Murder in Cleveland: Facebook's latest fiasco - Axios
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Murder in Cleveland: Facebook's latest fiasco

Cleveland police said on Sunday that a manhunt was underway after a man uploaded a video of himself killing someone to Facebook and then going on Facebook Live and claiming to have committed multiple other homicides "which are yet to be verified," according to police.

Facebook was unable to pull the Live broadcast down in real time, and failed to remove the killing video for several hours after the fact. The suspect, identified by police as Steve Stephens, is still at large.

Why it matters: There have long been questions as to whether Facebook is a media company or a technology company. It may be easier to think of it this way: Is Facebook a publisher that monetizes quality, or a distributor that monetizes quantity? This is a tough question for even Facebook to answer, because its mission reflects the former but their business model reflects the latter. Case-in-point:

The big picture for Facebook: How it will deal with this problem piling on others, such as the publisher backlash to Instant Articles and the still-bubbling concerns over its role in the rise of fake news.

The big picture for the media: How Facebook handles its latest video fiasco could set a lot of precedents for everyone in the digital ecosystem. Livestream and crowdsourced content involves risk for everyone: platforms, publishers, consumers and advertisers. There's no real regulation around either, forcing everyone to make some tough decisions around how to weigh the risk of an imperfect technologies:

  • Algorithms: Facebook has long used humans to regulate content on its site, but its impossible for humans to catch everything in real time. The company has tested algorithms and artificial intelligence to weed out this type of content from being uploaded in the first place, but the technology isn't there yet and miscalculations could inhibit users from accessing the technology who want to use it safely.
  • Human oversight: Facebook has people checking content around the clock to make sure if it that doesn't adhere to their "community standards," it's removed. But the interpretation of those standards is often up to the judgement of people, not computers, to determine what should or should not live online. Facebook last week cited "human error" for failing to remove child pornography content on its site, even though it violated its standards.
  • Mid-roll ads: Monetizing unregulated live or crowdsourced content can be difficult. Facebook says it's testing mid-roll ads with select publishers with the intention of scaling the technology further so that eventually a wide array of publishers can monetize their content with ads. How wide Facebook lets that publisher set get will affect what type of content companies ads are exposed to. (Google's YouTube crisis shows how messy this situation can be when you let the publisher set become infinite.)
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Trump heading to the border

Ted S. Warren / AP

President Trump heads to Arizona Tuesday for a visit to the border and a campaign-style rally in Phoenix. Police are braced for mass protests in the wake of Charlottesville, and the Phoenix Mayor, Democrat Greg Stanton, made a startling request that the president stay away from his city because his appearance, and expected pardon of Sheriff Joe Arpaio, would "enflame emotions and further divide our nation."

Why this matters: Trump has an opportunity on Tuesday to show his base that he's still as committed as ever, after the firing of Steve Bannon, to the big, symbolic, promise of his presidency — to build a mammoth wall along the border with Mexico.

  • But, but... I can't get a straight answer from administration sources on whether Trump will make a full-throated demand that Congress fund the wall in the government funding bill due at the end of September.
  • Between the lines: Some Trump administration officials are nervous about making concrete funding demands, in Arizona, that will be almost impossible to get Congress to agree to. Some senior White House officials have told conservative allies the wall fight should be postponed until later in the year, after a three-month, kick the can down the road, government funding bill gets signed in September. Either way, the wall fight could ultimately shut down the government.
  • Trump is also likely to promote the administration's success in driving down illegal entries, according to an administration source. Officials view Arizona as a case study of why border fencing works.

What else we're watching:

  • Trump will likely be joined by Acting Secretary of Homeland Security Elaine Duke, for the official portion of the trip. But which Republican officials will show up to support the president?
  • Will Trump use his speech to attack his enemies in the Republican Senate, Arizona senators Jeff Flake and John McCain?
  • Will Trump pardon Arpaio, as he teased to Fox News? I'm told the relevant paperwork is prepared for Trump to pardon the former sheriff, who was found guilty for defying a judge's order to stop racially profiling Latinos during patrols. But officials won't tell me — and perhaps they haven't decided — whether Trump will announce the pardon on his Arizona swing.
  • Will Trump endorse Kelli Ward as a primary opponent to Sen. Flake? Trump signaled last week that he may be preparing to endorse Ward, but I'm told some of Trump's allies have counseled him to hold off on the endorsement because they think she's a weak candidate.
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A brick and mortar juggernaut in the Amazon economy

bargainmoose.ca (Flickr)

The economic recovery is in its 7th year, and unemployment has sunk to levels rarely seen in a generation. Retail sales are picking up, too, growing at their fastest pace in seven months. But you won't see these trends reflected in the performance of most well-known retailers, as department stores like Macy's close stores, and household names like Sports Authority go bankrupt altogether.

