1 big thing: Inside Russia's invasion of the U.S. grid
In the Cold War, the U.S. and Russia deterred any major attack by the other with existentially dangerous arsenals of nuclear-tipped missiles. Now, Russia has what it views as a potent new deterrent, experts say — cyber implants in the U.S. electric grid.
What's going on: Over the last year, Russian hackers have infiltrated power stations and other points on the U.S. grid — and now are inside hundreds, empowering them to create chaos with massive blackouts, U.S. officials say.
But experts tell Axios that, rather than plotting an attack, the Kremlin is sending a deliberate message. James Lewis, director of the technology program at the Center for Strategic and International Studies, sums it up: "You guys better back up because look what we can do!"
- In a special Axios report yesterday, current and former senior U.S. intelligence and security officials said a crippling cyberattack is the country's greatest threat. Security experts say a blackout, especially if prolonged, could create social and economic chaos — and possibly lead to civil violence.
- U.S. officials are increasingly worried about the Russian breaches. On July 23, the Department of Homeland Security went public, describing the infiltrations by Kremlin-backed actors called Dragonfly or Energetic Bear, and it plans to ring the alarm in further briefings around the country.
In a way, the dynamic resembles the Cold War:
- The U.S. and Moscow are eyeball to eyeball, each capable of taking down large parts of the other's infrastructure.
- "Since 2015, the Russian government has been clear that it has wanted a nuclear-like deterrence in cyberspace," says Christopher Porter, a senior fellow at the Atlantic Council and chief intelligence strategist at FireEye, a cybersecurity firm. "The U.S. has shown 'shock and awe' in cyberspace, and Russia wants to show it can keep pace with the U.S."
- That's why Russia has launched hundreds of incursions against the U.S. grid. There's no one main switch that can cause a massive nationwide blackout because the system itself is so decentralized.
But, unlike the depths of the Cold War, the two rivals have no treaty setting boundaries for weapons deployment and use.
2. Starbucks' homegrown Chinese competitor
Few have successfully challenged Starbucks anywhere in the world. But now there is Luckin Coffee, a brazenly cool, VC-funded startup in China that, in an astonishing nine months, has swollen to more than 650 locations, a $1 billion valuation, and lots of buzz.
- Axios' Erica Pandey writes: We are talking a breakneck coffee war. Chic is Starbucks' greatest asset everywhere, but it is facing a determined rival in the homegrown Luckin, which wants to transform the uppity $5 latte into a more chill, mass-market product.
Why it matters: In both the U.S. and China, Starbucks is losing its mojo. Store traffic in the U.S. was down 2% in the last quarter, and Chinese sales dropped by the same percentage. In the U.S., the answer has been to raise prices. But in China, its drinks are already priced sky-high, and it will have to beat the plucky Luckin in product and service alone.
The latest: Determined to survive and hold onto its clear lead in the world's premier growth market, Starbucks last week announced a high-profile alliance with China's greatest e-commerce behemoth — Alibaba.
- The alliance is meant to attack Luckin at its strength — fast delivery.
- Luckin often delivers coffee to offices in 18 minutes, or even faster.
- Starbucks says Alibaba's Ele.me food delivery affiliate will deliver within 30 minutes.
It's not clear that brute force will be sufficient in a market where once-stout brands can vanish when homegrown rivals prove they know China better. Think eBay and Uber, both of which were eclipsed by local Chinese brands. But Starbucks is going to try — and it starts out with serious advantages.
- Since launching in China in 1999, Starbucks has grown to around 3,400 locations and captured some 80% of the market, per market research firm Euromonitor International, meaning that almost everyone in big cities knows about it.
- "For me and my friends, we don’t go to Luckin Coffee as often as we go to Starbucks," a 16-year-old Chinese girl told Axios by email, not wishing to identify her city. "I think that Luckin Coffee is more for people who are working and they want their coffee to be prepared fast."
Still, the Chinese coffee market is embryonic: Chinese consumers drink about three cups of coffee per person per year, Euromonitor says. Compare that with 363 for Americans and 250 for Britons. That leaves plenty of room for upstarts.
3. Too hot to work
Extreme weather could change global economics by making it too hot to work and disrupting electricity in dozens of countries including China and the developing world, according to new studies.
- In the closing decades of the century, severe heat waves may put a cap on farming, construction and even habitability on China's breadbasket in the North China Plain, according to a study by MIT.
- And by 2045, heat could jeopardize 10.8% of West Africa's exports and 5.2% of southeast Asia's, affecting 48 of the world's most-vulnerable countries, according to a separate report from Verisk Maplecroft, a risk analysis firm.
Why it matters: Among a growing number of broad microeconomic assessments of climate change, the studies suggest a consequential strike on global growth unless dramatic strategies are undertaken.
- Axios science editor Andrew Freedman writes: "These papers are a bit shocking in that they point to supercharged heat events emerging in the lifetime of many of our readers (2045 or so), and get at the economic ripple effect of reducing productivity during extreme heat."
- On the North China Plain, combined temperatures and humidity will reach 95 degrees between 2070 and 2100, about seven degrees higher than now. At this level, humans cannot survive beyond six straight hours of exposure.
- And in developing countries, power outages — already an epidemic in Africa, India and elsewhere — will plague companies working in the regions. In all some $88 billion of exports could be lost in southeast Asia and west Africa.
- The 10 lowest-risk countries are largely in Europe, including Denmark, Finland, Ireland, Norway, Sweden and the U.K.
4. Worthy of your time
- The future of e-sports (Dan Primack - Axios) (Podcast)
- The debate over deep learning (Christopher Mims - WSJ)
- Cryptocurrency and insider trading (Kia Kokalitcheva - Axios)
- Ire over Google's secret China project (Mark Bergen, Shelly Banjo - Bloomberg)
- What is quantum computing? (Sean Carroll - The Joe Rogan Show) (video)
- Men: Skip challenging this WNBA player to one-on-one (Devereaux Peters - WashPost)
5. 1 in-a-box thing: China's AI-powered store goes global
In May, we reported that China's tech giants are sharing their secret sauce with mom-and-pop shops around the country, helping them join the digital revolution with state-of-the-art artificial intelligence and e-commerce technologies, Erica Pandey writes.
What's next: The Chinese are taking their digitalization-in-a-box concept abroad — with the potential to fuel a grassroots retail revolution beyond China.
In a brewing war, China's retail giants are vying for the Southeast Asian market, with its super-high population density and lack of local retail competition.
- On one front, JD.com, China's wildly popular online retailer, is opening an unmanned, high-tech shop in the Indonesian capital of Jakarta.
- Customers walk in, grab what they need, and walk out. AI and facial recognition technology handles the checkout process automatically.
- This is JD's first such store outside China, and the company wants to open more — as well as sell its retrofit kit to local Jakarta storekeepers who also want to digitize.
Why it matters: Amazon has developed and deployed unmanned retail technology in its Go store in Seattle. The difference is that JD and Alibaba are marketing their high-tech solutions to anyone who wants them.