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Amazon boroughs out of NYC–Futurum Tech Podcast Episode 032
by Fred McClimans | February 17, 2019

On this week’s edition of Futurum Tech Podcast, FTP, we dig into Amazon’s H2Q and the decision to have a no-go. In our fast five, we cover lots of stories from Huawei to IBM to Apple and more. Then in our tech byte section we will cover the deep fake state and what does that mean to your future. We will end the show this week with a preview to MWC19, so tune in now for this week’s edition of FTP.

Our Main Dive

Jeff Bezos & Amazon clearly don’t have a New York state of mind, as the tech giant walks away from its planned HQ expansion plans, opting to focus instead on its Virginia HQ2 while distributing an optimistic 25,000 jobs across existing facilities. What happened? Is this really about business? Or politics? And is there a lesson here? We think so.

Our Fast Five

We dig into this week’s interesting and noteworthy news:

  • UK moves closer to anti-trust action against Facebook
  • Huawei’s 5G prospects just improved in the UK
  • The digital disruption of key fobs
  • Apple looks to a post-iPhone future
  • IBM’s Watson makes a guest appearance on non-IBM clouds

Tech Bites

AI, Generative Adversarial Networks, and the risk of not-so-deep fakes.

Crystal Ball: Future-um Predictions and Guesses

MWC19 is right around the corner – here’s what we expect and would like to see in the world of mobile tech!

Transcript: 

Fred McClimans: Welcome to this edition of FTP, the Futurum Tech Podcast. I’m your host this week, Fred McClimans, joined by my colleagues Dan Newman and Olivier Blanchard.

Gentlemen, welcome to this edition of FTP.

Daniel Newman: Excited to be here.

Olivier Blanchard: Good to be here, man.

Fred McClimans: Well, great. Great, because this is a big week. We have a lot of things to talk about. As we’re trying to focus on things that are current and relevant in the news, this week has just been full of hot topics for us to pick and choose from. Today we’re going to start off by diving a bit into Amazon and HQ2, that looks like HQ 1-1/2 perhaps.

We’re also going to take a look at what’s going on in the UK with Huawei. We’re going to dive a bit into some antitrust moves against Facebook. We’ll be looking at the latest on IBM’s Watson as well as taking a look at what Apple might look like in the post-iPhone era. Of course, we’ll be talking about AI and deep fakes, because it’s AI and deep fake week as we prep for MWC, where we’ll be giving you our predictions for the upcoming Mobile World Congress show next week.

Before we begin, though, I do want to remind people that the Futurum Tech Podcast is for information and entertainment purposes only. We will talk about a number of equities in this podcast, but we remind you, we’re not offering stock advice, nor should you take anything that we ever say as anything to even remotely consider as to what you might want to do with your portfolio.

With that, gentlemen, are we ready to talk about Amazon?

Olivier Blanchard: When are we not? It’s not Apple, but when it comes to companies that we like to talk about, I would say Amazon goes to the top of the list, but, yeah, pretty big week, huh, Fred?

Fred McClimans: This has been just absolutely amazing. For once, I thought when we talked about Amazon over the past week here, we might be talking about Jeff Bezos and his tabloid issue perhaps being the big news, but, no, the big news is actually that Amazon has pulled out of New York City as one of its two Headquarter 2, HQ2, locations after an absolutely furious battle with local politicians, union leaders, and anybody that simply doesn’t like Amazon in New York City.

I’ve got to say, while there’s a lot to unpack here, and then hopefully we’ll get through a lot of it here, I do think that at the end of the day, the decision to pull out from New York City is something that will ultimately hurt New York City. I think that it’s the sheer number of jobs, the sheer economic impact there, while there was not a lot of discussion about how to actually fix what people perceived as issues, I think that’s an area that perhaps should have been considered a bit more before a lot of the reaction here. Because, let’s face it, 25,000 high-paying jobs over ten years, even over 20 years, that’s a big thing economically.

Dan, I can see you want to say something there. I can see it.

Daniel Newman: Yeah. I never really am missing a thought, an opportunity to use the microphone. It’s sort of like magnetic for me. I have to say, before we even dive deep into it, I have this weird feeling, it was like a sixth sense, it felt like the breakup was happening long before the breakup actually happened.

Fred McClimans: Yes.

Daniel Newman: I feel like there was a lot of subtle cues. If you followed the tea leaves and you listened to the news and the media, there seemed like from the time it got announced, there was almost this steady decline. I would love to do some analysis at some point of sentiment against this decision in the media that took place between the time it was announced and the time it crumbled, to see that consistent drip of negative publicity of political activism, of general social activity, that was going on that was negative towards this particular decision.

I almost felt like there was a relief on the behalf of Amazon when it took place, that they were somewhat relieved as a company that they were able to get out. It was almost like they decided, they had buyer’s remorse, and they were ecstatic to be like, “You know what? This is our chance.” I’ll make one more add to this. The fact that they did not immediately announce to start the search again or to possibly move to one of those other locations that was sitting, makes me wonder if there wasn’t a hope to get out altogether, because it doesn’t sound like HQ2’s going to happen right now, at least not-

Fred McClimans: No, they’ve been very clear.

