Amazon’s Holiday Toy Catalog Is Advertising Parents Actually Want

Never underestimate the market-moving potential of a nagging child. “Mom, Dad, I want THIS for Christmas!” is a phrase that each year leads to billions of dollars of toy sales. And it’s a phrase parents can appreciate, because knowing what your kid actually wants to find under the tree helps minimize Christmas morning tears. Toy manufacturers and retailers spend millions of dollars each year to make sure their products are the ones on everyone’s wish list, with TV and online ads, special retail displays, and old-fashioned toy catalogs.

The stakes are particularly high this holiday season, since one-time retail juggernaut Toys R Us closed all its US locations earlier this year. Even while its sales were declining, Toys R Us still accounted for around 12 percent of the estimated $27 billion total toy sales in 2017, according to Juli Lennett of NPD Group, the leading toy industry analysts in the US.

With Toys R Us gone, those sales are up for grabs, and Amazon wants them. The digital-first company was already beating Toys R Us in market share. And while it alone was not responsible for the demise of Toys R Us—poor business decisions and its sizable debt were also to blame—Amazon did put intense pressure on the toy store chain with extremely low prices, especially during the last few holidays seasons, using its familiar tactic of sacrificing profit for market share. Toys R Us couldn’t compete. Now Amazon hopes to feed from the carcass.

And so the e-commerce giant went retro this holiday season, mailing out its first-ever print toy catalog, like the one Toys R Us used to be known for. The “Holiday of Play” lookbook from Amazon is 68 pages long and features toys like the über-popular LOL! Surprise dolls, LEGO’s Star Wars Solo, and the Osmos Genius Kit for iPad. An Amazon representative told WIRED the catalog was sent it to millions of customers in November, but wouldn’t give exact numbers. It’s also available at Whole Foods, and some physical Amazon store locations, or online in PDF and Kindle form.

The catalog may be made of paper, but it’s designed as a gateway to a digital transaction. What it lacks in pricing information it makes up in QR codes and stickers that kids can use to make note of presents they want their parents to buy. It also works with the Amazon app: Take a photo of the catalog item you (or your kids) want, and the app will pull up the listing and let you buy it from your phone.

“The great thing about a catalog is that it sits on the coffee table, where kids can find it,” says Steve Pasierb, CEO of The Toy Association, a trade group representing American toy manufacturers. “The catalog is a market share play. Amazon has a huge chance to win a lot of those holiday sales.”

Amazon’s top competitors for Toys R Us’s sales are Target and Walmart, according to experts—traditional retailers that have mailed out holiday catalogs for years. And in the wake of Toys R Us closing, both companies decided to devote more shelf space in their retail locations to toys, says Pasierb. With only a handful of physical stores in a few major cities, Amazon’s toy push comes in the form of a dedicated landing page for kids on its website, and its catalog.

“They’re emulating a proven method of doing business, which is the catalog, but using their muscle to engage at a particular time when there are just fewer retailers now who sell toys,” says Richard Gottlieb, CEO of research firm Global Toy Experts. Gottlieb was impressed with Amazon’s catalog, though he far preferred eBay’s catalog full of weird and wild and expensive one-of-a-kind toys, which launched this season as well.

Amazon and eBay are joining the many other e-commerce companies still finding print catalogs have value in the digital era. Catalogs are harder to ignore than the clutter of online ads, one footwear startup founder told Digiday earlier this year, explaining that his company gets a slightly higher return on direct mail versus digital-only marketing. Companies can also use data to target catalogs to customers they know are likely to spend more money. And they are a traditional way for families to compile gift wish lists.

“I’m old enough to remember the Sears catalog,” says Gottlieb. “I remember laying on the floor just going through it. I didn’t get much anything out of it. But you know, marking things, studying it in detail. It was wonderful and a wonderful way to communicate with your parents what you want.”

People really want and love catalogs. Take a glance at the reviews for the Kindle version on Amazon’s website. Plenty of customers posted bad reviews, not because they didn’t like the catalog, but because they were annoyed that they didn’t get one.

“Why can’t we get a book and why didn’t we get one? We have been prime members for years, have 4 kids, buy lots of toys, and no book. And we can’t order one……,” reads the top-rated review right now. “Would love to have the toy catalog delivered through the mail. The children love looking at it and circling what they like. I dont use Kindle. I’ve been a prime member for many years and did not get one,” reads another. A review from November 15 is even more direct: “Disappointed that I didn’t and can not now get a hard copy in the mail even though I have two small children and spend a ton on toys through Amazon Prime. I AM YOUR TARGET MARKET. Speaking of Target – I’ll be doing my toy shopping there because I am THAT petty.”

The disappointment those Amazon reviewers felt speaks to the reason catalogs have worked so well. They’re convenient, above all. Enjoyable, even. And this time of year, when millions of Americans are going to buy toys, it’s easier for children to thumb through a physical catalog that feels like a big book of wonders than a notoriously hard-to-navigate website.

