Yahoo seals $4.8 bn deal to sell core assets to Verizon

Yahoo – AFP, Sophie Estienne, with Rob Lever in Washington, July 25, 2016

Yahoo will become a separate investment company, changing its name after 

the acquisition by Verizon of its core assets (AFP Photo/Justin Sullivan)

Yahoo sealed a deal Monday to sell its core business to telecom giant Verizon for $4.8 billion, ending a two-decade run as an independent company for the internet pioneer.

The agreement announced by the two companies after months of negotiations comes following a years-long decline for the iconic firm that introduced many people around the world to the internet.

Verizon chief executive Lowell McAdam said Yahoo would be integrated into its recently acquired AOL unit to create "a top global mobile media company, and help accelerate our revenue stream in digital advertising."

The acquisition, expected to close in early 2017, pending shareholder and regulatory approval, will exclude Yahoo's cash, certain patent holdings, and its big share in China's Alibaba Group and stake in Yahoo Japan.

The deal will, however, turn over the popular Yahoo News, Mail and other online services used by more than a billion people worldwide.

Marissa Mayer, CEO of Yahoo, said in a statement: "Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL."

She told a conference call that Verizon "offers significant strategic alignments in Yahoo's focus on informing, connecting and entertaining our users."

She added that the agreement is "an exceptional outcome for Yahoo shareholders" and that Verizon was chosen because it "believed in our vision the most."

With the sale of its core, Yahoo will be left as a separate investment company and change its name after the transaction.

Yahoo shares fell 2.7 percent after the long-expected deal was announced. Verizon lost 0.4 percent.

Yahoo President and CEO Marissa Mayer hails "an exceptional outcome

for Yahoo shareholders"

Bringing synergies

The deal comes with Yahoo, a onetime leader in the online space, coping with years of decline and struggling to keep up with rivals like Google and Facebook.

Yahoo will operate independently until the acquisition and then fall under the aegis of the AOL unit chief, Tim Armstrong, a former Google colleague of Mayer.

Mayer's future role with Yahoo was unclear.

In an email to employees, she wrote that "I'm planning to stay... It's important to me to see Yahoo into its next chapter."

But it was not clear if she would remain after the transition. According to documents filed with regulators this year, Mayer would get a severance package of $55 million if removed within a year of a change of control.

Mayer arrived in 2012 from Google seeking to revitalize Yahoo, which at its peak had a market value of over $100 billion.

The company was founded in 1994 by two Stanford University students, Jerry Yang and David Filo, as "Jerry and David's Guide to the World Wide Web." It went public in 1996 in one of the most hotly anticipated stock offerings of the time -- surging 270 percent in the first day of trading.

Yahoo remains a major force online, but has lagged its rivals in its ability to "monetize" its audience through advertising that is linked to customers' browsing and other online activities.

Research firm eMarketer estimated that Yahoo's share of the digital advertising market would fall this year to around 1.5 percent, with Google getting some 30 percent and Facebook 12 percent.

Several other bidders had been in talks, according to reports, including Quicken Loans founder Dan Gilbert, who was being backed by billionaire Warren Buffett.

Verizon chief executive Lowell McAdam says Yahoo will be integrated into its 

recently acquired AOL unit to create "a top global mobile media company"

Verizon strategy

But Verizon appeared to be the leading candidate because of its ability to integrate AOL's advertising technology into Yahoo services.

Technology analyst Jack Gold of J. Gold Associates said the deal makes sense with telecom companies such as Verizon and AT&T seeking to move beyond their role as carriers.

Verizon, he said "is looking at ways to stay competitive primarily with AT&T" and that Yahoo gives it "the ability to expand into the online content arena" and a large base of users.

But Roger Kay of Endpoint Technologies Associates said Verizon should keep its goals more modest and may get a small benefit from the Yahoo brand.

"I don't think they have enough juice to take down Google and Facebook," Kay said.

With better operating efficiencies and lower costs, "they'll be lucky if they get their money back" from the deal, he said.

Some analysts said Verizon is likely to keep the Yahoo brand, which is recognized globally and used by about a billion people.