Daniel Newman: If it was really that necessary, this particular decision wouldn’t have stopped them from doing an HQ2 elsewhere. I’m not quite sure if it goes back to our last episode, with Jeff Bezos sending illicit pictures or their company’s value having taken a bit of a hit over the past few weeks, but it almost seems like the confidence was down. This was like a perfect storm of media, social, digital, revenue profit behaviors, that they go, “You know what? We’re scratching that, and we’re just going to go back to one headquarter for a while and back to our comfortable ways and scrap everything that we had planned.”

Fred McClimans: I think if they have to choose between New York City and Virginia/Metro DC area, if I’m Amazon, I choose Virginia/DC Metro area any day of the week just for political reasons and convenience there, as well as the deal that they were offered, was a pretty good deal.

But, Olivier, I want to get your thoughts on this, but first we’ve got a nice list here pulled together a timeline, and it goes way back to the beginning of Amazon. I’m just going to cut right to that. If humans have been around for a minute, how old is the universe type of situation, and start with November 13th of 2018. That’s the date that Amazon announces they’re splitting their HQ2, or H2, between Long Island City and New York and Crystal City in Arlington, Virginia, which is then renamed National Harbor.

On the 14th of November, protests start. Immediately they start, city council members. On November 19th, there’s an op-ed that Governor Cuomo posts on the official site. It is not received well. On the 20th of November it’s reported in the Wall Street Journal that a handful of Amazon employees have purchased condos in Long Island City before the deal was made public, which brings up a whole other issue, because there are a lot of people who bought massive properties in New York City after this deal was announced, on speculation, and they are now crying foul in a very large way. On December 11th of 2018, the bid that the company, or that the city made, with the state is made public and is quickly taken down after a number of elements are revealed that just sound wonky, like Governors Island being pitched as a retreat for Amazon employees. Go figure.

Moving along, let’s see, they start hearings in New York City on December 13th. On December 18th, home prices start to go up dramatically. On December 20th, the backlash grows even stronger. Three city council members are introducing legislation to prohibit New York City from engaging in any type of nondisclosure agreement related to city negotiations, which was a part. The terms of the actual Amazon deal were signed under nondisclosure in many areas. Moving along here, in January, Amazon runs an ad talking about all the great things that they anticipate doing. That ad is then distributed on Twitter with middle fingers all over it by everybody in New York City. Moving along here, this is an interesting one here.

In February, the New York State senate majority leader, Andrea Stewart-Cousins, nominates Michael Gianaris, who is a strong opponent to the deal, to the Public Authorities Control Board. This is a five-member community that actually has veto power over the deal. This leads to Amazon ultimately making a number of quick statements and then finally pulling out on February 14th, saying, “All right, that’s it. We’re done. We’re not going to deal with this. We’re not going to deal with the harassment. We’re not going to deal with the headaches.”

Amazon certainly had the opportunity to sweeten the deal, to say, “Yes, we will hire X percent of employees from this area,” or, “We will sweeten the infrastructure and the job training and so forth.” They didn’t. They simply walked away. Now, facing potential veto here, yeah, okay, that’s great, but if they really wanted New York City, and if they really needed the place, and I’m Amazon, I fight for it and say, “Look, this is the right move for us.”

Dan, as you pointed out earlier, they didn’t. They backed away, which has me now questioning, do they really need this second facility, or was this some kind of a type of a play to maybe broaden their reach by dividing the headquarters into three instead of two? At the end of the day, Amazon’s clear, “We’re not going to launch another search or pick another option.” Maybe the other options really weren’t that great, but they’re just going to reallocate the 25,000 people to Lexington, Kentucky, where they’re opening up a new facility. They’re going to add some to the Virginia facility here and distribute the rest around the country.

Olivier, you are our conspiracy guy. What’s the conspiracy here?

Olivier Blanchard: There’s no conspiracy, but I’d like to remind everyone that Amazon still could open its headquarters in New York if they wanted to. The only thing that New York’s done is it’s rescinded its tax credits. There’s no law in New York banning Amazon from building anything there or moving its headquarters there. So, I just want to take a giant step back and look at the optics of this.

Here you have one of the most successful, one of the most valuable companies in the world, that makes hundreds of billions of dollars of revenue per year. We just found out ultimately pays no federal taxes or very little federal taxes on that through very clever use of the tax code. That’s not their fault. If I were running Amazon, I would be taking advantage of those tax loopholes as well. But you have a company that’s immensely profitable, that pays virtually no federal taxes, that is asking for billions of dollars in tax subsidies from New York to move its headquarters there.

