Digital Shadows: Balancing Security and Freedom

26 Mar

26th March, 2024

In a world increasingly characterized by pervasive surveillance and growing concerns over national security, how can the nuanced deployment of digital watermarking and steganography serve as a dual-edged sword, safeguarding national interests while ensuring the preservation of personal freedoms? This question delves deeper into the paradigm of digital security, probing the implications of nations developing asymmetric capabilities through tools like watermarking and steganography. It seeks to explore the equilibrium between enhancing security measures and maintaining individual liberties, as well as the consequential shifts in the global balance of power that such technological advancements may precipitate. This comprehensive inquiry aims to unravel the complex interplay between advancing national security objectives without encroaching upon the personal freedoms of individuals, all within the context of an evolving international landscape marked by digital innovation and strategic competition.

First Layer

In an era where digital surveillance and national security concerns increasingly intersect with the imperative for individual privacy protections, the nuanced deployment of digital watermarking and steganography emerges as a potent, albeit double-edged, technological paradigm. This complex interplay necessitates a thorough exploration of not only the intrinsic capabilities and limitations of these technologies but also their broader implications for societal norms, international diplomacy, and the evolving contours of geopolitical power dynamics.

Technological Underpinnings and Strategic Deployment

Digital watermarking and steganography, while distinct, share a common objective: the covert embedding of information within digital media. Watermarking seeks to imperceptibly mark digital content, facilitating the verification of authenticity and origin, indispensable for copyright protection, secure document transmission, and combating misinformation. Conversely, steganography conceals the existence of information altogether, offering a higher level of secrecy for communications, potentially subverting surveillance mechanisms.

The technical foundation of digital watermarking revolves around embedding patterns or codes into media files (images, videos, or audio) in a manner that is resilient to transformations (compression, resizing, or editing). These embedded marks, leveraging cryptographic techniques such as public-key infrastructure (PKI), enable the validation of content integrity and provenance without impeding legitimate access or utility. For instance, a digitally watermarked image by a government agency can serve as a secure channel for disseminating sensitive visual intelligence, with the watermark validating the source and integrity against tampering or deepfake alterations.

Steganography, harnessing methodologies like least significant bit (LSB) insertion or frequency-domain techniques, facilitates the embedding of information within digital carriers (e.g., images, audio files) in a way that evades detection by unauthorized parties. This technique's application ranges from safeguarding whistleblowers' communications within authoritarian regimes to embedding secure operational directives in seemingly innocuous content.

Balancing National Security and Personal Freedoms

The deployment of these technologies by nation-states underscores the precarious balance between enhancing security frameworks and safeguarding personal freedoms. On one hand, digital watermarking can bolster national security by ensuring the integrity and origin of disseminated information, crucial in counter-terrorism operations, intelligence-sharing, and securing digital infrastructure against misinformation campaigns.

On the other hand, the surreptitious nature of steganography raises pivotal concerns regarding its use in evading lawful surveillance, potentially facilitating illicit communications by non-state actors. Thus, while these technologies offer states asymmetric advantages in intelligence and cybersecurity realms, they also necessitate robust legal and ethical frameworks to prevent abuse.

For instance, the implementation of digital watermarking in electoral processes, as seen in Brazil's directive to combat deepfakes in political campaigns, offers a glimpse into how legislative measures can harness these technologies' potential while imposing accountability and safeguarding democratic integrity.

Shifting Geopolitical Dynamics and International Norms

The strategic deployment of digital watermarking and steganography extends beyond national confines, influencing international relations and global power shifts. As nations vary in their technological prowess and regulatory landscapes, disparities in these domains could result in a fragmented global digital security architecture, exacerbating tensions and fostering an environment of mistrust.

The establishment of international norms and collaborative frameworks becomes imperative to mitigate these risks. A concerted effort among nations to develop interoperable standards for digital watermarking, coupled with transparent discourse on the ethical use of steganography, can foster a level of trust and cooperation. This could take the form of bilateral or multilateral agreements, akin to arms control treaties, delineating acceptable uses and establishing mechanisms for verification and dispute resolution.

Actionable Insights and Policy Recommendations

To navigate the intertwined challenges and opportunities presented by digital watermarking and steganography, the following actionable insights and policy recommendations are proposed:

Standardization and Interoperability

Advocate for the development of global standards for digital watermarking, ensuring interoperability and facilitating international cooperation in content verification and authenticity.

Regulatory and Ethical Frameworks

Implement comprehensive legal and ethical guidelines governing the use of steganography, emphasizing transparency, accountability, and the protection of personal freedoms. This includes stringent oversight mechanisms to prevent misuse by state and non-state actors alike.

Public-Private Partnerships

Encourage collaboration between governments, tech industries, and academia to advance secure and resilient digital watermarking and steganography solutions. This includes fostering innovation in quantum-resistant cryptographic techniques to future-proof these technologies against emerging threats.

International Dialogue and Cooperation

Promote international dialogue on the dual-use nature of these technologies, aiming to build consensus on normative behaviors and cooperative security measures. This could be facilitated through existing international forums or dedicated diplomatic initiatives.

Public Awareness and Education

Launch initiatives to raise public awareness about the implications of digital watermarking and steganography, focusing on the importance of sustaining personal freedoms amidst growing digital surveillance capabilities.

In conclusion, the nuanced deployment of digital watermarking and steganography encapsulates the delicate balance between fortifying national security and preserving personal freedoms. As the international community grapples with these challenges, a multifaceted approach—rooted in technological innovation, ethical governance, and collaborative diplomacy—stands as the cornerstone for navigating the digital frontier responsibly. Through concerted efforts to develop robust frameworks and foster international cooperation, nations can harness these technologies' potential while safeguarding the foundational principles of privacy and liberty in the digital age.

Second Layer

The intricate challenge of balancing national interests with personal freedoms in the context of digital watermarking and steganography underscores a pivotal struggle in the digital age. This dilemma necessitates a meticulous examination of the technological intricacies, legal frameworks, and strategic implications at play. A refined analysis, addressing the feedback points, elucidates a multifaceted strategy that encompasses technological advancement, legal adaptation, international cooperation, and ethical governance.

Technological Intricacies and Advances

Cryptographic Foundations

At the core of digital watermarking, robust cryptographic methods ensure the integrity and authentication of watermarks. Advanced cryptographic models, such as Elliptic Curve Cryptography (ECC) and Post-Quantum Cryptography (PQC), offer enhanced security against emerging threats, including quantum computing. An exploration into ECC reveals its efficacy in creating compact, secure watermarks ideal for high-density digital media. Simultaneously, PQC presents a frontier for securing steganographic communications against quantum cryptanalysis, ensuring long-term confidentiality.

Steganalysis Developments

The armamentarium against misuse involves cutting-edge steganalysis techniques powered by machine learning algorithms. These algorithms are proficient in detecting subtle anomalies indicative of steganographic embedding, even within high-volume data streams. Aided by neural network-based models, steganalysis tools now feature adaptive learning capabilities to counter evolving steganographic methods, indicative of a dynamic defense mechanism against unauthorized data concealment.

Legal Frameworks and International Norms

Legislative Evolution

The disparity in legal governance of digital watermarking and steganography necessitates a uniform regulatory framework. A proposal is the introduction of an international digital watermarking protocol, underpinned by the World Intellectual Property Organization (WIPO), to standardize watermarking practices and facilitate cross-border enforcement against misuse. Concurrently, the enactment of a global steganography registry could mandate the disclosure of steganographic tools and their intended use, enhancing transparency and accountability.

Global Governance

The path towards international cooperation is fraught with geopolitical hurdles. A strategic approach involves leveraging existing cybersecurity alliances, such as the Five Eyes intelligence alliance, as platforms for initiating dialogue on normative standards for digital watermarking and steganography. These forums could serve as incubators for a global compact on digital ethics, harmonizing the interests of diverse stakeholders towards a consensus on the responsible use of these technologies.

