Steve Thomas - IT Consultant

Further confirmation that the esports market is booming amid the pandemic comes today with the news that esports ‘total solutions provider’ VSPN (Versus Programming Network) has raised what it describes as ‘close to’ $100 million in a Series B funding round, led by Tencent Holdings . Other investors that participated in the round include Tiantu Capital, SIG (Susquehanna International Group), and Kuaishou. The funding round will go towards improving esports products and its ecosystem in China and across Asia.

Founded in 2016 and headquartered in Shanghai, VSPN was one of the early pioneers in esports tournament organization and content creation out of Asia. It has since expanded into other businesses including offline venue operation.

In a statement, Dino Ying, CEO of VSPN (see also our exclusive interview) said: “We are delighted to announce this latest round of funding. Thanks to policies supporting Shanghai as the global center for esports, and with Beijing, Chengdu, and Xi’an expressing confidence in the development of esports, VSPN has grown rapidly in recent years. After this funding round, we look forward to building an esports research institute, an esports culture park, and further expanding globally. VSPN has a long-term vision and is dedicated to the sustainable development of the global esports ecosystem.”

Dino Ying, VSPN CEO

Dino Ying, VSPN CEO

Mars Hou, general manager of Tencent Esports, commented: “VSPN’s long-term company vision and leading position in esports production are vital for Tencent to optimize the layout of the esports industry’s development.”

We had a hint that Tencent might invest in VSPN when, in March this year, Mark Ren, COO of Tencent Holdings, made a public statement that Tencent would provide more high-quality esports competitions in conjunction with tournament organizers like VSPN.

As we observed in August, Tencent, already the world’s biggest games publisher, that it would consolidate Douyu and Huya, the previously competing live-streaming sites focused on video games.

In other words, Tencent’s investment into VSPN shows it is once again doubling-down on the esports market.

This Series B funding round comes four years after VSPN’s 2016 Series A funding round, which was led by Focus Media Network, joined by China Jianteng Sports Industry Fund, Guangdian Capital, and Averest Capital.

Now, VSPN has become the principal tournament organizer and broadcaster for PUBG MOBILE international competitions, and China’s top competitions for Honor of Kings, PUBG, Peacekeeper Elite, CrossFire, FIFA, QQ Speed, and Clash Royale. This will tally-up 12,000 hours of original content. The company has partnered with over 70% of China’s esports tournaments.

In March, another huge esports player, ESL, joined forces with Tencent to become a part of the PUBG Mobile esports circuit for 2020.

In addition to its core esports tournament and content production business, VSPN has branded esports venues in Chengdu, Xi’an, and Shanghai. In May, VSPN launched its first overseas venue, V. SPACE in Seoul, South Korea.

And even offline events are coming back. VSPN hosted the first large-scale esport event with offline audiences in August this year. And the LOL S10 event will open 6,000 tickets. However, all tournaments will operate under strict COVID-19 prevention measures and approval processes by the Chinese government, and not all esports events are allowing offline audiences. In the main, only high-level ones are approved.

VSPN said it will continue to focus on building an esports short-form video ecosystem, improving the quality of esports content creation, and reaching more users via different channels. VSPN currently houses more than 1,000 employees in five business divisions.

Huawei announced earnings results today showing that its growth has slowed significantly this year as the Chinese telecom equipment and smartphone giant said its “production and operations face significant challenges.”

While Huawei did not specify trade restrictions in its brief announcement, the company has been hit with a series of commercial trade restrictions by the U.S. government. The full impact of those policies haven’t been realized yet, because U.S. government has granted Huawei several waivers, including one that will delay the implementation of a ban on commercial trade with Huawei and ZTE until May 2021.

During the first three quarters of 2020, the Chinese telecoms and smartphone giant reported revenue of 671.3 billion yuan (about USD $100.7 billion), an increase of 9.9% year-over-year, with a profit margin of 8%. The company said those results “basically met expectations,” but it represents a huge drop from its performance during the same period last year, when Huawei reported 24.4% growth with a profit margin of 8.7%.

Huawei is a privately-held company and its announcement did not break down its results in terms of smartphone or telecoms equipment sales, or other detail.

The company wrote that “as the world grapples with COVID-19, Huawei’s global supply chain is being put under pressure and its production and operations face significant challenges. The company continues to do its best to find solutions, survive and forge forward, and fulfill its obligations to customers and suppliers.”

Other U.S. restrictions include one that would ban Huawei from using U.S. software and hardware in certain semiconductor processes, forcing it to find other sources for chips.

In addition to the U.S., Huawei is also facing scrutiny by other countries, including the United Kingdom, which is planning to implement a new poicy that will bar telecoms from buying new 5G equipment from Huawei to ZTE and require them to remove any parts from those companies that’s already been installed in UK 5G networks by 2027.

Replacing Huawei equipment also presents costly challenges for telecoms, because Huawei is one of the biggest suppliers in the world. Last month, the U.S. Federal Communications Commission said it would cost $1.837 billion to replace Huawei and ZTE networking equipment, with rural telecom networks facing the most financial pressure.

But 2020 has had a few bright spots for Huawei. In July, a report from Canalys found that Huawei overtook Samsung as the leader in global smartphone shipments during the second quarter of 2020, a major milestone because it marked the the first time in nine years that Apple and Samsung didn’t take the top spot on Canalys’ charts. This was partly because smartphone shipments in general have been hurt during the COVID-19 pandemic, but Huawei was helped by sales within China, its domestic market.

This has been a long time coming, but the OpenStack foundation today announced that it is changing its name to ‘Open Infrastructure Foundation,” starting in 2021.

The announcement, which the foundation made at its virtual developer conference, doesn’t exactly come as a surprise. Over the course of the last few years, the organization started adding new projects that went well beyond the core OpenStack project and renamed its conference to the ‘Open Infrastructure Summit.’ The organization actually filed for the ‘Open Infrastructure Foundation’ trademark back in April.