On top of that, the 25,000 employees that were going to come to that headquarters, there was absolutely no guarantee… Actually, it’s unlikely that most of those workers would be local, right? You’re talking about a technical company, or a technology company, that tends to hire highly skilled technical staff that usually has to be brought in from the outside, which means that a lot of people were going to be brought into the New York metropolitan area, but many of those jobs were not probably going to be given to New Yorkers. From an optics standpoint, it was kind of a big pill to swallow for New York to devote so many of its resources to basically catering to this very wealthy, very profitable company, that doesn’t need to do this.

Second, if Amazon, or any company like Amazon, wants to really have a positive impact on a region by creating local jobs, it can do that without entering an urban area like New York. It could go up the river a little bit to Rochester, for instance, and put its headquarters there, which would be in very close proximity to New York, and where I think, was it Kodak, had a plant that closed there?

Fred McClimans: Rochester is way up the river. That’s up the Hudson and then across the Mohawk.

Olivier Blanchard: Yeah, close enough, closer than Virginia. It’s Amazon. They have drones and delivery vans. I guess they could have barges too. But my point is that there are a lot of areas around the country, whether it’s around New York or around, in other metropolitan areas, where manufacturing plants and warehouses have closed in the last ten years that really could use those jobs. When I hear that some of those jobs might be moved to Kentucky, for instance, to me that’s a good idea, that’s a good plan.

Overall, I think that New York doesn’t necessarily lose here. I think that the impact on housing prices in the New York area would have been massive and not positive for renters and commuters. I think it would have been good for property owners but for nobody else. I think ultimately Amazon made the right choice by backing out of a deal that would have been risk making Amazon more unpopular that it wants to be and that it needs to be.

Fred McClimans: Let’s put some contrast on this. Google, last year, they spent 2.4 billion dollars to purchase Chelsea Market in Manhattan, midtown area, to expand their office space. Just within the last week or so, they’ve announced that they’re spending another billion dollars to build a new campus in New York. I think in total they’re looking at I think doubling their 7,000 staff over the next X number of years, a very different approach than Amazon, a large number of staff actually on site. Would this have been a better approach to this, Dan, if you think they just kind of, Amazon had slid in quietly into New York?

Daniel Newman: I think Olivier’s one of the smartest guys I’ve ever met. I have all these books with him, but I don’t know about that, Olivier. That’s a lot of altruism from a company that is typically known for abusing its workforce in every market and has an overwhelming reputation of this. In fairness, this is not speculation. This has been published in many cases. The company, who, as you said, pays no tax, or virtually no tax. I don’t think they think about what’s good for anything but what’s good for Amazon. Part of it I will agree on is if they did some analysis and decided that the effects and impacts of their popularity would be more impactful and negative towards their sales than it would be to help them grow.

Olivier Blanchard: That’s what I mean. I’m not saying they were being good corporate citizens.

Daniel Newman: Obviously, I don’t see any altruism in this move whatsoever. I see they did some analysis. They had some buyer’s remorse. They saw some shift in demand and the economy. Maybe they’re looking forward to the slowdown that the rest of the world isn’t seeing, and they decided they didn’t want to be so committed to any investment in the short term. I just don’t see any altruism in it. I still think they, if anything, could benefit from an East Coast hub, so I do get that, because being just who they are, they’re big on the West Coast. They don’t have nearly the presence on the East Coast. They could benefit from that.

As you said, they could do it later. They’re not going to do it without massive tax breaks. No company in this current administration that has a corporate and enterprise leaning leadership is going to take a bid and bite off a huge commitment to the US economy without a massive tax break. It just is not going to happen.

Fred McClimans: Yeah, but on the other hand, Dan, I’m assuming that Amazon had a fallback plan, Plan B, Plan C, whatever you want to call it. From the very beginning, that if they got to the point where, “Hey, we’re adding up the increased expenses here in New York City, and here’s what it’s going to cost us, yeah, let’s just go back to this plan here, and let’s distribute the jobs where we’re not getting any tax benefits, we’re not getting any additional buy-in from the local communities to add additional staff.”

Daniel Newman: Or they’re just not getting a big enough, or it’s not a big enough deal, that we’re hearing about all the incentives. Because I’m sure when they get 500 new employees or a thousand new employees in a smaller market, they can go and beat up on every one of those local municipalities and government entities to get some sort of incentives and breaks for bringing jobs to those communities. We just don’t hear about it when it’s not HQ2 level type of negotiations, right?

Let’s face it, there could be a little bit of a… Olivier, you’ll like this from the amusement of a conspiracy theory, but maybe Trump was planning on putting his name on this as some sort of credit. His presence is very big in New York, and I can guarantee one thing. Jeff Bezos is not going to move anywhere or do anything where Trump might try to put his own credit on it. I’m being a little bit far-reaching there, but I’m just saying, it is possible that…

Olivier Blanchard: It could be like Factor Number 35, but, yeah, sure.

Daniel Newman: Well, it could be 32. There is a serious discourse and issue between those two characters right now. That is as big as The Washington Post and The Enquirer that separates the two organizations.

