As We Sweat Government Surveillance, Companies Like Google Collect Our Data

Hass and Associates Cyber Security

Unless we demand changes, Big Tech will continue to profit off our personal information – with our benighted permission

As security expert Bruce Schneier (a friend) has archly observed, "Surveillance is the business model of the internet." I don't expect this to change unless and until external realities force a change – and I'm not holding my breath.

Instead, the depressing news just seems to be getting worse. Google confirmed this week what many people had assumed: even if you're not a Gmail user, your email to someone who does use their services will be scanned by the all-seeing search and the advertising company's increasingly smart machines. The company updated their terms of service to read:

Our automated systems analyze your content (including e-mails) to provide you personally relevant product features, such as customized search results, tailored advertising, and spam and malware detection. This analysis occurs as the content is sent, received, and when it is stored.

My system doesn't do this to your email when you send me a message. I pay a web-hosting company that keeps my email on a server that isn't optimized for data collection and analysis. I would use Gmail for my email, if Google would let me pay for service that didn't "analyze (my) content" apart from filtering out spam and malware. Google doesn't offer that option, as far as I can tell, and that's a shame – if not, given its clout, a small scandal.

Also this week, Advertising Age, a top trade journal for the ad industry, reported that tech companies led by Google, Microsoft, Apple and Facebook are moving swiftly to fix what they plainly see as a bug in the system: It's more difficult to spy on us as effectively when we use our mobile devices than when we're typing and clicking away on our laptops. Here's a particularly creepy quote in the story, courtesy of a mobile advertising executive:

The universal ID today in the world is your Facebook log-in. This industry-wide challenge of mobile tracking has sort of quietly been solved, without a lot of fanfare.

Facebook may be getting the message that people don't trust it, which shouldn't be surprising given the company's long record of bending its rules to give users less privacy. CEO Mark Zuckerberg told the New York Times' Farhad Manjoo that many upcoming products and services wouldn't even use the name "Facebook," as the company pushes further and further into its users' lives. The report concluded:

If the new plan succeeds, then, one day large swaths of Facebook may not look like Facebook — and may not even bear the name Facebook. It will be everywhere, but you may not know it.

Maybe. But Facebook will know you. And like Google, Facebook won't let me pay for its otherwise excellent service, something I'd gladly do if it would agree not to spy on me.

Barring that, what I do to employ countermeasures wherever possible, and to make choices in the services I use – such as relying more and more on the DuckDuckGo search engine. DuckDuckGo isn't as likely to give me the results I want as easily as Google, but it has proved to be good enough for most purposes.

But in a week when news organizations (like this one) won Pulitzer prizes for revealing vast abuses of surveillance by the government, one might hope that corporations would show even the slightest sign of retreating from their longstanding practices that, if conducted by the government, would give most citizens pause.

After all, there is outrage over the NSA surveillance revelations. The Electronic Frontier Foundation sued the federal government on our behalf over the FBI's burgeoning facial-recognition system, one in an array of technologies combining sensors with vast databases carrying the Orwellian designation "Next Generation Identification".

Even in Los Angeles County, and other places where law-enforcement authorities want to hide their own own methodical encroachments on people's privacy, police leverage facial recognition and other tools in ever-creepier ways with little public knowledge. As the Center for Investigative Reporting reported a few days ago, a sheriff's department sergeant explained why the department didn't tell the public what they were doing:

The system was kind of kept confidential from everybody in the public. A lot of people do have a problem with the eye in the sky, the Big Brother, so in order to mitigate any of those kinds of complaints, we basically kept it pretty hush-hush.

This is what gives me hope. If the snoops are worried that we'd reject their snooping, we still have a chance to turn this around.

The situation will only get worse if we don't take what we learn and insist – to the politicians who represent us and the companies we patronize – that the details of our lives are not theirs to buy and sell. I don't believe we get the society we deserve, but we do get the one we allow.