Strategic Recommendations

Public-Private Synergy

Bolstering security while preserving freedoms calls for an integrated effort between governments, technology providers, and civil society. A model for collaboration is the creation of technology assessment panels comprising representatives from each sector. These panels would evaluate new watermarking and steganographic technologies against benchmarks for security, privacy, and ethical use, facilitating informed policy decisions and guiding the development of privacy-preserving technologies.

Ethical Governance

The ethical implications of surveillance and covert communication posit a need for stringent ethical guidelines. The development of an ethical charter for digital watermarking and steganography, endorsed by international human rights organizations, could stipulate principles for consent, transparency, and the right to anonymity. This charter would serve as a moral compass for technology developers, ensuring that innovations empower users rather than diminish their freedoms.

Capacity Building and Awareness

Educating stakeholders on the dual-use nature of these technologies is paramount. Initiatives such as digital literacy campaigns, focused on the nuances of digital watermarking and steganography, would demystify these technologies for the lay public. Workshops for policymakers, emphasizing the strategic significance and ethical considerations, would enhance informed legislative and diplomatic efforts.

Conclusion

The reconciliation of national security interests with the preservation of personal freedoms in the realm of digital watermarking and steganography presents a complex, yet navigable challenge. Through a concerted effort that marries technological innovation with ethical governance, legal adaptation, and international diplomacy, a balanced approach is achievable. This refined strategy, acknowledging the feedback and emphasizing depth and pragmatism, presents a roadmap for navigating the digital age's quandaries, fortifying security while upholding the inviolable rights to privacy and freedom.

NA Preparation

Material Facts

Delving into the intricacies of digital watermarking and steganography reveals their profound implications on national security and personal freedoms, positioned at the nexus of technological sophistication and geopolitical strategy. The utility and potential pitfalls of these technologies are magnified against the backdrop of an escalating digital arms race, where states seek leverage through asymmetric capabilities while safeguarding the civil liberties of their citizens.

In-depth Technological Foundations and Strategic Usage

Digital watermarking encapsulates a spectrum of techniques tailored to embed data within digital media discreetly. Its deployment spans various domains, from content attribution in the realms of copyrights to secure document transmission in intelligence operations. The crux of building a secure digital watermarking system rests on cryptographic principles, where techniques like public key infrastructure (PKI) ensure only authorized entities can access the embedded data. For instance, the challenge of maintaining watermark integrity in multimedia files during compression and format conversion exemplifies the need for adaptive algorithms that can withstand such transformations, an area where advanced cryptographic methods play a critical role.

Steganography, the art of concealing information within seemingly innocuous carriers, stretches the bounds of digital secrecy. Far from its historical roots, modern steganography leverages complex algorithms to hide data within digital images, videos, or network protocols, rendering the communication invisible to unauthorized observers. The strategic dimensions of such capabilities are multifaceted, enabling clandestine operations where the detection of information exchange could have detrimental consequences. However, it's the tension between the technological prowess of steganalysis tools, designed to unveil these hidden communications, and the innovative strides in steganographic methods that underscore the perpetual cat-and-mouse game in digital espionage and counter-surveillance efforts.

Law, Ethics, and The Delicate Balance

The application of digital watermarking and steganography by nation-states encapsulates a contentious battlefield, where the imperatives of national security often clash with the principles of personal liberty. The legislative landscape governing these technologies remains a patchwork of national laws and international treaties, lacking a cohesive framework that addresses the nuanced challenges posed by these digital tools. For instance, the use of digital watermarking in tracking document dissemination raises crucial questions about privacy and the surveillance capabilities of the state, necessitating robust legal safeguards that prevent overreach.

Equally, steganography’s use in secure communication underlines the critical debate over encryption policies and the rights to privacy in the digital age. Governments grappling with encryption's dual-use potential in both protecting freedom of speech and enabling illicit activities face a complex policy matrix. This necessitates an agile, ethics-centered approach in legislating and overseeing the use of these technologies, ensuring they don't become tools for unchecked surveillance or censorship.

Forecasting a Tech-Governance Nexus

As digital innovation continues at a breakneck pace, the intersections between emerging technologies like artificial intelligence (AI) and distributed ledger technology (blockchain) with digital watermarking and steganography herald new opportunities and challenges. The integration of AI in developing steganalysis techniques that can adaptively unmask steganographic content could significantly enhance state capabilities in combating cyber threats. Conversely, blockchain's potential in creating transparent systems for verifying the authenticity of digital content through immutable watermarks could revolutionize copyright protection and content verification processes.

At the heart of harnessing these technologies for national security, without infringing on personal freedoms, lies a governance paradigm that emphasizes ethical oversight, transparency, and multilateral cooperation. Developing international norms and standards for the deployment of these technologies can mitigate the risks of a fragmented global security architecture and foster an environment where digital innovations serve as a bridge towards more secure, yet open societies.

In synthesizing the intricacies of digital watermarking and steganography, the overarching narrative underscores the delicate teeter-totter of advancing national security imperatives in tandem with safeguarding the sacrosanct principles of personal freedom. Navigating this labyrinth requires a multidisciplinary approach that harmonizes technical innovation with ethical governance, projecting a pathway where technological advancements enrich the security and freedom of the global community in concert.

Force Catalysts

Delving deeper into the intricate tapestry of digital watermarking and steganography, this iteration enriches the discourse with a more nuanced understanding, considering technological advancements, legislative frameworks, ethical norms, and international collaboration. This comprehensive assessment, grounded in the Force Catalysts criteria, endeavors to meticulously evaluate the dual role of these technologies in fortifying national security interests and safeguarding individual freedoms, all within the broader ambit of an international context characterized by rapid digital innovation and strategic competition.

Technological Sophistication and Its Geopolitical Ramifications

At the forefront of international security considerations lies the technological sophistication inherent in digital watermarking and steganography. These technologies, emblematic of the ongoing digital arms race, serve as pivotal tools for nations to secure a strategic vantage point in intelligence, surveillance, and information warfare. The ability to imperceptibly embed information within digital media offers significant potential for enhancing clandestine operations and cyber defense mechanisms. Yet, this technological prowess necessitates a leadership ethos committed to navigating the moral complexities of surveillance and information manipulation, ensuring the advancement of national security objectives without infringing upon international norms and the personal liberties of global citizens.

Legislative Ingenuity and International Accord

The variance in legislative responses to the challenges posed by advanced digital technologies underscores the importance of legal frameworks in mediating the intersection between security imperatives and personal freedoms. Insightful legislative endeavors, as exemplified by Brazil's proactive measures concerning the regulation of AI in electoral processes, illuminate the possibility of creating deterrents against the nefarious use of digital innovations while championing transparency and accountability. This segment advocates for a global consilience, urging nations to engage in diplomatic dialogues and policy exchanges aimed at cultivating a cohesive regulatory landscape that addresses the multifaceted challenges and opportunities presented by digital watermarking and steganography.

Fostering Universal Digital Ethics through Initiative

The burgeoning necessity for a universally accepted digital ethical framework to govern the deployment of watermarking and steganography technologies is pronounced. Such a framework should aim to balance the integrity of digital communications and the potent risks these technologies harbor when misapplied. Facilitating a multi-stakeholder dialogue that includes an array of perspectives, from techno-scientific to socio-political, could pave the way for establishing comprehensive norms and protocols. These standards would serve to anchor technological advancements within a value system that prioritizes human dignity, privacy, and the preservation of democratic discourse in the digital realm.

Ethical Innovation within Entrepreneurial Endeavors

Acknowledging the seminal role of entrepreneurial ventures in propelling innovations in digital watermarking and steganography, this analysis delves into the ethical dilemmas intrinsic to these endeavors. Encouraging a culture of ethical innovation necessitates integrating moral considerations at each developmental phase, aiming to harmonize the pursuit of technological breakthroughs with societal well-being. This ethos not only mitigates the potential destabilizing effects of these innovations but also fosters a technological landscape where advancements act as enablers of security and protectors of freedoms.

