Facebook’s Immaturity And Its Consequences

Facebook’s Immaturity And Its Consequences

It hasn’t been a good year for Facebook. We can all agree on that. I’ve been very vocal about this online. I like Facebook, but their culture and management get on my nerves. For a while now, I’ve been trying to understand why.

I’ve been an entrepreneur for 15 years. When I got into technology, it was because I believed technology could fix many problems. Technology turns labor-intensive processes into easy ones. It produces efficiencies that enable economies of scale. Scale that can be leveraged to help and serve more people.

With age and experience, I’ve evolved my perceptions. Technology is incredible, but infusing it with quasi-mythological powers is a gross misconception. The world isn’t as clean and straightforward as technology wants it to be. While advancement is welcome, we spend most of our time wrestling in the mud of humanity.

As my experience grew, I began to fix my attention, not to the technology per se, but to what that enabled or achieved. I realized that while new products or services are great, they’re shrouded in context. Human context. Isolating the impact of such innovations from the people that are touched by them is a dangerous and costly mistake.

The reach and impact of our current innovations have grown dramatically in the last five years. We’ve gone from a company that served five million users, to world-dominating empires.

This growth has implications. There is a cost that we all have to pay. And it’s precisely this cost that most are ignoring and brushing away. We want global reach and recognition but no responsibility. We want an Augustus treatment but shrug away the burden of disruption. In the climb to Olympus, we are willing to sacrifice everything. Machiavelli would be proud of us.

The problem though is that we don’t live in isolation. Consequences have the nasty habit of catching up with you. And this is precisely what’s happening to Facebook.

When I look at them, I see the reflection of the technocratic elites. And it makes me cringe. I see young people clinging to the brand as a way to find their own identity. I behold talented people offering their happiness and mental wellbeing to the altars of the tech gods. Their reward, a sit at the table, a place away from the homelessness.

Technology is creating a difference in classes. You are either a tech insider, or you’re not. If you’re a member of our club, you get exclusive benefits like access to better networks, more knowledge, and better salaries. If you’re not in technology, we don’t care. You should learn how to code. You should get yourself a nanodegree online. You should be using car sharing platforms instead of using the broken public transport system.

The one thing this narrative doesn’t highlight is the fact that only a particular elite has access to this. In the process of bettering the world, we’re creating moats that are, single-handedly, making the world the roughest place to many strata of society.

And it’s this myopia, this lack of awareness and responsibility, this egoism of tech buddies first, everyone else later, that makes me ashamed of Facebook.

Their problem isn’t one of technology. It’s one of culture. They don’t want to do evil. They’ve just built an overly simplistic model of the world according to their algorithms. And they trust it and they believe in it, and they don’t question it, and they lived chained by it.

And it’s reckoning time.

“Facebook’s CEO’s constant apologies aren’t a promise to do better. They’re a symptom of a profound crisis of accountability.”

Why Zuckerberg’s 14-Year Apology Tour Hasn’t Fixed Facebook

A look at this past week’s news is enough to feel the brewing storm. Every part of the Facebook system is being questioned. Does Facebook scan your messenger without your consent? Can Zuckerberg erase content from your inbox without you knowing or even agreeing? Facebook is playing doctor with your data and isn’t asking your permission?

The current narrative spun by the social network’s culture is “trust us, we know better.” The truth is, facts have shown, they don’t. The truth is, no one does.

“I actually am not sure we shouldn’t be regulated.”

Mark Zuckerberg CNN Interview Highlights

Facebook’s privacy concerns have ramifications

This global backlash is having real repercussions for all businesses. People are starting to distrust and prosecute any breach of trust from any tech operator. With the GDPR around the corner, it’s critical for all organizations to understand the wind of change.

Any application that is planning to use user-data beyond the explicit scope needs to reassess how they do it. It doesn’t matter users clicked on the elusive Terms Of Service. If your customers don’t understand what their data is being used for, there will be thunder.

Facebook’s privacy woes are becoming beacons in the sky for users to realize what’s going on behind the curtain of Oz. More users will begin to distrust and demand tighter levels of control. Any company that is ignoring this issue will be burnt at the stake.

Product developers should update their priorities and bump privacy and data control to the top. It’s not that the GDPR will punish you, it’s that the mobs will incinerate your business.

Final words

I am not into the #DeleteFacebook movement. I believe it delivers tremendous value. But there is also a hidden side to it. It’s a double-edged sword; one most people insist that doesn’t exist. I think many people in the industry need to mature their worldviews beyond their fancy bro-clubs. The world is vast and complex. Everything we put into play has consequences. Ripples that are being magnified by our technological advancement.

Ignoring our responsibility towards society is, in my eyes, betraying the reason why we work in the industry. We shouldn’t sacrifice our weekends and holiday for better salaries. We shouldn’t forgo our friendships for the sake of bro-recognition and selfie glory. We do this to help others. The moment we believe in our deity and on the absoluteness of our reason, we’ve unquestionably lost the way.

More walking, more reflecting, more traveling, more reading. More empathy, more ethics and above all, more humanity

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Star Wars: The rise of the SpaceX mini-constellation

Star Wars: The rise of the SpaceX mini-constellation

On Thursday, the FCC green-lighted SpaceX's ambitious plan to launch their minisatellite broadband network. This comes right after SpaceX's successful test of two test satellites in February.

In 2015, Elon Musk announced the creation of project StarLink. The goal is to build a satellite broadband network that offers fiber-like access from anywhere in the world.

To achieve this, they plan to launch 4425 minisatellites and build the largest Low Earth Orbit (LEO) constellation to date. Just to put this into perspective, according to the Index of Objects Launched into Outer Space in 2017 there where 4635 satellites in orbit around Earth. That's an increase of 8.91% compared to 2016. SpaceX intends to double that total in less than six years. 

Musk isn't chasing a crazy dream though. There are existing satellite providers like Iridium or Intelsat. However, both networks rely on old and bulky technology. Some, like Intelsat, orbit in high altitude geostationary orbit (~36.000 km). It gives them much larger coverture of the planet's surface but adds massive latency problems. These networks are suitable for non-critical connections, but not for low-latency ones. On the other hand, systems like Iridium went for Low Earth Orbits. The massive costs of launching and building the satellites, though, restricted how many they could put in orbit (66). A smaller network reduced their coverage and translated into low bandwidth and speeds

SpaceX FCC fillings

New manufacturing processes are enabling the construction of much smaller and cheaper satellites. Cheaper satellites are more accessible to put into orbit and populate the LEO and VLEO (Very Low Earth Orbit) with a large mesh of next-generation satellites. This mesh can deliver under 50ms latency performance.

SpaceX isn't the only one racing towards that objective. There are at least four other organizations in the game, OneWeb, Boeing, Leosat and the Chinese-sponsored Hongyan.

OneWeb, which has investment from Softbank and Richard Branson, got FCC approval in June of last year, but still has to launch any satellites. 

NSR: China's LEO Constellations Ambitions

Why is everyone trying to build a satellite constellation?

What interests me, isn't the news per se, but the strategic reasons for it. There has always been an interest in dominating space communications. However, SpaceX's speed and structural advantages are putting pressure on the industry.

Musk's approach to space domination is a perfect example of vertical integration. I mentioned before that when entering a nascent market, the best strategy is always one of verticalization. Owning the whole stack gives the entrant significant advantages.

SpaceX is doing just that. They're integrating the whole stack, from rocket launcher (Falcon 9) to satellite constellation. They're developing all technologies in-house, giving them a speed and cost edge.

Meanwhile, their closest competitors, OneWeb are following a horizontal integration strategy. They're working with different partners, including Airbus, to deliver on several elements of the system. While it's not a bad strategy when competition is fierce, it first requires some traction. Going for a horizontal approach when there is still no market, is not a wise move.

But why fight for satellite broadband? SpaceX is looking for a lucrative market to finance their end goal of Mars colonization. Building space communication capabilities is a must for them. In the process though, they can also outsmart all terrestrial and space broadband operators and make a massive profit.

According to the company, their goal is to deliver global broadband access to those users that have either no infrastructure or lack affordable prices

Source: World Economic Forum
Source: World Bank

While these reasons seem very altruistic, the truth is that the strategic value of owning a global communication network is massive. 

Who wins with a global satellite broadband network?

There are some distinct strategic scenarios. The most straightforward one is competing with the current terrestrial operators.

Being able to compete, not only on speed but on latency and network coverage, is massive. I have no doubt FCC Chairman Ajit Pai is looking for increase innovation in that space.

The FCC is currently examining additional applications for the operation of NGSO FSS constellations, most of which include large numbers of satellites,” the agency said. “With today’s action, the Commission facilitates greater broadband offerings and competition in the United States.”

FCC Grants OneWeb US Access for Broadband Satellite Constellation

An essential advantage of a LEO satellite network, apart from global coverage, is long-distance latency. Communication between the satellites and ground stations is done via radio. However, SpaceX's proposed satellite to satellite communication is done via optic links. This enables the creation of a high-speed low-latency space mesh network. This mesh can span 7846 km between nodes, allowing for a drastic reduction of the number of routers data has to go through. In other words, terrestrial long-distance connections (Europe to Singapore for example), might go through 10 routers and take 200 ms. Space long-distance connections will go through three routers (minisatellites) in under 50 ms.

The gain is more than considerable and it's the chief competitive advantage Musk is after. Such an infrastructure would enable SpaceX to route part of the Internet's long-distance traffic through their network.

“The goal will be to have the majority of long-distance Internet traffic go over this network and about 10% of local consumer and business traffic. So that's, still probably 90% of people's local access will still come from fiber but we'll do about 10% business to consumer direct and more than half of the long-distance traffic.”

Elon Musk, SpaceX speech 2015

Beyond competing with Internet providers, it could enable strategic low-latency network for crucial businesses. Google, which is one of the leading investors behind SpaceX, is one that comes to mind. They already run their dedicated terrestrial fiber optics network. Having access to a space network would entrench their competitive position and enable them to have a massive advantage. Imagine the creation of a Space Content Delivery Network. Imagine the leverage YouTube might acquire with such infrastructure.

That's if terrestrial operators don't innovate and improve their networks. Musk isn't discarding this option, and he acknowledges that the risk is real.

“One of the mistakes that Teledesic made was not assuming that terrestrial networks would get much better over time. So we need to make sure that the system we design is good, even taking into account significant improvements in the terrestrial systems, but I do think there's an important difference between what we're doing and say Teledesic."

