Singapore is a threat to the national security of the US

Prime Minister Lee Hsien Loong should go on TV and broadcast to his countrymen that Singapore has "arrived". The mighty US is scared of little Singapore. Perhaps a national holiday in Singapore will be declared to mark the event !

I am referring to the US government blocking the bid by Broadcom for the takeover of Qualcomm, on the grounds of national security. Broadcom is a Singaporean company (never mind that Broadcom had offered to move its headquarters to San Jose if the deal went through). Qualcomm is an American company. So Singapore is a threat to the national security of the US. Great !

The US government is giving a specious argument to justify national security. According to the government, Broadcom would cut R&D spending after it took Qualcomm over.  This would affect the development of 5G technology. Instead Huawei would become the leader in 5G. Huawei is a Chinese company. Therefore the US would be dependent on China for its mobile networks. That is the threat to national security.

That is an even more laughable argument. Qualcomm is an important player, but not the leader in the development of 5G in the first place. Have you forgotten Cisco ? Intel ? AT&T ? Samsung ? Ericsson ? And innovation is not the monopoly of anybody - even a rudimentary understanding of business should tell you that. Innovation comes from the strangest of places. If Qualcomm slashes R&D, does anybody seriously think other US companies will not succeed in 5G. If the US was solely dependant on Qualcomm, it was screwed long ago.

And why is 5G technology a matter for national security ? If this is truly the case with wireless technology, China's national security has long been compromised  because of US leadership thus far. Why is ownership of 5G technology and standards so  worrying ? Is the argument that Huawei will get a monopoly of technology and therefore all US companies will have to buy telecommunication equipment only from them and therefore China will have a backdoor entry and control over the entire US telecommunications infrastructure ? That stretches incredulity to the limit.

There's an interesting subplot to this. In the midst of the drama with Broadcom, Qualcomm  itself  is currently trying to take over NXP - another semiconductor company. That deal is awaiting clearance from Chinese regulators. Fat chance of that happening now. The people really screwed by these developments are Qualcomm shareholders - they don't get NXP and they don't get to be bought out by Broadcom at a stiff premium. And before you say you don't care about shareholders, let's just note for the record that US institutional investors , including mutual funds and pension funds, hold nearly 80% of Qualcomm stock.

No, this is not about national security at all. These days it appears you can claim national security for anything - even steel and aluminium tariffs. This is pure and simple economic nationalism. We don't want an American company to be taken over by "Chinese looking people". That's it.

The current US administration is supposed to be a Republican one.  Standing for free trade and non interference of government into business. Has ideology, beliefs and policy ceased to matter at all ?

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Yo

A mobile phone app start up has received $ 1 m in funding. Nothing special about that - after all thousands of start ups get funding. What is interesting is the nature of the app itself. It is called Yo. And what it does is that you can send a message - Yo - to any of your friends. That's it. That's all you can say - Yo. Apparently its USP is that you can say Yo in two taps instead of the 13 taps it will take you in Whatsapp.

 I am scratching my head in bewilderment. Why would I want to say just Yo to you ? In comparison, Twitter seems positively garrulous. Yo is being downloaded like there is no tomorrow - it has reached the top 50 downloaded apps on the Apple store. For some strange unexplained reason, iphone users want to say Yo more than Android users !

Apparently this is the start of something called "contextual communication" ! If a world cup match is going on and you send a Yo, it means - Dumbhead; somebody has scored a goal; turn on the TV and watch it. If you get a Yo from your boss, it could mean get your ass up here right now, or don't be playing that game on your PC - get to work. Depending on the "context", you see. Wow. 

This brings me to the whole apps mania. Apparently iOS is good because it has 1.2 million apps. I am absolutely sure that 1, 999,950 of them are utterly useless and inane. Honourable mention must be made of

• Pimple Popper - a game apparently
• Places I’ve Pooped - Globally with Google maps integration
• Drunk Dial No - which very helpfully prevents you calling somebody when drunk by disabling your contact list
• Paper racing - contest on who can roll up toilet paper fastest
• Tap that - It helps your phone do , er, "it" with another phone !

