Seksom Suriyapa was seemingly destined to land at a venture firm. A Stanford Law graduate, he worked at two blue-chip investment banks before joining the cybersecurity company McAfee as a senior corp dev employee, later logging six years at the human resources software company SuccessFactors and, in 2018, landing at Twitter, where he headed up its 12-person corporate development team until June.
The bigger surprise is that Suriyapa — who just joined the L.A.-based venture firm Upfront Ventures — didn’t make the leap sooner. “The catalyst was finding a firm that felt like the exact right fit for me,” says Suriyapa.
We talked earlier today with Suriyapa — who lives and will remain in the Bay Area — about his new role at Upfront, where he will be leading its expanding growth-stage practice with firm founder Yves Sisteron.
He also shed light on how Twitter — which has been on a bit of buying spree — thinks about acquisitions these days. Our chat has been edited lightly for length.
TC: How did you wind up joining Upfront?
SS: [Longtime partner] Mark Suster and I were introduced through a mutual business acquaintance in the venture world, and I got to know him over a period of time and really came to find him to be a remarkable individual. He’s thoughtful about the business itself, he’s an incredible brand builder. I think you could argue that [Upfront] put L.A. on the venture map.
TC: It was also, for a long time, an early-stage firm, but now it has a ‘barbell’ strategy. Is your new job to make sure it can maintain its stake in its portfolio companies as they grow? Can you shop outside of that portfolio?
SS: The mission for me will be supporting the best of Upfront’s hundred-plus existing portfolio companies that are poised to scale, and also to invest in companies not currency on the platform, and I anticipate [the latter] will happen more and more over time.
TC: Twitter was a lot more active on the corp dev front during the years when you were there. Why?
SS: When i joined in 2018, Jack Dorsey had been CEO for about three years, and really his focus was on the core mission of driving the public conversation, and in doing that, Twitter shrunk itself out of a lot of businesses and [shrunk] people wise as well.
TC: I remember it laid people off in 2016.
SS: And one of the offshoots of that was way less in the way of newer products, so there were no new acquisitions in the three years prior to me joining, and that muscle atrophies if you don’t exercise it. So [ahead of me] Jack had transformed the management team, which had been, relatively speaking, a revolving door of executives until that point, and I was brought in with a specific mandate of reviving a corporate development practice that had been quiet for a few years. I’d known [CFO] Ned Segal when he was a banker at Goldman Sachs and [while] I was at SuccessFactors, so when I heard about the role through the grapevine, I reached out.
TC: So Twitter starts shopping, buying up the news reader service Scroll, the newsletter platform Revue. Were these decisions coming down from the top or vice versa?
SS: The best way to describe it would be that it was product-need driven. The company had a few different objectives. One was to diversify Twitter from its dependency on being an ad-driven business. Something like 80% of revenue comes from ads.
Second, there’s an incredible need to ramp up its machine learning and artificial intelligence as a company. If you’re looking for toxicity in conversation, it’s not scalable to hire tens of thousands of people to do that. You need machine learning to find it. Twitter done well is also able to show you the conversations that are most interesting to you, and to do that, it has to take signals from what you follow and spend time reading and what you interact with, and that, at its core, is ML AI. [Relatedly] Jack has a vision that anybody who tweets in whatever their native tongue is should be able to talk with someone else in their native tongue as part of a global conversation, and to do that, you need [natural language processing] techniques galore.
TC: There’s also this focus on consumer applications.
SS: That’s the third objective. What are the tools that followers and creators can use in conversation with each other? So [Twitter] added audio [via its Clubhouse rival Spaces]. We bought Revue, which is a competitor to Substack. So there’s a lot of innovation happening around the type of content that someone should expect to see or create on Twitter.
TC: Would you describe these acquisitions as proactive or reactive?
SS: From the outside it would seem reactive, but the reality is we’d been thinking a lot about something like Spaces even before Clubhouse took off. I think what’s noticeable to me is [Spaces] is one of the first times you’ve seen a company like Twitter build up a capability and a new product area that’s going head-to-head going against a company that’s focused only on that realm, and it’s competitive from day one. Twitter beat Clubhouse in [offering an] Android version because it poured resources into it, and I’d argue that a lot of the mechanics of Twitter and the fact that creators are on Twitter puts it in an awesome spot to win this segment.
Twitter also just has a huge amount of expertise in finding toxicity and things you want to be wary of when you’re a social media play, and a company of Clubhouse’s size, at least in its initial days, will have a hard time getting there.
TC: Twitter has so many interests, including around cryptocurrencies and decentralization.
SS: In terms of priorities at Twitter, a lot is under wraps in terms of the technologies that we expect [will rise up over] the next five to 10 years, but [a lot of thought is being given to] the impact of cryptocurrency and the underlying protocols around it and how Twitter participates in a trustless, permissionless [world] where there’s a decentralized internet that can protect people’s privacy and allow people not to worry where their content is stored. People think of Twitter as a consumer app but there’s amazing and considerable diversity under the hood.
TC: Do you think because of the current regulatory environment that it has a better shot at working with companies and projects that might have gotten snapped up by Facebook and Google?
In terms of the regulatory environment, the reality is that even if you take the Facebooks and Googles out of the equation, there are acquirers that are competitive that would step up and buy things, so it’s a little short-sighted to think of just those two. But even when they were active, we were winning [deals]. A lot of the companies we acquired self-selected to be at Twitter because they like what it stands for, they like the way that Jack Dorsey leads the organization, and they believe in the stands that he takes and the positions that he and his leadership espouse.