Hass and Associates Cyber Security Why Google isn't growing

Google CEO Larry Page can be forgiven for being in a bad mood this weekend. On his company's Q1 2014 earnings call, his people delivered what he thought would be good news: revenues of $15.4 billion, up 19%. Very, very few business can deliver 20% growth on billions in revenues. By any measure, Google is on fire as a company.

                          

           

Google is growing, for sure. But, counterintuitively, it is not growing at the same time.

Yet investors hated it.

They sold the stock, and it declined 5% immediately after the call. In 24 hours the price had lost $9, from $544 per share to $536.

Google is growing, for sure. But, counterintuitively, it is not growing at the same time, as the following charts show.

From a macro perspective, Google is boxed in by two factors: The available population on the internet and the population on the mobile portion of the internet.

Google - according to numbers from Asymco, the quant-y tech analysts - may not be growing so much as it is merely floating in place on a rising tide of humanity.

Unfortunately for Google, that tide is about to go out.

Internet growth is slowing - and Google is the internet

Google handles about 80% of all search queries, and hundreds of millions of people use Gmail and YouTube, its most famous brands. Google is so dominant that its economics are, in many ways, a proxy for the Web as a whole. How grows the Internet, grows Google.

But growth of the internet won't go on forever.

Already there are signs of an upcoming "inflection" in 2016, when the level of internet penetration across the planet gets well past 50% of all humans - and the internet itself enters a period of rapidly declining growth.

Here's Asymco's chart of internet penetration by geographic area:

The chart shows the portion of the population that has yet to connect to the Web. It's in decline all over. Don't worry about the detail or the numbers, it's important to simply note that the Web's "house-on-fire" period will be behind us by about 2016.

We're already in that phase in the US and Western Europe - there just aren't that many more non-connected humans to bring online.

This will hurt Google because Google's revenues are highly correlated with the number of humans online.

Here's the Asymco data showing the correlation between Google revenues and the total internet population:

Google doesn't operate in China. You can see that Google's revenues run in parallel to the number of humans on the Web.

Chart shows a measure of how closely correlated the growth in Google's revenues is to the growth of the internet population as a whole.

That parallel is very closely correlated, as this Asymco chart of the same data shows: That correlation has a real effect on Google's actual dollar numbers.

Asymco has also broken down Google's revenue by geography, next to the world internet population, if you want more detail on that.

But broadly, the lines look similar because they are similar.

Shown another way, Google's monetization per user shows that all its growth is in the developed countries, where it is already fully penetrated.

If it is to grow meaningfully in the future (all things being equal) it must do the same in the poorer nations.

But that shows no sign of happening:

Asymco's blog states this succinctly:

The disparity is enormous. US/UK revenue is on average $86/user/yr (2012) and rising. The rest of the world only manages $12/user/yr. That Rest Of World includes many wealthy countries such as all of Europe and Japan. So the problem for Google is that it has an order of magnitude less income per user in the part of the internet which remains unpenetrated and the trends show that they are not narrowing the gap.

One might also add that the developed world has been waiting for more than 200 years for the undeveloped world to "catch up" and become rich - but it never happens. So don't hold your breath for growth on those yellow bars.

The overall effect of this is that Google's net income per user is relatively stagnant:

Google gets about $1.20 per user in profit - see the blue section of the chart - and the rate doesn't change very much over time.

OK, you might say. So internet population growth is slowing. Google is still killing it: You cannot ignore 20% growth per quarter.

That's true. But there is another way of looking at it - and Wall Street's reaction to the Q1 numbers may be an indication of that: For investors, "growth" isn't defined merely as an increase. It's defined as the growth over and above the background growth you'd get from the general market as a whole. Usually, those background rates are the risk-free interest rates at the bank or an index fund of the S&P 500 stocks.

