fortune--2020-10-20--Mozilla takes aim at Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey

Mozilla is hoping strength in numbers will help convince Facebook and Twitter to disable two key features that it says help spread misinformation during the presidential election.
The nonprofit, best known for developing the Firefox browser, took out a full-page ad in Tuesday’s print edition of The Washington Post to ask Facebook CEO Mark Zuckerberg and Twitter CEO Jack Dorsey to “immediately” disable recommendations of Facebook groups and Twitter’s trending topics until January. The ad includes names of some of the 6,000 people who signed the letter.
“This is a critical step in preventing the viral spread of disinformation—such as inaccurate voting procedures or election results,” the ad said. “We urge you to do more to curb disinformation in order to protect the integrity of the U.S. election.”
Facebook and Twitter did not respond to requests for comment.
The ad is part of Mozilla’s efforts to fight misinformation online that began in 2019. Meanwhile, Facebook and Twitter are struggling to police the conspiracy theories, misinformation, and fake news posted by users, politicians, and even the Trump campaign during a hotly contested election.
Before buying today’s newspaper ad, Mozilla had launched separate petitions against Facebook’s group recommendations and Twitter’s trending topics that in total garnered about 30,000 signatures in support. Mozilla also raised $80,000 from more than 4,500 people for its campaign.
Before the ad published, Mozilla had requested meetings with Facebook and Twitter to discuss the issues directly. Facebook took the meeting while Twitter didn’t.
“There definitely weren’t any firm commitments at the meeting,” Ashley Boyd, Mozilla’s vice president of advocacy, said about the meeting with a small group of Facebook staffers representing product, policy, and communications.
Mozilla first became active in trying to curb misinformation last year, after it signed the European Union’s Code of Practice, a voluntary commitment by big tech companies to fight disinformation, be more transparent about political ads, and close fake accounts. Since then, Mozilla has been tracking whether the signatories have followed through on their promises.
Mozilla has since called out Facebook and Google for allowing ads with disinformation during the United Kingdom’s recent elections. It has also publicly urged Facebook to provide more transparency within its ad library, a searchable archive of all the ads on its service, and joined the Stop Hate for Profit campaign, which encouraged companies to boycott Facebook ads in an effort to pressure the company into better policing hate speech on its service.
Tuesday’s ad is intended to encourage Facebook and Twitter to address “systemic changes” that will do more than address issues case-by-case. Sinan Aral, a researcher at MIT who is focused on social media, said public pressure is one part of the solution to fixing the issues that currently plague social media.
“In general, that whole social momentum is important,” he said. “That’s going to mobilize users, legislation, company policy changes—it all works in concert.”


fortune--2020-10-20--You’re on mute: Trump and Biden will have restricted access to the mic during final debate

The polls are wrong .
The U.S. presidential race is a near dead heat , this A.I .
‘ sentiment @ @ @ @

President Donald Trump and Democratic nominee Joe Biden will have their microphones turned off during parts of the final presidential debate on Thursday, the Commission on Presidential Debates said Monday night.
Each candidate will have an uninterrupted two minutes to speak at the beginning of each of the six 15-minute segments of the debate at Belmont University in Nashville. Both candidates’ mics will then be turned on for “a period of open discussion” in the segment’s remaining time, the commission said in a statement.
The commission said both campaigns “this week again reaffirmed their agreement to the two-minute, uninterrupted rule,” adding that the measures weren’t a change of the rules, but were intended to make sure the existing rules were enforced.
The decision comes after the commission said it was examining changes in response to the chaotic first debate, in Cleveland on Sept. 29, when Trump repeatedly interrupted Biden and both candidates talked over the moderator, Chris Wallace.
“We realize, after discussions with both campaigns, that neither campaign may be totally satisfied with the measures announced today,” the commission said. “We are comfortable that these actions strike the right balance and that they are in the interest of the American people, for whom these debates are held.”
On Air Force One Monday night, Trump reiterated an allegation made earlier in the day by his campaign manager, Bill Stepien, that the debate was supposed to have been focused on foreign policy, but the list of topics was then changed to help Biden avoid responding to questions about the business dealings of his son Hunter.
“I will participate but it’s very unfair that they changed the topics and it’s very unfair that again we have an anchor who’s totally biased,” Trump said, referring to the moderator, Kristen Welker of NBC News.
Neither the commission nor Welker has said the debate would concentrate on foreign policy. The commission announced Friday that it would cover six topics: Covid-19, American families, race in America, climate change, national security and leadership.
The Trump campaign has made unfounded allegations that Hunter Biden entangled his father in corrupt business dealings in Ukraine and China.
“President Trump is committed to debating Joe Biden regardless of last-minute rule changes from the biased commission in their latest attempt to provide advantage to their favored candidate,” Stepien said in a statement earlier Monday night.
Until now, the Trump campaign has objected to changes to the rules. The president withdrew from the scheduled second debate on Oct. 15 after the nonpartisan panel announced that the session would be virtual as a precaution against the coronavirus.
The Trump campaign’s acquiescence to the mic cutoff is a shift from earlier Monday, when Stepien said in a letter to the commission that its “pro-Biden antics have turned the entire debate season into a fiasco” and said it would be “completely unacceptable” for anyone to be able to turn off a candidate’s microphone.
“A decision to proceed with that change amounts to turning further editorial control of the debate over to the commission,” Stepien wrote.(Updates with Trump’s latest comments, starting in sixth paragraph.)
–With assistance from Mario Parker and Josh Wingrove.


fortune--2020-10-20--World’s vaccine testing ground deems Chinese COVID candidate ‘the safest, most-promising’

Brazil is one of the world’s top COVID-19 vaccine testing grounds. Now officials there say that CoronaVac, the experimental COVID-19 vaccine from Chinese developer Sinovac, is the safest of the coronavirus immunizations evaluated in the country so far.
“The first results of the clinical study conducted in Brazil prove that among all the vaccines tested in the country, CoronaVac is the safest, the one with the best and most promising rates,” São Paulo Gov. João Doria told reporters in Brazil on Monday.
Doria’s comments are especially striking since Brazil has more extensive and varied exposure to COVID-19 vaccine candidates than other countries. Brazil is conducting Phase III trials for at least five of the 10 vaccine makers that have reached the final stage of testing. In addition to Sinovac, Brazil is the site of large, human trials of COVID-19 vaccines developed by American vaccine makers Johnson & Johnson and Pfizer, the U.K.’s AstraZeneca, and China’s Sinopharm. Brazil’s struggles to contain COVID-19—it has the third-highest number of cases globally—have made it fertile ground for vaccine makers that need high rates of infection to adequately test their candidates.
Brazilian authorities pegged Sinovac as the top contender after reviewing preliminary data from Sinovac’s ongoing clinical trials. Sinovac hasn’t released the data to the public, but Dimas Covas, director of the Butantan Institute, a vaccine research center, said that Sinovac’s CoronaVac candidate had proved safe among 9,000 volunteers.
No volunteers in Sinovac’s trials experienced severe adverse reactions to the vaccine; 20% reported mild pain from the injection site; and less than 15% said they had headaches, nausea, or tiredness after receiving the shot, Covas told reporters on Monday.
Covas and Doria did not provide specifics on how Sinovac’s candidate stacked up against rivals; their statements represent the first preliminary result from any Phase III trial of a COVID-19 vaccine.
The Brazilian authorities said the Sinovac data indicated that the vaccine provided protective antibodies among volunteers, but a final determination of CoronaVac’s effectiveness will come once the 13,000-volunteer trial is complete, which could occur as early as mid-November.
Brazilian President Jair Bolsonaro has, at times, promoted “miracle cures” and other dubious science related to COVID-19. But the Butantan Institute, which is affiliated with the São Paulo government, is known globally as a reputable biomedical research institution and is Latin America’s largest vaccine manufacturer.
Sinovac did not respond to Fortune’s request for comment.
Even before Monday’s announcement, Brazil had a lot riding on the success of Sinovac’s candidate.
In late September, Brazil’s São Paulo state agreed to purchase 46 million doses of CoronaVac for $90 million. Days later, Doria said that he had asked Brazil’s health regulator to register CoronaVac for potential distribution and announced that São Paulo would be “one of the first places in the world to vaccinate the public.”
Brazil’s vote of confidence in Sinovac’s vaccine comes as vaccine makers like Johnson & Johnson and AstraZeneca have paused trials amid safety concerns. Johnson & Johnson’s Phase III clinical trials in the U.S., Brazil, and Argentina remain temporarily suspended after the company reported an unexplained illness in a trial participant. AstraZeneca’s trials also remain paused in the U.S. after the vaccine maker discovered a similar unexplained illness in a U.K. volunteer in September, but the company has resumed testing in the U.K., Brazil, and South Africa.
Barring any holdups, Brazilian authorities said on Monday that they will aim to approve CoronaVac before the end of 2020 and begin distributing the vaccine to the public by the start of next year.
Other vaccine makers have put forth roughly similar timelines.
Pfizer said in a statement on Oct. 16 that it may be ready to begin rolling out its vaccine for emergency use in the U.S. by the third week of November. Moderna has provided a similar emergency use timeline in the U.S. but says its vaccine might not be ready for widespread distribution until the spring of 2021. China’s Sinopharm, meanwhile, has already distributed its vaccine to hundreds of thousands of people outside of clinical trials through an emergency use program and may reach market by December.


fortune--2020-10-20--Impossible Foods enters grocery stores outside the U.S. for the first time

