Posts Tagged ‘Technology’

The Future of Chatroulette

Wednesday, October 27th, 2010

The first obituary for Chatroulette, a Web site that randomly pairs strangers for video chats, came in June, when Salon proclaimed, “you can’t build an empire on dicks.” Chatroulette’s combination of randomness, anonymity, and video was irresistible to men who were dying to shed their pants—and they were driving other people away. At one point, one in ten Chatroulette encounters was not safe for work. Andrey Ternovskiy, the site’s eighteen-year-old founder, was reported to be doing battle with this relentless horde of flashers; there was even talk of his having developed penis-detection algorithms to thwart them. Which is why, last week, Gawker used the headline “R.I.P. Chatroulette”: “The defections have been fairly steady since last winter, as you can see from the rough traffic statistics from Quantcast and Compete,” two Web analytics companies. Quantcast estimates that U.S. traffic to Chatroulette is only a quarter of what it was at the height of its faddish popularity.

Ternovskiy, who keeps a low profile online and in the press, insists that his site’s demise has been greatly exaggerated. “Gawker is like an annoying fly,” he told me on Tuesday evening, in the same Moscow café where we first met, on a similarly chilly, drizzly night in March, while I was reporting on Ternovskiy and Chatroulette for The New Yorker. He had spent several months in the United States—he was wearing the tech-geek uniform of T-shirt, jeans, and a waterproof fleece jacket—and was back in Russia temporarily to file his application for an O1 “special persons” visa. Sure, users left Chatroulette with the fading hype, but Ternovskiy says his site still has five hundred thousand daily users, according to Google Analytics, down from a high of two million—the same rate of decline as estimated by Quantcast. Still, he said, “How can you be dead when your revenue has doubled?”

The answer was lazy, simple, and ingenious—in other words, pure Ternovskiy. He started redirecting pantless visitors to an adult Web site owned by Penthouse*, and their computers would forever be blocked from Chatroulette. At first, Ternovskiy and his colleagues were banning a hundred thousand users a day, but now, he says, the flasher rate is down to one in two hundred—and the adult Web site pays for the referrals, giving Ternovskiy’s company, at least for the time being, a healthy revenue stream.

Ternovskiy’s crusade against lewd behavior on Chatroulette began in early September, shortly before he had to return to Moscow,. He had frittered away the summer, riding his bike around San Francisco, travelling to New York, Las Vegas, and Washington, D.C., and alienating everyone he knew in the technology business, including potential investors. “I threw them out right away,” he said. It’s not something he regrets, he says, since he did not expect Chatroulette would grow and was afraid he’d get squeezed out of his own company. In Silicon Valley, Ternovskiy said, “They look at any new thing and say, ‘This is the new Facebook!’ or, ‘This is the new Google!’ That, or, ‘It’s dead.’ ” His only regret is his tactics. “I told a lot of people exactly what I thought of them right to their face,” which Ternovskiy called a Russian trait. “I’ve definitely become more Americanized since then.”

Instead of improving Chatroulette, Ternovskiy tinkered with some new ideas—a site using crowdsourcing “so that lots of people all build one thing” and another one called Pagedice that uses similar principles as Chatroulette to randomly display the most popular pages on the Web. He got Kirill Gura, an eighteen-year-old Russian immigrant whom Ternovskiy had befriended online, to join him in Palo Alto. When Ternovskiy realized he had a lot to get done before returning to Moscow, they worked round the clock, sleeping in shifts in the one bed in Ternovskiy’s apartment. “I had to sleep a lot to keep Kirill motivated,” Ternovskiy says, barely able to suppress a laugh.

“I’m lazy,” he told me. “But I am not worried about my future. I know what it will look like. It will be disorganized, things won’t always work. I will always radically change my direction, which will give me momentum to do something until I get bored of it. I’ll never build the perfect company, like Apple. Whatever I build will be this half-broken thing, Russian-style.”

On September 6th, Ternovskiy took off for Moscow with only his iPad, his laptop, and some underwear in a backpack, leaving important passwords and financial data necessary for his visa application back in his California apartment. As a result his stay in Russia—and the visa process—have dragged on. “I’m in exile here,” he said as we walked out into the rainy night. “But if people insist that I live in America”—something that he says he wants to do, but that his parents sometimes push too hard for—“I’ll come back and live here just to spite them.”