Kids, especially, don’t have a great way to discover toys on the actual Amazon website. Even its dedicated toy section divided by age group is confusing to navigate. And while the site does have a wishlist feature, parents might not trust their kid to trawl through Amazon’s website on their account, since they could accidentally push one button and buy something. A print catalog is a way for Amazon to directly get its offering in front of children, while also giving parents a little bit more control over the process.

The toy catalog is a familiar marketing throwback in an otherwise rapidly evolving industry. Pasierb notes that with the growth in streaming entertainment for kids, the kinds of ads children see have changed. “Unboxing videos, the online kind of stuff is for a lot of our toy companies as important or now more important than traditional television advertising. A lot of our companies that no longer do traditional TV advertising do almost all exclusively digital,” says Pasierb. The highest-paid YouTube celebrity this year, according to Forbes, was a 7-year-old boy making unboxing videos of toys, earning an estimated $22 million in 12 months.

“[These kinds of ads] are entertainment in their own right,” says Lennett. “A lot of these kids, I don’t think they know the difference between watching a show—a real show—versus watching another kid playing with a toy on YouTube.”

“In my household, the word ‘TV’ is gone. Now it’s just ‘shows.’ Children have already fully internalized the idea of on demand, and that disrupts the ad model completely,” says David Carroll, professor of media design at the New School.

But Carroll doesn’t let his two kids watch YouTube, where they might see those ads. I don’t let my three-year-old son watch it, either. We are the exception; a recent Pew survey found that 81 percent of parents do allow their young kids to watch YouTube. Our reasons are less to do with fear of seeing ads than fear that we can’t control the algorithm and our children might get exposed to inappropriate, creepy, or ideological videos. Instead, our kids mostly watch on-demand shows on Amazon Prime, Netflix, iTunes, or Google Play—and those are largely free of ads.

“The only way [Amazon’s toy offerings] are getting in front of my children is through a catalog,” says Carroll. Only Carroll never got an Amazon catalog, despite his prolific Prime usage. Neither did I. Neither did Lennett, who says, “I’m mad I didn’t get one.” Though her kids are teenagers, she buys lots of stuff on Amazon and thought they’d receive one in the mail, as some of her friends did. An Amazon representative declined to comment on how the company decided who to send the catalog to, though the person offered to send me one. (I declined.)

For Amazon, a catalog also fits well with its bigger push into the physical world, with everything from actual store locations to Dash buttons you physically push to order goods. “[Amazon owner Jeff] Bezos has total world domination as the goal. So from that perspective it makes sense that they would not take a digital-only approach. They would take a whatever works approach,” says Carroll.

For world domination, Amazon has to be everything. And everywhere. Even in the living room, where your kid can find it and come up to you whining, “Mom! I want this!” That is, if Amazon sent you one.


More Great WIRED Stories

Kubernetes etcd data project joins CNCF

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Kubernetes: The smart person's guide

Kubernetes: The smart person’s guide

Kubernetes is a series of open source projects for automating the deployment, scaling, and management of containerized applications. Find out why the ecosystem matters, how to use it, and more.

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How do you store data across a Kubernetes container cluster? With etcd. This essential part of Kubernetes has been managed by CoreOS/Red Hat. No longer. Now, the open-source etcd project has been moved from Red Hat to the Cloud Native Computing Foundation (CNCF).

What is etcd? No, it’s not what happens when a cat tries to type a three-letter acronyms. Etcd (pronounced et-see-dee) was created by the CoreOS team in 2013. It’s an open-source, distributed, consistent key-value database for shared configuration, service discovery, and scheduler coordination. It’s built on the Raft consensus algorithm for replicated logs.

Also: Kubernetes’ first major security hole discovered

Etcd’s job is to safely store critical data for distributed systems. It’s best known as Kubernetes’ primary datastore, but it can be used for other projects. For example, “Alibaba uses etcd for several critical infrastructure systems, given its superior capabilities in providing high availability and data reliability,” said Xiang Li, an Alibaba senior staff engineer.

When applications use etcd they have more consistent uptime. Even when individual servers fail, etcd ensures that services keep working. This doesn’t just protect against what would otherwise prove show-stopping failures, it also makes it possible to automatic update systems without downtime. You can also use it to coordinate work between servers and set up container overlay networking.

In his KubeCon keynote, Brandon Philips, CoreOS CTO, said: “Today we’re excited to transfer stewardship of etcd to the same body that cares for the growth and maintenance of Kubernetes. Given that etcd powers every Kubernetes cluster, this move brings etcd to the community that relies on it most at the CNCF.”


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That doesn’t mean Red Hat is walking away from etcd. Far from it. Red Hat will continue to help develop etcd. After all, etcd is is an essential part of Red Hat’s enterprise Kubernetes product, Red Hat OpenShift.

Moving forward, etcd will only grow stronger. It being used by more and more companies, as Kubernetes is adopted by almost every cloud container company. In particular, Phillips said, he expects far more work to be done on etcd security.

Related stories:

Marriott Says It Will Pay for Replacement Passports After Data Breach. Here’s Why That’s Likely Baloney.