Image Credits: OpenStack Foundation

After years of hype, the open-source OpenStack project hit a bit of a wall in 2016, as the market started to consolidate. The project itself, which helps enterprises run their private cloud, found its niche in the telecom space, though, and continues to thrive as one of the world’s most active open-source projects. Indeed, I regularly hear from OpenStack vendors that they are now seeing record sales numbers — despite the lack of hype. With the project being stable, though, the Foundation started casting a wider net and added additional projects like the popular Kata Containers runtime and CI/CD platform Zuul.

“We are officially transitioning and becoming the Open Infrastructure Foundation,” long-term OpenStack Foundation executive president Jonathan Bryce told me. “That is something that I think is an awesome step that’s built on the success that our community has spawned both within projects like OpenStack, but also as a movement […], which is [about] how do you give people choice and control as they build out digital infrastructure? And that is, I think, an awesome mission to have. And that’s what we are recognizing and acknowledging and setting up for another decade of doing that together with our great community.”

In many ways, it’s been more of a surprise that the organization waited as long as it did. As the foundation’s COO Mark Collier told me, the team waited because it wanted to sure that it did this right.

“We really just wanted to make sure that all the stuff we learned when we were building the OpenStack community and with the community — that started with a simple idea of ‘open source should be part of cloud, for infrastructure.’ That idea has just spawned so much more open source than we could have imagined. Of course, OpenStack itself has gotten bigger and more diverse than we could have imagined,” Collier said.

As part of today’s announcement, the group is also adding four new members at Platinum tier, its highest membership level: Ant Group, the Alibaba affiliate behind Alipay, embedded systems specialist Wind River, China’s Fiberhome (which was previously a Gold member) and Facebook Connectivity. To become a Platinum member, companies have to contribute $350,000 per year to the foundation and must have at least 2 full-time employees contributing to its projects.

“If you look at those companies that we have as Platinum members, it’s a pretty broad set of organizations,” Bryce noted. “AT&T, the largest carrier in the world. And then you also have a company Ant, who’s the largest payment processor in the world and a massive financial services company overall — over to Ericsson, that does telco, Wind River, that does defense and manufacturing. And I think that speaks to that everybody needs infrastructure. If we build a community — and we successfully structure these communities to write software with a goal of getting all of that software out into production, I think that creates so much value for so many people: for an ecosystem of vendors and for a great group of users and a lot of developers love working in open source because we work with smart people from all over the world.”

The OpenStack Foundation’s existing members are also on board and Bryce and Collier hinted at several new members who will join soon but didn’t quite get everything in place for today’s announcement.

We can probably expect the new foundation to start adding new projects next year, but it’s worth noting that the OpenStack project continues apace. The latest of the project’s bi-annual releases, dubbed ‘Victoria,’ launched last week, with additional Kubernetes integrations, improved support for various accelerators and more. Nothing will really change for the project now that the foundation is changing its name — though it may end up benefitting from a reenergized and more diverse community that will build out projects at its periphery.

This has been a long time coming, but the OpenStack foundation today announced that it is changing its name to ‘Open Infrastructure Foundation,” starting in 2021.

The announcement, which the foundation made at its virtual developer conference, doesn’t exactly come as a surprise. Over the course of the last few years, the organization started adding new projects that went well beyond the core OpenStack project and renamed its conference to the ‘Open Infrastructure Summit.’ The organization actually filed for the ‘Open Infrastructure Foundation’ trademark back in April.

Image Credits: OpenStack Foundation

After years of hype, the open-source OpenStack project hit a bit of a wall in 2016, as the market started to consolidate. The project itself, which helps enterprises run their private cloud, found its niche in the telecom space, though, and continues to thrive as one of the world’s most active open-source projects. Indeed, I regularly hear from OpenStack vendors that they are now seeing record sales numbers — despite the lack of hype. With the project being stable, though, the Foundation started casting a wider net and added additional projects like the popular Kata Containers runtime and CI/CD platform Zuul.

“We are officially transitioning and becoming the Open Infrastructure Foundation,” long-term OpenStack Foundation executive president Jonathan Bryce told me. “That is something that I think is an awesome step that’s built on the success that our community has spawned both within projects like OpenStack, but also as a movement […], which is [about] how do you give people choice and control as they build out digital infrastructure? And that is, I think, an awesome mission to have. And that’s what we are recognizing and acknowledging and setting up for another decade of doing that together with our great community.”

In many ways, it’s been more of a surprise that the organization waited as long as it did. As the foundation’s COO Mark Collier told me, the team waited because it wanted to sure that it did this right.

“We really just wanted to make sure that all the stuff we learned when we were building the OpenStack community and with the community — that started with a simple idea of ‘open source should be part of cloud, for infrastructure.’ That idea has just spawned so much more open source than we could have imagined. Of course, OpenStack itself has gotten bigger and more diverse than we could have imagined,” Collier said.

As part of today’s announcement, the group is also adding four new members at Platinum tier, its highest membership level: Ant Group, the Alibaba affiliate behind Alipay, embedded systems specialist Wind River, China’s Fiberhome (which was previously a Gold member) and Facebook Connectivity. To become a Platinum member, companies have to contribute $350,000 per year to the foundation and must have at least 2 full-time employees contributing to its projects.

“If you look at those companies that we have as Platinum members, it’s a pretty broad set of organizations,” Bryce noted. “AT&T, the largest carrier in the world. And then you also have a company Ant, who’s the largest payment processor in the world and a massive financial services company overall — over to Ericsson, that does telco, Wind River, that does defense and manufacturing. And I think that speaks to that everybody needs infrastructure. If we build a community — and we successfully structure these communities to write software with a goal of getting all of that software out into production, I think that creates so much value for so many people: for an ecosystem of vendors and for a great group of users and a lot of developers love working in open source because we work with smart people from all over the world.”

