Web3: The future? Or just another bubble?
And also: The vulnerabilities of open source; financial regulation of Big Tech; are telecoms breaking up?; building AI that understands; policymakers target algorithms
Is Web3 the future of Tech? Or is it just another bubble?
This week we had a couple of articles looking at the Crypto / Web3 phenomenon, a theme that creates lots of controversy in social networks. Benedict Evans, one of our favorite analysts, recently identified “Web3” as one of the two key current areas of focus for the tech industry (the Metaverse is -of course- the other :-) )
The first article comes from Christopher Mims at the WSJ, who describes the generalized dissatisfaction with what internet has turned out to be, quite far from initial expectations. We were promised a distributed, user-controlled and “democratic” infrastructure, and now we have the polarized, centralized, Big Tech-controlled mess we talk about every week… So people are working to build something different, using blockchain as an underlying technology platform where apps run and where “trust” (a key role of centralized platforms today) is achieved through the protocol, with no need of an intermediate agent. The takeaway is that, even if this looks great, we’re still not there, and performance is still a key barrier to build useful things
This is also the point of Tim O’Reilly, an “internet founder”, who has published another piece on Web3, pointing to its lack of maturity. O’Reilly understands the need but is not yet convinced of the actual potential of these solutions. He mentions the need to build robust interfaces between crypto and the real world (and its legal systems), to make useful / valuable applications possible
The week
1. Consumers and businesses, after COVID
What is happening
Emerging consumer risks
The discovery of the Log4j flaw last week has triggered a race to patch the bug, perceived as a huge risk… (WSJ)(Bloomberg)
… and a simultaneous one to exploit it. More than 1.2m attacks have already happened (FT)
People now question the use of open-source software, like Log4j, for critical tasks, as maintenance tends to be under-funded and insufficient (FT)
The post-pandemic economy
M Sandbu (at the FT) has published an optimistic view about the role of globalization during the pandemic (FT)
On a more pessimistic note, Bloomberg summarized what they see as the biggest economic risks for the new year (Bloomberg)
Of course, the behavior of the Chinese economy is one of them. Activity has slowed down in November (WSJ)(FT)(Bloomberg). The transition to a “fairer model” (as described by the government) is expected. to be tough (WSJ)
Still, there are analysts that see potential learnings for the West, in the way China is managing the situation (FT)
Inflation is another key risk. The US Fed has given visibility on potential interest rate rises for 2022, to address the issue (WSJ)(WSJ2)
What it means
Last week we talked about vulnerability in our software infrastructures, in general. This week we saw how some analysts focused on the role of open-source in all this. The average application these days includes more than 500 open-source components, and these are often not managed properly
People have started to talk about economic perspectives for 2022. Apart from the uncertainty created by Omicron, that clearly contaminates the debate, the transformation of the Chinese economy and the management of inflation in the Westwill clearly be two key themes
China is moving to evolve its economy to a fairer growth model, that could help them reduce inequality. Interestingly, some people see things that the US could learn from their rivals’ effort
2. Platforms and digital enablers
What is happening
A new UCL report has found opportunities to improve the way Big Tech platforms report their activities to financial regulators (FT)(UCLReport)
Some Facebook’s shareholders have started to push for changes in the company’s corporate governance (WSJ)
Alibaba has presented an ambitious expansion plan for its e-commerce business in Southeast Asia (Bloomberg)
Traditional retailers are trying to compete with Amazon in its wholesale, “digital marketplace” role (WSJ)
Sony wants to exploit its position as a content producer without an own streaming service (unlike its main rivals) (WSJ)
Connectivity:
More movements in BT’s capital. Altice has raised its stake to 18% and everyone expects more. (FT)(Bloomberg)(FT2)(FT3)
The FT’s telecom analyst sees “breaking up” as a key theme for European telecom operators in the coming months / years (FT)
Cloud:
Oracle doing a large acquisition (Cerner, $30bn) to strengthen its cloud business, with focus on healthcare vertical (WSJ)(FT)
Semiconductors:
Entegris, a US-based supplier of high-end filters to build chips, will create a new plant in Taiwan (FT)
What it means
The team of Mariana Mazzucato at UCL thinks there are areas of improvement in the way financial regulators control Big Tech firms, particularly regarding network effects (that help create market power) and what they describe as “indirect” benefits obtained from users’ data. This is probably timely from the perspective of European policymakers, which continue showing their ambition to reduce the power of these platforms in the area
After the discussions about Telecom Italia, now it’s the turn of BT to be the target of an external investor, which would probably focus on separating infrastructure and “app supermarket”. Nic Fildes from the FT sees this as a strong trend in European telecoms, and mentions also the example of TDC in Denmark, where Macquarie is already working on something similar
3. Financing digital innovation
What is happening
Chinese AI giant SenseTime has decided to postpone its IPO, after the announcement of US sanctions against the company (Bloomberg)
The US has decided to blacklist eight more Chinese companies, including drones giant DJI (FT)
An FT article discusses opportunities for investors in the “climate change” theme, using QuantumScape (batteries), BHP (mineral resources) and Munich Re (insurance) as examples (FT)
Emerging themes for investors:
Human-centered AI: The WSJ argues that, to ensure safety, algorithms are increasingly incorporating humans in the loop (WSJ). Scientists are looking for ways to test machines’ level of “understanding” (which could be critical for cooperation with humans) (Quanta)(BlaiseAgueraBlog)
Metaverse: More policy discussions about the Metaverse. Facebook’s leading policy executive had an interview with the FT (FT). Also, discussions about gender bias in the current, initial experiences (Bloomberg). And Facebook could create a Metaverse Mall (Bloomberg)
Crypto / Web3: Christopher Mims at theWSJ, and Tim O’Reilly see lots of uncertainties around the promise of Web3 to build an “entirely new economic system” (WSJ)(O’Reilly)
What it means
AI systems able to actually “understand” knowledge are perceived as a critical enabler forAI to revolutionize fields like healthcare. There is now a debate on the ability of emerging language systems, like OpenAI’s GPT-3 or DeepMind’s RETRO (discussed here last week), to understand the messages they generate. A critical issue here, as seen in the articles referenced, is to define the tests required to assess this. The promise is that systems with better understanding skills will be able to work better with humans
Among other Metaverse news (some focused on safety, just like last week), we learned that Facebook may perceive the ability to play a more central role in e-commerce (something they’re already trying with apps) as an incentive to develop this new computing platform
4. Building new rules for the (digital) game
What is happening
Customer protection: algorithms’ safety
UK MPs want to assess Big Tech’s algorithms (FT)
TikTok is proactively re-designing its algorithm to improve safety (WSJ). Simultaneously they’re being accused of inducing dangerous behaviors (e.g.: eating-disorders) on teens (WSJ)
Gig-economy workers demand employers to explain their algorithms, looking to improve their working conditions (FT)
Antitrust:
The UK regulator believes that Apple and Google have too much control of smartphones (WSJ)
The “Tech Cold War”:
Chinese hackers accused of trying to exploit the Log4j flaw (WSJ)
China might be developing “brain control weapons”, according to the US (FT)
China may also be using social networks to shape public opinion, by manipulating influencers (NYTimes)
Europe wants to be self sufficient in tech, to be independent vs. China, but also vs. the US. They’re even accusing the US authorities of supporingt Big Tech companies (FT) Examples: Cloud (Bloomberg), Chips (FT)
What it means
Algorithms are the vehicles through which apps interact with users, and as a result they’re now the target of policymakers, who want to assess the potential of harmful behaviors. However, this may be much more difficult than it looks. In the short term, it is probably better to focus on business models (the incentives for the algorithms) and (potentially) on the training data, often including bias that is then reflected in the way apps behave
Every week we have new revelations showing the sophistication of the Chinese efforts to develop strategic technologies, often aspiring to become the leading super-power in these fields. The latest accusation from the US mentions the development of “gene editing, human performance enhancement and brain machine interfaces”. This doesn’t look good (at all)