Olivier Blanchard: I think also that Amazon might have just screwed the pooch here. I think that they might have, they might have thought that they had their ducks in a row, and obviously they didn’t. They should have, before announcing this, before actually saying, “Okay, we’re…” getting the shovel out and having their little groundbreaking ceremony, virtually or literally, they should have made sure that they had the right people in place. Obviously, they had not secured the support that they needed with local politicians to actually make that happen. It’s kind of like an egg-in-face situation for Amazon there, where when they realized they didn’t have the right people in place, they couldn’t win this fight. It was easier to just walk away and save face than to try to die on that hill. Nobody was going to die on that hill.

Fred McClimans: That brings up the uninteresting question, though, is that really egg on Amazon’s face, or does this go to De Blasio and to Cuomo and-

Olivier Blanchard: I don’t think there’s any egg on anybody’s face. I think it all came to an end quickly enough that no one is embarrassed by this. We’ll always remember the HQ2 debacle with Amazon trying to go to New York, and the pro-Amazon and pro-business people will see New York and socialists and Alexandria Ocasio-Cortez type politicians as being anti-business, and everybody else on the other side will just see it as, “We like Amazon, and we want to bring businesses into cities, but let’s not do in this way, and let’s not give them that much money.”

Daniel Newman: Did she threaten a 90 percent tax on them after the-

Olivier Blanchard: She’s not that powerful. She’s more-

Fred McClimans: Ninety-five, 95 at least. Gentlemen, I think if there’s on positive that comes out of this, it’s that corporations, as they expand, as they strike deals, they have to do it in a much more transparent way, or at least make sure that the city governments, the state governments they’re dealing with are being open and transparent and have that level of buy-in for something like this. That said, I hope we never, ever see a competitive bid like Amazon’s HQ2 again. I think it’s just, it’s counterproductive across the board. It does not bring out the best in our business or our social environment today.

With that, gentlemen, let’s jump into our fast five today. We’ve got a few minutes left here to spin through five quick-hit items. Olivier, I’m going to start with you. UK Parliament and Facebook and the words “antitrust?”

Olivier Blanchard: Yes, yes. Aside from the Brexit foes of the British Isles, the UK Parliament did actually find time to do an investigation into Facebook. The UK Parliament is now calling for an antitrust and data abuse probe of Facebook. I’ve highlighted some of the main points or the main recommendations of the investigation that went into making that recommendation.

Among some of the main recommendations, and I’ll just go ahead and read them, what they’re asking for are clear, legal liabilities for tech companies, not just Facebook, to act against harmful or illegal content, with the committee calling for a compulsory code of ethics overseen by an independent regulatory body with statutory powers to obtain information from companies.

They want to focus on privacy law protections to cover inferred data so that models used to make inferences about individuals are clearly regulated under UK data protection rules. They want to establish a levy on tech companies operating in the UK to support enhanced regulation of those platforms. There’s a call for the ICO, which is an investigative body in the UK, to investigate Facebook’s platform practices and use of user data. Also, they’re recommending changes to UK election law, which is a pretty big deal, to take into account digital campaigning and promote absolute transparency of online political campaigning and I’m assuming ad purchases.

There’s a bunch of stuff going on there. It’s not just an antitrust case. The entire role that digital platforms end up playing in data collection, information dissemination, and the role that they play in influencing voters before or during elections is being put into question by the UK. I think it’s a good thing. I think we’re probably going to start seeing the same sort of thing across Europe and eventually in the United States.

Fred McClimans: Interesting. A little bit perhaps far-reaching, and I wish them luck with a lot of those initiatives, but I think you’re right. I think these are all good questions. The challenge will be, are there any teeth behind them? And at the end of the day, can they actually affect any meaningful change?

Olivier Blanchard: It’s a wish list versus how to actually execute on it, so-

Fred McClimans: Right, right. All right. Dan, moving over to you, also in the UK, Huawei, what’s going on there?

Daniel Newman: The Financial Times first reported, it appears that UK has made a bit of a U-turn with regards to Huawei, and they have now reopened their consideration to utilizing Huawei’s highly capable 5G infrastructure, but that same infrastructure that has come under fire in a number of major markets, including Australia, New Zealand and the United States. This is a pretty big U-turn and a little bit of a kick in the teeth to US cybersecurity efforts, as there was a bit of a unified front growing around the world, and with this big 5G transition looming, the companies making decisions on infrastructure were leaning heavily away from Huawei.

We’ve talked about on this show before, we all believe Huawei’s technologies and products are highly capable, but there’s been a lot of suspicion in terms of the intention and behaviors that go on behind the scenes, and with something as critical as your telecommunications infrastructure, not being able to take risks like this.

However, the UK’s National Cyber Security Centre and some of its leaders believe they can manage it and that they understand how Huawei’s technologies work and that they do not believe it may be the threat that it was earlier reported, and they are going to consider and make a recommendation to the leaders and those making the final decisions in procurement that this hurdle could be overcome, which would be a big hit, I’d say specifically for their European counterparts. I wouldn’t say EU anymore necessarily, but for companies like Nokia and Ericsson, who are in the region, who were set to benefit significantly from the company moving away from Huawei.