The OpenStack Foundation’s existing members are also on board and Bryce and Collier hinted at several new members who will join soon but didn’t quite get everything in place for today’s announcement.

We can probably expect the new foundation to start adding new projects next year, but it’s worth noting that the OpenStack project continues apace. The latest of the project’s bi-annual releases, dubbed ‘Victoria,’ launched last week, with additional Kubernetes integrations, improved support for various accelerators and more. Nothing will really change for the project now that the foundation is changing its name — though it may end up benefitting from a reenergized and more diverse community that will build out projects at its periphery.

Alibaba Group said today it will spend about $3.6 billion to take a controlling stake in Sun Art, one of China’s largest big-box and supermarket chains. After the transaction is complete, Alibaba Group will own 72% of Sun Art.

As in other countries, COVID-19 lockdowns increased demand for online food orders in China, drawing in shoppers who had still preferred to buy groceries in person. Even though lockdowns have lifted, many have continued to purchase online. Alibaba’s new investment in Sun Art will be made by acquiring 70.94% of equity interest in A-RT Retail Holdings from France-based Auchan Retail International. A-RT Retail holds about 51% of the equity interest in Sun Art.

After the deal closes, Alibaba will consolidate Sun Art in its financial statements. Sun Art chief executive officer Peter Huang has also been named its new chairman.

Alibaba first invested in Sun Art back in 2017, spending about $2.88 billion to pick up a 36.16% share in the chain, whose brands include RT-Mart, as part of its “New Retail” strategy.

“New Retail” aims to blur the lines between online and offline commerce through steps like turning physical stores in pickup points for online orders, integrating supply chains and enabling shoppers to use the same digital payment methods on its e-commerce platforms and in brick-and-mortar stores.

All of Sun Art’s 484 physical retail locations in China are now integrated into Alibaba’s Taoxianda and Tmall Supermarket platforms for groceries, as well as Ele.me and Cainiao, its on-demand food demand delivery app and logistics businesses, respectively. For customers, this means faster deliveries and larger selections, while giving Alibaba more sources of data it can use to improve its supply chain and business operations.

Other e-commerce companies are taking a similar approach to integrating offline and online grocery shopping, including Alibaba’s main rival JD, which has similar alliances with supermarket group Yonghui and Walmart.

In press statement, Alibaba chairman and chief executive officer Daniel Zhang said, “As the COVID-19 pandemic is accelerating the digitization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience.”

Nvidia is in the process of acquiring chip designer Arm for $40 billion. Coincidentally, both companies are also holding their respective developer conferences this week. After he finished his keynote at the Arm DevSummit, I sat down with Arm CEO Simon Segars to talk about the acquisition and what it means for the company.

Segars noted that the two companies started talking in earnest around May 2020, though at first, only a small group of executives was involved. Nvidia, he said, was really the first suitor to make a real play for the company — with the exception of SoftBank, of course, which took Arm private back in 2016 — and combining the two companies, he believes, simply makes a lot of sense at this point in time.

“They’ve had a meteoric rise. They’ve been building up to that,” Segars said. “So it just made a lot of sense with where they are at, where we are at and thinking about the future of AI and how it’s going to go everywhere and how that necessitates much more sophisticated hardware — and a much more sophisticated software environment on which developers can build products. The combination of the two makes a lot of sense in this moment.”

The data center market, where Nvidia, too, is already a major player, is also an area where Arm has heavily focused in recent years. And while it goes up against the likes of Intel, Segars is optimistic. “We’re not in it to be a bit player,” he said. “Our goal is to get a material market share and I think the proof to the pudding is there.”

He also expects that in a few years, we’ll see Arm-powered servers available on all of the major clouds. Right now, AWS is ahead in this game with its custom-built Gravitron processors. Microsoft and Google do not currently offer Arm-based servers.

“With each passing day, more and more of the software infrastructure that’s required for the cloud is getting ported over and optimized for Arm. So it becomes a more and more compelling proposition for sure,” he said, and cited both performance and energy efficiency as reasons for cloud providers to use Arm chips.

Another interesting aspect of the deal is that we may just see Arm sell some of Nvidia’s IP as well. That would be a big change — and a first — for Nvidia, but Segars believes it makes a lot of sense to do so.

“It may be that there is something in the portfolio of Nvidia that they currently sell as a chip that we may look at and go, ‘you know, what if we package that up as an IP product, without modifying it? There’s a market for that.’ Or it may be that there’s a thing in here where if we take that and combine it with something else that we were doing, we can make a better product or expand the market for the technology. I think it’s going to be more of the latter than it is the former because we design all our products to be delivered as IP.”

And while he acknowledged that Nvidia and Arm still face some regulatory hurdles, he believes the deal will be pro-competitive in the end — and that the regulators will see it the same way.

He does not believe, by the way, that the company will face any issues with Chinese companies not being able to license Arm’s designs because of export restrictions, something a lot of people were worried about when the deal was first announced.

“Export control of a product is all about where was it designed and who designed it,” he said. “And of course, just because your parent company changes, doesn’t change those fundamental properties of the underlying product. So we analyze all our products and look at how much U.S. content is in there, to what extent are our products subject to U.S. export control, U.K. export control, other export control regimes? It’s a full-time piece of work to make sure we stay on top of that.”

Here are some excerpts from our 30-minute conversation:

TechCrunch: Walk me through how that deal came about, actually, kind of what was the timeline for you?

Simon Segars: I think probably around May, June time was when it really kicked off. We started having some early discussions. And then, as these things progress, you suddenly kind of hit the ‘Okay, now let’s go.’ We signed a sort of first agreement to actually go into due diligence and then it really took off. It went from a few meetings, a bit of negotiation, to suddenly heads down and a broader set of people — but still a relatively small number of people involved, answering questions. We started doing due diligence documents, just the mountain of stuff that you go through and you end up with a document. [Segars shows a print-out of the contract, which is about the size of two phone books.]