As you have no doubt heard by now, Marriott disclosed a massive data breach that exposed up to 500 million customer records. Hackers accessed information in the company’s Starwood reservation system, which affected brands such as W Hotels, St. Regis, Sheraton Hotels & Resorts, Westin Hotels & Resorts, and other properties in the Starwood portfolio, the company said. The intrusion apparently began in 2014, two years before Marriott acquired Starwood. This oversight in the M&A process calls to mind another recent, post-acquisition hacker-surprise: Yahoo, whose two mega-breaches remained undetected when the company sold to Verizon last year. Coincidentally, Marriott’s hack is the biggest suffered by a corporation, second only to those at Yahoo.

After news of the Marriott breach came out, Sen. Charles E. Schumer (D-N.Y.) called on the hotel chain to foot the bill and replace people’s passports which were potentially compromised as part of the breach. Marriott quickly promised to cover the cost for as many as 327 million people whose passport numbers may have been exposed. At a fee of $110 per passport, that would put Marriott on the hook to pay up to $36 billion—a price tag equivalent to the value of the entire company, per its market capitalization. A devastating payout.

Here’s the thing though: While seemingly noble, Marriott’s promise is a bunch of baloney. The company said it will follow through on reimbursement only in instances where it “determine[s] that fraud has taken place.” What this caveat conveniently excludes is that Marriott’s hack likely had little to do with fraud and everything to do with espionage. In other words, if you’re a victim, don’t expect remuneration.

As Reuters reported, investigators believe the perpetrators of this attack were Chinese spies. The breach used tools, tactics, and procedures that matched Beijing’s style. The intrusion is said to have begun shortly after a breach of the government’s Office of Personnel Management, which government officials have attributed to China. The Starwood database represents a massive trove of potential intelligence: information on who is staying where, when—a bonanza for building up profiles of targets and tracking people of interest.

Geng Shuang, China’s Ministry of Foreign Affairs spokesperson, issued a statement saying the country “opposes all forms of cyber attack,” per Reuters. He said the country would investigate the claims, if offered evidence. Meanwhile, Connie Kim, a Marriott spokesperson, said “we’ve got nothing to share” about the Chinese attribution claim.

The Marriott breach—which took place quietly over years, as spies prefer—does not appear to have been a cybercriminal score. That’s why the passport payment pledge is probably bunk; nevertheless, if you think you might have been affected, it won’t hurt to follow these steps to refresh your cybersecurity hygiene and better protect yourself.

A version of this article first appeared in Cyber Saturday, the weekend edition of Fortune’s tech newsletter Data Sheet. Sign up here.

Only Chumps Work More than 40 Hours a Week

Last month, I pointed out that Elon Musk was horribly wrong when he stated that “nobody ever changed the world on 40 hours a week.” That column got more than the usual amount of pushback, half of which seemed to come from worker-bees inside high-tech firms and the other half from people who are starting their own business. Both groups of critics are wrong but for different reasons. Allow me to explain:

If You’re Employed by Somebody Else

Not to put too fine a point on it, if you’re working 100 hours a week while being paid for 40 hours, you should listen carefully for the sound of a power tool and trumpet fanfare, because you’re being royally screwed.

Let’s suppose you’re an entry level programmer in Silicon Valley who makes the industry average of roughly $100,000 a year. Pretty good money, eh? Well, let’s see.

If you’re working 100 hour weeks and take two weeks off for vacation (good for you!), you’re spending 5,000 hour a year at work, which means you’re making $20 an hour, which is about what you’d make if you were doing auto body repair. And you wouldn’t have any student loans.

Now let’s suppose you’re an entry level marketer making $50,000 a year. (Note: in high tech, women are MUCH more likely to land a job in marketing than in programming.) In that case, if you’re working 100 hour weeks, you’re making $10 an hour, which is less than you’d make working as a cashier at WalMart. And again, you’d have no student loans.

So even though your salary looks as if you’re firmly in the middle-class, you’re really working for peanuts. You may be thinking at this point: “Well that’s the way it is. Companies need us to work extra-hard to remain competitive.” That’s total bullsh*t.

Take Rock Star Games, for instance–a company that’s been recently in the news for requiring programmers to work many hours of unpaid overtime. RSG is a subsidiary of Take Two Interactive, which is traded on NASDAQ as TTWO.

According to the Take Two’s fiscal year 2018 10K SEC filing, the company grossed $1.8 billion and netted $174 million. Their R&D budget was $196 million so, if they wanted to, they could increase their R&D personnel across the entire company by 50% and still maintain a net profit of around $74 million.

Actually, it’s a bit more complicated than that because “General & Administration” expense tends rise when R&D expenses get higher. But you get the point; the money is there. Of course, not every high tech firm is profitable but where does it say that the burden of unprofitability should be borne by the workers rather than the investors or the often-quite-highly-paid top managers?

