Archive for the ‘Fortune’ Category

Getting Punk’d in Russia

Wednesday, February 24th, 2010

Ashton Kutcher was not prepared for this. When he arrived with a U.S. State Department technology delegation last week, he expected the screaming teenage girls, the journalists fighting for interviews, heck, he even expected the cold. But sitting with a group of Russian technology executives on Sunday night, the Punk’d star let loose. “When you get into a room without the Russian government controlling the room, the room becomes so vibrant!” he said. “We’ve had to fight to get people to talk openly.”

Kutcher was here, along with a handful of high profile tech execs — eBay (EBAY) CEO John Donahoe (who just launched a Russian version of the site), Cisco (CSCO) CTO Padmasree Warrior, Mozilla Foundation head Mitchell Baker, Twitter co-founder Jack Dorsey, and venture capitalist Esther Dyson — as part of a week-long diplomatic trip to get start ups, students, NGOs and even Kremlin advisors to exchange ideas on the wider uses of social networking technology. In one week, the group set out to help their Russian counterparts figure out new uses for social media, open source browsers, and online garage sales that can help modernize an economy, build a stronger civil society, and help President Dmitry Medvedev with his plans to build a Russian Silicon Valley near Moscow.

Instead, the techies, business people (and a movie star), discovered that sunny Silicon Valley-style optimism and the belief that knowledge conquers all, is a hard brand to franchise in Russia.

The Kremlin is in the midst of a much-publicized innovation push: Its top brass traveled to MIT recently to ask scientists how to build up Russia’s innovation economy. But, as chief strategist Vladislav Surkov recently made clear in an interview with a Russian newspaper, modernization will be “authoritarian modernization.” That is, it will have a distinctly Russian flavor, and it would bring none of the political reforms that would create the kind of breathing space so crucial to Silicon Valley.

So what would it bring? Well, beer pong, which Howcast CEO Jason Liebman taught to high schoolers in Novosibirsk. And altered expectations. “My image of ‘being in Siberia’ is forever changed by this trip … this place has real potential,” tweeted eBay CEO John Donahoe, who had just been cajoled by fellow delegate and Twitter co-founder Jack Dorsey into starting his own Twitter account.

Such connection-building and knowledge-sharing with Russian counterparts are all part of Secretary of State Hillary Clinton’s hazily defined notion of 21st-century statecraft, according to Jared Cohen, a member of Clinton’s planning staff who put together this trip and others like it. (Cohen described the trip in a tweet as: “facilitating peeps-2-peeps”). And when the delegation met with Surkov and Arkady Dvorkovich, another Kremlin advisor on modernization, they talked excitedly about e-governance and transparency. “By no means are we perfect on these issues, and there was no posturing, or lecturing, or badgering of any kind,” White House CTO Aneesh Chopra told me. “Russia is not an aid project,” Cohen says. Instead, this was one more push of the reset button.

But the delegates quickly discovered that Russia’s famous technological talent often finds few outlets at home. Because of the twin heritage of the Soviet criminalization of independent commercial activity and the brazen plunder of the 1990s, businessmen are reviled to this day and entrepreneurship isn’t mythologized in Russia as it is in the United States.

So when Shervin Pishevar, CEO of Social Gaming Networks, asked a group of high schoolers in Novosibirsk how many of them wanted to start businesses, very few hands went up. “It’s as if they thought it was impossible,” he says. And because Russian society has traditionally been very atomized, the strong mentorship community of Silicon Valley is missing, too.

Social atomization – and, consequently, a cementing of old mentalities — was something the group struggled with so frequently as to make it cliché. At the Sunday night meeting with Russian tech leaders, Cohen and Kutcher were baffled to hear that the tech companies had never sat down with Russian NGOs – most of them antediluvian operations – to explain what technological tools were available to them. The problem was lost in translation: Cohen and Kutcher were there to help Russians build a civil society, while everything in Russia was designed to break it down. The Russian techies in the room instantly protested that sitting down with NGOs would compromise the neutrality of their technologies, a banner behind which they hide from the ever-encroaching hand of the state.