Impossible Foods’ plant-based meat is available in grocery stores outside the U.S. for the first time.
The company’s flagship imitation beef product went on sale in 200 supermarkets across Hong Kong and Singapore on Tuesday. Impossible’s products are already available in restaurants in both regions.
The new markets underscore how important Asia will be for Impossible’s global expansion. The continent is responsible for 44% of the world’s meat consumption.
“Our mission is to replace animals in the food system with a much more sustainable way of producing meat, fish, and dairy goods,” said Nick Halla, senior vice president for international at Impossible Foods. “In order to do that we knew we had to start in Asia very quickly.”
By launching grocery store sales in Hong Kong and Singapore, Impossible is inching closer to what it sees as the ultimate prize: entry into the mainland China market. The mainland accounts for 28% of global meat consumption, the largest share of any one country, though China’s per capita meat consumption is half the U.S. rate.
“We’ve been working on the mainland China market for a while,” Halla said. “China is a huge market for us and entirely essential to create a real sustainable food system.”
The California-based firm’s burgers debuted in mainland China at the International Import Expo in Shanghai last November, but the company hasn’t yet received regulatory approval to sell its products, which contain genetically modified yeast.
Impossible plans to build “a full ecosystem of production” in mainland China with the eventual aim of making its products from scratch in-country rather than importing them, Halla said.
China depends on imports for much of the meat its citizens consume, and plant-based alternatives could be essential to the country achieving self-sufficiency in meat supply, Impossible Foods’ founder and chief executive Patrick Brown said at the Fortune Global Sustainability Forum in September 2019. Self-sufficiency is a strategic priority for China with other commodities, including semiconductors and energy.
Impossible has raised around $1.5 billion since its 2011 launch, including $200 million in its latest round of funding in August, and plans to branch out beyond faux ground beef to develop alternatives to animal products like milk and steak. It’s valued at an estimated $4 billion.
Other plant-based startups also have an eye on expansion into China, where consultancy Euromonitor estimates that the “meatless” market will grow from $9.7 billion in 2018 to almost $12 billion by 2023.
Hong Kong–based startup Green Monday, which sells a meatless pork alternative called Omnipork, launched in mainland China in November 2019. U.S.-based Beyond Meat launched in China in April, and said in September it is constructing two manufacturing facilities near Shanghai that will be fully operational by early 2021. These companies’ products do not include genetically modified components, so they don’t need to go through the same regulatory process as Impossible.
Domestic Chinese plant-based players include Zhenmeat, which started selling plant-based mooncakes in 2019, and Whole Perfect Food, a Shenzhen-based maker of more uncommon meat alternatives including plant-based abalone and plant-based oyster sauce.
Halla says Impossible Foods sees animal-meat producers, not other plant-based producers, as “our only competition.”
“Everyone else that’s driving a system of conversion [to plant-based foods], keep pushing forward the movement,” Halla said. “We need to transition this as fast as we possibly can.”


fortune--2020-10-20--This A.I. CEO says if governments don’t regulate technology, we will live in a ‘very scary place’

Tom Siebel, a longtime Silicon Valley investor and the CEO of C3.ai, has firsthand knowledge of the capacity of artificial intelligence, both to create “goodness and light” and to make the world “a very scary place.” On the latest episode of Leadership Next, Siebel shared with hosts Alan Murray and Ellen McGirt his views on technology regulation.
“If government does not regulate, we will be sorry,” he said. And that’s coming from someone who claims he isn’t “really a big government guy.”
Particularly in the use of A.I. for human systems, Siebel is wary of overdependence on machine learning. The use of the technology is inevitable, he said, but the possibility for introducing and worsening harm in the form of bias, criminal punishments, and military action concern him deeply.
In other areas like health care and retail, though, the A.I. CEO said the artificial intelligence possibilities are exciting and necessary. And his company is working with other businesses to capitalize on those A.I. opportunities that will take them into the next stage of business, one that is even more heavily reliant on technology.
In the pandemic, C3.ai is doing that by offering $200,000 in prizes to organizations that use the company’s aggregated COVID data to create and find new techniques, processes, and insights that help the fight against the coronavirus pandemic.
To hear more from Siebel, including how being mauled by a wild elephant changed his perspective on risk and why he started Siebel’s Scholars, listen to the latest episode of Leadership Next.


fortune--2020-10-20--Sorry, investors. Earnings ‘beats’ no longer move the markets

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning. After Monday’s steep sell-off, U.S. futures are bouncing back as the clock ticks down on stimulus talks. European stocks, meanwhile, are mostly in the green, buoyed by decent bank earnings. Paradoxically, the revered “beat” just isn’t impressing investors any more. I’ll explain more on that below.
But first, let’s see what’s moving the markets.
Markets update
Asia
The major Asia indexes are mostly lower in afternoon trading with Japan’s Nikkei down nearly 0.5% .
are mostly lower in afternoon trading with Japan’s down nearly . Foxconn Technology Group has thrown into doubt the future of its much-ballyhooed Wisconsin mega factory. Founder Terry Gou says the whole project hinges on getting more state aid out of Wisconsin.
has thrown into doubt the future of its much-ballyhooed Founder Terry Gou says the whole project hinges on getting more state aid out of Wisconsin. Apple is seeing strong demand for its new iPhone 12 models, according to data leaked to CNBC.
Europe
The European bourses are rebounding after a weak start with the Europe Stoxx 600 up 0.2% in mid-morning trade as investors weigh the impact of tighter COVID restrictions across the continent and upbeat earnings news.
are rebounding after a weak start with the up in mid-morning trade as investors weigh the impact of tighter COVID restrictions across the continent and upbeat earnings news. Shares in UBS were up 2.7% in early trading after the Swiss banking giant delivered a big bottom-line beat this morning. It was the last analyst call for outgoing CEO Sergio Ermotti , one of the longest tenured of Europe’s bank bosses. He made good on his vow to go out with a bang. I interviewed Ermotti for a magazine piece last month. He has a fascinating turn-around story to tell.
in early trading after the Swiss banking giant delivered a big bottom-line beat this morning. It was the last analyst call for outgoing , one of the longest tenured of Europe’s bank bosses. He made good on his vow to go out with a bang. I interviewed Ermotti for a magazine piece last month. He has a fascinating turn-around story to tell. Economists are running the numbers on the increasingly likely scenario of a no-deal Brexit. It would hit Britain hard, but so too would it dent the GDP of trading partners Ireland, the Netherlands and Belgium.
U.S.
Dow and S&P futures have been climbing all morning. That’s after all three exchanges faltered in afternoon trading on Monday, extending the Nasdaq’s losing streak to five straight days . The Dow and S&P 500 have closed in the red four of those five days.
and have been climbing all morning. That’s after all three exchanges faltered in afternoon trading on Monday, extending the Nasdaq’s losing streak to . The Dow and S&P 500 have closed in the red four of those five days. Will they or won’t they? That’s the big question hanging over the markets as a big deadline looms around stimulus talks. Even if Nancy Pelosi and Steven Mnuchin reach an agreement—a Washington Monument-sized if—the hard part is getting it through the Senate .
looms around stimulus talks. Even if Nancy Pelosi and Steven Mnuchin reach an agreement—a Washington Monument-sized if—the hard part is . What else is on tap for today? Netflix reports its Q3 results and there will be a fresh batch of housing data before the bell.
Elsewhere
Gold is down, trading around $1,900/ounce .
is down, trading around . The dollar is up.
is up. Crude is down, with Brent trading below $42.50/barrel.
***
Beat it
What do blue chips Halliburton and IBM have in common?
They both reported impressive earnings “beats” yesterday only to see shares, gulp, fall.
There was a time when a top- and/or bottom-line beat would send shares soaring. As CEOs are finding, that’s no longer a guarantee.
“While it is too early to draw any conclusions, there have been no rewards for beats at all so far this earnings season,” BofA equities analysts wrote in an investor note yesterday. “Companies beating on both top and bottom lines underperformed the S&P 500 by 0.8ppt the day after (-0.7ppt ex-Financials).”
This phenomenon isn’t some fluke of the COVID era. It’s part of a trend that BofA says goes back at least the past six quarters.
Now, it’s important to note that it’s still far better for a company to report a beat than a miss, as this BofA chart shows.
A company that misses on both profits and sales will see, on average, shares underperform the S&P 500 by 1.5% in the first full trading session, and see even more a lag over the first five trading days. (See blue shaded line at the bottom of the chart). A dual sales/profits beat, meanwhile, translates to an underperformance of 0.8% and 1.3% over the same periods. (See penultimate blue-shaded line in chart above.)
What’s frustrating to CEOs, no doubt, is that there’s not really much of an explanation beyond this being the new normal of the markets. The earnings calendar just isn’t the catalyst it once was.
And you wonder why so many chief executives would prefer to ditch the quarterly-reporting slog and simply go to twice yearly reports?
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
MPW. Fortune published its 23rd annual Most Powerful Women list yesterday, one that went through a bit of a revamp in 2020. This year, Fortune's editors asked an additional important question of the candidates: how does she wield her power "to shape her company and the wider world for the better?" With that in mind, here are the powerful women that top this year's list.
The Trump presidency, in 6 charts. Like any incumbent, President Trump has been touting his economic record on and off the campaign trail. So Fortune fact-checked it. Here's how the president stands up to his predecessors in terms of jobs and GDP growth. Spoiler: it's not nearly as "beautiful" or "great" as he often boasts.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
Quiz time
We're less than two weeks to Halloween... Which countries supply the brunt of the cocoa beans needed to make the world's chocolate?
A) Ecuador
B) Indonesia
C) Ivory Coast
D) Ghana
The answer is C and D. Ghana and Ivory Coast supply 70% of the world's cocoa. And sadly, the trade is increasingly powered by child labor, according to a brutal new U.S. Department of Labor report released yesterday. As Fortune's Vivienne Walt writes, "The report makes for troubling reading. Yet just as worrying—and infuriating to child-labor campaigners—is that companies and cocoa traders have failed to resolve an issue that they committed to tackling nearly 20 years ago."


fortune--2020-10-20--Meet the national leaders who stand to lose from a Biden victory