When I named Don Lyon’s excellent book Lab Rats as one of my 7 best books of 2018, I included a quote that neatly summarizes the ridiculous implicit contract that high tech firms (and the many others that imitate them) foist upon employee:

First, you are lucky to be here. Also, we do not care about you. We offer no job security. This is not a career. You are serving a short-term tour of duty. We provide no training or career development. If possible, we will make you a contractor rather than an actual employee, so that we do not have to provide you with health benefits or a 401(k) plan. We will pay you as little as possible. We do not care about diversity: African Americans and Latinos need not apply. Your job will be stressful. You will work long hours under constant pressure and with no privacy. You will monitored and surveilled. We will read your email and chat messages, and use data to measure your performance. We do not expect you to last very long. Our goal is to burn you out and churn you out. 

While the summary itself is brilliant, I emphasized the last line because research shows that working consistently long hours gives a short-term burst of productivity, which then declines and turns into negative productivity. The plan is literally to burn you out.

This personnel strategy is idiotic, especially in industries where highly talented people are difficult to come by. But companies, even (especially!) high tech ones embrace all sorts of idiotic strategies. Witness the open plan office, a well-document productivity toilet that’s become ubiquitous.

Now, you may think that you don’t have a choice and that you must participate in the insanity simply to remain employed. Not true. Here’s an alterative: Stare reality right in the face. Realize–at a gut level–that if you burn yourself out you’ll be fired, regardless of how much you’ve contributed to the company’s success.

Therefore–and this is important so read the rest of this graf very, very carefully–you may very well have MORE job security if you don’t burn yourself out… even if you irritate your bosses by refusing to work crazy hours. But let’s suppose that you DO get fired because you won’t work-til-you-drop. You’ll be far readier to find another job if you’re fired when you’re still sane than after you’re burned-out.

In fact, maybe you should spend a few hours a week lining up new opportunities, just in case. Something to do in the free time that you’ll have when you’re smart enough not to succumb to Stockholm Syndrome.

If You’re Self-Employed

The “calculate your hourly wage” stuff described above doesn’t apply when you’re self-employed. Just to be clear, by “self-employed,” I mean starting your own business with multiple clients and customers rather than a contractor with a single client–which is the same thing as being employed but worse.

When you’re self-employed, you’re going to put whatever resources you have available into creating your own personal success. Those resources very much include your time. Indeed, when you first go freelance (for instance), the one resource you’ve got a-plenty is your time.

That’s the way it is. You may not even make minimum wage in your first year. But that doesn’t matter. What matters is getting your business up and running. I get it. I’ve been there. You’re playing the long game. Good for you!

Nevertheless, even if you’re self-employed, it’s both unwise and shortsighted to work more than 40 hours a week on a regular basis because, while you’ll get a burst of productivity (you’ll get more done), the extra hours have diminished returns over time and within any time period. Let me explain.

Working long hours over a long period of time is a recipe for burn-out. No matter how committed you are, or how much you “love” your job, you will end up killing the proverbial goose that might otherwise lay you the golden egg of success.

In addition, working extra hours within a day or week has diminishing returns. Even if you get 25% more done working 50 rather than 40 hours, you’re not going to get 20% more done if you work 60 rather than 50 hours. It’s probably more like 10% at most.

Similarly, working 70 hours rather than 60 hours won’t even give you that 10%. Chances are you’ll start making mistakes that will need correction which means extra work, so the productivity “gain” is probably negative 10%… or worse.

Entrepreneurs who willfully and unwisely burn themselves out like this remind me of an observation that a dear friend of mine made a while back: “Every boss I’ve ever worked for has been an *sshole, including now that I’m self-employed.”

The challenge when you’re self-employed is to have both the self-discipline and self-confidence to NOT work long hours. That’s especially true if you truly love your job. If you’re lucky enough to be in that situation, the LAST THING you want is to work yourself to the point where it’s no longer fun. 

If you quit work each day in the middle of doing something you enjoy, you’ll start the next day excited and motivated to do more. If you continue to work each day until you simply can’t do any more, you’ll start the next day tired and bored. Again, I know this because I’ve been there and done that.

So there you are. While all of us will have “crunch times” when we need to put in some extra hours, we can’t afford to make it a habit, much less let dysfunctional corporate cultures force it down our throats.

Slack Hires Goldman Sachs to Lead Its IPO Planned for 2019, Report Says

Slack hired investment bank Goldman Sachs as the lead underwriter for its highly anticipated initial public offering, Reuters reported Friday.

Slack is talking with investment banks to help underwrite an IPO, which could end up valuing the chat and workplace-collaboration software maker as high as $10 billion, Reuters said, citing unnamed sources.

In August, Slack raised $427 million in a private round of financing led by General Atlantic and Dragoneer. At the time, the investment valued the company at more than $7 billion. The company has raised a total of $1.2 billion in seven funding rounds since 2010, according to Crunchbase, which tracks financing rounds of private companies.

Last month, Stewart Butterfield, Slack’s co-founder and CEO, told Fortune that the company had “no specific timeline for an IPO,” although he also said that “We’ve been on a path to public company readiness for several years now and we’re continuing on that path.”

Slack offers a popular work-collaboration platform that allows co-workers to chat and message each other. The nine-year-old company now has more than 8 million active users, although Butterfield said in the Fortune interview that the actual number could be well above that.