This raises a question: Where exactly are consumers spending their money if not at the shopping mall? One answer is Amazon, but it's not alone in avoiding the retail apocalypse: LVMH, the French conglomerate and owner of brands Louis Vuitton and Sephora, had a 15% rise in first-half 2017 revenue, and that did not come by running fire sales — profit was up 23%. Investors have responded enthusiastically, sending up its share price by 20% this year, outperforming retail and and luxury sector indexes.

Why it matters: LVMH's success is a reason for traditional retailers to despair as much as hope. The secret behind LVMH's success is near total control of products from conception through manufacturing and sales, the opposite strategy of traditional mass-market retailers that largely act as middlemen and little more.

It's all about exclusivity: In world where consumers can buy nearly anything they want from anywhere in the world with a tap on a screen, the most desirable product a retailer can offer is one that not everyone can have. Enter Louis Vuitton, the 163-year-old luxury retailer that is LVMH's flagship brand, accounts for fully half its profits, and gooses customer demand by strategically restricting the supply of certain products. "Vuitton redefined the luxury business model a long time ago," says Oliver Chen, a senior analyst with Cowen. "They own their own factories, they source their own leather, and they own their own stores. When you have that, it's the ultimate leverage."

  • Vuitton has total control over distribution and pricing of its product, protecting its exclusivity and the company's profit margins.
  • This factor in its success was on display in Vuitton's recent partnership with the hyper-trendy lifestyle brand Supreme, where the pair agreed to sell limited editions of streetwear items like jackets, jerseys, and hats.

Make shopping fun: Next to Louis Vuitton, LVMH's most important brand is Sephora, the beauty retailer that has been gobbling up market share in the $22-billion cosmetic retail industry. Customers interviewed by Axios raved foremost about the in-store experience, with freely accessible samples of any product absent any interaction with a salesperson. If shoppers want help, these customers say, Sephora's staff is knowledgable and eager to find them the right look.

Go global: a perkier European economy and stable growth in China are two macroeconomic drivers of LVMH's stock price. According to Jelena Sokolova, a Morningstar analyst, Louis Vuitton's presence in key cities of the emerging world, like Rio and Shanghai, has set the firm up for its current success. LVMH is reaping the benefits as a cache brand in the world's second largest economy, which is still growing at more than twice the U.S. rate.

What goes up, must come down: Sokolova points out that Louis Vuitton's vertically integrated approach is risky. If customer tastes change, for instance, and the company is unable to charge premium prices, its high-priced leases for retail space in the world's most expensive markets could quickly become a millstone around its neck.

What about e-commerce? Cowen's Chen worries that Louis Vuitton isn't doing enough to cater to customers who want quick and convenient electronic shopping. LVMH's answer is Severes24, a multibrand luxury website that it hopes will marry its curatorial talents with the ease of online shopping. It launched in June, though the jury is still out on how the company's high-end customers will embrace it. Tristan d'Aboville, analyst with William O'Neill and Co. points out, however, that this is not LVMH's first on-line foray: it previously pushed products through a site called eLuxury, which it was forced to fold in 2009.

The bottom line: LVMH is demonstrating one formula for making a success of brick-and-mortar retail. That does not mean it can rest: Even high-flying luxury retailers like Louis Vuitton must constantly innovate as e-commerce matures and offers more products and more ways to buy them.

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How to invest in the singularity

Carolyn Kaster / AP

Peter Thiel has made some shrewd bets in his lifetime: a half-million dollar wager as Facebook's first outside investor, earning him roughly $1 billion when he cashed out in 2012; and more recently, his contrarian political bet on Donald Trump.

Need more evidence to recommend Thiel's foresight? Check out this video from the 2007 Singularity Summit (ignore the erroneous year in the video title), in which Thiel suggests how to bet on the singularity, the inflection point when machines achieve super-human intelligence.

Thiel's thesis is that the only real choice is a bet that the singularity wildly succeeds, and not that humanity is doomed (i.e., a Matrix-like conquest of man by machine). "If you are somebody who is predicting the end of the world, even if you are right, I think you will still not make a lot of money," Thiel quips in the video.