If Donald Trump is forced from the White House in the November election, he won’t be the only loser.
Though many governments would likely celebrate the end of the most unconventional and at times chaotic U.S. presidency of modern times, others will have reason to miss it. For the leaders of Turkey, North Korea and Israel, the ledger has been almost entirely positive. Trump’s ejection would confront them with immediate challenges.
The scorecard for countries like China is more nuanced. Even so, what the mostly authoritarian winners from Trump’s four years in office have in common is a fear his departure would spell the return of a more conventional U.S. foreign policy.
That could see the U.S. mending alliances and promoting the universality of values such as democracy and human rights, or the fight against climate change. “This president embraces all the thugs in the world,” Trump’s opponent Joe Biden said at a recent town hall event, as he sought to highlight the political divide.
Kim Jong Un
No relationship with the U.S. changed more under Trump than North Korea’s. What began with mutual threats and insults morphed into a sometimes bizarre love-in as Kim and Trump met three times and exchanged more than two dozen letters, showcasing their “mysteriously wonderful” chemistry.
Still, the radically different U.S. approach has also failed to secure North Korea‘s denuclearization. Kim unveiled a huge new intercontinental ballistic missile on Oct. 10 that appears capable of delivering multiple nuclear warheads.
Biden has said he won’t meet without preconditions, making any rapid lifting of the sanctions that have tipped North Korea’s economy into its worst recession for two decades less likely.
Mohammed bin Salman
Trump set the tone for his approach to international relations in Saudi Arabia, choosing Riyadh for his first foreign visit in 2017. He was greeted by a huge image of his own face projected onto the facade of the palatial hotel where his delegation stayed.
The Saudi Crown Prince made important gains, above all Trump’s withdrawal from the 2015 nuclear deal with Iran, his country’s mortal rival. Trump also offered personal support and vetoed Congressional sanctions when MBS, as he’s known, was besieged by allegations he’d ordered the 2018 murder of prominent regime critic Jamal Khashoggi.
There have been disappointments for Saudi, in particular Trump’s failure to strike back militarily after a 2019 attack on oil facilities in eastern Saudi Arabia that the U.S. attributed to Iran. Saudi leaders say they’re confident they could navigate a transition to Biden. Still, with Trump gone a more traditional U.S. focus on human rights is likely to return and a door could open to reviving the Iran accord.
Recep Tayyip Erdogan
If anyone relies more on Trump than MBS for political protection, it’s Turkey’s president. Trump has stood virtually alone between Turkey and the imposition of Congressional sanctions over Erdogan’s decision to buy Russia’s S-400 air defense missile system, despite being a North Atlantic Treaty Organization ally.
Their personal bond enabled Erdogan to persuade Trump to withdraw U.S. troops from Kurdish areas of Northern Syria so Turkey could send its own forces to take control of the zone. Trump made that decision without consulting the Pentagon or U.S. allies in the fight against Islamic State in Syria, including the U.K., France and Kurdish fighters that Turkey regards as terrorists.
With sanctions ready for enforcement and Biden previously calling on the U.S. to support Turkish opposition parties, Erdogan may have the most to lose from Trump’s departure.
Xi Jinping
Trump has been more aggressive toward China than any U.S. president in recent memory, slapping tariffs on Chinese goods and moving to restrict its access to key technologies. Yet Chinese officials have said on balance the leadership would prefer Trump to stay.
Trump shook the system of post-World War II alliances that China sees as a constraint on its geopolitical ambitions, a considerable benefit. He also undermined America’s international stature by exiting agreements in pursuit of “America First” policies, creating openings for the Chinese president to fill the resulting void of leadership on everything from trade to climate change.
Beijing’s concern about Biden is that he would try to create a more coordinated international front in dealing with China, while maintaining the pressure on trade and technology. Even so, China might benefit from a less emotive relationship with Washington if Trump loses, according to Zhu Feng, professor of international relations at Nanjing University. “Do people really want to see China and the U.S enter a cold war?”
Vladimir Putin
Russia’s alleged meddling in the 2016 election produced a formal U.S. investigation and 448-page report. But in some ways, Putin hit the jackpot. In office, Trump has questioned the value of NATO and even the status of countries such as Germany as allies, weakening a transatlantic alliance that Russian and Soviet leaders back to Joseph Stalin have sought to break.
There’s every reason to think the trend would continue during a second Trump administration. Yet Russia’s president secured few of the more concrete gains he wanted, from lifted sanctions to progress on arms control. Russian officials see few prospects for a thaw, and less so under a Biden administration.
Rather than lament the anti-Russia mood, the Kremlin could try to change it, according to Fiona Hill, the National Security Council’s senior director for European and Russian affairs until 2019. “They could rein in the guys who are going around poisoning people right, left and center,” said Hill, now at the Brookings Institute. “When they’re having meetings with us, they could not poke us in the eye. They could just stop doing all that.”
Jair Bolsonaro
For Brazil’s president, Trump is a political soul mate. As U.S. opinion polls have turned for Biden, Bolsonaro has grown increasingly concerned for the future of his ties with the White House, according to a senior cabinet member.
Since taking office in 2019, Bolsonaro has upended Brazil’s decades-old tradition of an equidistant foreign policy in favor of automatic alignment with the U.S. and its allies. In return, Trump lifted a ban on fresh-beef imports, supported Brazil’s bid to join the Organisation for Economic Cooperation and Development, and signed deals for defense and space-exploration cooperation.
Foreign Minister Ernesto Araujo has said Brazil would have no problem with a Biden administration, but Bolsonaro’s environmental policies would face strong opposition. Biden has suggested Brazil could face economic consequences if it does not stop Amazon deforestation.
Benjamin Netanyahu
Trump repeatedly broke with U.S. precedent to boost the Israeli leader’s nationalist agenda, recognizing Israeli sovereignty in the disputed Golan Heights and moving the American embassy to Jerusalem. Plans to annex parts of the Palestinian West Bank have been shelved, but could be revived in a second Trump term.
The real payoff came in September, when Trump brokered normalization deals between Israel and the United Arab Emirates and Bahrain, but there’s been a cost; bipartisan support for Israel in Congress has eroded. Many Israelis fear their country would face greater scrutiny under a Biden administration, while the security establishment worries about a U.S. return to the Iran nuclear deal.
Andrzej Duda and Viktor Orban
Outsiders among more liberal European heads of state, the leaders of Poland and Hungary have found solace in Trump. In 2017 he chose Warsaw for a major speech in which he redefined the West in terms of conservative, Christian values — validating Duda’s right-wing agenda, which Hungary’s Orban shares.
The Hungarian prime minister has openly endorsed Trump ahead of the election, saying he does not want to see a return of the “moral imperialism” a Democratic administration would bring to the White House.
The two men share Trump’s disdain for political correctness in ways that could cause friction with Biden. President Duda has cast the LGBTQ+ community as “enemies” of Polish families. In September, Biden weighed in on Twitter against Polish regions that had declared themselves “free from LGBT ideology.”
In his comment on Trump’s fondness for “thugs,” Biden singled out Hungary and Poland, together with post-Soviet Belarus as he warned against risks to NATO from “the rise of totalitarian regimes around the world.”
–With assistance from Jeong-Ho Lee, Vivian Nereim, Selcan Hacaoglu, Ivan Levingston, Samy Adghirni, Simone Iglesias and Wojciech Moskwa.


fortune--2020-10-20--This electricity giant’s stock is booming as the corporate world gets serious about its ‘net zero’ g

This electricity giant’s stock is booming as the corporate world gets serious about its ‘net zero’ goals

2020 has been a year of surprises for most businesses. One company that had a few distinct advantages going in: Schneider Electric, the French industrial giant.
The company, which operates the energy management systems in everything from factories to hospitals to data centers, has seen several of its core ideas borne out over nine tumultuous months: a years-long shift towards digital automation—and a timely move to focus on the carbon emissions tracking-and-monitoring business just as many of the world’s largest companies started to tighten their own climate targets.
It’s a vision that has been backed up with a series of high-profile acquisitions this year, amid the pandemic. In July, the company completed the acquisition of RIB Software, a German carbon emissions monitoring company, for €1.4 billion ($1.6 billion). One month later, in August, Aveva Group, the U.K. based industrial software company in which Schneider has a controlling stake, completed the $5 billion acquisition of rival software company, SoftBank-backed OSIsoft. That marks an extension of what CEO Jean-Pascal Tricoire refers to as the company’s “cradle to grave” philosophy for managing energy infrastructure, from the factory floor to the cloud.
That’s not to say the pandemic hasn’t hurt Schneider, a 182-year-old company that got its start in French mining, and is still reliant on the kind of industrial activity that had been hit hard by global lockdowns. Revenue for the first half of 2020 dropped by 10% to €11.6 billion ($13.6 billion) while net income dropped even further (down 22%) to €995 million ($1.2 billion.)
Even still, investors have bid up the shares by over 30% in the past 12 months, to an all-time high.
Analyst see Schneider as well placed to take advantage of a push towards a “green” recovery in regions like the EU—a challenge that will require a vast expansion of the very electric grids, from factories to car charging points, that are at the core of its business.
In an investor note in August, analysts at Berenberg called Schneider the “clear market leader” when it comes to the technology needed for expanding those grids, versus the likes of Siemens, Eaton, and ABB, though it warned that the transition the sector was undergoing is investment-heavy.
Nuts and bolts approach
Schneider’s strategy emphasizes the kinds of nuts-and-bolts of energy management capabilities that clients demand as they chart out an emissions-cutting strategy. Schneider CEO Jean-Pascal Tricoire, a French national who has operated out of the Hong Kong office since 2011, is fond of remarking there are no ribbon-cutting ceremonies when a company meets its energy efficiency targets.
But this kind of energy management is increasingly key for emissions-targeting companies. The first step is achieving so-called “Scope 1” targets in which a company reduces the energy it uses to power its operations, including factories and data centers.
“The first point is using digital for saving [energy],” Tricoire said in a conversation with Fortune. “Then the next part is really far more electricity, much more electricity, and much more renewable. . . If we do all of this, we have a trajectory to be within 1.5 degrees” of a temperature rise (in Celsius) this century—the target under the Paris Agreement—even accounting for a larger population and rising global middle class.
Tricoire says that we cannot afford to overlook climate change because of the pandemic. He is optimistic about the direction of “green” stimulus plans, he adds, and the pace of improvement for the battery technology so crucial to managing low-carbon energy systems.
If there’s a liability, it’s in our existing infrastructure. The vast majority of our buildings will require huge investments in retrofitting to cut down on emissions. That conversion, he says, “has to be done now.”
Net zero goals
Alongside its emissions tracking software, the company has also expanded its microgrid offerings, which can be detached from larger electric grids and run on their own renewable energy sources, for example solar panels. That includes a partnership with the Carlyle Group to launch Alphastruxture, which will help retrofit JFK airport with microgrids to move it towards relying on renewable energy.
The company’s own emissions targets include a goal to reach net zero in its own operations by 2025. Further out, its “scope three” emissions goal, which covers the full lifecycles of its products and is the most extensive boundary for corporate climate targets, aims to cut emissions by 35% by 2030 (compared to a 2017 benchmark). Finally, by 2050, it aims to be fully carbon neutral across its supply chain.
Tricoire says the COVID-19 pandemic has only reinforced the company’s focus on energy efficiency and its shift to digital, which allows more remote management of energy systems inside what is often critical infrastructure.
But the pandemic has certainly presented challenges, he admits, including putting added strain on major energy clients like hospitals, and the data centers that make working online possible. Meanwhile, a low-carbon policy of keeping supply chains as local and short as possible helped the company adapt and maintain local trust, he says. But he admits the “weak points were not what we thought.”
For example, confusing local orders that failed to specify whether workers in critical infrastructure could go to work, and the full-scale shutdowns of clients’ COVID-stricken factories made it increasingly difficult to manage operations and customer relationships.
“We had to do the two things at the same time,” Tricoire says. “Operate our facilities safely—but operate them. There was no choice to stay home, and say, ‘call us in two months.”
The booming share price belies just how complicated it’s been to run normal operations this year amid the pandemic. But Tricoire feels the crisis has brought new focus to the management team.
“I believe it’s really the moment to have a strong sense of your purpose, your mission, your direction,” he says.