The market for technology IPOs had been sluggish for several years before picking up somewhat in 2018. So far in 2018, 188 companies have gone public on U.S. exchanges, up from 160 in all of 2017. Around 40 of the IPOs this year were tech startups, including Sonos, Dropbox, and SurveyMonkey.

2019 is expected to bring bigger names to the IPO market, not just Slack, but also Uber, Lyft, and Airbnb. On Thursday, Lyft confidentially filed paperwork with the Securities and Exchange Commission for its planned IPO.

U.S. accuses Huawei CFO of Iran sanctions cover-up

VANCOUVER/LONDON (Reuters) – Huawei Technologies Co Ltd’s chief financial officer faces U.S. accusations that she covered up her company’s links to a firm that tried to sell equipment to Iran despite sanctions, a Canadian prosecutor said on Friday, arguing against giving her bail while she awaits extradition.

The case against Meng Wanzhou, who is also the daughter of the founder of Huawei, stems from a 2013 Reuters report here about the company’s close ties to Hong Kong-based Skycom Tech Co Ltd, which attempted to sell U.S. equipment to Iran despite U.S. and European Union bans, the prosecutor told a Vancouver court.

U.S. prosecutors argue that Meng was not truthful to banks who asked her about links between the two firms, the court heard on Friday. If extradited to the United States, Meng would face charges of conspiracy to defraud multiple financial institutions, the court heard, with a maximum sentence of 30 years for each charge.

Meng, 46, was arrested in Canada on Dec. 1 at the request of the United States. The arrest was on the same day that U.S. President Donald Trump met in Argentina with China’s Xi Jinping to look for ways to resolve an escalating trade war between the world’s two largest economies.

The news of her arrest has roiled stock markets and drawn condemnation from Chinese authorities, although Trump and his top economic advisers have downplayed its importance to trade talks after the two leaders agreed to a truce.

A spokesman for Huawei had no immediate comment on the case against Meng on Friday. The company has said it complies with all applicable export control and sanctions laws and other regulations.

Friday’s court hearing is intended to decide on whether Meng can post bail or if she is a flight risk and should be kept in detention.

The prosecutor opposed bail, arguing that Meng was a high flight risk with few ties to Vancouver and that her family’s wealth would mean than even a multi-million-dollar surety would not weigh heavily should she breach conditions.

Meng’s lawyer, David Martin, said her prominence made it unlikely she would breach any court orders.

“You can trust her,” he said. Fleeing “would humiliate and embarrass her father, whom she loves,” he argued.

Huawei CFO Meng Wanzhou, who was arrested on an extradition warrant, appears at her B.C. Supreme Court bail hearing in a drawing in Vancouver, British Columbia, Canada December 7, 2018. REUTERS/Jane Wolsak

The United States has 60 days to make a formal extradition request, which a Canadian judge will weigh to determine whether the case against Meng is strong enough. Then it is up to Canada’s justice minister to decide whether to extradite her.

Chinese Foreign ministry spokesman Geng Shuang said on Friday that neither Canada nor the United States had provided China any evidence that Meng had broken any law in those two countries, and reiterated Beijing’s demand that she be released.

Chinese state media accused the United States of trying to “stifle” Huawei and curb its global expansion.

IRAN BUSINESS

The U.S. case against Meng involves Skycom, which had an office in Tehran and which Huawei has described as one of its “major local partners” in Iran.

In January 2013, Reuters reported that Skycom, which tried to sell embargoed Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator, had much closer ties to Huawei and Meng than previously known.

Slideshow (9 Images)

In 2007, a management company controlled by Huawei’s parent company held all of Skycom’s shares. At the time, Meng served as the management firm’s company secretary. Meng also served on Skycom’s board between February 2008 and April 2009, according to Skycom records filed with Hong Kong’s Companies Registry.

Huawei used Skycom’s Tehran office to provide mobile network equipment to several major telecommunications companies in Iran, people familiar with the company’s operations have said. Two of the sources said that technically Skycom was controlled by Iranians to comply with local law but that it effectively was run by Huawei.

Huawei and Skycom were “the same,” a former Huawei employee who worked in Iran said on Friday.

A Huawei spokesman told Reuters in 2013: “Huawei has established a trade compliance system which is in line with industry best practices and our business in Iran is in full compliance with all applicable laws and regulations including those of the U.N. We also require our partners, such as Skycom, to make the same commitments.”

U.S. CASE

The United States has been looking since at least 2016 into whether Huawei violated U.S. sanctions against Iran, Reuters reported in April.

The case against Meng revolves around her response to banks, who asked her about Huawei’s links to Skycom in the wake of the 2013 Reuters report. U.S. prosecutors argue that Meng fraudulently said there was no link, the court heard on Friday.

U.S. investigators believe the misrepresentations induced the banks to provide services to Huawei despite the fact they were operating in sanctioned countries, Canadian court documents released on Friday showed.

The hearing did not name any banks, but sources told Reuters this week that the probe centered on whether Huawei had used HSBC Holdings (HSBA.L) to conduct illegal transactions. HSBC is not under investigation.

U.S. intelligence agencies have also alleged that Huawei is linked to China’s government and its equipment could contain “backdoors” for use by government spies. No evidence has been produced publicly and the firm has repeatedly denied the claims.

