The San Francisco Board of Supervisors approved a policy that the ACLU and EFF argue will further criminalize marginalized groups.
SFPD will be able to temporarily tap into private surveillance networks in certain circumstances.
Ripple chairman and co-founder Chris Larsen has been funding a network of security cameras throughout San Francisco for a decade. Now, the city has given its police department the green light to monitor the feeds from those cameras — and any other private surveillance devices in the city — in real time, whether or not a crime has been committed.
This week, San Francisco’s Board of Supervisors approved a controversial plan to allow SFPD to temporarily tap into private surveillance networks during life-threatening emergencies, large events, and in the course of criminal investigations, including investigations of misdemeanors. The decision came despite fervent opposition from groups, including the ACLU of Northern California and the Electronic Frontier Foundation, which say the police department’s new authority will be misused against protesters and marginalized groups in a city that has been a bastion for both.
“Civil rights are certainly under attack nationally, and it is concerning that San Francisco, which is the city that historically has been a refuge for the oppressed and a celebrated center of activism, would move to this policy forward,” said Jennifer Jones, staff attorney for the ACLU of Northern California.
Jones said the new surveillance authority is particularly troubling given the number of cameras that have been funded by one donor in particular: Larsen. “The fact that there is a very vast private camera surveillance network infrastructure already in place does make the passage of this policy very concerning,” she said.
Larsen has reportedly spent around $4 million since 2012 to buy more than 1,000 security cameras in the city in what he describes as an effort to combat crime. The cameras are clustered in business districts, including Fisherman’s Wharf, Japantown, Mid-Market, the Tenderloin, and Union Square. “I’m from San Francisco, and I believe in this city. In many ways, tech has contributed to the disparity and problems that we see in San Francisco today,” Larsen told Protocol in a statement after the Board of Supervisors’ vote. “As members of the community, I believe it’s our job to help solve these problems by reinvesting in the city and making it safe.”
While the cameras are paid for by Larsen, the networks are monitored and run by neighborhood coalitions known as community benefit districts. Those districts, not Larsen, will ultimately have to agree to give the SFPD access to their cameras under the new policy, and some have already said they will. In his statement, Larsen also expressed support for the approach. “The decision reached by the SF Board of Directors strikes a reasonable balance to help with public safety while maintaining the proper controls to protect privacy and civil liberties which will ultimately make San Francisco a safer place for everyone,” Larsen said.
The SFPD released its own statement following the decision, writing, “Cameras are necessary tools that can lead to the identification, arrest, and prosecution of individuals engaging in criminal activity in our city. The criminal justice system depends on the participation of victims and witnesses. The video footage they provide will enhance their ability to seek justice.”
The Board of Supervisors’ decision can be traced back to a 2019 ordinance that ironically was meant to curb government adoption of new, potentially dangerous forms of technology. That ordinance, which both the ACLU and EFF supported, requires any government agency looking to deploy new technology to first seek approval from the Board of Supervisors as a way of ensuring some oversight in the process.
That ordinance has already been put to the test. In October 2020, plaintiffs represented by the ACLU and EFF sued, alleging the SFPD sidestepped the approval process when it used a network of 300 security cameras to surveil Black Lives Matter protesters following George Floyd’s murder. A San Francisco Superior Court ultimately sided with the city, however, because it found SFPD had also used the cameras to surveil the Pride Parade in 2019, before the ordinance went into effect. According to that court, the ordinance only required city agencies to seek approval to deploy technology they weren’t already using. The ACLU and EFF called the court’s reading of the ordinance “unsupported,” and are currently appealing that decision.
Now that the city has approved the SFPD’s use of these cameras, Jones argues there’s little stopping police from surveilling marginalized groups. “We’re concerned that this will further criminalize folks we know have historically been the target of government surveillance, whether that’s Black people, activists, LGBTQ people, and Muslims,” Jones said. She noted that because police will be able to use this power to investigate misdemeanors, it could lead to frequent, around-the-clock monitoring of neighborhoods over minor infractions.
The Board of Supervisors’ decision is part of a turnabout in San Francisco, which had in recent years moved to reduce police power and funding. In 2019, San Francisco passed a facial recognition ban for police and government agencies. The following year, in the midst of racial justice protests, Mayor London Breed diverted $120 million in police funding to issues including housing, health care, and education.
But by the end of 2021, Breed was calling for more emergency police funding and arguing that the city needed to “change course on how we handle public safety.” Months later, the city’s district attorney, Chesa Boudin, was ousted from office after critics — many of them from the tech industry — launched a campaign accusing him of going too easy on crime.
San Francisco is, of course, not alone in changing course on prior efforts to tamp down on police power. Facial recognition bans all across the country are now being reversed, and just this week, New York Gov. Kathy Hochul announced plans to put cameras inside New York City subway cars. “If you think Big Brother is watching you on the subways,” Hochul said during her announcement, “you are absolutely right.”
Boudin, for one, was also a proponent of Larsen’s camera network and its promise to take the load off of police. In 2020, he met with Larsen and community benefit district leaders to discuss the potential of the cameras and the limits of policing. “We don’t have a good law enforcement response right now,” The New York Times quoted Boudin as saying during those meetings. “It takes 10 cops to do a single drug bust, costs $20,000 or something. And I don’t want my attorneys to be doing this for no benefit on the street.”
Of course, that was before the city was letting the SFPD watch those videos live — instead of only after a crime had occurred.