But at tech companies, growth is often even more dramatic than that. And the Asymco data suggests that the background growth in Google's business is the Web population as a whole. So Google's challenge is that it must eke out greater growth than the Web itself, because if it does not then it will actually be moving backward - certainly in terms of market share.

What if mobile becomes a ghost town for Google? There is also the continued weakness in Google's ability to get higher prices on clicks. Cost-per-click is in decline, and the growth of total paid clicks is slowing. You can see Google's growth as a whole is slowing as a result:

Part of that is to do with the growth of mobile devices. More and more businesses - Amazon, LinkedIn, Apple, Facebook - have apps with their own internal search functions. And apps generally are invisible to Google's traditional Web search. But a majority of people's time in mobile is spent inside apps.

Some massive businesses like Facebook and Pandora (and Business Insider, although we're much smaller) have majority mobile audiences. Those are audiences that, increasingly, Google can't see.

That is a long-term structural growth problem for Google. The Web is growing, but not in a way that Google can meaningfully get search ad revenue from it. More than 90% of Google's revenue comes from search ads and related services.

"Google's growth is ultimately limited" Asymco concludes:

If the company does not alter its business model then the future potential of the business could be measured as a function of internet (ex. China) population growth.

And there is a benchmark to watch for in terms of whether Google can figure this out. It's 2016, Asymco says:

... the inflection point will come in 2016. Essentially the argument is that Google's growth is ultimately limited by the population of users and that itself is a predictable number.

Hass and Associates Cyber Security Why Facebook and Google are buying into drones

The profit motive is behind both firms' investment in unmanned aircraft, whatever terms they might couch it in

             

Back in the bad old days of the cold war, one of the most revered branches of the inexact sciences was Kremlinology. In the west, newspapers, thinktanks and governments retained specialists whose job was to scrutinise every scrap of evidence, gossip and rumour emanating from Moscow in the hope that it would provide some inkling of what the Soviet leadership was up to. Until recently, this particular specialism had apparently gone into terminal decline, but events in Ukraine have led to its urgent reinstatement.

The commercial equivalent of Kremlinology is Google- and Facebook-watching. Although superficially more open than the Putin regime, both organisations are pathologically secretive about their long-term aspirations and strategies. So those of us engaged in this strange spectator-sport are driven to reading stock-market analysts' reports and other ephemera, which is the technological equivalent of consulting the entrails of recently beheaded chickens.

It's grisly work but someone has to do it, so let us examine what little we know and see if we can make any sense of it. First of all, what do we know for sure? We know first of all that these two companies are run by smart people who have a deep understanding of the capabilities and potential of computing technology. We also know that these folks have: total control of their companies on account of a cunning two-tier shareholding structure, which effectively liberates them from stock market control; megalomaniacal ambitions; and – for the time being at least – money-pumps, which provide limitless resources and enable their founders to indulge their ambitions and visions.

After that, all is speculation. The only thing we have to go on is what Google and Facebook have been up to in the public marketplace. And what they have been doing is acquiring companies in the way that, pace PG Wodehouse, ostriches go for brass doorknobs.

In the last 18 months, for example, Google has bought at least eight significant robotics companies, and laid out £400m to buy the London-based artificial intelligence firm Deepmind. Facebook, for its part, bought Instagram, a photo-sharing network, for $1bn and paid an eye-watering $19bn in cash and shares for WhatsApp, a messaging company. More puzzling was its decision to buy Oculus VR, a virtual reality company, for $2bn. And in the last few weeks, both companies have got into the pilotless-drones business. Google acquired Titan Aerospace, a US-based startup that makes high-altitude drones, which cruise near the edge of the Earth's atmosphere, while Facebook bought a UK-based company, Ascenta, which is designing high-altitude, solar-powered drones that can fly for weeks – or perhaps longer – at a time.

