Start Up No.1290: how the UK missed on coronavirus, Raspberry Pi sales rocket, the coming fraud crisis, Icann delays .org sale again, and more


Apparently storytelling like this is the clue to YouTube success. Intrigued yet? CC-licensed photo by David Leo Veksler on Flickr.

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A selection of 11 links for you. Testing 1-2-3. I’m @charlesarthur on Twitter. Observations and links welcome.

Coronavirus: 38 days when Britain sleepwalked into disaster • The Sunday Times

Jonathan Calvert, George Arbuthnott and Jonathan Leake:

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[On January 25] there was now little doubt that the UK would be hit by the virus. A study by Southampton University has shown that 190,000 people flew into the UK from Wuhan and other high-risk Chinese cities between January and March. The researchers estimated that up to 1,900 of these passengers would have been infected with the coronavirus — almost guaranteeing the UK would become a centre of the subsequent pandemic.

Sure enough, five days later, on Wednesday January 29, the first coronavirus cases on British soil were found when two Chinese nationals from the same family fell ill at a hotel in York. The next day the government raised the threat level from low to moderate…

…Several emergency planners and scientists said that the plans to protect the UK in a pandemic had once been a priority and had been well funded for the decade following the 9/11 terrorist attacks in 2001. But then austerity cuts struck. “We were the envy of the world,” the source said, “but pandemic planning became a casualty of the austerity years, when there were more pressing needs.”

The last rehearsal for a pandemic was a 2016 exercise codenamed Cygnus, which predicted the health service would collapse and highlighted a long list of shortcomings — including, presciently, a lack of PPE and intensive care ventilators…

…the government had much catching-up to do as it became clear that this “nightmare” was turning into a distinct possibility in February. But the source said there was still little urgency. “Almost every plan we had was not activated in February. Almost every government department has failed to properly implement their own pandemic plans,” the source said.

One deviation from the plan, for example, was a failure to give an early warning to firms that there might be a lockdown so they could start contingency planning. “There was a duty to get them to start thinking about their cashflow and their business continuity arrangements,” the source said.

A central part of any pandemic plan is to identify anyone who becomes ill, vigorously pursue all their recent contacts and put them into quarantine. That involves testing, and the UK seemed to be ahead of the game. In early February Hancock proudly told the Commons the UK was one of the first countries to develop a new test for the coronavirus. “Testing worldwide is being done on equipment designed in Oxford,” he said.

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Hubris from start to finish.
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Coronavirus broke the global food supply chain. It may never recover • WIRED UK

Chris Stokel-Walker:

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At the minute, the [UK fruit-picking] industry has enough workers for the crops it’s harvesting. But industry estimates reckon another 15,000 will be needed in fields in May to harvest everything in time. Currently, Boparan thinks the industry will make it, but is clear: “The pressure is on for everybody in the sector.” Otherwise summer fruits and vegetables won’t get harvested, and won’t end up on our supermarket shelves.

Defra, the government’s environment department, was partly prepared for a shortage of workers from the European Union: they expected travel to be limited for casual workers, but not due to a pandemic. Instead, they had modelled the impact of Brexit. As a result, a small pilot scheme has allowed those in the industry to fly in labour from outside the EU, but it’s likely that will need to be augmented by homegrown workers – at least temporarily.

Other sectors are feeling the pinch acutely. McDonald’s, which closed all its 1,270 UK restaurants last month as the coronavirus hit hard, sources food from 23,000 farmers across the UK and Ireland, spending more than £600 million on meat and dairy products – as well as eggs and potatoes. The National Beef Association said that beef that would have made its way into burgers was being redirected to other points in the food chain, but that’s easier said than done, reckons Elliott.

“People will say if they’re producing the same amount of food they should switch to the retail sector,” he says. But it’s not that simple, because retailers have long standing contracts with suppliers that are difficult to attain, and packaging requirements – and even the kinds of cuts needed – are different between the restaurant and food sector and home cooking. “You might not have the right equipment to produce the right cuts, or the correct packaging equipment,” says Elliott.

