How CEO Marc Benioff Drives Relentless Forward Thinking at Salesforce

Innovation, like creativity, is an amorphous concept. It’s the holy grail of business, but achieving it—even merely explaining it—is lightning-in-a-bottle difficult.

In that way, Salesforce crm is a major outlier. Despite the fact that its products are mundane business productivity tools, Salesforce has nevertheless managed to bake innovation into its very corporate fiber. It’s a company that was innovative in the way it started doing business, in how it sold its products, and in the articulation of its corporate mission.

Indeed, asking cofounder and CEO Marc Benioff, 53, to describe how Salesforce is innovative is a bit like asking Plácido Domingo to hum a few bars of a favorite aria. With little provocation Benioff will rattle off the three ways Salesforce has been a trailblazer since its inception nearly two decades ago. “I think our top three are a ­technology model which is now known as the cloud, the subscription business model, and our 1-1-1 model,” he says, referring to the company’s philanthropic ­commitment to give away 1% each of equity, products, and employee hours.

These now widely copied practices are merely the beginning. Under Benioff’s quirky, obsessive, and dripping-with-chutzpah tactics, Salesforce is as original a product marketer as exists in enterprise (or nonconsumer) technology. It has proved adept at predicting and embracing technology shifts, the latest being an aggressive move into artificial intelligence. Salesforce even innovates in the realm of financial accounting, having waged a multi­year battle to persuade standards boards and regulators to adopt its methods of revenue and expense recognition.

These accomplishments help explain why Salesforce has landed atop the inaugural Fortune Future 50 list of innovative U.S. companies (ranked No. 1 on the “Leaders” list of corporations with a market value above $ 20 billion). Based on analysis by BCG, Salesforce earns its ranking from a variety of factors including Wall Street’s expectations of future growth and public messaging that communicates a future-focused orientation.

Innovation has its limits, of course, and Salesforce has proved adept at supplementing its growth with acquisitions, a tool long available to older rivals like Oracle orcl and SAP. Salesforce acquires companies—it has snapped up 55 since 2006—that are either more innovative or that have pioneered market segments that Salesforce hasn’t yet cracked.

There are plenty of risks to the Salesforce model—with Benioff’s indispensability topping the list. Though the company has a deep management bench, no one disputes the top dog’s singular role. All major decisions are his, and the entire 28,000-person-plus organization caters to his sometimes capricious whims.

Benioff’s outsize role would be less of an issue if he hadn’t already signaled a willingness to let go, namely, his flirtation with selling the company to Microsoft two years ago. (No deal materialized.) Benioff himself doesn’t discount the possibility that he’ll step down as CEO one day. Asked the likelihood of his being in the top job for another 30 years, he says, in reference to the many social causes he champions: “I don’t think it’s very high, because I really feel the pull of the world on me. The world has more challenges than ever.” Benioff says he spends 95% of his time on Salesforce, and “5% is on a lot of the issues and things that are really important to me. I think at some point that will shift a little bit more where I’ll want to spend more time directly working on those causes.”

But Benioff isn’t quite ready to call it a day at Salesforce. There are still too many potential customers to woo.


Salesforce employees are so immersed in the fervor over their offerings and their unique workplace that they are nearly incredulous to learn that few people beyond the legions of customers using Salesforce’s product have the faintest idea what the company does. San Franciscans, at least, are well aware of Benioff’s personal largesse and Salesforce’s corporate generosity: Together, the CEO and his company have given away hundreds of millions of dollars to fund schools, hospitals, and a myriad of causes. And they certainly know about Salesforce Tower, the soon-to-be-completed 1,070-foot skyscraper that will be San Francisco’s tallest and is already visible for miles outside the city.

As for its products, Salesforce started with an application that helps salespeople track their clients and their managers measure their progress. That sort of thing had existed, but Salesforce innovated by putting its product online and letting customers pay by the month. This lowered technology costs for buyers and also diminished the risk of purchasing the wrong software. Over time the company built or acquired applications for customer-service workers, marketers, and companies who sell goods and services online. It’s all the nuts-and-bolts stuff of business, but configured for the Digital Age. “They took existing markets and made them cool,” says Brent Thill, a research analyst with the investment firm Jefferies who followed Salesforce for years.

As a company, Salesforce moves fast, a shift from the traditional providers of software to “enterprises,” or big-business customers, whose product updates typically were measured in years. “We ship a new version every four months,” says Alex Dayon, the company’s chief product officer. This means every customer always is using the latest version of the software, a high bar in an industry used to a patchwork quilt of software generations and sporadic updates. “It’s our secret sauce,” says Dayon, a Frenchman who joined Salesforce in an acquisition nine years ago. “No one else can update hundreds of millions of users three times a year.”

Another crucial part of Salesforce’s formula is aggressive marketing, which it has been doing since its inception. Parker Harris, the company’s chief technology officer and a cofounder, recalls the company’s introductory “end of software” marketing campaign, an elaborate misdirection stunt suggesting that because Salesforce was selling software as a service rather than in a package, it wasn’t selling software at all. The company hired actors to stage fake protests at conferences hosted by a competitor. Prospective customers challenged Salesforce, arguing that it, too, sold software but in a different format. “At that point we had them, because we had engaged them in the conversation,” says Harris.

The lavish spending on marketing has an impact on Salesforce’s bottom line. For years it rang up net losses. But the tactics also have fueled the company’s growth. As an example, Benioff has been a longtime acolyte of Klaus Schwab, the German business academic who founded the World Economic Forum and helped popularize the “stakeholder” theory of business, that shareholders aren’t the only constituency that matters for business success. Schwab’s ideals appealed to Benioff, who proceeded to spend many millions of dollars to become a key partner of Schwab’s forum. The result: Salesforce punched way above its weight in “thought leadership” in the influential global organization, a status that opened doors for sales to the kinds of companies that were otherwise reluctant to buy from an unproven upstart.

Persuading customers to use their software—as well as teaching them how—is often a challenge for nonconsumer technology companies. Salesforce takes a predictably unconventional approach. It spends extravagantly on its annual Dreamforce developers conference in San Francisco, an event that is as likely to include a performance by a magician or rock star as its many software tutorials.

Yet Salesforce has topped itself recently by designing a whole new “design vocabulary,” as Benioff calls it, for educating users. The challenge, says Sarah Franklin, who heads developer relations, is, “How do you skill everyone up on what we do?” The solution, which she credits to a game-happy “evangelist” on her staff, was to create an elaborate online training program that draws inspiration from the U.S. national park system. Franklin called the program “Trailhead,” and the people who use it, Salesforce’s cherished customers, “Trailblazers.”

It’s all a bit hokey but nonetheless effective in persuading customers and developers—some 500,000 of whom have given it a try so far—to earn badges signifying completed training classes. Franklin says she conceived of the program, which at great expense would change the entire look and feel of the company’s public profile, after a conversation with Benioff. Unable to sleep that night, she picked up her phone and typed a manifesto, which she sent to Benioff. In the morning he replied, “Approved. Aloha, Marc.”


Benioff and his family spend as much time as they can on the Big Island of ­Hawaii. Each major Salesforce building has an “Ohana” floor, a community space named for the Hawaiian word for family, which Benioff wants every Salesforce employee, customer, and partner to feel a part of. It is fitting, then, that at least where the CEO is concerned, Salesforce operates on a corporate version of “island time.” Meetings with Benioff start and end whenever he’s ready.

I learn this firsthand on the day I arrive to interview him. (As a fellow San Franciscan, I’ve known Benioff for years.) I’d been invited to arrive 90 minutes early to tour the nearly completed Salesforce Tower with Benioff—a thrilling opportunity to view the Bay Area from the 62nd floor of a building whose windows haven’t yet been installed. He didn’t show up for the tour, though we did have lunch across the street at another Salesforce building afterward. When we finally sit down, it’s clear the agenda is his, not mine. He takes me through the working-document version of the keynote presentation he’ll give at Dreamforce in about two months. I see how Benioff hones his message, trying out lines as Leandro Perez, a product marketing executive, takes notes on Benioff’s riffs. (Perez, whose official role is “corporate messaging and content,” says: “We make sure our executives are spreading the message consistent with Marc’s.”)

Taking into account Benioff’s tweaks, this is the 86th version of the presentation, on its way to about 150 in total. It hits all the company’s key messages including its core values (trust, growth, innovation, and equality) and explains the three “chapters” of the company’s history: the cloud (1999–2009), the customer (2009–2017), and the Age of Intelligence (2018–).

We run out of time before I get to ask a single question.

A week later Benioff FaceTimes me from Hawaii, where he’s taken a long weekend, and patiently allows me to direct the flow of the conversation. He proudly reflects on Salesforce’s accomplishments. He calls Joe Allanson, the company’s longtime controller, “the cloud industry’s unsung hero” for working with accounting standards boards to allow for the deferred recognition of sales commissions—an arcane but important maneuver that enables subscription-model software companies to more accurately reflect the reality of their finances in their accounting. Benioff notes that 3,000 companies have adopted Salesforce’s 1-1-1 philanthropic model. He also pays homage to Amazon, an early inspiration for the type of consumer experience Salesforce aims to deliver. He unabashedly notes that Salesforce’s earliest versions were copies of Amazon’s user interface. The goal, he says, was to “build an enterprise app that looks, feels, talks, and walks like Amazon, because they are not training anybody to use their website, and we want to build software that’s not going to be like the current generation of enterprise software.”

Benioff is as sui generis as they come, yet he credits a diverse set of influences. From Schwab, he took the concept of “stakeholders” as opposed to only shareholders. Larry Ellison, his first boss, motivated Benioff by helping him see the value of new ideas, even if “working for Larry was at times psychological warfare.” And he has learned the value of being inquisitive from a guru of self-improvement: “My friend Tony Robbins says the quality of your life is created by the quality of your questions.”

More than anything, perhaps, Benioff values his own intuition. Salesforce engineers didn’t understand his devotion to social media, especially when he asked them to create Chatter, an in-house messaging tool for Salesforce’s applications. They complied, though, and the move gave Salesforce a consumer-oriented edge.

Similarly, Benioff explains the company’s move into artificial intelligence as his realization that “a lot was happening in A.I. But I also realized it wasn’t clear what Salesforce’s role in A.I. was. That’s when we started acquiring quite a few artificial intelligence companies, maybe a dozen.” That’s also when, according to Benioff, the owner of the website Einstein.com contacted him out of the blue and offered to sell it. To Benioff, it was a sign. “Right then I’ll always say to myself, ‘Why is somebody doing that?’ And then I’ll have an intuitive response: ‘This could be our A.I. brand.’ ” Today, Einstein is the Salesforce-branded product that’s integrating machine learning and other A.I.-related technologies into the rest of the company’s offerings.


For all of Salesforce’s uniqueness, a nagging criticism has crept up internally and externally. As the company grows, it begins to look and act ever so slightly more like the Goliath to which Salesforce has always played David: Larry Ellison’s Oracle. Like Oracle, Salesforce has become an acquisitions machine, prompting some to suggest the company overpays to make up for its own shortcomings. “The question I hear most from investors is, ‘Is this the modern-day Oracle?’ ” says Brent Thill, the analyst. “ ‘Can they grow without acquisitions?’ ” (Investors weren’t pleased last year when Benioff explored buying Twitter after bidding against Microsoft for LinkedIn. He backed off on the former and lost out on the latter.)

The seeming proof of Salesforce’s incipient Oracle-ness is the presence of president, vice chairman, and chief operating officer Keith Block, a 26-year veteran Oracle sales executive before joining Salesforce four years ago. In many ways the buttoned-down yin to Benioff’s Hawaiian-shirt-wearing yang, Block says Salesforce isn’t like any other company he’s seen, including during his days as a Booz Allen management consultant. “We’re not diluted by servers and storage,” he says, a knock on Oracle. “We’re not diluted by games,” he adds, a reference to Microsoft’s Xbox franchise.

Yet almost inevitably Salesforce partners talk about the company with equal parts reverence and fear. A company doesn’t get to $ 10 billion in revenues without stepping on a few toes. “Salesforce is like the rose-colored version of Amazon,” says a venture capitalist who invests in companies that compete with Salesforce. Examples abound of Salesforce making moves that rival Amazon’s legendarily cold-blooded tactics. It pushed aside onetime partner Marketo, for instance, by buying ExactTarget, whose product line included Pardot, a direct competitor. Similarly, pricing software startup Apttus had been a key Salesforce partner, which didn’t stop Salesforce from buying an ­Apttus competitor called SteelBrick—even as Salesforce’s corporate venture arm invested in Apttus.

Salesforce acknowledges that its own growth is more important than its partners, which it excuses by playing the honesty card. “I have seen this movie in a prior life,” says Block, alluding to his Oracle days. “We need to be transparent. We need to publish road maps of where we’re going.” Block is looking after another big-company aspect to Salesforce’s growth, the need to add systems that can take the company from $ 10 billion in revenue to $ 20 billion. “I think we can have our cake and eat it too,” he says. “We can be a different Fortune 100 company. We can think differently, but with operational discipline.”

Then there’s the question of how long Benioff stays around. In spring 2015 reports surfaced that Microsoft offered to buy Salesforce. Benioff characterizes the ensuing talks as being merely a public company’s fiduciary responsibility to listen to acquisition offers. He reportedly asked for more than Microsoft was willing to pay.