You must have had suitors before this. What made you decide to go ahead with this deal this time around?

Well, to be honest, in Arm’s history, there’s been a lot of rumors about people wanting to acquire Arm, but really until SoftBank in 2016, nobody ever got serious. I can’t think of a case where somebody actually said, ‘come on, we want to try and negotiate a deal here.’ And so it’s been four years under SoftBank’s ownership and that’s been really good because we’ve been able to do what we said we were going to do around investing much more aggressively in the technology. We’ve had a relationship with Nvidia for a long time. [Rene Haas, Arm’s president of its Intellectual Property Group, who previously worked at Nvidia] has had a relationship with [Nvidia CEO Jensen Huang] for a long time. They’ve had a meteoric rise. They’ve been building up to that. So it just made a lot of sense with where they are at, where we are at and thinking about the future of AI and how it’s going to go everywhere and how that necessitates much more sophisticated hardware — and a much more sophisticated software environment on which developers can build products. The combination of the two makes a lot of sense in this moment.

How does it change the trajectory you were on before for Arm?

Mobileye’s computer vision technology will be used in a new premium electric vehicle called Zero Concept from Geely Auto Group, one of China’s largest privately-held automobile manufacturers. Mobileye’s owner Intel made the announcement today at the Beijing Auto Show. Zero Concept is produced by Lynk & Co., the brand formed as a joint venture between Geely Auto and Volvo Car Group, and uses Mobileye’s SuperVision driving-assistance system.

Intel also announced that Mobileye and Geely Auto have signed a long-term, high-volume agreement for advanced driver-assistance systems that means more Geely Auto vehicles will be equipped with Mobileye’s computer vision technology.

In a post, Mobileye chief executive officer and Intel senior vice president Amnon Shashua wrote that the deal is the first time “Mobileye will be responsible for the full solution stack, including hardware and software, driving policy and control.”

He added “it also marks the first time that an OEM has publicly noted Mobileye’s plan to provide over-the-air updates to the system after deployment. While this capacity has always been in our repertoire, Geey and Mobileye want to assure customers that we can easily scale their driving-assistance features and keep everything up to date across the car’s lifetime.”

Based in Israel, Mobileye was acquired by Intel in 2017 for $15.3 billion. Its technology and services are used in vehicles from automakers including BMW, Audi, Volkswagen, Nissan, Honda and General Motors, and includes features that warn drivers about issues like blind spots, potential lane departures, collision risks and speed limits.

Geely Auto’s parent company is Zhejiang Geely Holding Group, also the parent company of Volvo Car Group. In 2019, Geely Auto Group says its brands sold a total of more than 1.46 million units. China is one of the fastest-growing electric vehicle markets in the world, and even though sales were hurt by the COVID-19 pandemic, government policies, including consumer subsidies and investment in charging infrastructure, are expected to help its EV market recover.

Over the past decade, the dynamic between Chinese and United States tech companies has undergone dramatic shifts. Once seen as a promising market for American companies, that narrative flipped as China’s tech innovation and investment power became increasingly evident, and the expanding reach of the Chinese Communist Party’s cybersecurity regulations fueled concerns about data privacy. For years, however, there still seemed to be room for a flow of ideas between the two countries. But that promise has eroded, against the backdrop of the tariff wars and, most recently, the Trump administration’s executive orders against TikTok and WeChat.

The U.S. Commerce Department was set to enforce the shutdown of TikTok and WeChat in the United States last weekend, but both apps got reprieves. In WeChat’s case, a U.S. district court judge issued a temporary stay against the ban, while TikTok owner ByteDance is in the process of finalizing a complicated deal with Oracle.

The TikTok and WeChat imbroglios underline how much America’s perception of Chinese tech has evolved. Not only is TikTok the first consumer app by a Chinese company to gain a major foothold in the United States, but it’s also had a significant impact on popular culture there. This would have been almost unimaginable just ten, or even five, years ago.

China as a target for expansion

For a long time, China, with its population of 1.4 billion people, was seen as a lucrative market by many foreign tech companies, even as government censorship began to expand. In 2003, China’s Ministry of Public Security launched the Golden Shield Project, commonly referred to as the Great Firewall of China, the apparatus that controls what overseas sites and apps Chinese internet users have access to. At first the Great Firewall mainly targeted access to Chinese-language sites with anti-Chinese Communist Party content. Then it began blocking more services.

A laptop computer screen in Beijing shows the homepage of Google.cn, 26 January 2006, a day after its debut in mainland China where the US online search engine launched a new service after agreeing to censor websites and content banned by the Beijing authorities (AFP PHOTO/Frederic J. BROWN)

A laptop computer screen in Beijing shows the homepage of Google.cn, 26 January 2006, a day after its debut in mainland China where the US online search engine launched a new service after agreeing to censor websites and content banned by the Beijing authorities (AFP PHOTO/Frederic J. BROWN)

Even as the Communist Party’s online censorship became more stringent, many American internet companies were still keen to expand into China. Perhaps the most prominent example from that era is Google, which added Chinese support to Google.com in 2000.

Though access to the search engine was spotty (according to a 2010 timeline from the Financial Times, this may have been because of “extensive filtering” by China’s licensed internet service providers) and it was briefly blocked in 2002, Google continued launching new services targeted to users in China, including a simplified Chinese language version of Google News.

Then in 2005, the company announced plans to set up a research and development center in China. The next year, it officially launched Google.cn. In order to do so, Google agreed to exclude search results on sensitive political topics, causing controversy.

Despite its concessions to the Chinese government, Google’s relationship with China began deteriorating, foreshadowing what other foreign tech companies, particularly those offering online services, would deal with when they tried to enter China. After being blocked on and off, access to YouTube was completely cut off in 2009 after footage was uploaded that appeared to show the brutal beatings of Tibetan protestors in Lhasa. That year, China also blocked access to Facebook and Twitter.