Not sure if Yo falls in this category, but I would suspect Indian politicians might want to give it some close attention. The current breed of politicos all have taken to Twitter with a vengeance, trivialising complex and major issues much to this blogger's irritation. Worse still, the irresistible Tweet button is extremely prone to foot in the mouth disease. If instead, they simply said Yo, well, there is no problem, is there? By "contextual communication" you can interpret it in whatever way you want. And the foot in the mouth politician can of course deny that he never meant it that way.

Amongst those cheering this app must be the Indian telecom companies. You see, contextual communication was discovered long long ago in India courtesy the "missed call". You simply gave a missed call and the receiver understood what you meant. Telecom companies are furious at this practice because they earn absolutely nothing from this. Instead, if your driver switched to Yo to ping you that he has arrived, well, the Indian telco would earn some revenues courtesy the pingers needing to use data connectivity. I strongly suspect Airtel or Idea might be behind the $ 1m financing to this start up !

In the new world of Yo, I suppose this rather verbose blog is an anachronism and this blogger a dinosaur. Perhaps he would go the dinosaur way and become extinct. Yo !

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Face the music

A terrible decision for the company and its founder. A great decision for everybody else. Welcome to the crazy world of private equity.

Facebook needs an IPO like a hole in the head. It doesn't need the money. The only possible use it has for it is to pay off some tax liabilities being triggered by doing an IPO. Most of the money is going to be invested in US government bonds - impeccable logic of raising expensive equity and investing in bonds that yield nothing. The business itself is a cash spewing machine - it doesn't need more cash. On the contrary it doesn't know what to do with th cash already being generated. Actually the risk when too much cash is sloshing around is that the Board will go and make a stupid headline grabbing acquisition.

Mark Zuckerberg doesn't want to do an IPO either. He doesn't need the "valuation" to prove to everybody that he is rich. He's going to lose every autonomy he had in running the business - now he has to pander to the quarterly whims of so called experts called analysts. Being listed is like a curse - the number of regulatory and legal constraints the company will have is enough to make you lose your senses. An independent Board of eminent personalities will sit in judgement over everything Zuckerberg wants to do. Two quarters of missing forecasts and they will have to sack him. Companies that need capital have no other option but to eventually list. The slight problem is that Facebook does not need any more capital.

Its the current shareholders, minus Zuckerberg, who want an IPO badly. They want to encash the fortune they are sitting on. The likes of Aegis Capital, Goldman Sachs, etc. The employees with stock options want to become millionaires. They love the IPO too. The investment bankers who are handling the IPO are beside themselves with excitement - the prospect of fat fees of unimaginable proportions makes you drool doesn't it. Especially when they need to do no work ; after all the shares are going to be bought up even if a donkey handled the issue. The "market" loves it - it will provide employment to a clutch of useless analysts who will write learned treatises on the company without having a clue about it. Day traders will buy and sell everyday, speculating and punting like crazy. We, the wonderful public, can now learn all about its innards and criticise its decisions.

Mark Zuckerberg knows all this. But he probably had no choice - his shareholders must have pushed him and after holding off for so long, had to eventually give in. Facebook can go only one way now - down. What a waste.

PS : Full disclosure - This blogger does not like Facebook. He does not go there.

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Dot Com Mania II

Is Facebook really worth $50 bn ?? Yes, billion that is, not million. Or are we seeing the second incarnation of the mindless hype that we saw at the dawn of the century which made the word dot com a household name ? Judge for yourself.

What happened yesterday was that Facebook raised the first tranche of $500m funding from Goldman Sachs and a Russian investor. Goldman Sachs is putting $375m of its own money . Extrapolation is always a dangerous thing, but if you take the licence of using the same valuation per share to determine the value of Facebook as a whole, it somewhere close to $50 bn. Facebook is not a listed company; so we should be careful. But still such a stratospheric valuation ??

Facebook's revenues are reputed to be some $ 2 bn. This all seems to be old style internet ads - very few media companies have succeeded in that space. Google is different - its advertising model is such that a fair proportion of the searches actually lead to a commercial transaction. Clicks through to Gils on Facebook may yield captivating information on this incomparable blogger and such attendant pleasures, but are unlikely to yield even a dime !