And, by the end of the trip, the delegates who had not yet done business in Russia ran up against the full reality of the state of corruption in Russia — a recent study showed that one in three Russians had paid bribes, totaling as much as $318 billion annually, and Transparency International ranked the country 146th out of 180 in its corruption ranking — in their last meeting of the trip, with anti-corruption NGOs. The corruption fighters painted a grim picture of bribe-taking, wanton arrests, and intimidation. Kutcher, who had been broadcasting the panel live from his iPhone, was apparently not expecting such darkness. As he shut off the live stream, you could hear him groan, “That was the most brutal meeting…”

Esther Dyson, who has been a prolific investor in Russia for a decade, was one of the few not surprised, though she says she tried to let the more optimistic delegates form their own views. “They kept saying I was so negative. But I’m as idealistic as anyone. I’m just realistic about the challenges,” she told me. (“You have to be an optimist to keep investing here for 20 years,” she added.)

As a final illustration of Russian reality, the group went from the horror show of the anti-corruption meeting to a lavish farewell dinner sponsored by Digital Sky Technologies, an investor in Facebook and Zynga, which is widely believed to have close ties to the Kremlin. Everyone sat at different tables and, for the first time the whole trip, there was no substantive discussion.

“Well,” says Dyson, hesitating. “The fish was delicious.”

Getting Punk’d in Russia [FORTUNE]

Ukraine Online

Monday, December 21st, 2009

When the village of Syn’kiv in Western Ukraine first got a computer with web access in 2003, the local priest encouraged people to come out for the grand opening of the library’s Internet center. It had been paid for by the U.S. Embassy in Kiev, and the web access, which was free, was a novelty for this hamlet of 1,100 people.

Since then, however, the residents of Syn’kiv, a town known for its early tomatoes, have used the web to find out more precise local weather forecasts as well as the breeds of tomato best suited for the area and how to grow and fertilize them. In the last six years, this knowledge has helped Syn’kiv double its tomato crop.

Syn’kiv was part of a larger U.S. Embassy push to hook Ukraine, which has one of the lowest Internet penetration rates in Europe, to the web.

(Lately, American embassies in the region have been promoting the web as a tool of democracy. In Azerbaijan, for example, the embassy sponsors a project that shows Azeri youth how to be citizen journalists through YouTube. But locals are finding they don’t exactly have online freedom of speech: Two bloggers, who held a mock government press conference with a person in a donkey costume, are now in jail.)

In Ukraine, the U.S. Embassy managed to get over 140 local libraries online, and now they have help from the Bill and Melinda Gates Foundation, which last year committed over $25 million to wire up 1,100 more in a project called Bibliomist, or Book Bridge. The project is currently in the rollout stage and, last month, nearly two hundred Ukrainian libraries applied to get their own Internet centers.

Books and more online

Each winning library, those that are ready and have the local authorities’ support (because they are, after all, footing future maintenance bills), will get up to 15 up-to-date computers, training for its staff, and networking equipment that will allow as many as seven local branches to use the same connection. Microsoft (MSFT) is also donating over $4 million worth of software. (Conveniently, all the donated computers are required to run on the Windows Vista operating system.)

“In Ukraine, libraries are seen as cultural institutions,” says Colin Guard, who runs Bibliomist through IREX, an international education non-profit. “They are seen as warehouses where culture is kept but little is known about the other services a library can provide to improve the quality of life, like finding jobs or answering healthcare questions.”

The hope, Guard says, is to encourage people to use the wealth of information on the Internet to improve governance, improve business and lifestyle, and thereby jumpstart development. So far, the lucky plugged-in libraries have taken a series of initiatives, like posting government regulations and budgets online, or helping blind journalists improve their work.

Sometimes, however, the real victories are in the individual discoveries that Ukrainians make online, like the doctor from Kirovograd who used his library’s Internet connection to diagnose his patient with a rare genetic disorder called Brugada Symptom that he hadn’t been able to find in any Russian or Ukrainian textbooks. The patient survived.

Ukraine online: you’ve got crop reports! [Fortune]

What on earth is happening with “Russia’s GPS”?

Tuesday, December 1st, 2009

Late last month Moscow celebrated the birthday of Father Frost, the Russian iteration of Santa Claus, with a new-fangled announcement: Father Frost’s retinue would move through the holiday skies aided by Glonass, the Russian answer to GPS.