The probe of Huawei is similar to one that threatened the survival of China’s ZTE Corp (0763.HK) (000063.SZ), which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran. ZTE paid a $892 million penalty.

Reporting by Julie Gordon in Vancouver and Steve Stecklow in London; Additional reporting by Anna Mehler Paperny in Toronto, David Ljunggren in Ottawa, Karen Freifeld in New York, Ben Blanchard and Yilei Sun in Beijing, and Sijia Jiang in Hong Kong; Writing by Denny Thomas and Rosalba O’Brien; Editing by Muralikumar Anantharaman, Susan Thomas and Sonya Hepinstall

3 Ways to Address AI's More Frightening Implications

AI has vast potential. The technology is being touted as a solution to some of humanity’s most vexing problems, and rightly so. In China, where there aren’t enough radiologists to review the 1.4 billion annual CT scans for lung cancer, algorithms can accurately and efficiently diagnose patients.

Around the world, the next generation of automobiles will be driven quite literally by AI, and removing angry, distracted, or drunk humans from behind the wheel will likely make the road a far safer place. Still, for every positive AI implementation, there’s a downside just waiting to be uncovered.

One of the principal concerns about AI stems from its potential to spread misinformation. Social media platforms such as Facebook and Twitter are already having to deal with this practice, and they’ve taken to shutting down bots designed to spread hate speech and inflame public opinion.

According to Greg McBeth, head of revenue at Node.io, what’s currently an annoyance will only continue to escalate: “I believe there’s potential for an AI-driven misinformation crisis in our lifetime. AI can already convincingly manipulate images and video,” McBeth noted, citing as an example instances in which some actresses’ faces were superimposed onto inappropriate photos. Unfortunately, fake news is just the beginning.

In addition to faking images and videos, programmers with malicious intentions will use AI to commit other crimes, from the forging of financial documents that impact credit to the fabrication of phony evidence to produce wrongful convictions. In order to combat these efforts, we need to take the following steps.

1. Start the conversation now.

Advancements in AI are accelerating, and the use of the technology for nefarious purposes will as well. While news coverage seems to emphasize the revolutionary possibilities of AI, we must not shy away from the potential consequences. Earlier this year, Facebook’s Mark Zuckerberg warned that it could be a decade before AI is able to recognize the nuances that allow it to red flag hate speech or false information.

AI’s more nefarious uses could greatly outpace AI-based countermeasures. As a business leader, you can help guide this conversation. For instance, you could set up a roundtable discussion at an industry conference to share information and increase awareness of how AI may be used to spread misinformation — and where the tech comes up short in detecting it.

2. Create safeguards for defense.

Science fiction author Isaac Asimov thought up his three laws of robotics with android servants in mind. We still don’t have robots doing our household chores (not counting vacuums), but the laws have withstood the test of time.

To prevent AI from causing harm, the business community needs similar, universally accepted safeguards that apply to AI development. For instance, if you intend to use robots, you may be tempted to simplify the interface required to control them in order to make them more user-friendly for your employees. But be careful to balance those efforts with attention to cybersecurity. It’s imperative to address system vulnerabilities that could make it easier for hackers to gain access to your robot and network.

3. Arm citizens with AI education.

In order to mitigate the damages of misinformation, the business community needs to educate the public about what AI is capable of, both good and bad. Include educational resources on this subject on your blog, website, email newsletter, and social media accounts. Inform your customers about your use of AI and what safeguards or policies you have in place to prevent cyberattacks.

When people are aware of ways AI can be used maliciously, they’re more likely to recognize the red flags. For instance, if someone knows how to recognize signs that a Twitter account is potentially a political bot, they may think twice before retweeting something it shared.

On the other hand, when people are ignorant of AI’s misuse, they won’t hesitate to propagate misinformation. This needs to be a society-wide effort, but you can start by working with your team and your customers so they know what AI can do.

AI is responsible for exciting developments, but it’s a powerful tool that can be used to do harm as well. Ultimately, it’s impossible to prevent bad actors from developing AI for their own ill-intentioned purposes. But by taking these steps, business leaders can help minimize the impact of AI’s downsides.

This Is the Most Riotously Insane Thing About the Massive Marriott Data Breach You're Likely to Hear

Not to worry, Yahoo, you still had the largest data breach in corporate history, at 3 billion records. But at 500 million, Marriott is a strong second, and maybe should be first.

That’s because of the nature of the data that went out the door for about 327 million of the people who had stayed at a Starwood property on or before September 10, 2018. (And starting in 2014, because that’s how long it’s been since someone first broke into the system.)

The data included some combination of name, mailing address, phone number, email address, Starwood Preferred Guest (“SPG”) account information, birth date, gender, arrival and departure information, reservation date, communication preferences, and passport number.

Passport number? Yup. They kept them on file. And an undisclosed number of encrypted payment card numbers, expirations dates, and maybe–Marriott’s really not quite sure–enough information to let someone crack the encryption.

Yes, this is really, really bad.