  • Thiel did this talk months before the financial crash pulled the U.S. into the Great Recession, and many years before the recovery led to today's lofty valuations for AI-intensive companies like Google and Facebook.
  • "If you have a singularity, there is presumably going to be one entity or one company or one team that's going to take over the whole world and be worth more than everything else put together," Thiel says.
  • In a world where the singularity is nigh, the only way for investors to bet on it is to invest in the entity that triggers it or some proxy for that entity (like, say, the San Francisco real estate market).

Thiel's predictions: We should expect booms and busts of successively greater magnitude as investors go all in on whatever they see as the future source of unbounded technological growth.

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The U.S. is risking an academic brain drain

Sam Jayne / AP

Linsen Li is a Chinese-born, 30-year-old specialist in advanced batteries — a postdoc in MIT's material science and engineering program. He received his Ph.D in chemistry from the University of Wisconsin, in all spending the last seven years in the U.S. His infant son, William, is an American citizen.

But he's reluctantly going home: Li tells Axios that, having received no teaching offers in the U.S., he's accepted a $65,000-a-year teaching slot at Shanghai's Jiao Tong University, along with the equivalent of a fat $900,000 in research funding, in addition to $250,000 to buy a house.

The program that grabbed him: Li is returning under China's Thousand Talents Plan, which seeks to lure back under-40 Chinese students and professionals to bolster the country's research sector. "I just don't want to think about it," Li says. " … I still would like to stay here if I find an opportunity. … I never actually worked in China. I did grow up and go to school, but I've never actually worked in China."

Why it matters: Absent a commitment to scientific research or immigration reform, the U.S. risks losing significant numbers of the foreign-born Ph.Ds and post-docs at its best universities to other nations. And this brain drain has the potential to accelerate should the White House continue its inaction on these issues.

The context: There is very little certainty around the Trump administration's plans for visa and immigration reform, making it easier for highly skilled foreign researchers and workers educated in the U.S. to be poached by offers elsewhere.

And the poachers are determined: Canada, France and China have been most open and aggressive about seeking out foreign talent studying in the United States. Financially, China's offers appear to be the most attractive.

The statistics: The Thousand Talents program is growing, funding 143 returning Chinese scientists in 2011 (out of 1,100 who applied) and 590 last year (from 3,048 applications.).

Li's case: For two years, Li has worked on one of the world's most prestigious advanced battery research teams — run by MIT scientist Yet-Ming Chiang. From there, he applied for research positions at seven U.S. institutions, and received no job offers. That's not a surprise: teaching and research positions are notoriously hard to obtain anywhere, but especially in the U.S. Li might have had a better shot at numerous American startups hungry for battery talent, but he said that, at this point in his career, he wants to try to make a splash in research.

So he turned his gaze back home: "A lot of us choose to go back because there are a lot of positions available — like hundreds of them — because the central government is investing a lot of money into this," he said.

The benefits:

  • Significant research investment: Li said that he'd be receiving a three-year grant worth six million yuan (about $900,000). Meanwhile, colleagues in U.S. academia are finding it increasingly difficult to fund their battery work, and have even begun to seek Chinese grants.
  • Financial flexibility: U.S. universities take about half of research grants as fixed overhead, sapping up funding before it reaches a scientist's hands. In China, overhead is closer to 10%, allowing more staff hiring and equipment purchases, Li said.

The negatives:

  • High expectations: China expects a lot from its repatriated scientists, like scientific breakthroughs and papers in high-profile publications, according to a Nature profile of the Thousand Talents Plan.
  • Reported problems with professionalism: The best Chinese universities — like Jiao Tong, where Li is headed — have research environments comparable to American institutions, but, per Nature, even the best of them can be riven with patronage, plagiarism, and academic fraud.

And it goes beyond academia: A recent Hired analysis found that the U.S. political climate has led tech companies to lose significant interest in hiring foreign workers — down 37% compared with this time last year — even as many foreign-born workers want to remain here.

  • Where they're going: That same Hired analysis found that nearly a third of foreign workers would choose Canada if the United States weren't an option, with Europe being another sought-after destination.
  • What Canada is doing: Canada introduced its Global Skills Strategy program earlier this summer, allowing 80% of foreign work permit applications from highly-skilled workers to be processed within two weeks.
  • What France is doing: After Trump announced his intention to pull out of the Paris climate agreement, French President Emmanuel Macron kicked off the Make Our Planet Great Again initiative, designed to lure climate scientists to France.
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Trump increasingly unpopular in the states that made him president

President Trump swept to the presidency by scoring upset victories in Michigan, Pennsylvania and Wisconsin. Now, his approval ratings in all three states sit at around 35% according to a new NBC/Marist survey. The polls were conducted after the events in Charlottesville.

