with the reversal, <a href="https://www.cnbc.com/2021/01/06/nyse-will-delist-three-big-china-telecoms-reversing-decision-once-again.html" rel="noopener noreferrer" target="_blank">according to CNBC</a>. Diamond said delisting the Chinese companies' stocks was clearly not in the interest of the NYSE.</p><p>"They didn't want to do this in the first place, probably," he said. "The NYSE has been pretty aggressive about courting Chinese stocks. … It earns revenue from listing fees and trading commissions. … Their motivation is to obviously keep as many of these listings as they can."</p><p>Edith Yeung, a general partner at venture firm Race Capital, who writes the <a href="https://www.scmp.com/tech/apps-social/article/3018026/chinese-internet-firms-are-no-longer-copycats-heres-how-china" rel="noopener noreferrer" target="_blank">China Internet Report</a>, said delisting Chinese companies could also drive many Chinese firms to other exchanges, shutting out U.S. investors from fast-growing businesses. Of the private companies globally that raised the most funding in 2020, the top 10 raised $13.6 billion combined, and six of those 10 were based in China, she said, citing Crunchbase data.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>"The Treasury Department and the New York Stock Exchange need to make up their mind," Yeung told Protocol. "If U.S. IPO markets continue to jerk Chinese companies around, it will send a really unwelcome signal to these high-growth Chinese companies that maybe they should consider listing in Hong Kong and Shanghai instead."</p><p>But Diamond said the NYSE's move also turns the spotlight on longtime concerns about the lack of <a href="https://qz.com/1858632/its-too-late-for-the-us-to-get-rid-of-chinese-stocks/" target="_blank">transparency</a> and <a href="https://www.cnbc.com/2020/04/28/china-cracks-down-on-fraud-and-tries-to-cleans-up-image-with-luckin-probe.html" rel="noopener noreferrer" target="_blank">accountability</a> from many Chinese corporations. The latest was Luckin Coffee, which was <a href="https://www.wsj.com/articles/luckin-coffee-drops-nasdaq-appeal-shares-to-be-delisted-11593188282" rel="noopener noreferrer" target="_blank">delisted</a> from the Nasdaq after reportedly being under investigation after disclosing financial fraud. With many Chinese companies, "things like corporate governance or shareholder rights … don't exist in any meaningful way," he said.</p><p>Diamond cited the recent controversy over Chinese tech titan Jack Ma, who has reportedly been forced to keep a low profile amid an apparent dispute with the Chinese government. Beijing is <a href="https://www.wsj.com/articles/chinese-regulators-try-to-get-jack-mas-ant-group-to-share-consumer-data-11609878816?mod=tech_lead_pos1" rel="noopener noreferrer" target="_blank">reportedly pressuring Ant Group</a> — the Chinese fintech that was <a href="https://www.protocol.com/bulletins/ant-groups-ipo-has-been-suspended" target="_self">on the cusp of a record-breaking IPO</a> and for which Ma is the major shareholder — to share the financial giant's consumer-credit data.</p><p>"If Jack Ma disappears, what is CalPERS going to be able to do about an investment it makes?" Diamond said, referring to the California Public Employees' Retirement System, a major institutional investor. "Nothing." </p><p>"This whole issue of Chinese access to the U.S. capital market is a critical issue that has to get taken seriously by the new SEC and the new administration," he said. "As ham-handed and clumsy and, frankly, sometimes even racist some of the criticisms [by] the Trump administration have been of China, there is a real issue about transparency and accountability for Western investors."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>In fact, the incoming Biden administration is widely expected to <a href="https://www.wsj.com/articles/biden-trump-xi-china-economic-trade-strategy-policy-11609945027" rel="noopener noreferrer" target="_blank">rebuild traditional U.S. alliances</a> as a way to counter China's growing influence, especially on the economic front. Biden plans to meet with some of the world's major leaders at an international gathering called <a href="https://www.politico.com/news/2020/11/28/biden-democracy-summit-440819" rel="noopener noreferrer" target="_blank">Summit for Democracy</a>. China and Russia are not expected to be invited.</p><p>Charles Elson, a finance professor at the University of Delaware and a corporate governance expert, said the controversy over the delisting of Chinese telecom stocks underscores the balancing act that the NYSE is often forced to undertake.</p>"By delisting, you lose the revenue from those listings," he told Protocol. "By including those listings, you get the revenue — but there's a public perception issue. Are you supporting a position that's antithetical to the national interests of the United States?"
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
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Bulletins
January 22, 2021 11:32 EST
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