Elon Musk, SpaceX speech 2015

The China menace

Here are where things get interesting. As I stated before, there are several players in the field. One of them is China government's Hongyan 300 minisatellite constellation.

While they're still behind SpaceX, both regarding deployment and satellite fleet size, they have a powerful ally, the Chinese government. China's goal isn't financial return, but world domination. This is well aligned with their "One Belt One Road” (OBOR) initiative, and they'll invest until they win.

"In fact, it can be argued that gaining positive ROI is not the end goal of China’s space program but primarily the projection and increase of its power and influence across the globe. The side effect of this is to potentially undermine the value proposition of Western players that go by traditional market rules and strategies, specifically in the Eurasian, African and Latin American regions as well as other low-income countries that cannot afford high-speed connections."

China's LEO Constellation Ambitions

On top of being a state-sponsored operation, they also have a technology advantage. China has the only Quantum Communication satellite in existence. The development of Quantum communications can be a deal breaker for SpaceX. Quantum technology could deliver instantaneous transmissions between thousands of kilometers.

The technology is still experimental, but the rate of advancement is drastic. It wouldn't surprise me to see functional Quantum transmissions happening in the next five years. Let's remember that five years is still short term. Most Mini satellite constellations will take 6 – 7 years to fully deploy.

This is one of the reasons why the current US bans against Chinese technology companies can have a tremendous impact on US competitiveness.

Worth noting that China isn't the only one investing in Quantum. South Korea is also investing in this space and recently acquired ID Quantique (IDQ), one of the most advanced companies in the field.

Potential disrupted industries

Broadband satellite networks won't only disrupt telecommunication providers. It will affect many sectors. One that will be hit the most is the logistics industry.

Access to global tracking capabilities will supercharge cargo tracking. It will bring a new dimension to all IoT projects build around that space. From ship container tracking to aircraft location and maritime commercial lanes control. This space is already seeing increased activity from China and their "One Belt One Road” (OBOR) initiative. Investment in real-time high-bandwidth logistic applications built on top of the satellite mesh will be a no-brainer.

Within the IoT space, Industrial IoT (IIoT or Industry 4.0) could also benefit from these networks. Mining rigs, remote factories, energy producers, farming operations, oil & gas explorations, etc. Access to high-speed global coverage Internet will catalyze the adoption of IoT in the industry domain.

Another obvious winner would be autonomous fleet operators. The field is growing exponentially and is if anything, data heavy. As this space evolves and fleet managers start deploying vehicles and robots to distant locations, the need for enhanced data-heavy links will increase.

CBInsights CVC Report 2017
CBInsights CVC Report 2017

In this regard, SpaceX holds a strategic position. The fact that SpaceX has access to Tesla and SolarCity technology is a significant advantage. It allows for tremendous vertical integration of the stack.

Tesla vehicles will come with satellite antennas for global data links. Such move will create an initial foothold for StarLink's service. At the same time, it gives Tesla a significant advantage in their industry. If that wasn't enough, Tesla's solar roofs (SolarCity tech), could also be outfitted with StarLink receptors. These autonomous units could power many remote areas, expanding both Tesla's and SpaceX's business.

Another industry that could see disruption are networking equipment makers. New satellite entrants might displace companies like Qualcomm, Broadcom, Intel, Huawei or Cisco. Broadcom already tried to sue SpaceX for poaching some of their top experts. I wouldn't be surprised to see the rise of a new crop of disruptive satellite equipment companies like KymetaMynaric or Isotropic Systems.

Many other fields would be affected by this. An interesting one is Education. Global Internet access at affordable prices (big hypothesis), would enable increased education in developing countries. Better education leads to better living standards. But this change could also upset the rule of many authoritarian regimes. The geopolitical implications of the long-term can't be ignored. 

Censorship and antitrust

The impact of such networks will be drastic and can generate major issues at a political and regulatory level. On the one hand, it can enable citizens to bypass state censorships. Governments have control of their physical boundaries, but not of the sky. Individuals might install ground antennas and link to the global satellite network and bypass any local monopoly. This though has prominent political implications.

"Then there's the – whether it's legal to have a ground link. Obviously, any given country can say it's illegal to have a ground link. From our standpoint, we could conceivably continue to broadcast, and they'd have a choice of either shooting our satellites down.. or not. China can do that. So we probably shouldn't broadcast there. If they get upset with us, they can blow our satellites up. I mean, I'm hopeful that we can structure agreements with various countries to allow communication with their citizens, but it is on a country by country basis."

Elon Musk, SpaceX speech 2015

Another risk is that of monopoly or oligopolies. With two or three viable competitors in this space, one has to wonder who or how would it be regulated. So far FCC is on top of it in the US, but with a global reach, there is no protection in other regions like Africa or South America. 

Deep Tech opportunities

Despite all these things, the field is opening massive opportunities. There are, still many problems to be solved that startups and investors can dig into.

Ground links

The whole ground link connection can generate many opportunities. SpaceX has mentioned that they're working on a phased array antenna, but there are other ways to create that link. From Kymeta's holographic technology to Mynaric's laser tracking tech.

I also wonder who will be capable of making technology that allows for drastic miniaturization. This could enable the incorporation of ground links within smartphones. So far this is considered impossible, but it's an exciting space for research.

Other companies are heading towards a more prosaic path. That's the case of Infostellar, which is creating the first Airbnb for ground antennas.

Manufacturing

Innovative manufacturing processes are also vital to the industry. New materials and new ways of building both, satellites and rockets are critical. 3D printing and assembling will be pivotal in the space and it's no surprise to see important investments happening.

“People in the space industry have a tough time manufacturing things. They're pretty good at designing them in the first place, but they don't actually know how to make them in volume."

Elon Musk, SpaceX speech 2015

Launching platforms

Another apparent field is how to place those satellites into orbit. SpaceX achieved a major step with the Falcon 9. As of 2016, SpaceX was pricing 2719 dollars per kilogram of LEO satellite. Musk's goal is to hit the 1100 dollars per kilogram soon. 

Falcon 9 Launch outcomes. Source: Wikipedia.
Falcon 9 Booster landings. Source: Wikipedia.

Meanwhile, many others are trying to lower the cost of launching objects to space. Some are focusing on micro or nanosatellites payloads (i.e., PLD Space), others are researching new solid fuels and others like SpinLaunch are attempting utterly unique launching methods like spinning catapults. 

Launch systems by country. Source: Wikipedia

Satellite to Satellite communication

As the LEO and VLEO mesh start growing and traffic starts flowing through their backbone, satellite to satellite communications will become critical. So far, most systems used radio links for ground and satellite to satellite communication. SpaceX though has said theirs will employ optic links for space.

Mynaric is already on the verge of commercializing their sat to sat laser communicators, and I wouldn't be surprised to see others jump in.

Mynaric laser technology

One interesting option is Quantum communication between the satellites. The technology is still a little far away, but I expect it to become the next generation tech used in space communications.

Satellite defense

A field that will become very attractive is satellite defense technology. Just like with drones, satellites will need disabling and protection. With LEO and VLEO becoming a crowded space and political, commercial and regulatory issues at stake, being able to disrupt and protect satellites will become critical.

New technologies for Satellite to Satellite (S2S) disruption, Satellite to Ground (S2G) disruption, full satellite disabling and debris protection will emerge in coming years, if not earlier. 

From crazy to doable

I must confess that I find this space of Frontier Tech fascinating. We've gone from crazy research that was only accessible to a government-funded organization like NASA, to commercial companies and VCs funding startups in the field.

These startups require advance research, but it's suddenly becoming fundable and realistic to launch a project in this space. I expect more companies to get involved in the industry, either by building satellite-powered applications or propelling their satellite technology.

For once, this is real Deep Technology that has the potential to change billions of lives and deliver those retarded animojis even to the poles. 

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Corporate Venture Capital Is Doing It Wrong

Corporate Venture Capital Is Doing It Wrong

It's no secret that corporations are struggling to keep up with the innovation pace of the market. They've been trying different approaches for the past decade, some more successful than others. Corporate Venture Capital (CVC) is becoming one of the usuals. According to CBInsights 2017 report, CVC activity is growing rapidly. 

CBInsights CVC Report 2017
CBInsights CVC Report 2017

Most of this activity is being driven by new funds being open. An interesting fact is that the region that's pushing the growth isn't the US or Europe, but Asia

CBInsights CVC Report 2017

And while the share of CVC deals is still small compared to their VC counterparts, the average deal size is considerably higher for CVC than VCs.

CBInsights CVC Report 2017
CBInsights CVC Report 2017

The word that comes to mind when I read these charts is panic. Corporations are panicking and pushing hard on their innovation efforts. 

The striking thing is that while CVC activity is increasing, it's still an outlier when it comes to corporate investment. Most organizations are ramping up their investments, but they are funneling it through their corporate structures. 

CBInsights CVC Report 2017

The increased activity and frenzy is good news for startups. With a fairly slowed IPO market, Corporate acquisitions are the next desirable thing. The fact that many organizations are investing in their venture branches will increase liquidity and accelerate potential acquisitions

CBInsights Tech IPO Report 2018
CBInsights Tech IPO Report 2018

And why do I bring all this? Because my experience during these past few years is that Corporate Venture Capital and corporate innovation strategies are failing miserably. Yes, there are brilliant examples of CVC like Intel Capital or Qualcomm Ventures. But for every good example, hundreds are falling short.

I am a believer of the CVC model as one side of the Open Innovation approach. However, I think the implementations of most CVC are utterly flawed. 

Open Innovation and the Bose case

A fascinating and illustrative example of how much need there is for innovation strategies is Bose, the high-end speaker maker.

The Bose Corporation is a fascinating company. Founded in 1964 by Amar Bose, it became one of the leading speakers and headphones company in the world. With estimated revenues of 3.8 billion dollars in 2017, it's considered one of the most innovative companies in the US. The fact that it's still a privately held company and a secretive one at that has always been a source of fascination.

Nonetheless, the last five years haven't been easy for the company. Their market decline, accelerated by new entrants like Beats/Apple, is showing significant problems with their innovation process.

"I think we can all agree that the pace of change is greater than it's ever been," Maresca says, "and it requires all companies to be faster and more agile."

Bob Maresca – Former Bose CEO (2013 – 2017)

The surprising fact is that Bose is a corporation that has innovation in their DNA. The company's motto "better products through research" says it all. How is it possible that they've been outmaneuvered by a bunch of hipster rappers?