Eagerly waiting children could track his movement online, while he could simultaneously improve his gift-giving efficiency. “Now Father Frost can be sure,” his press release said. “He can monitor his helpers through the Internet, even when he himself leaves for another city.”

It is unclear, however, how well Glonass will be able to aid Team Frost. The Glonass network (much like America’s Global Positioning System, a Cold War defense and missile-tracking system that was eventually opened to civilian use) was envisioned as an equal competitor to its U.S. counterpart.

But Glossnass recently has suffered some technical setbacks.

Here’s why: For complete coverage of the earth’s surface, Glonass, which stands for Global Navigation Satellite System, requires 24 satellites evenly distributed among three orbital planes. This includes three in-orbit spares – one per plane – in case anything goes wrong.

Russian “birds” fall flat

Currently, however, there are only 19 in orbit and just 15 of them are operational. (Three broke down just around the time of the war in Ossetia, in 2008, and, last week, the Russian space agency announced it was taking yet another satellite out of commission for technical reasons.) And because 18 operational satellites are needed for 100% coverage of Russian territory, the current Glonass configuration falls just short of that milestone, too, providing spotty coverage even at home. Coverage around the world is still more fractured and unreliable.

This, of course, makes it hard for Glonass to compete with the GPS system, which is fully operational and has nearly spotless coverage almost everywhere in the world.

In the system’s early years — when the Soviet space mission and the Cold War arms race were in full throttle — almost 50 satellites of various quality and life-span were lobbed into space. By the time the Soviet Union collapsed, however, there were still only 12 functional satellites in orbit.

The system was briefly operational in the mid-1990s, but quickly fell into disrepair as the Russian economy spun out of control and budget revenues plummeted. Meanwhile, the GPS system, developed for American military use, was made available to the public free of charge in 1993, without any major setbacks.

Then in 2001, a young and energetic new president, Vladimir Putin, sought to revive Glonass.

Putin’s pet project?

The project’s rebirth came just as the consumer GPS market was taking off and was tinged with both geopolitical and nationalistic considerations, not all of which made sense. On one hand, it was perfectly rational for Russia to not want to rely on the United States – an wary ally at best — for its military navigation systems.

And Russia was not the only country trying to wean itself off its American satellite dependency. At the time, China and Europe were working on similar GPS analogs. Europe later froze the development of its system, Galileo, because it didn’t seem profitable, but China and Russia, two countries capable of pouring vast sums of money into giant state ventures, plowed ahead.

Putin made Glonass his pet project, insisting that he wanted a system that could compete with GPS on an equal footing. For this he brought out the big guns. Legislative projects were launched that would require all government vehicles to have Glonass compatible systems. Parliament proposed tariffs on imports of GPS devices to encourage Glonass’s development at home.

And, in the oil-boom years, money was no object: The Kremlin allocated almost half a billion dollars to Glonass in 2006-2007, and, in 2008, Putin pledged even more. That year, he alloted an additional $2.6 billion, promising two big three-satellite launches in September and December 2009.

And then reality intervened.

In addition to those dud satellites whirling around space, the three satellites scheduled to be launched in September were found to have an unspecified “malfunction.” Still, Putin, now prime minister, came out on September 28 and publicly charged one of his deputies to make sure all six made it into space “by the end of this year.” But, less than a month later, the three satellites scheduled to be launched in December went back to the manufacturer. It is now December, and not one of the six satellites scheduled to be launched before the new year will make it up there on time.

And so Glonass hobbles on with 15 satellites, a full nine satellites short of the number needed for 100% worldwide coverage. This, of course, has forced a subtle shift in the Kremlin’s rhetoric. While Putin and current President Dmitry Medvedev continue to insist on an impeccable satellite navigation system in the near future, the point now, they say, is to compliment, rather than compete with, the GPS system. Two systems, they argue, are better than one. “Undoubtedly, GPS provides much better service,” says Sergey Filipov, a spokesman for Sitronics, which partners with the government in developing microchips for Glonass-reading devices. “We’re not trying to compete. The thinking is that it should be a double system.”

Experts suggest that this is in fact the case: the more satellites are in view of a navigation device equipped to read both GPS and Glonass signals, the more accurately it can pinpoint location and avoid blocks like trees or skyscrapers.

And Russia’s navigation project received a shot in the arm recently when India joined the project and agreed to pay for one satellite launch.