TC: You’re now representing a very different brand. How will your work at Twitter help you compete for deals on behalf of Upfront?
SS: I have this network of incredible entrepreneurs around the world because of companies across my career that I’ve helped acquire or tried to acquire or who are running businesses; I also [have relationships with] VCs at different stages who actively spot businesses around the world [and introduce them to corp dev teams]. You might also know that Twitter has a diversity and inclusion program where they intend to have 25% of leadership be diverse over the next several years, so my team was often involved in finding the best ways to find diverse targets to buy. I also led a series of LP investments into newly emerging funds, some LatinX-founded, some women-founded, some Black-founded, some that were diverse from a geographic standpoint that are scouting companies in far flung places . . .
TC: Does Twitter also make direct investments?
SS: We did direct investments but [backing fund managers] is a more leveraged approach. Most of them are seed funds and they’ll in turn invest in 30 to 60 companies each. But yes, I scouted companies in far flung places, including [India’s] ShareChat where I served on the board for two years. [Editor’s note: TechCrunch reported earlier this year that Twitter explored buying ShareChat at an earlier point; the company has since raised numerous rounds of funding and was most recently valued by its investors at nearly $3 billion.]
TC: You have a lot of relationships, but it would still seem really hard to compete for growth-stage deals when so many other outfits are now investing there, too. How do you plan to compete?
SS: I will clearly be drawing on those networks to find deals. I’ll be investing in sectors where Upfront has already invested in, but initially I’ll be double-clicking [in areas[ I have strong interest in, including around the creator economy ecosystem, because I did so much of that at Twitter, and “Web 3.0,” this permissionless [evolution that Twitter is also focused on]. But I won’t kid myself. You compete by learning what your value proposition is. At Twitter, my strategy was winning on speed, knowing people earlier, and [underscoring] Twitter’s value proposition [to close deals]. I can’t talk about my [VC] strategy without having implemented yet; I’ll have to figure out what’s most interesting to entrepreneurs that the megafunds don’t offer.
Over the last month, Twitch users have become increasingly concerned and frustrated with bot-driven hate raids. To protest Twitch’s lack of immediate action to prevent targeted harassment of marginalized creators, some streamers are going dark to observe #ADayOffTwitch today.
Per the protest, users are sharing a list of demands for the Amazon-owned Twitch. They want the platform to host a roundtable with creators affected by hate raids, allow streamers to approve or deny incoming raids, enable tools to only allow accounts of a certain age to chat, remove the ability to attach more than three accounts to one email address, and share a timeframe for when comprehensive anti-harassment tools will be implemented.
Hey friendos, I won’t be streaming tomorrow in support of #ADayOffTwitch. (Here’s a handy graphic of some of the things those protesting are asking of @Twitch in case you’re not familiar with what’s going on.) I’ll be back on Thursday for our first swing at Senior Detective! pic.twitter.com/OA9NQlTnq3
— Meg Turney (@megturney) September 1, 2021
TechCrunch asked Twitch if it has plans to address these demands. Twitch responded with a statement: “We support our streamers’ rights to express themselves and bring attention to important issues across our service. No one should have to experience malicious and hateful attacks based on who they are or what they stand for, and we are working hard on improved channel-level ban evasion detection and additional account improvements to help make Twitch a safer place for creators.”
Twitch Raids are a part of the streaming platform’s culture — after one creator ends their stream, they can “raid” another stream by sending their viewers over to check out someone else’s channel. This feature is supposed to help more seasoned streamers support up-and-comers, but instead, it’s been weaponized as a tool for harassment.
In May, Twitch launched 350 new tags related to gender, sexual orientation, race and ability, which users requested so that they could more easily find creators that represent them. But at the same time, these tags made it easier for bad actors to harass marginalized streamers, and Twitch hasn’t yet added tools for streamers to deal with increased harassment. In the meantime, Twitch users have had to take matters into their own hands and build their own safety tools to protect themselves while Twitch works on its updates. Twitch hasn’t shared when its promised anti-harassment tools will go live.
As recently as December, Twitch updated its policies on hateful content and harassment, which the platform said have always been prohibited, yet vicious attacks have continued. After facing targeted, racist hate raids on their streams, a Black Twitch creator RekItRaven started the #TwitchDoBetter hashtag on Twitter in early August, calling out Twitch for its failure to prevent this abuse. While Twitch is aware of the issue and said it’s working on solutions, many users find Twitch’s response to be too slow and lacking.
We've been building channel-level ban evasion detection and account improvements to combat this malicious behavior for months. However, as we work on solutions, bad actors work in parallel to find ways around them—which is why we can't always share details.
— Twitch (@Twitch) August 20, 2021
Along with streamers LuciaEverblack and ShineyPen, RekItRaven organized #ADayOffTwitch to put pressure on Twitch to make its platform safer for marginalized creators.
“Hate on the platform is not new,” Raven told WYNC’s The Takeaway. But bot-driven raid attacks are more difficult to combat than individual trolls. “I’ve had people come in with bots. It’s usually one or two people who program a bunch of bots, you bypass security measures that are put in place and just spam a broadcaster’s chat with very inflammatory, derogatory language.”