This beautiful example shows how closed innovation paradigms are failing at a rapid rate. Dr. Bose's edge when he started the company resided on the company's research capabilities. Dr. Bose, an M.I.T professor for more than 46 years, had access to top research and talent.

At the time, finding sound research and talented individuals beyond corporations was impossible. Most of the investigation was funded by large corporations like Intel, Xerox, HP, Bell Labs or GE. Dr. Bose, being born to the boon of Corporate Labs, created an organization that closely mimicked the work of such labs. And they won. They won big.

Nevertheless, the confluence of a series of factors ignited the decline of Corporate labs. Increased academic research funding, changes in patent law and increased workforce mobility began eroding the closed innovation model. With increased mobility, employees would leave to other organizations and take their knowledge with them. With time, the US academic system started producing as much research as Corporate labs democratizing the access to innovative ideas.

Before, competing with Bose required a fully-fledged corporate research lab. The democratization of knowledge, increased mobility and the rise of Venture Capital, enabled competition by new entrants. New players were capable of competing, not only on innovations but also on costs. Meanwhile, Bose Corporation has been stuck with massive R&D costs that drag their price competitiveness.

Internet and the rise of mobile have drastically altered this market. Audio consumption has shifted from the home to portable devices. Wireless, miniaturization, battery life and vertical product integration have become keys to the market.

And guess who the king of mobile entertainment devices is? Yes, Apple. The same Apple that bought Beats in 2014. The same Apple that released the AirPods and HomePod and has taken the Wireless Headphone market by storm.

"It's all about entertainment now, the firms creating their new ads say. That's not something the engineering mind understands, Maresca says."

Bose's new beat

The consequences of all this are that the market is forcing Bose Corporation to find ways to innovate faster and cheaper. 20-year research isn't acceptable anymore. 

Bose is reacting. They've been scouting, investing and acquiring startups in the audio technology, wearables, health and wellness spaces.

They recently announced the creation of a 50 million dollar fund to push their new Augmented Reality platform centered around their new AR-audio glasses. They'll use that money to invest in companies that develop applications for their platform. It reminds me of the fbFund, with a big exception, Bose's AR glasses isn't Facebook. 

Building the right Disruptive Innovation strategy

And this is the problem with most Corporate Venture Capital funds. The theory is sound. Invest in external innovation, mix it with our internal resources and come out with disruptive products. Execution though is way harder.

For starters, most CVC only invest in products or services that enable or improve their core offerings. There are two reasons for this. On the one hand, it makes strategic sense to invest in sustaining innovation. If the organization can get a slight edge and surpass their competitors, they can rip hansom profits. The problem with this though is the speed of innovation. A decade ago a sustained innovation would give the organization a five or six years lead. Nowadays competitors will erode that lead in one and a half years tops.

Bose developed their first commercial Noise Canceling Headphones prototype in 1986. While Sennheiser, the German company, produced their own Noise Canceling Headphones two years later, Bose has maintained their lead in the space for a decade. Fast forward to 2018, and you have a comprehensive set of options ranging from Bose's top line to Sony, Sennheiser or Audio-Technica.

Therefore, while sustaining innovations can help maintain an innovation lead, their impact is becoming increasingly reduced.

The second reason why organizations focus on improving their core is that of their corporate culture. Innovating beyond the corporate narrative is tough. Individuals will see new innovative options, but will always tend to apply the existing business models to these new ideas. It happened to Xerox PARC, HP, Microsoft, IBM and many others. It's happening with Blockchain technology and Augmented Reality too.

Building disruptive innovation requires agility, open innovation, autonomy and alternative business models. Most CVC look for sustained innovation. They perceive the viability of the projects through their existing business model lens. Worst of all, most of these CVC aren't entirely independent of the organization. The receiving political pressures to innovate and fast. If the investments don't have a meaningful and immediate impact on the revenue line, they'll be ditched.

Bose Corporation is doing many things right. They're an innovative company at heart. They've recognized the need to move faster. To open their innovation to the outside employing startup acquisition and investment. They're investing beyond their core and trying new things. They're testing the market through customer-centric approaches like crowdfunding projects.

Their newest Augmented Reality (AR) platform is a bold move. They're betting on a disruptive technology which gives them a higher chance to disrupt the market. They're also betting on a change of model. They're moving away from a transaction-based model to a platform one. 

What Bose is getting wrong about Augmented Reality

That said, I think they're also making some strategic mistakes. Bose Ventures should be an independent organization and not a department within the organization. Ensuring autonomy is the best way for disruptive innovation to thrive.

Their new bet, AR glasses as a platform can only work if there are two preexisting elements. On one side you need a community to drive the growth of the platform. Bose has, historically, been a transaction-based company. There is no community or ecosystem behind Bose. Kickstarting one around AR will be tough. The second element is the need for vertical integration.

As a rule of thumb, when a market is nascent, the best strategy is always one of vertical integration. Clients want one size fits all solution. They want the technology to work. To achieve this, it requires tight integration of the platform and the experiences. That is only delivered through ferrous control of the ecosystem.

Bose has no such vertical integration of the space, nor the ecosystem. Bose should learn a page from Apple's playbook instead of Google. The former always approaches a horizontal integration. One that is paying off (now), with Android, but has failed with Google Glasses or their AR approach through Tango.

Apple, which always takes a vertical path, is leading the AR market with their tight integration between hardware (iPhone X TrueDepth), software (iOS + ARKit) and community (App Store).

Final words on Corporate Innovation

Open Innovation isn't optional for most industries. That said, theory is easier than practice. While Corporate Venture funds are on the rise, there is a lack of an accompanying strategy.

Creating a fund isn't just raising money. It's about focusing on the right goals, on the right metrics, and on the appropriate strategy. Most CVCs are investing but follow what seems to be murky strategies and misplaced incentives.

Bose Corporation is doing a great job, but despite their best efforts, they're still trying to enforce their corporate narrative on their innovation efforts: sell a physical product and profit.

"Exactly," Maresca says. "Because we had that direct marketing engine for so many years, we didn't need celebrities.”

Bose's new beat

Escaping the corporate narratives of valid business models is essential. To accomplish this, it's not enough to shift the revenue model, but also about building the right strategy that sustains the new model. It implies new cost structures, different organizational structures, and innovative marketing approaches. This is rarely achieved within a department in the organization, but with independent innovation units

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Can Artificial Intelligence take over our creative jobs?

"How many of you believe that Artificial Intelligence (AI) will automate most jobs in 10 years?"

Around 90% of the room raised their hands.

"How many of you believe AI will replace YOUR job in 10 years?"

Around 15% of the room raised their hands.

This is a typical response. We all understand the theory, but it rarely applies to us. Artificial Intelligence keeps getting trashed-talked in many industries. Few appreciate how fast it's developing and how rapid its iterations are.

One area that seems to feel immune to automation is creativity. The consensus is that AIs will substitute repetitive, highly specialized tasks. Those that require holistic thinking or high degrees of creativity will be spared. I beg to differ. 

The Future Of Employment: How Susceptible Are Jobs To Computerisation?

"Our model predicts that the second wave of computerization will mainly depend on overcoming the engineering bottlenecks related to creative and social intelligence."

The Future Of Employment: How Susceptible Are Jobs To Computerisation?

AI systems are improving at an incredible pace. We already have Deep Learning systems that are capable of doing music improvisationartistic image styling or creative new images

Leon Gatys shares a neural algorithm of artistic style – YouTube

So far though, such technologies are lacking internal coherence. Yes, an AI can compose an improvised musical piece. The piece though doesn't have a purposeful intention or connection. The same happens for images. An extreme example of this would be the art of writing. Not only does it involves creativity, but it requires social intelligence, planning and plot consistency too

Automating the creative process

Can creativity be automated? The creativity process usually follows three well-known steps. The learning & research stage, the development of structure or form and the creative freedom or breaking of the form.

The automation of creativity is following a similar path than in humans.

Information gathering

Before we can even start creating we need to learn and gather information. The help of a teacher or mentor is critical at this stage. They can help students focus on what and how to study. They create a template or roadmap for the students to follow.

That's precisely what the first generation of automated tools is already doing. Human operators design written templates that the machine then uses to create written reports. From automated reporting of The Washington Post's Heliograf to computerized financial statements written by Quill. These systems though, require human editors to create these templates. Their outputs are scalable and informative, but it would be a stretch to call them creative.

"Instead of targeting a big audience with a small number of labor-intensive human-written stories, Heliograf can target many small audiences with a huge number of automated stories about niche or local topics. There may not be a wide audience for stories about the race for the Iowa 4th, but there is some audience, and, with local news outlets floundering, the Post can tap it. “It’s the Bezos concept of the Everything Store,” says Shailesh Prakash, CIO, and VP of digital product development at the Post.

What New-Writing Bots Mean For The Future Of Journalism

The danger though lies in discarding these early approaches and the potential to improve. They're obviously pretty limiting but are the foundation for more comprehensive automated efforts. Ignoring them as failed creative attempts is not to understand how disruption works.

Creative repetition

The second stage of the creative process is the personalized copy. You copy and repeat what others have done and add, progressively, your flavour to it. On this stage, you can already perceive a sense of purpose. There is a goal, an intention to the creation. It can be informative or mere emotional expression, but it's driven by something.

A whole set of AI tools are trying to mimic this stage. Given a topic or a subtopic, AI agents research and write thousands of variations on the given theme. It's impressive to see the machine produce all that content. Nonetheless, these algorithms rely on the existence of available written material on the topic. Writings that exist because a human wrote them. Again, simple automation, rewriting, summarizing, but no creating. 

While most AI systems lack a sense of purpose or a reason for their creative traits, we should meditate carefully on our creative impulses.

Humans create, not for the sake of creating, but because of need. This need can be driven by our egos or for other reasons like self-expression, identity fixation or personal therapy. My point though is that it's driven by a desire.

I wonder if some of the quirks we observe in AI systems aren't the machine's creative ways of dealing with their own needs. Google's translation system produced its interlingua language to deal with translations. Why do we discard that as non-creative? 

Zero-Shot Translation with Google’s Multilingual Neural Machine Translation System

Not long ago, Facebook AI agents developed their language to communicate with one another. The goal was to achieve a negotiation between two agents. The researchers forgot to incentivize the use of the human word and what the AI came out with was its language. They decided to shut it down. Why is it that the only creativity that is valid is the one we humans can understand?