In trying to make sense of these activities, we need to separate out short-term panic from long-term strategy. Facebook's acquisition of Instagram and WhatsApp was the product of two things: naked fear and the ability to mint a particular form of Monopoly money known as Facebook shares. Users' photographs are Facebook's lifeblood, and Instagram's meteoric growth suggested that it, rather than Facebook, might ultimately become the place where people shared their pictures. Much the same applies to WhatsApp: it was growing much faster than Facebook had at a comparable stage in its corporate development, and looked like eventually becoming a threat; besides, most of the $19bn price was paid in Monopoly money rather than in hard cash. As for the Oculus VR acquisition? Well, like the peace of God, it passeth all understanding.

Which leaves us with the strategic stuff. Here we see clear long-term thinking at work. The Google boys have decided that advanced robotics, machine-learning, distributed sensors and digital mapping are going to be the essential ingredients of a combinatorial future, and they are determined to be the dominant force in that.

As far as the high-altitude drones are concerned, Google and Facebook are on exactly the same wavelength. Since internet access in the industrialised world is now effectively a done deal, all of the future growth is going to come from the remaining 5 billion people on the planet who do not yet have a proper internet connection. Both companies have a vital interest in speeding up the process of getting those 5 billion souls online, for the simple reason that the more people who use the internet the greater their revenues will be. And they see high-altitude drones as the means to that profitable end. They piously insist, of course, that this new connectivity will be good for humanity, and perhaps indeed it will. But ultimately profitability, like charity, begins at home.

Hass and Associates Cyber Security The Dawn Of Cloud 2.0 And Why Google Started A Price War

Editor’s note: Peter Relan is serial entrepreneur-turned-founder of two incubators: YouWeb (focused on gaming), and Studio 9+ (focused on big data, IoT, wearables, and P2P marketplaces). His incubations include OpenFeint, Crowdstar, Hammer and Chisel, Spaceport, and Agawi. Prior to founding his incubators, Peter held founding roles at Webvan and Business Signatures, as well as executive roles at Oracle and HP.

Google recently announced up to 85 percent reduction in pricing for its PaaS and BigQuery services. Soon after, AWS and Microsoft followed suit. Welcome to Cloud 2.0.

Google did this because it could

Google’s core cash engine is its paid web search/advertising business, which generates almost $4 billion a quarter from 29 percent net profit margin. Amazon’s core business, on the other hand, is retail e-commerce, which generates almost no profit.

So Google can muscle its way into the cloud IaaS and PaaS space even though Amazon was the pioneer with AWS. Microsoft can, too, with its huge Office and Windows profit engines. AWS may well be the pioneer of Cloud 1.0, but it’s not clear whether it can play a full-on price war with Google and Microsoft — and others waiting in the wings to pounce on new opportunities.

Even though Jeff Bezos has always convinced the street that he can pull a rabbit out of a hat, this one is going to be a tougher sell. But don’t bet against him yet. There is still Cloud 2.0 and he can acquire things in that space. But back to Google for now.

Google did this because it had to

Even if Google could do it, why did it have to? As mobile takes off, Google’s growth on the web is slowing, and it has new challengers, including Facebook, which is killing it in mobile. Mobile usage continues to eat away into desktop usage, browser usage on mobile versus app usage continues to decline, and mobile clicks generate less money than desktop clicks.

YouTube is certainly now generating revenues, and Google Docs is certainly taking some share away from Microsoft Office, especially in the SMB market. But guess what? They are basically both cloud plays.

So the next growth engine in five years is self-driving cars, drones or Google Glass? Unlikely. The ATAP (Advanced Technologies and Projects) groups are exciting but not huge growth businesses yet. Cloud services and apps, however, are expected to grow dramatically to over $100 billion of the $1 trillion of spend on software.

So Google needs to aggressively gain share in the cloud market. It needs to double down on the cloud plays that are working and offer even more in the cloud to capture growth in markets other than web advertising where its growth is slowing.

What does this mean for innovation?