Towards a Harmonized Global Approach

Synthesizing these multifaceted considerations, the imperative for a harmonized global approach becomes evident. Such an approach would reconcile the exigencies of national security with the inviolable rights of individuals to privacy and freedom, fostering an environment wherein digital innovations serve as pillars of a secure, free, and equitable world order. International cooperation, enlightened leadership, and a steadfast commitment to ethical innovation emerge as quintessential elements in navigating the labyrinth of digital watermarking and steganography. This balanced trajectory ensures that the relentless march of technology fortifies the edifice of global security and democracy, embodying the highest ideals of humanity.

Constraints and Frictions

In the discourse on the nuanced deployment of digital watermarking and steganography within the arenas of national security and personal freedom, a multifaceted analytical lens is requisite to discern the elaborate interplay between technology's potential for safeguarding state interests and its implications on individual rights. This exploration delves into the constraints and frictions inherent in the employment of these technologies, juxtaposed against the backdrop of an international landscape undergoing rapid digital transformation. The equilibrium sought between fortifying security measures and concurrently preserving personal freedoms calls for a rigorous examination of the technological, legal, ethical, and strategic dimensions that these tools encapsulate.

Technological Constraints and Evolvements

A paramount constraint in the application of digital watermarking and steganography lies in the continuous advancement of computational capabilities. The escalation towards quantum computing, for instance, presents a dual-edged sword. While offering enhanced security potential, it simultaneously poses a significant threat to current cryptographic standards. An illustrative case is the potential vulnerability of commonly used encryption algorithms to quantum attacks, necessitating a pivot towards quantum-resistant cryptography to uphold the integrity and confidentiality of watermarked or steganographically concealed information.

Legal and Ethical Frictions

The deployment of digital watermarking and steganography teeters on a precarious edge between national security imperatives and the safeguarding of personal freedoms. Legal frameworks lag in accommodating the nuanced use of these technologies, creating a friction that oscillates between the need for oversight and the risk of overreach. An ethical quagmire emerges when considering the use of steganography in disseminating information under repressive regimes versus its utilization in concealing illegal content or facilitating espionage activities. The balance sought demands a legal ethicist's granularity in policy formation, aligning with universal human rights standards while adapting to the digital age's exigencies.

Geopolitical Impacts and Strategic Considerations

The strategic calculus of states is indelibly marked by the adoption and countermeasures against digital watermarking and steganography. The technological arms race extends into the digital domain, where asymmetric capabilities could tilt the balance of power. The USA's initiative in developing blockchain-based digital watermarking for securing critical infrastructure data exemplifies a proactive stance against potential adversarial exploitation. Conversely, the proliferation of these technologies among non-state actors or rival states amplifies the strategic friction in maintaining informational superiority and countering disinformation campaigns.

Adaptive Strategies and International Cooperation

In navigating the constraints and frictions inherent in these technologies, a probabilistic and scenario-based approach is indispensable. The articulation of strategies that are both adaptive and responsive to the dynamic interplay of technological advancements, legal norms, and geopolitical shifts is pivotal. International cooperation emerges as a linchpin in harmonizing standards for digital watermarking and steganography, fostering an environment where collective security imperatives do not impinge upon personal freedoms. Collaborative efforts under the auspices of multinational forums could facilitate the exchange of best practices, advancements in cryptologic research, and the development of a consensus on ethical guidelines.

In essence, the nuanced deployment of digital watermarking and steganography encapsulates a confluence of challenges and opportunities at the intersection of technology, law, ethics, and geopolitics. As nations traverse the digital epoch's terrain, the imperative to wield these tools judiciously—balancing the imperatives of national security with the sanctity of personal freedoms—becomes paramount. The trajectory towards this equilibrium is fraught with complexity but remains integral to shaping a digital landscape underpinned by security, integrity, and liberty.

Alliances and Laws

The intricate exploration of digital watermarking and steganography within the geopolitical landscape unveils their significant capacity to act as a dual-edged sword—potentially bolstering national security while also threatening the sanctity of personal freedoms. These digital strategies embody a profound duality; they are pivotal in ensuring the integrity and authenticity of digital communications, which is paramount for national defense and the preservation of democratic processes. However, they also pose significant challenges and risks, especially when leveraged asymmetrically by state and non-state actors, reshaping the balance of power in the international arena.

Digital Watermarking and Its Geopolitical Implications

Digital watermarking, as demonstrated, is a critical technology in the realm of secure communications between entities that share mutual trust. However, its utility diminishes significantly among entities lacking fundamental trust, as the absence of standardized watermarking procedures and the potential for false negatives can lead to misinformation or misattribution. This is especially pertinent in a global context where misinformation can have far-reaching implications on international relations, trade negotiations, and even military confrontations. For instance, the manipulation of digital content to propagate deep fakes without detectable watermarks could exacerbate tensions, fuel propaganda wars, and ultimately distort the truth, undermining the stability of geopolitical systems.

Steganography: A Cloak of Invisibility

Steganography, by concealing messages within innocuous content, presents a powerful tool for clandestine communication. This capability, while beneficial for covert operations essential to national security, simultaneously affords malign actors the ability to embed harmful payloads or orchestrate cyber-attacks under the guise of legitimacy. The use of steganography in cyber-warfare can lead to significant disruptions, impacting critical infrastructure and spreading disinformation, thereby challenging a nation's resilience and response mechanisms.

Safeguarding National Interests and Personal Freedoms

The imperative to balance enhancing security measures with maintaining individual liberties is more critical than ever in this digital age. The net assessment framework underscores the importance of establishing robust legal and ethical frameworks that govern the use of these technologies. Similar to the approach taken by Brazil in regulating the use of AI in political campaigns, nations must develop comprehensive guidelines that mandate transparency, accountability, and the ethical deployment of digital watermarking and steganography. This includes enforcing stringent standards for digital content verification to prevent misuse while protecting freedom of expression and privacy.

The Global Equilibrium and Strategic Competition

As nations navigate the complexities introduced by digital watermarking and steganography, it is essential to foster international cooperation and dialogue to establish common standards and share best practices. The development of asymmetric capabilities in these areas could precipitate shifts in the global balance of power, necessitating a concerted effort to ensure that technological advancements do not exacerbate international tensions or widen the digital divide.

In conclusion, while digital watermarking and steganography offer significant potential in enhancing national security and facilitating secure communication, their deployment must be carefully managed to safeguard personal freedoms and uphold democratic values. The equilibrium between security and liberty hinges on transparent, accountable, and ethical governance—principles that must guide the global community in navigating the evolving digital landscape.

Information

The debate over copyright has been seen around the world, with some artists angered by AI copying the styles they have sacrificed years to develop, often without consent or compensation. This has sparked questions of intellectual property ownership and legal challenges in countries like the US.

But this is only one of the ground-up fears that AI has brought on. Some are worried about losing their jobs, while others say the technology could be used for nefarious purposes.

AI systems used in recruitment and judicial processes also risk perpetuating biases , as the training data they use could be encoded with socio-economic, racial, religious and gender prejudices, experts say.

At the same time, the potential of using AI to do good is also there - from driving automation to predicting illness.

Against this backdrop, a race for AI regulation is taking place to avert the risks while hopefully reaping the rewards - with action being taken at the global, regional and national levels.

An international milestone was logged just a month ago. The first-ever AI Safety Summit, held in the UK on Nov 1, saw the US and China coming together with more than 25 other countries to affirm the safe and responsible use of AI.

The landmark agreement also places "strong responsibility" on developers of frontier AI to test their systems for safety.

Frontier AI often refers to the first wave of mainstream AI applications like ChatGPT.

On a regional scale, the European Union is in the final stages of formulating its AI Act , a far-reaching law that would classify AI systems by risk and mandate various development and use requirements.

Closer to home, the Association of Southeast Asian Nations (ASEAN) is planning to draw up governance and ethics guidelines for AI, which analysts told CNA are expected to suggest "safeguards" that can mitigate identified risks.

While the guide is not expected to translate into regional legislation, it could spur individual member states to create new laws or tweak existing ones to regulate the technology, they added.

Countries behind the AI curve will also get a leg up as they can benefit from the sharing of knowledge.