Where are the cool phones and gadgets?

But Glonass still faces an uphill battle. Not only are there too few satellites to provide reliable service, but Glonass devices are still in the earliest stages of development. In a country full of the most elaborately conspicuous cell phones, there are no mobile devices with Glonass readers.

The Glonass handheld market is equally underdeveloped. They are not user-friendly, and are bulky and far more expensive than their GPS counterparts.

Nor are foreign satellite navigation companies jumping into the Glonass market. Some make specialized agricultural equipment that can read both GPS and Glonass signals, but Garmin, (GRMN) the largest producer of consumer GPS devices, still does not make a dual-signal device. “Since Glonass isn’t fully functional yet, it’s too early to say if our current production handhelds will be compatible,” says a company spokesman. (Garmin controls some 60% of the North American market.)

“Will the system be realized, or not? That’s the big question,” says Anna Lepetukhina, a technology analyst with Troika Dialog. “Sooner or later, we’ll see it used more in the military-industrial sector. Will we see a large consumer market for Glonass? Probably not.”

But this has not stopped Putin from trumpeting whatever small successes Glonass offers. According to one of Putin’s deputies, Glonass has made police work easier and has even helped Russian police departments save on gas because police chiefs can keep a close eye on their ranks. Now, Putin joked, officers “have to visit their girlfriends on the bus now and not in official cars.”

What on earth is happening with “Russia’s GPS”? [Fortune]

Crashing Russia’s all-cash culture

Tuesday, October 27th, 2009

Because building an entire banking sector from scratch in 20 years makes for some wild swings, Russians put their trust in cash. In Russia, the first thing you do when you get your monthly salary is withdraw it all, and pay for everything with tangible, fungible cash.

You buy your groceries with cash, pay for your winter boots with cash; heck, you even pay for real estate in cash. But how do you use cash for amorphous things like Internet service or to prepay your cell phone?

In the last ten years, a rapidly growing shadow banking system has sprouted up in Russia to service these small payments by turning cash into electronic currency, or e-money. And now that this sector has reached the $1 billion mark – and this in a crisis – and has expanded to include 10 million customers, e-money business owners are getting antsy about government regulation.

Their problem? There isn’t any. However paradoxical, this is an understandable fear in a country where government pressure on businesses is becoming more and more suffocating, and where legal gray areas can be used to bring a business to its knees. (Often, this also depresses the market valuation of these companies.)

And now that the Kremlin and the Russian Central Bank have noticed these legal blind spots, the need to mold regulation right is even more urgent for the various e-money players. This month, they have banded together to form the Electronic Money Association (AED) in order to lobby the Russian parliament (the Duma) for clear – and favorable – legal definitions of their business.

The association’s goal is regulation based on the flexible and nuanced European model, which outlines six types of e-commerce entities. To date, Russia has zero.

In fact, e-commerce is barely described in the Russian legal system, partially because of the natural lag time before law catches up to fast-moving technology, partially because there is no consensus here on how to regulate this industry. For instance, because e-commerce uses the language of banking – checks, currency – some in Russia have suggested that it be brought under the preexisting banking framework. But these companies are no banks.

Here’s how it works: Say you want to pay your web provider for a month’s worth of service. You take your cash and feed it into one of 200,000 ATM-like terminals scattered all over the country. (Qiwi, which owns the largest network of these, is a member of AED.) Then, depending on which company you use, you either direct your money for an on-the-spot payment to your provider (WM Transfer Ltd.’s WebMoney service is popular in Russia), or fill up a virtual “wallet” from which the funds can be distributed later to merchants of your choosing. (Search engine Yandex operates a digital wallet called Yandex.Money payment system. For more on Yandex, see “Google’s Russian Threat.”)

WebMoney and Yandex.Money account for more than 90% of the e-money market and account for hundreds of thousands of daily transactions, some for sums as low as $7, to, say, play a round of World of Warcraft.

These are small transactions, usually topping out at $250 for bigger-ticket items like air or train tickets, but the need for them is evident: WebMoney, which controls 54% of the Russian e-money market and deals with several currencies (including a gold-based one), has doubled in size every year since its creation. Overall market growth rates have slowed a bit but given that Russian internet penetration is still low and growing faster than anywhere in Europe, it only means there’s room to expand.