While privacy advocates oppose the policy, they did prevail in getting the city to agree to an audit at the end of 15 months. At that point, the policy will be up for reauthorization, and Jones promised, “We’ll be back at the board in full force.”
Correction: This story was updated on Sept. 27, 2022, to reflect that a camera network in Lower Polk was not funded by Chris Larsen.
Issie Lapowsky ( @issielapowsky) is Protocol’s chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol’s fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing.
Salesforce is betting that customer data platform Genie and new Slack features can push the company to $50 billion in revenue by 2026. But investors are skeptical about the company’s ability to deliver.
Joe Williams is a writer-at-large at Protocol. He previously covered enterprise software for Protocol, Bloomberg and Business Insider. Joe can be reached at [email protected]. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or [email protected].
Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She’s based in Los Angeles and can be reached at [email protected].
Salesforce has long been enterprise tech’s golden child. The company said everything customers wanted to hear and did everything investors wanted to see: It produced robust, consistent growth from groundbreaking products combined with an aggressive M&A strategy and a cherished culture, all operating under the helm of a bombastic, but respected, CEO and team of well-coiffed executives.
Dreamforce is the embodiment of that success. Every year, alongside frustrating San Francisco residents, the over-the-top celebration serves as a battle cry to the enterprise software industry, reminding everyone that Marc Benioff’s mighty fiefdom is poised to expand even deeper into your corporate IT stack.
“Dreamforce is the center of the Salesforce economy,” co-CEO Bret Taylor told attendees at its annual investor meeting during the event last week. This year, “It’s a new day for Dreamforce, a new day for Salesforce.”
In a show of its growth, Benioff and Taylor touted Salesforce passing SAP — for one quarter, based on revenue — as the world’s largest enterprise IT app provider.
“We did $7.7 billion this quarter in revenue, and they did $7.5. We kind of knew it was coming,” Benioff said at the event. And true to form, Salesforce also had shiny new-ish products to unveil that could expand its reach across business software and help plug key gaps in the existing suite of tools.
But this year, the reception wasn’t as overtly positive. Instead, as the dancing mascots hang up their costumes and the hangovers subside, Salesforce is left facing important questions about its product strategy and growth potential ahead amid a broader downturn in the enterprise software market.
Ultimately, there is serious uncertainty over Salesforce’s ability to hit Benioff’s targeted goal of $50 billion by fiscal year 2026.
“I don’t see how they hit that $50 billion … It’s just not gonna happen,” said Guggenheim Partners analyst John DiFucci. “We can’t get there. I wish.”
At 23 years old, Salesforce is a mature collection of software. That maturity has required key architectural shifts as technology needs and capabilities evolved, which would be demanded of any tech company of that tenure. But outside the product itself, Salesforce’s age, along with a worsening market for enterprise software, is also leading some investors to pressure the company to transition away from growth mode — which typically means available cash is funneled to fuel higher sales — to a more sustainable return for investors.
“I don’t see how they hit that $50 billion … It’s just not gonna happen.”
Wall Street is divided. Some will simply want to see operational improvement and share repurchases. It’s why the announcement of a 25% operating margin goal by 2026 was tepidly embraced on the stock market. Notably, that margin target would be inclusive of any acquisitions, per chief financial officer Amy Weaver. And last August, it issued its first repurchase program.
“Right now Salesforce has been in between growth and value investors,” said Wells Fargo analyst Michael Turrin. “Maybe a more mature Salesforce is surfacing. That maybe means the growth profile is no longer what it was.”
Others still remain concerned over the $27 billion Slack acquisition, which was viewed by a portion of the investor community as an overly expensive ploy for growth and relevance, while some still want to see the company do another big deal to expand the portfolio and bolster sales.
“I think it’s consensus at this point that Salesforce overpaid for Slack,” said RBC Capital Markets analyst Rishi Jaluria.
But the price point may not have been a sticking point if the performance was different. Slack, for example, expected to hit $1.6 billion in sales in FY 2023 without the Salesforce deal, according to a regulatory filing. Now, Salesforce is expecting Slack sales to reach $1.5 billion for the year, per its recent earnings report, indicating that Salesforce hasn’t actually made much of a difference.
“I think it’s consensus at this point that Salesforce overpaid for Slack.”
“We have to kind of question, what has Salesforce done with Slack?” Jaluria said. “They bought it, and they deepened the integrations and all that, but they haven’t massively accelerated with Slack.”
While it’s fitting for the times for investors to demand more profitability, the mindset shift is also a nod to the maturity of Salesforce’s core CRM market and the fierce competition the company faces in its bid to expand across the enterprise.
Salesforce did not respond to a request to comment on the issues raised by analysts and investors.
There’s a quip (pun intended) that industry insiders like to use to describe Salesforce: No one is crazy enough to go up against Microsoft except Benioff.
This year, Benioff’s strategy seemed to be to simply ignore the corporate nation-state 800 miles to the north. Azure was absent in the discussions about Hyperforce, its attempt to adopt a multicloud architecture. And not unlike his archrival Larry Ellison, Benioff was quick to call out SAP. But there was no mention of Microsoft Dynamics, its closest rival set of business software.
While Salesforce and Microsoft have jousted for years, it will be hard to ignore Microsoft after the Slack deal. That deal catapulted Salesforce into the burgeoning office-productivity software category, which is chock-full of competitors and very in flux as corporate America hopscotches its way around different hybrid work policies. It’s also a space where Microsoft, through Office 365, Teams, and other products, has a huge foothold.