Andrey Ternovskiy on the Future of Chatroulette [TNY]

Russia’s New Privatization

Friday, June 4th, 2010

It wasn’t supposed to be so cold in Moscow this late in May, which is why Dutch architect Rem Koolhaas arrived wearing only slacks and a T-shirt. He stood on stage with a slate-gray fleece blanket clumsily draped over his lanky frame, making him look like the superhero that the crowd — a who’s who of the Russian artistic and media elite — already believed him to be.

Koolhaas was gracing the opening of the Strelka (or “Arrow”) Institute, a new design school, housed in a stylishly restored old factory on an island in the Moscow River, with the ambitious goal of offering a transformative push to Russian architecture. Strelka is but the latest example in a larger crop of similar ventures. Frustrated with the tepid pace of traditional university education in Russia, private investors are dropping serious money on some unorthodox methods to tap into the intellectual harvest of the world beyond the country’s borders.

Koolhaas stood by patiently as the (private) funders and architects of the space — a sternly swanky Dutch-inspired compound with a cozy bar decked out like a vintage furniture store — spoke about Strelka’s mission to educate and inspire a new way of thinking about architecture, design, media, and urban planning in Russia.

Strelka’s position is that “in Russia there is a serious issue in terms of [architecture] education,” Koolhaas, still wearing his fleece cape, told me after he clambered down from the stage and made the rounds of the audience. “Of course, I’m not in a situation where I can say whether it’s true or not, but I see the same situation with education in general.” The star architect had been brought on to help Strelka design a curriculum for young professionals in the architecture and design fields that would bring them up to speed with the industries elsewhere and train them to bring the cutting edge to Russia.

It’s an experiment increasingly embraced, in a variety of fields, by Russians who are ill-served by an aged and slow-moving university system combining the worst elements of old and new Russia. The schools are still stocked with Soviet-era administrators, cloaked in unbudging tradition, prey to antediluvian ways of thinking, and marred by massive corruption, with students buying everything from a place on the class roster to a passing grade. (Just last month, a lecturer at Moscow State University, Russia’s most prestigious university, was filmed taking a million-ruble bribe to grant a student a spot in her department — chaired, incidentally, by the professor’s father.) Reform may be finally in the air, but its pace is glacial and uneven. Instead of waiting for universities to catch up, a handful of private initiatives are taking matters into their own hands, educating and training a hungry Russian populace in everything from modern art to data analysis.

Strelka is the youngest of the lot. Funded by three new-media moguls, its goal is to supplement the classical education Russian architects receive at old temples of the trade like the Moscow Architectural Institute, which traces its lineage back to 1749. Students at the old schools are trained to sketch and draw and plan and make, but rarely to think conceptually about their craft. “Russians are naive about questions of architecture and design,” says Ilya Oskolkov-Tsentsiper, one of Strelka’s founders and the creator of the Afisha media empire, Russia’s answer to Time Out. “Most people here think of an architect as someone who can build a pretty house, not someone who has a dynamic social role.” (His co-founder, Web mogul Alexander Mamut, thinks Moscow architects aren’t even good at that. “If you look at what’s been built in Moscow in the last 20 years, it’s humiliating,” he told me. “They haven’t built anything that we can be proud of.”)

Natalia Dushkina, a professor at the Moscow Architecture Institute and heir to a long dynasty of famous Moscow architects, does not disagree. “The most important thing that should happen here is to teach architects to think conceptually,” she said.

At the opening, Oskolkov-Tsentsiper told the crowd that a Moscow architect had “to make the city more habitable, and our society more humane.” That is a tall order for architects trained in building pretty houses, so Strelka is helping by providing a free yearlong master’s program to young professionals in the field, who, starting this fall, will work on tangible projects with Koolhaas and other stars of the architecture and design world.

This is all new to Moscow, but the model isn’t, points out Arkady Volozh, founder and CEO of Yandex, the dominant Russian search engine. In the Soviet Union, university upperclassmen would be placed in internships through their departments to prepare them for real work after graduation. When the Soviet Union collapsed, this system did, too. As universities languished from lack of funds and modern curricula, young Russians began to all but abandon class for work, much of it full-time and during the academic year, in new fields that were chronically understaffed.