So why this valuation ? I suspect another avatar of the dot com mania that gripped the world in its first edition. Great businesses are built on great ideas alright. But they also need boring stuff like profit and loss statements. They need resilience (regular readers will note this flavour of the month). They need robustness. They need sustainability. Then stratospheric valuations are justified.

It would be fairly obvious by now that this blogger is not a fan of Facebook. The only reason he enters its portals is to play an occasional game of Scramble. He is completely unable to fathom the joy of posting his mugshot or boring mundane everyday activities for the world to see. Readers might deduce from this admission that he's a bit of an old foggy.

Well, he's in elite company. Warren Buffet was called an old foggy in Dot Com Mania I !

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Internet gains vs Wall Street innovations

This is the title of a very interesting article written by Prof Prabhudev Konana of the University of Texas at Austin. Click here to read his article.

He compares two massive streams of innovations in the last two decades – the internet and the financial sector. The Internet has revolutionalised our way of life, created jobs and wealth for a lot of people and , in general, has created unprecedented social good. Financial innovation has created lots of wealth and done good, but it has done bad as well. Prof Konana wonders whether the rewards for financial innovation have been disproportionate and whether our systems for rewarding innovation are appropriate.

Thought provoking article ( the Professor has written it for the average reader and not a scholar – so its refreshingly devoid of 25 letter words that business professors often inflict on us, mortals). It nicely captures one of the dilemmas I have been musing on – is the reward system for the financial sector “right” ? On the one hand, these financial innovations have enabled many liquid markets to emerge, enabled access to capital for business which otherwise would have been impossible, given tools for people to spread and manage risk, and brought efficiency to markets and businesses that have been unprecedented. On the other hand, huge sums of money can be made (or lost) on just timing or luck without an attendant economic benefit – in fact often to the accompaniment of economic destruction.

I am having great difficulty reconciling with the idea that a society can bestow the highest wealth on just being at the right place at the right time. The concept of “easy money” as opposed to one “earned through hard work” is sitting uneasily in my “socialist heart”. I am a subscriber to Narayana Murthy's view that you should be a capitalist in your mind and a socialist at heart !

There are of course many sides to this argument and a blog post is not the equivalent of a research thesis. This blog is a muse on business; so I can take the liberty of wondering aloud and perhaps stimulating you to do so too. As Prof Konana asks – should the contributions of Prof Berners-Lee and John Paulson be even on the same page ??

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Open the Internet at the office, or shut it out ?

What should be the “internet policy” in companies ? Not so easy a question to answer.

Companies have one of the following approaches

- Complete ban (would be very unusual these days)
- No internet on your desktop, but internet kiosks available
- Internet access for limited hours at the desktop
- Wide internet access, but personal stuff like e mail, blogging, youtube blocked)
- Complete free for all

What is “right” to do ?

Only one thing would be universally agreed – no porn. After that everything is fuzzy.

Arguments against a very open access are many. Firstly it costs hell of a lot. If you have 10000 employees in your office, the cost of providing internet access to everybody will be a fortune. Why should companies foot the bill for you doing your personal stuff in the office. At least some employees will goof off having fun online rather than doing what they are supposed to be doing. More serious is that companies face big law suits and possibly massive liabilities if some employee does crazy stuff online via the company’s network. Monitoring internet traffic raises all sorts of privacy issues. And if you dispassionately think about it, the number of people who really need unrestricted access to the internet to do their daily jobs is rather small.

Arguments for open access are equally many. Today’s workforce is inextricably linked to the internet. Blocking that is a prehistoric practice. And so what if an employee does some personal stuff during office time. Doesn’t he do office stuff in his personal time ? – take calls, answer emails fro home and so on. In today’s life, work and personal times are closely intertwined – the days of a 9 to 5 job are over. Liability on account of employee action exists even today – if he uses the phone to sexually harass somebody outside, its no different from using the internet.

So what is “right”. Obviously no easy answer.

My suggestion is triggered by a very interesting report from a 15 year old Morgan Stanley intern, on online habits of teenagers. It’s a cracking read – he claims, for example, that no teenager he knows uses Twitter for real. But one thing he said triggers my suggestion – he said teenagers don’t want to pay for anything.