I meet with Benioff one last time for this article as he answers a few questions on video and prepares to have his photograph taken for Fortune’s cover. Since he first ran through his Dreamforce presentation for me the previous week he’s presented versions of it to customers in Atlanta and Los Angeles. Like a comedian testing an act in small clubs leading up to a large-venue gig, he plans to repeat the performance multiple times before his keynote address in San Francisco the first week of November.

We meet on the “Ohana” floor of Salesforce East, the office tower kitty-corner from the new Salesforce Tower. On what ought to be a stunningly sunny mid-fall day, San Francisco’s skies are clogged with smoke from the devastating wildfires still raging in Napa and Sonoma counties north of the city. Making small talk before we start, Benioff tells me he’s tired. His family has just adopted a rescue kitten, and there is much excitement—and too little sleep—in the Benioff household.

As it happens, Benioff tells me, the 7-month-old, gray-black Siamese already had a name, given by his original owners. They called the kitten “Cloud.” This was before anyone could have any idea this little animal was headed for a glamorous life in the home of a billionaire who made his fortune selling software online—what became known as the cloud. The story is too good to be true, and I tell Benioff with mock derision that I don’t believe him. That evening he sends me an email with the subject line “Proof.” Attached is a photo of the sign that hung outside Cloud’s cage at the shelter, verifying his pre-adoption name.

Some things just can’t be explained. Not even by Marc Benioff.

A version of this article appears in the Nov. 1, 2017 issue of Fortune with the headline “Benioff in Bloom.”

Tech

Fed to step-up focus on payment security with study, working groups: Fed's Powell

WASHINGTON (Reuters) – The U.S. Federal Reserve is stepping-up its focus on payment security as the industry reaches a “critical juncture” driven by new technologies, Federal Reserve board governor Jerome Powell said on Wednesday.

Speaking at a conference in New York, Powell said the U.S. central bank would early next year launch a study analyzing payment security vulnerabilities and also planned to create new working groups focused on reducing the industry costs associated with securing payments.

“Rapidly changing technology is providing a historic opportunity to transform our daily lives, including the way we pay. Fintech firms and banks are embracing this change, as they strive to address consumer demands for more timely and convenient payments,” said Powell.

“It is essential, however, that this innovation not come at the cost of a safe and secure payment system that retains the confidence of its end users.”

The Fed does not have complete authority over the U.S. payment system, but it has led industry efforts to make it faster and easier to use. The central bank also leads the 160-member Secure Payments Task Force.

Powell’s comments underline growing concerns among financial market participants and regulators about the risks cyber thieves pose to the financial system following a series of recent incidents.

Last year, SWIFT, the global financial messaging system, disclosed it had suffered hacking attacks on its member banks including the high-profile $ 81 million heist at Bangladesh Bank.

During that incident, hackers broke into the computers of Bangladesh’s central bank and sent fake payment orders, tricking the Federal Reserve Bank of New York into transferring the funds. [here]

Powell said on Wednesday new fintech payment companies posed “significant challenges to traditional banking business models” and that the payment system was reaching a “critical juncture.”

His comments echoed those of Barclays Chief Executive Officer Jes Staley who on Saturday warned payments would be the next battleground for banks amid increasing competition from fintech players and tech giants including Amazon and Facebook.

Reporting by Michelle Price; Editing by Chris Reese

Tech

SpaceX Will Go for Another Satellite Launch With Space Communications After Prior Disaster

The first launch is scheduled for 2019 and it is set to operate for 19 years.

Israel’s Space Communications has signed a deal with Elon Musk’s SpaceX to launch two communication satellites into orbit, after a prior attempt ended in disaster.

The explosion of a Falcon 9 rocket last year at Cape Canaveral in Florida dealt a major blow to the Israeli satellite operator. But Space Communications said on Wednesday the first new satellite, Amos-17, would be sent into orbit in 2019 aboard a SpaceX Falcon 9 rocket at no extra cost.

Spacecom said it had agreed to pay SpaceX up to $ 62 million to launch a second satellite, Amos-8, a year later.

The agreements are welcome news for Spacecom after a couple of years of setbacks beyond the SpaceX explosion. In 2015 it lost contact with one of its satellites and earlier this year its controlling shareholder became the target of a securities investigation.

Amos-17, bought from Boeing Satellite Systems International for $ 161 million, is aimed at expanding and strengthening Spacecom’s coverage of growing satellite service markets in Africa, the Middle East, and Europe.

Launch is scheduled for the second quarter of 2019 and it is set to operate for 19 years.

The Amos-8 launch is expected for the second half of 2020.

Tech

U.S. senator probes Pentagon on Russian source code reviews

WASHINGTON (Reuters) – A U.S. senator on Tuesday asked the Defense Department to explain how it manages the risks when it uses software that has been scrutinized by foreign governments, saying the practice may represent a national security threat.

Reuters reported earlier this month that Hewlett Packard Enterprise Co allowed a Russian defense agency to review the source code or inner workings of cyber defense software known as ArcSight, which is used by the Pentagon to guard its computer networks.

”HPE’s ArcSight system constitutes a significant element of the U.S. military’s cyber defenses,” Democratic Senator Jeanne Shaheen wrote in a letter to Defense Secretary James Mattis seen by Reuters.

Shaheen, a member of the Senate Armed Services Committee, said disclosure of ArcSight’s source code to the Russian agency presented an “opportunity to exploit a system used on [Defense Department] platforms.”

Shaheen questioned whether the Trump administration was pushing back on demands for source code from Russia and elsewhere that are imposed on U.S. companies as a condition for entry into foreign markets.

Such reviews highlight a quandary for U.S. technology companies, as they weigh U.S. cyber security protections while pursuing business with some of Washington’s adversaries, including Russia and China, according to security experts.

“I understand that individual businesses must make decisions weighing the risk of intellectual property disclosure against the opportunity of accessing significant overseas markets,” Shaheen wrote. “However, when such products undergird [Defense Department] cyber defenses, our national security may be at stake in these decisions.”

The Pentagon and HPE did not immediately respond to requests for comment about the letter.

Cyber security experts, former U.S. intelligence officials and former ArcSight employees said the review of ArcSight’s core instruction, also known as source code, could help Moscow discover weaknesses in the software, potentially helping hackers to blind the U.S. military to an attack.

HPE has said in the past that such reviews, by a Russian government-accredited testing company, have taken place for years at a research and development center it operates outside of Russia.

The software maker has also said it closely supervises the process and that no code is allowed to leave the premises, ensuring it does not compromise the safety of its products. A company spokeswoman said last week that no current HPE products have undergone Russian source code reviews.

HPE was spun off from Hewlett-Packard Inc as a separate software company in 2015.

Shaheen’s letter asked Mattis whether he foresaw risks associated with the disclosure of ArcSight’s code and whether the Pentagon was monitoring whether technology vendors share source code or “other sensitive technical data.”

She also asked how frequently vendors disclose the source code of products used by the Pentagon to foreign governments.

Shaheen recently led successful efforts in Congress to ban all government use of software provided by Moscow-based antivirus firm Kaspersky Lab, amid allegations the company is allied with Russian intelligence. Kaspersky vehemently denies such links.

Tech companies have been under increasing pressure to allow the Russian government to examine source code in exchange for approvals to sell products in Russia. While many Western firms have complied, some, including California-based cyber firm Symantec, have refused.

ArcSight was sold to British tech company Micro Focus International Plc in a deal completed in September.

The company said last week that while source code reviews were a common industry practice, it would restrict future reviews by “high-risk” governments and subject them to chief executive approval.

Reporting by Dustin Volz and Joel Schectman; Editing by Jonathan Weber and Tom Brown

Tech

Venmo Users: You’re About to Be Able to Use the App to Shop Online

Millennials who split the bill can split bills at many more sites.

PayPal announced a massive expansion for use of its Venmo payments app popular with millennials. The app grew as a quick way for customers to send each other money, but starting this week, Venmo users can also pay for e-commerce purchases with the app on millions of mobile retailing sites such as Lululemon and Foot Locker.

PayPal is leveraging its relationships to take payments with its main namesake service at about 2 million online retailers to expand the usefulness of Venmo, which it acquired in its $ 800 million purchase of startup Braintree in 2013. With the mobile checkout update, Venmo users can make a purchase on their phone at any retailer’s site that accepts PayPal, either with funds stashed in the app or split among other Venmo users.

“Now, Venmo’s ready for our favorite autumn to-do—holiday shopping. (Seriously, it’s never too early for presents. Or candy corn.),” Ashley Phillips, Venmo’s lead product manager for commerce, joked in a blog post announcing the new feature.

Analysts said the move should help expand Venmo’s market presence, which accounted for $ 8 billion worth of transactions in the second quarter, about double the amount from the prior year. Although Venmo doesn’t generate much actual revenue for PayPal yet, its transaction volume is growing considerably faster than the company’s overall volume, which increased 23% to $ 106 billion in the second quarter. The added usefulness also helps Venmo fend off new competitive threats, as Apple aapl is adding person-to-person payments to its mobile payments system.

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“Consumers simply want to move dollars from one place to another whether that means sending those dollars to a friend or a merchant,” said James Wester, a payments analyst at IDC. “So it’s smart for PayPal to make Venmo more useful by expanding the opportunities for consumers to use it to move their dollars.”

The expansion is reminiscent of how PayPal pypl successfully expanded when it was bought by eBay ebay , noted analyst Brendan Miller at Forrester Research. Users often had money sitting in their PayPal accounts after selling something on the site, so PayPal enabled them to spend the money more easily directly on the site as well, without needing to shift it to a bank account.

“It’s huge,” Miller said. “Money is sitting in all these Venmo accounts and now they can burn it off and it doesn’t have to get moved back to a savings account or a checking account.”

Tech

Can Taking on Debt Help Your Business? It Depends When You Use it

There are few words and ideas that strike fear into entrepreneurs and small business owners, especially Millennial entrepreneurs, more than debt. Scarred by the financial crisis, and often juggling student loan and other debt burdens, debt is correctly viewed as something that can upend or even sink a business.

Interest payments by themselves, not to mention principal repayments, can eat up cash flow, prevent entrepreneurs and businesses from expanding, and limit opportunities for future growth.

Although the concept of debt most often has a negative connotation, it is important to recognize that debt is just another tool in the toolbox that entrepreneurs have access to. Obtaining financing is a necessary part of any business, especially for an enterprise seeking to bootstrap itself off the ground.

That said, getting over the apprehension of debt and debt issues, and the legitimate fear or making an incorrect decision with your business finances can be easier said than done.

As a CPA I can attest that there are certainly situations where taking a loan, obtaining a line of credit, or accessing other forms of debt can help you and your business grow. Before anything else, remember that you are in control of your finances — debt is a tool for you to use, and can help your business grow when used correctly.

Let’s take a look at some these specific situations and facts to keep in mind:

1. For developing a new product or service.

No matter how fantastic your newest innovation may be, and regardless what type of business you’re running, you need capital to bootstrap your ideas. While you may have confidence in your ideas, the reality is you may have to produce a proof of concept before investors will believe.

After a thorough analysis of the financial pros and cons, taking on debt to help your launch or finish your new ideas can be an excellent use of this tool.

2. When you want to keep control.

Every business, after cutting through all of the jargon and buzzwords, has two sources of capital available to them. You can raise capital in return for ownership interests in an organization, and this capital is yours to keep for as long as you desire.

Debt, although it has interest associated with it, doesn’t require you to give up ownership of your business. This benefit of raising debt is not often discussed, but is something that should be taken into consideration when you are thinking of obtaining external financing.

3. Taking advantage of the tax code.

This may be more or less relevant for your business, but the fact is that business interest payments are tax deductible, as opposed to payments made to equity investors. Put another way, the benefits of this tax deduction can be summarized as follows.

Assuming you and your competitor operate equivalently profitable businesses, the business that has financed itself with debt with generate higher profitability figures than the business that used equity investors.

4. When it’s cheaper than other sources of funding.

You and I can both read the agreements that are signed when you or your business borrow money — loan duration, interest rates, and any applicable fees are explicitly spelled out. This can reinforce the notion that borrowing money is always more expensive than attracting equity investors.

Drilling in deeper, however, it is apparent that equity investors require control, possibly a share of the profits, and maybe a return on their investment through an eventual sale of the business. Taking a step back to see the big picture can save you money in the long run.

Debt, both for individuals and for small businesses, is a critically important topic that can make the difference between success and failure for your business. Although this topic, and the implications of making a mistake with debt, can strike fear into the heart of entrepreneurs, remember that you are in control of your financial future. Taking a step back, objectively analyzing the situation, and using debt when necessary can help your business grow, expand, and continue providing value to the marketplace.

Tech

Latest Apple Park Drone Footage Shows Basketball and Tennis Courts

Apple’s new campus is nearing completion.

Apple employees will be able to shoot hoops and play tennis at the company’s new Apple Park headquarters.

Aerial videographer Matthew Roberts released new drone footage Monday of Apple’s new headquarters, spanning 175 acres in Cupertino, Calif.

The drone footage shows some overhead shots of the nearly-finished campus, with several up-close shots of the massive 2.8 million spherical building serving as Apple Park’s centerpiece, where employees will be working. The video also shows new paved paths that crisscross throughout the campus, while big trucks are shown to be transporting trees to their designated planting areas.