In January 2010, Google announced it was no longer willing to censor searches in China and would withdraw from the country if necessary. It also began redirecting all search queries on Google.cn to Google.com.hk.

But the company continued its R&D operations there and maintained a sales team. (In 2018, an investigation by The Intercept found that Google had started to work on a censored search engine for China again, code-named “Project Dragonfly”). Other big U.S. tech companies also continued courting China, even though their services were blocked there.

For example, Facebook chief executive Mark Zuckerberg made several trips to China in the mid-2010s, including a 2015 visit to Tsinghua University, a leading research university. Zuckerberg had joined the university’s board the previous year, and delivered several public talks in Mandarin. Speculation mostly focused on Facebook’s efforts to get a version of its service into China, but China-based companies were, and continue to be, one of Facebook’s most important sources of advertising revenue.

Chinese government policies designed to help domestic companies become more competitive also began to have an impact and by 2015, many American tech firms needed to find a local partner to enter China. The narrative that China needed American tech innovation began to turn on its head.

A shifting dynamic

Since Google Play was also blocked in China, that led the way for the rise of third-party Android app stores, including Chinese internet giant Tencent’s My App.

But Tencent’s most influential product is WeChat, the messenger that launched in 2011. Two years later, Tencent added mobile payments by integrating it with TenPay. In less than five years, WeChat became a vital part of daily life for hundreds of millions of users in China. WeChat Pay and Alibaba’s Alipay, its main competitor, have revolutionized payments in China, where about one-third of consumer payments are now cashless, according to research by think tank CGAP.

BEIJING, CHINA - SEPTEMBER 19: A Chinese customer uses his mobile to pay via a QR code with the WeChat app at a local market on September 19, 2020 in Beijing, China. (Photo by Kevin Frayer/Getty Images)

BEIJING, CHINA – SEPTEMBER 19: A Chinese customer uses his mobile to pay via a QR code with the WeChat app at a local market on September 19, 2020 in Beijing, China. (Photo by Kevin Frayer/Getty Images)

In 2017, Wechat launched “mini-programs,” that allows developers to create “apps within an app” that run on WeChat. The program took off quickly, and within less than two years, Tencent said it had reached one million mini-programs and 200 million daily users. Even Google quietly launched its own mini-program in 2018.

Despite its ubiquity in China, WeChat’s international presence is relatively small, especially when compared to other messengers like WhatsApp. WeChat claims more than one billion monthly active users in total, but only an estimated 100 million to 200 million are international users. Many are members of the Chinese diaspora who use it to keep in touch with family and associates in mainland China since many other popular messengers, including WhatsApp, Facebook Messenger and Line, are blocked there.

In the meantime, another company was gaining ascendancy, and would eventually succeed where Tencent hadn’t.

Founded in 2012 by Microsoft veteran Zhang Yiming, ByteDance had its own early run-ins with the Chinese government. The first app it launched, a social media platform called Neihan Duanzi that reached 200 million users by 2017, was shut down the next year after the National Radio and Television Administration accused it of hosting inappropriate content. Despite that early setback, ByteDance continued to grow, releasing apps like Toutiao, one of China’s top news aggregators.

But the product it is best known for launched in 2016. Called Douyin in China, ByteDance always planned to expand the short video-sharing app overseas. In an interview with Chinese tech news site 36Kr, Zhang said, “China is home to only one-fifth of the world’s internet users. If we don’t expand globally, we are bound to lose to our peers eyeing the rest of the world” — both echoing and contravening the viewpoint of U.S. internet companies that had seen China as a crucial market.

TikTok, the international version of Douyin, was launched in 2017. That year, ByteDance also bought Musical.ly, a lip-syncing app popular with teens, in a deal worth between $800 million to $1 billion. ByteDance merged Musical.ly with TikTok, consolidating their audiences.

By early 2019, TikTok had become popular among teens and people in their early 20s, though many older people still struggled to understand its appeal. But as TikTok was turning into a mainstay of Gen Z culture, it also began to face scrutiny by the U.S. government. In February 2019, the Federal Trade Commission fined TikTok $5.7 million for violating children’s privacy laws.

Then a few months later, the U.S. government reportedly began a national security review of TikTok, marking the first in a chain of events that led to Trump’s August executive order against the company, and ByteDance’s new, but confusing, agreement with “trusted technology partner” Oracle.

The impact of China’s 2017 cybersecurity law

The United States is not the only country where TikTok has been deemed a national security threat. In June, it was among 59 apps developed by Chinese companies banned in India for threatening the country’s “national security and defence.” It’s also under investigation by French data security watchdog CNIL over how it handles user data.

While some cybersecurity experts believe that TikTok’s data collection practices are similar to other social media apps that depend on targeted ads for revenue, the heart of the issue is a Chinese law, implemented in June 2017, that requires companies to comply with government requests for data stored in China. ByteDance has insisted repeatedly it would resist attempts by the Chinese government to access U.S. users’ data, which it says is stored in the United States and Singapore.

“Our data centers are located entirely outside of China, and none of our data is subject to Chinese law,” TikTok wrote in a October 2019 statement. “Further, we have a dedicated technical team focused on adhering to robust cybersecurity policies, and data privacy and security practices.”

In the same post, TikTok also addressed concerns that it censors content, including videos about the Hong Kong protests and China’s treatment of Uighurs and other Muslim groups. “We have never been asked by the Chinese government to remove any content and we would not do so if asked. Period,” the company said.

WeChat and TikTok’s uncertain future in the U.S.

But as a Chinese company, ByteDance is ultimately still beholden to Chinese laws. Earlier this week, ByteDance said it will retain an 80% stake in TikTok, after selling a total of 20% to Oracle and Walmart. Then Oracle executive vice president Ken Glueck said that Oracle and Walmart would make their investment upon the creation of a new entity called TikTok Global. He added that ByteDance will have no ownership in TikTok Global.