Producers, processors and packers are stuck in an awkward catch-22: rip up the rules of how their businesses work to adapt to the new norm – with the knowledge that the total lockdown could change in a matter of weeks or months and leave them scrambling to readjust to their traditional supply chain – or simply wait it out.

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Who is MrBeast? • Blake Robbins’ Newsletter

Blake Robbins:

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There is no YouTube creator in the world is growing as fast as MrBeast. He is averaging 1.5M new subscribers every single month with over 250M views per month.

So how does he do it?

It is widely speculated that YouTube’s algorithm prioritizes and rewards videos based on total watch time. This means that videos that are watched all the way through will algorithmically be promoted to others via the “recommended” panel of YouTube.

MrBeast has mastered this. Almost all of his video concepts are centered around watching to the end of the video. One of my favorite YouTube channels, Colin and Samir, has coined this as “Jenga Storytelling.”

Jenga Storytelling is where you already know the end result, but the stakes of the video continue to increase as view duration increases. This format encourages viewers to watch the entire video, resulting in higher placement on “recommended.” Logan Paul has also referenced “Jenga Storytelling” before. On his podcast, Impaulsive, he said: “The person who can crack the code of the Jenga Format for YouTube will win. Hands down, they will take over.”

MrBeast has cracked this code. However, he continues to take it to another level by raising the stakes.

MrBeast actually gave us a glimpse into his creative process when he spoke to Casey Neistat last year: “If the average YouTuber spends 1-hour brainstorming video ideas and 5 hours filming, then I want to spend 10 hours brainstorming video ideas and days filming.”

At the end of 2019, MrBeast hosted his biggest challenge to date, where he gave away $1,000,000. He created five different “last to leave” challenges where the contestants were fans who had bought his merchandise and/or followed him on Instagram.

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OK but.. you can just skip to the end, right? One of his videos is a variant of “grab the truck”, where the last of he and his friends to have their hand on a Lamborghini gets to keep it. If it lasts X minutes, why not just zzzzzzzip right to the, so to speak, money shot?
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Raspberry Pi sales are rocketing in the middle of the coronavirus outbreak • TechRepublic

Owen Hughes:

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Sales of Raspberry Pi’s single-board computers hit 640,000 in March, the second-biggest month for sales since they started selling, as consumers flocked to inexpensive ways to work and learn from home. 

While some sales can be attributed to tinkering Pi-hobbyists with a lot more time to fill all of sudden, Eben Upton, the Raspberry Pi’s co-creator, told TechRepublic demand is also coming from households that have found themselves in daily battles over use of the family computer.

“It used to be sustainable to have a shared family computer, but now every family member needs to have one to work or learn,” said Upton. “Now, everyone is at home competing for the use of one computer.”

While sales of Raspberry Pi picked up steadily over the course of March, the latter end of the month is where things really gathered steam, with Upton describing the increase in demand as “turning the dial up from three to 10”, with industrial sales staying very stable and Raspberry Pi 4 volumes ramping up very quickly.

“I think what this is telling us is that we’re seeing genuine consumer use of the product. It’s not like your desktop PC – you’re not going to be able play Crysis on it – but if you want a machine you can use to edit documents, use the web, use Gmail and Office 365 and all the baseline use cases of a general purpose computer, the Raspberry Pi 4 is a product we’ve made to get over that bar.”

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Except… you’re going to have to run a Linux distro, and are there really many office workers who are going to feel comfortable running Office 365 on top of a Linux distro? Is Zoom available for Linux? I suspect this is parents buying a “computer” for their kids as they go into lockdown, to keep them amused, or at least distracted. Know what you can run pretty easily on a RasPi? Minecraft. (Though the story does also point out that there are uses relating to ventilators.)
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How Covid-19 changed our world: futurist Gerd Leonhard looks back from late 2020 • Medium

Futurist Gerd Leonhard, looking back from some time a few months ahead:

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In late 2020 it is clear that Covid-19 has caused a massive global reset, in every aspect i.e. economically, socially, politically, environmentally and scientifically. Indeed, the impact of this crisis can now be compared to that of the Great Depression, or even WorldWar II. A global recession is in full swing, and it looks it will cut even deeper in 2021.