In fact, the Soviet apprenticeship tradition has been better maintained in the private sector than in Russia’s educational institutions. When Yandex found that the excellent but abstract mathematical education provided at most Russian universities wasn’t equipping its graduates for the workforce, the company founded the School of Data Analysis. The two-year program, a partnership with two prominent universities in Moscow (but not Moscow State, which refuses to be involved despite supplying half of Yandex’s employees) aims to mold good math students into excellent programmers — and future Yandex workers who need no on-the-job training. It has been a sound investment: The school has served as a laboratory for innovations like MatrixNet, which, within a month of its introduction, bumped Yandex’s market share by 6 percent.

Strelka and its ilk are not without their problems. How deep, for example, are their founders’ pockets, and how expansive are their philanthropic spirits? How long can they fund the free education of 20 to 40 people per year? At Strelka’s grand opening, however, the crowd just seemed happy that something so promising — and promisingly unacademic — had been born. The founders, for their part, hoped that the institute would bring another kind of sustainability to Russia and prove immune to one of the country’s most persistent problems. “Someone who graduates from our program can work for any of the most fashionable firms,” Dmitrii Likin, who is responsible for the new media program, said. “But I hope they’ll stay and work here.”

Russia’s New Privatization [Foreign Policy]

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]

Nano-Potemkin Village

Wednesday, December 9th, 2009

Earlier this fall, inside the sprawling Moscow Expo Center, hundreds of scientists gathered at the second annual International Nanotechnology Forum to mumble through dense presentations with antediluvian graphics and pace the halls, which were plastered with posters exploring nanopowders and silicomolybdic acid-diamine self-assembling ensembles.

But this was no ordinary scientific conference. For starters, there were the attendees, of which there were about 10,000, including hundreds of journalists, raging into their BlackBerrys and sprinting between press briefings. Then there were the TV crews and the professional cameramen archiving those scientific presentations for posterity. There were awards for international scientists. Siemens was there; Samsung and IBM were there. Even Russian President Dmitry Medvedev was there.

This, you see, was a Kremlin production.

Medvedev came to reassure all involved that he and the Russian state were still invested in making Russia the world leader in, of all things, nanotechnology. “I hope we will be able to make nanotechnology, the nano industry, one of the most powerful sectors of the Russian economy,” he said. The financial crisis, which has hit Russia especially hard, was but an opportunity, the president said, “to renew the Russian economy,” which has for too long coasted on the extraction of the earth’s riches.

Sure, modernization has long been Medvedev’s calling card, and getting away from fossil fuels is certainly a laudable idea, but nanotech? Really? Why, of all things, would the Russians focus on that as their ticket to a 21st century economy?

Historians Yuri Lotman and Boris Uspensky once noted that Russia does not do gradual change well. Rather, its leaders have long approached reform as a one-two break with the past, an approach that often has the reverse effect: In cleaning the slate, Russia too often simply locks in what’s already there.

And that’s what happened here. Like all such reforms, the nanotech initiative – diversifying the economy through some sort of futuristic magic bullet—was cooked up somewhere at the top. Why nanotech? Because, back when the idea was being entertained, sometime in late 2006, says an analyst familiar with the project, “nanotechnology was just the flavor of the month.”

But this being modern, corporatist Russia, the Kremlin did not stop at a directive praising the virtues of everything nano, nor did it take the route of incremental reform that encourages innovation through nudging incentives. Instead, it created a behemoth: a goskorporatsia—an opaque and controversial state-owned entity invented during the Putin era to squirrel away government money—called Rosnanotech.

Upon its formation in April 2007, Rosnanotech was given a budget of $5 billion and charged with developing a domestic nanotech industry capable of export and competition with the West. Around that time, the world nanotech market was $147 billion and predicted to grow to more than $3 trillion in the next eight years. To do this, Rosnanotech hired a professional, suited cadre trained in the liturgy of business plans and debt financing and set about growing a nanoindustry from absolute scratch.