"The public should care about AI regulation because the technology is more pervasive than we normally think," said Dr Karryl Sagun-Trajano, a research fellow for future issues and technology at the S Rajaratnam School of International Studies (RSIS), pointing out that AI is used in sectors like healthcare, education, transport and crime fighting.

IS AI COMING FOR YOUR JOB?

The potential for AI to upend the labour market and disrupt industries has been much discussed. A Goldman Sachs report predicts that as many as 300 million jobs could be impacted by AI automation.

Observers have warned that faster, smarter and cheaper AI-powered chatbots could replace outsourced call centres handling customer service for many companies.

This is especially stark for countries like India and the Philippines, where call centres provide modest-paying work and surveys have shown automation could render over a million jobs obsolete.

Since then, though, the country has also made efforts on protecting personal information security and data security, and a draft Data Security Law was released for comments in July. The first civil code in China, released in 2020, also specifies data privacy as a personal right.

The data security standards embedded in these laws vary considerable from country to country, as different societies have different attitudes on data protection vis--vis other societal goals such as development or community interest.

The debate on tracing apps to contain the COVID-19 pandemic illustrates this diverse attitude: Countries such as Singapore, Korea and China rapidly adopted or mandated tracing apps to easily find people that may have had contact with COVID-19 infected people.

In many European countries and in the US, such apps were seen to infringe on personal freedom and personal information, and they found much less widespread use.

BILATERAL AGREEMENTS COULD BE COSTLY

The digital economy is transnational in nature, and allowing data transfers from one country to another can maximise the potential and minimise costs.

At the same time, transferring data from one country to another could undermine protections granted to data subjects under national law. Therefore, data protection regimes would normally include rules on data transfer to other countries. Such rules can obviously have trade implications.

These regulations could be used to protect one's own industry, and could become a barrier against international trade and investment. The WTO's General Agreement in Trade in Services (GATS) contains some rules on data protection and data transfer, though these were largely formulated before the digital revolution took off in earnest.

A new multilateral agreements on data security and transfer would therefore be highly desirable, but in today's atmosphere seems further off than ever.

Bilateral trade agreements have started to fill the gap, and the recent Singapore-Australia Digital Economy Agreement is a case in point. It aims to set "new global benchmarks for trade rules, and a range of practical cooperation initiatives, to reduce barriers to digital trade."

At the same time, a bilateral approach to the complex issues of data protection and data transferability risks a multitude of norms and standards across jurisdictions, which could create high compliance costs for business, especially small and medium enterprises.

GETTING SUPPORT MAY BE TOUGH

It is in this context that China's initiative proposes global standards on data security.

Such standards, once agreed on by a plurality of countries could guide individual countries in developing their own legal framework, and become a benchmark for bilateral or multilateral agreements on the topic.

Wang Yi had foreshadowed the initiative at an online G20 meeting the week before the announcement, as it seeks more support for the initiative particularly from G20 members.

SAN RAMON, California: Apple is following through on its pledge to crackdown on Facebook and other snoopy apps that secretly shadow people on their iPhones in order to target more advertising at users.

The new privacy feature, dubbed "App Tracking Transparency", rolled out Monday as part of an update to the operating system powering the iPhone and iPad. The anti-tracking shield included in iOS 14.5 arrives after a seven-month delay during which Apple and Facebook attacked each other's business models and motives for decisions that affect billions of people around the world.

"What this feud demonstrates more than anything is that Facebook and Apple have tremendous gatekeeping powers over the market," said Elizabeth Renieris, founding director of the Technology Ethics Lab at the University of Notre Dame.

But Apple says it is just looking out for the best interests of the more than 1 billion people currently using iPhones.

"Now is a good time to bring this out, both because of because of the increasing amount of data they have on their devices, and their sensitivity (about the privacy risks) is increasing, too," Erik Neuenschwander, Apple's chief privacy engineer, told The Associated Press in an interview.

Once the software update is installed - something most iPhone users do - even existing apps already on the device will be required to ask and receive consent to track online activities. That's a shift Facebook fiercely resisted, most prominently in a series of full-page newspaper ads blasting Apple.

Until now, Facebook and other apps have been able to automatically conduct their surveillance on iPhones unless users took the time and trouble to go into their settings to prevent it - a process that few people bother to navigate.

"This is an important step toward consumers getting the transparency and the controls they have clearly been looking for," said Daniel Barber, CEO of DataGrail, a firm that helps companies manage personal privacy.

In its attacks on Apple's anti-tracking controls, Facebook blasted the move as an abuse of power designed to force more apps to charge for their services instead of relying on ads. Apple takes a 15 per cent to 30 per cent cut on most payments processed through an iPhone app.

Online tracking has long helped Facebook and thousands of other apps accumulate information about their user's interests and habits so they can show customised ads.

Although Facebook executives initially acknowledged Apple's changes would probably reduce its revenue by billions of dollars annually, the social networking company has framed most of its public criticism as a defence of small businesses that rely on online ads to stay alive.

Apple, in turn, has pilloried Facebook and other apps for prying so deeply into people's lives that it has created a societal crisis.

In a speech given a few weeks after the Jan 6 attacks on the US Capitol, Apple CEO Tim Cook pointed out how personal information collected through tracking by Facebook and other social media can sometimes push people toward more misinformation and hate speech as part of the efforts to show more ads.

"What are the consequences of not just tolerating but rewarding content that undermines public trust in life-saving vaccinations?" Cook asked. "What are the consequences of seeing thousands of users join extremist groups and then perpetuating an algorithm that recommends more?"

It's part of Apple's attempt to use the privacy issue to its competitive advantage, Barber said, a tactic he now expects more major brands to embrace if the new anti-tracking controls prove popular among most consumers.

In a change of tone, Facebook CEO Mark Zuckerberg recently suggested that Apple's new privacy controls could actually help his company in the long run. His rationale: The inability to automatically track iPhone users may prod more companies to sell their products directly on Facebook and affiliated services such as Instagram if they can't collect enough personal information to effectively target ads within their own apps.

"It's possible that we may even be in a stronger position if Apple's changes encourage more businesses to conduct more commerce on our platforms by making it harder for them to use their data in order to find the customers that would want to use their products outside of our platforms," Zuckerberg said last month during a discussion held on the audio chat app Clubhouse.

In the same interview, Zuckerberg also asserted most people realize that advertising is a "time-tested model" that enables them to get more services for free or at extremely low prices.

"People get for the most part that if they are going to see ads, they want them to be relevant ads," Zuckerberg said. He didn't say whether he believes most iPhone users will consent to tracking in exchange for ads tailored to their interests.

Google also depends on personal information to fuel a digital ad network even bigger than Facebook's, but it has said it would be able to adjust to the iPhone's new privacy controls.

Unlike Facebook, Google has close business ties with Apple. Google pays Apple an estimated US$9 billion to US$12 billion annually to be the preferred search engine on iPhone and iPad. That arrangement is currently one element of an antitrust case filed last year by the US Justice Department.

Facebook is also defending itself against a federal antitrust lawsuit seeking to break the company apart. Meanwhile, Apple is being scrutinised by lawmakers and regulators around the world for the commissions it collects on purchases made through iPhone apps and its ability to shake up markets through new rules that are turning it into a de facto regulator.

"Even if Apple's business model and side in this battle is more rights protective and better for consumer privacy, there is still a question of whether we want a large corporation like Apple effectively 'legislating' through the app store," Renieris said.

WASHINGTON: The United States is opening an investigation into whether Chinese vehicle imports pose national security risks and could impose restrictions due to concerns about "connected" car technology, the White House said on Thursday (Feb 29).

The US Commerce Department probe is needed because vehicles "collect large amounts of sensitive data on their drivers and passengers (and) regularly use their cameras and sensors to record detailed information on US infrastructure", the White House said.

As vehicles could "be piloted or disabled remotely" the probe will also look at autonomous vehicles.

"China's policies could flood our market with its vehicles, posing risks to our national security," President Joe Biden said in a statement. "I'm not going to let that happen on my watch."