Global GDP growth was unimaginably negative for 2020 (for a still optimistic March 2020 forecast go here). The US fared the worst, while China jockeyed to reposition itself for a new world order. BUT: 2020 was the first year in modern history where global CO2 emissions have declined.

Yet despite the economic woes there is also hope, now, fuelled by the sudden realisation that this crisis is likely to put an end to the industrial-era paradigm of ‘growth at all cost’ and the ill-fated doctrine of ‘making any single country great-again’. In late 2020, we were finally forced (liberated?) to rethink our traditional economic logic, and question our political assumptions. After Covid-19 (phase1), we entered a new ‘post-growth’ era, and now we are gearing up to rewrite the rules of capitalism.

What Al Gore called “sustainable capitalism” in 2012 is finally back on the agenda, and so is what I call the quadruple bottom-line: People Planet Purpose and Prosperity (some of my videos on that topic are here).

We are experiencing a global shift in consciousness as a result of this crisis.

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And you must read what he thinks the US is going to go through.

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Who’s lost their trunks? The economic crisis will expose a decade’s worth of corporate fraud • The Economist

The Economist, echoing Warren Buffett’s points that it’s only when the tide goes out that you learn who was swimming naked, says that now “the water has whooshed away at record speed”:

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The average number of non-GAAP measures used in filings by companies in the S+P 500 index has increased from 2.5 to 7.5 in the past 20 years, according to PWC, a consultancy. In credit agreements analysed by Zion Research Group, the definition of EBIDTA ranges from 75 words to over 2,200. GAAP is far from perfect, but some of the divergence from it has clearly been designed to pull wool over investors’ eyes. One study found that non-GAAP profits were, on average, 15% higher than GAAP profits.

Playing around with earnings and revenue-recognition metrics is this generation’s equivalent of dotcoms using bots and other tricks to boost “eyeballs” 20 years ago, says Jules Kroll of K2 Intelligence, the doyen of corporate sleuths. “When an area is hot to the point of overheated, there is a growing temptation to juice the numbers.” In an ominous sign, SoftBank, a Japanese technology conglomerate which bet big on WeWork and dozens of other startups, said this week that it expects an operating loss of ¥1.4trn ($12.5bn) in its last fiscal year.

Besides exposing old schemes, the pandemic is likely to give rise to new ones. When economic survival is threatened, the line separating what is acceptable and unacceptable when booking revenues or making market disclosures can be blurred. Mr Kroll reckons that “amid such massive dislocation, some will inevitably cheat.”

Bruce Dorris, head of the Association of Certified Fraud Examiners, the world’s largest anti-fraud outfit, says the effects of Covid-19 look like “a perfect storm for fraud”. It may engender everything from iffy accounting to stimulus-linked scams as thousands of firms—including bogus applicants—hustle for help. One fraud investigator points to private-equity-owned firms as potential targets. “There are lots of them, they are highly leveraged and they may not qualify for bail-outs because they have deep-pocketed sponsors,” he says. That increases the temptation to resort to unseemly practices.

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GAAP (General Accepted Accounting Principles) makes the stock options that tech companies’ adore look expensive; they’re a huge drag on profits. The next nine months are going to expose a lot of bad, but also good, companies.
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ICANN delays .org sale again after scathing letter from California AG • Ars Technica

Timothy Lee:

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California’s attorney general pointed to several specific concerns about the transaction. One was the shadowy nature of the proposed buyer, Ethos Capital. “Little is known about Ethos Capital and its multiple proposed subsidiaries,” Becerra writes. Ethos Capital, he said, has “refused to produce responses to many critical questions posted by the public and Internet community.”