Rosnanotech has become, essentially, a state-owned, state-funded venture capital fund. Scientists with a nanotech proposal apply to the company, which uses an international expert panel to weed out those projects worth investing in, in which Rosnanotech then acquires a minority stake. (According to Rosnanotech’s charter, its participation cannot exceed a 50-percent-minus-one share.) The company then ushers the project along the road to mass production—the goal is revenue of $8.5 million by the fifth year—by helping the project find private investors and properly structure their debt; dealing with Russian bureaucracy; finding and retooling production facilities, all with the plan of an early exit. “Our goal is not to maximize our investments,” says project office director Mikhail Chuchkevich. “And we are prepared to exit earlier, a lot earlier than other venture capital funds. We’d rather reinvest the money faster and create another project.”

To date, more than 1,200 proposals have been submitted, and of those 36—ranging from ventures in nanosprings to nanoink—are at various stages of implementation.

And there are bigger plans yet in store. Later this fall, Rosnanotech plans to open a stock exchange to connect fledgling companies with investors. By 2015, the new chair of Rosnanotech, the controversial and perennially embattled Anatoly Chubais, hopes to see the annual production in the Russian nanotech sector boom to about $30 billion, having repaid about $5 billion into the Kremlin’s treasury.

It sounds, at first, like an excellent idea: using government money to get new businesses off the ground, using primarily private funds, while simultaneously weaning the country off of petroleum.

But there are, of course, huge—and quite likely fatal—hurdles in the way of achieving such astronomical projections.

First, there are the money problems. Some of Rosnanotech’s budget, observers note, came from the forced sale of the assets of Yukos, Mikhail Khodorkovsky’s oil company seized in 2003. (The money, apparently, needed pockets.) And because it is a government corporation, notes Troika Dialog tech analyst Anna Lepetukhina, the money doesn’t always get where it’s supposed to go. “There’s a question of the allocation of resources and it’s not totally clear how it happens or who gets the money,” she says. “All of a sudden, oops, it’s gone.”

And then there’s the crisis, which has pushed Russia’s official unemployment rate to nearly 8 percent and opened up a yawning budget deficit. And so, in February, around the time of the peak of the crisis, Rosnanotech had to give $3 billion—more than half of its budget—back to the Kremlin.

What’s left is not nearly enough money to fund the necessary (and very expensive) research and development, because there is not much of a foundation left to build on. Nor are there people left to build this industry. The effect of brain drain is not to be underestimated. In the first decade after the collapse of the Soviet Union, more than half a million scientists and engineers left Russia for greener pastures. Yet there aren’t many saplings waiting to replace them. A recent study showed that 60 percent of engineering students in Russian universities had failed their college entrance exams. Medvedev has announced another government initiative to fund scientific research at cash-strapped institutions, but, again, much of the allocated money is simply disappearing en route to the lab.

As a result, many of the proposals flooding into Rosnanotech at the rate of 45 a month are utter nonsense, according to a private investor working with the company. “Russia is a country of dreamers,” he said.

Chuchkevich, the projects manager, acknowledged that this was a problem. “Our work is really interesting, just like it is at any venture fund,” he told me at the Rosnanotech headquarters. “We get proposals that promise to overturn all current notions of transportation. Others say they will get energy from the air or the magnetic field of the earth. One proposed using the nanostructure of water to cure illnesses. But,” he added, “we’ll talk to anyone that comes to us.”

Then there is the fact that Russia’s infrastructure continues to rust, along with Russia’s historic inability to compete on par with Western high-tech companies—mostly because it doesn’t have a modern high-tech industry. While the Russian government parades around the nano-initiative, it still starts from scratch: Chubais himself acknowledges that the sector is now no bigger than $150 million. Meanwhile, the West, which has established centers of technological innovation, continues to surge past Russia.

And yet Chubais hopes that the Russian nanotech industry will increase 200-fold in the next six years, a break-neck prognosis that looks delusional at best, considering all the very, very real challenges he faces.

Indeed, most industry watchers and observers of Russian politics agree that, given the obstacles and given the Kremlin’s lackluster track record, Rosnanotech and the Nanotechology Forum are little more than an elaborate a PR stunt designed to make the Kremlin appear to be forward-thinking and reform-oriented while shunting wads of cash to its friends. (Or, put more bluntly by another analyst, “It’s just bullshit.”) Meanwhile, all the problems of the past—corruption, dependence on oil, crumbling infrastructure, terminal brain drain—that this nano-initiative was supposed to fix have grown noticeably worse during Medvedev’s short tenure. The only difference now is that Russia has a self-assembling, decorative nano-Potemkin Village.