And as more Russians get online, they’re bound to turn to the web to handle some of their basic transactions. First, there are the convenience and trust factors. Banks in Russia have been known to vanish overnight with the savings of millions, yet opening an account in one is extremely difficult. (“My 18 year-old son tried to open an account and the bank demanded to see a real-estate deed – for a debit card!” says Peter Darahvelidze, an executive with WebMoney.)

Furthermore, in a country sprawling across six time zones and bound together with an infirm infrastructure, even getting to a bank might be difficult. E-money services, points out Mikhail Mamuta of the National Partnership of Microfinance Market Participants, “are also a form of economic development and fighting poverty.”

E-money has also become extremely popular with Russian and international merchants (Telecom company Skype gets most of its Russian payments through Yandex.Money) because it cuts down on fraud and false “charge-backs” (when a customer declares a credit-card purchase to have been made without his knowledge), which are rampant in Russia.

E-money companies have put in place various measures to deal with this. Yandex.Money, for example, does not allow a charge back if there was no technical problem with the transaction. (Some players in this business – like some terminal operators and mobile micropayment companies — are less than legitimate and have raised suspicions of money laundering. It is yet another reason that the bigger players are looking for careful regulation.)

But as the sector continues to grow, some natural foes have started to trouble the waters. Many banks, for example, are reluctant to see any inroads made into their market share yet who are too unwieldy and uninterested to build any e-commerce interfaces of their own. The Association of Russian Banks, for instance, viciously fought recent reforms targeting payment terminals.

And certain conservative members of parliament have begun speaking openly about the illegality of e-money, demanding that these companies apply for banking licenses – which means would require them to have at least 5 million euros in assets.

Rather than wait for the anvil to fall, however, the Electronic Money Association has taken a proactive approach, pushing for legislation that will spell out, exactly, what kinds of legal entities companies like WebMoney are. To that end, they have formed a working group in the Duma to hammer out legislation and to resolve some key dilemmas. Who, for example, will be allowed to participate in this sector: just banks? Just internet companies? Both? And who will regulate the industry: an industry association or the Russian Central Bank? What kind of documentation will a virtual system need to provide this regulator? Will the new regulation significantly raise operating costs?

The law is rumored to be passed before the new year, but, “so far, there is no ready text,” says Maria Panferova, a member of the Duma working group. “The goal at this stage is to work out the conceptual framework of the legislation.”

Victor Dostov, an e-money pioneer and head of the Association, hopes that this legislation will pass more smoothly this time and that banks recognize that this is not a natural niche for them.

“These companies collect all the crumbs, make a roll out of them, and then put it in the bank,” Dostov says. “The bank still gets the money.” He points out that Deutsche Bank and Citibank tried to get in on this business in the United States and then quickly figured out that it wasn’t worth the hassle. “No one is interested in killing the hen that lays – well, maybe not the golden egg, but the little silver eggs,” he says, adding. “At the end of the day, we just want to sleep soundly at night.”

Crashing Russia’s all-cash culture [Fortune]

To Catch a Cyberthief

Monday, September 14th, 2009

Hacking used to be so quaint. In the old days (the early 90s) the villains typically were attention-seeking computer geeks infecting computers with viruses that were a headache for consumers and tech departments to debug.

Today’s cybercriminals are out to inflict real harm: They can be commercial entities breaking into competitors’ records, or international crime rings stealing valuable data like credit card numbers and email passwords.

And because such cyber-heists extremely lucrative – some estimates put the size of this underground economy at $1 trillion –more players are getting into the game, developing increasingly sophisticated ways to crack into computer systems and exploit their ill-gotten gains. Viruses alone can take trillions of forms, and spam, the most popular way of infiltrating computers, accounts for some 90% of all e-mail traffic.

All of which makes it harder for computer security companies to stay one step ahead of these evolving threats. “Clearly, it’s an arms race,” says Enrique Salem, CEO of Symantec, (SYMC) the world’s largest software security company. “They’re always trying to find ways of getting around our technology, so we’ve got to keep innovating” – and getting inside the criminal mind.