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Apple aapl is also installing two big basketball and tennis courts for employees to use during their spare time. The courts however, appear to be unfinished as of when the video was recording, depicting a few massive empty lots for the time being.

In September, drone pilot Duncan Sinfield recorded aerial footage of Apple Park in prelude to the company’s latest iPhone launch.

Sinfield’s footage also featured Apple’s new auditorium, the Steve Jobs Theater, where Apple recently held its big media event and unveiled the iPhone 8, iPhone 8 Plus, and iPhone X, among other products.

Tech

IBM and Stellar Are Launching Blockchain Banking Across Multiple Countries

The news also comes as an important validation of blockchain technology.

In a breakthrough for payments technology, IBM and a network of banks have begun using digital currency and blockchain software to move money across borders throughout the South Pacific.

The significance of the news, which IBM announced on Monday, is that merchants and consumers will be able to send money to another country in near real-time, accelerating a payments process that typically takes days.

The banking network includes “12 currency corridors” that encompass Australia and New Zealand, as well as smaller countries like Fiji and Tonga. It will reportedly process up to 60 percent of all cross-border payments in the South Pacific’s retail foreign exchange corridors by early next year.

The news also comes as an important validation of blockchain technology, which has long promised enormous efficiencies for the financial sector, but has been slow to move from the concept stage to the real world.

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Blockchain, which relies on a disparate network of computers to create an indelible, tamper-proof record of transactions, is most famously associated with the digital currency bitcoin. But it can be used in many other applications such as tracking shipments or, as in this case, to record a series of cross-border transactions.

As an example, IBM said a farmer in Samoa will soon be able to contract with a buyer in Indonesia, and use the blockchain to record everything from the farmer’s collateral to letters of credit to payment.

“This is the next step in the evolution of blockchain technology. It’s live money moving around a network,” Jesse Lund, IBM’s VP of Blockchain, told Fortune.

Digital Currency is Key

The new blockchain banking process is also notable because the banks will initially rely on a bitcoin-like digital currency, known as Lumens, to facilitate the cross border payments.

Currently, banks arrange such payments by maintaining foreign accounts in a local currency (so-called nostro accounts), and then debiting the accounts as required—a process that is both slow and ties up capital.

Under the new blockchain arrangement, banks will conduct the transactions using Lumens, and then rely on local market makers to convert the Lumens into local fiat currency. The Lumens are created by a non-profit company called Stellar, founded a Jed McCaleb, a well known figure in the payments and crypto-currency world.

Both Stellar and IBM are part of a project called Hyperledger Fabric, which is building open source blockchain tools to support payment infrastructures.

According to Lund, though, the banks use of Stellar’s digital currency is likely to be temporary. He predicts that, in the next year, central banks will begin issuing digital currencies of their own, and that these will become an integral part of blockchain-based money transfers.

The IBM-backed blockchain project comes at a time when other companies are creating efficient new ways to conduct global money transfers. These include BitPesa, which relies on the bitcoin network to replace traditional wire transfers between merchants in Africa, and TransferWise, which provides an inexpensive way for consumers to obtain foreign currencies.

This is part of Fortune’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

Tech

Elon Musk Reveals More Details About His Plan to Colonize Mars

SpaceX CEO Elon Musk revealed a trove of new details on the company’s plan to colonize Mars.

He discussed technical details about the giant rocket that he says will take passengers to the Red Planet, the road map for getting to its first launch, and insights into SpaceX’s broader strategy in an “Ask Me Anything” forum on Reddit Saturday.

Musk was his typical freewheeling self during the AMA, quoting the cartoon Bob the Builder and responding to a question about spaceship design with the highly technical insight that “tails are lame.”

He also gamely responded to questions about tangential details of settling Mars, including speculation that settlers might use a compressed version of the Internet. Musk observed that data would take between 3 and 22 minutes to travel between Earth and Mars. “So you could Snapchat, I suppose. If that’s a thing in the future,” he wrote.

More substantively, Musk clarified the scope of SpaceX’s ambitions on Mars. Though he has shared images of vast Martian cities in his presentations on Mars colonization, he said SpaceX isn’t focused on building those cities itself.

“Our goal is get you there and ensure the basic infrastructure for propellant production and survival is in place. A rough analogy is that we are trying to build the equivalent of the transcontinental railway. A vast amount of industry will need to be built on Mars by many other companies and millions of people.”

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That means SpaceX will be designing and building things like systems for creating fuel from Martian resources, work that Musk said is “pretty far along.” But they won’t be focused on issues like how colonists grow food.

Musk also reiterated previous claims that SpaceX is designing the new Mars rocketstill code-named BFR, which stands for exactly what you think it does – to be as safe and reliable as today’s commercial airliners. That will be crucial if plans to use the BFR for transportation around Earth come to fruition.

Musk also shared some details about the game plan for testing the BFR ahead of its first scheduled flight in 2022.

“[We] will be starting with a full-scale Ship doing short hops of a few hundred kilometers in altitude and lateral distance,” Musk wrote. “Those are fairly easy on the vehicle, as no heat shield is needed, we can have a large amount of reserve propellant and don’t need the high area ratio, deep space Raptor engines.

“[The] next step will be doing orbital velocity Ship flights, which will need all of the above.”

SpaceX’s progress on its Falcon 9 rocket in recent years – especially its unprecedented success in landing and reusing rockets – has fascinated observers and re-energized public dialogue about space.

Tech

6 Rules You Must Know for Using SEO and SEM to Grow Your Business

If you’re managing a business, you know how important a web and mobile presence is. Whether you’re selling tacos, tiaras, or terabytes, customers need to be able to find you.

You’ve probably dipped your toe into the complex world of organic or “free” search, also known as Search Engine Optimization (SEO), and paid search, also known as Search Engine Marketing (SEM). But what do you really need to know about SEO and SEM?

I spoke with SEO/SEM expert Andrew Shelton, founder of the digital marketing agency Martec360, who gave me six rules that you need to pay attention to right now if you want to increase your sales through search:

1. Mobile is king

Need evidence of the importance of mobile? Some 96% of smartphone owners use their device to get things done. About 70% of smartphone owners use their phone to research a product before purchasing it in a store. Half of all web traffic comes from smartphones and tablets.

Furthermore, Google has begun to make its search index “mobile-first.” That means that Google will primarily index mobile content and use that to decide how to rank its results.

2. Paid search pays off on mobile

On mobile, paid search (SEM) is increasingly paying off. Shelton says he used to tell his clients to focus on free search (SEO) but with users putting mobile first, the continuum has changed.

“The greatest return on investment is email,” Shelton says, “because you have those customers in house. But paid search is next.” He estimates that paid search spending went up by factors of 25% to 50% in 2016.

3. Have a solid content strategy

The old adage is the new adage: “Content is king.” You need high-quality content for your website if it’s going to compete in the free search business. You can’t go about that blindly.

Consider what customer problem you’re solving. What customer questions can you be answering?

Do you have a mechanism for customers to ask questions? There could be a wealth of ideas for blog posts, FAQs, and buyers’ guides right there.

4. Social media is worth your return on investment

Social media can be vexing for many businesses. You definitely have to perform a cost-benefit analysis on it. Spending six hours a day sending out tweets that don’t lead to conversions is going to be a losing proposition.

Treat social media as “an engagement with an ongoing conversation with your customers,” Shelton recommends. “It’s not just for selling.”

In fact, if your social media channels are too hard-sell, they’ll be counter productive. You have to create value. Tools like Hootsuite, Falcon.IO, and Curalate can help.

5. Manage your online reputation

According to Shopper Approved, an app that helps its clients collect online ratings and reviews, 88% of all consumers read online reviews to determine whether a local business is a good business.

All of those reviews are part of the SEO equation. They can help you, or they can hurt you. But an app like Shopper Approved can help push more positive reviews where you need them.

6. Measure and monitor your progress

The only way you’re going see your business grow exponentially through SEO, SEM, and social media is to measure what you’re doing. You have to know where you’re starting, set some benchmarks, and monitor your progress.

Install Google Analytics. There is a plethora of other e-commerce tools you can use for analysis. Data is your friend. Get used to swimming in it.

And if you need help, find a consulting firm that understands your customer and your goals.

Just remember, effective search is process. You won’t get it right the first time. But you’ll get better at it with everything you learn.

About the author:

Kim Folsom is the Founder of LIFT Development Enterprises–a not-for-profit, community development organization with a mission to help underserved, underrepresented small-business owners – and Co-Founder and CEO of Founders First Capital Partners, LLC, a small business growth accelerator and revenue based venture fund. Learn more about Kim and her company’s mission to help grow and fund 1000 underserved and underrepresented small businesses by 2026 via their Founders Business Growth Bootcamp program at www.foundersfirstcapitalpartners.com.

 

Tech

General Electric: Dividend Cut?

General Electric’s (GE) shares fell to fresh 52-week lows last week as investors continue to be negative about the industrial company. While negative analyst commentary and concerns over General Electric’s dividend sustainability have more heavily weighed on investor sentiment lately, I think General Electric makes for an interesting contrarian ‘Buy’ today.

General Electric is not in an enviable position, and neither are shareholders that bought into the industrial company at a much higher valuation in the past. General Electric’s shares have slumped 27.3 percent year-to-date, falling to one new low after another. Last week, General Electric hit a new 52-week low @$ 22.83, extending a multi-week streak of losses.

See for yourself.

Source: StockCharts.com

A couple of factors have weighed on investor sentiment lately, including negative analyst commentary from JPMorgan that suggested General Electric might have to cut its dividend. According to a CNBC report, analysts at JPMorgan see a GE dividend cut as “increasingly likely”.

Not only did JPMorgan fuel the fire of doubt when it comes to General Electric’s dividend sustainability but the investment bank also lowered its price target for GE’s shares from $ 22 to $ 20, maintaining its firm ‘underweight’ rating on the stock. In addition, widely-followed media and investment personality Jim Cramer last week suggested that General Electric likely will cut guidance and may slash the dividend.

Given General Electric’s core industrial business weakness – keep in mind that GE’s industrial revenues slumped 12 percent and industrial/vertical EPS dropped 45 percent year on year in the second quarter on the back of a weak performance in oil & gas as well as transportation – a guidance revision is a distinct possibility, especially as it relates to GE’s industrial operating profit and margin guidance.

Source: General Electric

The real question, however, is whether General Electric will take the rather significant step and slash its dividend.

General Electric has cut its dividend in the past. The last time General Electric slashed its dividend payout was during the Great Recession when a lot of companies cut back on shareholder payments. In 2009, General Electric cut its quarterly cash dividend from $ 0.31/share to $ 0.10/share. However, GE’s dividend rate consistently edged up over the last eight years. General Electric’s long-term dividend history is impressive.

Source: General Electric

Will General Electric Have To Cut Its Dividend?

I don’t think General Electric will have to cut its dividend, although management could decide that it is better for the company to conserve cash and invest in General Electric’s industrial businesses directly. That said, here is why I think a dividend cut is relatively unlikely.

For one thing, General Electric has affirmed investors multiple times that the dividend is a ‘top priority’ for management. This statement suggests that management will remain committed to paying shareholders a steady dividend even though it costs the company a lot of cash. Remember that General Electric plans to return $ 8 billion in dividends to shareholders this year alone.

Further, I think General Electric will be able to maintain its dividend from a cash flow perspective.

General Electric has guided for $ 16-20 billion in free cash flow, including dispositions in 2017. A large part of this cash flow is contributed by GE Capital, which is expected to produce $ 6-7 billion in dividends for GE this year. In the first six months of 2017, GE Capital has already beefed up General Electric’s cash flow by $ 4 billion, making up for a significant portion of General Electric’s dividends to shareholders.

GE Capital dividends indeed play a crucial role in propping up General Electric’s cash flow. General Electric’s industrial free cash flow excluding deal taxes and pension expenses was actually negative $ 1.6 billion year to date, and total FCF only turned positive because of GE Capital’s dividend to the parent company. Shareholder dividends therefore depend largely on GE Capital’s cash flow, while GE’s industrial business on a standalone basis does not have the cash power right now to fund those payments.

Source: General Electric

I don’t think that General Electric will have to cut its dividend, though. General Electric has guided for $ 19-21 billion in capital returns this year of which only $ 8 billion are cash (and recurring). In other words, as long as GE can fall back on GE Capital for its dividend payments and the company cuts back on share buybacks, there is no immediate need to cut the dividend.

Your Takeaway

General Electric could adjust its dividend payout. Yes, but I consider this not that likely considering past management statements that the dividend is a ‘top priority’ and considering that GE Capital produces a LOT of cash for General Electric. General Electric has an impressive long-term dividend history which signals its commitment to shareholders, and I doubt management wants to put off investors with another dividend cut. I think investors are a bit too fearful right now, which is exactly the right time to get greedy. Buy for long-term dividend income and capital appreciation.

If you like to read more of my articles, and like to be kept up to date with the companies I cover, I kindly ask you that you scroll to the top of this page and click ‘follow‘. I am largely investing in dividend paying stocks, but also venture out occasionally and cover special situations that offer appealing reward-to-risk ratios and have potential for significant capital appreciation. Above all, my immediate investment goal is to achieve financial independence.