Ethos Capital’s plan is to buy the Public Interest Registry (PIR) from its current parent organization, the nonprofit Internet Society. To help finance the sale, Ethos will saddle PIR with $300m in debt—a common tactic in the world of leveraged buyouts. Becerra warns that this tactic could endanger the financial viability of the PIR—especially in light of the economic uncertainty created by the coronavirus.

“If the sale goes through and PIR’s business model fails to meet expectations, it may have to make significant cuts in operations,” Becerra warns. “Such cuts would undoubtedly affect the stability of the .org registry.”

Becerra also blasts the Internet Society for considering the sale in the first place. “ISOC purports to support the Internet, yet its actions, from the secretive nature of the transaction, to actively seeking to transfer the .org registry to an unknown entity, are contrary to its mission and potentially disruptive to the same system it claims to champion and support,” he writes.

Becerra ends his letter with a warning: “This office will continue to evaluate this matter, and will take whatever action necessary to protect Californians and the nonprofit community.”

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It’s astonishing that after so many years of seeing private equity buy companies, saddle them with debt that drags them down into bankruptcy while extracting fees that increase the pain, that anyone ever contemplates such a sale. Greed is a remarkable driver.
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Goldman predicts 36% drop in iPhone shipment, says time to sell Apple shares • Reuters

Munsuf Vengattil and Lewis Krauskopf:

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Goldman Sachs said on Friday it expects iPhone shipment to drop 36% during the current quarter due to coronavirus-related lockdowns around the world and downgraded Apple Inc stock to “sell”.

Apple shares fell 1.6% to $282.13 on Friday morning, bucking a 1.5% rise for the benchmark S&P 500.

The Goldman analysts also lowered their price target for the stock by 7% to $233 in its report forecasting the drop in iPhone demand for the quarter ending in June, Apple’s fiscal third quarter.

The brokerage noted that average selling prices for consumer devices are likely to decline during a recession and remain weak well beyond the point when units recover.

“We do not assume that this downturn results in Apple losing users from its installed base. We simply assume that existing users will keep devices longer and choose less expensive Apple options when they do buy a new device,” Goldman Sachs analysts said in a note.

Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, which holds Apple shares, said he expects a significant drop in iPhone sales, but 36% seemed “extreme.”

“I view some of that as deferred demand…I think some of that will come back in succeeding quarters,” Tuz said.

…Goldman said it does not expect the company to launch the upcoming iPhone models until early November, as limited global travel could impede Apple’s final engineering and production process.

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Phones are becoming both more essential, and yet we’re going to have less cash available to buy them. There’s a squeeze coming on the premium market in particular, though Apple is probably safe with its (profitable) Services business. Could gut the premium Android market, though. (But of course that means Apple is doomed and you must sell its shares, only to buy them back later, for a fee. Got to keep those stockbrokers’ yachts clean!)
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Clubhouse voice chat leads a wave of spontaneous social apps • TechCrunch

Josh Constine:

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Forget the calendar invite. Just jump into a conversation. That’s the idea powering a fresh batch of social startups poised to take advantage of our cleared schedules amidst quarantine. But they could also change the way we work and socialize long after COVID-19 by bringing the free-flowing, ad-hoc communication of parties and open office plans online. While “Live” has become synonymous with performative streaming, these new apps instead spread the limelight across several users as well as the task, game, or discussion at hand.

The most buzzy of these startups is Clubhouse, an audio-based social network where people can spontaneously jump into voice chat rooms together. You see the unlabeled rooms of all the people you follow, and you can join to talk or just listen along, milling around to find what interests you. High-energy rooms attract crowds while slower ones see participants slip out to join other chat circles.

Clubhouse blew up this weekend on VC Twitter as people scrambled for exclusive invites, humblebragged about their membership, or made fun of everyone’s FOMO. For now, there’s no public app or access. The name Clubhouse perfectly captures how people long to be part of the in-crowd.