Salesforce is still facing major questions over what Slack has brought to the company. And this year’s announcement of the integration of Quip, an online collaboration tool that mimics an office whiteboard in Slack, didn’t help. It struck some analysts as half-hearted at best, as such a product is basically commoditized by this point. And it added to the growing concern over Salesforce’s future.
“Zoom has whiteboarding features, Box has whiteboarding features, Dropbox had it for the longest time with Dropbox Paper,” said Jaluria. “It’s nothing game-changing in my mind just because other collaboration vendors have already done it.”
However, Slack would seem to play a role in addressing one of Salesforce’s largest looming challenges, especially when it comes to employee experience.
At its core, Salesforce is an application company. Increasingly, however, users want to use the data from its systems without actually going into them to draw deeper insights. That’s forcing vendors like Salesforce to find ways to go up the proverbial tech stack or to surface its data in newer types of user-friendly software.
That’s the idea with Genie, for example. If executed properly — a big challenge for a company that has mostly grown over the last several years through buying innovation created elsewhere — the product can serve as an important catalyst for future Salesforce growth.
The announcement is also a signal of how far Salesforce has spread across the enterprise; 20% of customers are now running four or more Salesforce clouds, according to Weaver. Genie is now the company’s tool to combine data from all of those together, as well as a link to outside software.
Still, this new direction seems to fly in the face of years of marketing efforts.
For years, the company has touted its “Customer 360” vision ad nauseam, a fantasy where all Salesforce’s disparate programs are combined to give sales and marketing an all-knowing, singular view into the consumer. It bought MuleSoft, one of the largest software-integration providers, to help push that goal along. But Genie is either acknowledgment that many of those systems still operate in silos or a fancy new bow tied on the same old present.
If Genie addresses the silo challenge, it can open up new capabilities for current users engaged with one or two of Salesforce’s clouds that could persuade them to go deeper into the Salesforce ecosystem. That’s important, as the company needs to increase its annual contract value with current users to remain competitive.
But in an uncertain macroeconomic environment, some analysts are worried that cross-selling will be difficult as customers pull back and consolidate vendors. In particular, Salesforce has to explain to customers why they benefit from using its platform as a deeper data hub. And since expansion across clouds is a key part of Salesforce’s growth strategy, addressing that hurdle is paramount.
“They’ve got a lot of stuff they’ve got to do before they get a client to go big with multiple clouds,” said Wolfe Research’s Alex Zukin. “A lot of customers are rolling their eyes at this until they understand exactly why it’s good for them, rather than good for Salesforce.”
That’s why Genie is already facing a fair share of skeptics who wonder whether the vision that Benioff and Taylor laid out will come to fruition. For example, several analysts and industry practitioners have noted this isn’t the first time Salesforce has claimed to have a customer data platform.
“They’ve got a lot of stuff they’ve got to do before they get a client to go big with multiple clouds.”
Even if Genie delivers as promised, it also has to differentiate itself from a growing number of the other CDP players in the market, including platform players like Adobe or SAP, as well as pure-play companies like ActionIQ and mParticle.
“If you look at it head-to-head, it’s not that different than, say, mParticle or Tealium or [Twilio] Segment,” said Rob Brosnan, senior director analyst at Gartner. In other words, “CDPs are kind of a dime a dozen,” he said.
Still, combined with other upgrades like Hyperforce and acquisitions like Slack, Genie is the clearest sign of how Salesforce plans to try to compete in the new era of business software.
Listening to Taylor, one would think Hyperforce is Salesforce’s proverbial “silent killer.” The architecture revamp is intended to enable customers to run Salesforce programs locally through cloud providers, though, right now, it only supports AWS.
The revamp helps address the ever-growing global data compliance challenge. By the end of 2023, Hyperforce will be available in 17 countries. But analysts aren’t yet sold on the vision.
“Is [Hyperforce] going to be a big accelerant for the business? I don’t think so. I think it’s just a nice concept,” said Jaluria.
Despite numerous Hyperforce mentions, it was Genie that was the star of this year’s conference. Genie probably should have been conceived years ago, but now, Salesforce can put up more of a fight in areas in which upstarts have outpaced the company, like the expanding market for so-called systems of intelligence.
The company plans for it to serve as a catalyst to grow Einstein, its own AI engine, which industry analysts say is not the strongest tool in Salesforce’s arsenal. Such a system requires a lot of data to mature, and a central storage container for not only Salesforce data, but also information from other external sources like the web, could be a big step toward scaling Einstein’s capabilities.
There’s also been an ample ecosystem formed around building applications that harness information from Salesforce and other sources to produce business insights, such as finding efficiencies.
With Genie, Salesforce could capture more of that revenue internally by allowing users, likely those who own multiple products, to produce similar insights directly on the platform. And now, partners can build fresh apps based around Genie’s information-gathering capabilities, opening up a brand-new market for Salesforce that could further bolster AppExchange, its third-party marketplace.
One criticism of Salesforce is that it’s just an acquisition engine, purchasing growth at key moments, tepidly stitching them together, and funneling the SKUs to one of the most effective sales teams in enterprise IT.
The company has had success with MuleSoft and Tableau, but it squashed the once-cherished Heroku app development platform. And, as noted, there are still a lot of questions around Salesforce’s master plan for Slack.
Even its Net Zero Cloud, Salesforce’s attempt to capitalize on its new “sustainability-first” branding strategy, faced a chilly reception. And let’s not forget the major bid to stay relevant among the critical market of 18- to 24-year-olds: the NFT marketplace, introduced just as the crypto boom turned to bust.