While Raven said they have since had a discussion with Twitch, they don’t feel that one conversation is enough.
Turns out a bunch of LGBTQUIA2+, BIPOC, Disabled, Neurodivergent, and Plural creators really can make a difference by showing up, being loud, and not backing down despite people telling us we won't accomplish anything. Just remember, we aren't done yet. #ADayOffTwitch
— Lucia Everblack (@LuciaEverblack) August 26, 2021
As part of #ADayOffTwitch, some streamers are encouraging their followers to support them financially on other platforms through the #SubOffTwitch tag. Twitch takes 50% of streamers’ revenue, so creators are promoting their accounts on platforms like Patreon and Ko-Fi, which take a much smaller cut. Though competitor YouTube Gaming takes 30% of revenue, and Facebook Gaming won’t take a cut from creators until 2023, Twitch remains dominant in the streaming space. According to Streamlabs and Stream Hatchet, Twitch represented 72.3% of the market share in terms of viewership Q1 2021.
Still, popular creators like Ben Lupo (DrLupo), Jack Dunlop (CouRage), and Rachell Hofstetter (Valkyrae) have recently left Twitch for exclusive deals with YouTube Gaming. If Twitch remains unsafe for marginalized creators, others might be swayed to follow their lead, exclusive deals or not.
On the heels of raising $775 million earlier this year, Perch has made a big acquisition that will bring on a number of new brands and operations infrastructure to enhance its position in the race to roll up smaller merchants that sell and fulfill sales through Amazon. The company has acquired Web Deals Direct, an Amazon seller that owns 30 brands of its own pulling in $80 million in revenue annually and also operates its own warehouse.
Terms of the deal are not being disclosed but I understand from sources that it was a nine-figure deal valued between $100 million and $200 million.
There are millions of merchants currently on Amazon’s marketplace, leveraging the e-commerce giant’s storefront, search tools, fulfillment infrastructure, payment tools, warehouses and delivery network to sell products to buyers.
Companies like Perch compete against the likes of Elevate Brands (which yesterday announced $250 million in funding), Thrasio, Heyday, SellerX, Branded, Razor Group and many others that are seizing an opportunity to snap up and roll up the more successful of these to bring better economies of scale into the model, while also building technology to better measure and leverage sales analytics and more.
While these companies are, essentially, acting as marketplace consolidators, this latest acquisition is significant because, in a sense, it underscores an interesting shift towards a consolidation of the consolidators themselves.
WDD’s categories span home goods, sports, arts and crafts, pet supplies and office products, and Perch’s VP of acquisitions, Nate Jackson, said Perch was interested in them because they are one of the more successful Amazon merchants. In a market where visibility is based on how well engaged previous buyers are with your products, WDD has picked up some 110,000 reviews and 2.3 million customers.
For WDD the idea is that joining Perch will give it more reach in terms of targeting more customers, and to bring it better analytics leveraging insights and sales from Perch’s other brands, which currently number at around 70 and cover the same categories.
“We took our business from zero to $80 million in sales in 5 short years,” said Adam Feinberg, CEO of Web Deals Direct, in a statement. “But, with Perch, who are proven eCommerce operators, we think the possibilities of growth in the next 5 years are just as exciting. I’ve been so impressed with the caliber of their team, and I trust their long-term vision to steward our business into the next phase of growth. This was a complex deal, but Perch has made the process fair and transparent. I want to thank all of the great Web Deals Direct team members for the organization we’ve built together; our employees could not be in better hands with Perch.”
It’s also a signal of what the next steps might be for these roll-up companies, with Perch gaining a 230,000 square foot warehouse in California and now looking to get more warehouse space on the East Coast. While Amazon might still be an important storefront for visibility, it’s a sign of how these companies may be looking at taking on more of the process themselves on the fulfillment side to grow margins.
“This deal marks a major milestone for Perch,” said Perch founder and CEO, Chris Bell, in a statement. “The complexity and size of the business is a testament to the excellent organization Adam and the entire team at Web Deals Direct have built, and it is a pleasure to work with such inspirational entrepreneurs.”
This is not a completely new area for Perch, and perhaps the writing has always been on the wall that it would eventually bring more fulfillment into its own e-commerce operations to lessen some of the reliance on Amazon.
Before founding Perch, Bell and Perch’s COO designed and built the Wayfair Delivery Network for online furniture company Wayfair — a service that handled 3 million “heavy bulky orders” annually, and did so with a view to speeding up the turnaround time, turning what typically takes a month to deliver into a two-day process. That will be some of what the team now hopes to bring to Perch, it seems.
For many of us, going to work these days no longer means going into a specific office like it used to; and today one of the startups that’s built a platform to help cater for that new, bigger world of employment — wherever talent might be — is announcing a major round of funding on the back of strong demand for its tools.
Remote, which provides tools to manage onboarding, payroll, benefits and other services for tech and other knowledge workers located in remote countries — be they contractors or full-time employees — has raised $150 million. Job van der Voort, the Dutch-based CEO and co-founder of New York-based Remote, confirmed in an interview that funding values Remote at over $1 billion.
Accel is leading this Series B, with participation also from previous investors Sequoia, Index Ventures, Two Sigma, General Catalyst and Day One Ventures.