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This app, Zoom, HouseParty – there are going to be fortunes made in this strange lacuna. Who can catch the mood best will triumph. Google did much the same in the dot-com bust: it was in the right place, doing just the right job.
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Capitalists or cronyists? • No Mercy / No Malice

Scott Galloway is, not to put too fine a point on it, very much in favour of not bailing out certain companies:

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As long as they keep making old people, and younger people want to take their kids to Disney’s Galaxy’s Edge, there will be cruise lines and airlines. Since 2000, US airlines have declared bankruptcy 66 times. Despite the obvious vulnerability of the sector, boards/CEOs of the six largest airlines have spent 96% of their free cash flow on share buybacks, bolstering the share price and compensation of management … who now want a bailout. They should be allowed to fail. Bondholders will own the firms. Ships and planes will continue to float and fly, and there will still be a steel tube with recirculated air waiting for you post molestation by Roy from TSA.

Trump/CNBC have adopted a narrative that this is about protecting the most vulnerable. No, it’s about buttressing the most wealthy. Pandemics typically result in higher wages over the next several decades as we recognize that essential workers (the gal/guy delivering your Greek yogurt and placing your Indian food in the backseat of your car) should be paid more. A good thing.

Letting firms fail, and share prices fall to their market level, also provides younger generations with the same opportunities we, Gen X and boomers, were given: a chance to buy Amazon at 50x (vs. 100x) earnings and Brooklyn real estate at $300 (vs. $1,000) per sq. ft. Just as we pretend our service men and women are heroes, and then treat them like chumps, CNBC advertisers and Peter Navarro want to pretend they give a sh*t about younger generations so they can protect the wealth of old people and management/advertisers. Enough already.

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Galloway isn’t some frustrated communist, either: he got rich (or near enough) with his own company which started back in the 1990s. It didn’t get bailed out in the dot-com crash or the Great Recession.
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Carnival executives knew they had a virus problem, but kept the party going • Bloomberg

Austin Carr and Chris Palmeri:

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Even after Carnival became aware of the potential coronavirus case, passengers say staff tried to keep the fun going. Guests continued eating and drinking at buffets and bars, hanging out in saunas, and attending shows, including an operatic performance called Bravo. Carnival distributed itineraries (known as “Princess Patter”) guiding guests to trivia contests and other group activities on Feb. 3. “They were encouraging us to mingle,” says Gay Courter, who, after getting her temperature taken by a Japanese official the next day, went for a walk on deck and saw tables of as many as 30 people playing mahjong. A Carnival spokesman says the staff discontinued “most” scheduled activities on Feb. 4, though Japanese officials didn’t institute a shipwide quarantine requiring passengers to stay in their cabins until Feb. 5.
The president of Carnival’s Princess Cruises division, Jan Swartz, says the company was deferring to Japanese health officials. She says the crew followed government guidelines, delivering the passengers food and prescription refills as the quarantine at Yokohama’s port wore on. Carnival CEO Donald says he was aware of the situation but didn’t personally take control of the response efforts until Feb. 5. “We have a nice chain of command,” he says. “As it became a bigger issue, I’m dialing into the situation updates.”
It was an increasingly chaotic period for Carnival. Shortly before the Diamond Princess problem, there had been a coronavirus scare aboard one of its ships near Italy, and a second in mid-February on another Carnival cruise in Asia. (Carnival says these were false alarms.) Countries around the world began refusing to allow the company’s boats to dock, fearing they’d spread the virus, creating novel challenges for Donald and his team. “It wasn’t like there were protocols, and that this was established. You’re at sea, you’re moving people around, and the rules are changing as you go,” he says. He adds that by early March, when the virus hit the Grand Princess, Carnival had systems in place to take better care of its guests. Some Grand Princess passengers had to fill out a questionnaire asking if they’d recently been to China, though there were no questions about whether they had symptoms consistent with Covid-19.

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Errata, corrigenda and ai no corrida: none notified

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