Data: NBC News/Marist Poll, August 13-17, 2017; Chart: Andrew Witherspoon / Axios

  • In each of the three states, voters were twice as likely to say Trump has embarrassed them rather than made them proud since taking office.
  • Just last month, CNN found approval ratings of 43 (WI) / 43 (PA) / 42 (MI) in the three states.
  • In November's election, Trump scored 48 (WI) / 49 (PA) / 48 (MI)
Why it matters: Trump's economic message helped him outperform traditional Republican candidates in these states, and without them he wouldn't be president.


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Judge in Uber suit orders Waymo to disclose its own acquisition practices

AP

A magistrate judge has ruled that Waymo (and its parent company, Alphabet) must disclose certain information about how it conducts acquisitions in order to give the jury context about Uber's own process, according to a new court document.

Why it matters: In a lawsuit filed in February, Waymo accused Uber of stealing and using its self-driving car trade secrets when it acquired a startup founded by a former Waymo employee, Anthony Levandowski. So far in the case, Waymo has sought to paint certain steps Uber took as part of the acquisition process as unusual and suspicious, and plans to ask the jury to look negatively on these procedures.

A trial is scheduled for October.

More from last week:

  • The judge presiding over the case denied Uber's attempt to use a key argument (the "bonus theory") to explain why Levandowski downloaded files prior to leaving his job at Waymo, as Axios previously reported.
  • In a new document, Uber notified the court that although it's not conceding it infringed on Waymo's patents or trade secrets, it plans to redesign "Fuji," one of the of the two LiDAR sensors at the center of the case. Uber says that the redesigns are easy and help narrow the scope of the issues.
  • During a hearing, the judge warned that he may tell the jury about Uber's lawyers not "coming clean" about their possession of certain key documents and the law firm's role in the saga.
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Mattis: Trump has reached decision on Afghanistan strategy

Jacquelyn Martin / AP

Defense Secretary James Mattis said Sunday that, after a "sufficiently rigorous" review, President Trump has decided on a strategy for the War in Afghanistan.

"The president has made a decision. As he said, he wants to be the one to announce it to the American people."

Per Reuters: "One U.S. official, speaking on the condition of anonymity, said Trump's top national security aides are backing adding between 3,000 and 5,000 troops and allowing them to embed with Afghan forces closer to combat."

Flashback: This has been a contentious process within the administration. Trump reportedly stunned Mattis and other top officials by leaving a July Situation Room meeting without reaching a decision on Afghanistan. According to NBC News, Trump said the U.S. was "losing" the war and that he wanted a new commander in Afghanistan.

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Icahn exits as Trump adviser ahead of New Yorker story

Mark Lennihan / AP

Carl Icahn's resignation Friday from an unpaid post as Trump's adviser on deregulation was because he knew The New Yorker was about to drop a deep piece of reporting about him, according to AP:

  • "[T]he magazine points out potential conflicts and even possible criminal law violations involving obscure rules that require oil refineries to blend ethanol into gasoline."
  • And Icahn resigned after the White House had already disavowed him to The New Yorker. "[T]here was never a formal appointment."

Here's the juicy New Yorker piece, "Trump's Favorite Tycoon ... Carl Icahn's Failed Raid on Washington," by staff writer Patrick Radden Keefe:

  • "Icahn is worth more than the Trump family and all the members of the Cabinet combined — and, with no constraint on his license to counsel the President on regulations that might help his businesses, he was poised to become much richer."
  • "In conversations with me, financiers who have worked with Icahn described his appointment as a kind of corporate raid on Washington. One said, 'It's the cheapest takeover Carl's ever done.'"
  • "In our conversations, Icahn was unfailingly polite about President Trump. But it struck me that it must vex him that Trump — the lesser intellect, the lesser businessman, the little-brother tagalong — may now be too busy to take his phone calls."
  • This is a great sentence: "Trump may want to govern like a businessman. But Washington is a club like any other, with some codes and protocols that even the brashest arrivistes cannot ignore."
  • The whole thing is worthy of your time.
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Trump sparks rare big business backlash over Charlottesville

Evan Vucci / AP

The cover story of the N.Y. Times Business section quotes Darren Walker, president of the Ford Foundation and a board member at PepsiCo., as calling the forthright engagement of executives in the debate ignited by Charlottesville "a seminal moment in the history of business in America."

