Benner on Tech: Xiaomi, Square and Hackers Attack South Korea

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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People are Talking About…

When news broke that China’s smartphone maker Xiaomi is now valued at $45 billion, it became clear that investors including All-Stars Investment and Yuri Milner’s Digital Sky Technologies are betting that the low-cost producer could become a big international brand. It seems that the company is well on its way. Bloomberg News says that it’s already the world’s third-largest smartphone seller behind Samsung and Apple.

If Xiaomi’s products someday have international appeal, it could be the first Chinese company to create a big international brand. The biggest brand names in China -- from Haier to Great Wall Motors to Bank of China -- have never been able to build much international business outside the country’s borders. (Developing nations, however, have embraced some Chinese products.) Computer hardware from Lenovo is used around the globe, but those products gained widespread international adoption only after the company acquired IBM’s laptop and PC business.

The company faces some headwinds. The business runs on razor-thin margins, and the company’s chief executive officer has said that it’s more like Amazon than Apple. But Amazon represents a rare case in which shareholders have been willing to pay up for a low margin company that refuses to prioritize profitability. There’s no guarantee that a hardware maker like Xiaomi will get that kind of leeway. And it remains to be seen whether consumers around the globe reject or embrace Xiaomi’s decision to blatantly copy Apple’s designs.

But the rise of Xiaomi is still notable and important, not only because it could be China’s first breakout global success story, but also because it’s part of what Bloomberg News' Lulu Yilun Chen says is China’s answer to the current Silicon Valley boom. Driven by Alibaba’s runaway success and Jack Ma’s windfall, China’s startup scene is booming, and Chen says companies have raised $30.3 billion in initial public offerings, compared with just under $5 billion for their U.S. peers. It looks like the Valley might finally have some true competition for money. We’ll see if the talent and the innovation follow.

Ventureland

Uber is fighting regulatory challenges in Taiwan, where the Ministry of Transportation says that the ride-hailing service violates highway laws. The Wall Street Journal says the ministry may revoke Uber’s business registration.

Lyft’s $35-an-hour promise to drivers is put to the test by Vox reporter Timothy B. Lee.

Taskrabbit, one of the pioneers of the on-demand economy, is in the midst of a dramatic and possibly destructive business model shift. Matter takes a look at what ails the peer-to-peer platform.

Square’s mobile payments product, the Wallet app, will no longer be accepted at Starbucks, as part of the payments company’s move to shut down Wallet altogether, ReadWrite reports. This ends a key aspect of the partnership between the two companies that was announced in 2012 when Starbucks invested $25 million in Square as part of a huge funding round that valued the startup at $3.3 billion. Starbucks CEO Howard Schultz stepped down from Square’s board in October 2014.

Interlude lets viewers call the shots in music videos much like readers can control the action in a “Choose Your Own Adventure” book, writes the New York Times. The music-video service wants to challenge YouTube’s online video dominance, and it has a joint venture deal with the Warner Music Group called Interlude Music.

Data Collective, a venture-capital firm focused on big data startups, has raised $125 million for an "opportunity fund" that focuses on late-stage investments in existing portfolio companies, reports Fortune’s Dan Primack.

People and Personnel Moves

Susan Wojcicki, YouTube’s CEO, is the subject of a New York Times profile that also  examines the challenges facing the video platform.

Ms. Wojcicki runs a media company that has been valued at $40 billion, yet her office has none of the expected trappings — no bronze statuettes or pictures of her posing with movie stars. …

Nor is there any media-mogul swagger about her. During our conversations, she didn’t hold forth on the changing nature of entertainment or lay out a bold vision for YouTube’s future. She volunteered that she was still learning about content and, for that matter, getting a handle on YouTube’s place in the entertainment ecosystem.

“I didn’t really get how different a medium this was until I got here,” Ms. Wojcicki said.

Charlie Shrem, one of Bitcoin’s best-known evangelists, was sentenced to two years in prison for money laundering. According to Bloomberg News, a judge denied Shrem's request to avoid prison time so he could "change the world.”

“I screwed up,” Shrem told U.S. District Judge Jed Rakoff. “The bitcoin community, they’re scared and there is no money laundering going on any more. They’re terrified. Bitcoin is my baby, it’s my whole world and my whole life, it’s what I was put on this earth to do. I need to be out there. If your honor grants me that, I can be out there in the world, making sure that people don’t do the same stupid things that I did.”

Edith Ramirez, chairwoman of the Federal Trade Commission, is fighting to raise the profile of her agency by focusing on digital privacy and transactions, according to a profile in the New York Times.

Companies

Facebook…

A Facebook page that supports prominent Russian dissident Alexei Navalny has been blocked in Russia, the Washington Post reports. The country’s regulators ordered the company to block access to the page related to the prominent critic of Russian president Vladimir Putin. As my Bloomberg View colleague Leonid Bershidsky points out, this move dings the credibility that companies such as Facebook have built as tools for protesters and dissidents.

Google…

The search giant sued Mississippi Attorney General Jim Hood on Friday in an attempt to block a wide-ranging subpoena seeking information about Internet activity related to illegal drugs, human trafficking and copyrighted content, says the Wall Street Journal. Google says Mr. Hood had previously threatened to prosecute the company for not blocking certain content on its websites.

Hewlett-Packard…

A judge rejected the company’s proposed settlement with shareholders over the botched Autonomy deal, Bloomberg News reports.

Cybercrime Never Sleeps

South Korea says that the computer systems of a nuclear plant operator were hacked, Reuters reports. The government hasn’t said who could be responsible.

** Sony Update

* Despite the fact that the FBI has accused North Korea of hacking the entertainment studio, North Korea says it’s not the culprit. It warned that U.S. retaliation for the hack would be met with an attack on the White House and the Pentagon.

* The U.S. may put North Korea back on the list of state sponsors of terrorism in the wake of the Sony attack, the Guardian reports.

 * China thinks the attack was bad, but doesn’t think that North Korea did it, reports Reuters.

* Some security experts still don’t buy that North Korea is behind the attack either.

* No matter who did it, Bloomberg News says that the perpetrators didn’t need sophisticated weapons.

* Sony Entertainment CEO Michael Lynton says his company didn’t cave to terrorists by not showing “The Interview.” He told CNN that Sony was forced to cancel the release because movie theaters, essentially, were too cowardly to show the film.  

Staples says that criminals compromised credit-card readers in 115 stores and stole information on as many as 1.16 million payment cards.

Cyberwarfare is really attractive to small nations, according to Fortune.

News and Notes

The Guardian’s Charles Arthurargues that the sharing economy could be the most divisive tech revolution yet.

The techies who helped propel Barack Obama to the White House are divided on Hillary Clinton, Politico reports.

The Wall Street Journal’s Chris Mims says that 2014 will go down as the year that we learned the downside of living in a connected world.

The Seattle Police Department held its first hackathon, GeekWire reports. The event's goal was to find a way to redact video streams that come from police dash cams and body cameras.

Live From Lockdown, a Facebook of sorts for felons, is a small site that’s gaining traction, Buzzfeed’s Joseph Bernstein reports.

Ben Lawsky, New York's superintendent of financial services, could scale back its proposed Bitcoin rules, the Washington Post says.

A smart watch I might actually wear, via Re/code.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net