Nano-Potemkin Village [The Big Money]

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]

Geeks in Space

Thursday, June 25th, 2009

Richard Garriott is a geek. He loves fantasy; he has two thin braids running down his back that, for pictures, he swings over onto his chest for maximum effect. Back in the 1980s, he developed a series of fantasy role-playing video games under the Ultima umbrella, making him, perhaps, the Henry Ford of gaming. He made a fortune, and he used it to build two houses in Austin, Texas, named after the home of the hero of his video games, Britannia Manor. (The one he lives in now, Britannia Manor Mark 2, is equipped with a set of secret passageways, artificial rain, underwater caves, an authentic 16th-century vampire-hunting kit, crossbows, armor, two skeletons, an observatory, and a lock of hair from a wooly mammoth.)

And, because Garriott is a geek, he has also used his millions to pursue his love of space. In 2000, he shelled out hundreds of thousands of dollars to be the very first self-funded tourist in space. But then the dot-com bubble burst, and he lost most of his money and had to sell his seat on the rocket. But Garriott loves space so much that, once he regained his financial footing, he decided to buy back that trip rather than resume construction on the still half-finished Britannia Manor Mark 3, the other casualty of the bust. This time, it would cost him $30 million—up from $20 million—and the training would take about a year out of his life, but it was space and, goddamn, it was worth it.

“It’s so important to see Earth from orbit,” he told me recently. “It’s a truly life-changing event.”

He says he has also noticed a pattern: All those other tech geeks thirsting for the same view. For instance, when Garriott finally went up, in October of last year, he was already Space Tourist No. 6. But Nos. 1 through 5 were all tech geeks, too. Space Tourist No. 1 was Dennis Tito, who bought Garriott’s first seat in 2001. Tito made his money by bringing mathematical analytics to money management. (He also had a bachelor’s in astronautics and aeronautics.) Tito was followed by Mark Shuttleworth, the Web-security millionaire; then came Greg Olsen, the optoelectronic millionaire; Anousheh Ansari, the telecom millionaire; and Charles Simonyi, the millionaire responsible for Microsoft (MSFT) Office. Google (GOOG) co-founder Sergey Brin has reserved a flight but hasn’t yet found the time to go, and tech venture capitalist Esther Dyson just plunked down $3 million to train for five grueling months—including a tundra survival mission, a machete and all—just to be Simonyi’s understudy for his second flight, in March 2009. (Guy Laliberté, the tech-savvy founder of Cirque du Soleil, is the next space tourist, scheduled to go up on Sept. 30.)

And these are just the travelers. There is also a shadow NASA out there, made up of tech geeks who are investing their second entrepreneurial wind into beating NASA, Boeing (BA), and Lockheed Martin (LMT) by building lighter, faster, cheaper, and, amazingly, reusable rockets that will supplant the space shuttle when it is retired in 2010. First, there is Jeff Bezos, founder of Amazon (AMZN), who in 2000 founded Blue Origin, a secretive company focused on making suborbital space tourism affordable and accessible. (First qualification for working there? “You must have a passion for space.”) There is also Armadillo Aerospace, founded by John Carmack, of DOOM and Quake fame. And there’s the Big Space Cheese himself, PayPal co-founder and Tesla CEO Elon Musk, whose space company, Space Exploration Technologies (or SpaceX), has become adept at scoring massive government contracts to build rockets that will make space deliveries of things like supplies and satellites for NASA and the Department of Defense. (Musk recently made his ultimate destination clear: Mars.)

So why do tech geeks love space? Though they may have the resources—a trip to space will now set you back some $45 million—this can’t be the full answer: You don’t see Donald Trump or P. Diddy signing up for an astro-mission. What makes it worth it for the tech geeks? Garriott, for one, has thought about this extensively. In part, he loves space because his father, Owen, was a NASA astronaut. But then there’s the social conditioning.