This creates more questions, but doesn’t answer the most pressing one: how close will the U.S. version of TikTok remain to ByteDance, and will it still be subject to the Chinese cybersecurity regulations that cause so much concern?

Around the same time that ByteDance’s proposed deal with Oracle and Walmart was announced, a U.S. district court judge temporarily stayed the nationwide ban on WeChat, as part of a case brought against the U.S. government by the U.S. WeChat Users Alliance, a nonprofit organization initiated by attorneys who want to preserve access to WeChat for users in America. In her opinion, Judge Laurel Beeler wrote, “while the government has established that China’s activities raise significant national-security concerns—it has put in scant little evidence that its effective ban of WeChat for all U.S. users addresses those concerns.”

On its site, the U.S. WeChat Users Alliance said it believes Trump’s August 6 executive order against WeChat “violates many provisions of the U.S. Constitution and the Administrative Procedure Act.” Furthermore, the group argued that a WeChat ban would “severely affect the lives and the work of millions of people in the U.S.” who use WeChat to talk to family, friends and business associates in China.

While WeChat is heavily censored, users have often found ingenious ways to bypass bans on topics deemed sensitive by the Chinese government. For example, people used emojis, PDFs and fictional languages like Klingon to share an interview with Ai Fen, the director of Wuhan Central Hospital’s emergency department and one of the first whistleblowers to sound the alarm about COVID-19 even as the government attempted to stifle information about the disease.

The growing divide

The U.S. government’s actions against TikTok and WeChat are taking place against an increasingly fraught political landscape. Huawei and ZTE were first identified as potential threats to U.S. national security in a 2012 bipartisan House committee report, but legal actions against Huawei, one of the world’s biggest telecom equipment suppliers, escalated under the Trump administration. These include criminal charges brought against Huawei by the Department of Justice, and the arrest and indictment of chief financial officer Meng Wanzhou.

The U.S. government’s actions in the name of national security doesn’t just affect the Chinese government or China’s biggest companies. It also impacts individuals, as in the case of increasingly stringent visa restrictions for Chinese students.

At the same time, the Great Firewall has become more restrictive under President Xi Jinping’s regime and China’s cybersecurity laws are becoming increasingly invasive, granting the government even more access to citizens’ data. Increasingly sophisticated surveillance technology has been used to monitor Uighurs and other ethnic minorities, and a crackdown on VPN services that began escalating in 2017 is making it harder for people in China to circumvent the Great Firewall.

When compared to these social issues, the future of a video-sharing app might seem relatively minor. But it underscores one of the most unsettling developments in the relationship between U.S. and China over the past ten years.

In a prescient 2016 Washington Post article titled “America wants to believe China can’t innovate. Tech tells a different story,” Emily Rauhala wrote “China’s tech scene is flourishing in a parallel universe.” TikTok’s deep cultural impact gave a glimpse of what is possible when two parallel universes connect. Along with geopolitical tensions, the furore over TikTok and WeChat uncovers something else: that the exchange of ideas and information between people in two of the world’s most powerful countries is becoming increasingly restricted due to circumstances beyond their control.

In a new report, Amnesty International says it’s found evidence of EU companies selling digital surveillance technologies to China — despite the stark human rights risks of technologies like facial recognition ending up in the hands of an authoritarian regime that’s been rounding up ethnic Uyghurs and holding them in “re-education” camps.

The human rights charity has called for the bloc to update its export framework, given that the export of most digital surveillance technologies is currently unregulated — urging EU lawmakers to bake in a requirement to consider human rights risks as a matter of urgency.

“The current EU exports regulation (i.e. Dual Use Regulation) fails to address the rapidly changing surveillance dynamics and fails to mitigate emerging risks that are posed by new forms of digital surveillance technologies [such as facial recognition tech],” it writes. “These technologies can be exported freely to every buyer around the globe, including Chinese public security bureaus. The export regulation framework also does not obligate the exporting companies to conduct human rights due diligence, which is unacceptable considering the human rights risk associated with digital surveillance technologies.”

“The EU exports regulation framework needs fixing, and it needs it fast,” it adds, saying there’s a window of opportunity as the European legislature is in the process of amending the exports regulation framework.

Amnesty’s report contains a number of recommendations for updating the framework so it’s able to respond to fast-paced developments in surveillance tech — including saying the scope of the Recast Dual Use Regulation should be “technology-neutral”, and suggesting obligations are placed on exporting companies to carry out human rights due diligence, regardless of size, location or structure.

We’ve reached out to the European Commission for a response to Amnesty’s call for updates to the EU export framework.

The report identifies three EU-based companies — biometrics authentication solutions provider Morpho (now Idemia) from France; networked camera maker Axis Communications from Sweden; and human (and animal) behavioral research software provider Noldus Information Technology from the Netherlands — as having exported digital surveillance tools to China.

“These technologies included facial and emotion recognition software, and are now used by Chinese public security bureaus, criminal law enforcement agencies, and/or government-related research institutes, including in the region of Xinjiang,” it writes, referring to a region of north-west China that’s home to many ethnic minorities, including the persecuted Uyghurs.

“None of the companies fulfilled their human rights due diligence responsibilities for these transactions, as prescribed by international human rights law,” it adds. “The exports pose significant risks to human rights.”

Amnesty suggests the risks posed by some of the technologies that have already been exported from the EU include interference with the right to privacy — such as via eliminating the possibility for individuals to remain anonymous in public spaces — as well as interference with non-discrimination, freedom of opinion and expression, and potential impacts on the rights to assembly and association too.

We contacted the three EU companies named in the report for a response.