Oh, and TechCrunch also noted the the claim that Russian cybercriminals got into the Starwood servers. It can’t keep getting worse, right?

You know the answer.

Marriott’s promised email notifications to affected customers will come from a fake-ish looking email address, as TechCrunch noted, and one that could be easily spoofed by people who want to cause even more damage. In other words, beware of phishing hacks that stand on the back of Marriott’s efforts to address the terrible position it’s put so many customers into.

And now we come around to the latest insanity. As part of its response, Marriott set up a website that ultimately points you to a third party service that “monitors internet sites where personal information is shared and generates an alert to the consumer if evidence of the consumer’s personal information is found.”

The third party running the service, corporate investigations and risk management firm Kroll, of course is going to need information from you to see if it pops up on the dark web. Here is what they might want, directly from their website:

  • name, address, phone number, and e-mail address
  • date of birth, driver’s license number, social security number, passport number, and other similar information
  • copies of government-issued photo identification, Social Security card and/or utility bill(s), where applicable
  • credit card number and other financial account data, including your consumer credit file(s), as applicable
  • your responses to security questions; the information you provide in customer service correspondence; and general feedback

You’re going to have to cough up enough information to see if they can match it to anything on the dark web. You’ll have to trust that everything will be fine. Which is what you did with Marriott in the first place.

Fat lot of good that did almost half the country.

How does this keep happening? As I explained in a piece over at Vice Motherboard, it all comes down to economics. The ultimate penalties big companies pay are so infrequent and small in comparison to their revenues that it becomes something just as easy to ignore. The millions of dollars you may hear about as the cost of a data breach is significantly smaller than a rounding error in accounting to them.

Not that I’m suggesting Marriott is ignoring this. Just a comment on the general treatment of customer data security by large corporations.

The only hope is that government officials take enough heat from voters that they put significant fiscal punishment into place. I’d settle, at least in this case, for Marriott to pay the cost for all the people who might now need to obtain a new passport. That at least would be a start.

But there’s the other factor: consolidation. Marriott is the largest hotel operator in the world. If you’re traveling, there’s a good chance you’ll land in one of its properties. Unless, of course, you remember all this nonsense and intentionally stay elsewhere.

Even if you don’t get more points, you might at least keep your data secure.

U.S. lawmakers make final push to win approval of self-driving car bill

WASHINGTON (Reuters) – Key U.S. senators are making a last-ditch effort to win approval of a bill to speed the use of self-driving cars without human controls, but face an uphill battle on Capitol Hill.

The U.S. Capitol building is seen in Washington, U.S., February 8, 2018. REUTERS/ Leah Millis

Staff for Republican Senator John Thune and Democratic Senator Gary Peters circulated a draft of a revised bill aimed at breaking a legislative stalemate.

The pair have been working for more than a year to try to win approval of the bill by the Senate and have said they may try to attach the measure to a bill to fund U.S. government operations.

The U.S. House unanimously approved a measure in September 2017, but it has been stalled in the Senate for over a year. Automakers and congressional aides concede they face tough odds of getting approval in the final days before the current Congress adjourns.

A key sticking point has been whether the measure would limit the ability of companies to compel binding arbitration for consumers using autonomous vehicles. The aides’ draft limits the use of those clauses in death or serious injury crashes, while the bill that passed the House did not include the limitation.

The revised draft would require manufacturers to validate that self-driving cars can detect all road users – including pedestrians, bicyclists and motorcyclists.

It would also require additional reports of potential safety issues involving vehicles that have systems like Tesla Inc’s Autopilot that handle some driving tasks.

Automakers say the bill is critical to advancing the technology that could save thousands of lives, but a group of safety advocates in a letter to lawmakers urged they not to move ahead with legislation in the final days of the current Congress.

“Rushing through a driverless vehicle bill that lacks fundamental safeguards will make our roads less safe and risks turning an already skeptical public even more against this technology,” the letter said.

Under the legislation, automakers would be able to win exemptions from safety rules that require human controls. States could set rules on registration, licensing, liability, insurance and safety inspections, but not set performance standards.

Automakers have been pushing for legislation as they try to move forward.

General Motors Co in January filed a petition with U.S. regulators seeking an exemption for the current rules to use vehicles without steering wheels and other human controls as part of a ride-sharing fleet it plans to deploy in 2019, but has receive no decision to date.

Alphabet Inc’s Waymo unit plans to launch a limited commercial autonomous ride-hailing service in Arizona by year-end.

In March, a self-driving Uber Technologies Inc [UBER.UL] vehicle struck and killed a pedestrian, while the backup safety driver was watching a video, police said. Uber suspended testing in the aftermath and some safety advocates said the crash showed the system was not safe enough to be tested on public roads.

Reporting by David Shepardson, editing by G Crosse

Qualcomm says China comment will not revive NXP deal

(Reuters) – U.S. chipmaker Qualcomm Inc (QCOM.O) said on Monday it was not looking to revive its abandoned $44 billion acquisition of Dutch peer NXP Semiconductors NV (NXPI.O), a day after the White House said China would reconsider clearing a deal if it was attempted again.