US threatened Yahoo with huge fine over surveillance

Yahoo – AFP, 11 Sep 2014

Civil liberties activists hold a rally against surveillance of US citizens at the
Justice Department in Washington on January 17, 2014 (AFP Photo/Nicholas Kamm)

Washington (AFP) - US authorities threatened to fine Yahoo $250,000 a day if it failed to comply with a secret surveillance program requiring it to hand over user data in the name of national security, court documents showed Thursday.

The documents, made public in a rare unsealing by a secretive court panel, "underscore how we had to fight every step of the way to challenge the US government's surveillance efforts," Yahoo general counsel Ron Bell said in a blog post.

The documents shed new light on the PRISM program revealed in leaked files from former National Security Agency contractor Edward Snowden.

The program allowed US intelligence services to sweep up massive amounts of data from major Internet firms including Yahoo and Google.

Bell said 1,500 pages of documents were ordered released by the Foreign Intelligence Surveillance Court in the case dating from 2007. He said that in 2007, the government "amended a key law to demand user information from online services."

"We refused to comply with what we viewed as unconstitutional and overbroad surveillance and challenged the US government's authority," he said.

Yahoo's court challenge failed and it was forced to hand over the data. The court records were kept sealed.

"At one point, the US government threatened the imposition of $250,000 in fines per day if we refused to comply," Bell said.

Since the Snowden leaks, Yahoo and others have been seeking to make public these court documents to show they were forced to comply with government requests and made numerous attempts to fight these efforts.

The opening of these court dockers to the public "is extremely rare," Bell said, adding that the company was in the process of making the 1,500 pages publicly available online.

"We consider this an important win for transparency, and hope that these records help promote informed discussion about the relationship between privacy, due process, and intelligence gathering," Bell added.

But he said that "despite the declassification and release, portions of the documents remain sealed and classified to this day, unknown even to our team."

Jack Ma’s Inspiration From US Trip in 1995 Set Path to Alibaba’s $20b IPO

Jakarta Globe, Lulu Yilun Chen, May 08, 2014

Alibaba founder Jack Ma gestures during a celebration of the 10th anniversary of
Taobao Marketplace, China’s largest consumer-focused e-commerce website, in
Hangzhou, on May 10, 2013. With Alibaba’s IPO, the 49-year-old entrepreneur
 could become the third-wealthiest in China, according to Bloomberg Billionaires
Index. (Reuters Photo/China Daily)

The online world opened to billionaire Jack Ma, founder of Alibaba Group Holding, on his first trip to the United States in 1995. While visiting a friend in Seattle who showed him the Internet, Ma typed the word “beer” and couldn’t find any Chinese information. He decided to fix it.

Almost 20 years later, Alibaba is China’s largest online retailer, and Ma’s US-inspired brainchild is readying for an initial public offering in New York that could raise as much as $20 billion, potentially making it the largest IPO there ever. The valuation may make the 49-year-old entrepreneur the third-wealthiest in China, with $12.5 billion, and one of the 100 richest worldwide in the Bloomberg Billionaires Index.

The IPO will represent the crowning feat of Ma’s two decades spent building a 25,000-employee powerhouse that forced EBay to pull back from China and drew an initial $1 billion investment from Yahoo! Alibaba has grown from an online experiment in Ma’s living room that offered two dozen items for sale to a venue for 7 million retailers flogging everything from Alaskan salmon to airplanes. Its businesses generated about $8 billion in revenue last year, a 62 percent increase over 2012, according to quarterly figures compiled by Bloomberg.

“A lot of people hate change, but precisely because we grasped all the changes, we were able to see the future,” Ma said at a speech to employees when he stepped down as chief executive officer a year ago. Ma remains chairman. The company declined to make him available for an interview, citing pre-IPO restrictions.

Transforming China

Alibaba has helped transform life in China, offering opportunities to entrepreneurs and revolutionizing retailing for consumers who just a few decades ago used ration coupons to buy items such as clothing, rice and bicycles. Like Mark Zuckerberg of Facebook, Steve Jobs of Apple and Jeff Bezos of Amazon.com, Ma has become an iconic figure whose impact stretches far.