“There’s a documentary called Orphans of Apollo that’s stated this well,” he explained. “There’s a generation of us, who are the tech leaders of today, who were universally inspired to go into science and technology because of the NASA Lunar Space Program. And the reason the movie is called Orphans of Apollo is because, in many ways, we feel orphaned by the fact that the space industry has not done a good job of capitalizing on that momentum of what many of us believed were the first steps into space, carrying the mission of human space flight farther and farther into deep space.”

“The same kids who grew up wanting to be computer engineers are the same kids who grew up watching Star Trek, OK?” says Eric Anderson, CEO of Space Adventures, the Vienna, Va.-based company that facilitates space travel for civilians. (Garriott is on the board of Space Adventures, and Dyson and Brin were early investors.)

“Technology entrepreneurs are the ones with the technical curiosity, the desire to do new things and explore new territory,” says Dyson. “And this is the ultimate new territory. There was a belief once, too, that America was something new and unnecessary.” Dyson believes we will eventually be colonizing other planets. Like Garriott, she also has space in her blood. In the late ’50s, her father, physicist Freeman Dyson, worked on using nuclear pulse propulsion to vault rockets into space. Esther was 7 at the time, and she recalls thinking that, naturally, one day, she would get to travel in one.

Now, these techies-made-good finally have a way to get to space. If they have the means, they come to Anderson. “Entrepreneurs take calculated risks,” Anderson says. “They’re willing to spend their life and time and money doing things that they know might fail.” And he’s willing to help them try for a slice off the tophis is a private company, and he would not reveal the terms of the contracts—though most of money goes to the Russians, who do all the heavy lifting. (Currently, there are no space-tourism flights leaving from American soil, and, according to a NASA spokesman, there won’t be for some time.)

The Russians, on the other hand, have been all too happy to oblige. Once the vanguard of space exploration, they suffered their own version of Garriott’s bubble bust. In 1991, the Soviet state fell and with it went the massive state subsidies for their space program. In 2000, Garriott and Anderson approached the Russians to see if they wanted to profit from this decaying part of their infrastructure, too. After the obligatory pooh-poohing, the Russians agreed to sell one seat on the three-seat Soyuz rockets they send up to the International Space Station. (NASA also buys seats on the Russian rockets, for $51 million per seat, which is still cheaper than building their own or sending up the space shuttle, which also happens to have a worse safety record than the Russian-made Soyuz.)

Space Adventures forks over most of the hefty fee to the Russians, who take the Space Tourist up to the International Space Station for about a fortnight. (The tourists themselves insist on being called “Space Explorers.”) Before they go, however, each space tourist must train for five months (900 hours) in the isolation of Star City, a secret hamlet just outside of Moscow that only recently started appearing on maps. There, working alongside Russian cosmonauts and some American astronauts, they work to attain “user level” proficiency in all things rocket: communication, emergency, life-support, electronics, and rocket-propulsion systems. It is all in Russian. (Dyson speaks the language; Garriott had a translator.) They undergo turns in the centrifuge and are subjected to endoscopies and colonoscopies. They are sent on zero-gravity “parabola” flights, which are fun with a caveat. (“The Americans try not to make you sick,” says Dyson. “The Russians try to make you sick.”) There’s survival training in the wilderness, including a bout in a tiny space capsule stranded at sea in which you have less than 90 minutes and very limited space to change out of your spacesuit. Garriott says he emerged black and blue, having failed on his first attempt: The capsule heated up so much that his core body temperature became dangerously high.

For the people who weren’t sufficiently athletic or eagle-eyed to become astronauts in the first place, completing this training is no easy feat. Nor is space a cakewalk. Once in orbit, blood becomes more concentrated and pools in your head; muscles atrophy and bones lose calcium. Back on earth, cosmonauts have to be lifted out of the landing capsule, essentially paralyzed for days.

“It’s no joy ride,” says Dyson, who is still waiting for the price to come down before she uses her successfully completed training in space. “It smells. It’s noisy. It’s the same people every day. The food gets repetitive. It’s lonely.”

But for the tech geeks, it is part of the fun.

“Now that I have been to space, and I have survived the second market crash, I hope to restart Britannia Manor Mark 3!” Garriott wrote in a recent e-mail. “Plus, of course, I plan to get back to space ASAP!”

Geeks in Space [The Big Money]

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.