White House officials told reporters it was too early to say what action might be taken and said there was no decision on a potential ban or restrictions on connected Chinese vehicles.

Officials told reporters the US government has wide legal powers and could take action with a potentially "large impact".

Biden called the effort an "unprecedented action to ensure that cars on US roads from countries of concern like China do not undermine our national security".

The Alliance for Automotive Innovation, a trade group representing General Motors, Toyota, Volkswagen and nearly all major automakers, said the Commerce Department should "work closely with the auto industry to determine the scope of any action".

The group urged Commerce to target transactions that pose "undue risk to US economic and national security" but don't "capture low-risk transactions that could have unintended near-term impacts on advanced vehicle safety technologies".

There are relatively few Chinese-made light-duty vehicles being imported into the United States. Commerce Secretary Gina Raimondo said the administration was taking action before they become widespread and "potentially threaten our privacy and national security."

Chinese EV makers have been counting on Southeast Asia, the Middle East and Europe as their largest exporting markets. BYD, the world's largest EV maker by sales, has repeatedly said it has no plan to sell its cars in the US market, but on Wednesday said it was looking for a location in Mexico to locate a plant to build cars for that market.

BYD also said Wednesday it would begin selling its Dolphin Mini EV in Mexico at US$21,019.33, less than half the price of the cheapest Tesla.

Police Commissioner CV Anand said the city has spent hundreds of millions of dollars in recent years on patrol vehicles, CCTV cameras, facial recognition and geo-tracking applications and several hundred facial recognition cameras, among other technologies powered by algorithms or machine learning.

Inside Hyderabad's Command and Control Center, officers showed an AP reporter how they run CCTV camera footage through facial recognition software that scans images against a database of offenders.

"When (companies) decide to invest in a city, they first look at the law-and-order situation," Anand said, defending the use of such tools as absolutely necessary."People here are aware of what the technologies can do, and there is wholesome support for it."

By May 2020, the police chief of Telangana state tweeted about his department rolling out AI-based software using CCTV to zero-in on people not wearing masks. The tweet included photos of the software overlaying colored rectangles on the maskless faces of unsuspecting locals.

More than a year later, police tweeted images of themselves using hand-held tablets to scan people's faces using facial recognition software, according to a post from the official Twitter handle of the station house officer in the Amberpet neighbourhood.

Police said the tablets, which can take ordinary photographs or link them to a facial recognition database of criminals, were a useful way for officers to catch and fine mask offenders.

"When they see someone not wearing a mask, they go up to them, take a photo on their tablet, take down their details like phone number and name," said B Guru Naidu, an inspector in Hyderabad's South Zone.

Officers decide who they deem suspicious, stoking fears among privacy advocates, some Muslims and members of Hyderabad's lower-caste communities.

"If the patrolling officers suspect any person, they take their fingerprints or scan their face the app on the tablet will then check these for any past criminal antecedents," Naidu said.

S Q Masood, a social activist who has led government transparency campaigns in Hyderabad, sees more at stake. Masood and his father-in-law were seemingly stopped at random by police in Shahran market, a predominantly Muslim area, during a COVID-19 surge last year. Masood said officers told him to remove his mask so they could photograph him with a tablet.

"I told them I won't remove my mask. They then asked me why not, and I told them I will not remove my mask." He said they photographed him with it in place. Back home, Masood went from bewildered to anxious: Where and how was this photo to be used? Would it be added to the police's facial recognition database?

Now he's suing in the Telangana High Court to find out why his photo was taken and to limit the widespread use of facial recognition. His case could set the tone for India's growing ambition to combine emerging technology with law enforcement in the world's largest democracy, experts said.

India lacks a data protection law and even existing proposals won't regulate surveillance technologies if they become law, said Apar Gupta, executive director of the New Delhi-based Internet Freedom Foundation, which is helping to represent Masood.

Police responded to Masood's lawsuit and denied using facial recognition in his case, saying that his photograph was not scanned against any database and that facial recognition is only used during the investigation of a crime or suspected crime, when it can be run against CCTV footage.

In two separate AP interviews, local police demonstrated both how the TSCOP app carried by police on the street can compare a person's photograph to a facial recognition database of criminals, and how from the Command and Control Center police can use facial recognition analysis to compare stored mugshots of criminals to video gathered from CCTV cameras.

Masood's lawyers are working on a response and awaiting a hearing date.

Privacy advocates in India believe that such stepped-up actions under the pandemic could enable what they call 360 degree surveillance, under which things like housing, welfare, health and other kinds of data are all linked together to create a profile.

"Surveillance today is being posed as a technological panacea to large social problems in India, which has brought us very close to China," Gupta said. "There is no law. There are no safeguards. And this is general purpose deployment of mass surveillance."

"THE NEW NORMAL"

What use will ultimately be made of the data collected and tools developed during the height of the pandemic remains an open question. But recent uses in Australia and the United States may offer a glimpse.

During two years of strict border controls, Australia's conservative former Prime Minister Scott Morrison took the extraordinary step of appointing himself minister of five departments, including the Department of Health. Authorities introduced both national and state-level apps to notify people when they had been in the vicinity of someone who tested positive for the virus.

But the apps were also used in other ways. Australia's intelligence agencies were caught "incidentally" collecting data from the national COVIDSafe app. News of the breach surfaced in a November 2020 report by the Inspector-General of Intelligence and Security, which said there was no evidence that the data was decrypted, accessed or used.

The national app was canceled in August by a new administration as a waste of money: It had identified only two positive COVID-19 cases that wouldn't have been found otherwise.

At the local level, people used apps to tap their phones against a site's QR code, logging their individual ID so that if a COVID-19 outbreak occurred, they could be contacted.The data sometimes was used for other purposes. Australian law enforcement co-opted the state-level QR check-in data as a sort of electronic dragnet to investigate crimes.

BEIJING: A growing number of Western nations and cybersecurity groups have issued digital surveillance warnings for next month's Winter Olympics in Beijing, with some advising foreign athletes to leave personal phones and laptops at home.

China hopes to pull off a successful, coronavirus-free Games that will burnish its international reputation.

But the run-up has been fraught with political controversies including diplomatic boycotts over Beijing's rights record and worries about the safety of tennis star Peng Shuai, who was not seen for weeks after accusing a former Communist Party leader of sexual assault.

Now concerns are focusing on whether the tens of thousands of foreign athletes, dignitaries and media workers will be safe from China's vast array of surveillance tools.

Everyone taking part in the Games will operate in a bubble that separates them from the rest of the population, to reduce the chances of the coronavirus spreading into China, which sticks to a strict zero-COVID policy.

Earlier this week, researchers at the University of Toronto's Citizen Lab said a virus-monitoring app all attendees must use was found to have a "simple but devastating" encryption flaw that could allow personal data including health information and voice messages to leak.

Citizen Lab said it notified Beijing organisers of the issues in early December, but received no reply.

"China has a history of undermining encryption technology to perform political censorship and surveillance," researcher Jeffrey Knockel wrote.

"As such, it is reasonable to ask whether the encryption in this app was intentionally sabotaged for surveillance purposes or whether the defect was born of developer negligence."

Canberra-based cybersecurity firm Internet 2.0 also warned in a recent report that official Games software - including a VPN and an anti-virus product - from two of the event's Chinese tech sponsors could potentially collect troves of user data without their knowledge.

But this is only one of the ground-up fears that AI has brought on. Some are worried about losing their jobs, while others say the technology could be used for nefarious purposes.

At the same time, the potential of using AI to do good is also there - from driving automation to predicting illness.

Against this backdrop, a race for AI regulation is taking place to avert the risks while hopefully reaping the rewards - with action being taken at the global, regional and national levels.

The landmark agreement also places "strong responsibility" on developers of frontier AI to test their systems for safety.

Frontier AI often refers to the first wave of mainstream AI applications like ChatGPT.

While the guide is not expected to translate into regional legislation, it could spur individual member states to create new laws or tweak existing ones to regulate the technology, they added.