Disclosure: I am/we are long GE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

Tesla Fires Hundreds of Workers After Their Annual Performance Review

They’re not layoffs, the automaker says.

Electric automaker Tesla Motors fired hundreds of employees this week, including workers at its Fremont, Calif. factory and corporate managers, as it tries to solve production problems for its recently released Model 3.

An estimated 400 to 700 people were dismissed this week, according to a San Jose Mercury News report published Friday afternoon. That’s between 1% and 2% of the company’s more than 33,000 employees. Former and current employees told the Mercury News that little or no warning preceded the dismissals.

A Tesla spokesman would not confirm that number but told Fortune that the move follows its annual performance reviews, which typically involve both involuntary and voluntary departures.

“Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period,” a Tesla spokesman said in an emailed statement. “This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures. Tesla is continuing to grow and hire new employees around the world.”

Tesla insists that the losses are not layoffs and that it plans to backfill the positions. That’s likely accurate, at least for jobs in California. State law requires companies to notify employees of layoffs through its WARN notification system. There are no records of new layoffs from Tesla. About 200 Tesla and SolarCity employees in the company’s Roseville, Calif. offices were notified Aug. 30 that they would be terminated.

The latest cuts come as the automaker tries to fix bottlenecks on the production line for its Model 3, an all-electric model designed to appeal to the masses. Earlier this month, Tesla reported that it produced 260 Model 3 cars in the third quarter, of which it has delivered 220. That figure is far less than CEO Elon Musk’s prediction that Tesla would produce more than 1,600 of the vehicles by September.

In July, Musk tweeted a production update for the Model 3, saying the car had passed all regulatory requirements ahead of schedule. After announcing that the first 30 customers would receive the Model 3s on July 28, Musk wrote, “production grows exponentially, so Aug should be 100 cars and Sept above 1,500.”

Altogether, Musk said that third quarter production numbers for the Model 3 would be around 1,630 vehicles—a prediction off by 84%.

A Wall Street Journal report published earlier this month revealed that Tesla workers were assembling Model 3 vehicles by hand until at least early September. One of the “bottlenecks” Musk alluded to was a process that involved positioning and welding body panels by hand, rather than by precision robots, according to workers interviewed by the Journal.

Musk recently delayed the unveiling of an electric semi-truck until Nov. 16 so the company can focus its attention on production problems with its new mass-market car, the Model 3.

Tech

IRS puts Equifax contract on hold during security review

NEW YORK (Reuters) – The U.S. Internal Revenue Service has temporarily suspended a contract worth more than $ 7 million it recently awarded to Equifax Inc following a security issue with the beleaguered credit reporting agency’s website on Thursday.

Equifax, which disclosed last month that cyber criminals breached its systems between mid-May and late July and made off with sensitive data on 145.5 million people, said on Thursday it shut down one of its website pages after discovering that a third-party vendor was running malicious code on the page.

“The IRS notified us that they have issued a stop-work order under our Transaction Support for Identity Management contract,” an Equifax spokesperson said on Friday.

“We remain confident that we are the best party to perform the services required in this contract,” the spokesperson said. “We are engaging IRS officials to review the facts and clarify available options.”

The IRS is the first organization to say publicly that it is suspending a contract with Equifax since the credit reporting agency’s security problems came to light.

Atlanta-based Equifax said its systems were not compromised by the incident on Thursday, which involved bogus pop-up windows on the web page that could trick visitors into installing software that automatically displays advertising material.

Still, the IRS said it decided to temporarily suspended its short-term contract with Equifax for identity-proofing services.

“During this suspension, the IRS will continue its review of Equifax systems and security,” the agency said in a statement. There was no indication that any of the IRS data shared with Equifax under the contract had been compromised, it added.

The move means that the IRS will temporarily be unable to create new accounts for taxpayers using its Secure Access portal, which supports applications including online accounts and transcripts. Users who already had Secure Access accounts will not be affected, the IRS said.

IRS granted the $ 7.25 million contract to Equifax on Sept. 29, weeks after Equifax disclosed the massive data hack that drew scathing criticism from several lawmakers.

“From its initial announcement, the timing and nature of this IRS-Equifax contract raised some serious red flags … we are pleased to see the IRS suspend its contract with Equifax,” Republican Representatives Greg Walden and Robert Latta said in a joint statement on Friday.

“Our focus now remains on protecting consumers and getting answers for the 145 million Americans impacted by this massive breach,” they said.

Government contracts in areas such as healthcare, law enforcement, social services, and tax and revenue, are major sources of revenue for Equifax.

In 2016, government services made up 5 percent of Equifax’s overall $ 3.1 billion in revenue, accounting for 10 percent of its workforce solutions revenues, 3 percent of its U.S. information solutions revenues, and 7 percent of its international revenues, according to a regulatory financial filing.

Reporting by John McCrank in New York; additional reporting by Dustin Volz in Washington; Editing by Bill Rigby

Tech

Samsung CEO Kwon Oh-hyun Announces Shock Resignation as Profits Surge

Kwon Oh-hyun’s resignation deepens concerns of a leadership vacuum at the tech giant.

Samsung Electronics Co Ltd ssnlf said on Friday its CEO and Vice Chairman Kwon Oh-hyun plans to step down from management, deepening concerns over a leadership vacuum at the tech giant after group scion Jay Y. Lee was jailed for bribery.

The surprise resignation of Samsung’s chip and display head came as he was expected to take a bigger role following Lee’s arrest in February and the departures of other key executives in the wake of the bribery scandal.

The move came on the same day the South Korean smartphone maker forecast record third-quarter operating profit on the back of the memory chip business which Kwon was instrumental in building into the world leader.

“The timing is nonsensical. Samsung tipped record earnings, it’s going to be better in the fourth-quarter, and all that’s been driven by Kwon’s components business,” said Park Ju-gun, head of research firm CEO Score.

Kwon, 64, is seen as Samsung Group No. 2. As well as being chairman of the board and a board director, he heads the components business – including memory chips – and the display business.

In a statement, the man known as “Mr Chip” said the time had come to “start anew with new sprit and young leadership”.

“We are fortunately making record earnings right now, but this is the fruit of past decisions and investments; we are not able to even get close to finding new growth engines by reading future trends right now,” he added.

The world’s biggest maker of memory chips, smartphones and TVs is set to smash its annual profit record this year, thanks partly to soaring demand for memory chips. Semiconductors were Samsung’s top earner in the three months through June, making a record 8 trillion won ($ 7.20 billion).

The global chip industry is undergoing a major shift with Japan’s Toshiba Corp partnering with home rival SK Hynix, and other firms consolidating in search of new growth areas like artificial intelligence and automobiles.

Shares in Samsung, worth about $ 350 billion, fell 0.6 percent on Friday after hitting an all-time high earlier in the day.

CHANGING THE OLD GUARD

The departure of 32-year Samsung veteran Kwon after five years in the top job comes at a time of leadership uncertainty at the company.

Choi Gee-sung, Jay Lee’s mentor, quit earlier this year for his alleged role in the bribery scandal, and Samsung Electronics now needs to fill several more key roles with Kwon’s exit.

Kwon would serve out his term as chairman of the board and board director until March 2018, the company said. He is also not stepping down immediately from his two other roles.

A Samsung Electronics spokeswoman declined comment on the exact timing of succession and potential successors for Kwon’s roles.

While Samsung Group is South Korea’s top conglomerate with businesses ranging from smartphones to hotels – it has had no ‘Plan B’ for taking big decisions following Lee’s arrest, people familiar with the matter have said.

“I‘m worried about a leadership vacuum at a time when Lee is absent from management,” Chung Sun-sup, chief executive of research firm Chaebul.com, said following Kwon’s announcement.

The leadership changes also could be an opportunity for a new generation to emerge, he added.

Tech

Equifax takes down web page after report of new hack

NEW YORK (Reuters) – Equifax Inc said on Thursday it has taken one of its customer help website pages offline as its security team looks into reports of another potential cyber breach at the credit reporting company, which recently disclosed a hack that compromised the sensitive information of more than 145 million people.

The move came after an independent security analyst on Wednesday found part of Equifax’s website was under the control of attackers trying to trick visitors into installing fraudulent Adobe Flash updates that could infect computers with malware, the technology news website Ars Technica reported.

“We are aware of the situation identified on the equifax.com website in the credit report assistance link,” Equifax spokesman Wyatt Jefferies said in an email. “Our IT and security teams are looking into this matter, and out of an abundance of caution have temporarily taken this page offline.”

The Atlanta-based company, which has faced seething criticism from consumers, regulators and lawmakers over its handling of the earlier breach, said it would provide more information as it becomes available.

As of 1:15 p.m. (1715 GMT), the web page in question said: “We’re sorry… The website is currently down for maintenance. We are working diligently to better serve you, and apologize for any inconvenience this may cause. We appreciate your patience during this time and ask that you check back with us soon.”

Equifax shares were down 1.2 percent at $ 109.18 in early afternoon trading.

Randy Abrams, the independent analyst who noticed the possible hack, said he was attempting to check some information in his credit report late on Wednesday when one of the bogus pop-up ads appeared on Equifax’s website.

His first reaction was disbelief, he said in an interview with Reuters on Thursday. “You’ve got to be kidding me,” he recalled thinking. Then he successfully replicated the problem at least five times, making a video that he posted to YouTube.

Equifax’s security protocols have been under scrutiny since Sept. 7 when the company disclosed its systems had been breached between mid-May and late July.

The breach has prompted investigations by multiple federal and state agencies, including a criminal probe by the U.S. Department of Justice, and it has led to the departure of the company’s chief executive officer, chief information officer and chief security officer.

As a credit reporting agency, Equifax keeps vast amounts of consumer data for banks and other creditors to use to determine the chances of their customers’ defaulting.

Reporting by John McCrank; Editing by Bill Rigby

Tech

Samsung scion's defense fights back as legal appeal begins

SEOUL (Reuters) – The heir to South Korea’s Samsung Group appeared in a packed court on Thursday for the first day of arguments in the appeal of his five-year jail term for corruption.

The 49-year-old Jay Y. Lee was convicted by a lower court in August of bribing former president Park Geun-hye to help strengthen his control of the crown jewel in the conglomerate, Samsung Electronics, one of the world’s biggest technology companies.

The appellate court hearing the appeal is likely to try to rule on the case by next February, legal experts said. Whichever side loses could take the case to the Supreme Court, the final court of appeal in South Korea.

Lee’s presence marked his first public appearance since the August ruling. He did not speak during the early proceedings other than giving his birth date and address.

The lower court in August had ruled that while Lee never asked for Park’s help directly, the fact that a 2015 merger of two Samsung affiliates did help cement Lee’s control over Samsung Electronics “implied” he was asking for the president’s help to strengthen his control of the firm.

The defense strongly challenged the lower court’s logic that Lee’s actions “implied” solicitation for help from Park by providing financial support for the former president’s close friend and confidante Choi Soon-sil.

The prosecution, which has lodged a cross-appeal against the lower court ruling that found Lee innocent on some charges, said the court’s decision to not acknowledge explicit solicitation for Park’s help from Samsung despite the evidence found “did not make sense”.

DEFENSE FIGHTS BACK

The defense, which spent much of its time during the initial trial refuting the prosecution’s individual charges, is expected to focus on a few key arguments in the appeal – including whether there was in fact an “ordinary type of bribery” as defined under South Korean law, which says only civil servants come under the statute.

Park’s friend Choi was not a civil servant.

The lower court found that Samsung’s financial support of 7.2 billion won ($ 6.27 million) to sponsor the equestrian career of Choi’s daughter constituted an ordinary type of bribery, as “it can be considered the same as she (Park) herself receiving it.”

The defense is expected to strongly challenge this by saying that the prosecution, on whom the burden of proof lies, has not proved collusion between Park and Choi.

Reporting by Joyce Lee; Additional reporting by Heekyong Yang; Editing by Neil Fullick

Tech

Rebecca Minkoff: Stop Thinking Of E-Commerce As Separate. Blurring Lines Helps the Bottom Line.

Blurring the lines between e-commerce and in-store shopping is good for the bottom line, she says.

It’s a good time to be a consumer.

In a retail landscape with more choices than ever before, it’s all about catering to the consumer’s preferred experience, according to Kirsten Green, a general partner at Forerunner Venture.

Green joined Rebecca Minkoff, co-founder and creative director of Rebecca Minkoff and Fortune’s Michal Lev-Ram at the Most Powerful Women Summit in Washington, D.C. on Wednesday to discuss the future of retail brands.

For Minkoff it’s about using technology to help create a personalized experience.

“We want you to tell us how you want to be treated when you get into the store,” she said. From touch screens when you enter the store to magic mirrors located in the dressing rooms, the tech aims to help shoppers control their own environment and blend in-store and online offerings.

Green said the word e-commerce, treating it like a separate experience, isn’t a term they use at Forerunner.”We call it commerce,” she said.

And they purposefully blur the barriers between physical stores and digital marketplaces. One way to encourage store associates to keep in touch with customers after an in-person visit: They receive commission on online purchases made up to six months after a customer visited the store.

This is how retailers have to think in a market dominated by Amazon where it’s difficult to compete on price or access. For Green and Minkoff, it means knowing the customer better and cultivating loyalty to the brands they love.

“There’s this element of having a relationship with a brand that didn’t exist before,” Green said.