  • From the article, "Executive Powers," by David Gelles: "After Nazi-saluting white supremacists rioted ... and President Trump dithered in his response, a chorus of business leaders rose up this past week to condemn hate groups and espouse tolerance and inclusion. And as lawmakers in Texas tried to restrict the rights of transgender people to use public bathrooms, corporate executives joined activists to kill the bill."
  • Why it matters: "These and other actions are part of a broad recasting of the voice of business in the nation's political and social dialogue, a transformation that has gained momentum in recent years as the country has engaged in fraught debates over everything from climate change to health care."

A related piece runs atop the WashPost Business front, "Trump pulls off a rare feat: Inspiring C-suite moral courage," by Steve Mufson: "In earlier generations, businesses have been slow to join in defending rights, from segregated lunch counters in the United States in the 1950s to multinationals ... that kept doing business in apartheid South Africa through the mid- to late 1980s."

  • "So the businessman in chief has managed a rare achievement by rattling the members of America's business elite who have been hoping Trump would bring tax cuts and regulatory relief."
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Why top White House officials won't quit Trump

Pablo Martinez Monsivais / AP

There's lots of punditry about why people like Gary Cohn, Rex Tillerson, Dina Powell, Steve Mnuchin and many others don't quit the Trump White House in protest over Charlottesville.

  • New Yorker Editor David Remnick writes "The Divider," the lead item of the forthcoming "Talk of the Town" section: "This latest outrage has disheartened Trump's circle somewhat; business executives, generals and security officials, advisers, and even family members have semaphored their private despair."

Treasury Secretary Mnuchin yesterday posted a passionate response to Yale '85 classmates who had published an open letter calling on him to resign:

  • "[A]s someone who is Jewish, I believe I understand the long history of violence and hatred against the Jews (and other minorities)."
  • "I feel compelled to let you know that the President in no way, shape or form, believes that neo-Nazi and other hate groups who endorse violence are equivalent to groups that demonstrate in peaceful and lawful ways."
  • "I don't believe the allegations against the President are accurate, and I believe that having highly talented men and women in our country surrounding the President in his administration should be reassuring to you."

So why do the others stay? We talked to a half dozen senior administration officials, who range from dismayed but certain to stay, to disgusted and likely soon to leave. They all work closely with Trump and his senior team so, of course, wouldn't talk on the record. Instead, they agreed to let us distill their thinking/rationale:

  • "You have no idea how much crazy stuff we kill": The most common response centers on the urgent importance of having smart, sane people around Trump to fight his worst impulses. If they weren't there, they say, we would have a trade war with China, massive deportations, and a government shutdown to force construction of a Southern wall.
  • "General Mattis needs us": Many talk about their reluctance to bolt on their friends and colleagues who are fighting the good fight to force better Trump behavior/decisions. They rightly point out that together, they have learned how to ignore Trump's rhetoric and, at times, collectively steer him to more conventional policy responses.
  • "Trump's not as evil as portrayed": All of them talk up the president as more reasonable off Twitter and TV than on it. This gives them hope (though almost all increasingly say it's fleeting hope) he will listen to his better angels, or at least the pleas of Ivanka.
  • "We like the power": Well, no one comes out and say it this blatantly. But working in the White House, even this one, is intoxicating and ego-stroking. They have enormous say over regulations and rules, invites and implementation, government jobs and access to the Oval. They also know they are one step away from an even bigger job in government, so it's hard to just walk away.

One White House aide had a memorable response after I asked the question: "It puts Trump's tortured staff in a bigger jam: How do they look their African American friends in the eye, and rationalize their support of Trump?"

  • The aide gave me permission to share the thinking, which synthesizes what we hear from many administration officials:

I have absolutely no difficulty looking anyone in the eye. Here's why:

  1. Will I have the same, incredible opportunities to make a true difference somewhere else? No.
  2. If I leave, who will take my spot? Someone with my heart for making things better for ALL Americans? Maybe, maybe not. Huge value to country in good people serving right now.
  3. The Presidency is bigger than the person. And the WH has expansive influence on execution of broad range of administrative authorities.

Be careful: This White House and key federal agencies are starving for well-intentioned talent. The possibility of a catastrophic crisis, abroad or at home, is real. Rookies or boot-lickers are not what we need in those moments.