Ultimately, Salesforce is facing a key question from investors: “Where’s the money, Benioff?”
“It’s a great company. They’ve built a huge business. A relatively sticky customer base. But what does that matter if they never generate any real profit?” said DiFucci.
As Adobe proved with its $20 billion bid to buy Figma, the tech boomers are facing a rare period of uncertainty. Salesforce will most certainly be fine: It can always acquire another company to try to dig itself out of the current mess, pushing the issues down a few years while continuing to milk its installed base of dedicated users. And despite the tepid reaction to this year’s Dreamforce announcements, there’s an acknowledgment that the product releases in this cycle are building blocks to something bigger.
“It’s just the stage of maturity that they are at,” said Turrin. “That’s the challenge of being any technology vendor that’s decades old instead of a few years old: There are architectural limitations unless you make some major changes.”
Per Salesforce’s new tagline, it’s a “new day” for the company: new products, new core platform, new focus on profitability, and new questions about one of software’s biggest names. And, ultimately, new pressure on Salesforce to deliver on its goal to hit $50 billion in revenue by 2026.
Joe Williams is a writer-at-large at Protocol. He previously covered enterprise software for Protocol, Bloomberg and Business Insider. Joe can be reached at [email protected]. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or [email protected].
Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America’s technology leadership.
Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.
From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: “intellectual property protection is vital for American innovation and entrepreneurship.”
Patents are the primary means of protecting IP — trademarks, copyrights, and trade secrets offer additional IP protection — and represent a rule-of-law guarantee akin to a deed’s role in protecting land ownership. The founders of the United States wrote patent protection into the Constitution to “promote the progress of science and the useful arts.” Abraham Lincoln revered patents for adding “the fuel of interest to the fire of genius.”
A fireside chat with Qualcomm youtu.be
In today’s knowledge-based economy, IP rights play a foundational role. “Core R&D is the first step in getting good products into people’s hands,” said John Smee, senior VP of engineering and global head of wireless research at Qualcomm. “Everything from smartphones to the Internet of Things, automotive and industrial innovation begins as a breakthrough within our research labs.” At Qualcomm, Smee said, strong IP laws help the company confidently conduct cutting-edge 5G and 6G wireless research that will make its way into products ranging from everyday consumer goods to the factory floor.
Semiconductor companies, in particular, are fiercely protective of their IP because it’s their primary competitive advantage. Chip companies go to extraordinary lengths to protect their IP by maintaining black boxes only accessible to one person per fab, choosing highly secure operating locations, and keeping R&D teams separate from fab operations teams.
On the legal side, America’s Semiconductor Chip Protection Act of 1984 bestows legal protection of chip topography and design layout IP while the EU’s Legal Protection of Topographies of Semiconductor Products of 1986 protects IC design. These regulations “have encouraged firms to continue to innovate,” according to the findings of Qualcomm’s and Accenture’s report, Harnessing the power of the semiconductor value chain.Having a high-quality patent portfolio also helps companies build out their ecosystem, should they choose to license, through advising, training, support for launches, assistance in expanding to new markets, and much more.
Licensing democratizes innovation and invention— it makes the cutting-edge IP developed by one firm accessible to a broad range of others. As such, it allows other companies to skip the R&D step and jump right into building on the innovator’s foundation. This lowers the barrier to entry for upstart companies while providing a steady return on investments for the companies who have the resources to dedicate to heavy R&D.
An outsize economic impact
IP protection also has an outsized impact on the US economy and helps create good higher-paying jobs. A report from The United States Patent and Trademark Office (USPTO) found that in 2019 industries that intensively use IP protection account for over 41% of U.S. gross domestic product (or about $7.8 trillion) and employ one-third of the total workforce — that’s 47.2 million jobs. In 2019, the average weekly earnings of $1,517 for workers across all IP-intensive industries was 60% higher than weekly earnings for workers in other industries.
Workers in IP-intensive industries were more likely to earn higher wages as well as participate in employer-sponsored health insurance and retirement plans, the USPTO report found.
But patent laws are often subject to much debate — one person’s idea of protection is another’s view of monopoly. That’s where organizations like LeadershIP come into play. The group brings together experts on IP and innovation to debate issues at the intersection of research, policy, and industry.
In addition, several efforts are underway to help inventors get their ideas into the marketplace. The Inventors Patent Academy (TIPA), for instance, is an online learning platform aimed at guiding inventors through the benefits of patenting and the process of obtaining a patent. TIPA has designed its program to make patenting more accessible and understandable for groups historically underrepresented in the patent-heavy science and engineering fields, including women, people of color, people who identify as LGBTQIA, lower-income communities, and people with disabilities.
Closing these gaps would promote U.S. job creation, entrepreneurial activity, economic growth, and global leadership in innovation. Estimates suggest that increasing participation by underrepresented groups in invention and patenting would quadruple the number of American inventors and increase the annual U.S. gross domestic product by nearly $1 trillion.
If we want our nation’s rich history of innovation to continue, experts say, we must create an IP protection ecosystem that helps ensure that tech innovation will thrive.
“With the protection of patents,” Smee said, “there is no limit to where our creativity can take us.”
A conversation with Cédric O, the former French minister of state for digital.
“With the difficulty of the U.S. in finding political agreement or political basis to legislate more, we are facing a risk of decoupling in the long term between the EU and the U.S.”
Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.