All the strategies are focused on making sure shoppers are willing to seek out their favorite brands. It helps, of course, that Minkoff talks about these customers like friends: “I have to make sure my girl chooses us.”

Tech

Toshiba shares to be removed from special watch list: Nikkei

TOKYO (Reuters) – Shares of Toshiba Corp are to be removed from a special Tokyo Stock Exchange watch list, the Nikkei reported on Wednesday.

Toshiba has been on the “securities on alert” list since its 2015 accounting scandal.

Reporting by Chris Gallagher

Tech

The Race to Secure Voting Tech Gets an Urgent Jumpstart

Numerous electronic voting machines used in United States elections have critical exposures that could make them vulnerable to hacking. Security experts have known that for a decade. But it wasn’t until Russia meddled in the 2016 US presidential campaigns and began probing digital voting systems that the topic took on pressing urgency. Now hackers, researchers, diplomats, and national security experts are pushing to effect real change in Washington. The latest update? It’s working, but maybe not fast enough.

On Tuesday, representatives from the hacking conference DefCon and partners at the Atlantic Council think tank shared findings from a report about DefCon’s Voting Village, where hundreds of hackers got to physically interact with—and compromise—actual US voting machines for the first time ever at the conference in July. Work over three days at the Village underscored the fundamental vulnerability of the devices, and raised questions about important issues, like the trustworthiness of hardware parts manufactured in other countries, including China. But most importantly, the report highlights the dire urgency of securing US voting systems before the 2018 midterm elections.

“The technical community … has attempted to raise alarms about these threats for some years,” said Frederick Kempe, president and CEO of the Atlantic Council, in a panel discussion. “Recent revelations have made clear how vulnerable the very technologies we use to manage our records, cast our votes, and tally our results really are … These findings from the Voting Village are incredibly disconcerting.”

Fortunately, the past few months have seen signs of progress. The Department of Homeland Security is moving forward with its critical infrastructure designation for voting systems, which frees up resources for helping states secure their platforms. The Texas Supreme Court is currently considering a lawsuit challenging the state’s use of digital voting machines. And in Virginia, state officials are converting voting systems to use paper ballots and electronic scanners before the November 7 elections. They say the change was motivated by the findings at DefCon’s Voting Village.

Susan Greenhalgh, an elections specialist for the vote-security group Verified Voting, which worked with Virginia officials this fall, applauded the “transition into real-world change” that had transpired in just the last few months.

Virginia and Texas represent important progress, but plenty of work remains. Five states still rely solely on digital voting machines without paper backups, and at least 10 states have mixed voting infrastructure, with certain counties that use digital voting without paper. These systems are the most vulnerable to manipulation, because you can’t audit them afterward to confirm or dispute the digital vote count in the case of suspected tampering.

“The one core point that election security experts and others have been making about why our votes are safe was that the decentralized nature of our voting systems, the thousands and thousands of voting offices around the country that administer the election, is what kept us safe,” Jake Braun, a DefCon Voting Village organizer and University of Chicago researcher said. “Because Russians [or other attackers] would need to have tens of thousands of operatives go get physical access to machines to actually infiltrate the election. We now know that’s false.”

With only a handful of companies manufacturing electronic voting machines, a single compromised supply chain could impact elections across multiple states at once. The Voting Village report emphasizes that there is a huge amount of change required in the US to address security issues at every point in the election workflow, from developing more secure voting machines to sourcing trustworthy hardware, and then actually setting up voting system devices and software for use in a secure way. DefCon founder Jeff Moss says that the goal for next year’s Voting Village is to have a full election network set up so hackers can evaluate and find weaknesses in a complete system, not just individual machines.

The Department of Homeland Security recently confirmed that Russia infiltrated various election-related systems in 21 states during 2016, and access to a full voting-system setup would give security researchers additional real world insight into defending US voting infrastructure. But as was the case with acquiring real voting machines for last summer’s conference, Moss says it has been extremely difficult to gain access to the third-party proprietary systems that states use to coordinate voting.

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    America’s Electronic Voting Machines Are Scarily Easy Targets

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    The Simple Fix That’d Help Protect Georgia From Election Hacks

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    Hacked or Not, Audit This Election (And All Future Ones)

“I would love to be able to create any kind of a complete system, that’s what we’re aiming for,” he said during the panel. “The part that’s really hard to get our hands on is the backend software that ties the voting machines together to tabulate and accumulate votes, to provision voting ballots, to run the election, and to figure out a winner. And boy do we want to have a complete voting system for people to attack. There’s never been a test of a complete system—it’s just mind boggling.”

DefCon’s voting village and interdisciplinary partnerships are certainly raising awareness about election security and motivating change, but with some elections just a few weeks away and the midterms rapidly approaching, experts agree that change may not be coming quickly enough.

“We’ve got a lot to do in a short period of time,” said Douglas Lute, a former national security advisor to President George W. Bush and former US ambassador to NATO under President Barack Obama. “In my over 40 years of working on national security issues I don’t believe I’ve seen a more severe threat to American national security than the election hacking experience of 2016. Russia is not going away. This wasn’t a one shot deal.”

Tech

Netflix fends off criticism over Canada investment

(Reuters) – Netflix Inc (NFLX.O) said on Tuesday it had received formal approval to set up a C$ 500 million production unit in Canada and sought to quell talk it had sought special tax benefits for investing in its first such unit outside the United States.

The maker of Emmy winning shows like The Crown and Black Mirror last month announced the agreement with the Canadian government of an investment spread over a minimum of five years. (bit.ly/2k4cBWh)

The company has since faced criticism in Canada that it does not pay taxes there. (bit.ly/2wLo4Ma)

On a blogpost, Netflix said its Canadian investment was approved under the Investment Canada Act, and that no tax deals were part of the approval to launch our new Canadian presence. But is also said it was not paying sales tax in line with existing Canadian legislation.

“Netflix follows tax laws everywhere we operate. Under Canadian law, foreign online services like Netflix aren’t required to collect and remit sales tax,” the company said.

Reporting by Nivedita Bhattacharjee; editing by Patrick Graham

Our Standards:The Thomson Reuters Trust Principles.

Tech

The US Postal Service Is Working on Self-Driving Mail Trucks

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds—and if the United States Postal Service has its way, the robots won’t stop them, either.

Yes, the agency you know best for bringing you junk mail addressed to whomever lived in your apartment before you has caught robofever. It plans to put semiautonomous mail trucks into service in just seven years, and it seems to think it can pull off a shift away from human driving without shedding mail carrier jobs.

That’s all according to the postal service’s Office of the Inspector General, which oversees the agency and last week released a report on its plans to work autonomy into its 228,000-vehicle fleet. Those plans are already in motion: The post office has partnered with the University of Michigan to build what it’s calling an Autonomous Rural Delivery Vehicle, which it wants to launch on 28,000 rural routes nationwide as early as 2025.

In this vision, the postal worker sits behind the wheel but lets the truck do the driving, sorting mail and stuffing letters and packages into mail boxes while rolling down the street. Eliminating the need to constantly park the vehicle, get out, then get back in and get back to driving would yield, the report says, “small but cumulatively significant time savings.”

This being a semiautonomous mail truck, the driver would have to be ready to take over control at all times. In the beginning, researchers say, this will be especially important while navigating from the post office to the beginning of the postal route, and while navigating intersections.

The postal service reasons the experimentation is less risky on rural routes, which have less traffic and fewer pedestrians and cyclists, “and are therefore more forgiving of an imperfect AV model.” It’s exactly the reason vehicle tech developers like Tesla and Cadillac have released semiautonomous features for highway-only driving. With wide, open, well-marked roads, it’s a much less complicated environment for a robot to navigate.

According to the report, Michigan researchers will deliver their first semiautonomous delivery truck prototype in December of this year. If all goes according to plan, the USPS will pilot 10 prototypes on rural routes in 2019, leading up to that full-scale, countrywide rural deployment between 2022 and 2025. The mail people also say they plan to look into city deliveries and building fully driverless vehicles, the kind that don’t need steering wheels or pedals.

You’ve Got Self-Driving Mail

One reason the postal service wants robocars? They could help solve its money problems. The agency lost $ 5.6 billion last year, mostly because Congress demands it shell out prefunded retiree health care benefits. (The idea here is that all employees’ health care will be completely paid for by the time they retire. No other agency operates this way.)

The report’s authors insist they’re not looking to dump human workers, and that AVs can help by trimming other costs. The agency paid about $ 67 million in repair and tort costs associated with vehicle crashes last year. It also shelled out $ 570 million for diesel fuel. If the robots perform as promised, making driving much safer and more efficient, those costs could plummet.

If the USPS sticks with this plan, the jobs of the nation’s 310,000 mail carriers could change, for better or worse. Once the vehicles do all the driving, the humans will be left with the sorting and the intricacies of the delivery process. Unless, of course, a robot can figure out how to do those too. And whatever the report says about protecting jobs, it’s clear that the best way to cut down on employee health care costs is to cut down on employees. The Postal Service says it plans to sit down with unions to discuss the implications of this tech after the University of Michigan delivers its prototype in December. (Those unions, the National Association of Letter Carriers and the National Rural Letter Carriers Association did not immediately respond to a request for comment.)

But maybe the best reason for USPS to experiment with autonomous vehicles is to keep up with the Joneses. FedEx is investing in small autonomous vehicles that could make deliveries without the aid of human drivers. Amazon has an entire team dedicated to researching how autonomous vehicles (and drones) could transport its goods directly to customers. Google holds patents on unmanned truck delivery. DHL has posited driverless vehicles could be endlessly useful in warehousing operations, last-mile deliveries, and logistics operations. UPS has a test truck that shoots drones.

Which gets us back to one final idea floated by the USPS Office of the Inspector General in the report. Mail carriers drive the same exact routes almost every day. If the service kits out its vans with the right sorts of sensors, those vans could build and constantly update the incredibly detailed 3-D maps that help self-driving cars navigate—for a price, of course. Yeah, other startups and companies have been built expressly to collect and mine mapping data—but don’t count out the letter carriers. If rain and hail can’t stop them, why should the future?

Tech

Accenture: A Promising Growth Profile

Accenture (ACN) is a company that I first wrote about on Seeking Alpha in April 2017 (see here) when shares of this global technology consulting company were under significant market pressure due to the company’s “disappointing” Q2 2017 results. Since the previous article was published, ACN shares have greatly outperformed the broader market.

(Source: Nasdaq)

The outperformance has been impressive since that point in time, but I believe that ACN shares still have room to run because this company has proved again and again that it has great long-term business prospects in place.

(Image Source)

More Of The Same, Another Great Quarter

On September 28, 2017, Accenture reported impressive top- and bottom-line growth for the final quarter of its fiscal 2017. Moreover, the company’s quarterly results were good from top to bottom, as two of the three geographic regions had double-digit net revenue growth and all five operating groups experience top-line growth.

(Source: Q4 2017 Infographic)

The company’s net revenue growth was aided by the fact that the digital, cloud, and security services (dubbed “The New”) accounted for over 50% of revenue for the quarter –up from 40% a year ago and 30% from two years ago. To this point, management has long described The New as the key growth driver for Accenture and it appears that everything is already beginning to fall into place.

(Source: Q4 2017 Infographic)

As shown, this category grew by ~30% in local currency in fiscal 2017 and management does not anticipate for the growth to slow anytime soon. For example, management highlighted the opportunities that Accenture has within the digital, cloud and security spaces during the Q4 2017 conference call and, more importantly, they guided for “strong double-digit growth in The New in fiscal ’18”.

From a bottom-line perspective, Accenture finished fiscal 2017 with a strong quarter as Q4 adjusted EPS was up 13% YoY (to $ 1.48) and operating margins expanded by 10 bps (to 14.2%). For full-year 2017, Accenture’s adjusted EPS came in at $ 5.91 (11% YoY increase) on operating margins of 14.8% (20 bps increase).

This was a great fiscal year for Accenture but, looking forward, management still anticipates for this company to have a strong fiscal 2018. It helps management’s case that the numbers prove that Accenture has a promising growth profile, as new bookings came in at $ 10.1B for Q4 2017 and $ 38.4B (6% YoY increase) for full-year fiscal 2017. During the conference call, management providing the following full-year fiscal 2018 outlook:

  • net revenue growth to be in the range of 5% to 8% in local currency.
  • operating margin to be in the range of 14.9% to 15.1%, which would represent margin expansion of 10 to 30 bps.
  • earnings per share to be in the range of $ 6.36 to $ 6.60, which would represent YoY growth of 8% to 12%.
  • operating cash flow to be in the range of $ 5B to $ 5.3B, with free cash flow to be in the range of $ 4.4B to $ 4.7B.

There was a lot to like about Accenture’s results for Q4 and full-year fiscal 2017 but I believe that investors should begin to bake in expectations for this company to report strong top- and bottom-line growth for at least the next few years.

A Promising Growth Profile

Not only has Accenture been busy in the M&A space (spent $ 1.7B in fiscal 2017 on small tuck-in acquisitions) but the company has also been making important partnership deals with major players in several key industries. A few recent examples are:

  • A deal with Apple (AAPL) to create an enterprise-focused iOS apps.
  • A deal with Veeva Systems (NYSE:VEEV), a life sciences company, to provide cloud-based services to promote greater customer engagement.
  • A deal with Freeport-McMoRan (NYSE:FCX) to provide services to drive digital transformation of mining operations.