Facebook: Deal or no deal? Training AI bots to negotiate

Abstract linking

The third and final stage of the creative process is the abstract linking. Once you've mastered the form, you break it. Free of form, the artistic purpose links and connects distant objects, concepts, feelings. People measure creative prowess in terms of originality, intention, and coherence.

AI is still not at this level, but current advances are proving akin to magic. While these systems aren't capable of plot coherence, they're achieving remarkable creativity.

In 2015, Andrej Karpathy released a seminal article where he demonstrated the use of Deep Learning to generate texts, character by character. His paper and code created a before and after in generative text AIs. 

The Unreasonable Effectiveness of Recurrent Neural Networks – Training I
The Unreasonable Effectiveness of Recurrent Neural Networks – Training II

A year later, researchers from the Google Brain project showcased an AI that was capable of building coherent threads between two distant phrasesSentence gradients in a nutshell.

Generating Sentences from a Continuous Space

Building on these two, Robin Sloan, a writer and enthusiast programmer decided to use this technology to aid his writing. He made, among other things, an impressive text editor helper that inspires his writing.

Robin Sloan's Writing With The Machine – Example I
Robin Sloan's Writing With The Machine – Example II

Like Robin, other creatives are finding an increasing fascination with the use of AI systems to enhance their creativity. Ross Goodwin's use of AI to create poetry around an image is mind-blowing. 

Adventures in Narrated Reality – Narrated caption – word.camera

Goodwin even took it as far as letting the AI generate a script that was then filmed under the name of Sunspring.

Sunspring | A Sci-Fi Short Film Starring Thomas Middleditch – YouTube

Another intriguing and powerful development is Johnson's work in generating descriptive image paragraphs. A recent paper shows how can AIs can extract meaning from an image an write down what they see. 

A Hierarchical Approach for Generating Descriptive Image Paragraphs

Future of AI creativity

While it might be true that creative AIs lack coherence, I have no doubts that we'll see new systems that start building coherence into their models.

The combination of sentence gradients, deep learning networks and the rise of generational adversarial networks paints an exciting future.

I can see how an adversarial network can drive a plot idea while the convolutional network builds the different chapters. Even simpler than that, we could mix human-made plot and character templates with the automated text generation of current models.

I believe Artificial Intelligence can be creative and develop new innovative formats. Many artists lash back against the mere notion of having machines creating anything.

"But while algorithms can be useful tools in the artistic process, Wilson said he didn't necessarily think robots will ever be able to create art more meaningful than humans because humans have one thing that no robot ever will: the experience of living a human life."

Can an algorithm make science fiction better?

For me, creativity, like many other human aspects, isn't unique to us. Machines will, driven by their own needs, become creative in their own way.

The question though is, what does this mean for companies? Is this something that only writers care about?

The topic is an interesting one because many organizations are betting on a future where their jobs won't be taken by the machines. Most of those "protected" positions are so because they entail a certain degree of creativity and holistic approach.

The more I observe how Deep Tech is evolving, the less convinced I am that creativity will be a safeguard for jobs.

On the other hand, I think that AIs can significantly enhance the creative process. We are already doing that. Machines are the heart of video games, CGI effects in movies, Frank Gehry's Guggenheim, etc.

In many ways, companies using AI enhanced creativity processes will win the day. A good example is Reuters Tracer, their in-house tool to detect, validate and corroborate real-time news. Their capacity to write part of the story in real time is giving them a decisive edge.

Machines will become creative. They will be able to write, compose and paint as good as humans. You can debate it their art is soulless or not, but they'll produce stunning pieces. Most of this creations will be consumed by humans and will give a serious scalable competitive edge to any company that employs such methods. 

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Why you shouldn’t be ignoring Blockchain technology

Why you shouldn’t be ignoring Blockchain technology

When I read about Blockchain for the first time, I was speechless. This was five years ago. I remember telling my wife that it was one of the most astounding inventions I had witnessed in the computer science field.

Since then, it's been evolving at a rapid pace. For many organizations though, Blockchain remains either an esoteric technology or a financial scam.

Those adventurous companies that have dived into the field have experimented mixed results. Often, their innovation managers are pushing to have Blockchain proof of concepts. The team goes out there to explore the industry and come back discouraged. There is no dominating platform; those that are the reference are too elaborated or too restricted for commercial uses.

The overall feedback? Too complex and limiting. Working anything beyond a toy requires a specialized Blockchain team. Even then, any developed application will still be restrictive and not easily scalable. In other words, it won't serve the current company's user base. So while they believe the technology might be crucial, they can't figure out how to use it. They're looking to deliver better value to their customers, but they feel it's still far from being ready for that.

There is an inherent risk with this, which is to lose track of the ball. Too many organizations will ride the Blockchain hype. Few will stick to it after they've built some proofs of work. The problem is, Blockchain isn't just a technology improvement, but a disruptive one. Treating it as another new technology will make most companies the targets of the disruptive wave that will accompany it. 

Blockchain's disruptive potential

Two hallmarks herald the future disruption; low-end market foothold and rapid innovation of the underlying technology. So far Blockchain is gathering marginal support in the Finance industry. Many customers don't require the highly-sophisticated finance products banks offer. Some of them are turning to Blockchain companies to bridge that gap. From secure money transfers to more complex money fund rising through ICOs, the market for financial substitutes keeps growing.

During the next few years, we'll see how Blockchain entrants will offer better and more diverse services. In less than three years, I expect many of the most significant Blockchain players to start competing with the incumbents and win.

Incumbents aren't oblivious to this. It's not surprising that the first ones to experiment with Blockchain are the top financial institutions. They're not ignorant of the potential for disruption, so they're making sure they're on top of what's going on. Few, though, are acknowledging the disruptive nature of Blockchain.

For most, their Blockchain proof of concepts is the low hanging fruit of their industry. Small-scale tests that don't bring money, clients or prestige. For them, investing beyond small-scale experiments is a money loser. There is no real incentive for them to pursue such operations when their cash cows lie elsewhere. This is why, I believe, many of these incumbents will abandon their proof of concepts sooner or later.

On top of that, most are trying to levy their current models onto this new technology. This will result in, at most, innovative substitutes but not true disruption, reinforcing the feeling that investing in Blockchain is a waste of resources.

Blockchain enables the application of entirely different business models, for wholly disconnected industries. This allows new ways of operating and as such, the creation of new markets. The capacity to create such new market footholds is another effect of real disruption. 

Blockchain technology evolution

We're far from seeing the true nature of Blockchain. Like with the transition between offline to online, the first use cases are both, elementary and unimaginative. They rarely embrace the full range of possibilities the technology enables. The problem is, predicting what they will look like is impossible. But disruptive they'll be.

The next two years will be critical for the technology. We're going to see a fast iteration of the core technology. The transition between Bitcoin's Blockchain to Ethereum was a big first step. It jumped from a currency use case to much broader use of the technology through smart contracts. Ethereum though put into evidence the current limits of some aspects of Blockchain technology, i.e., scale and volatility.

The next generation of Blockchains is attempting to fix this. From sharding (Zilliqa) to new consensus methods (pBFT, dPoS, dBFT); from public (Zilliqa, NEO, EOS, …) to private (Hyperledger Fabric, R3 Corda, …); from data-centric (Ethereum) to agent-centric (Holochain).

As with any disruptive technology, gathering critical mass is a problem. Most of the next generation innovations are still in testing phase. They'll need at least one more year before they're operational and can start maturing. I don't expect this to take too long and we could have scalable commercially mature Blockchain platforms by the end of 2019.

Infrastructure problems solved, new users will pour all over the smart contract dimension. The automation of contracts will, in turn, accelerate the rise of new business models. We'll experience gradual automation of traditional contracts. New companies will start offering plug & play contract templates for everything, not just financial services.

This will be coupled with the convergence of the Internet of Things (IoT) and Artificial Intelligence over the smart contract horizonThis combination will provide the basis for new world order.

Increasingly intelligent devices, powered with AI agents, will start having the capacity to enforce and execute smart contracts at scale. On one side we'll have to deal with machine-to-machine contracts and on the other with human-to-machine contracts. AIs will develop very different contracts to deal with other AIs than the ones employed by humans.

New automated arbitrage systems will be developed, and we'll enter the age where machines and humans are different citizens.

I know that what I paint might seem dystopian, but it seems we're heading that way. Automated contracts mean, faster and less ambiguous social enforcement. Time will say how humans adapt to the new paradigm.

How not to miss the Blockchain age

Many companies will miss the Blockchain boat. Stiff competition will force them to implement Blockchain solutions. Nevertheless, they'll be two and three steps behind the innovators. New entrants will relegate them to a second place.

We'll see a new crop of startups become dominant in this space and eventually take over entire industries. Imagine the Google for Blockchain.

Incumbents need to recognize the disruptive nature of Blockchain. They're all familiar with the coming disruption wave, but few are acting accordingly.

Organizations need to focus on investing in the technology. They should be setting independent spin-offs that focus on working with the technology. These teams shouldn't work around sustaining the current user base, but about creating new customers altogether. Focusing on existing users will narrow the scope of Blockchain to a sustained innovation. One of the best examples is Ripple. In a few years, we'll regard them as an iteration of the Swift protocol and nothing more. They'll make plenty of money, but they won't dominate the industry. They'll turn into an industry provider and not the dominant force.

So anyone that genuinely wants to ride the new wave needs to keep in mind the following. Build independent teams. Don't let the mothership set the strategy. Experiment, explore and look for new market footholds. Try out new business models for new users and double down on it. What's a sunken cost now, will become a significant win in five to eight years. 

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How Companies Are Screwing Their Voice Interfaces

How Companies Are Screwing Their Voice Interfaces

Design of good voice conversational interfaces has been in my mind for a while now. I've been toying with my Amazon Echo since January, and I can say it's been very enlightening.

One of the first posts I wrote here was about voice interfaces and how it's becoming a big thing. What I didn't have at the time was a constant direct experience.

After several months of daily Alexa use, I have to say I'm very impressed. The first thought that comes to mind is that it just works. I know it seems lame, but it's impressive it works. You talk to Alexa, and she catches what you mean.

After 20 years of Computer Science experience, it's the first time I've seen a functional voice interface. I must hand it to Amazon for their fantastic work behind Alexa and the Echo.