It is to be seen; this recommendation is not final. It could in fact be overturned later on in the decision-making process, but after a number of losses for Huawei, this would be, I guess you could consider it a small win and a little tiny, positive step forward.

Fred McClimans: Yeah. No, I think, if I’m Huawei right now, I’m jumping up and down. I’ve got to ask, though, when you look at something like this, politically, this is a pretty clear break between the UK and the US. The US has been championing shutting out Huawei from markets everywhere. Then sort of on the flip side, we’ve talked about the strength of Huawei and how if they only had access to the complete global marketplace, that they could easily be one of the top dominant players in the tech space.

Dan, just real quick, do you think there’s a political issue here that’s creating this potential recommendation?

Daniel Newman: Oh, man, I thought we had that disclaimer in the beginning, this show is not for political… Oh, that’s financial-

Fred McClimans: Yes, financial, Dan.

Daniel Newman: I’m just kidding. I thought we don’t talk about politics. Anyway, I certainly always believe that behind the scenes there’s some political poking and prodding that is going on. I don’t see how the UK didn’t know that it could come under fire in something that would be so easy for them to just stand by. Because even if they do think Huawei’s infrastructure might be incrementally better, to potentially create divisiveness in this global front by these countries who are very concerned about security and privacy, it seems to certainly create risk and to create political mayhem that wasn’t necessary and could have been avoided.

You and I, we’re not in the war rooms with these guys, but I would say deep down in my heart I believe there’s always interests beyond just business, or you could say, “It’s just business.”

Fred McClimans: There you go. It’s just politics. Nothing personal. I’m going to move on to something a lot lighter with this. A few weeks back, we talked about sort of a mystery, where key fobs were not working for cars in a Canadian town. There was sort of a dead zone in this one shopping area where key fobs would not lock or unlock vehicles correctly and would not start vehicles if they were supposed to, kind of an interesting thing. They looked at a whole slew of different issues related to the power grid, to local WIFI networks, cellular networks, all sorts of interference, and it turns out that the issue here may actually have been one of a remote car starter malfunction.

One of the vehicles in the parking lot had a remote starter device that was not working properly and was sending out a signal that quite literally was blocking the technology of the other devices in that local area. I think this one is particularly interesting only because as we become more and more reliant upon tech, we need to remember that tech is so easily disrupted. Shutting off something like remote car alarms, remote entry access into our cars, into our houses, into our businesses, is certainly something that is out there.

The good news, they figured out what it was. The bad news, it’s something that anybody that’s within a 100-mile radius of Radio Shack could replicate in about 30 seconds. With that, Olivier, I’m going to throw it back to you. You’ve got something interesting here about Apple and the post-iPhone era. What’s going on?

Olivier Blanchard: Yeah. There’s an interesting article that I’m not going to get into, because it would take too long, so I recommend that you, whether you subscribe to The Wall Street Journal or just use your one of two free articles for the month, check out the story called Apple’s Executive Shake-Up Readies Company for Life After iPhone by Tripp Mickle, which was updated earlier this afternoon.

Essentially, it details kind of the strange and that the flurry of incoming executives, outgoing executives, executives moving around to different parts of the company, and I think what it does is it signals a big shakeup at Apple. I think there are two ways of interpreting this. One is obviously the company is in transition. It’s reorganizing itself to move in a different direction and to prioritize certain types of product lines and business endeavors.

But one way to interpret it is to say, “Well, it doesn’t seem that Apple really has a clear vision of the company that it wants to be in the next decade.” I think that it’s trying to figure out its direction going into 2020 and obviously putting the right people in the right place and getting rid of people who don’t need to be there, and with people also maybe exiting because they don’t like the direction or the lack of direction.

I think what it means is that Apple eventually will probably find its way again but that right now it is not on the path that it will be five years from now and that it’s kind of struggling to figure out which direction it wants to go. I guess we will have to wait and see what happens.

Fred McClimans: Interesting, yeah. The debate over whether this is a well-orchestrated or a haphazard plan, I guess, will continue to go on there, but-

They need to change. I think you’re probably right. I think figuring out what that right mix is a bit difficult and even difficult for us, because we don’t know the full extent of where Apple is going with their streaming video services, where they’re going with their Project Titan AV services. I wish them luck on that. Certainly, they’re doing a lot to keep us busy and on our toes.

Dan, throwing this one back to you, our final fast five of the day, Watson and artificial intelligence, what’s going on there?

Daniel Newman: Watson’s going wild, gentlemen. It’s pretty exciting. I’m on the heels of IBM Think last week, and while Watson had a bit of a unrewarding finish during its debate or project at the event, losing to one of the world’s top debaters, Watson is still one of the biggest bets that IBM is making and has been one of their key subject lines for a long time.