fortune--2020-10-20--Behind real estate’s surprise 2020 boom and what comes next

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The house-hunting bonanza that gripped many Americans along with the resilience of the real estate market has been one of the biggest surprises of 2020.
The COVID-19 pandemic, the loss of millions of jobs, a weaker economy—none of it stopped millions of house hunters from flocking to Zillow, Redfin, and other online platforms to browse, plan their move, and, in many cases, purchase their first home.
Home prices have been climbing steadily over the past few months, and industry players are projecting they are likely to peak in some markets this fall, causing a tempering of the market driven by a decline in supply and a prolonged economic recovery.
Real estate companies are preparing for what comes next and what homebuying will look like in this new environment, as it will become more important to optimize their sales funnels, home in on high-value leads, and boost profitability as sales may peak in some markets.
“The more interesting thing [is] to sustain it. We can’t expect that kind of thing to continue,” Zillow CEO Richard Barton said of the market’s momentum on the company’s last earnings call. “So we have to move down the funnel to find the levers to drive the business in a sustainable way, and we have these levers all the way down the funnel that we are not yet maximizing or monetizing.”
Zillow projects home sales are “expected to peak this fall then taper off through 2021, though still staying above pre-pandemic levels.”
New home sales jumped 43% in August compared with a year ago, according to Census Bureau data. In many markets, the sales were driven by demand for suburban properties by millennial and first-time buyers as work-from-home policies became the standard across many industries.
A Realtor.com survey published earlier this month found 63% of millennials, now the largest U.S. population segment, plan on purchasing a home within the next year.
This time is different
The 2020 housing market stands in stark contrast to previous economic recessions, as the COVID-19 pandemic and working from home have defined much of the market demand this year.
“There’s really no comparison to previous recessions. The housing market has done incredibly well during this pandemic-driven recession,” says Daryl Fairweather, chief economist at Redfin. “It has more to do with the pandemic itself: how everyone is stuck at home, working from home, teaching their kids from home. The home has just become so much more important.”
The country’s new house-based existence has fueled buyer appetite for more suburban and spacious properties.
“The whole pandemic changed the way we think about work/life balance,” says John Campbell, a managing director at Stephens Inc. who focuses on real estate. “You factor in lower interest rates, better purchasing power, the millennial population coming in, the first-time homebuyers—it feels like the perfect storm, all these things influencing strong buyer demand.”
While demographics and record low mortgage rates are likely helping to drive demand, it’s also the lack of inventory this time around that has kept house prices high.
“What could slow it down is the supply side,” Campbell says, noting that inventory is close to the all-time low.
In fact, U.S. housing inventory levels fell to a 3.3 month’s supply as of August, which represents the lowest level since 1963, according to the National Association of Home Builders.
Online and mobile app traffic has also jumped, as more people searched for new properties. Zillow hit a record 218 million average monthly unique users last quarter, a 12% increase from a year before. The total number of visits reached 2.5 billion during that quarter for both website and apps, a 14% jump. The company reported a 28% jump in revenue of $768 million compared with a year before.
‘Unstoppable growth’
But market analysts and industry players say current sales cannot be sustained indefinitely.
“We have to be realistic and realize that there is a tipping point where prices go too high, and you start to see the demand…level off,” says Ali Wolf, chief economist at Zonda, previously known as Meyers Research. “The markets that we think could peak sooner, it doesn’t mean that they’re going to fall—it just means that they’re not going to see the unstoppable growth…a seemingly unstoppable growth, they’ve seen this year.”
She also projects that there will be certain markets that will see even higher sales next year.
Not everyone on Zillow is necessarily completing the transactions. The app has emerged as a national pastime, with some using it to research where their dates live or provide an escape from the pandemic blues, or as something to scroll through during bouts of insomnia. Some users don’t even have a bank account. Now the company is looking to convert its record traffic and those eyeballs into sales.
“The pandemic has been a really big opportunity for the big brokerage firms—Zillow, Redfin, Realtor.com—to step out as thought leaders, to educate buyers [and] then have them use their platform to search for their homes,” Wolf says. “And so we’ve seen the data that comes out of these different companies just get elevated almost each research paper; they have something more thoughtful and well researched trying to gain that market share.”
Beyond customer engagement, there is also a shift toward a digital shopping and viewing experience.
“One thing that we did see really take off dramatically was 3D home tours, which is a feature you can add to a listing on a site like Zillow, where it creates a 3D model of the house, and you can click through to re-create the experience and sort of see how all the rooms fit together,” says Jeff Tucker, senior economist at Zillow. “Those were a fairly niche feature that only some listing agents were using before the pandemic, and the frequency with which they were added to listings just skyrocketed in the spring and has remained significantly higher ever since.”
A prolonged pandemic and work-from-home environment could further accelerate a digital transformation of the real estate industry—and a more integrated approach to revenue generation.
According to a September research note from the Arkansas-based Stephens Inc., the real estate industry is “on the brink of considerable change, a change that should result in better lender profitability, better economics for the scaled vendors, and a generally better consumer experience.”
Last month, Zillow announced plans to expand deeper into the real estate brokerage business in 2021, similar to Redfin and others. This will broaden the Zillow Offers service “from start to finish” of the customer journey.
Campbell believes companies like Zillow could one day expand to Quicken-like services.
“If you can use a little bit of technology, be faster and more efficient than the next guy, you will win market share,” he says. “That’s what Quicken has done. They literally went from a couple bits market share to the No. 1 player and unseated Wells Fargo because I think they’re so good at being online and converting customers online.”
Polarization of American dream
Despite this strong momentum, the real estate market hasn’t been uniformly good for everyone.
There is a question of affordability going forward, which presents unique challenges for each company, prospective homeowners, real estate firms looking to broaden their customer base, and the economy as a whole.
“Affordability will actually work against the housing market in 2021,” says Wolf. “We’ve seen home prices have gone up double digits in some markets year over year, and at a certain point that home price appreciation offsets the savings from the mortgage rate.”
And the longer the pandemic continues or the weaker the economy gets, the more of a gap there will be between those who can afford a home and those for whom the prospect of homeownership will become less and less attainable.
“So long as the pandemic goes on, I think we will see more demand at the top of the market because those are the people who are getting word from their employers that they can work from home as long as they want,” says Redfin’s Fairweather. “The delayed government response in terms of stimulus has already had a negative impact on the bottom of the market. We’re already seeing home sales decline for homes that are priced in the bottom third.”
Despite the market’s enduring drivers, there are still plenty of risks and unknowns: the outcome of the election; the two presidential candidates’ plans to reopen schools and businesses nationwide; their different views on real estate development and zoning laws; the timeline of the COVID-19 vaccine; the stock market’s performance; and consumer confidence overall.
“Any company out there that is helping embrace the new norm, anybody who’s helping bridge the digital divide, anybody who’s helping you become remote, it will do fine,” Campbell says, noting we may see an uptick in M&A activity especially as the housing supply declines further.
All of this bodes well for the real estate players, who don’t think the projected sales peak will slow them down.
“If it weren’t for a pandemic and potential economic calamity, we could really get excited,” Barton, Zillow’s chief executive, said on the company’s last earnings call.