The funding will be used in a couple of areas. First and foremost, it will go towards expanding its business to more markets. The startup has been built from the ground up in a fully-integrated way, and in contrast to a number of others that it competes with in providing Employer of Record services, Remote fully owns all of its infrastructure. It now provides its HR services, as fully-operational legal entities, for 50 countries has a target of growing that to 80 by the end of this year. The platform is also set to be enhanced with more tools around areas like benefits, equity incentive planning, visa and immigration support and employee relocation.
“We are doubling down on our approach,” Van der Voort said. “We try to fully own the entire stack: entity, operations, experts in house, payroll, benefits and visa and immigration — all of the items that come up most often. We want to to build infrastructure products, foundational products because those have a higher level of quality and ultimately a lower price.”
In addition, Remote will be using the funding to continue building more tools and partnerships to integrate with other providers of services in what is a very fragmented human resources market. Two of these are being announced today to coincide with the funding news: Remote has launched a Global Employee API that HR platforms that focus on domestic payroll can integrate to provide their own international offering powered by Remote. HR platform Rippling (Parker Conrad’s latest act) is one of its first customers. And Remote is also getting cosier with other parts of the HR chain of services: applicant tracking system Greenhouse now integrating with it to help with the onboarding process for new hires.
$150 million at a $1 billion+ valuation is a very, very sizable Series B, even by today’s flush-market standards, but it comes after a bumper year for the company, and in particular since November last year when it raised a Series A of $35 million. In the last nine months, customer numbers have grown seven-fold, with users on the platform increasing 10 times. Most interestingly, perhaps, is that Remote’s revenues — it’s packages start at $149 per month but go up from there — have increased by a much bigger amount: 65x, the company said. That basically points to the fact that engagement from those users — how much they are leaning on Remote’s tech — has skyrocketed.
Although there are a lot of competitors in the same space as Remote — they include a number of more local players alongside a pretty big range of startups like Oyster (which announced $50 million in funding in June), Deel, which is now valued at $1.25 billion; Turing; Papaya Global (now also valued at over $1 billion); and many more — the opportunity they are collectively tackling is a massive one that, if anything, appears to be growing.
Hiring internationally has always been a costly, time-consuming and organizationally-challenged endeavor, so much so that many companies have opted not to do it at all, or to reserve it for very unique cases. That paradigm has drastically shifted in recent years, however.
Even before Covid-19 hit, there was a shortage of talent, resulting in a competitive struggle for good people, in company’s home markets, which encouraged companies to look further afield when hiring. Then, once looking further afield, those employers had to give consideration to employing those people remotely — that is, letting them work from afar — because the process of relocating them had also become more expensive and harder to work through.
Then Covid-19 happened, and everyone, including people working in a company’s HQ, started to work remotely, changing the goalposts yet again on what is expected by workers, and what organizations are willing to consider when bringing a new person on board, or managing someone it already knows, just from a much farther distance.
While a lot of that has played out in the idea of relocating to different cities in the same country — Miami and Austin getting a big wave of Silicon Valley “expats” being two examples of that — it seems just a short leap to consider that now that sourcing and managing is taking on a much more international provide. A lot of new hires, as well as existing employees who are possibly not from the US to begin with, or simply want to see another part of the world, are now also a part of the mix. That is where companies like Remote are coming in and lowering the barriers to entry by making it as easy to hire and manage a person abroad as it is in your own city.
“Remote is at the center of a profound shift in the way that companies hire,” said Miles Clements, a partner at Accel, in a statement. “Their new Global Employee API opens up access to Remote’s robust global employment infrastructure and knowledge map, and will help any HR provider expand internationally at a speed impossible before. Remote’s future vision as a financial services provider will consolidate complicated processes into one trusted platform, and we’re excited to partner with the global leader in the quickly emerging category of remote work.”
And it’s interesting to see it now partnering with the likes of Rippling. It was a no-brainer that as the latter company matured and grew, that it would have to consider how to handle the international component. Using an API from Remote is an example of how the model that has played out in communications (led by companies like Twilio and Sinch) and fintech (hello, Stripe), also has an analogue in HR, with Remote taking the charge on that.
And to be clear, for now Remote has no plans to build a product that it would sell directly to individuals.
“Individuals are reaching out to us, saying, ‘I found this job and can you help me and make sure I get paid?’ That’s been interesting,” Van der Voort said. “We thought about [building a product for them] but we have so much to do with employers first.” One thing that’s heartening in Remote’s approach is that it wouldn’t want to provide this service unless it could completely follow through on it, which in the case of an individual would mean “vetting every major employer,” he said, which is too big a task for it right now.
In the meantime, Remote itself has walked the walk when it comes to remote working. Originally co-founded by two European transplants to San Francisco, the pair had first-hand experience of the paradoxical pains and opportunities of being in an organization that uses remote workforces.
Van der Voort had been the VP of product for GitLab, which he scaled from 5 to 450 employees working remotely (it’s now a customer of Remote’s); and before co-founding Remote CTO Marcelo Lebre had been VP of engineering for Unbabel — another startup focused on reducing international barriers, this time between how companies and global customers communicate.
Today, not only is the CEO based out of Amsterdam in The Netherlands and CTO in Lisbon, Portugal, but New York-based Remote itself has grown to 220 from 50 employees, and this wider group has also been working remotely across 47 countries since November 2020.