Ginni Rometty, I believe, has planted her stake in the ground and climbed that hill and plans to die right on it if Watson doesn’t make it, and in a move to help Watson make it and ahead of the Red Hat acquisition, which I think will be the focus once that happens going forward, IBM has democratized. It used to be only run on IBM cloud and then last year on On Premises private clouds within a Kubernetes container containing Watson, but now Azure, Google and AWS, our friends at Amazon, will now all be able to offer Watson as part of their service on the public cloud using Kubernetes, putting Watson in a container and utilizing it in their environments and their sandboxes. Pretty exciting stuff.

It opens a whole new world of Watson. As we all have known through our analysis or discussions of public cloud, IBM is definitely down there on the fifth, sixth, seventh player. They have not seen the growth, have not seen the large market share improvements that others have seen in public cloud, so they really needed to open the door for Watson here, because it is one of the most popular products. It is a very sophisticated engine for inference. It can get you 5, 10, 15% more than some of the open source products that are available in market out of your machine learning algorithms, and companies are interested in using it.

While it hasn’t necessarily been the success that people are hoping for or have hoped for in different applications, like, for instance, in healthcare, they have made a ton of strides, put a ton of investment in it, and opening it up to the public cloud and giving all these people access to it is going to open new possibilities in ideally market share and awareness for IBM that they need and that will help them, especially with, like I said, all their moves toward Red Hat and more open source relationships in the near future.

Fred McClimans: Wow. Let me ask you, Dan, quick follow-up question. Is this in your opinion long-term design event or short-term need event?

Daniel Newman: I think the answer is yes. I think it was time. The year ago they developed Watson for private cloud, so they started the process of containerizing and allowing it to run off of IBM’s cloud in a private environment. At that time, they theoretically realized it was possible to do the same thing in a public environment. It goes back to what I said. Their public cloud market share since the acquisition of SoftLayer has not grown at the rate I believe they anticipated. AI and inference engines inside the public clouds are growing exponentially. We’re seeing what they’re doing.

I just was at Microsoft Dynamics Business Apps event, and AI is all over Azure. They’re making it very available. They’re making it, every citizen a data scientist that can leverage ML, and that’s always what Watson has been about, about simplifying and democratizing AI. But if you only host it in your environment or in an on-premises environment, you’re missing a massive percentage of opportunities to incorporate it into ERP, CRM, cloud apps, tools. By doing this, they’re opening up the doors. It should be new revenue streams for them.

Like I said, with open source being part of their long-term future, this is one more reason that IBM’s going to have their hooks in a lot of people who maybe aren’t using their cloud or other services currently.

Fred McClimans: All right. With that, gentlemen, we’ve talked about a lot of interesting things today. Let’s talk about something that qualifies for our tech bytes segment, that one time a week where we look at what’s happened over the past week and go, “Oh, man, that bites.” In this case, we’re going to talk about something that, it’s kind of interesting but it also bites as well for a couple reasons that we’ll talk about here in a moment. That is a website that popped up recently called, ThisPersonDoesNotExist.com. This particular website highlights a development effort that grew in part out of some work at NVIDIA, the GPU company, the graphics gaming and AI processing.

It leverages something called generative adversarial networks, or GANs, which are essentially a way for dueling AI stacks to compete against each other. One is a generator that creates something, and the other is a discriminator that works against it. They have the same based data sense, and ultimately by competing against each other, they create something that achieves their ultimate goal. In this case, that goal was to on the fly generate human looking faces.

If you go to that website, ThisPersonDoesNotExist.com, every time you refresh the page, this system generates a new human face. It could be a young person. It could be an old person. It could be a man. It could be a woman.

Sometimes two people side by side. I’ve got to say that this particular algorithm here, the demonstration is really fascinating but also a bit scary. There are some issues with some of the images. The algorithm doesn’t quite handle teeth as well as you would expect, and sometimes ears are a bit off in places, but if you’re looking at these images on a mobile device… I’m using my iPhone 8 Plus here, unless you really zoom in closely, you can’t tell the difference between an actual person and this one-of-a-kind artificially created image.

This kind of brings up the whole issue of using technology to create fake personas, fake individuals, and aligns up closely with some of the issues that we’ve seen with deep fakes, with people actually taking this technology and programming it to mimic a specific person, which when you combine with some of the voice synthetization capabilities, synthetization, voice-

Olivier Blanchard: Synthetization.

Fred McClimans: Synthetization. Thank you, Olivier, capabilities, can actually produce images and movies that look, act and sound a lot like people that they shouldn’t. My concern here is that this is a really great technology, but unless we have some type of control over the technology in some way, this could be something that becomes a very negative influence on society and business and politics and everything else.

Olivier, I’d love to get your thoughts on this. Do you think there’s an upside here, or is this just really going down the wrong path fast?

Olivier Blanchard: I don’t know what you guys are talking about, because I click on that website, and they just keep showing me pictures of myself, and then it flashes this message on the screen that says, “Seven days,” and it was seven days ago… No, wait, that’s a totally different movie.