Symantec, based in Cupertino, Calif., continues to deploy a set of tried and true tools to keep digital risks at bay: Last year the company generated 1.6 million automated signatures –signatures are virus-specific cures– to block known attacks. Its software also automatically blacklists and filters bad programs and sites. And the company applies advanced behavioral technology to monitor and shut down malicious software just before it’s about to do something really harmful, thereby minimizing the impact on a corporate computer system or even an individual user.

But even this aggressive, multi-pronged approach isn’t enough to stop the bad guys. Blacklists are not fast enough to catch brand-new malware; “white lists” of safe software are too restrictive. And cybercriminals now generate malware automatically so that every visitor to, say, a bad website gets a slightly different version of the bug, making individualized cures highly impractical, if not impossible.

“Most of it is generated by virus-generating software,” says Steve Trilling, a former stand-up comedian and software engineer who runs Symantec’s STAR team, short for Security Technology and Response. “There are now many tens of millions of viruses out there, and you just can’t keep scaling at that rate.”

New protection codenamed “Mr. Clean”

And so last week Symantec launched the latest version of its Norton products with yet another layer of protection called Quorum (known internally as “Mr. Clean”). Quorum works in much the same way that the Zagat’s restaurant guide does, by relying on reputation. If you want to download a program that very few people in the world have, Quorum will recommend you stay away from it but leaves the ultimate choice to the consumer. After all, the program could be a randomly generated virus – or a highly-customized piece of software.

To prevent the program from blocking good software (what’s known as false positives), Quorum checks in with the back end and, if a program checks out, Quorum will not block it and slow the user down.

Symantec is able to calculate reputation with such confidence because, for the past year, 29 million Symantec customers have been using a Quorum prototype and automatically relaying data to the Symantec mother ship, where it is anonymized and crunched.

This provides Symantec with a large database from which to compute a program’s standing – and, with nearly 60 million Symantec customers around the world, that database is going to grow at a fast clip once the software is released on a wider market. And because the calculation is fully automated and based on a massive data base, hackers will have a difficult time distorting the real number of people who have downloaded their software.

This program also takes up less space and so can be run on mobile devices, which have yet to come under extensive attack. (Though the prospect is increasingly likely, industry watchers say, the mobile-device market is still too fragmented to be profitable for security companies; nor do people make many financial transactions on their phones – yet- making cell phones and BlackBerrys less likely to be attacked.)

Thwarting the Cult of the Dead Cow

But even cutting-edge software and a massive global infrastructure staffed by 17,500 employees cannot stop every single threat. To cut down on future breaches Symantec tries to educate school kids on smart web-browsing techniques. And it works with Congress and international governments to create a uniform legal standard to bring cybercriminals to justice. (The famous case of the ILOVEYOU Bug, in 2000, illustrates the need. When Symantec brought forward information pinpointing the Filipino hackers behind the globally infectious virus, all charges were dropped because the Philippines have no laws banning cybercrime.)

But as the cybercrooks get ever smarter, Symantec also is devoting more resources to the digital equivalent of “black ops” – folks who spend their days attending hacker events and trolling the ‘net for secretive chat rooms where the bad guys boast of their conquests and tactics. Every summer, for instance, hackers gather in Las Vegas for the Defcon Conferences – and Symantec goes, too.

One year, as a hacking group named Cult of the Dead Cow presented their new hacking techniques by lobbing informational discs (and hunks of raw meat) into the audience, Symantec reps ran them back to the hotel where a team of Symantec programmers sat churning out signatures, hobbling the tactics almost as soon as they were introduced.

It may sound a bit surreal, but CEO Salem tries to put the war on computer crimes into perspective: “You’re never going to eliminate crime,” he says. “You’re never going to eliminate cybercriminals and that’s going to be an ongoing challenge.” But to paraphrase an old saw: you have to think like a cyber criminal to catch a cybercriminal.

To Catch a Cyberthief [FORTUNE]

Zen and the Art of Security

Monday, May 25th, 2009

“Relaxation” and “airport security” aren’t terms that normally go hand in hand. But the folks at IDEO, Silicon Valley’s favorite design shop, are trying to make passenger screening a blissful experience. The idea? If normal travelers feel less stressed, it will help Transportation Safety Administration suss out fidgeting, nervous bad guys.

IDEO and the TSA last year teamed up to create an anxiety-free security zone at Baltimore-Washington International Airport. Fliers are treated to ambient sounds, soothing murals, and blue lighting. A special IDEO-designed training program helps security officers give off a calming vibe.