fortune--2020-10-20--Netflix’s pandemic growth slows, sending shares tumbling

Netflix tumbled in late trading after its results and outlook both missed Wall Street estimates, renewing doubts about its ability to maintain growth as pandemic lockdowns go away.
The world’s largest paid streaming service added just 2.2 million new subscribers last quarter, well short of the 3.32 million predicted by analysts — and even the company’s own more conservative projection. Netflix also predicted that it will sign up 6 million new subscribers this period, below the 6.54 million estimate.
Throughout the pandemic, Netflix has warned that the subscriber boom wouldn’t last — and in fact, that its surge in new customers could suppress growth in the future. But it has struggled to predict the timing. While Netflix’s forecasts for the second quarter proved too cautious, its outlook for the third quarter was too rosy.
Many viewers — especially in Europe and Asia — have returned to something closer to normal day-to-day life, reducing the amount of time they can spend on Netflix binges. And pro sports has returned to Americans’ TV screens. All of that hampered subscriber gains last quarter, with growth suffering in all three regions.
“It’s the sign of a maturing business,” said Jim Nail, an analyst at Forrester Research. “Infinite growth can’t go on forever.”
It was Netflix’s weakest third-quarter gain since 2015, back when the company wasn’t yet operating in most of the world. In its letter to investors, management blamed a “pull forward” effect: Rapid growth in the first half of the year stole from results in more recent months. The streaming service also warned investors that it would see slower growth in the quarters ahead.
Netflix shares fell as much as 7.4% to $486.50 in after-market trading. The stock had been up 62% this year through Tuesday’s close, giving the company a market value of $231.7 billion.
Program Pipeline
Netflix has still outshined many TV networks and services, which have struggled to find new programming to air during the pandemic. The company released a full slate of movies, TV shows and documentaries. And through nine months of 2020, the Los Gatos, Calif.-based company has added 28.1 million paid memberships, topping all of last year.
But its most popular shows are still primarily in English, potentially limiting its overseas expansion. “The Old Guard,” an action movie starring Charlize Theron, was its most-watched title in the third quarter, followed by two other films, “Project Power” and “The Kissing Booth 2.”
“American Murder: The Family Next Door,” released in September, is on pace to be the service’s most-watched documentary ever.
The performance of its original series was less strong, which may help explain why the company just restructured its TV division.
Netflix played down the impact of the pandemic on its pipeline of new shows. The company said it has completed 50 projects since the initial shutdown in production, and it will release more programs next year than it did in 2020.
“We’re confident that we’ll have an exciting range of programming for our members, particularly relative to other entertainment service options,” the company said.


fortune--2020-10-20--Can Trump close the gap and win in November? Here’s what data from betting sites suggests

It’s gospel among Trump supporters that public polls systematically understate the millions of Americans who will vote for the President on Nov. 3. If that’s the case, then the probability President Trump will prevail should advance to 50-50, or even show him in the lead, if he’s still trailing but pulls within a couple of points of Joe Biden.
One way to test the “if Trump gets close he wins” hypothesis is to examine whether the odds on political betting sites do indeed rate the contest a toss-up when Trump goes from lagging by a furlong to within a few meters, turning what looks like a romp into a horse race. That data could provide a guide to how much of the current gap the President must close to get a good shot at victory on Nov. 3.
The odds offered on the betting sites are arguably the best measure for handicapping the outcome. That’s because those odds are set by people putting “skin in the game” by risking their own money—including professional political gamblers who carefully study voting patterns and shifts in momentum. There’s no better estimate of Notre Dame’s or the Dallas Cowboys’ chances of beating a point spread than the odds posted at the casinos or online digital sports betting venues. The gamblers can be wrong in presidential elections, as in 2016, but in general, the dollars shifting from blue to red and back should be an excellent bellwether for where voters are headed.
Gambling on U.S. elections is mostly banned stateside. The only major site approved to run a political futures market in the U.S. is PredictIt. But sundry online gambling exchanges in Europe are offering lines on the contest for the White House. They include Betfair, Bovada, Smarkets, and Spreadex, all of the U.K.; bwin of Austria, Betsson of Sweden, and Unibet of Austria. In recent weeks, the action’s been terrific. Paul Krishnamurty, a professional gambler and freelance writer who pens insightful analysis on presidential gaming, notes in a recent post that Betfair saw over $25 million wagered on U.S. elections the week ended Oct. 16, equivalent to 15% of the total placed over the past four years.
RealClear Politics publishes a daily average of nine of the latest postings from the major sites. (PredictIt isn’t included in that measure; more on that shortly.) For this analysis, I’m using that data alongside the RealClear Politics average of polls for the five battleground states that most experts reckon will decide the election: Pennsylvania, Florida, Wisconsin, North Carolina, and Arizona. So let’s look at how our leading indicator—those betting odds—have moved as Trump’s poll numbers have waxed and waned, and what that tells us about the gap he must shrink to stand a chance on Election Day.
Ups and downs
From July 21 to Aug. 23, Biden led Trump by substantial margins of between 4 and 6 points in the swing states. Trump’s odds of victory, as shown on the betting sites, toggled between 36.1% and 43.4%. In other words, the President looked like a loser, as he trailed Biden’s odds by at least 16 percentage points during that monthlong interlude. But starting the last week in August, Trump went on a tear. The virtual Republican convention hosted from Aug. 24 to 27 appeared to give Trump a big boost. By Aug. 29, he’d narrowed Biden’s lead from 4 points two weeks before to 2.7, and he clung that close through Sept. 1. On that date, Trump posted his best odds of the entire election cycle, as measured by betting sites, hitting 49.5% and pulling within 0.5% of the former vice president.
The bump was short-lived. By Sept. 10, Biden had regained a 3.9-point edge in the polls, and he maintained a lead in the high-3s and 4s before peaking at a 5-point advantage on Oct. 11. The rise in Trump’s polling deficit from 2.7 to 5 points mirrored a steep drop in his odds, which cratered from the 49.5% summit at the start of September to 34.7%. That made Biden a two-to-one favorite to take the White House.
The road to the White House took still another surprise turn on Oct. 12. Trump emerged from his bout with COVID sporting an air of triumph and jumped back on the campaign trail, hosting a raucous rally that evening in Stanford, Fla. The sight of the President healthy and recharged for combat gave his poll numbers their second big lift in seven weeks. By Oct. 19, Trump had cut Biden’s swing-state lead from 5 points to 3.9. Trump’s odds followed his polls, jumping from the late Oct. 11 near-low of 34.7%, to 40.3%. (They shrank to 38.7% the next day, but the polling gap held at 3.9%.)
It’s perhaps prophetic that Trump’s ups and down in the polls appear to trigger more or less predictable gains and losses in his odds. The rise in his polling gap of 2.3 points, from 2.7% to 5%, between Sept. 1 and Oct. 11 caused his odds to retreat from 49.5% to 34.7%, or 14.8 points. For every 1 point his deficit grew, his odds dropped by 6.4 points. Similarly, his just-over-1-point move from a 5% to 3.9% deficit in the following eight days brought a rise in his betting line from 34.7% to 40.3%, or 5.6 points. So it’s likely that a 1-point shrinkage in Trump’s swing-state polling gap increases his probability of winning around 6 points.
Shrinking the edge
Trump’s odds of clinching reelection now stand at around 40%. By our formula, to gain the extra 10-plus points needed to take the lead on the betting sites, he would need to shrink Biden’s edge at the polls by around 1.6 points, taking him from 3.9 to 2.3 points behind. Keep in mind that on Sept. 1, Trump’s odds trailed Biden’s by just a hair when he lagged by his best reading ever of 2.7 points. It would appear that Trump needs to pull within the mid-2s by Election Day to pass Biden and win by a nose. That is, if the bettors are right.
Of course, squeezing the gap to 2.5 points still assumes that the polls are way off, and that millions of voters are still too embarrassed to tell neighbors and pollsters they’re for Trump. Two highly respected prognosticators, Nate Silver’s FiveThirtyEight and The Economist, put Biden’s likelihood of victory at 80%-plus, and they reckon that the gamblers on the betting sites are now far overestimating Trump’s fast-fading chances.
The odds on PredictIt show that Trump has gained recently in several states. He’s regained the lead in Florida that he lost on Oct. 1, and North Carolina has moved to even money despite a 2% Biden lead in the polls. A recent jump has given the President a commanding lead in PredictIt’s futures market in Ohio, and his deficits are narrowing in Arizona and Wisconsin. Nevertheless, those wagering on PredictIt still give Trump just a 35% probability of winning, little changed in recent weeks. That’s several points below his standing in the RealClear Politics readings.
Still, you need to give a lot of credence to folks who put their money on the line. In fact, you’ve got to be an oddsmaker to decide who’s closer, the bettors or the experts like Silver and The Economist. My vote’s with the gamblers—who still give Trump a far less than 50-50 chance of winning. They just think getting close, though even that’s a long shot, may be enough to keep Trump in the White House.


fortune--2020-10-20--Google says it isn’t a dangerous monopoly. Here are its 4 key arguments