Another takeaway from using Alexa is how much dependant I'm becoming of it. It reminds me of the first iPhone touchscreen. Once you tried it, you couldn't go back. You expected that every surface is a multi-touch screen. The same is happening to me with Alexa. I await all my devices to answer via voice command. And they don't. And it's frustrating.

I've discovered, not only the most usual use cases for me but also how my behavior has been changing based on that. At first, you goof around with Alexa, but as times goes by, you start using it because it's more convenient.

Personal use cases

I have a particular use case, one that has probably driven my adoption of voice interfaces. I recently had a baby. As I feed my little girl, I tend to have both hands occupied but not much to do for the next 20 minutes. I find myself interacting with Alexa during those moments.

The surprising thing is that I've become so used to it that even when I'm not with my girl, I ask Alexa. It's just become a much easier way to access specific information.

Three use cases are gold for me. The first one is Spotify's integration. I play a lot of music at home and being able to do it via voice is so much easier. This is especially true if you have kids.

The other one is listening to the news. I love being able to sit down with my girl and fire the news and get a quick glimpse of what's going on in the world. This doesn't substitute my daily reading, but it serves as an entry point to it.

Last, I use the calendar integration every day. I tend to use it, especially at night, when talking with my wife about the next day's schedule. Sometimes I don't remember what time I had this or that meeting, so I ask Alexa. I could check my phone, but Alexa is way quicker.

I pair this last use with constant checking of the weather. I check it every morning before getting my kids ready for school, so I know how to dress them.

Alarm setting is also a big thing for me. I'm using them daily to avoid getting sucked into work and miss an appointment. It's so easy to do that I'm skipping doing it with my phone altogether.

Interface frustrations

I do have several frustrations; things I know will go away with time, but that isn't quite there yet. There is an evident chasm between the Alexa interface design and that of most other skills (Alexa apps). And it's very frustrating. For most skills, you need to be very strict with the way you trigger them. This adds friction that shouldn't be there in the first place.

Many skill designers don't understand the voice use case at all. I have a feeling that most of the skills in the Alexa marketplace are vulgar simplified copies of the mobile app version. It reminds me of the shift between offline and online and how many publishers flunked their transition.

Conversational interfaces require a unique design, one that has nothing to do with any other design scheme done before. A simple redesign of an existing app won't cut it.

Another frustration is the lack of support for significant local voice use cases. There are two reasons for this. One is the fact that the Echo is heavily US-based. This makes all skills very US-centric, and few have any European support. The other one is the lack of foresight from most European operators. Yes, it's US-centric right now, but nothing prevents Alexa from making it work in Europe too. The reason why they don't do it is that European Echo users are a tiny niche. This is the kind of anti-strategic move that pisses me off. The classic innovator's dilemma mistake.

Two use cases that are missing are restaurant reservations and food delivery. I'm surprised that companies like The Fork or Deliveroo have zero Alexa presence.

Thoughts on conversational design patterns

While conversational interfaces cover a wide range of new apps, it's crucial to differentiate text-based interfaces from their voice counterparts. Text-based ones, while sharing some traits, are inherently different.

Building voice conversational interfaces is hard. It's hard precisely because we have a hefty inheritance from text-based interfaces. The design of voice applications implies not just a different interface but a different backend to support them.

For example, trying to find a specific song on Spotify via Alexa is a pain. You either know the song's name and the author, or you'll have a hard time getting it to play. Spotify should be smart enough to learn from the user (context) and even ask them to sing to it, so they get an idea. Think of Spotify meets Alexa meets Shazam. This, certainly, isn't easy to pull off, but it's what's required to make voice apps work.

Another problem is the lack of thought about the user's journey within a conversational interface. Each user is different. This translate to multiple potential user paths through the interface. Nonetheless, most voice apps only work with one or two different paths.

One thing is to offer various voice commands, and a different thing is to weave the main flow of the conversation into the most common use cases. The skill should also be able to learn about the user's preferences and lock into the usual habits of the user. This is something very very few voice apps do.

Moving into the future

The speed at which a user gets used to the new interfaces is breathtaking. Not only it's easy to engage with them; they create dependency in no time.

Voice interactions are far superior to any mobile or text-based ones for specific operations. Anything that requires a fast information request, Voice will trump text anytime. This gives an opening for highly specialized voice operations. Trying to do a one-stop shop for voice is a terrible idea.

I feel many businesses are missing the voice opportunity. The worse isn't that they're failing to grasp the opportunity. The problem is that when they do, it will be too late. Companies should start experimenting now. They won't have many users. They will lose money. It will be a cost center, not a profit one. But that is precisely, the hallmark of disruptive technologies.

In the absence of useful voice apps for everyday tasks, new entrants will start offering them. Their offering will be inferior to the traditional text-only players, but when these players finally move to voice interfaces, the entrants will be entrenched. It will be tough to steal market share from them. The moment to experiment is now. The question is, how many organizations have the expertise and the resources to invest in this?

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Weaponizing Artificial Intelligence

Weaponizing Artificial Intelligence

As a strategist, my worse nightmare is the disappearance of facts. Note that I don't say Truth. I consider truth a matter of interpretation. Facts, on the other hand, are immutable. They happened, and there is proof.

But what if that proof wasn't so? What if all you rely on, suddenly became untrustworthy?

As I read the newest Artificial Intelligence news, my skin crawls. The more I read, the more scared I become. I've always been pro-AI. One thing though is talking about the future; a different matter is living it. I'm staring into the beast's eyes, feeling its rancid breath and I'm wetting my pants.

The more I piece the little AI crumbles together, the more frightening the picture becomes. Weeks ago I wrote about how fake news was a massive problem. Not because of the propaganda, which has existed forever, but because of the scale of distribution.

I never said anything about the content itself because, to date, fake news is rather elementary. Detecting lies and uncovering them is a matter of basic investigation. However, doing this at scale is a real problem. And it's only getting worse. Twitter started, finally, cracking down on botnets and automation. It remains to be seen how effective the new measures are.

The scary part about fake news is how much it undermines trust. People are getting influenced on a major scale, and this has brutal ramifications for any sector. We're now capable of swinging people's opinion with a single click.

As consumers, we lack necessary tools to protect ourselves. We have to trust the platforms, and oh the irony, they're the first ones that have an incentive not to protect their users from manipulation attempts.

Worse than that, is that brands and organizations are even more exposed than individuals. Their attack surface is more prominent. Their response time, slower. Their trust, already undermined due to the impersonality of the brand.

Few believe that a good orchestrated fake news attack on an organization can make it crumble. Most think their company isn't a big enough entity to offer a good target. Others believe that fake news is simple propaganda articles. Both accounts are wrong. Anyone will be targeted, and the tactics will be brutal.

But if fake news undermines trust, the new crop of AI models, obliterate it. The new set of technologies are focusing on automated content generation. This includes, not only automated image generation, but video and audio manipulation at a level never seen before.

Yes, you could fake a picture before. But it required a semi-expert to make it believable. New AI models (Generative Adversarial Networks), not only edit images at leisure, but create whole new realistic images of people, in one click, and at scale.

Source: Detection of Copy-move Image forgery using SVD and Cuckoo Search Algorithm
Source: GAN image generation evolution. Goodfellow et al. (2014), Radford et al. (2015), Liu and Tuzel (2016), and Karras et al. (2017)

Yes, you could fake audio before, but it required an expert. Now given 15 minutes of audio, you can, commercially, create a new voice you can use to impersonate anyone.

Sneakers (1992): My Voice Is My Passport – YouTube

Current audio manipulation techniques are becoming mainstream. In 2016, Adobe announced VoCo. A text editor for audio. The same year Google's DeepMind released WaveNet, one of the most impressive audio waveforms models to date. In 2017, DeepMind announced near-parity of voice recognition. The same year, Andrew Mason, former Groupon's founder, launches Descript, another audio text editor for the masses.

Yes, you could fake video before, but it required a super-expert. And expert with costly hardware. Furthermore, the results weren't perfect. Experts could pick something amiss with the naked eye. In 2017, Adobe announced Cloak, a one-click shop to make objects disappear from a video. You can't see the difference.

ProjectCloak: Adobe MAX 2017 (Sneak Peeks) | Adobe Creative Cloud – YouTube

Off-the-shelf Open source software is being used to swap faces in videos automatically. You can still pick them as fakes, but there are some critical differences with the past. The software to do this is available to everyone through a point-and-click program. Those using it are amateurs. Professional tuning of the model will lead, rapidly, to a massive jump in quality. When that happens, and it will be soon, fakes will be indistinguishable to humans.

Recent AI models, like Face2Face, are capable of making any face in a video, say anything they want. Their demo video is impressive. Even more remarkable is that they did it with off-the-shelf webcams.

Face2Face: Real-time Face Capture and Reenactment of RGB Videos (CVPR 2016 Oral) – YouTube

But if you prefer, we can synthesize a virtual Obama, indistinguishable from the real one, speaking anything we want.

Synthesizing Obama: Learning Lip Sync from Audio – YouTube

The death of trust

Fake new already frightens me. New content manipulation techniques based on AI, terrifies me.

Being able to reprogram any video, any audio and making it pass for a fact, is bone chilling. It essentially heralds the end of the "seeing is believing."

"Currently, the existence of high-quality recorded video or audio evidence is usually enough to settle a debate about what happened in a given dispute, and has been used to document war crimes in the Syrian Civil War."

The Malicious Use of Artificial Intelligence

Not only it destroys the capacity to rely on particular facts. It throws shadows of doubt on accurate facts. If I can't believe a video or a call or a transcript, then I won't accept anything. Even when you provide a trustworthy proof.

All this might seemed farfetched, but two elements drive the point forward. The automation of creating multimedia manipulations lowers the cost of doing it. When you reduce the cost, you increase the scale and scope.

"The costs of attacks may be lowered by the scalable use of AI systems to complete tasks that would ordinarily require human labor, intelligence, and expertise. A natural effect would be to expand the set of actors who can carry out particular attacks, the rate at which they can carry out these attacks, and the set of potential targets."

The Malicious Use of Artificial Intelligence

AI systems also create a sense of anonymity. The actual manipulator isn't me, but the AI. This creates a distance to the target that increases my willingness to do it again.

“AI systems can allow the actors who would otherwise be performing the tasks to retain their anonymity and experience a greater degree of psychological distance from the people they impact."