“The world is looking very different today,” Van der Voort said. “The biggest change for us has been the size of the organization. We’ve gone from 50 to more than 200 employees, and I haven’t met any of them! We have tried to follow our values of bringing opportunity everywhere so we hire everywhere as we solve that for our customers, too.”
If you follow startup news from Indonesia, you know that the country’s estimated 60 million small businesses are a hot target for tech companies. BukuKas and BukuWarung, for example, both recently raised large rounds to fuel their race to digitize SMEs’ operations. Founded in November 2020, Vara is focused specifically on making staff management easier for small businesses and their workers, replacing the notebooks or spreadsheets many relied on to keep track of payroll with an app called Bukugaji.
The company announced today it has raised $4.8 million in seed funding from Go Ventures, RTP Global, AlphaJWC, Sequoia Capital India’s Surge, FEBE Ventures and Taurus Ventures. Founded by Vidush Mahansaria and Abhinav Karale, who met while studying at the Wharton School at the University of Pennsylvania, Vara is part of the Surge accelerator program’s fifth cohort of startups. It says more than 100,000 small businesses are already using Bukugaji.
The app has features to track attendance, calculate salaries and worker loans and disburse payroll. Mahansaria told TechCrunch that Bukugaji is aimed at companies that have less than 30 employees. Many of them are in retail, food and beverage or labor-heavy service sectors like construction and transportation. Bukugaji has features for specific employee segments, like operational staff who usually work in shifts, or permanent staff whose paychecks are fixed over a specific time period.
“Before downloading and onboarding on Bukugaji, the vast majority of our users utilized notebooks to mark attendance and track payroll,” Mahansaria said. “A small portion used the notes features on their phones or simple Excel sheets.” Bukugaji is designed to be fully self-service, so businesses can download and start using the app on their own. Its main app is mobile only, but the platform also has a web version.
The businesses Bukugaji serves often have workers who are unbanked, meaning they don’t have access to a bank account or traditional financial services. Vara’s founders say many of them live paycheck to paycheck and this means they sometimes have to take out loans from their employers.
“Employees often request cash advances from their employers toward the end of the month, when they need the money the most because sometimes they can’t make ends meet,” said Mahansaria. “This has two outcomes: first, it ties up working capital for the employer. Second, it makes the employee increasingly reliant on the employer to meet emergency needs. It’s hard to break out of this cycle given the current limited accessibility to formal financial infrastructure for this market segment.”
Earned wage access (EWA) platforms are focused on solving this problem by giving employees on-demand access to wages, instead of having to wait for their paycheck. EWA companies are gaining traction around the world, including Wagely and GajiGesa in Indonesia. Vara doesn’t have immediate plans to add an EWA feature to Bukugaji, but it is something the company is thinking about as part of the value-additive services it will build into the platform.
“Owning end-to-end payroll and attendance gives us an information edge that is unparalleled for this labor segment,” Mahansaria said, noting that the data can enable companies to add things like benefits that their employees usually don’t have access to, and in turn give workers a digitally-verified work history.
In the near future, Bukugaji will add time-saving features like automated allowances and overtime, dashboard shortcuts, reminders and customizable reports. It also plans to allow employers to disburse salaries directly through the platform. Over the longer term, Bukugaji will offer data analytics to companies and their workers. For example, employees will also be able to see how their earnings have changed over time. Employers, meanwhile can spot trends in attendance and salary.
Though Vara may eventually expand into markets, Mahansaria said it is currently “razor-focused on Indonesia,” where SMEs account for about 60% of the country’s gross domestic product and employ the vast majority of its workforce.
An international coalition of consumer protection, digital and civil rights organizations and data protection experts has added its voice to growing calls for a ban on what’s been billed as “surveillance-based advertising”.
The objection is to a form of digital advertising that relies upon a massive apparatus of background data processing which sucks in information about individuals, as they browse and use services, to create profiles which are used to determine which ads to serve (via multi-participant processes like the high speed auctions known as real-time bidding).
The EU’s lead data protection supervisor previously called for a ban on targeted advertising which relies upon pervasive tracking — warning over a multitude of associated rights risks.
Last fall the EU parliament also urged tighter rules on behavioral ads.
Back in March, a US coalition of privacy, consumer, competition and civil rights groups also took collective aim at microtargeting. So pressure is growing on lawmakers on both sides of the Atlantic to tackle exploitative adtech as consensus builds over the damage associated with mass surveillance-based manipulation.
At the same time, momentum is clearly building for pro-privacy consumer tech and services — showing the rising store being placed by users and innovators on business models that respect people’s data.
The growing uptake of such services underlines how alternative, rights-respecting digital business models are not only possible (and accessible, with many freemium offerings) but increasingly popular.
In an open letter addressing EU and US policymakers, the international coalition — which is comprised of 55 organizations and more than 20 experts including groups like Privacy International, the Open Rights Group, the Center for Digital Democracy, the New Economics Foundation, Beuc, Edri and Fairplay — urges legislative action, calling for a ban on ads that rely on “systematic commercial surveillance” of Internet users in order to serve what Facebook founder Mark Zuckerberg likes, euphemistically, to refer to as ‘relevant ads’.
The problem with Zuckerberg’s (self-serving) framing is that, as the coalition points out, the vast majority of consumers don’t actually want to be spied upon to be served with these creepy ads.