Additionally, as an long-term investor in Accenture, it is hard not to get too excited about the Internet of Things (or IoT) predictions because this company is viewed as the go-to service provider in this industry that is expected to experience significant growth over the next few decades.

(Source: Gartner)

As shown, Gartner predicts that almost all new tech products (95%) will contain some type of IoT component by 2020. Furthermore, to put a dollar figure to the predictions, McKinsey & Company expects for IoT technology services to have a CAGR of 17% over the next five years and to reach $ 143B in spending by 2021.

(Source: McKinsey & Company)

Any way you slice it, IoT is going to play a critical role in the global economy for years to come. Therefore, investors in Accenture should be encouraged that the company reported strong results over the past 12 months, but, in my opinion, the company’s growth prospects are what should make you the most excited about an investment in this industry leader.

Bottom Line

Accenture reported impressive operating results for Q4 and full-year fiscal 2017 but I believe that the focus should be on the company’s promising growth profile. Given this, the strong fiscal 2018 guidance should be viewed as only the starting point because this company has several long-term catalysts in place that should help propel the stock price higher over the next three-to-five years. Yes, Accenture appears fairly valued based on current earnings estimates (i.e. P/E ratio of ~20), but, in my opinion, the investment opportunity looks more attractive the further you look out.

Accenture is well-positioned to capitalize on the digitization megatrend, which has the potential to be a multi-decade growth opportunity for this company. Given this, investors with a long-term prospective should consider adding ACN shares at the current level.

Author’s Note: ACN is a small (but growing) position in my R.I.P. portfolio.

If you found this article to be informative and would like to hear more about this company, or any other company that I analyze, please consider hitting the “Follow” button above.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long ACN, AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

Famed Architect’s Lawsuit Against Google Just Got Much More Serious

Eli Attia alleges he wasn’t the only one mistreated by the search giant.

A long-running lawsuit filed against Google by a prominent architect has just gotten much broader.

Last week, the Superior Court of California granted a motion adding racketeering charges to the civil case being pursued against Google by Eli Attia, an expert in high-rise construction. Attia claims Google stole his idea for an innovative building design method – and now he wants to prove that it does the same thing frequently.

Attia’s suit was originally filed in 2014, four years after he began discussions with Google (prior to its reorganization as Alphabet) about developing software based on a set of concepts he called Engineered Architecture. Attia has said Engineered Architecture, broadly described as a modular approach to building, would revolutionize the design and construction of large buildings. Attia developed the concepts based on insights gleaned from his high-profile architecture career, and has called them his life’s work.

Google executives including Google X cofounder Astro Teller came to share his enthusiasm, and championed developing software based on Engineered Architecture as one of the company’s “moonshots.” But Attia claims the company later used his ideas without fulfilling an agreement to pay to license them.

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Attia’s suit names not just Google, but individual executives including founders Larry Page and Sergey Brin. It also names Flux Factory, the unit Attia’s suit alleges was spun off specifically to capitalize on his ideas.

Speaking to the San Jose Mercury News, Attia’s lawyer claims Google told Attia his project had been cancelled, “when in fact they were going full blast on it.” Flux Factory is now known as Flux, and touts itself as “the first company launched by Google X.”

Attia’s suit will now also seek to prove that his case is representative of a much broader pattern of behavior by Alphabet. According to court documents, the motion to add racketeering charges hinged on six similar incidents. Those incidents aren’t specified in the latest court proceedings, but Alphabet has faced a similar trade-secrets battle this summer over X’s Project Loon, which has already led to Loon being stripped of some patents.

The idea of racketeering charges entering the picture will surprise many who associate them with violent organized criminals. But under RICO statutes, civil racketeering suits can be brought by private litigants against organizations and individuals alleged to have engaged in ongoing misdeeds. The broader use of racketeering charges has slowly gained ground since the introduction of RICO laws in the 1960s, with some famous instances including suits against Major League Baseball and even the Los Angeles Police Department.

Tech

New Theory Cracks Open the Black Box of Deep Neural Networks

Even as machines known as “deep neural networks” have learned to converse, drive cars, beat video games and Go champions, dream, paint pictures and help make scientific discoveries, they have also confounded their human creators, who never expected so-called “deep-learning” algorithms to work so well. No underlying principle has guided the design of these learning systems, other than vague inspiration drawn from the architecture of the brain (and no one really understands how that operates either).

Quanta Magazine


author photo

About

Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation whose mission is to enhance public understanding of science by covering research developments and trends in mathematics and the physical and life sciences.

Like a brain, a deep neural network has layers of neurons—artificial ones that are figments of computer memory. When a neuron fires, it sends signals to connected neurons in the layer above. During deep learning, connections in the network are strengthened or weakened as needed to make the system better at sending signals from input data—the pixels of a photo of a dog, for instance—up through the layers to neurons associated with the right high-level concepts, such as “dog.” After a deep neural network has “learned” from thousands of sample dog photos, it can identify dogs in new photos as accurately as people can. The magic leap from special cases to general concepts during learning gives deep neural networks their power, just as it underlies human reasoning, creativity and the other faculties collectively termed “intelligence.” Experts wonder what it is about deep learning that enables generalization—and to what extent brains apprehend reality in the same way.

Lucy Reading-Ikkanda/Quanta Magazine

Last month, a YouTube video of a conference talk in Berlin, shared widely among artificial-intelligence researchers, offered a possible answer. In the talk, Naftali Tishby, a computer scientist and neuroscientist from the Hebrew University of Jerusalem, presented evidence in support of a new theory explaining how deep learning works. Tishby argues that deep neural networks learn according to a procedure called the “information bottleneck,” which he and two collaborators first described in purely theoretical terms in 1999. The idea is that a network rids noisy input data of extraneous details as if by squeezing the information through a bottleneck, retaining only the features most relevant to general concepts. Striking new computer experiments by Tishby and his student Ravid Shwartz-Ziv reveal how this squeezing procedure happens during deep learning, at least in the cases they studied.

Tishby’s findings have the AI community buzzing. “I believe that the information bottleneck idea could be very important in future deep neural network research,” said Alex Alemi of Google Research, who has already developed new approximation methods for applying an information bottleneck analysis to large deep neural networks. The bottleneck could serve “not only as a theoretical tool for understanding why our neural networks work as well as they do currently, but also as a tool for constructing new objectives and architectures of networks,” Alemi said.

Some researchers remain skeptical that the theory fully accounts for the success of deep learning, but Kyle Cranmer, a particle physicist at New York University who uses machine learning to analyze particle collisions at the Large Hadron Collider, said that as a general principle of learning, it “somehow smells right.”

Geoffrey Hinton, a pioneer of deep learning who works at Google and the University of Toronto, emailed Tishby after watching his Berlin talk. “It’s extremely interesting,” Hinton wrote. “I have to listen to it another 10,000 times to really understand it, but it’s very rare nowadays to hear a talk with a really original idea in it that may be the answer to a really major puzzle.”

According to Tishby, who views the information bottleneck as a fundamental principle behind learning, whether you’re an algorithm, a housefly, a conscious being, or a physics calculation of emergent behavior, that long-awaited answer “is that the most important part of learning is actually forgetting.”

The Bottleneck

Tishby began contemplating the information bottleneck around the time that other researchers were first mulling over deep neural networks, though neither concept had been named yet. It was the 1980s, and Tishby was thinking about how good humans are at speech recognition—a major challenge for AI at the time. Tishby realized that the crux of the issue was the question of relevance: What are the most relevant features of a spoken word, and how do we tease these out from the variables that accompany them, such as accents, mumbling and intonation? In general, when we face the sea of data that is reality, which signals do we keep?

Naftali Tishby, a professor of computer science at the Hebrew University of Jerusalem.

Miriam Alster, Flash 90. ELSC Art and Brain Week 2016

“This notion of relevant information was mentioned many times in history but never formulated correctly,” Tishby said in an interview last month. “For many years people thought information theory wasn’t the right way to think about relevance, starting with misconceptions that go all the way to Shannon himself.”

Claude Shannon, the founder of information theory, in a sense liberated the study of information starting in the 1940s by allowing it to be considered in the abstract—as 1s and 0s with purely mathematical meaning. Shannon took the view that, as Tishby put it, “information is not about semantics.” But, Tishby argued, this isn’t true. Using information theory, he realized, “you can define ‘relevant’ in a precise sense.”

Imagine X is a complex data set, like the pixels of a dog photo, and Y is a simpler variable represented by those data, like the word “dog.” You can capture all the “relevant” information in X about Y by compressing X as much as you can without losing the ability to predict Y. In their 1999 paper, Tishby and co-authors Fernando Pereira, now at Google, and William Bialek, now at Princeton University, formulated this as a mathematical optimization problem. It was a fundamental idea with no killer application.

“I’ve been thinking along these lines in various contexts for 30 years,” Tishby said. “My only luck was that deep neural networks became so important.”

Eyeballs on Faces on People on Scenes

Though the concept behind deep neural networks had been kicked around for decades, their performance in tasks like speech and image recognition only took off in the early 2010s, due to improved training regimens and more powerful computer processors. Tishby recognized their potential connection to the information bottleneck principle in 2014 after reading a surprising paper by the physicists David Schwab and Pankaj Mehta.

The duo discovered that a deep-learning algorithm invented by Hinton called the “deep belief net” works, in a particular case, exactly like renormalization, a technique used in physics to zoom out on a physical system by coarse-graining over its details and calculating its overall state. When Schwab and Mehta applied the deep belief net to a model of a magnet at its “critical point,” where the system is fractal, or self-similar at every scale, they found that the network automatically used the renormalization-like procedure to discover the model’s state. It was a stunning indication that, as the biophysicist Ilya Nemenman said at the time, “extracting relevant features in the context of statistical physics and extracting relevant features in the context of deep learning are not just similar words, they are one and the same.”

The only problem is that, in general, the real world isn’t fractal. “The natural world is not ears on ears on ears on ears; it’s eyeballs on faces on people on scenes,” Cranmer said. “So I wouldn’t say [the renormalization procedure] is why deep learning on natural images is working so well.” But Tishby, who at the time was undergoing chemotherapy for pancreatic cancer, realized that both deep learning and the coarse-graining procedure could be encompassed by a broader idea. “Thinking about science and about the role of my old ideas was an important part of my healing and recovery,” he said.

Noga Zaslavsky, left, and Ravid Shwartz-Ziv helped develop the information bottleneck theory of deep learning as graduate students of Naftali Tishby’s.

Noga Zaslavsky/Ravid Shwartz-Ziv

In 2015, he and his student Noga Zaslavsky hypothesized that deep learning is an information bottleneck procedure that compresses noisy data as much as possible while preserving information about what the data represent. Tishby and Shwartz-Ziv’s new experiments with deep neural networks reveal how the bottleneck procedure actually plays out. In one case, the researchers used small networks that could be trained to label input data with a 1 or 0 (think “dog” or “no dog”) and gave their 282 neural connections random initial strengths. They then tracked what happened as the networks engaged in deep learning with 3,000 sample input data sets.

The basic algorithm used in the majority of deep-learning procedures to tweak neural connections in response to data is called “stochastic gradient descent”: Each time the training data are fed into the network, a cascade of firing activity sweeps upward through the layers of artificial neurons. When the signal reaches the top layer, the final firing pattern can be compared to the correct label for the image—1 or 0, “dog” or “no dog.” Any differences between this firing pattern and the correct pattern are “back-propagated” down the layers, meaning that, like a teacher correcting an exam, the algorithm strengthens or weakens each connection to make the network layer better at producing the correct output signal. Over the course of training, common patterns in the training data become reflected in the strengths of the connections, and the network becomes expert at correctly labeling the data, such as by recognizing a dog, a word, or a 1.

In their experiments, Tishby and Shwartz-Ziv tracked how much information each layer of a deep neural network retained about the input data and how much information each one retained about the output label. The scientists found that, layer by layer, the networks converged to the information bottleneck theoretical bound: a theoretical limit derived in Tishby, Pereira and Bialek’s original paper that represents the absolute best the system can do at extracting relevant information. At the bound, the network has compressed the input as much as possible without sacrificing the ability to accurately predict its label.

Tishby and Shwartz-Ziv also made the intriguing discovery that deep learning proceeds in two phases: a short “fitting” phase, during which the network learns to label its training data, and a much longer “compression” phase, during which it becomes good at generalization, as measured by its performance at labeling new test data.

As a deep neural network tweaks its connections by stochastic gradient descent, at first the number of bits it stores about the input data stays roughly constant or increases slightly, as connections adjust to encode patterns in the input and the network gets good at fitting labels to it. Some experts have compared this phase to memorization.

Then learning switches to the compression phase. The network starts to shed information about the input data, keeping track of only the strongest features—those correlations that are most relevant to the output label. This happens because, in each iteration of stochastic gradient descent, more or less accidental correlations in the training data tell the network to do different things, dialing the strengths of its neural connections up and down in a random walk. This randomization is effectively the same as compressing the system’s representation of the input data. As an example, some photos of dogs might have houses in the background, while others don’t. As a network cycles through these training photos, it might “forget” the correlation between houses and dogs in some photos as other photos counteract it. It’s this forgetting of specifics, Tishby and Shwartz-Ziv argue, that enables the system to form general concepts. Indeed, their experiments revealed that deep neural networks ramp up their generalization performance during the compression phase, becoming better at labeling test data. (A deep neural network trained to recognize dogs in photos might be tested on new photos that may or may not include dogs, for instance.)