Google says the Justice Department’s antitrust lawsuit, though big on accusations, falls well short of proving the company is a harmful monopoly.
“Today’s lawsuit by the Department of Justice is deeply flawed,” Kent Walker, Google’s chief legal officer, wrote in a blog post on Tuesday just after the lawsuit was filed in a Washington, D.C., federal court. “People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.”
The lawsuit, a result of a yearlong federal investigation, accuses Google of crushing competition through exclusive agreements with mobile carriers and device makers including Apple that make Google their default search engine. As a result, Google dominates digital ads, accounting for nearly 70% of ads purchased on search, making it nearly impossible for others to compete, the lawsuit says.
While the government did not spell out how Google’s business should be curtailed, it did call for “structural relief,” which could mean anything from breaking up Google’s business to canceling some of its current deals.
Google voiced confidence that it will prevail against the lawsuit. Here are the company’s arguments in its defense.
Google has plenty of competition
Countering accusations that it controls search, Google said that Internet users rely on a number of apps, not just Google, to find information. For example, consumers may search Expedia for flights, use Twitter to scan for news, and browse Amazon for whatever they want to buy, a company spokesperson said.
The company pointed out a decade-old conclusion from the Federal Trade Commission saying that Google’s competitors aren’t necessarily limited to general search engines. And the number of players providing those services has only grown since then, Google said.
The lawsuit doesn’t show consumer harm
Key to any antitrust case is that the targeted company has used its dominance to harm consumers. But Google said that the DOJ failed to point to anything specific that would prove consumers are negatively impacted by Google.
Because Google Search is free, the government can’t claim that consumers must pay higher prices owing to Google’s deals. So instead, the DOJ suggested that consumers were worse off because of Google’s dominance, which hampered companies from creating even better services and kept smaller players out of the market.
Rather than harming consumers, Google said its services and deals benefit consumers by connecting them to high-quality search. It also said that the deals it has with companies like Apple do not exclude competitors from bidding for their own deals with the companies.
Google likened its agreements to be a default search engine with companies like Apple to Coca-Cola buying prime shelf space at grocery store checkout counters. Consumers can still find products elsewhere in supermarkets, and other companies can negotiate for that space as well, Google said.
Furthermore, Google insisted that the FTC has already evaluated Google’s search agreements. But now, Google said, the DOJ is unnecessarily calling that decision into question.
Consumers can easily download rivals
Nothing is stopping consumers from downloading rival search engines to connect them to information on their mobile devices and changing the default search, Google said.
The company pointed to several popular apps like Instagram, TikTok, Spotify, and Uber that have been successful without being preloaded onto phones and tablets. Consumers are smart enough to download the apps they want, regardless of what device makers provide as defaults, Google said.
Google also pointed to Yahoo’s agreement in 2014 to become the default search engine in Mozilla’s Firefox browser. Google said consumers who wanted to use Firefox with Google as their default search engine merely had to change their settings.
Ad competition is fierce
Google denied the government’s assertion that it dominates digital advertising. In fact, Google said it has stiff competition.
The company’s major rivals in digital ads, Facebook, Amazon, and Apple, continue to grow their ad businesses—a sign Google isn’t shutting out competitors. Meanwhile marketers can also use smaller digital services like Pinterest, Autotrader, and TripAdvisor, Google said, though they’ll likely get much smaller returns on their spending than on Google.
In short, marketers can get clicks on their ads and traffic to their sites from more sources than just Google, the company argues.


fortune--2020-10-20--What could change at Google if the Department of Justice gets its way

The antitrust case opened against Google this morning by the U.S. Department of Justice claims that Google has accumulated so much power over Internet search and advertising that it’s harming consumers and competition. The Justice Department complaint doesn’t specify what fixes it would like to see, though, and officials this morning told reporters those would be laid out in court.
But the 64-page complaint paints a clear picture of why the Justice Department believes Google’s search business is an anticompetitive monopoly. Here are four possible fixes for those problems, from new rules to an outright corporate breakup, that could be ordered if Google winds up on the losing end of the case.
New search placement structures
At the heart of the DOJ’s complaint are Google’s deals to secure prominent placement and other special treatment for its search engine within third-party services and on mobile devices. These deals are why, for instance, Google is currently the default home screen search on most mobile phones. Those placements are crucial to Google’s advertising business, which accounts for more than 70% of the company’s revenue.
But the DOJ describes the deals as a “set of contractual ‘carrots’ and ‘sticks’” that effectively lock competing search engines out of the market. The DOJ claims that placement agreements direct nearly 60% of all general search in the United States to Google.
A settlement or judgment against Google, then, would likely restructure search engine placement and exclusivity agreements. One solution is currently being tried in Europe: A parallel antitrust judgment led to a system of auctions for search placement. That system, though, hasn’t clearly benefited Google’s smallest search competitors, so it wouldn’t necessarily be imitated in the U.S.
An open relationship with Apple
The DOJ complaint is particularly focused on Google’s huge payments to Apple in exchange for search placement in Apple products. Google pays Apple an estimated $8 billion to $12 billion a year to make Google the default search engine for everything from the Safari web browser to the Siri voice assistant. This gives Google huge captive search traffic; the company estimated that 50% of searches came from Apple devices in 2019 and has said that losing its Apple exclusivity would fundamentally harm Google’s profitability.
But again, the DOJ argues that the close arrangement is anticompetitive, suggesting there could be a specific push to somehow create more search competition on Apple devices. That would have unclear but major implications not just for Google traffic, but for Apple’s revenue, as well. The DOJ says Google’s payments currently amount to an estimated 15% to 20% of Apple’s global profits.
More Android diversity
The DOJ complaint also describes how Google leverages its control of the Android mobile operating system to funnel more users to its search engine. Though Android is “open source,” meaning it can be freely used and modified, the DOJ argues that Google nonetheless effectively forces device makers to use its own version of Android, which gives prominent placement to Google’s search services.
For instance, Google requires device makers to use its version of Android to get access to other basic services powered by Google, including in-app purchases, integration of Google Maps data, and the Google Play app store itself. As with Apple, these agreements also often include the “carrot” of shared App Store revenue.
As an example of how these agreements stifle innovation, the DOJ cites Amazon’s failed Fire Phone, which used a modified fork of Android. According to the DOJ, “major manufacturers declined to support Amazon’s phone out of fear doing so would risk their lucrative deals with Google.”
The potential remedies here could parallel the DOJ’s 1998 settlement with Microsoft, which made it harder for Microsoft to squash competitors by bundling its own software with its Windows operating system. In this case, the DOJ could push for Google to give access to the Play Store and other services even to devices that use non-Google versions of Android.
Breaking up Google
Google’s use of Android to benefit its search business also highlights a more radical possible solution: splitting Google up into multiple companies. The DOJ complaint specifically calls on the court to “enter structural relief as needed to cure any anticompetitive harm”—legalese for breaking a company up.
It’s less clear what might be on the chopping block. State attorneys general have recently focused on separating Google’s ad sales business from the services, such as search, Gmail, and YouTube, which generate ad views. Another possibility suggested by today’s filing would be separating Android from Google.
For years, there has been a broad perception that regulators were unlikely to pursue corporate breakups on antitrust grounds. But some of Google’s harshest critics, including former antitrust regulator Sally Hubbard, see the call for structural relief as a sign that the most extreme solution is genuinely possible this time around.


fortune--2020-10-20--Procter & Gamble shows that increasing spending during a recession is worth it

Buried in Procter & Gamble’s knockout earnings report today is a lesson for all businesses in this tumultuous economy: In tough times, the most successful companies don’t just cut costs; they actually increase spending in areas where they have advantage, pounding down competitors fighting the high-stress environment.
P&G stock plunged in the pandemic’s early days, as most stocks did. Then investors realized that the marketer of Mr. Clean, Comet, Swiffer, Tide, Safeguard, and other top cleaning brands stood to gain in the pandemic. It helps that when consumers are worried about the health of themselves and their families, they gravitate toward brands they know. P&G owns many of them.
Remember that P&G is the world’s largest marketer, as it has been for decades. It spent $10.1 billion on marketing in 2018, the most recent year for which information is available, according to Ad Age Datacenter.
Now imagine you’re this marketing behemoth when the pandemic hits. It might have been tempting to cut or at least stop increasing marketing spend, especially as ad rates were falling in the shattered economy. That’s what two of P&G’s biggest competitors, Unilever and L’Oréal, did in the year’s first quarter. But P&G pressed its advantage, spending more on marketing while competitors cut—and it has continued to do so. As CFO Jon Moeller explained the decision to investors on this morning’s earnings call: “This is not the time to hold back.”
Research supports that decision. A study of past downturns by Harvard Business School researchers found that the least successful companies coming out of a recession are those that reflexively cut costs across the board. Those that crank up investment broadly do better but not great. The few most successful companies, the authors found, “reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.”
That’s what P&G did. It cut selling, general, and administrative expenses (SG&A) overall as a percentage of sales in the latest quarter, even while increasing marketing spend, which is included in SG&A.
Research from the Boston Consulting Group agrees, finding that marketing in particular can be key. “Companies that injudiciously slash marketing spending [in a recession] often find that they later must spend far more than they save in order to recover,” it reports.
No single factor accounts for success or failure in a company as big and complex as Procter & Gamble, but it’s noteworthy that the company responded to the pandemic by balancing cost cuts and spending increases in favor of its core strength, marketing. The payoff: The stock is up about 15% year to date, almost twice as much as the S&P 500.


fortune--2020-10-20--Gloating, schadenfreude, and a pinch of anxiety: Critics pile on Google over antitrust indictment