Cédric O, France’s former minister of state for digital, has been an advocate of Europe’s approach to tech and at the forefront of the continent’s relations with U.S. giants. Protocol caught up with O last week at a conference in New York focusing on social media’s negative effects on society and the possibilities of blockchain-based protocols for alternative networks.
O said watching the U.S. lag in tech policy — even as some states pass their own measures and federal bills gain momentum — has made him worry about the EU and U.S. decoupling. While not as drastic as a disentangling of economic fortunes between the West and China, such a divergence, as O describes it, could still make it functionally impossible for companies to serve users on both sides of the Atlantic with the same product.
He also weighed in on whether the risk of decoupling would slow Europe down in its regulation, what might be next in the EU, the continent’s confusion in the face of U.S. state laws, the importance of democracy, and, of course, the possibilities of Web3.
This interview has been lightly edited for length and clarity.
We know Europe is ahead on regulating tech and the U.S. is behind. But do you think that the U.S. is catching up in any way?
We usually think of decoupling between the U.S. and China. One thing that struck me when I was heading the digital policy of France is, with Europe piling up legislation — GDPR, DSA, DMA, MiCA, cryptocurrency, AI Act — the legal framework, which has day-to-day impact on the way applications are working, on the way protocols are designed, is widening between the U.S. and the EU. We began to do that with cloud infrastructure in the Schrems II decision.
With the difficulty of the U.S. in finding political agreement or political basis to legislate more, we are facing a risk of decoupling in the long term between the EU and the U.S. as far as the web is concerned. If one day comes where the applications, the social networks, that you’re running in Europe cannot be the same as the ones that you’re running in the U.S., then it’s de facto a decoupling.
Do you see that becoming pretty likely, or are you saying it’s possible?
I would say it’s possible in the next five to 10 years. Nobody wants that, but on the other hand, I don’t see things that will trigger a different approach by the U.S. And I see Europe will only deepen its regulation. So the jury’s still out.
Do you think that possibility gives Europe any pause about proceeding?
As far as I’m concerned, we need more regulation. So if the price to pay is to have a different framework in the U.S. and the EU, I would go for that.
That’s a common view in Europe?
Yes.
What are the next priorities in the European approach to tech?
First, the most urgent thing to do is to enforce. The DSA and DMA might be two of the most important texts of the history of the web, in terms of regulation.
How optimistic are you that things like the DSA will start to move us away from some of the worst consequences of social media on the social fabric?
I’m very optimistic. But it will be a fight because legislators and regulators need knowledge, need experience, need tools, need networks with civil society. This will take months and years, and companies will go to court. But at least we have a theoretical basis for a reset.
What is the European view on state-level regulation here in the U.S., particularly in California?
It’s not so easy, from a European point of view, to distinguish between what American states can do and the federal level can do, and to what extent the fact some states are moving faster than the federal level will create a new level playing field. But what’s interesting as far as, for instance, GDPR is concerned is that Europe is setting the tone not only for some U.S. states but also the rest of the world. When I was in Korea, Japan, South America, everybody is looking at that. So I think the more [policy] alliances that we can build, the better this is.
What do you tell American lawmakers, regulators, and scholars when you talk to them?
I want to avoid Europe lecturing Americans about what they have to do or don’t have to. I mean, these are all democratic choices. Europe is right in insisting that it has the right to impose its democratic choices for its citizens and that, even if there is an American company that is a very innovative and cool company, it has no way to compare to the fact that there is a democratic choice that has been made.
It was pretty striking to me how often some companies thought they were more in charge of general interests than democratically elected governments. I think this is completely absurd. That’s completely insane. And that’s even dangerous. But I think the Americans have to make a choice, from a democratic point of view, and they have a different history in terms of free speech recognition and defense. And by the way, Europe is not unified when it comes to those issues. So [what I would say] depends on who I was talking to, but what’s interesting is that part of the inspiration of the European legislation is coming out of American researchers, American scholars. I still think that the edge of that research is done in the U.S. — at Stanford, MIT, Harvard, and places like that. So the problem is not a problem of conceptual approach. But at the end of the day, I think that even if it seems that democratic institutions are not acting as efficiently as they could, maybe as [efficiently as] they should, they are still to be a solution to go with. It should be, at the end of the day, an American choice.
Is Web3 the solution to all this?
I think Web3 is offering a very interesting approach. So far we have been having a vertical approach: “Okay, we have to tackle content regulation, competition policy, privacy, AI.” Web3 is rethinking the way the whole protocol works. What I don’t believe is that there are technical solutions to democratic issues. I think there are democratic solutions that need technical tools, and I can be very enthusiastic on what Web3 could offer to solve a part of the problem of the Web2[.0] protocols, but there are a lot of questions that need to be tackled.
There are technical questions. There are questions of concentration. It’s not obvious that Web3 is fully decentralized. I mean, major miners and currencies are limited. So I think the most important answer is a democratic answer. Web3 might be offering us a way to reset the way democratic institutions are working and regulate the web. But if Web3 [proponents] are thinking we are going to, like, end governments, end the Fed, end the central banks? No way. I don’t believe in that for one second. I think Web3 is very interesting without too much ideology. I still believe that people trust the Fed more than protocols. Otherwise the dollar would not be so important in the world. Early adopters might prefer protocols, but if you want mass adoption, you still need institutions — and you still need democratic institutions.
Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.
Contrary is the latest venture firm to experiment with building community spaces instead of offices.
Contrary NYC is meant to re-create being part of a members-only club where engineers and entrepreneurs can hang out together, have a space to work, and host events for people in tech.