The Malicious Use of Artificial Intelligence

So while this future isn't here yet, it's not only feasible but inevitable. My prediction is that during the next year we'll see an increase in the number of fake multimedia content that's being distributed. At a certain point, this content will drop off the face of the Internet. That's the moment where we should be scared. That will mean we've reached peak performance of fake content.

Can AI also protect us?

It's worth noting that we can also use AI systems for defense capabilities. I argued as much on the fake news article. We'll eventually see more companies investing in active cyberdefenses.

The problem with fake content though is human fallibility. We will build systems that can detect fakes, but people will be too lazy to use them. I find it näive to suggest that we can solve the problem through educating the user. Yes, education is a big part of it, but thousands of years of history have proven that people are and will keep on being lazy.

"It is likely to prove much harder to secure humans from manipulation attacks than it will be to secure digital and cyber-physical systems from cyber attacks, and in some scenarios, all three attack vectors may be combined."

The Malicious Use of Artificial Intelligence

The truth though is that, beyond trying to promote a culture of responsibility, there are no realistic detection tools. Several academic papers hint at models that can detect manipulated images or videos. Nonetheless, they don't exist commercially or at scale.

"As yet, however, the detection of misleading news and images is an unsolved problem, and the pace of innovation in generating apparently authentic multimedia and text is rapid."

The Malicious Use of Artificial Intelligence

The non-existence of such detection platforms is a massive opportunity to innovate in this space. On the one hand, we need to build more robust trustworthy proofs-of-fact. Proofs that go beyond "seeing is believing." Decentralized systems like Blockchain are one of the key elements for making higher-trust environments.

Right now, decentralized platforms aren't deemed critical. They will be shortly.

"Centralization has also created broader societal tensions, which we see in the debates over subjects like fake news, state-sponsored bots, “no platforming” of users, EU privacy laws, and algorithmic biases. These debates will only intensify in the coming years."

Why Decentralization Matters – @ Chris Dixon

On the other hand, such proof-of-fact systems need to be integrated into the existing behavior flows of users. Having the technology to prove someone hasn't tampered with our content isn't enough. It has existed for decades now. The challenge is how we make everyone use it transparently.

Apart from proof-of-fact, we need real-time fake detection systems. The challenge is absurd. They need to be able to flag questionable fake content, but not mark artificial legit content. Yes, that's the crux of the problem. AIs will be the authors of more and more content. Some will be legit; others will be malicious. These detection systems need to be trained to spot the difference. Something the current technology giants are wrestling with.

Final thoughts

It's easy to undervalue the threat fake news, and fake content has on society. We always focus on the now; on that which affects us tomorrow.

What does this have to do with my company? With my industry? Everything! I feel like preaching in the desert. It reminds me of when decades ago I used to tell people how critical their cybersecurity was. No one listened. On a post-Snowden-wanna-cry world, it seems companies are finally waking up to cybersecurity.

On the fake content-news front though, most companies aren't taking the threat seriously. Or intelligently. It's a massive opportunity to pivot a company into detecting deceiving content or validating content for your industry.

In a world were content is the blood of the Internet, you want to ensure that the content you produce is trustworthy. Trust will become a prime currency. Those that build products and services to serve the trust economy will thrive.

Moreover, as trust becomes eroded, citizens will start pressuring their governments to adopt new regulations. Government regulations will have unintended consequences. 

"Therefore, we need to buy time for democratic institutions to evolve and adapt to the new reality imposed by technology. This requires aggressive and effective responses from individuals, governments, NGOs, the private sector, academia, and other organizations to address the risks from MADCOMs."

The Madcom Future: How Artificial Intelligence Will Enhance Computational Propaganda, Reprogram Human Culture, And Threaten Democracy.  @ Matt Chessen

Is a lack of ethics the problem with technology?

Is a lack of ethics the problem with technology?

I honestly don't know how to start today's article. I want to talk about ethics and values. Or lack of them. But I'm torn about it because most people don't find it relevant enough. It's not newsworthy. It's not about the next Facebook.

The mission of The Aleph is to bring insight beyond technology. I believe ethics is an essential component of the future we're heading into. Having the right set of values will determine our long-term survival, both as a business and as a species.

The other day, my children got a gift from a friend of the family. It was a book about a mole that gets poo all over his head. He gets mad and starts accusing all the animals of pooing on him. He seeks revenge. He finally finds the culprit, the family dog. He then poos on the dog and runs for safety. Sorry for the spoilers.

"The story of the Little Mole is a tale loved by children and their parents all around the world with more than a million copies sold!"

The Story of the Little Mole Who Went in Search of Whodunit.

I can't even begin to describe how I felt about the book. Don't let go of your anger, look for the culprit and pay them for what they did. An eye for an eye. But hide what you've done and run for the safety of anonymity. Those are the ethical values we're teaching. I'm not sure how anyone would "love" these principles. But it seems there is a market for them.

The same parents that buy such books, then get astonished by my kids. Their tenderness, their willingness to help others and lend a hand to someone in trouble, surprises them. They always wonder why my wife and I are so lucky to have such good kids.

I don't believe in luck. Not in the sense that most people infuse the word with. I believe in values. I believe in ethics. And it shocks me to see how other parents marvel at such a display of respectfulness. It always makes me wonder what is then, their standard for respecting others. After reading the Harvey Weinstein's testimonies, I wonder no more.

It seems I'm not the only one. Last week The New York Times published an article titled "Tech’s Ethical ‘Dark Side’: Harvard, Stanford and Others Want to Address It."

“Technology is not neutral,” said Professor Sahami, who formerly worked at Google as a senior research scientist. “The choices that get made in building technology then have social ramifications.”

It touches upon a theme I've brought up regularly on interviews and roundtables in technology conferences. How responsible are we for the effects our innovations create?

Deep Learning and Machine Learning techniques are increasing the complexity of technology. It's harder than ever, to figure out what potential ramifications our innovations might have.

It still surprises me how deterministic most technocrats still are. On infrequent occasions, I hear a startup founder talking about dynamic systems.

The democratization of technology is enabling access to powerful frameworks to people with very narrow views of the world.

"But until recently, ethics did not seem relevant to many students."

Tech’s Ethical ‘Dark Side’: Harvard, Stanford and Others Want to Address It.

It's frightening to see the lack of social empathy and disregard for the consequences of their products some have. I would argue, it doesn't come from a bad place. Most ascribe to the "Don't be evil" motto. Still, the unwillingness to assume any responsibility is disheartening.

Even within the technology elites, there is this unconscious belief that technology isn't complex. This is a fallacy. Technology is extremely complex. We've gone from a single program in an isolated computer, to a vast global network of multi-parallel computing units. The exponential growth of the system is unrivaled by anything previously built.

This proliferation has turned a determinist automata into a massive dynamic system. We can no longer apply deterministic logic to solve the problems. We need to take a much more abstract and systemic view of things. The system doesn't end with your homepage. The boundaries of the system extend way beyond your company's servers and into our social fabric. Ignoring this fact is one of the reasons for our current social upheaval.

But if understanding the shift of the system's boundaries is already hard, trying to predict the behavior of the whole, is unrealistic. Still, we insist on our knowledge of what our software will do. We strive for scientific precision in a sea of uncertainty. The truth is, despite our best intentions, we can't predict most of the ramifications derived from our products. Not just that. While an error of judgment can be fixed in our software, the consequences of our lack of understanding will have long-lasting implications in society.

“You can patch the software, but you can’t patch a person if you, you know, damage someone’s reputation.”

Tech’s Ethical ‘Dark Side’: Harvard, Stanford and Others Want to Address It.

And here is where the ethics and values come into play. When dealing with systems, there is no deterministic answer. We play with a scale of greys, not black and white. In such ambiguous situations, it's the founder's ethics that shine. It's the employee's values that come forward.

The lack of ethics, the twisted values we impose on our children, have their reflection on the decisions being made by the next generation founders.

This all comes back to the mole and the poo. If we teach our kids that revenge is right; that accusing people is the norm; that you should pay it back; that you should run from your acts; then those are the values that founders will dig when they face unpredictability.

And what does any of this have to do with businesses? It has everything to do with it. I've covered several incidents where the lack of morals was the reason why technology companies were getting in trouble. Uber's lack of ethicsFacebook and Twitter's content quality shortfallsYouTube's absence of moral compass.

As I write these words, I feel I'm falling prey to age. That my words just reflect the maturity of a concerned dad. That generation after generation has said the same. The only argument I can add is that never before in history, a single individual has had the amount of influence some technology founders have now. And while the risk of the absence of an ethical framework has always existed, it has never been so relevant as today.

The fact that Harvard, MITUTCornell, and Stanford are deploying Ethics and regulations courses should be a warning sign. Still, I find it outrageous that only ivy league students get exposed to ethics around Computer Science. This isn't a problem only limited to the privileged classes. And it's also not a problem reserved for Computer Science graduates either. System thinking and ethics frameworks should be taught in school and at home. By every person in society. We are all responsible.

It's easy to fall prey to simplistic thinking and argue that we should apply technology to better people's lives. I reckon most innovators have their fellow citizen's welfare at heart. The truth, though, is that technology's complexity far exceeds our capacity to understand the ramifications of it entirely. This intricacy also has its reflection on regulations. Trying to regulate our shifting landscape with the uninformed opinion of some politicians, doesn't cut it anymore.

We are all responsible.

"The deed done, a happy and satisfied Little Mole disappeared back into his mole hole."

The Story of the Little Mole Who Went in Search of Whodunit.

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Logistic Wars: When A 48-Hour Difference Is All That Matters

It took them five years, but Amazon is finally ready to compete and undercut traditional delivering services like UPS or FedEx.

The company plans to test the new service, called Shipping With Amazon (SWA or a reverse AWS!), in Los Angeles in coming weeks. The move isn't surprising at all. Traditional delivering services have been failing to meet consumer expectation.

"As more shoppers bought products online, Amazon executives concluded that the rate of parcel growth was too large for existing carriers to handle."

Amazon to Launch Delivery Service That Would Vie With FedEx, UPS 

Amazon is doing what they do best, apply technology to infrastructure problems. Once they've mastered their operations, they'll open it for others to use. Delivery As A Service.

My interest isn't much on the service per se but the reiteration of the same maxim. Businesses that don't place technology and more specifically, automation, at the heart of their operations, will be ousted by technology incumbents.

Owning the logistic layer is becoming increasingly strategic in the battle for world domination. Amazon is but one example, but other industries would benefit from it too.