At the time of writing only Axis Communications had replied — pointing us to a public statement, where it writes that its network video solutions are “used all over the world to help increase security and safety”, adding that it “always” respects human rights and opposes discrimination and repression “in any form”.

“In relation to the ethics of how our solutions are used by our customers, customers are systematically screened to highlight any legal restrictions or inclusion on lists of national and international sanctions,” it also claims, although the statement makes no reference to why this process did not prevent it from selling its technology to China.

On the domestic front, European lawmakers are in the process of fashioning regional rules for the use of ‘high risk’ applications of AI across the bloc — with a draft proposal due next year, per a recent speech by the Commission president.

Thus far the EU’s executive has steered away from an earlier suggestion that it could seek a temporary ban on the use of facial recognition tech in public places. It also appears to favor lighter touch regulation which defines only a sub-set of ‘high risk’ applications, rather than imposing any blanket bans. Additionally regional lawmakers have sought a ‘broad’ debate on circumstances where use of remote use of biometric identification could be justified, suggesting nothing is yet off the table.

President Donald Trump said has has given his stamp of approval “in concept” on the Oracle bid for the U.S. operations of the wildly popular social media app, TikTok, according to a report from Bloomberg.

According to the Bloomberg report Trump said, “I have given the deal my blessing,” as he left the White House for a campaign rally in North Carolina on Saturday.

“I approved the deal in concept,” Trump reportedly said.

The spinout of TikTok’s U.S. operations from its parent company Bytedance was something that Trump administration had demanded on the grounds that the company’s data handling policies and popularity in the U.S. posed a national security threat.

The President’s push to sever the applications ties to China also followed TikTok users’ alleged prank that turned what was supposed to be a triumphal rally for the President in Oklahoma City into a Presidential campaign embarrassment that cost the job of Trump’s campaign manager, Brad Parscale.

That said, the U.S. has been looking to curtail the operations of several Chinese technology companies on the grounds that they pose security threats to the U.S. Indeed, the Presidential order that demanded TikTok’s spinout also called for the discontinuation of the U.S. operations of the messaging service WeChat, which is owned by Tencent — one of China’s largest technology companies. And the U.S. government has also put a target on the telecommunications and networking technology developer, Huawei.

With the TikTok deal set to be approved, a new company called TikTok Global will be created as part of the deal, according to statements from Treasury Secretary, Steven Mnuchin, earlier this week.

Bloomberg reported that Trump said the new company would be headquartered in Texas, would hire as many as 25,000 people and would contribute $5 billion toward U.S. education.

The bulk of TikTok’s U.S. operations are now in Los Angeles.

As the Trump Administration continues its push to disrupt the operations of Chinese tech companies in the U.S., strange bedfellows are uniting to voice opposition to the deal.

On Friday, the American Civil Liberties Union and the head of Facebook’s Instagram subsidiary both came out with statements opposing the proposed transaction.

“This order violates the First Amendment rights of people in the United States by restricting their ability to communicate and conduct important transactions on the two social media platforms,” said Hina Shamsi, director of the American Civil Liberties Union’s National Security Project, in a statement on Friday.

And the dragnet against Chinese influence through ownership of U.S. technology companies has reportedly widened to include many of the top U.S. gaming companies, which have been backed (or are wholly owned) by Tencent.

All of this could be exceptionally bad for U.S. technology businesses, as Instgram’s chief, Adam Mosseri pointed out in a series of Friday tweets.

“A US ban of TikTok would be meaningful step in the direction of a more fragmented nationalized internet, which would be bad for US tech companies which have benefited greatly from the ability to operate across borders,” Mosseri wrote.

Over the past 24 hours, rumors picked up by Bloomberg, the Wall Street Journal and CNBC have put some boundaries on what a possible deal between Oracle and TikTok’s parent company ByteDance will look like.

In its current incarnation floating around the DC press corps, it appears that TikTok’s data on American users will be stored in Oracle’s cloud, with Oracle acting as a “trusted technology partner.” Oracle will have some sort of real-time source code verification duty, in which it will audit TikTok’s codebase to ensure that there aren’t “backdoors” that allow China to siphon data into its national security apparatus. ByteDance will create a new organization for its U.S. operations, which will have a board of directors approved by the U.S. government and will have a license agreement to access TikTok’s algorithms. One member of that board (at least) will come from the American national security community.

There remains a pretty yawning gap in these rumors over what the ownership of this new entity looks like, and precisely who is going to own what. Oracle is presumed to take a fairly large stake, with CNBC reporting this morning that it will get a 20% stake. Walmart apparently has broken away from its deal partner Microsoft, and is still pursuing some sort of deal engagement with the company, now with Oracle as its champion.

While President Trump has repeatedly said that a deal had to be reached by September 15, his executive order gave the parties until September 20 to hash out an agreement. Therefore, we expect a final deal to be approved — or denied outright — in the next two to three days.

Obviously, all terms are still under negotiation, and for all we know, McDonalds will end up buying the company (it’s been that kind of year).

Given what we know so far though, how did the Trump administration do in furthering its goals? The administration has repeatedly said that it wants to protect American users, particularly the young users who love TikTok, from the prying eyes of China. It also wanted to ensure that any protections would last into the future and couldn’t be changed retrospectively by, say, a more aggressive future policy implemented by China. And Trump has also said that the U.S. government should be paid for allowing the company to essentially continue to exist in the U.S. at all.

The latter point is the easiest one — U.S. government lawyers have said outright that the country can’t accept a payment for allowing a deal through, a point that Trump now appears to agree with.

So let’s head over to national security and privacy. Hosting American data on American soil helps with some jurisdictional issues of course. So-called data sovereignty laws have been popular in the European Union, China, India, Brazil and elsewhere as a means of ensuring that citizen data comports with the laws of those citizens’ countries. If the EU wants better privacy protections than America for instance, then it actually needs to “own” its own data to put its policies into place.