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.
In the pre-pandemic times, Contrary’s network of venture scouts, founders, and top technologists reflected the magnetic pull Silicon Valley had on the tech industry. About 80% were based in the Bay Area, with a smattering living elsewhere. Today, when Contrary asked where people in its network were living, the split had changed with 40% in the Bay Area and another 40% living in or planning to move to New York.
It’s totally bifurcated now, said Contrary’s founder Eric Tarczynski.
“That was a big wake-up call for us. Before the pandemic, New York wasn’t even really on the road map,” Tarczynski said. “A huge cross-section of engineers are now in New York.”
The talent migration during the pandemic put the Big Apple on the road map of many traditionally Silicon Valley-based venture capital firms. New York has long hosted its share of venture capitalists with well-regarded firms like Union Square Ventures, FirstMark Capital, and Lerer Hippeau there. But now firms traditionally anchored to Sand Hill Road like Sequoia, Andreessen Horowitz, and Lightspeed have also hired New York-based partners and opened up offices in the city.
Contrary is part of the pack that’s added New York to its road map, but the 5-year-old firm is taking a different tack to setting up its presence. Its New York city expansion isn’t an office space for partners to meet with founders. Instead, Contrary NYC is a coworking/event/hang-out space for techies in Contrary’s network.
Tarczynski likens it to a Soho House for techies — minus the pool, restaurants, and hotel rooms. What it’s meant to re-create is being part of a members-only club where engineers and entrepreneurs can hang out together, have a space to work, and host events for people in tech.
Recently, Serena Williams was spotted at a launch party for startup Parfait hosted in the space. In the past few weeks, there have been comedy shows, female founder dinners, and plenty of people just typing away at laptops in Contrary NYC.
“The core idea behind it was we want to have a place where people can go and feel like they’ve met their tribe, even more so in a place like New York,” Tarczynski said.
Contrary isn’t the only venture firm to experiment with building open community spaces instead of offices. In Los Angeles, Brianne Kimmel’s WorkLife fund opened up its new WorkLife studios space in the Silver Lake neighborhood. She advertises the space as a location where “Discords and DAOs can host events, remote workers can meet new people, and anyone can enjoy our eclectic schedule of gatherings — from dinner parties with the neighborhood to album listening parties with artists.” This past weekend, a thousand people were waiting in line to get into its space: The band Wallows was doing a pop-up merch store.
Contrary’s space won’t be quite as open to the public. It’s focused for now on people already linked to the firm (whether they’re venture scouts, startup founders, or engineering/product design fellows) and events hosted by its community members in the space. But with the flow of people to New York and more of an in-person culture than San Francisco, Tarczynski is hoping that the top technologists will find their way through its doors.
“For the past 20 or 30 years SF was the only game in town,” Tarczynski said. “Having a little bit more distribution and even talent flow is frankly pretty good for the venture community.”
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.
Changpeng “CZ” Zhao, who leads crypto’s largest marketplace, is pushing back on attempts to link Binance to Beijing.
Despite Binance having to abandon its country of origin shortly after its founding, critics have portrayed the exchange as a tool of the Chinese government.
Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at [email protected] or via Google Voice at (925) 307-9342.
In crypto, he is known simply as CZ, head of one of the industry’s most dominant players.
It took only five years for Binance CEO and co-founder Changpeng Zhao to build his company, which launched in 2017, into the world’s biggest crypto exchange, with 90 million customers and roughly $76 billion in daily trading volume, outpacing the U.S. crypto powerhouse Coinbase.
But Binance also emerged as one of crypto’s most controversial companies. It’s been accused of being a “hub for hackers, fraudsters and drug traffickers.” The company is barred from operating in two major markets — the U.S., where a separate entity, Binance.US, operates with aid from Binance, and in China, the country where Binance got its start.
Despite Binance having to abandon its country of origin shortly after its founding, critics have portrayed the exchange as a tool of the Chinese government. CZ, who was born in China but grew up in Canada and is a naturalized Canadian citizen, addressed the charge in a blog post after a journalist asked on Twitter about a Binance employee who he said has been accused of being a Chinese spy.
In an interview with Protocol, CZ talked about why he felt the need to address the charges, the controversy over recent changes in the way Binance handles USDC stablecoins, and his views on the ongoing push for more crypto regulation.
This interview was edited for clarity and brevity.
Why did you move to delist Circle’s USDC? There are those who describe it as a very aggressive competitive move.
That’s a misnomer. We actually did not delist USDC. People can deposit and withdraw USDC from Binance. No problem. It’s just that when they deposit, we convert them one to one to be BUSD. So we consolidated all the liquidity. We just picked BUSD. But when people finish trading, and they want to withdraw, they can withdraw USDC and the other stablecoins. So it’s not a delisting. That’s a misconception that we somehow did not explain that very well.
And why didn’t you do the same thing with tether?
Tether, to be honest, we don’t know if it will depeg. We have a commercial relationship with Circle for converting at a one-to-one peg. We have an agreement with Circle that we feel pretty confident that we can exchange that one to one, whereas with tether we don’t have this commercial agreement in place.
Tether is a black box, and because we don’t have the commercial agreement in place, we don’t have a channel to convert one to one. We didn’t feel comfortable [that it is] always guaranteed a one-to-one conversion.
Was this move with the USDC done in coordination or in consultation with Circle?
Yes, yes. We were in communication with Circle. We notified them ahead of time. They were OK with it. It was just the messaging. Many people misunderstood the messaging.