No, I think the negative thing about this are obviously the deep fake porn applications, which a lot of Hollywood stars and a lot of just regular people, are concerned about, because there’s an easy way to abuse this in the most horrible and degrading way for people who don’t want to be involved in that kind of thing.

The more problematic issue is that as these deep fakes become very realistic, and we know how easily people are fooled by fake news and fake information and hoaxes, it would be very simple, whether it’s six months from now or three years from now, for this technology to be used to, for instance, create fake videos of world leaders making speeches or making declarations. It could cause a lot of at least short-term confusion with the public if a very organized group of hackers managed to take control of a number of key critical communication channels and disseminate those types of video or tricked photos about politicians and world leaders who might have a message or who might be shown in compromising positions or whatever else the creative aspect of the content would be.

That’s the only thing I would be worried about. I hope that AI can be not just the problem but also the solution and find ways of identifying deep fakes fairly easily for the general public.

Fred McClimans: I think the best way to identify deep fakes right now is probably going to be AI itself.

Olivier Blanchard: Yeah.

Fred McClimans: Trained to do that. I share your concern, because the idea of deep fake politicians or deep fake viral coverage, there’s a shooting somewhere. Where’s the video? Oh, here’s the video. Doesn’t that look real, and it’s not. I think that is incredibly problematic. Dan?

Daniel Newman: I think Smollett right now is looking for some deep fakes.

Olivier Blanchard: Yeah, one way or the other.

Daniel Newman: “Yeah, those weren’t real people. Those were deep fakes.” In all serious, I think on the surface, Olivier, I think you talked about critical infrastructure. I think just basics. As we know, people can’t discern good media from bad media, real media from fake media, and so you see a video pop up in your feed… You see these Twitter accounts created all the time that are just knock-off accounts of real people, and they look pretty real. If you don’t glance long enough or understand verification and what the real account is and what the non-real account is and what the fan account is, all of a sudden you think that you have some person up there reading Hitler propaganda, because it isn’t that hard to do.

That’s the thing about, that’s so scary about this, is it isn’t that hard to do. It isn’t that hard for them to recreate these and to replace people and to put… Facial recognition, for instance, is being used as a heavily enabled tool for solving criminal activity. Then you can have somebody hack the system and put your face over someone else in the act of committing a crime. It would be very easy, as you said, to create so much confusion.

I don’t really know how you’re going to regulate this. That’s the scariest thing about it is, how do you control this? What kind of controls can you put on this, because up to this point, while people can hack documents, people can take your identity, no one has been able to completely feed your physical existence yet. You can’t do that yet. It’s almost your DNA. It’s almost like you have to enable, there has to be physical human chips embedded in us, and this has to happen soon, to associate location. Otherwise, they’re going to constantly be putting people where they’re not, and the only proof is going to be, where were you physically located at the time that this particular deep fake was created. It’s crazy scary.

Olivier Blanchard: Alibis have always been kind of like a hallmark of being at the location of a crime or not, so that doesn’t change, but you’re right about that the chips or having your phone with you or having other kind of evidence that shows that we’re not where the deep fake crime was-

Fred McClimans: They say forensically, though, that the worst type of evidence is eyewitness evidence, because we know people see things differently, they have a different perspective on what happens, they see something just a split second before or after somebody else. Their view is different here.

Olivier Blanchard: What I’m trying to figure out is, if this technology is so good, why is that Hollywood, with billions of dollars’ worth of CGI effects, could not fix Superman’s upper lip in mustache-gate, right? There’s a problem there. There’s a gap between what I’m seeing with this deep fake stuff and what Hollywood is capable of doing with CGI. I’m having a hard time with how much room there is in the middle that’s not being reconciled there.

Fred McClimans: Maybe we look at some point to some type of verified media standard that says, “Look, here’s a piece of media. We’re willing to submit this media to independent third-party inspection and have it certified that this is authentic media, authentic video.” I don’t know if that helps or not.

Olivier Blanchard: The third party is the deep state. If you’re a conspiracy theorist or [crosstalk] kind of thinking, there’s no third party that’s going to be independent in your mind. What worries me is just before an election, if 72 hours or 112 hours before an election, suddenly a video emerges of a leading candidate committing a crime or saying something or being caught in a compromising position, that could be enough to steer just the one percent or two percent of voters in specific areas where the video is shown over and over and over again, to maybe not vote or change their vote.

Fred McClimans: Perhaps. But we have a well-known politician who has publicly said he could walk out in the middle of the street and shoot somebody and still win an election.

Olivier Blanchard: We don’t have video of that.

Fred McClimans: Yeah, we don’t have video of that. Gentlemen, I think the best conclusion we can come to here is this is a nasty issue, and there is no easy way to solve that, but what we can do is we can make some predictions about the Mobile World Congress coming up next week.

Olivier Blanchard: Yes.