So my suggested internet policy is – give the option to the employee if he wants unrestricted internet access or not. If he wants access, charge him 50% of the cost an ISP charges. And only ban porn or anything else illegal in law.

Everything else is upto him ! Including reading this blog !!

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Dead Right Carol - but you could have put it better

Carol Bartz, the CEO of Yahoo, said a few days ago, that it was “not our job to fix the Chinese government". She was responding to a question from somebody from Amnesty International who asked a question at the company’s AGM about filtering of internet information in China.

She’s dead right. It is not the job of companies to advance political or social causes. That’s the job of governments, the United Nations, religious institutions like the Church, etc. Not companies.

She could have put it better though. Her choice of words was not exactly great.

Companies come under increasing pressure from all sorts of organizations who want to promote their agenda and find companies as soft targets. They use pressure tactics and publicity to force companies to further their agenda. These range from very worthy causes to cranky, and to , frankly, batty causes. But the worthiness of the cause must not cloud the issue. It is the not the business of companies to further political, social or religious causes at all.

Companies must follow the law of the land. Period. Fully, in letter and spirit. Since laws are mostly national, they must follow the law of the country they operate in. 150%. If they do not, then by all means quarter, censure, kill them.

But what is to be done if the laws of any particular country are “not right” in the eyes of another country or some non governmental organization. That is the business of governments to sort out. They need to take it up , either bilaterally, or in multilateral institutions, like the United Nations. If they dislike the laws of a country so badly, they can prohibit their companies from operating there at all – like the United States has with Cuba and Iran, or many countries in the world had with South Africa in the apartheid era. Once they allow companies to do business with a country, then companies should obey the laws of that country fully – its not their business to question these laws.

The US Congress, periodically summons executives from Microsoft, Google, Cisco and Yahoo and lectures them on the "morality" of their business in China. Wants them to admit to shame. The shame is actually on the US Congress for hitting at soft targets. If you are so concerned, why don't you preach this to Hu Jintao.

In the case of internet censorship, I, living in China, find it abominable. But I don’t blame Yahoo, or Google or Microsoft for it. I don’t want them to solve the problem.

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China vs Google

There’s a battle going on between China and Google. Google can’t win and China can only lose. Just for the record, its China who started this battle .

The stakes were upped yesterday night, when the Net Nanny blocked Google. Yes b-l-o-c-k-e-d Google. Google everything – Search, Gmail, the works ! I’m gob smacked. What are they thinking ?

For some weeks China has been demanding that Google block searches from throwing up pornographic content. That’s the official stated demand. But we all know what this means. We know what they want to block.

In China, Google is not the dominant search engine. In fact their market share is some 20% or so. The dominant search engine by far is Baidu. This demand for blocking has not been made of Baidu and searches on Google and Baidu throw up virtually the same results.

Google is in a bind. How can they react. If they give in, this is against all that they stand for. If they don't, they get blocked and out of one of the most important markets in the world. Heads I win, Tails you lose.

China has also brought in a rule that from July 1, all PCs sold here have to have a net blocking software called “Green Dam Youth Escort”, preinstalled. Again the ostensible reason in blocking pornography. But we know what the intentions are. The move has raised a separate storm, with a US company Solid Oak claiming that Green Dam has plagiarised its software and threatening to sue. The University of Michigan waded in publishing a host of security weaknesses in Green Dam. What a mess.

Meanwhile a whole host of services – YouTube, Blogspot, WordPress, …. remain blocked.

Something is happening in China. This is not business as usual.

- Maybe this is some form of protectionism – taking sides in Baidu vs Google.
- Maybe there are some internal power struggles
- Certainly this is taking censorship to a new level.
- It is difficult to believe that the nanny really thinks she can win.
- Meanwhile a whole army of people are pissed off.

India can rest easy. China is not a threat to its IT and services industry. Its lead is safe and China is not going to catch up. Not with such asinine stuff.


PS - After I posted this, my blogger friend Hang, posted on this matter in his blog, Beijing Barefeet. Click here to read his post for an authentic Chinese response to internet censorship.

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