And the spa-ification of airport security continues: Indianapolis International Airport now is adopting parts of IDEO’s scheme. But some authorities are skeptical, because of both the cost of outfitting all 450 of the nation’s airports and the lack of much evidence that “Zen security” actually works. “Is this security,” asks safety expert P.J. Crowley, “or security theater?”

Tech Rx for Health Care

Monday, March 16th, 2009

Tucked deep in the stimulus bill passed in February is a $19 billion bundle of grants and incentives designed to wake up America’s technologically sleepy health-care industry. The hope is that hospitals will swap paper records for digital files, enabling doctors and nurses to easily update records, share health information with others in the industry, and even diagnose diseases remotely—while saving the system billions.

It all sounds great: I Imagine your doctor using her smartphone to call up your records or checking on your recovery via Twitter. The economy would benefit too, as big companies like IBM and HP deploy employees to help hospitals go high tech.

It won’t be an easy upgrade, though. The system is made up of tens of thousands of doctors’ practices, hospital chains, and insurers, all of which operate on different software platforms that don’t talk to one another—if computers are used at all. Older physicians are often cool to the idea of ditching their charts and prescription pads; getting them onboard will take time and training.

Despite the challenges, some hospitals are starting to go paperless. Caritas Christi Health Care, a nonprofit Catholic medical organization overseen by the Boston Archdiocese, last year launched a $70 million, four-year tech face-lift. What started out as a cost-cutting measure—the struggling six-hospital chain has amassed more than $270 million in debt—has turned into a grand experiment in modernizing health care. Caritas CEO Ralph de la Torre aims to completely digitize the hospital, using a centralized computer system to store patient records and track and manage admissions. “It’s going to be one collective brain that encompasses all a patient’s needs,” says de la Torre, a surgeon who was hired last year to run Caritas.

De la Torre in turn hired Todd Rothenhaus, a computer scientist and practicing ER physician, and John Morey, who helped create Microsoft Outlook. Using developers and off-the-shelf medical software from specialty firms such as eClinicalWorks, Rothenhaus and Morey have helped create a system called PatientKeeper that allows hospital employees and doctors to access records from any of the hospital’s facilities via computers or smartphones. (Twenty doctors in a pilot group are already using PatientKeeper. Early feedback is positive, Morey says.) Each patient, identified by a number to protect his privacy, will be traceable across all specialists, procedures, tests, and medications.

This unified system will help the hospital manage a patient’s stay, and it should prove to be a statistical gold mine: Caritas can analyze the records for trends that can help administrators figure out what kinds of drugs and vaccines to have on hand (say, in a flu outbreak), pinpoint safety issues (why is there a spike in falls in this unit?), and even make staffing decisions, based on patient traffic.

Medical economist Jeffrey C. Bauer of ACS Healthcare Solutions says too few hospitals are embracing tech the way Caritas is. He estimates that most hospitals spend only 2% of their budgets on information technology on average, but probably need to spend “double to triple” that amount to make their operations more efficient.

If de la Torre succeeds in computerizing Caritas, he’ll probably improve profits and patient care alike: When a patient calls for an appointment, for example, the admissions staff could use the online system to find a physician with an immediate opening who accepts the patient’s insurance. Getting patients help right away makes their conditions easier—and less expensive—to treat.

Google’s Russian Threat

Tuesday, February 10th, 2009

Fortune Magazine) — Arkady Volozh, CEO of Yandex, Russia’s largest online-search company, is playing with a set of nesting dolls (for real!). Instead of the traditional folk decoration, though, these figurines are outfitted with the names of Internet companies doing business in Russia. The first and biggest doll has Yandex emblazoned on its belly in bold red and black letters. A smaller doll bears the Google logo, followed by one representing Rambler, Russia’s other homegrown search engine. “We were charitable with these dolls,” Volozh says. “If we had been honest, we would have left the second doll blank and made Google third. We’re that much bigger than them.”