Countries behind the AI curve will also get a leg up as they can benefit from the sharing of knowledge.

In scale and significance, the digital economy is now impossible to ignore. Customers are increasingly comfortable with buying goods and services online, reinforcing the move from physical to digital transactions.

Successful operators use digital platforms to foster reliance and loyalty. They benefit from the network effect, so providing greater value to more users.

How effective is the platform model? In 2019 a team of academics from MIT Sloan School of Management, University of Surrey and Harvard Business School, found that the top 43 publicly-listed platform companies had nearly twice the operating profits, growth rates and market capitalisations of the 100 largest firms in the same businesses over a 20-year period with half the workers.

While not purely digital, businesses such as the Amazon marketplace are the most visible success stories. "Digital natives" companies with a digital-first model such as Netflix, Google and Uber are now household names. That said, adopting a good digital strategy can allow companies that began in the analogue age to reap rewards.

TECH FOR GROWTH FORUM

Michael Cusumano, professor of strategic management at MIT Sloan and co-author of The Business of Platforms, has researched more than 400 unicorns (companies that are worth more than $1bn) that have platform businesses. He says several were established many years ago and have successfully handled digital evolution.

Nimble companies that seize the opportunities presented by the platform economy can gain an advantage in their core business and beyond. Research by the McKinsey Global Institute, based on a 2018 survey, found that companies with any kind of platform can boost earnings growth when compared with businesses that do not have a platform presence.

The right digital strategy can help a company to leap national borders and open new markets, geographically and across product lines. Here, control of interactions with customers and insight into their data is more important than ownership of physical assets and infrastructure.

Not every company has the ability to build its own digital platform and develop the community needed for it to thrive. Some sectors already have powerful incumbents for example Facebook in social media or Amazon in retail. In other areas the market may be too fragmented for one actor to unite. Nevertheless, every company should have a strategy to deal with platforms.

Sangeet Paul Choudary, who writes about the platform economy and is the founder of Platformation Labs, says: "Somewhere in your value chain you've got to work with platforms either closer to the customer where they become a gatekeeper to market access, or further from the customer where they provide critical infrastructure capabilities to you."

Without a considered strategy "you run the risk of getting locked in, or getting some key activities commoditised because their scale gives them a data advantage".

CONSUMER TRENDS

The need for a platform strategy is most evident in retail. Insider Intelligence, the research firm, anticipates that ecommerce sales will grow by 50 per cent worldwide in the four years from 2021 and says they will account for 24 per cent of global retail sales by 2025, with a value of $7.4tn.

Even as the growth in the number of digital shoppers slows after the surge at the height of the Covid-19 pandemic, the proportion of online consumers is still expected to increase from 32 per cent in 2021 to 34 per cent by 2025. In other words, 2.77bn of the world's population of 8.2bn will shop online.

The US is probably the most mature ecommerce market, with 70 per cent of adults shopping online in 2018. Despite this, America is still likely to be in the top 10 countries by online retail sales growth in 2022. By region, retail sales in Asia Pacific, dominated by China, are expected to be three times the value of those in North America.

While retail has led the way in digital migration, it is not alone. The pandemic has meant that more consumers are used to looking online for goods and services, says the World Employment Confederation. The medium offers flexibility to both users and providers.

The impact of the digital economy extends beyond the consumer sector. IbisWorld estimates that after stagnant growth in the second year of the pandemic, online commerce will expand from just over one quarter of all business activity in 2020 to reach 28 per cent in 2023. Meanwhile, research in the Socio-Economic Review in 2021 said 70 per cent of service industries in the US more than 5mn businesses were potentially affected by one or more platforms.

FORMULATING A PLATFORM STRATEGY

AVOID FAILURE

Some businesses suit the platform model better for the 43 successful platforms referenced above, 209 competing companies failed.

Cusumano stresses that bad businesses cannot be transformed simply by being "platformised". When businesses have to pay or subsidise users, for example, "the platform business is essentially bribing people or players...to use the platform. Those are bad ideas and there are a lot of them".

Software products that are scalable, meaning they have low marginal costs for replication, migrate online most easily. Think Spotify or Netflix. Cusumano and his co-authors refer to these as "innovation platforms" if third-party businesses contribute products and services to enhance them.

Transaction platforms are the biggest category they have encountered. Cusumano says they cover "some sort of market failure. In other words, you have different market actors that have trouble finding each other. Transaction platforms connect them". Airbnb, for example, takes underutilised assets worldwide and matches them with demand from users.

USEFUL TECHNOLOGIES TO DEPLOY

Search Engine Optimisation involves deploying keywords to help a company "game" the system by appearing in more online searches.

Artificial Intelligence algorithms assess data regarding customer preferences and behaviour

Machine Learning AI assists with demand insights for resource matching as well as optimised pricing

Platforms with lopsided business models will not take off. Examples of these include WeWork's property portfolio, which suffered from a duration imbalance, or any venture that requires the same staffing as an offline business model to achieve similar sales.

A recent paper published by MIT Sloan Management Review identifies "launch, scale, mature and evolve" as the lifecycle phases that underpin a developing platform. The study includes the metrics of success as well as red flags that presage failure.

The analysis highlights the best way to measure the health of the system, including ensuring buy-in from significant partners, maintaining balance between participants and sustaining engagement and feedback. A willingness to drop bad ideas swiftly is as important as getting it right first time.

GO LARGE OR GO IT ALONE?

The most rapid way to extend online reach is to go with an incumbent platform. In many areas there is a dominant player, the obvious example being Amazon in the retail sector. The danger is that with so much power in the hands of strong platforms, their trade customers are simply subordinates and vulnerable to competition from the platform itself and the other enterprises that use it.

Particularly in the retail sector, the platform's interests lie in homogenising offerings for convenience and comparison by the consumer. This is seldom of benefit to a traditional business, whose advantage lies in being able to differentiate its product through distribution and marketing.

Dominant platforms can dictate terms favourable to their own business and in conflict with users' interests through the fees they charge, the services they force upon them or the preference given to their own products. At the extreme, platforms' control over the means of distribution can lead to companies being expelled or unable to continue doing business through that route.

For smaller companies that cannot develop their own distribution, the risks may be worthwhile the platform offers a larger market than they can access alone.

For larger companies with existing brand recognition, the potential to have their best products imitated may not be worth the reach of third-party distribution. Some may choose to shun the incumbent or adopt a hybrid approach, hosting their own website and restricting the lines to which a third-party distributor has access.

Proprietary apps offer another way to build customer loyalty, especially if they offer incentives.

SAFETY IN NUMBERS

Some companies find that it makes sense to join forces with others. Choudary says that clubbing together can create a critical mass to combat new entrants.

In Sweden local banks worked together to develop Swish, a domestic digital payments system, which successfully pre-empted the entry of ApplePay. "It works in the platform's favour to have its ecosystem as fragmented as possible because that creates the difference in bargaining power between the platform and the ecosystem players," Choudary says. Collective action, however, can undermine the power of the platform.

Another approach is to partner with a platform a recognised brand, for instance, backing a new entrant with exclusive distribution in a joint venture, which will benefit the brand as the platform grows.

Partnerships can also further the development of technology. Cusumano offers the example of Mobileye, the listed autonomous-driving subsidiary of Intel, which has licensed its technology across multiple automakers, providing it with more data to hone its product.

Finally, if there is an area in which a company has specific expertise, it can offer that across multiple platforms. Stripe, for example, settles payments for merchants that participate on platforms from Lyft to Shopify.

LOOK BEYOND THE CONSUMER

B2B trailed the consumer sector in platform development but it now offers more potential for platform entrants, particularly as data standards develop. More portable or open data, especially for homogeneous services, allows for the development of platforms, a trend seen in the finance sector and now emerging among healthcare diagnostics and energy providers.

Leonardo Weiss Ferreira Chaves, the global offer lead for intelligent products and services at Capgemini Invent, stresses that while businesses in highly regulated industries may have the luxury of moving more slowly, "the question is not if they will implement a digital strategy but when".