Qualcomm, the world’s biggest smartphone-chip maker, walked away from its agreement to buy NXP in July, after failing to secure Chinese regulatory approval. The planned deal was first agreed between the two companies in October 2016.

Qualcomm, headquartered in San Diego, California, and NXP, based in Eindhoven, the Netherlands, needed China’s blessing for their deal because of their presence in that country.

After high-stakes talks on Saturday between U.S. President Donald Trump and Chinese President Xi Jinping in Argentina, the White House said in a statement that China was “open to approving the previously unapproved” deal for Qualcomm to acquire NXP “should it again be presented”.

But Qualcomm said there was no prospect for the acquisition to be revived.

“While we were grateful to learn of President Trump and President Xi’s comments about Qualcomm’s previously proposed acquisition of NXP, the deadline for that transaction has expired, which terminated the contemplated deal,” a Qualcomm representative said via email.

“Qualcomm considers the matter closed.”

NXP declined to comment.

On Monday, White House economic adviser Larry Kudlow told reporters that President Trump put the issue of the acquisition on the table in the talks with the Chinese president.

Kudlow added that the Chinese president’s openness to the deal was a sign of further cooperation on multiple issues, including corporate mergers. Xi’s reported comment could embolden some potential acquirers in the semiconductor space to explore transactions, corporate dealmakers said.

“Although that acquisition cannot be resuscitated, Xi’s comment reveals in plain sight that Chinese antitrust policy is inherently politicized,” said Scott Kennedy, a China expert at the Center for Strategic and International Studies in a blog post.

FILE PHOTO: A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake

Qualcomm shares closed up 1.5 percent at $59.14 in New York on Monday, while NXP shares ended up 2.75 percent at $85.67.

Qualcomm and NXP did not lobby for the Trump administration to bring up the abandoned deal in its meeting with Xi and other Chinese officials on the sidelines of the G20 summit in Buenos Aires on Saturday, which was dominated by negotiations over trade tariffs, according to sources close to the companies.

The two companies were surprised to see that the terminated deal resurfaced as an issue, the sources added, requesting anonymity to discuss confidential deliberations. Qualcomm was given just an hour’s notice by the Trump administration about Xi’s comment on the NXP deal, and its inclusion in the White House statement, according to two of the sources.

The Trump administration had unsuccessfully lobbied the Chinese government earlier this year to give its blessing to the deal.

China’s foreign ministry declined to comment on Qualcomm during a regular media briefing on Monday.

Qualcomm had sought to purchase NXP because of its market position as a dominant supplier to the automotive market, as car makers add more chips to vehicles each year. Qualcomm is now focused on developing its own chips for the automotive market, according to one of the sources.

Qualcomm had to pay NXP a $2 billion fee to terminate the deal. To appease its shareholders, Qualcomm has also embarked on a $30 billion stock repurchase plan to return to them most of the money that would have been used for the NXP deal. It has spent more than $20 billion in share buybacks in the last 12 months. NXP has also announced its own $5 billion share buyback program.

DEALS ABANDONED

Several deals by semiconductor companies were put on ice after the Qualcomm/NXP deal fell through, simply because they had a footprint in China and required regulatory approval there. Now, chip companies may be more optimistic about their regulatory chances in China.

One example could be Xilinx Inc (XLNX.O), a U.S. provider of chips used in communications network gear and consumer electronics that has a big presence in China. Xilinx is currently vying to acquire Israeli chip maker Mellanox Technologies Ltd (MLNX.O) after it decided to run an auction to sell itself, according to people familiar with the matter. A successful acquisition of Mellanox could prove an important test of China’s appetite to approve such deals. A representative for Xilinx declined to comment. Mellanox did not immediately respond to requests for comment.

A more near-term test being watched by dealmakers is KLA-Tencor Corp (KLAC.O) pending acquisition of fellow semiconductor equipment maker, Israel’s Orbotech Ltd (ORBK.O). The $3.4 billion deal, announced in March, is still awaiting Chinese regulatory approval. KLA-Tencor’s CEO said on the company’s last earnings call that he expects the deal to close by year end.

Thus far, other high-profile mergers and acquisitions involving U.S. companies in other sectors have received Chinese approval. Last month, China approved United Technologies Corp’s (UTX.N) $30 billion purchase of aircraft parts maker Rockwell Collins Inc and Walt Disney Co’s (DIS.N) $71.3 billion deal to buy most of Twenty-First Century Fox’s (FOXA.O) entertainment assets.

Acquisitions of U.S. companies by Chinese companies, on the other hand, have been few and far between in the last year, after the Committee on Foreign Investment in the United States (CFIUS), a government panel that scrutinizes deals for potential national security risks, shot down more of these deals, such as Ant Financial’s plan to acquire U.S. money transfer company MoneyGram International Inc (MGI.O). U.S. lawmakers also passed reforms earlier this year that increased CFIUS’ scrutiny of deals.

Reporting by Liana B. Baker in New York and Kanishka Singh in Bengaluru; Aditional reporting by Greg Roumeliotis in New York, Michael Martina in Beijing and Jeff Mason in Washington, D.C.; editing by Diane Craft

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