However, what has not been made clear is how “TikTok US” (or whatever the entity is called) will be able to take advantage of its parent company’s algorithms without actually handing American data over for processing.

The kinds of algorithms that run TikTok’s feed — like other social media feeds or Google’s search results — require real-time tuning of millions if not billions of parameters benchmarked against the quality of the user experience. For instance, users who linger on a particular video for longer than others, interact with it in specific ways, and share it are all data points that get fed into the “algorithm” to optimize exactly what each user sees in their own feeds.

This is an extraordinarily hard problem, and one that the word “algorithm” barely begins to describe. TikTok has to ingest billions of data points in real time from its app, needs to evaluate mullions of uploaded videos in real time, and needs to curate a custom stream of videos in real time for hundreds of millions of active users. That’s not an algorithm so much as a massively scaled computing system.

In the current deal framework, it sounds like “TikTok US” will supposedly “license” the underlying systems that power TikTok Global’s feeds. Yet, there has so far been zero clarity on how those algorithmic systems can tune their parameters without peering into U.S. data, or even how you can bifurcate such a system into a global half and a U.S.-only half.

One answer might be that the U.S.will just have an entirely independent algorithmic system that is tuned to the tastes of U.S. users and doesn’t take input from other global sources. That might work, although it’s an open question whether the smaller scale of TikTok US’ data will allow it to create as compelling a feed as today.

The larger issue is the pace of change in these systems. Updates to these algorithmic systems happen around the clock as engineers, product managers, data scientists and others determine ever more optimal and novel ways to improve the user experience. TikTok’s engineering team is expected to stay in China, meaning that any entity licensing those systems would have to absorb that constant avalanche of new code changes and integrate it into the U.S. codebase. Worse, those changes would have to be continuously evaluated by Oracle for backdoors — an incredibly hard engineering problem that remains by and large unsolved even if certain services offer a modicum of protection here.

Finally, building this infrastructure is not going to be easy. We haven’t heard much on how long TikTok would have to transition its systems, but it is hard to imagine that the company could rebuild its infrastructure on Oracle, add in real-time source code verification, completely separate its core machine learning algorithms into independent systems, and do all that while continuing to adapt its product to changing consumer whims in anything less than three years. One doesn’t just rebuild the code from scratch of a system used by hundreds of millions of people.

In all honesty, the rapid iterations required of a social media service will wither and die in the deal framework offered here. Which means that TikTok’s U.S. engineering efforts look all but doomed if this deal is approved.

Then there is this deal term of potentially adding an all U.S. government-approved board, with at least one director coming with a national security background. That experience isn’t unheard of in tech companies these days: Amazon just last week added former National Security Agency director Keith Alexander to its board, presumably due to the company’s expanding cloud services sales to the government.

Given that so many of the concerns expressed by the administration were around citizen privacy though, how exactly does this board structure protect privacy whatsoever? The company will essentially replace presumed Chinese surveillance with presumed American surveillance, and that’s a Pyrrhic victory in the end. We’ve heard next to nothing in these rumors about how the company can better protect user data in a more transparent fashion.

So the net-net right now is that the U.S. government isn’t going to get paid its tithe/bribe, the company’s engineering velocity is going to crater from bureaucracy, and its user data won’t have any more protections than what pretty much already exists with other social networks.

Maybe in the end, killing TikTok was the goal all along. Certainly some analysts in the DC national security community would like to see that happen. But at least from the seat over here, what a colossal failure of imagination and opportunity.

In a Wednesday filing in federal court, the United States government said that users who use or download WeChat “to convey personal or business information” will not be subject to penalties under President Donald Trump’s executive order banning transactions with the Tencent-owned messaging app.

Trump issued the executive order against WeChat on August 6, the same day he issued a similar one banning transactions with ByteDance, the parent company of TikTok, claiming national security concerns. Both orders caused confusion because they are set to go into effect 45 days after being issued, but said that Secretary of Commerce Wilbur Ross will not identify what transactions are covered until then.

With that deadline now looming at the end of this week, WeChat users in America are still uncertain about the app’s future. Though WeChat is the top messaging app by far in China, where it also serves as an essential conduit for payments and other services, the U.S. version of the app has relatively limited features. It is used by Chinese-Americans, and other members of the Chinese disapora in the U.S., to keep in touch with their family and other people in China. With other popular messaging apps, like Facebook Messenger and WhatsApp, banned in China, WeChat is often the most direct communication channel available to them.

The U.S. government’s filing (embedded below) was made as part of a request for a preliminary injunction against the executive order brought by the U.S. WeChat Users Alliance, a non-profit organization initiated by attorneys who want to preserve access to WeChat for users in the U.S. A hearing is scheduled for Thursday.

In it, attorneys from the Justice Department said the U.S. Commerce Department is continuing to review transactions and will clarify which ones are affected by Sept. 20, but “we can provide assurances that [Secretary Ross] does not intend to take actions that would target persons or groups whose only connection to WeChat is their use or downloading of the app to convey personal or business information between users, or otherwise define the relevant transaction in such a way that would impose criminal or civil liability on such users.”

But in a response (also embedded below), the U.S. WeChat Users Alliance said that the Department of Justice’s filing instead demonstrates why a preliminary injunction is necessary. “Having first failed to articulate any actual national security concerns, the administration’s latest ‘assurances’ that users can keep using WeChat, and exchange their personal and business information, only further illustrates the hollowness and pre-textual nature of the Defendants’ ‘national security rationales.'”

The U.S. WeChat Users Alliance filed for the injunction on August 21. In an open letter published on its site, it said a complete ban of WeChat “will severely affect the lives and the work of millions of people in the U.S. They will have a difficult time talking to family relatives and friends back in China. Countless people or businesses who use WeChat to develop and contact customers will also suffer significant economic losses.”

The group also believes that the executive order “violates many provisions of the U.S. Constitution,” and the Administrative Procedure Act.