For example, Inditex, the retail behemoth, owns his logistic system and can place orders in less than 48 hours. Apple is another example of critical logistic operations.

As the acceptable threshold of moving goods in less than 48 hours becomes the norm, many of these private logistic operations will become outdated.

Companies built these systems in an era where the expected delivery window wasn't that critical. Not only speed wasn't essential, but expectations were low too. If the system collapsed, no worries, we will outsource the delivery to a third party.

This situation is unacceptable today. Not only the expected delivery window is shorter, but third-party companies can't cope with their workload either.

Source: Deloitte 2016 Survey
Source: Deloitte’s 2017 Holiday Survey

This is why Amazon's move might have a much more profound implication. It's not just about Amazon's reliance on UPS or FedEx. It's the fact that Amazon might become the underlying logistic operator for many industries.

Still, Amazon can't best a tightly implemented logistic operation. Now is the time to invest heavily in upgrading your business's logistic structure. The goal must be seamless scaling capabilities and decreasing delivery times.

There is a need for better automation, tracking, and autonomous technology. On top of this, predictive software, aided by Deep Learning, will become mission critical.

There is also another space Amazon isn't aiming for, that other companies could exploit and defend. Last mile delivery.

It still surprises me the lack of interest and focus most companies pay to the last mile delivery. A user doesn't care how you transport something, as long as it gets to its destination fast enough. Nonetheless, it doesn't mean they don't care about the last mile integration.

Companies need to focus on that part of the logistic chain. They need to create real-time last-mile tracking systems. Predictive models that can optimize for the bests routes for local deliveries. Automatic sorting, scheduling, and management of unsuccessful deliveries.

Startups are dabbling in this space; I know at least a couple just in Spain. However, not enough companies are taking this issue seriously. Product quality isn't the only metric anymore. Product-driven markets are long gone. The current status quo are customer driven markets. And customers care about last mile delivery. Customers care about the delivery experience. Customers care about delivering companies that deal correctly with 'unsuccessful deliveries'.

If you make me chose between a food delivery service that keeps my food warm or a cheaper one that brings it cold, I'm going for the warm one. Telling a customer they weren't home when they were, won't be tolerated much longer.

So I hope Amazon's move serves as a wakeup call for all those businesses that are in need of robust logistic operations. Here are some key points companies need to think about.

  • Invest in upgrading your systems now or face ostracism.
  • Upgrading won't be enough though. Current fast-moving markets require serious innovation of the logistic layer.
  • Design user-friendly customer interfaces so that the end user can track last-mile delivery of your goods seamlessly.
  • Build last-mile predictive models to allow for better delivery routes and resource management.
  • Start investing in the use of autonomous vehicles. Both in the warehouses and for the last mile deliveries. Relying on humans for scale and speed won't cut it much longer

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Amazon’s absolute reign is about to end

Amazon’s absolute reign is about to end

It's not Software that's eating the world; it's Amazon.com. With their stellar 2017 earnings, they're obliterating every market they get into.

As much as I love Amazon, they're becoming increasingly problematic. Their hold on cloud computing, voice control and online retailing is complete.

This tight grip on vertical markets is creating a serious lack of competitiveness. Anyone that wants to go against them faces a nearly impossible task. Those that rely on the Amazon platform are subject to the unyielding grip of the retail titan. It's either sell through them or face oblivion.

As Amazon expands into other vertical markets, more industries will feel Bezos's wrath. Now it's the turn of groceries, logistics and in a very close future, pharma.

Google can't compete with Amazon. Neither can Apple. Amazon's domain seems to be unchallenged. Some are calling for an urgent review of antitrust regulation in the US. But we all know that's a patch. We need an Amazon challenger. 

Apple vs Amazon vs Google vs Facebook stock performance

Is there such company? I am surprised to admit that there is. But you won't believe me. The most likely Amazon nemesis is called Walmart, and it's being spearheaded by one of the smartest minds in the retail space, Marc Lore

The new new Walmart game

I'll give you a little more time to stop laughing. I had the same reaction. Am I serious? After looking at the research, I am. Walmart has taken a 360º change in digital strategy that, not only is working, but it's already putting pressure on Amazon. The emergence of a real incumbent is forcing Amazon's hand. The pressure is creating gaps that others are using to extricate themselves from Bezos's grasp.

Let's start at the beginning.

Despite Walmart's size, they've always neglected their ecommerce business. When you're the top corporation in the world and your market value is 485 billion dollars (35% more than the second largest), the lack of interest is understandable.

"The philosophy created problems on the web, though. Whenever the online price dropped below the in-store price, the merchants in Bentonville would balk. They were worried about siphoning away customers from their stores, which account for more than 97 percent of Wal-Mart’s sales.”

Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon
Forbes 500 2017 List

During the years they've tried different strategies, with mixed results. Meanwhile, Amazon has kept growing at a 24% yearly average, while Walmart barely hits a 1.7%.

The Aleph Report

If both companies maintained the same growth multipliers, Amazon could overtake Walmart in six years. Let me repeat this, six years.

Still, it wasn't until 2015, when Doug McMillon took the Walmart CEO chair, that things started changing in the digital space. McMillon has a very different background from his predecessor, Mike Duke. He's not only 17 years younger but has also been at Walmart longer. He rose from the lower ranks, working on many of the strategic areas that make Walmart the retail juggernaut that is.

I bring this up because Doug McMillon is the person that has enabled the biggest strategic shift at Walmart in more than two decades. That takes, not only an exhaustive knowledge of the organization but incredible courage.

“I want us to sell VR before the customer is ready for it,” he says. “I keep telling our folks, ‘Buy a little and put it online, put it in 50 stores.’ Don’t tell me it won’t sell unless you try it. You gotta catch the wave. And to catch the wave, you gotta be early.”

Doug McMillon – Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon
The Aleph Report
The Aleph Report

In 2016, he made one of the boldest moves the retail industry has seen, the acquisition of Jet.com. The company, one-year-old at the time, lacked positive income and a major market share in the online retail space. 

Similar Web Analysis 2016

The operation raised eyebrows all over the industry. The reason wasn't the acquisition itself, but the price, 3.3 billion dollars

After the acquisition, McMillon promoted Jet.com's co-founder and CEO, Marc Lore, to president and CEO of Walmart eCommerce US. And just like that, Walmart's CEO handed the keys of the Walmart.com kingdom to Amazon's most dangerous nemesis, Marc Lore.

“They were assigned perhaps the most urgent rescue mission in business today: Repurpose Wal-Mart’s historically underachieving internet operation to compete in the age of Amazon. “Amazon has run away with it, and Wal-Mart has not executed well,” says Scot Wingo, chairman of Channel Advisor Corp., which advises brands and merchants on how to sell online. “That’s what Marc Lore has inherited.”

Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon?

Meet Marc Lore

Marc Lore – Inc. Magazine

Marc isn't a stranger to online retail or Amazon. In 2011, he sold his family online retailer company called Quidsi to Amazon for 545 million dollars. He spent two years at Amazon and left the giant as soon as his contract allowed him.

“And it was this really depressing sort of moment where we didn’t even want to go out for a drink. It wasn’t a celebration — it was sort of like mourning. That’s what it felt like. And it was really weird. We were like, ‘Why do we feel so bad right now?’ Like, we just sold this company and made a lot of money, and we just didn’t feel great.”

Marc Lore, (Success!, How I did it BI Podcast) 

The time before the acquisition became an all-out war between Amazon and Quidsi, between Bezos and Lore. In the end, Amazon flexed their financial muscle and beat Quidsi into submission.

After leaving Amazon, Marc took one year off. He was bitter and disappointed with the way Bezos handled Quidsi. In 2014, he came back and started working on an Amazon killer, Jet.com.

“There’s this huge middle class of people that are going to be spending more and more dollars online, and for them, it’s going to be all about price,” Lore says.

Amazon Bought This Man's Company. Now He's Coming for Them

Two years later, he ascended to become Walmart.com's new US CEO. Armed with Jet.com, Walmart.com and a 485 billion dollar war-chest, he was ready for payback

Walmart's online strategy

Walmart has deployed a wide range of strategic changes to aid them in their battle against Amazon.

Inventory

The first ingredient to take on Amazon? Increase your inventory. Bezos's obsession has always been to become the everything store. The first thing you need for that is, well, everything.

Since Lore took over, Walmart.com increased their inventory four-fold, offering over 40 million products. Amazon though, has an inventory of north of 350 million products, nearly nine times more.

Lore knows he can't compete head to head with Bezos. That's why, while increasing the inventory is a priority, Walmart isn't adding just anything.

During the past year, the retailer went on a startup buying spree, acquiring Shoebuy (shoes), Modcloth (womenswear), Moosejaw (outdoor apparel) and Bonobos (menswear) to their marketplace.

Lore is betting on the vertical fashion angle, something he knows Amazon isn't good at. Deep down, the strategic move is brilliant. They focus on niche markets, taking good care of their clients while delivering a great experience. They can't compete on quantity, but they can do it in quality, both regarding customer service and product quality.

Price wars & logistics

The reason why Jet.com fits nicely with Walmart is that they are both driven by the same mission, give their customers the best deal.

“The Jet concept of sharing savings with customers is a very Sam Walton-like idea,” says Richard Cook, co-manager of the Cook & Bynum Fund, which owns Wal-Mart stock. “You will help us lower costs, and we will share that savings with you.”

Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon?

To achieve that, Lore incorporated to Walmart.com two of his favorite tricks from Jet.com. The first one is to increase the customer's average order, so they can aggregate volume and lower the shipping costs. Lower costs mean better prices for the client and better margins for Walmart.

“Shipping one unit is ex-pen-sive,” McMillon says, drawing out the word. “It costs five bucks to ship one item, seven bucks to ship seven. So when you aggregate volume on the supply side, the economics change in your favor.”

Can Wal-Mart’s Expensive New E-Commerce Operation Compete With Amazon?

Another way of lowering the price is taking advantage of Walmart's brick and mortar operations. With 4700 stores in the US alone, the retailer has a massive physical footprint. By levering the existing infrastructure, they can also save on shipping costs.

Do you want to save more on your groceries? Order online, but pick them up at your local Walmart. A classic Jet.com move.

Piggybacking on the current infrastructure is something Amazon can't do. For them to achieve this, they would need to build the physical stores, adding years and billions of dollars to their operation. Lore is intent on exploiting this advantage as much as possible.