Technology companies sounded off on Tuesday about the Justice Department’s long-expected antitrust lawsuit against Google.
Some of the search giant’s rivals cheered on the federal government’s allegations that Google has engaged in monopolistic, competition-crushing behavior. Other firms—like Amazon, Apple, and Facebook, which also happen to be facing similar investigations—remained quieter, no doubt fearful of what a government flexing its antitrust muscles may mean for their own businesses.
In response to the lawsuit, a spokesperson for Google’s public policy team tweeted that the lawsuit “is deeply flawed.” Kent Walker, Google’s head of global affairs, added that “people use Google because they choose to—not because they’re forced to or because they can’t find alternatives.”
Critics see the situation differently—and for some, the animosity is palpable. One minute after Google published its comment, Luther Lowe, senior vice president of public policy at Yelp, offered a concise rejoinder.
“Google is harming consumers,” Lowe replied on Twitter to Google’s public policy account. He added a link to focusontheuser.com, an anti-Google group whose members include Yelp, travel reviews site TripAdvisor, and the Internet activism group Fight for the Future.
A desperate cry for Yelp
For years, Yelp has feuded with Google, arguing that it unfairly prioritizes search results to its own properties over those of its rivals. “We would be a significantly bigger company with more resources to invest if Google had played fair and not tipped the scales in their favor,” Yelp CEO Jeremy Stoppelman lamented to tech blog The Verge this year.
In a post on Yelp’s corporate blog, Lowe expanded on the point. “By systematically reducing the quality of its search results in order to entrench and extend its search and search advertising monopolies, Google is directly harming consumers,” he said.
He continued, praising the Justice Department for pursuing the case. “Yelp applauds the work of the DOJ and encourages swift action by state attorneys general who are conducting parallel investigations into other aspects of Google’s business,” he said.
Gabriel Weinberg, chief executive of DuckDuckGo, a privacy-centered search engine, joined in expressing schadenfreude. “We’re pleased the DOJ has taken this key step in holding Google accountable for the ways it has blocked competition, locked people into using its products, and achieved a market position so dominant they refuse to even talk about it out loud,” he said.
“While Google’s anticompetitive practices hurt companies like us, the negative impact on society and democracy wrought by their surveillance business model is far worse,” he continued. “People should be able to opt out in one click.
“Historians will hopefully look at today as the beginning of the end of the surveillance economy,” DuckDuckGo’s Weinberg said.
The government’s battle could be a grueling one. Dan Price, chief executive of Gravity Payments, a credit card payments processing firm based in Seattle, highlighted the immensity of Google’s war chest. “The problem is,” he said, Google “now has $120 billion in cash to fight [the lawsuit], just like Amazon, Facebook, and Apple if they are sued.”
Eye to eye across the aisle
The antitrust action drew rare bipartisan support, although representatives were torn over some aspects.
Rep. David Cicilline (D-R.I.), who spearheaded a recent House investigation into Big Tech’s market dominance, offered support for the Justice Department’s move. “This step is long overdue. It is time to restore competition online,” he said.
Rep. Pramila Jayapal (D-Wash.), another member of the House antitrust subcommittee, endorsed the suit. “It’s time to rein in Big Tech’s anticompetitive behavior as it harms innovation, small businesses, consumers, and local journalism,” she said.
Sen. Elizabeth Warren (D-Mass.), a former presidential aspirant, praised the Justice Department’s message while condemning its messenger. “The case is clear—in fact, it could have gone further,” she said of the lawsuit; simultaneously, she landed a political jab: “Bill Barr is a corrupt Trump crony who shouldn’t be AG.”
Across the aisle, Rep. Ken Buck (R-Colo.) echoed the anti-Google sentiment. “Google has used its monopolistic share of the marketplace to cheat and steal for far too long,” he said. “This is an important first step in stopping Big Tech’s anticompetitive behavior.” Sen. Marsha Blackburn (R.-Tenn.), concurred, saying it was “another good step in holding Big Tech accountable.”
Other members of the Republican Party harped on allegations of Google being politically biased, a frequent accusation. Rep. Jim Jordan (R-Ohio) leveled, “Big Tech’s out to get conservatives. Attorney General Barr won’t let them get away with it.” The attorney general himself, meanwhile, called the lawsuit a “monumental case” against an “unlawful monopolist.”
Many other technology companies took a more reserved stance and did not volunteer to comment on the government’s challenge to Google. Their silence is easy to understand; any one of them could be a future target of regulatory wrath.
Google’s summons has ominous import for its tech industry peers. As Rep. Doug Collins (R-Ga.) put it, “Get ready, @Twitter. You’re next.”


fortune--2020-10-20--5 key things to know about the Google antitrust lawsuit

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After years of complaints by rivals, Google found itself on the receiving end of an antitrust lawsuit from the Department of Justice and 11 state attorneys general on Tuesday. The 64-page document, filed in federal court in Washington, D.C., accuses Google of improperly using its monopoly for Internet search to squash competition and harm consumers. Here are five things you need to know about the Google antitrust lawsuit.
Why is Google being sued?
Google has dominated Internet search for so long that the company’s name has become a synonym for the act of searching. According to the lawsuit, U.S. consumers turned to Google for their search queries almost 90% of the time and almost 95% on mobile devices. Microsoft’s Bing, Yahoo, DuckDuckGo, and other rivals have seen their share shrink away over the past decade, the lawsuit says. As a result, Google collects more than 70% of the dollars spent on search advertising.
But just having a monopoly isn’t against the law. Antitrust regulators say Google both built that dominant place by illegal means and has extended it improperly by using exclusionary agreements, as well. For example, Google pays huge fees to be the default search service with phone makers like Apple and Samsung; wireless networks including AT&T and T-Mobile; and browser developers like Mozilla and Opera, the lawsuit says. In some cases, the deals prohibit offering rival search services, the lawsuit adds (though without naming names). Google also used its control over its Android operating system to extend its search dominance to mobile, the lawsuit says, by requiring phone makers to include its apps and services.
Google responded by saying that the lawsuit is “deeply flawed,” based on “dubious” interpretations of antitrust law, and that it “would do nothing to help consumers.”
How are consumers allegedly being hurt?
One complicating factor in the Google case compared to typical antitrust lawsuits is that almost all of Google’s products, including its search service and Chrome browser, are made available for free. So Department of Justice lawyers can’t simply point to higher prices as an obvious consumer harm the way they have in lawsuits against airlines, drugmakers, or even tuna fish canners.
Instead, the DOJ argues that consumers are being hurt by missing out on higher-quality online apps and services that, while not costing less, might have better privacy and security protections. And Google’s conduct may be thwarting the development of new and innovative products like better digital assistants, the lawsuit charges. And digital advertisers may have more choices and pay less if there was more competition.
“The incentives and abilities for companies to develop and distribute innovative search products would be restored, resulting in more options, better products, and higher consumer welfare overall,” the lawsuit notes.
Google entirely rejects the premise that it’s harming consumers at all. “Today, you can easily download your choice of apps or change your default settings in a matter of seconds—faster than you can walk to another aisle in the grocery store,” the company said. “This lawsuit claims that Americans aren’t sophisticated enough to do this. But we know that’s not true. And you know it too: People downloaded a record 204 billion apps in 2019. Many of the world’s most popular apps aren’t preloaded—think of Spotify, Instagram, Snapchat, Amazon, and Facebook.”
What are the possible remedies if Google loses?
The lawsuit doesn’t actually include a specific set of proposed remedies to end and correct the harms alleged. Instead, it briefly lists all of the categories of remedies available to a court under the law, such as orders barring Google from engaging in certain practices, fining the company, or using “structural relief,” a legal term meaning splitting up the company or forcing asset sales. In a call with reporters, Deputy U.S. Attorney General Jeffrey Rosen said his department would seek an order stopping anticompetitive conduct “at a minimum,” adding that “additional relief may be necessary” and “nothing is off the table.”
For several years, Google has been making changes to its products in Europe because of a similar legal case brought by EU regulators. For example, when consumers set up a new Android device in Europe, they are offered a “choice screen” to pick a default search service. U.S. antitrust experts have speculated that remedies for the latest case could include everything from barring exclusionary deals to requiring choices for consumers to splitting off parts of Google, like the Chrome browser.
Why doesn’t the lawsuit include YouTube, Maps, or other products?
Although rivals have complained about Google’s dominance in a variety of markets, Tuesday’s lawsuit filed was narrowly focused on search services and search ads. Associate Deputy Attorney General Ryan Shores told reporters that the department has investigated many aspects of Google’s businesses but chose to file charges over just the search aspects at this time. He declined to explain further, saying he couldn’t disclose the department’s “internal deliberations” about the case.
What happens next?
Antitrust lawsuits can take many years to wind their way through the courts. The Justice Department sued IBM in 1969, but after hundreds of court hearings and the production of 30 million documents, it ultimately dropped the charges in 1982. Microsoft was sued in 1998 and the case was settled three years later, though it took until 2004 for an appeals court to approve the final deal.
The case will need to be assigned to a judge, who will then hold initial hearings to schedule a trial date, which may not be for another six to 12 months. Barring a settlement, the losing side is almost certain to appeal, at which point the case could wind through the courts for another year or two.


fortune--2020-10-20--Why do so few businesses see financial gains from using A.I.?