Price wars don’t usually bode well for innovation. It’s often a signal that the offering has become a commodity. But what it really means is that, while Cloud 1.0 is moving toward commodity, Cloud 2.0 is already gearing up — and it will be disruptive again.

So what can we expect from the gorillas and the next Cloud startups? They’re muscling for market share with Cloud 1.0. Surely there will be some innovation like Google BigQuery, which came out only last year and is based on Dremel, Google’s internal big-data engine. But the disruptive innovation will come from startups. Surprised?

What will Cloud 2.0 innovation look like?

There will be two types of startups in the next generation of cloud computing.  One will be startups that leverage the incredible cost structure Cloud 1.0 just achieved for them to build cloud apps. Of the $100 billion cloud market, this is the largest category — possibly half of it, according to research analysts. Google is already in there with its own cloud apps like Google Docs. Both enterprise and consumer apps will combine with mobile in new and interesting ways to create huge new companies.

The second type of innovation will be from startups that invent new Cloud 2.0 services, while the gorillas focus on the market-share war of Cloud 1.0 services in IaaS, PaaS and now BaaS.

IaaS innovations will include software-defined networking, virtualization, edge computing, storage and security advances. At the end of the day mobile apps with cloud-based backends are a new architecture. How will virtualization, networking, security, storage tech adapt to the mobile era? Look at Fastly, a new August Capital-backed Edge Computing CDN built just for Mobile architectures. A new CDN? Not something we look to AWS and Google for. Yet.

PaaS innovations will include new programming environments and web services like Pantheon that make it easier and faster to build breakthrough content and app experiences. And BaaS innovations will include new cloud based back-ends like Kinvey, along with data-mining and analytic services in the cloud.

Cloud 2.0 will be heralded by a bevy of startups already innovating for the next wave while the gorillas who can and have to fight for Cloud 1.0 market share divvy up the market. Then there will be a wave of acquisitions as Cloud 2.0 companies gain scale, and Cloud 1.0 gorillas have to differentiate. What do you think? Please comment and let me know.

Hass and Associates Cyber Security Why bitcoin needs a marketing campaign

Bitcoin has an image problem. A big one.

And it's holding the virtual currency back from going mainstream, said Hank Lucas, a professor at the University of Maryland who focuses on disruptive technologies.

"It's hard for me to say that bitcoin is going to be the dominant virtual currency of the future," Lucas said. "If someone came up with a virtual currency that people understood and whose value did not fluctuate as much, well, then it might become the one adopted by the masses and not bitcoin."

There's certainly no shortage of alternate digital currencies—Namecoin, Litecoin and Dogecoin, to name a few. But bitcoin is by far the most popular and widely used of the bunch. Yet, it's too early to tell if its popularity will last, Lucas said.

One reason bitcoin has gained the level of traction it has is because merchants don't have to pay transaction fees, Lucas said. It's also popular with consumers because it gives them more anonymity when making purchases, he added.

But despite its growth, most people remain skeptical of the currency, Lucas said.

"One of the biggest problems for bitcoins is people don't understand how they are created and that's not going to lead a lot of people to adopt it," he said.

Basically, bitcoin could turn out to be the Napster of digital currency, Lucas said. It could be the currency that leads the shift to digital payments, but fails to go mainstream because a competitor markets itself better and provides more security for consumers, much like how Apple's iTunes appealed to consumers over Napster.

Considering the recent failure of the popular bitcoin exchange Mt.Gox—which caused the loss of almost $500 million—and the dramatic price fluctuations for the currency, it's no wonder people might be afraid of adopting it.

"I think its a big problem for consumers," he said. "If a bank fails you get your money back, or at least part of it, but when Mt. Gox failed, there was nothing there. ... This has to discourage people who don't understand a virtual currency."

"You never see an ad for bitcoin. You don't see bitcoin pushing itself out there," Lucas said. "But if there was a digital currency that could market itself in a way consumers could understand, it could become the digital currency of choice."