Any claimed ‘relevance’ is irrelevant to consumers who experience ad-stalking as creepy and unpleasant. (And just imagine how the average Internet user would feel if they could peek behind the adtech curtain — and see the vast databases where people are profiled at scale so their attention can be sliced and diced for commercial interests and sold to the highest bidder).
The coalition points to a report examining consumer attitudes to surveillance-based advertising, prepared by one of the letter’s signatories (the Norwegian Consumer Council; NCC), which found that only one in ten people are positive about commercial actors collecting information about them online — and only one in five think ads based on personal information are okay.
1/4 80-90% of people online don't want to be spied on for 'more relevant ads,' finds @Forbrukerradet's report.
— EDRi (@edri) June 23, 2021
A full third of respondents to the survey were “very negative” about microtargeted ads — while almost half think advertisers should not be able to target ads based on any form of personal information.
The report also highlights a sense of impotence among consumers when they go online, with six out of ten respondents feeling that they have no choice but to give up information about themselves.
That finding should be particularly concerning for EU policymakers as the bloc’s data protection framework is supposed to provide citizens with a suite of rights related to their personal data that should protect them against being strong-armed to hand over info — including stipulating that if a data controller intends to rely on user consent to process data then consent must be informed, specific and freely given; it can’t be stolen, strong-armed or sneaked through using dark patterns. (Although that remains all too often the case.)
Forced consent is not legal under EU law — yet, per the NCC’s European survey, a majority of respondents feel they have no choice but to be creeped on when they use the Internet.
That in turn points to an ongoing EU enforcement failure over major adtech-related complaints, scores of which have been filed in recent years under the General Data Protection Regulation (GDPR) — some of which are now over three years old (yet still haven’t resulted in any action against rule-breakers).
Over the past couple of years EU lawmakers have acknowledged problems with patchy GDPR enforcement — and it’s interesting to note that the Commission suggested some alternative enforcement structures in its recent digital regulation proposals, such as for oversight of very large online platforms in the Digital Services Act (DSA).
In the letter, the coalition suggests the DSA as the ideal legislative vehicle to contain a ban on surveillance-based ads.
Negotiations to shape a final proposal which EU institutions will need to vote on remain ongoing — but it’s possible the EU parliament could pick up the baton to push for a ban on surveillance ads. It has the power to amend the Commission’s legislative proposals and its approval is needed for draft laws to be adopted. So there’s plenty still to play for.
“In the US, we urge legislators to enact comprehensive privacy legislation,” the coalition adds.
The coalition is backing up its call for a ban on surveillance-based advertising with another report (also by the NCC) which lays out the case against microtargeting — summarizing the raft of concerns that have come to be attached to manipulative ads as awareness of the adtech industry’s vast, background people-profiling and data trading has grown.
Listed concerns not only focus on how privacy-stripping practices are horrible for individual consumers (enabling the manipulation, discrimination and exploitation of individuals and vulnerable groups) but also flag the damage to digital competition as a result of adtech platforms and data brokers intermediating and cannibalizing publishers’ revenues — eroding, for example, the ability of professional journalism to sustain itself and creating the conditions where ad fraud has been able to flourish.
Another contention is that the overall health of democratic societies is put at risk by surveillance-based advertising — as the apparatus and incentives fuel the amplification of misinformation and create security risks, and even national security risks. (Strong and independent journalism is also, of course, a core plank of a healthy democracy.)
“This harms consumers and businesses, and can undermine the cornerstones of democracy,” the coalition warns.
“Although we recognize that advertising is an important source of revenue for content creators and publishers online, this does not justify the massive commercial surveillance systems set up in attempts to ‘show the right ad to the right people’,” the letter goes on. “Other forms of advertising technologies exist, which do not depend on spying on consumers, and cases have shown that such alternative models can be implemented without significantly affecting revenue.
“There is no fair trade-off in the current surveillance-based advertising system. We encourage you to take a stand and consider a ban of surveillance-based advertising as part of the Digital Services Act in the EU, and the for U.S. to enact a long overdue federal privacy law.”
The letter is just the latest salvo against ‘toxic adtech’. And advertising giants like Facebook and Google have — for several years now — seen the pro-privacy writing on the wall.
Hence Facebook’s claimed ‘pivot to privacy‘; its plan to lock in its first party data advantage (by merging the infrastructure of different messaging products); and its keen interest in crypto.
It’s also why Google has been working on a stack of alternative adtech that it wants to replace third party tracking cookies. Although its proposed replacement — the so-called ‘Privacy Sandbox‘ — would still enable groups of Internet users to be opaquely clustered by its algorithms in ‘interest’ buckets for ad targeting purposes which still doesn’t look great for Internet users’ rights either. (And concerns have been raised on the competition front too.)
Where its ‘Sandbox’ proposal is concerned, Google may well be factoring in the possibility of legislation that outlaws — or, at least, more tightly controls — microtargeting. And it’s therefore trying to race ahead with developing alternative adtech that would have much the same targeting potency (maintaining its market power) but, by swapping out individuals for cohorts of web users, could potentially sidestep a ban on ‘microtargeting’ technicalities.
Legislators addressing this issue will therefore need to be smart in how they draft any laws intended to tackle the damage caused by surveillance-based advertising.
Certainly they will if they want to prevent the same old small- and large-scale manipulation abuses from being perpetuated.