"Every day, I become more and more convinced about the omnichannel advantage," Lore said, referring to a sales strategy that combines online and in-store shopping.

Wal-Mart Unveils ‘Store No. 8’ Tech Incubator in Silicon Valley

Segment targeting

They cornerstone of Walmart's new strategy is to segment their audience. Walmart's traditional target has been price-sensitive customers, those looking for the cheapest deal.

While Amazon started with those customers too, they've moved away from that. Their focus is now on their PrimeNow scheme, not on selling the cheapest products. The company now uses massive discounts as a way to pressure and cajole their partners or potential competitors. They can do price dumping if needed, but it's not the general strategy anymore.

Nevertheless, most people are still price-sensitive online. Walmart is combining their lower prices strategy, Jet.com's saving schemes, and a brilliant millennial targeting tactic.

Most millennials don't care much about getting the widest product selection range (29% – 32%). They want products catered to them and them only. They want to feel special. But at the lowest price.

Lore's recent startup acquisitions follow this formula. Smaller product range and saving options for a highly sophisticated audience. A segment Walmart never touched before.

Another example of the same strategy is the launch of the 'Uniquely J' brand. A grocery brand catered to millennials both regarding price and user experience.

Amazon is counteracting Walmart by buying Whole's Foods. The former had certain customer overlap with Walmart. After the acquisition, they slashed prices, in an attempt to poach Walmart's user base and focus on millennials. That's a price war Amazon won't win though. Worse, they devalued Whole's Foods prime segment, wealthy individuals. 

Either way, it's a great bet. Amazon, while good at building horizontal businesses, is bad at personalization. Amazon never got the user experience right. Millennials and the newer generations are very sensitive to this. Walmart and Lore's team have a good chance of besting Bezos to that segment.

Team culture

Another big advantage, often undervalued, is Jet.com's corporate culture. Marc didn't come alone. He brought most of his people with him. People that follow him and that work as a team.

On top of that, Lore is placing each acquired startup CEO as his deputy. Each one manages their company's vertical. Making use of the startup CEO's expertise and empowering them within the larger organization is a great move. Marc is aligning their acquisitions with the overall online Walmart strategy.

This might not seem like an advantage, but it is. It offsets the lack of technology Walmart has. The company is in need of innovation and fast. Nonetheless, acquiring startups without a smart process to assimilate both the technology and the talent, is a recipe for disaster.

Marc's own experience when Amazon acquired his previous company is the perfect example. You spend money, retain the talent for some years and then the churn rate spikes.

If Walmart wants to win this race, they have to bet on the long-term. That means investing in their culture and their people.

Market expansion

Historically, when it comes to international markets, Walmart hasn't fair too well. They've had a hard time in Europe and in Asia, to name a few.

This has changed drastically with McMillon. As I said before, the company's innovation capabilities are small compared to Amazon. Trying to enter fast-moving markets like China, while competing simultaneously with Alibaba, JD.com, and Amazon is insane.

“According to Nielsen, 11% of total retail sales in China come from e-commerce, compared to 8% in the US. And e-commerce sales in China are growing at a rate of 53% annually, compared to roughly 12% in the US.”

Walmart’s future in China increasingly depends on a single Chinese company

This is where McMillon has taken a brilliant path. Instead of investing in building local operations, he's started partnering and buying into the local incumbents. But not any incumbent, but those currently in an open war with the number one online retailer.

In China, Walmart is partnering with JD.com to take on Alibaba. Amazon was already cornered by both Chinese players. Walmart, instead of making the same mistake, is now betting on JD and Tencent, to disrupt Alibaba. Not only that, but JD is bringing the war to Amazon's US turf with help from Walmart too. 

“Meanwhile, Walmart has steadily increased its stake in JD–from 5% in June 2016, to 10.8% in October, and then 12.1% this past February."

Walmart’s future in China increasingly depends on a single Chinese company

In Japan, Walmart just announced a similar move. They partnered with Rakuten to achieve a dual goal. On one side, they entrench themselves in Japan and help Rakuten defend their top retailer spot against Amazon Japan. With Walmart's products getting sold through the Rakuten partnership, the Japanese firm can counteract some of Amazon's Japan allure. At the same time, Walmart is importing the Kobo to the US to both, compete with the Kindle and to increase their online book's footprint.

"The move echoes deals that Rakuten has made to place Kobo e-readers in major bookstore chains around the world, such as WHSmith in the UK. Physical retail presence is a potential advantage for Kobo, which doesn't have the book selection or brand recognition of Kindle but is competitive in terms of hardware — the bigger-screened, water-resistant Aura One, for example, beat Amazon's similar new Kindle Oasis to market by more than a year.”

Walmart and Rakuten take on Amazon with Kobo e-reader alliance

Marc Lore isn't deluded. He knows he won't be able to compete with Amazon in certain categories. However, putting pressure on key Amazon verticals like publishing gives authors, editors, and publishers another potential platform to operate in. This unclenches the grip Bezos has on particular markets. It allows for better deals for providers and a continuous eroding of Amazon's bottom line.

“There are certainly areas where we are playing defense, and we’re behind and need to catch up,” Marc Lore, chief executive officer of Wal-Mart’s U.S. e-commerce business, said at the Bloomberg Breakaway Summit in New York Wednesday. “One example is the long-tail categories that we’re going after with acquisitions.”

Wal-Mart Web CEO Says He's Still Playing Catch-Up to Amazon

Last but not least, Walmart is taking on Amazon in India. They're replicating the same move from China. They're in talks to buy up to 20% of Flipkart, India's Amazon competitor. If you pair this with the recent Softbank investment in Flipkart, it's clear that there is a vested interest to vanquish Amazon from India.

McMillan's vision is clear. To compete with Amazon, they need to win the fast-moving international markets. To achieve that he's focusing on investing and supporting the local players with cash and resources. 

Walmart's Open Innovation approach

Walmart isn't a technology company. Amazon though was born in the midst of the dot com. It's DNA has always been technological. Walmart, on the other hand, has been the quintessential brick and mortar.

As I've pointed out many times though, technology isn't a vertical industry anymore. For a while now, it's become a horizontal industry. One that touches every other industry.

In 2011, Walmart started getting serious with technology and bought, among other smaller companies, Kosmix, a semantic technology company from Silicon Valley.

Kosmix founders became the seed for what's now called Walmart Labs, the innovation heart of the company. The Labs team has produced some outstanding things but still pales in comparison to the Amazon's machinery.

One of the things Walmart Labs can't do is disruptive product innovation. They work in innovating internally, but for a while now, the company has lacked a true outside disruptive engine.

This all changed with the announcement of Store Nº 8, Walmart's startup incubator. More than an incubator, I would say, it's a startup studio. It's an independent entity that enables Walmart to capture innovations from outside the organization. It operates as a bridge, connecting both sides, the startup world, and Walmart Labs.

“The goal is to have a fast-moving, separate entity to spot emerging technologies that can be developed and used across Wal-Mart.”

Wal-Mart's Tech Incubator Hires Co-Founder of Rent the Runway

So far they plan to spin out five ventures by 2019. To date, we know of four of them. The first one, called Code Eight, was unveiled not long ago. Their mission is to build a personal shopping service for "busy NYC moms." Once more, we can see the new strategy pouring over the incubator direction too. Code Eight is one of Lore's experiments in trying to develop new retail experiences for high-end customer segments.

Another of those ventures is Project Kepler, Walmart's attempt at the next generation grocery store. The startup looks very similar to Amazon Go. The fact that Amazon was first to it shows, once again, the innovation speed differential between both.

The incubator is also doubling down on VR technology. They just announced the acquisition of Spatialand, one of the reference VR companies in the world. Walmart has been eyeing VR for a while now. While some of their prototypes were just flashy toys, some of the uses they're exploring are bringing great results.

“He says the company uses Strivr in about 187 employee training centers, for three types of training: preparing for situations like Black Friday or emergencies where you can’t set up a simulation in a store, learning customer service, and teaching operational stuff like how produce should be stacked and arranged.”

Finally, a Useful Application for VR: Training Employees

Technology, Walmart's pending subject

Walmart is far from being a technology juggernaut, but it's doing a great job at catching up. One of the most impressive things is the kind of people they're luring into Store Nº8 projects.

One would think most engineers would balk away from the old-school brand. But it seems Store Nº8 is creating a certain gravitas. I don't doubt for a second that it's another of Lore's effects.

Marc has imprinted Walmart.com with a startup DNA. That's one of the hardest things for a mammoth corporation like Walmart.

Still, Walmart tends to lean on partnerships instead of owning their technology. For the time being this might be good enough, but eventually, it will fail. Controlling your technology stack is critical for the long-term survival of Walmart.

I want to believe these are just the first steps and that in the future we'll see Walmart Labs crack some unique products like Alexa or AWS. To achieve this though, technology needs to become even more prominent, and Walmart needs to think even further into the future. 

Strategy lessons from Walmart

As improbable as it might look, Walmart is the toughest competitor Amazon has right now. Under the McMillon and Lore, the retail giant can bring real thunder to the market, breaking the Amazon yoke.

So far, their strategies, even though they're pretty recent, are paying back handsomely. The next three years will be critical for the fight, and Walmart needs to speed it up if they want to break Amazon.

There are some great strategic takeaways other businesses can use in their markets.

  1. Hire visionaries and fighters. Pick someone that has the experience and the drive and let them do.
  2. Break your core values. No company can change if they keep ascribing to old, nonoperative values. Fast-moving markets and technology requires flexible and reviewed values.
  3. Don't go head to head against someone stronger than you. Make sure you identify the weak spots and focus on them, not on the stronger side.
  4. Identify those things the competition can't do due to their current cost structure. Exploit it.
  5. Invest in your corporate culture. If you want to compete, you need innovators. To retain talent, you need to deserve it. Poaching employees from the competition is easy when your corporate culture is better.
  6. Invest in a technology organization. This one is pretty obvious, but hard to implement. Build a powerful technology stack and use it to deploy future products. Having a "tech" department isn't enough. The whole company has to be technology driven.
  7. Your enemy's competitors are your friends. Find critical markets beyond your local one. Partner with the incumbent and negate those markets to your competitor.
  8. Develop an open innovation approach. Most organizations get this wrong. Open Innovation isn't just about working with startups. It's about building the processes that allow inside and outside innovation to cooperate and deliver future products or services.

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