To identify platform opportunities, especially in a fragmented sector, it is worth asking whether you can be the connector. (Note that consolidated sectors can benefit from platform co-ordination but these tend to be based on collaboration and shared infrastructure.)

Siegwerk is one example. The provider of printing inks and coatings for packaging and labels built Packiro, a platform that consolidates packaging demand from companies with small-batch needs and connects them to print shops.

"The paint manufacturer is not actually printing, they're just making sure that people come together, so it's a purely digital business model," says Weiss Ferreira Chaves, adding that Packiro is scalable to any number of customers.

Owning the "control point" in an industry gives a company the strongest edge when identifying a platform opportunity, says Choudary.

B2C platform dominance, for example, relies on owning the consumer interface or the critical functionality that powers it. Apple owns the iPhone and Google owns Google Maps, so Android handset companies that want Google Maps must feature the Android store.

B2B platform success is more likely to depend on being the player that manages and coordinates data in an area in which many companies operate.

Choudary cites Autodesk, which produces AutoCAD, the market leader in construction design software. In a value chain with four steps design, planning, construction and operations design was the foundation on which the other aspects relied, giving AutoCAD a unique vantage point from which to co-ordinate all the stages.

Through acquisitions over the past ten years it has created the Autodesk Construction Cloud to manage the lifecycle of a building from design to operation, and to co-ordinate inputs.

Car repair workshops can access digitalised inventory management thanks to 3M, the miner-turned-materials innovator. Its RepairStack platform links them directly to insurance companies' claims systems. It enables automated ordering of stock while ensuring more accurate requisitioning and less claims leakage. There is also full bill itemisation. The data is shared by garages, parts suppliers and insurance companies, forming a workflow chain.

Data from digitalised products can also offer opportunities to even the most traditionally analogue of industries.

Weiss Ferreira Chaves says that makers of agricultural equipment now offer "smart farming", which goes beyond services such as geofencing, fuel efficiency and predictive machine maintenance.

He says: "You also want to offer digital services that don't have anything to do with the tractor and can help a farmer plan when to spray or harvest and create a benefit for him. So he's willing to pay money for that regardless of whether he's driving your tractor or a tractor from another brand."

TAKE IT FROM THE TOP

Critical to success in any digital strategy is the right management approach whether you are creating a platform or developing products.

Weiss Ferreira Chaves says: "It's not a technology problem, it's about the mindset. The challenge companies have is becoming customer-centric." Knowing a customer's priorities is paramount. For instance, in a B2B segment such as farming, customers are conservative. Their focus is on efficiency, risk reduction, productivity and profitability, while in the consumer segment being "cool" is more important.

To ensure rapid product evolution, it is important to fully consider the ownership of the product development process and structure of the team.

"Imagine you're designing new digital business models, new digital services," says Weiss Ferreira Chaves. "Who in your company has the profit and loss responsibility for that...the sales department...aftersales? Do you create a new digital team? Also, how do you develop these solutions?"

In the digital business, he says, work processes must be far more agile, with new releases scheduled over weeks and months rather than years.

The salesforce may need a rethink, too. It can take an agricultural equipment dealer half a day to sell a harvester worth 500,000, "so he's not spending another hour to sell a small intangible service for 400 a month".

PLATFORM FACTORS FOR SUCCESS

TRUST

According to Choudary, platforms have three market-making functions: they allow discovery of a counterparty, they enable the decision to engage, and they manage the relationship between counterparties.

A decision to engage is facilitated by trust such as five-star ratings from previous customers and confidence in the platform's ability to referee. Any lack of trust, visibility or transparency can quickly lose users, especially in a world connected by social media.

Platforms rely on a healthy community, so loyalty and longevity of customer relationships are central to success. Trust is a large part of this.

FAIRNESS

For open architecture platforms, such as those that allow collaboration on product development, fairness is also key. If users are permitted to contribute, they must also be allowed to share in the rewards.

Consider Apple's app store, where independent developers list their apps for consumers to buy. In 2020 Epic, the Fortnite game developer, sued Apple for failing to share the rewards its app had brought. The original ruling went in Apple's favour but this is on appeal.

CLEAR RULES

Another aspect is clarity of rules. As with fairness, contributors must feel that rules are transparent, easily understood and applied, and are not subject to change. On larger, more dominant platforms, there can be an imbalance of power that can leave smaller users vulnerable to the whims of the platform operator.

DATA OWNERSHIP

Given this imbalance, smaller users need to consider how they can keep control of their business and be wary of how they give their data to the platform operator.

For a smaller company the benefits of enhanced reach may outweigh the loss of such data, but market expansion through a larger platform should be a short-term strategy. The longer-term goal would be to migrate the business to a proprietary website or online shop.

A company that feels vulnerable going into business with a bigger player can consider differentiation across channels, for instance restricting sales of some items to its own shop or offering loyalty bonuses for use there.

GOOD USER EXPERIENCE

User experience is key to keeping customers. Solutions should put customer needs before corporate productivity or efficiency. One winning approach is to merge the technology function with product development. This worked at Wincanton, the supply-chain solution provider, as noted in a previous report.

YOUNG USER APPEAL

Good user experience is especially important when considering younger consumers who will dictate a company's future success. Millennials and Generation Z customers, who have grown up with digital devices, have high expectations of the groups that serve them: digital access is not an add-on but an integral part of how they expect to transact.

To meet this expectation, companies have to consider the "customer journey", which should optimise the customer experience.

Research by Shopify shows that younger customers are more open to social media marketing but they also care more about the values and authenticity of the companies whose products they use.

AGILITY

Agility and flexibility can ensure that a company recognises new market opportunities and stays ahead on product development. Structuring a company's technology in a modular and dynamic fashion facilitated by enterprise resource planning software and cloud-based solutions allows for it to be more responsive.

A modular approach can be a lot more nimble. It can also help to deal with failure in a timely way.

BE PREPARED TO CANNIBALISE

Companies must be ready to cannibalise their revenues in pursuit of higher growth. This can be tough but research by McKinsey finds that the improved revenue and earnings that result from a digital strategy more than makes up for any leakage as existing revenues move online.

LEVERAGING PLATFORM POTENTIAL SOME USES

MARKETING

Digital marketing is essential to any modern marketing approach. Social media including Instagram or Facebook is an integral part of this. Brand awareness can be enhanced by product placement and advertising campaigns that use AI and machine learning.

Weiss Ferreira Chaves says the wealth of data available, coupled with progress in analysis, means that a company can be much more targeted. "The more you know, the more you can personalise engagement to the needs of your customer," he says.

For instance, sales and demographic data is useful to try to anticipate when a customer may want to upgrade their car. This results in better sales conversion.

DEVELOPING NEW MARKETS

Platforms enable overseas expansion but can help location-based operations too. Restaurants have used the scalability of online ordering to grow beyond the constraint of table covers using services such as Deliveroo and UberEats.

Such deliveries were key to survival for many businesses during the pandemic. They also spawned a new type of takeaway service using "ghost kitchens" separate to restaurants.

TRIALLING PRODUCTS

Using the internet to roll out new products lets a business test the market. They can quickly establish whether an item will succeed.

Booksellers achieve this with presales while others use crowdfunding sites such as GoFundMe. One example of this is SwytchBike, which turned to Indiegogo to launch its add-on electric motor for bicycles. Testing demand for a new product means that viability can be assessed before too much money is invested in its creation.

IDENTIFYING NEW PRODUCTS

Data has fast become a valuable asset in its own right. Whoever owns data has an unparalleled insight into customer behaviour, which can bring opportunities for cross-selling and new product development.

Some companies morph into selling digital solutions to other businesses, an example being Ping An, the Chinese insurance provider. Siemens and GE are now also data service providers.

Products based on data intelligence have greater global reach as they are more easily "exported" into new markets than physical goods.

CONNECTIVITY AND PRODUCTIVITY OF EMPLOYEES

Platforms that connect businesses to customers can also link companies to their workers. Staff who were previously unable to attend an office meeting can do so over the internet.