It remains to be seen whether the information bottleneck governs all deep-learning regimes, or whether there are other routes to generalization besides compression. Some AI experts see Tishby’s idea as one of many important theoretical insights about deep learning to have emerged recently. Andrew Saxe, an AI researcher and theoretical neuroscientist at Harvard University, noted that certain very large deep neural networks don’t seem to need a drawn-out compression phase in order to generalize well. Instead, researchers program in something called early stopping, which cuts training short to prevent the network from encoding too many correlations in the first place.

Tishby argues that the network models analyzed by Saxe and his colleagues differ from standard deep neural network architectures, but that nonetheless, the information bottleneck theoretical bound defines these networks’ generalization performance better than other methods. Questions about whether the bottleneck holds up for larger neural networks are partly addressed by Tishby and Shwartz-Ziv’s most recent experiments, not included in their preliminary paper, in which they train much larger, 330,000-connection-deep neural networks to recognize handwritten digits in the 60,000-image Modified National Institute of Standards and Technology database, a well-known benchmark for gauging the performance of deep-learning algorithms. The scientists saw the same convergence of the networks to the information bottleneck theoretical bound; they also observed the two distinct phases of deep learning, separated by an even sharper transition than in the smaller networks. “I’m completely convinced now that this is a general phenomenon,” Tishby said.

Humans and Machines

The mystery of how brains sift signals from our senses and elevate them to the level of our conscious awareness drove much of the early interest in deep neural networks among AI pioneers, who hoped to reverse-engineer the brain’s learning rules. AI practitioners have since largely abandoned that path in the mad dash for technological progress, instead slapping on bells and whistles that boost performance with little regard for biological plausibility. Still, as their thinking machines achieve ever greater feats—even stoking fears that AI could someday pose an existential threat—many researchers hope these explorations will uncover general insights about learning and intelligence.

The most important part of learning is actually forgetting. Naftali Tishby

Brenden Lake, an assistant professor of psychology and data science at New York University who studies similarities and differences in how humans and machines learn, said that Tishby’s findings represent “an important step towards opening the black box of neural networks,” but he stressed that the brain represents a much bigger, blacker black box. Our adult brains, which boast several hundred trillion connections between 86 billion neurons, in all likelihood employ a bag of tricks to enhance generalization, going beyond the basic image- and sound-recognition learning procedures that occur during infancy and that may in many ways resemble deep learning.

For instance, Lake said the fitting and compression phases that Tishby identified don’t seem to have analogues in the way children learn handwritten characters, which he studies. Children don’t need to see thousands of examples of a character and compress their mental representation over an extended period of time before they’re able to recognize other instances of that letter and write it themselves. In fact, they can learn from a single example. Lake and his colleagues’ models suggest the brain may deconstruct the new letter into a series of strokes—previously existing mental constructs—allowing the conception of the letter to be tacked onto an edifice of prior knowledge. “Rather than thinking of an image of a letter as a pattern of pixels and learning the concept as mapping those features” as in standard machine-learning algorithms, Lake explained, “instead I aim to build a simple causal model of the letter,” a shorter path to generalization.

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    This Artificial Intelligence Pioneer Has a Few Concerns

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    Is It Foolish to Model Nature’s Complexity With Equations?

Such brainy ideas might hold lessons for the AI community, furthering the back-and-forth between the two fields. Tishby believes his information bottleneck theory will ultimately prove useful in both disciplines, even if it takes a more general form in human learning than in AI. One immediate insight that can be gleaned from the theory is a better understanding of which kinds of problems can be solved by real and artificial neural networks. “It gives a complete characterization of the problems that can be learned,” Tishby said. These are “problems where I can wipe out noise in the input without hurting my ability to classify. This is natural vision problems, speech recognition. These are also precisely the problems our brain can cope with.”

Meanwhile, both real and artificial neural networks stumble on problems in which every detail matters and minute differences can throw off the whole result. Most people can’t quickly multiply two large numbers in their heads, for instance. “We have a long class of problems like this, logical problems that are very sensitive to changes in one variable,” Tishby said. “Classifiability, discrete problems, cryptographic problems. I don’t think deep learning will ever help me break cryptographic codes.”

Generalizing—traversing the information bottleneck, perhaps—means leaving some details behind. This isn’t so good for doing algebra on the fly, but that’s not a brain’s main business. We’re looking for familiar faces in the crowd, order in chaos, salient signals in a noisy world.

Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation whose mission is to enhance public understanding of science by covering research developments and trends in mathematics and the physical and life sciences.

Tech

Alphabet’s Project to Restore Wireless Service in Puerto Rico With Balloons Gets FCC Approval

Project Loon has already proven its real-world usefulness once this year.

The FCC has approved an experimental license for Alphabet, Inc’s Project Loon to attempt to restore wireless service to storm-ravaged Puerto Rico using its high-altitude balloons, according to FCC Chief of Staff Matthew Berry.

Though the Loon technology is not entirely proven, it could help speed the restoration of vital communications as the U.S. territory works to recover from the devastation of Hurricane Maria.

It could also help prove the business case for Loon, one of the experimental “moonshots” debuted as part of Google, and now housed under Alphabet subsidiary X.

More than 80% of Puerto Rico’s cellular towers are still out of service more than two weeks after the arrival there of Hurricane Maria, and nearly one-third of the island’s counties have no service, according to the FCC. Rebuilding conventional cell towers will be “a long road,” T-Mobile told CNN, thanks to challenges including not just the cost of construction, but, according to some wireless companies, theft and crime against their operations.

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Loon balloons, which carry communications equipment as high as 20 kilometers into the atmosphere, would circumvent those earthbound hurdles — at least temporarily. Loon recently rolled out internet and LTE service in Peru after flooding there, reportedly providing coverage for an area roughly the size of Switzerland. The balloons that were deployed in Peru, in fact, were launched from Puerto Rico.

However, restoring communications to Puerto Rico may be more challenging. Loon requires local partners to work, and in the case of the Peru project, relationships with wireless providers and other players were already in place. But in earlier statements to Mashable, a Loon spokesman said the Puerto Rico effort would be “a little more complicated because we’re starting from scratch.”

Contracting with governments for deployment in disaster zones could eventually become a revenue stream for Loon, which debuted in 2013. Alphabet has begun ramping up pressure for moonshots to generate revenue, partly in hopes of diversifying beyond the search-driven advertising business that still makes up the overwhelming majority of its profits.

Tech

Laugh-Out-Loud Lawsuit Insists Serving Coffee in a Bikini Is a Constitutional Right

Sometimes a news story is so complete in its absurdity that it’s hard to be on anyone’s side. That’s the only way to see the current legal battle between the City of Everett, Washington, and a group of young women who make their livings whooshing out pumpkin spice lattes while customers ogle their barely-covered bodies.

If you’ve ever been in the Pacific Northwest, you’ve seen the drive-up coffee kiosks in the parking lots of nearly every strip mall. It’s a super-inexpensive path to entrepreneurship–I’ve seen these kiosks for sale for only $ 20,000. No larger than the average coat closet, each kiosk contains a single server and an espresso machine.

With so many kiosks everywhere, competition is fierce and owners look for creative ways to stand out. Some offer a range of surprising add-ins (Nutella is my favorite). Some also sell unexpected food items, such as biscuits and gravy. Others hand out free biscotti, or freshly-made donut holes, or dog biscuits for canine passengers.

So it’s a no-brainer that some kiosks seek to woo customers with scantily-clad baristas. Since most kiosks have big windows in all directions, it’s almost a low-level peep show you get free with your hot beverage.

That’s where the trouble begins. Eight years ago–after a lengthy undercover investigation in a town that has plenty of other problems–five Everett bikini baristas were arrested and charged with prostitution because they accepted money for such things as a “whipped cream show” (two baristas lick whipped cream off each other) and “basketball” (in which customers throw money that the baristas catch in their underwear).

Since then, the city has tried to contain the baristas using its lewd conduct laws, which Assistant City Attorney Ramsey Ramerman, claims was “simply ineffective.” And so the Everett City Council unanimously passed a law requiring baristas and all other fast food servers to wear clothing that covers “minimum body areas.” It continues:

“Such clothing shall not be see-through and must fit adequately so that undergarments and all minimum body areas remain covered at all times including when the wearer is sitting, standing, bending reaching or performing other work duties.”

Wondering what constitutes a “minimum body area”? Never fear–the City Council has provided a definition:

“‘Minimum body areas’ means the upper and lower body (breast/pectorals, stomach, back below the shoulder blades, buttocks, top three inches of leg below the buttocks, pubic area and genitals).”

For good measure, Everett also enacted a city-wide code defining a lewd act (among other things) as:

“1. An exposure or display of one’s genitals, anus, bottom one-half of the anal cleft, or any portion of the areola or nipple of the female breast; or

2. An exposure of more than one-half of the part of the female breast located below the top of the areola; provided, that the covered area shall be covered by opaque material and coverage shall be contiguous to the areola.”

Just to be extra clear, it added:

“Body paint is not ‘opaque material.'”

These patently silly laws were met with an even sillier lawsuit by seven bikini baristas and one kiosk owner. Not satisfied with challenging the laws on the grounds of restraint of trade or fairness–servers in restaurants and private clubs aren’t included–attorneys for this group went straight for the First Amendment, arguing that the right to expose most of one’s skin constitutes self-expression.

As the Seattle alternative weekly The Stranger puts it, the free speech arguments in the complaint are “absurd in the lengths they go to avoid saying bikini baristas are meant to serve horny people.”

For example, it says this about the baristas and their bikinis:

“They express messages of freedom, openness, acceptance, empowerment, and individuality. By exposing who they are as people through tattoos, scars, and the bikinis that they choose to wear, the Baristas exchange conversations with customers about life experiences, personal choices, and other topics that would not otherwise occur. The Baristas cannot express these messages and prompt these discussions without the unique expression that wearing a bikini provides.”

Furthermore:

“The Baristas use bikinis to portray a fun and happy-go-lucky image that gives customers a quick break from their daily lives. The bikini allows customers to imagine for a moment that they are relaxing at the beach or on vacation. The Baristas could not portray this message with another uniform.”

Not only that, the individual baristas explain what wearing a bikini means to them. Each repeats that the bikinis have nothing to do with sex and everything to do with empowerment. One explains that her bikini reveals scars from a childhood accident, which she talks to customers about and “they open up with their own stories.” Another says, “Millions of women fought for our rights and right to vote, and it’s my right to wear what I want.”

This is where the baristas lost me because the suffragists of 100 years ago went to prisons and workhouses and went on hunger strikes and endured the torture of having six-inch rubber hoses forced down their throats and nasal passages along with near-universal derision and disdain. I don’t think they went through all that out of a fervent hope that someday their female descendants would be empowered to serve coffee while wearing bikinis and playing “basketball” in the ostensible pursuit of self-expression, and the actual pursuit of larger tips.

I don’t want to be a killjoy, and neither should the City of Everett. Since the rule at most bikini stands seems to be that customers must remain in their cars, the worst that can likely result from most scantily-clad barista stands is the occasional whipped-cream show or fully nude coffee serving. In a city that’s also suing a pharmaceutical company over its rampant opioid problem, that just doesn’t seem like such a big deal.

Free speech, on the other hand, is a big deal. I’m not sure if the bikini baristas or their attorney noticed that they filed their complaint during Banned Books Week, an event that reminds us that classics from The Adventures of Huckleberry Finn to Toni Morrison’s Beloved and even The Diary of Anne Frank have been censored in American schools. All over the world, men and women risk their freedom, their health, and sometimes their lives for the right to write, film, or otherwise share the truth as they see it. That’s worth fighting and dying for. The right to show off the bottom half of one’s anal cleft? Not so much.

Tech

AT&T Wireless Workers Try To Bring Political Pressure To End Contract Stalemate

Negotiations have dragged on since February.

As a contract standoff between AT&T and 21,000 unionized workers in its mobile business drags into a eighth month, the employees are trying to increase political pressure on the carrier.

So far, 255 state and local politicians have sent letters to AT&T CEO Randall Stephenson backing the workers, the Communications Workers of America union says. Among the senders are six Democratic senators and numerous members of California’s delegation in the House of Representatives.

“While we are aware of the changes that have taken place in the telecommunications industry, we know that AT&T wireless workers are the driving force behind your most profitable division,” 12 members of the Arizona House of Representatives wrote to Stephenson in one recent letter. “They deserve to share in the company’s success and growth.”

Still, AT&T does not appear moved by the campaign or earlier moves by the mobile workers in 36 states and Washington, D.C., including a protest outside Apple headquarters for the debut of new iPhones last month and a short strike in May that forced many wireless stores to close for a weekend.

Although the workers have concerns about wages, health benefits, and other issues, job security and sales commission rates appear to be at the center of the dispute. To highlight the issue of call center jobs being outsourced to foreign countries, some AT&T workers traveled to the Dominican Republic in early May to meet with their counterparts there who now handle AT&T customer service calls.