This is the web version of Eye on A.I., Fortune’s weekly newsletter covering artificial intelligence and business. To get it delivered weekly to your in-box, sign up here.
Is artificial intelligence giving a big bottom-line boost to most companies? No is the resounding answer, according to a new study out today from the Boston Consulting Group and MIT Sloan Management Review. It found that only 10% of businesses have seen “significant financial benefits”* from increased revenue or cost savings.
But more and more companies are adopting A.I. Of the 3,000 companies surveyed across 29 industries and 112 countries in the spring of 2020, the study found 57% had A.I. pilots underway or were using A.I. in full-scale deployments, up from 44% in 2018. And 59% of these companies also say they now have an “A.I. strategy”—up from 43% last year.
So why are so few businesses seeing any real gains from the technology? The answer lies in how companies are configuring their organizations to use A.I. The most successful A.I. adopters, the report’s authors say, create a virtuous circle of learning between human workers and A.I. systems, in which each provides valuable insights to the other.
In one example, at the carmaker Porsche, an engineer had a Eureka moment while getting coffee from an automated machine. He suddenly realized that the machine made a different sort of sound when it was making a good cappuccino versus a watery one. This provided the inspiration for Porsche to create an A.I.-based system to detect anomalies in car parts by having the software listen for subtle differences in the parts’ sounds. The A.I. itself could never have suggested that Porsche look at acoustic data—that required human imagination. But A.I. was perfect for implementing the system.
The report identifies five “modes” of human-A.I. interaction: the A.I. decides and implements a decision on its own; the A.I. makes a decision which a human implements; the A.I. makes a recommendation to a human, but the decision remains in the human’s control; an A.I. generates insights from data that help the human’s decision-making calculus; humans make decisions that an A.I. system only evaluates after the fact.
The most successful companies were more likely to use multiple modes of interaction, with almost a third of them using all five modes and an additional third using three or four different modes. Those businesses that used all five modes were six times more likely to see financial gains from A.I. than those that relied on just one kind of interaction.
Critically, the businesses that saw the biggest gains from A.I. knew when to alter these modes to suit different kinds of situations. Walmart uses an A.I.-based system to present stocking recommendations to store managers. The managers can agree or disagree with them and provide feedback on what they would change. During the COVID-19 pandemic, when consumers’ purchasing behavior suddenly shifted, managers rejected many more of the A.I. system’s recommendations. But this, along with the managers’ feedback, provided new training data for the software. After retraining the A.I., Walmart found that its managers could rely more on the A.I.’s recommendations again.
But configuring a business to take advantage of A.I. requires a lot. BCG and Sloan Management Review found the companies that made extensive changes to many business processes were five times more likely to reap financial rewards from using A.I. than those that made only small changes to organizational structure and processes.
Shervin Khodabandeh, a BCG senior partner and one of the report’s authors, says that too many companies draw a false analogy between the adoption of A.I. and another technology overhaul that had a big impact on business processes: enterprise resource planning (ERP) systems in the 1990s. There’s a big difference, he says. ERP systems tended to force all businesses to adopt similar processes for key administrative functions.
“There is no generalized, standardized A.I. process,” he says. “An A.I. solution for one company is not generalizable to another company even in the same sector.”
BCG likes to say A.I. success is a “10-20-70 problem,” he says: 10% of the effort is designing the right algorithms; 20% is building all the underlying technology to gather the data and run the A.I. system; 70% is getting the organizational structure and processes right.
Few companies have seen big financial gains from A.I. because the structural changes to undertake are extensive. But Khodabandeh says the fact that 10% of companies have seen large gains from using A.I. means that it is not impossible.
*What’s a “significant financial benefit,” by the way? The BCG and Sloan authors defined it on a sliding scale: at least $100 million in additional revenue or cost savings for companies with more than $10 billion in annual revenues; at least $20 million in gains for those with yearly revenues between $500 million and $10 billion; at least $10 million for those with revenues between $100 million and $500 million; and at least $5 million for those with less than $100 million in annual revenues.
***
Several months ago for this newsletter, I interviewed Tom Siebel, the outspoken billionaire and CEO of C3.ai. To hear more of Siebel’s sharp takes on the development of artificial intelligence, check out this week’s edition of the Fortune’s Leadership Next podcast, hosted by Fortune‘s own CEO Alan Murray and senior editor Ellen McGirt. Siebel shares why he thinks A.I. should be regulated, why he won’t do business with China, and why, although C3.ai does work for the U.S. government, it won’t help the Pentagon build autonomous weapons. You can tune in on either Spotify or Apple podcasts.
With that, here’s the rest of this week’s news in A.I.
Jeremy Kahn
@jeremyakahn
jeremy.kahn@fortune.com
A.I. IN THE NEWS
Nonprofit drops out of partnership over Big Tech's unwillingness to commit to concrete action. Access Now, a nonprofit dedicated to preserving individuals' digital and human rights, has dropped out of the A.I. ethics consortium Partnership on A.I., writing in an open letter that "while we support dialogue between stakeholders, we did not find that PAI influenced or changed the attitude of member companies or encouraged them to respond to or consult with civil society on a systematic basis.” Access Now was frustrated in particular that it made little headway in getting PAI to endorse calls for a ban on facial recognition and other biometric technology that can be used for mass surveillance, according to a story in the tech publication The Verge.
Google announces a host of A.I.-powered enhancements to its search tools. The improvements include a better spell-checker and better ranking of the relevancy of not only pages, but also passages of text within a page. The company says the feature improves search results by 7% across all languages, according to a story in The Next Web. Another A.I.-based feature automatically tags key moments in videos, allowing a user to flick through them like chapters in a book. Google Maps will also now show how busy a particular location is, which Google says is a feature to improve social-distancing during the COVID-19 pandemic. And, in the most-buzzed innovation, it will let a user search for a song just by humming, whistling or singing a few bars—like Shazam, but even better. My Fortune colleague Danielle Abril has more on the name-that-tune search function here.
Cruise begins testing autonomous cars without safety drivers in San Francisco. The GM-backed self-driving car company has been given approval to operate its vehicles without any driver in the car on the streets of San Francisco, the company announced. The company plans to start testing the completely driverless vehicles on roads by the end of the year. Dan Amman, the company's CEO, said, "While it would be easier to do this in the suburbs, where driving is 30–40 times less complex, our cities are ground zero for the world’s transportation crisis. This is where accidents, pollution, congestion, and lack of accessibility collide. Often quite literally." Cruise's rival Waymo has been offering a completely driverless ride-hailing service to select people in Phoenix, Arizona, since last year, and earlier this month expanded its program to a larger group of initial customers.
Arm debuts another new A.I. chip. U.K. semiconductor design firm Arm, which is in the midst of being acquired by Nvidia, has added to its lineup of computer chips designed to accelerate A.I. applications on "edge" devices such as phones. The new Ethos U-65 aims to work alongside either Arm's popular Cortex A processors, the brains found in most of the world's smart phones, or its Cortex M processors, found in many power-constrained devices such as wearables and smart speakers. The chip is what's known as a micro neural processing unit (NPU), designed to accelerate the functioning of neural networks. Most NPUs have been large chips that run in data centers. But Arm has begun miniaturizing these designs so A.I. applications can run without the need for a device to be in constant communication with a data center. The Ethos U-65 can handle real-time object recognition and facial recognition as well as tasks such as speech recognition, gesture detection and biometric recognition, according to a company blog post.
EYE ON A.I. TALENT
Data security company Avast has hired Shane McNamee as its chief privacy officer. McNamee had previously held data protection roles in the Irish government's finance department and with the Data Protection Commission of Ireland, the data privacy regulator of record for many of the world's largest technology companies in Europe.
Data-driven consulting company Kantar has appointed Alexis Nasard as its chief executive officer. Nasard, who assumes the job on December 30, has previously been CEO of shoe company Bata. Previously, he had senior executive roles at Heineken and Procter & Gamble.
Private equity and venture capital firm EQT has named Marc Brown as head of a new EQT Growth unit that will invest in fast-growing companies. Brown was previously vice president for corporate development at Microsoft, where he oversaw the tech giant's M&A activity, including more than 185 acquisitions and 80 strategic equity investments.
EYE ON A.I. RESEARCH
European Space Agency uses A.I. on a small satellite to detect clouds. The ESA says it has launched the first-ever satellite that can perform A.I. inference in space without the need to transmit data back to a server on Earth for processing. The space agency worked with companies including Intel, Ubotica Technologies, and camera-maker cosine to develop a small cube satellite about the size of a desktop computer called PhiSat-1. The satellite, which was launched onboard a rocket on September 3 from French Guyana, is now orbiting Earth at a distance of 329 miles. It will photograph the planet and send images back to the ground, and an onboard A.I. system has been trained to identify when a photographed area is obscured by clouds and to discard these images. Doing this saves about a third of the satellite's precious bandwidth and also helps preserve its power for longer, the ESA says. Here's more on the satellite from Intel, which built the computer chips that perform the A.I. inference.
FORTUNE ON A.I.
The polls are wrong. The U.S. presidential race is a near dead heat, this A.I. ‘sentiment analysis’ tool says—by Jeremy Kahn
This ace engineer powered Amazon through the COVID crisis—by Aaron Pressman
Facebook A.I. researchers push for a breakthrough in renewable energy storage—by Jeremy Kahn
GV, formerly known as Google Ventures, elevates its first Black female investing partner—by Lucinda Shen
BRAIN FOOD
A few weeks ago, the parties in the U.K. legal case Tyndaris v VWM Ltd. reached an out-of-court settlement. The settlement disappointed a lot of legal eagles who had been watching the case. That's because Tyndaris was poised to potentially set an important precedent around the idea of who, exactly, is liable when an A.I. system doesn't perform as expected and someone is harmed as a result.
The hedge fund Tyndaris said it used an A.I. system called K1 to discern shifting market sentiment from earnings reports and social media and then automatically place trades, with no human intervention. The asset management firm VWM invested in Tyndaris's A.I.-driven strategy. VWM's A.I.-managed account then suffered a large trading loss—about $22 million—and VWM refused to pay Tyndaris's fees. Tyndaris sued for its missing fees and VWM counter-sued for its losses, saying Tyndaris had misrepresented the A.I. system's capabilities.
Tom Whittaker, a lawyer with the firm Burges Salmon who has been tracking global jurisprudence around A.I., says that the law has not caught up with the ways in which artificial intelligence differs from traditional software. The closest a decision has come to addressing the issue is a case from Singapore, B2C2 v. Quoine, over the misfire of an algorithmic trading system for cryptocurrency. The court ruled that algorithms "only do what they have been programmed to do. They have no mind of their own. They operate when called upon to do so in a pre-ordained manner."
B2C2 seemed to rule out the idea, which some have proposed, that A.I. itself has legal responsibility. On this point, Whittaker says, a growing body of regulatory and legal rulings from around the world (including the U.S. Patent Office rulings mentioned here before) say that A.I. does not—and probably will never have—legal personhood.
But, as Whittaker points out, it is not clear that most A.I. systems actually behave in the way the Singaporean court says. With A.I., it may be very difficult for even the creator of such a system to know exactly how it will behave. Whittaker notes that one of the judges in the B2C2 case dissented, saying that it was unreasonable to assume the programmer of an A.I. system could anticipate every possible market circumstance that might occur and have tested the system on it.
For all the talk about taking humans out of the loop through the use of A.I., from a legal standpoint, Whittaker says liability rests firmly with humans and human judgments. "Even if you say there is no human in the loop, they can bring up the argument that someone must have done something at some point to set the system up in a certain way, and that liability rests with that person," he says. He also says that the law has yet to make a determination about which party—the company that builds an A.I. system or the company that deploys it—should be liable when A.I. goes wrong. And the law has not yet weighed in on when a harmed party would be able to claim the A.I. developer had been negligent.
"The nature of A.I. is novel and complex and there may need to be changes to the law," Whittaker says. On that, even most lawyers can probably agree.