Having conquered search in Russia, Yandex is setting its sights on the U.S. The Moscow-based company is opening Yandex Labs not far from Google (GOOG, Fortune 500) headquarters in Mountain View, Calif. Volozh says he’ll staff the office with 20 or so engineers to index Web pages for a Russian audience and keep abreast of technology developments that bubble up in Silicon Valley. Volozh certainly will be going after some of the same tech superstars Google recruits, but some wonder whether Yandex has grander ambitions, including a play for some of Google’s U.S. market share. One possibility: grabbing part of the growing market for image searches.

Volozh denies that he’s chasing Google. In fact, Yandex, which got its start in the late 1980s, long before Google founders Sergey Brin and Larry Page had even met, arguably has the superior search technology. Yandex’s search algorithm is rooted in the highly inflected and very peculiar Russian language. Words can take on some 20 different endings to indicate their relationship to one another, and “while this makes the language precise,” says MIT linguistics professor David Pesetsky, “it makes search extremely difficult.” Google fetches the exact word combination you enter into the search bar, leaving out the slightly different forms that mean similar things. Yandex has found a way to catch them all.

As a result, Yandex controls 56% of the search market in Russia (compared with Google’s 23%), boasts an impressive two-thirds of all revenue from so-called search ads, and draws more than three billion hits a month. Last month Firefox dropped Google as its default search engine in Russia in favor of Yandex, putting Yandex on track to conquer still more of the market.

And Yandex (short for “yet another indexer”) continues to innovate. While some of its services are similar to offerings available in the U.S. (blog rankings, online banking), it also has developed some applications that only Russians can enjoy, such as an image search engine that eliminates repeated images, a portrait filter that ferrets out faces in an image search, and a real-time traffic report that taps into users’ roving cellphone signals to monitor how quickly people are moving through crowded roads in more than a dozen Russian cities. Says noted venture capitalist and Yandex board member Esther Dyson: “What I love about Volozh is that he’s never been complacent.”

Volozh has aspired to run a transparent operation from the beginning, stocking his board with reputable folks like Dyson and forgoing the favor-seeking that is common in Moscow. Indeed, the fact that the SEC gave Yandex the green light to list on Nasdaq says a lot, according Nasdaq managing director Paulina McGroarty. “It shows that the management was ready to show the world that they have that stamp of approval,” she says.

Changing plans
The financial crisis derailed Yandex’s IPO plans, but it has helped the company stay clear of some of the Kremlin-connected oligarchs who had wanted to buy in: Industrialist Alisher Usmanov was set to take a 10% stake in Yandex, but the meltdown of the Russian market has forced the controversial businessman to rethink his investments.

Volozh says his company is cash-flow positive, and as a result it doesn’t need to raise more money right now. Yandex’s growth certainly has been impressive: Revenue has doubled every year since 2000, and last year reported sales topped $300 million. According to Volozh, Yandex has turned down repeated buyout offers from Yahoo (YHOO, Fortune 500), Microsoft (MSFT, Fortune 500) and Google. (The companies declined to comment.) Analysts value the business at about $6 billion.

While Yandex may not be interested in serving American customers, Google is definitely eager to increase market share in Russia, which boasts the fastest-growing Internet population in Europe. Google struggled when it first began making Russian-language search available in 2001, largely because its technology failed to take into account the complexities of Russian grammar. Its market share for much of the decade hovered at a tepid 6%. Then, in 2006, Google hired a few dozen Russian engineers to address the language issues, and its market share jumped instantly. With its huge potential for growth, says Alla Zabrovskaya, who heads public relations for Google in Moscow, “Russia is a pivotal country for Google.”

As the market leader, Yandex has momentum on its side, but Volozh believes the company’s real edge in Russia is its local roots. “We can joke in Russian, which Google can’t do,” Volozh told Fortune during a meeting at Yandex’s California offices. Two years ago, for example, Yandex hosted a televised live chat with then-President Vladimir Putin. The company insisted that the President answer users’ most popular questions and forgo the Kremlin’s usual scripted format. “When did you have sex for the first time?” was one of the most popular, and Putin had to respond. “I don’t remember, but I certainly remember the last,” he quipped. “I can pinpoint it down to the minute.”

The home-team advantage should help Yandex maintain its market share in Russia, but it also puts a lot of pressure on the company. If Yandex were to stumble, that would be a disappointment to Russia, which, despite its highly educated population, has few successful homegrown tech companies to root for. And Volozh might even have to order a new set of nesting dolls.