Daniel Newman: Nice transition.

Fred McClimans: Yes. Gentlemen, we’ve got a short, brief time period left here, which will probably take 30 seconds to do 30 minutes. Dan-

Daniel Newman: We hope you like our show, because we never keep it short.

Fred McClimans: No, no. I’m going to start with Dan, and then, Olivier, gentlemen, give me your top two predictions for what you expect at MWC next week.

Daniel Newman: Yeah, I’m going to go with 5G explosion, because last year was the 5G dynamite. It was only a little bit bigger. The dynamite was set a year ago. The explosion is coming this year. Everything, everyone, will be 5G. I’ve got another one, but I’m actually going to save it and leave it open for Olivier. I will just say AI will continue to dominate conversations. We’re going to see devices with more and more AI capabilities built into them launched by everybody, Huawei, Samsung, Xiaomi, LG, HTC. I don’t think the fruit people go there. I don’t think they-

Fred McClimans: Not so much, not so much.

Daniel Newman: … feel obligated, which is crazy, because it is the biggest show on the planet, but when you’re bigger than the planet, you don’t need to go to the biggest show on the planet. That’s mine.

Olivier Blanchard: Everything that Dan said plus I think that we see a definite fork in the road for mobile, where in one direction you’re going with super killer cameras, huge memory, very fast speeds, like really incredible camera and screens for everyday use, and then the bifurcation is mobile gaming. I think that we’re going to start seeing some very high performing phones designed specifically for mobile gaming. That will be one of the big developments at this year’s MWC.

I also think that we are going to see a lot of, quote, unquote, “AR lights glasses.” The short version of this is everybody’s waiting for the AR goggles, the AR glasses, right? To put all the functionality of a giant AR goggle into a tiny eyeglass form factor, like glasses that we wear to read better. We’re not quite there yet, and so the transition period is, while AR companies are putting out new and improved and progressively smaller goggle form factors, a lot of eyeglass manufacturers and tech companies are putting some sort of connectivity and technical functionality into normal eyeglasses.

What we’re seeing with AR light is very rudimentary projection, like holographic projection, for texts and emails and notifications and also Bluetooth connections with a tiny battery microphone and earphones so that your glasses can be used to make phone calls. A lot of these are being called AR glasses. They are not AR glasses. They are just connected glasses, or AI lights, and I think that those are going to be really popular as well. I’ll take some pictures and shoot some video and share it with the class while I’m there.

Fred McClimans: Excellent. Excellent. I look at MWC, and this is something that the three of us have been chatting about a bit offline here. I think that rather than saying what I think we’ll see, what I’d actually like to see this year is a shift, and kind of extending on what you talked about there, Olivier, with the glasses, I’d like to finally see us make the shift from mobile devices that look like phones to mobile devices that are more non-mobile device phones, that are part of that larger ecosystem. Some of that is wearable. Some of it is just new form factor and new function built into devices, but especially with the advent of 5G coming quickly here, I think we have a great opportunity to literally rethink what it means to be connected to a mobile device and the value proposition of that device. I’m hoping we see a lot of that this year. I’m not super optimistic, but that’s what I’d like to see out of MWC this year.

Olivier Blanchard: I think it starts this year. It will be a few years. Like Dan said, it’s this transition from looking down at a device to looking forward like you’re supposed to.

Fred McClimans: Right.

Olivier Blanchard: Having that information in front of you.

Daniel Newman: Our bodies are actually changing. The muscles are being trained in our bodies to actually change our curvature.

Fred McClimans: It’s like an elongated spine.

Daniel Newman: It’s actually not funny. We’re going to be weird looking in the-

Fred McClimans: I’ve noticed your eyes kind of moving up on the forehead there a bit, looking up at the screen from the keyboard.

Daniel Newman: Like vulture necks. Like folks that have to drop the glasses to their nose because you’re a bifocal user.

Fred McClimans: There we go, yes, yes.

Daniel Newman: I am eager and excited about some of the MR and AR applications for sure. I saved that one for you,

Olivier. I figured after my little HQ2 rant, I owed you one, so-

Fred McClimans: You’re too kind.

Olivier Blanchard: I appreciate it.

Fred McClimans: Too kind.

Daniel Newman: I’m so altruistic. That’s one of the things I’m known for.

Olivier Blanchard: Unlike Jeff Bezos. I’m kidding. I’m kidding. Jeff Bezos makes a lot of money.

Fred McClimans: On that, gentlemen, Dan, Olivier, thank you very much for being part of this edition of the Futurum Tech Podcast. I would like to thank our listeners who have made it to the end of this edition and certainly invite you, send us some feedback. Go ahead, subscribe to the podcast. Let us know what you’re thinking. Let us know what you’d like to see us or hear us talk about in the future.

With that, I wish everybody a great day. Mobile World Congress coming up next week. That’s it for this edition of the Futurum Tech Podcast.

Photo Credit: Northern Virginia Mag

Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

 

Fred McClimans