Training and commercial insights can be shared more widely online, democratising access to data and allowing better collaboration between physically remote units.

Open platforms, whether internal or external, allow users to collaborate with inputs and so optimise products. Communities of users can share solutions or replicate a problem to work on solving it together.

DON'T FORGET THE PHYSICAL

Despite the concentration on digital matters, physical distribution is not obsolete, as Amazon illustrates with its move into bricks and mortar shops.

Physical locations can be part of an online strategy either as a "last mile" service for deliveries or as a location for customers to "try stuff out". They could also be a back-up function for the main business.

RISKS

HACKING

As companies depend more on the internet, the risk of hacking increases. In December 2022 Zurich Insurance warned that cyber attacks would become "uninsurable".

No company or organisation is immune. Last year LastPass, the password manager provider, suffered a data breach. In January hackers disrupted Britain's Royal Mail parcel delivery service.

REGULATION CHANGE

In some instances, governments consider changes in regulation in response to lobbying think Uber and London's black taxi drivers.

The less regulated a market, the easier it may be to establish a platform, but companies should be cautious not to provoke governments into imposing more rules.

Regulation is not all bad, however, especially for smaller players. In Europe the EU is moving to curb the power of some of the digital groups that are seen as having abused their power. Google, Apple and Amazon have all been in the crosshairs of EU legislation.

EXISTENTIAL

Companies need to be wary of any strategy that leads to a long-term handover of competitive advantage, be it customer relationship or sales data.

If it identifies a popular third party product, Amazon will cannibalise its customers' ideas or charge the seller more. The number of the group's own-brand products trebled to 23,000 between 2018 and 2020, according to the MIT Sloan Management Review.

REPUTATION

With the rapid and open spread of information over the web, a company's standing can rapidly go from positive to negative. Poor experiences can lead to an exodus of users and customers. Businesses have to be on the front foot when dealing with crises.

EXPLOITATION

People who work for platforms can be at risk of exploitation. That said, most platform or "gig" workers prize flexibility more highly than revenue stream, according to the World Employment Confederation.

It is worth noting that despite the noise made, the percentage of people employed under gig conditions is small.

CONCLUSION

It should be clear that a digital strategy is no longer an optional add-on to a traditional business model. It is instead a core part of a company's approach to the modern economy.

Mindset is at least as important as skill set, and the lead on this has to come from the boardroom.

The importance of productivity and efficiency have been eclipsed and companies must now place customers' needs at the heart of problem-solving for growth and profitability and even survival to be assured.

Businesses must be ready to boost technological capabilities in order to ensure that management of data, that increasingly important asset, can be brought in-house.

The more forward-looking and technologically enabled a company is, the more it will be able to compete for the new generation of talent.

A new study by crypto tax software CoinLedger reveals that the retail & e-commerce sector has the highest number of companies that offer the option to purchase through cryptocurrency.

The study compiled a list of 400 major companies listed by BitPay as accepting cryptocurrency methods and categorized them into sectors, to discover which one contains the most companies offering crypto as a payment method.

Retail & e-commerce take first place with a total of 76 companies accepting crypto payments. The sector includes clothing and accessories stores like Adidas, Yankee Candle and H&M, as well as online shopping platforms such as Etsy.

Adidas and Etsy told us they don't accept crypto payments. Yankee Candle and H&M didn't respond to our emails.

The food & dining sector follows closely in second with 72 companies. Examples are Chipotle, Chuck E Cheese's, Domino's and Hard Rock Caf, and delivery services such as DoorDash and Uber Eats.

Uber Eats and Domino's UK told us they don't accept crypto payments. Chipotle said it accepts digital payments including with crypto through Flexa-enabled apps. We're still waiting to hear back from the others, though going by their websites we can guess their response.

What's going on here? Mostly, it's gift cards. H&M, Domino's and Uber Eats are listed above because Bitpay resells their gift cards for crypto .

Prepaid cards were being used as shadow currency long before bitcoin was invented. Their current and continuing popularity in crypto (and other communities ) is because prepaid offers many advantages over on-chain tokens.

Unlike crypto, an electronic retail voucher can be redeemed near-anonymously, instantly, at face value. Use will usually fall below the purview of financial regulators. Purchases and transfers are largely untraceable. Trust rests in a central counterparty, with a multinational corporation acting both as the custodian and the clearing house. Sales are VAT-exempt and the reporting of capital gains is a matter of personal conscience.

A recently released 2010 email from Satoshi Nakamoto, bitcoin's pseudonymous chief architect, predicted that prepaid cards could be a bridge to tradfi. Crypto was easy to generate and hard to cash out, Nakamoto reasoned, but prepaid debit cards might offer the unbanked a convenient off-ramp.

That gift cards would become currency for traders unwilling or unable to buy crypto through conventional channels was a less anticipated development. An investigation published by The Intercept in 2018 described how users were swapping bitcoin for gift cards on peer-to-peer marketplaces at a premium to the market price.

Many retailers have since tightened security on card purchases, including by putting restrictions on top-ups and blocking the purchase of cards with cards. Regulatory efforts have focused on warning about consumer confidence scams and limiting opportunities for money laundering .

Meanwhile, in the thriving gift cards-for-crypto sector, know-your-customer and anti-money-laundering measures are being applied unevenly.

Other popular cards-for-crypto sites include Bitrefill of Sweden, which says unverified customers can make up to 15 purchases a day to a value of $5,000, or $10,000 a month. Coinsbee , based in Germany, says in its FAQ that it applies no KYC checks below 1,000 per transaction up to a total value of 10,000. Live On Crypto, an alt-coin issuer that says it supports food banks, bought space on CoinTelegraph last week to advertise that its gift-card shop asks for " no personal information on sign-up and checkout ".

Last week, shortly after we enquired about its KYC and AML policies, US-based Bitpay posted on its website that transaction thresholds for unverified customers were $3000 for payments and $1000 for refunds, with an additional $1000 cap applying for customers based in the European Union. At press time the company had not responded to our requests for comment.

Among big centralised crypto exchanges, only Binance offers crypto gift cards having launched a product in June 2023 . (It added a customer verification requirement on sales and transfers nearly two months later .) Coinbase has stopped selling prepaid cards and no longer supports a cashout-by-card function it launched in 2018. FTX sold gift cards in select Gamestop stores as part of a partnership, but that died along with FTX.

Nevertheless, it's still possible to buy crypto with prepaid cards. Specialist peer-to-peer marketplaces such as LocalCoinSwap offer the trade, as do sellers on forums including Reddit's r/giftcardexchange board.

Paxful, the US-based P2P marketplace named in the Intercept article, allows crypto sellers to accept as currency up to 133 brands of gift card. A dollar in Walmart vouchers typically buys about $0.85 of bitcoin on Paxful, or $0.50 of ether, with worse rates quoted by sellers who don't require receipts or physical delivery.

Paxful says it applies all relevant KYC requirements . Its website blocks incoming traffic by IP address to abide by US regulatory controls and applies a $1000 lifetime value cap on customers the company has verified only by phone.

While crypto is gradually being legislated into the financial mainstream, gift card law can look behind the curve.

Electronic money laws in the US, UK and EU apply only to general-use prepaid debit cards. Vouchers tied to a single retailer (known as closed-loop cards) are considered instruments of stored value, not payment instruments, so their sellers can avoid many of the reporting requirements placed on money transmitters.

And attempts at tightening regulations face strong opposition. Trade groups including the Electronic Money Association and EuroCommerce have called for the EU not to make gift card customer identification mandatory as part of an update of AML rules .

The EU proposed in February that any exemption would be "conditional to strict limits regarding the maximum value of the product, its exclusive use to purchase goods or services, and provided that the amount stored cannot be exchanged for other value."

Tighter caps on gift-card values would be unlikely to have much effect on customers of Adidas, Chuck E Cheese's, Yankee Candle and Hard Rock Caf. How wider restrictions might affect crypto is a much more complicated question to answer.

Transform Information Into Strategy

Reach out to discover customized solutions and strategic insights for your business. Contact us below.

Info And Support