The NCC’s report points to what it dubs as “good alternatives” for digital advertising models which don’t depend on the systematic surveillance of consumers to function. And which — it also argues — provide advertisers and publishers with “more oversight and control over where ads are displayed and which ads are being shown”.
The problem of ad fraud is certainly massively underreported. But, well, it’s instructive to recall how often Facebook has had to ‘fess up to problems with self reported ad metrics…
“It is possible to sell advertising space without basing it on intimate details about consumers. Solutions already exist to show ads in relevant contexts, or where consumers self-report what ads they want to see,” the NCC’s director of digital policy, Finn Myrstad, noted in a statement.
“A ban on surveillance-based advertising would also pave the way for a more transparent advertising marketplace, diminishing the need to share large parts of ad revenue with third parties such as data brokers. A level playing field would contribute to giving advertisers and content providers more control, and keep a larger share of the revenue.”
The European Data Protection Board (EDPB) published its final recommendations yesterday setting on guidance for making transfers of personal data to third countries to comply with EU data protection rules in light of last summer’s landmark CJEU ruling (aka Schrems II).
The long and short of these recommendations — which are fairly long; running to 48 pages — is that some data transfers to third countries will simply not be possible to (legally) carry out. Despite the continued existence of legal mechanisms that can, in theory, be used to make such transfers (like Standard Contractual Clauses; a transfer tool that was recently updated by the Commission).
However it’s up to the data controller to assess the viability of each transfer, on a case by case basis, to determine whether data can legally flow in that particular case. (Which may mean, for example, a business making complex assessments about foreign government surveillance regimes and how they impinge upon its specific operations.)
Companies that routinely take EU users’ data outside the bloc for processing in third countries (like the US), which do not have data adequacy arrangements with the EU, face substantial cost and challenge in attaining compliance — in a best case scenario.
Those that can’t apply viable ‘special measures’ to ensure transferred data is safe are duty bound to suspend data flows — with the risk, should they fail to do that, of being ordered to by a data protection authority (which could also apply additional sanctions).
One alternative option could be for such a firm to store and process EU users’ data locally — within the EU. But clearly that won’t be viable for every company.
Law firms are likely to be very happy with this outcome since there will be increased demand for legal advice as companies grapple with how to structure their data flows and adapt to a post-Schrems II world.
In some EU jurisdictions (such as Germany) data protection agencies are now actively carrying out compliance checks — so orders to suspend transfers are bound to follow.
While the European Data Protection Supervisor is busy scrutinizing EU institutions’ own use of US cloud services giants to see whether high level arrangements with tech giants like AWS and Microsoft pass muster or not.
Last summer the CJEU struck down the EU-US Privacy Shield — only a few years after the flagship adequacy arrangement was inked. The same core legal issues did for its predecessor, ‘Safe Harbor‘, though that had stood for some fifteen years. And since the demise of Privacy Shield the Commission has repeatedly warned there will be no quick fix replacement this time; nothing short of major reform of US surveillance law is likely to be required.
US and EU lawmakers remain in negotiations over a replacement EU-US data flows deal but a viable outcome that can stand up to legal challenge as the prior two agreements could not, may well require years of work, not months.
And that means EU-US data flows are facing legal uncertainty for the foreseeable future.
The UK, meanwhile, has just squeezed a data adequacy agreement out of the Commission — despite some loudly enunciated post-Brexit plans for regulatory divergence in the area of data protection.
If the UK follows through in ripping up key tenets of its inherited EU legal framework there’s a high chance it will also lose adequacy status in the coming years — meaning it too could face crippling barriers to EU data flows. (But for now it seems to have dodged that bullet.)
Data flows to other third countries that also lack an EU adequacy agreement — such as China and India — face the same ongoing legal uncertainty.
The backstory to the EU international data flows issues originates with a complaint — in the wake of NSA whistleblower Edward Snowden’s revelations about government mass surveillance programs, so more than seven years ago — made by the eponymous Max Schrems over what he argued were unsafe EU-US data flows.
Although his complaint was specifically targeted at Facebook’s business and called on the Irish Data Protection Commission (DPC) to use its enforcement powers and suspend Facebook’s EU-US data flows.
A regulatory dance of indecision followed which finally saw legal questions referred to Europe’s top court and — ultimately — the demise of the EU-US Privacy Shield. The CJEU ruling also put it beyond legal doubt that Member States’ DPAs must step in and act when they suspect data is flowing to a location where the information is at risk.
Following the Schrems II ruling, the DPC (finally) sent Facebook a preliminary order to suspend its EU-US data flows last fall. Facebook immediately challenged the order in the Irish courts — seeking to block the move. But that challenge failed. And Facebook’s EU-US data flows are now very much operating on borrowed time.
As one of the platform’s subject to Section 702 of the US’ FISA law, its options for applying ‘special measures’ to supplement its EU data transfers look, well, limited to say the least.
It can’t — for example — encrypt the data in a way that ensures it has no access to it (zero access encryption) since that’s not how Facebook’s advertising empire functions. And Schrems has previously suggested Facebook will have to federate its service — and store EU users’ information inside the EU — to fix its data transfer problem.
Safe to say, the costs and complexity of compliance for certain businesses like Facebook look massive.
But there will be compliance costs and complexity for thousands of businesses in the wake of the CJEU ruling.