[In an interview with Protocol, Circle CEO Jeremy Allaire confirmed that Binance “did disclose to us their intentions.” But he also said, “They unilaterally took customers’ funds and then moved them into something else. And I think that’s really problematic.”]
What do you think about the way the stablecoin market is evolving? There’s a push towards CBDCs, which is gaining momentum. China has its digital yuan. There is also a push for a digital dollar in the U.S. What do you see as Binance’s role in that trend?
I think we don’t really have a role per se. We just want to provide users access to as many things as we can. China’s central bank digital currency currently is unavailable to us. So we can’t integrate with it. Our users can’t use it. We don’t know what the U.S. [currency] is going to look like. Ideally, hopefully, we can integrate directly with it. I think that’s the best way to continue the global dominance of the U.S. dollar.
Central bank digital currencies are a little bit different from stablecoins. Most central bank digital currencies will have more permission and tracking going on, whereas with today’s stablecoins, it’s more permissionless. So it’s easier to transfer between different crypto exchanges. I fundamentally believe that the more choices we have, the better.
There is a big push toward more regulation, especially in the U.S. What rules or laws or proposals are you most worried about?
When it comes to regulations, I think more regulation definitely is good — more regulatory clarity. Industry players know what to do. Consumers know what to expect. There’s more licensing. There’s more oversight. All of those things are good.
But not all regulations are good. China has banned cryptocurrency exchanges. That is one type of regulation that clearly is not good for us or, we think, for the industry. Another example would be India [with] a tax per transaction.
I believe the U.S. actually is pretty good. In the U.S., the banks work with cryptocurrency exchanges very well. Overall, I think more clarity is generally good. Other [governments like] France, Dubai, they’re moving forward with very relatively friendly regulations.
Can you talk a bit about Binance.US? Clearly it’s a separate entity, but it is of course affiliated with Binance.
Binance.US is a separate legal entity, but it uses the Binance product and technology. It also uses the brand. I sit on the board of Binance.US. But other than that, the team is relatively independent.
The U.S. has a very different set of regulations and business environment. The U.S. is a big market. So we obviously hope Binance.US will continue to be able to provide the best product in the U.S. Today they are providing a very decent product, but it’s still much smaller compared to Coinbase. Hopefully that will grow.
I’d like to revisit a blog that you wrote recently titled “Who Is Guangying Chen, and Is Binance a ‘Chinese Company?’” Can you elaborate on why it was deemed offensive or racist for that journalist to ask about a person who’s supposed to be affiliated with Binance? You referred to a campaign attacking Binance.
There is a common narrative, especially in the U.S., that Binance is a Chinese company, mainly because I look Chinese, I think. I did spend quite a number of years in China. When Binance started, we started in Shanghai first.
So, there is that perception. That perception itself is OK. But we hear in the lobbying circles in Washington that “Binance is run by the Chinese Communist Party,” which couldn’t be further from the truth. And “Binance is a Chinese spy.”
We’re like, “No, we’re not that.” Guangying Chen is one of the original founding team [members]. But she’s not super senior. She managed admin. So it’s not like a business-facing function. It’s not public-facing. It’s not like the marketing guy, or the CTO. She’s not that high-level. But her name was on some company documents, especially in company registries, in my previous company before Binance that was in China.
We heard many backdoor bad rumors that were spread about us saying, “She’s a Communist party individual.” So we just want to clear that up. That’s pretty much it.
You wrote, “Simply being Chinese, of Chinese descent or having emigrated from China should not be a scarlet letter one has to wear for the rest of their life.” How did that play out for you personally?
I grew up in Canada. Canada is an immigrant country. I’m very comfortable with international cities or countries. Singapore is like that, too. Singapore has a lot of immigrants in the country. So I feel very comfortable with that. I was actually very insensitive to ethnicity, race, color, this type of stuff when I was growing up.
Only recently, our teams were constantly telling me there is a strong narrative, especially in Washington, D.C., that Binance is a Chinese company. With the increased tension between the U.S. and China, many people label us with another company with a similar name, ByteDance, [the parent of] TikTok. [ByteDance] is a Chinese company. Its headquarters is in Beijing. They have a large team in Beijing. So we’re very often lumped into that.
When Binance.US was doing fundraising there were questions: Are you related to the Chinese government? There were a lot of those kinds of questions behind closed doors. It was bubbling up to the top. So we see journalists writing that in blogs, on Twitter. We are always transparent. [I said,] “Let’s just address it head-on so that we remove any of that concern.” We’re not a Chinese company. I’m a Canadian. I’ve been a Canadian for 33 years now. And this is who we are.
The flipside of your statement is that it could also be interpreted, including by Asian Americans and Asian Canadians, as a rejection of your Chinese heritage and identity. I wonder if you could also speak to that point. (And for context, I am Filipino of Chinese descent, and like you, I’m an immigrant.)
It was definitely not a denial of my ethnicity. On the contrary, I’m very proud to be of Chinese ethnicity leading an industry-leading organization. I’ve always been very proud of that. I understand that that may be a concern. We actually talked about it before we published that blog. But so far we have not received any negative comments along those lines. At least, I have not.
What were some of the concerns that were raised by your team?
We actually have a large Asian team. A lot of our users are Asian. It was exactly what you described: Would they feel alienated by our statement saying, “We’re not Chinese.” I’m like, “Look, we should state the fact.” I was just stating the facts and we should get ahead of the rumors. We’re very proud of our ethnicity, but it does not mean our company’s a Chinese company.