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AT&T said on Friday that it has been in touch with the letter writers and plans to continue to bargain with the workers, whose contract expired in February, to reach a “fair” agreement . “We regularly communicate with our stakeholders regarding labor issues and bargaining, and we’ve done so where we’ve received any letters from legislators,” an AT&T spokesman said.

The CWA says AT&T won’t negotiate over job security at call centers and retail stores where many of the employees work. “AT&T has increased its profits by cutting workers’ commissions, refused to bargain over job security even as it cut hundreds of call center jobs this year alone, and increasingly moved to low-wage contractors for its retail and call center operations,” Dennis Trainor, vice president for CWA district 1, said in a statement. “That’s not how America’s largest telecom should be acting.”

AT&T t has a long history of labor peace, though the May strike interrupted a run of more than four years without a walkout. The company says it has reached 32 agreements covering some 145,000 workers since the beginning of 2015. The strike in May, which also included 17,000 workers in AT&T’s telecom business, followed last year’s bitter, seven week strike at Verizon vz .

Tech

Keeping the competition out: Iran startups thrive despite sanctions

LONDON (Reuters) – Low on cash but high on hope, Iran’s technology entrepreneurs are learning to live with revived hostility in the United States and growing suspicion – or worse – from hardliners at home.

Their startups and e-commerce apps are flourishing, driven by government infrastructure support and young Iranians educated both in the country and abroad. Some are even drawing foreign investment in a way that Iran’s dominant oil industry has yet to achieve since most international sanctions were lifted early last year under a nuclear deal with world powers.

Life remains tough despite the easing of Iran’s international isolation. The atmosphere in Washington has soured again, with President Donald Trump signing legislation tightening domestic U.S. sanctions on Iran and threatening to pull out of the nuclear accord.

On top of this, Google and Apple have withdrawn some services temporarily or indefinitely for Iranian users in recent months for reasons including the U.S. sanctions.

Still, the absence of U.S. giants such as Amazon and Uber has allowed their Iranian equivalents Digikala and Snapp to grow rapidly. Many other local internet firms are following suit.

Ramin Rabii, chief executive of Turquoise Partners, which facilitates foreign investment in Iran, said Trump’s rhetoric could paradoxically help the tech sector.

“If he keeps talking about sanctions, that would increase the risk of investment in Iran, but at the same time it will keep a lot of competition out,” he told Reuters in a telephone interview from Tehran. “Major global players are not here.”

No figures are available on foreign investment in Iranian tech firms. Rabii, however, estimated it at hundreds of millions of dollars since the nuclear deal came into force.

By contrast, an expected rush into Iran’s huge energy reserves has yet to materialize. French group Total is investing in a gas project but Tehran has yet to seal any major oil deals with international partners.

Foreign investment in Iranian tech remains modest compared with regional mega-deals such as Amazon’s purchase in March of Dubai-based retailer souq.com. Amazon did not reveal the price but beat off a rival offer worth $ 800 million.

Still, Rabii sees a bright future. “Many foreign investors ask me what is the best performing sector in Iran for the next decade. I always name e-commerce and the tech sector,” he said.

LOCAL INCARNATIONS

After the relative isolation of the international sanctions era, the tech sector has attracted many young Iranians back from the United States, Canada and Europe. They hope to marry their experience of the startup scene with locally-educated talent.

Reza Arbabian left Canada, where he went as a teenager, to join his family textile business in Iran. But in 2012 he launched Sheypoor, the Iranian answer to Craigslist, a U.S. classified advertisements website.

Sheypoor now employs 200 and recently marked its fifth anniversary. Cash, however, remains tight.

“Many foreign companies are still hesitant and Iranian investors don’t understand the value in e-commerce. They cannot accept that they need to wait for five years for a startup to make profits,” said Arbabian.

Some outside Iran, especially in Europe where the sanctions net is not quite so tight, are nevertheless willing to take the plunge. Swedish-based Pomegranate Investment, for instance, has taken a 43 percent stake in Sheypoor.

On a larger scale, Sarava, Digikala’s main shareholder, is 45 percent-owned by foreign investors. These include Pomegranate, which raised its stake to 15 percent with a 41 million euro ($ 48 million) investment in 2016.

Following the Amazon model, Digikala has grown into Iran’s biggest internet company with a market share of 85-90 percent, according to Pomegranate. Staff numbers have leapt in the past two years from 800 to more than 2,000.

INFRASTRUCTURE

FILE PHOTO: Employees work with their laptops at Takhfifan company in Tehran, Iran January 19, 2016. REUTERS/Raheb Homavandi/TIMA/File Photo

Iran came late to mass internet access but has invested heavily under President Hassan Rouhani, hoping to attract foreign cash and create more jobs.

According to the Measuring Information Society of Iran, a government-linked portal, more than 62 percent of households were connected to the internet by March 2017. This was up from only 21 percent in 2013, the year Rouhani took office.

Smartphone ownership has also rocketed. Iran, a country of 80 million people, had only two million smartphone users three years ago but the number hit 40 million in 2016.

Such developments encouraged Kamran Adle, an Iranian born and raised in London, to move to Tehran last year.

“Iranian infrastructure has dramatically improved in recent of years. 3G and 4G is much more commonplace than it was a couple of years ago,” said Adle, whose firm Ctrl+Tech invests in early stage startups and helps them to develop apps.

Some Iranian apps are copies of foreign equivalents, made out of the reach of international lawyers. But the years of isolation also forced domestic talent to be more innovative, and Adle says there is no shortage of app developers.

One such is Farshad Khodamoradi, who has designed the app for a job-hunting startup being launched this month. Unlike traditional sites, “3sootjobs” will use an algorithm-driven matching system to connect candidates with the right employers.

FILE PHOTO: Employees work with their laptops at Takhfifan company in Tehran, Iran January 19, 2016. REUTERS/Raheb Homavandi/TIMA//File Photo

Khodamoradi complains about difficulties in accessing foreign tech services, many of which are U.S.-based. “The main problem is that the global services Iranian startups are using can be cut off overnight,” he told Reuters from Tehran.

He cited Google’s Firebase, a platform used to generate push notifications – such as messages to passengers that a taxi has arrived to pick them up – without their having to open the app.

This was unavailable in Iran on a number of occasions in June and July, disrupting startups including taxi hailing apps, he said. Google did not respond to Reuters requests for comment.

Although technology firms can gain exemptions from the sanctions, U.S. corporations appear unwilling to risk involvement in Iran. In August, Telecommunications Minister Mohammad Javad Azari Jahromi threatened to take legal action over Apple’s removal of Iranian apps from its app stores. Apple did not respond to Reuters requests for comment.

MESSAGE FROM OBAMA

All this seems in contrast to U.S. promises after the nuclear deal. In March 2016, in a message to the Iranian people, then President Barack Obama said ending international sanctions “would mean more access to cutting-edge technologies, including information technologies that can help Iranian startups”.

Since that message, anti-U.S. Iranian hardliners have followed the growth of startups suspiciously, branding them as vehicles of enemy infiltration. Two foreign-based tech investors have also ended up in prison.

Nizar Zakka, a Lebanese information technology expert with permanent U.S. residency, was jailed in 2016 for 10 years for collaborating against the state. He had attended a conference in Tehran the previous year at the invitation of one of Iran’s vice presidents, only to be arrested by the Islamic Revolutionary Guards Corps as he was going to the airport to leave the country.

Iranian-American businessman Siamak Namazi also got 10 years in 2016 on charges of cooperating with the United States. While under arrest, Namazi appeared in an Iranian documentary seen by Reuters in which he said his mistake had been to accept money for his startup from an organization linked to the U.S. Chamber of Commerce.

The Revolutionary Guards, a military force that runs an industrial empire, largely control telecommunications in Iran.

However, tech entrepreneurs say the environment is generally supportive. “We haven’t come across any of those governmental push-backs,” Adle said.

In the longer term, the sanctions would make using the souq.com model to cash in on Iranian investments much harder.

But Eddie Kerman, of London-based Indigo Holdings which links retail investors to Iranian tech firms, is optimistic.

“American companies like Amazon might not be able to enter the Iranian market, but there is a significant possibility that European or Asian companies buy the larger Iranian players,” he said.

Reporting by Bozorgmehr Sharafedin; editing by David Stamp

Our Standards:The Thomson Reuters Trust Principles.

Tech

Switch Inc's IPO prices at $17 per share

(Reuters) – Switch Inc (SWCH.N) raised about $ 531.3 million from its initial public offering which was priced at $ 17 per share, making the data-center operator the second-largest U.S. technology listing this year.

The 31.3 million Class A share offering was priced above the proposed $ 14 to $ 16 per share range, giving it a market value of as much as $ 4.2 billion.

Switch Inc, which was incorporated in June for the purpose of issuing the Class A shares in this offering, intends to use the proceeds to buy out investors in Switch Ltd and take control of it as a holding company.

Las Vegas-based Switch Inc, whose major customers include Amazon.com Inc (AMZN.O), eBay (EBAY.O) and PayPal Inc (PYPL.O), helps enterprises manage data by renting out its cloud service infrastructures on a contractual basis.

The company, which also operates data centers in Michigan and Reno, Nevada, posted net income of $ 35.3 million for the six months ended June 30, flat compared with the year-ago period.

Goldman Sachs & Co, J.P.Morgan, BMO Capital Markets, Wells Fargo Securities were among top underwriters to the offering.

Reporting by Nikhil Subba and Munsif Vengattil in Bengaluru; editing by Diane Craft

Our Standards:The Thomson Reuters Trust Principles.

Tech

Boeing-backed, electric-hybrid airliner set to hit market in 2022

NEW YORK (Reuters) – A Seattle-area startup backed by the venture arms of Boeing Co and JetBlue Airways Corp plans to bring a small hybrid-electric airliner to market by 2022 that can dramatically reduce the travel time and cost of trips under 1,000 miles (1,600 km), it said on Thursday.

The first of several aircraft planned by Zunum Aero would seat up to 12 passengers and be powered by two electric motors.

Electric-vehicle batteries, such as those made by Tesla Inc and Panasonic Corp, would power the motor. A supplemental gas engine and electrical generator would be used to give the plane a range of 700 miles, Matt Knapp, co-founder and chief aeronautic engineer of the Kirkland, Washington-based company, said in an interview.

Zunum has no commitment to Tesla or Panasonic.

A larger plane seating up to 50 passengers would follow at the end of the next decade, and the range of both would increase to about 1,000 miles as battery technology improves, Knapp said.

The planes eventually would fly solely on battery power, and are being designed to fly with one pilot and to eventually be remotely piloted, he added.

Several companies, including Uber Technologies Inc [UBER.UL] and European planemaker Airbus, are working on intra-urban electric-powered self-flying cars.

Zunum does not expect to be the first to certify an electric-powered aircraft with regulators. It is aiming to fill a market for regional travel for airlines, where private jets and commercial jetliners are too costly for many to use.

“Airlines are very keen to know how to fly a shorter distance and make money on it,” Knapp said.

Recent advances in electric-vehicle and autonomous technology, along with lightweight electric motors and carbon composite airframes would reduce the cost of flying Zunum’s aircraft to about 8 cents per seat-mile, about one-fifth that of a small jet or turboprop plane, Knapp said.

“We’re getting airline pricing down on a small plane and doing it for short distances,” Knapp said. “That kind of aircraft doesn’t currently exist.”

Zunum announced plans for electric-hybrid aircraft in April, and revealed that Boeing HorizonX and JetBlue Technology Ventures had invested in its initial round of venture funding. On Thursday it disclosed specifications and a timetable for the vehicle entering service.

Zunum says the plane would cruise at about 340 miles an hour and at altitudes of about 25,000 feet (7,600 meters) – slower and lower than jets.

The plane would cut travel time by allowing passengers to fly from thousands of regional airports, avoiding big hubs used by major airlines and airport security required for larger planes. About 96 percent of U.S. air traffic travels through 1 percent of its airports, Zunum said.

Current battery technology can only power the plane for about 100 miles so a gas-powered engine is used to generate electricity to power the motors for additional range.

Reporting by Alwyn Scott; Editing by Susan Thomas

Our Standards:The Thomson Reuters Trust Principles.

Tech

'The future is exciting. Ready?' asks Vodafone in new ad push

LONDON (Reuters) – “The future is exciting. Ready?”, Vodafone is asking in a new campaign it hopes will capture a sense of optimism about technology, an association mobile operators have to some extent lost in recent years to the likes of Facebook, Google and Apple.

The slogan, which replaces “Power to You”, in use since 2009, will be deployed in all of the company’s 36 markets from Friday in the biggest ad campaign in its 33-year history, Vodafone said.

“Technology can be complex, can be overwhelming and can sometimes alienate people,” said Serpil Timuray, Vodafone’s chief commercial operations and strategy officer.

”But at the same time we know that digital innovations have significant benefits for individuals and for societies.

“In order to express this point of view, we will be repositioning the Vodafone brand on the theme of future optimism.”

The new strapline has echoes of “The future’s bright. The future’s Orange” – a slogan that helped Orange establish itself as a new rival to Vodafone when it launched in 1994.

Vodafone, the world’s second largest mobile operator, declined to say how much it was spending on the brand overhaul, which also includes a new visual identity based on its “speech mark” logo.

Reporting by Paul Sandle; Editing by Mark Potter

Our Standards:The Thomson Reuters Trust Principles.

Tech