Commenting on the EDPB’s adoption of final recommendations, chair Andrea Jelinek said: “The impact of Schrems II cannot be underestimated: Already international data flows are subject to much closer scrutiny from the supervisory authorities who are conducting investigations at their respective levels. The goal of the EDPB Recommendations is to guide exporters in lawfully transferring personal data to third countries while guaranteeing that the data transferred is afforded a level of protection essentially equivalent to that guaranteed within the European Economic Area.
“By clarifying some doubts expressed by stakeholders, and in particular the importance of examining the practices of public authorities in third countries, we want to make it easier for data exporters to know how to assess their transfers to third countries and to identify and implement effective supplementary measures where they are needed. The EDPB will continue considering the effects of the Schrems II ruling and the comments received from stakeholders in its future guidance.”
The EDPB put out earlier guidance on Schrems II compliance last year.
It said the main modifications between that earlier advice and its final recommendations include: “The emphasis on the importance of examining the practices of third country public authorities in the exporters’ legal assessment to determine whether the legislation and/or practices of the third country impinge — in practice — on the effectiveness of the Art. 46 GDPR transfer tool; the possibility that the exporter considers in its assessment the practical experience of the importer, among other elements and with certain caveats; and the clarification that the legislation of the third country of destination allowing its authorities to access the data transferred, even without the importer’s intervention, may also impinge on the effectiveness of the transfer tool”.
Commenting on the EDPB’s recommendations in a statement, law firm Linklaters dubbed the guidance “strict” — warning over the looming impact on businesses.
“There is little evidence of a pragmatic approach to these transfers and the EDPB seems entirely content if the conclusion is that the data must remain in the EU,” said Peter Church, a Counsel at the global law firm. “For example, before transferring personal data to third country (without adequate data protection laws) businesses must consider not only its law but how its law enforcement and national security agencies operate in practice. Given these activities are typically secretive and opaque, this type of analysis is likely to cost tens of thousands of euros and take time. It appears this analysis is needed even for relatively innocuous transfers.”
“It is not clear how SMEs can be expected to comply with these requirements,” he added. “Given we now operate in a globalised society the EDPB, like King Canute, should consider the practical limitations on its power. The guidance will not turn back the tides of data washing back and forth across the world, but many businesses will really struggle to comply with these new requirements.”
Chinese merchants selling on Amazon are having a moment. The scruffy exporters are used to roaming about suburban factory areas and dealing with constant cash flow strain, but suddenly they find themselves having coffee with top Chinese venture capital firms and investment representatives from internet giants, who come with big checks to hunt down the next Shein or Anker. While VCs can provide the money for them to scale quickly, many lack the expertise to help on the strategic side.
This is where brand aggregators can put their retail know-how to work. Also called roll-ups, these companies go around acquiring promising e-commmerce brands for operational synergies. After taking off in the United States, Europe, and lately Southeast Asia, it has also quietly landed in China, where traditional white-label manufacturers are trying to move up the value chain and establish their own brand presence.
The latest roll-up to enter China is Berlin Brands Group (BBG), which aims to buy “dozens of” brands in the country over the next few years, its founder and CEO Peter Chaljawski told TechCrunch. This will significantly boost the German company’s existing portfolio of 14 brands.
The move came on the back of BBG’s $240 million funding raised from debt and its announcement to commit $300 million on its balance sheet to buying up companies. The firm opted for debt in part because it has been profitable since its inception. The recent funding won’t be its last round and it may use other financial instruments in the future, said the founder.
Chaljawski doesn’t see VC and corporate investors as direct competitors in the hunt for brands. “There are tens of thousands of sellers in China that generate significant revenue on Amazon. I think the VC money applies to some of them, and the roll-up model applies also to only some of them. But ‘some’ is a very, very big number.”
BBG is no stranger to China. The 15-year-old company has been relying on Chinese manufacturers to make its kitchenware, gardening tools, sports gear and other home appliances, with 90% of its products still made in the country today. For the new brand buy-out initiative, it’s hiring dozens of staff in Shenzhen, which Chalijawski dubbed the “Silicon Valley of Amazon,” referring to the southern city’s key role in global export, manufacturing, and increasingly, design.
BBG hopes to offer a new way for Chinese consumer products to scale in Europe and the U.S. beyond being an anonymous brand on Amazon. Sellers may want to break free of the American behemoth to seize more control over consumer data, but building a direct-to-consumer (D2C) brand is no small feat.
Many merchants that are good at operating Amazon third-party businesses lack the infrastructure to go beyond Amazon, like an in-house logistics system, said the founder. In Europe, BBG manages 120,000 square meters of fulfillment centers, allowing it to shed dependence on Amazon.
Chinese brands may also want to find Amazon alternatives in Europe, where the e-commerce landscape is a lot more fragmented than that in the U.S, noted Chaljawski.
“If you look at the U.S., Amazon is dominant. If you look at Europe, Amazon only has 10% of the market share of online retail. So 90% is beyond Amazon. In the Netherlands, you have platforms like Bol. In Poland, you have Allegro, and in France, you have other dominant players.”
To bridge the gap for international brands targeting Europe, BBG operates close to 20 D2C web stores in major European countries, aside from selling on Amazon. Its sales growth in the U.S. has also been in full steam. Currently, over 60% of the firm’s revenues come from non-Amazon channels.
BBG is already in advanced negotiations with “some brands” in China but cannot disclose their names at this stage.