Clearly, the evolution and the growth of crypto is taking place in an international geopolitical context with Russia’s invasion of Ukraine, and then the rivalry between the U.S. and China. How does Binance plan to navigate this reality?
It’s pretty simple today. There’s nothing to do in China. China clearly banned cryptocurrency exchanges. So that made things very simple. We were not able to offer our services in China. The Great Firewall of China blocks our domains.
Binance.US is in the U.S. and Binance.com services the rest of the world wherever we can service them. We’re not political. We’re not for or against any country.
What has been the toughest part about the market downturn for you? What has surprised you?
To be honest, it has always been the educational component. There’s too many misconceptions about crypto. Whenever something negative happens, “Oh, crypto is bad.” When Netflix’s stock price drops by 70 to 75%, people don’t say, “The stock market is bad.” They just say, “Netflix is bad.” With crypto when one project fails, they say, “Oh, the entire crypto [ecosystem] is bad.” They wouldn’t just say “that project.”
It’s always that education, misconception component which is always very difficult to correct at this early stage in the industry. But I think as the industry matures, this will fix itself. We’re doing our part to constantly educate people.
It’s been reported that Terraform Labs founder Do Kwon is now a fugitive. [Binance was an investor in Terraform Labs.] Do you have any insights into how the UST-luna crash has impacted the industry?
The UST-luna crash really damaged the industry for sure. There was a significant impact. At the same time, I think the industry is learning a very expensive lesson. So how do we avoid this in the future?
I’ve never spoken to Do Kwon personally. I don’t know him at all. I don’t know if there’s any criminal element in that failure. I would assume that the law enforcement agencies have done their homework.
It was also reported that Binance is making an investment in Forbes. What is the status of that? Can you talk about the decision to make that investment?
That investment to my knowledge has mostly stalled. So it’s no longer progressing forward. At the time, Forbes was doing a SPAC listing, and so we were going to participate. That SPAC listing did not happen. To the best of my knowledge, I don’t think anything’s really happened yet. I’m not closely involved.
The thesis behind that investment is we would like to pick traditional industries, look at different sectors, and pick one or two players in those sectors, invest in them, help to bring them into Web3, adopt crypto, accept crypto payments, issue NFTs. If we can help them do that, it probably will give them new business models. And hopefully with those new models, they’re better funded so that they make more money.
We want to grow the industry. When the industry grows, Binance benefits because we are the largest player with the largest exchange. So that was kind of the thesis.
We looked at Forbes, which is a media company. We looked at Twitter, which is a social media company. We also looked at gaming, ecommerce, many other sectors. So we’re still looking at them, but many of those deals are not small. So it takes time.
Tell me about the first time you encountered bitcoin and crypto.
It was actually at a poker table. I was playing poker with Bobby Lee [who] was becoming the CEO of BTC China. This was in 2013, a very friendly small-stakes poker game.
The next day, I met him for lunch. He says, “CZ, you should convert 10% of your holdings into bitcoin. There’s a small chance you will go to zero. There’s a higher chance of 10x. If it’s 10x you double your net worth.” I was like, “OK, that’s pretty serious.” That’s when I started looking more seriously. I sold my apartment for bitcoin.
How much was that?
That was close to a million dollars. I had an apartment in Shanghai. I learned about [bitcoin] for about six months. By December 2013, I was selling my apartment. It took a while to sell so by early 2014 I was converting each payment chunk into bitcoin. And then the price dropped afterwards for like a year and a half. [Laughs.]
1989 was the year you left China as a child, shortly before the Tiananmen crackdown. That was also the year the web was invented. I wonder how you feel about the way China’s role in technology and in the world has evolved, given that there seems to be more confrontation and even distrust now.
In 1989, I was 12. I went to Canada, and then I saw the internet grow. But I was too young to participate, to be part of it. Twenty-four years later, I came across bitcoin. I’m like, “The internet was the technology for transferring information. Blockchain is the new technology for transferring value. Information versus money — this is going to be a bigger industry.”
I was not going to miss this industry. That had a very strong effect on me to go all in on crypto. I sold my house, quit my job, started looking for a new job in crypto, and then just went from there.
China’s quite negative on a number of industries. Crypto exchanges, not allowed. Mining, not allowed. Many of the industries are negatively impacted. In the short term, we don’t have a strategy in China. We just have to wait. So we’re focused on the rest of the world.
We just went through a crash that wiped out $2 trillion in crypto’s value. There’s more tension, in different parts of the world, including China and Taiwan. What are you most worried about in the industry given all that?
I think it’s really just a matter of talent growth. The more developers that we can get into the industry, the more this technology works. But the technology needs time to develop. The computer didn’t just grow on its own. There’s, like, thousands, hundreds of thousands, or millions of people working on different parts of the computer — the chips, the CPU, the memory, and the internet. We’re still at the TCPIP stage of the blockchain world. We still talk about consensus mechanisms. We’re still talking about the techie stuff.
As long as there are more developers coming in building different applications, building different tools, the industry will continue to grow and people, more entrepreneurs, come in.
For me, the biggest risk is regulation saying that you cannot innovate in this area. But luckily, there are 200 different countries in the world. The countries that say that will typically be left behind, and their economies suffer long term. We’re seeing smarter countries already adopting this. So it’s not something that causes me to lose sleep, but that’s one of the biggest hurdles we have to overcome.
Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at [email protected] or via Google Voice at (925) 307-9342.
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