A former English teacher who lingered outside his native city of Hangzhou’s main hotel to practice the language with foreigners, Ma and his story reflect China’s emergence as an economic superpower. Chinese Internet users have grown to 618 million, greater than the population of any other country except India, and could exceed 850 million by 2015, according to government data.

McKinsey & Company predicts online retailing in the world’s second-largest economy will reach $395 billion next year, triple its 2011 level. Ma has positioned Alibaba to ride China’s surging forces of technological change.

Pushing forward

“If Steve Jobs created the operating system for the smartphone, Jack Ma and his team created the operating system for commerce in China and the future,” said Porter Erisman, who directed the documentary, “Crocodile in the Yangtze: A Westerner Inside China’s Alibaba.com,” that chronicled his eight-year employment at the company starting in 2000. “He’s someone who loves a challenge. He’s motivated by doing things that push China forward.”

Already, Alibaba is the source of more than 70 percent of package deliveries in China and has broken what may be a worldwide sales record of $5.6 billion in a single day. It has also pioneered a service that lets users deposit money into accounts via smartphone, drawing about $87 billion in its first nine months, more than double Goldman Sachs Group’s 2013 revenue. Alibaba has helped create 15 million jobs, Ma said in a February letter to employees on the company’s official microblog.

“Going public has never been our goal — it is just an important strategy and method to achieve our mission, a gas station which can help us move forward,” Ma said in a separate e-mail to employees just before filing for the IPO.

Expanding realm

After achieving dominance in the businesses of Amazon.com, EBay and PayPal combined, Alibaba is expanding into the realm of Sony Entertainment. Last week, it announced a $1.22 billion stake in China’s largest online video site, Youku Tudou after saying in March it would acquire a producer and distributor of TV and movie dramas. Ma is also putting his own money into one of the first companies in China with an Internet TV license.

“Jack is very passionate,” Jonathan Lu, Ma’s handpicked successor as chief executive of Alibaba, said in an interview last year. “He has a strong awareness of crisis and is very farsighted.”

The first step to building an online empire began when Ma registered a website, China Pages, a Yellow Pages-like directory, in the US after his visit to Seattle, where a friend had showed him the Internet.

‘Something interesting’

“I searched the word beer, b-e-e-r, very simple word,” Ma recalled in a television appearance shown in the documentary. “I found American beer, Germany beer, and no Chinese beer. So I was curious. I searched ‘China,’ and all search engines said no China, no data.”

Ma said he asked his friend to help him create a home page in Chinese, and within five hours of posting it, he received five e-mails from the US, Japan and Germany seeking more information.

“I was so excited,” he recalled. “I said, ‘This is something interesting.’”

To start China Pages, Ma took 7,000 yuan from his savings and borrowed money from his sister, according to a book in Chinese by Ma’s personal assistant Chen Wei and verified by an Alibaba spokesmen.

The company’s first two employees were Ma’s wife Zhang Ying, who was his university classmate and colleague when he taught English. Zhang played an important role in Alibaba’s early days until she turned to more-domestic responsibilities and raising their son, according to Chen’s book and company spokesmen, who declined to give the son’s age.

Meeting Yahoo

Ma’s early attempts with China Pages didn’t take off, so he joined the Ministry of Commerce in Beijing, helping the agency set up a website. It was there he met a first-time visitor to China, Jerry Yang, the co-founder of Yahoo who eventually invested $1 billion to obtain 40 percent of Alibaba, a stake that was later reduced after Yahoo said the Chinese company spun off its PayPal-like online-payment business, Alipay, without informing shareholders.

By 1999, the Internet stock boom had gripped Wall Street. Ma, feeling the change as far away as China’s capital, left government service and returned home to tackle a new idea.

Back in his Hangzhou apartment, with his wife and a group of friends, Ma set up Alibaba.com, a yellow page-like site that allowed businesses to sell to each other. Believing that the moment would become of historic value, Ma had the kickoff meeting recorded on film.

‘Internet dream’

“Don’t worry, I think the Internet dream will not die,” Ma was filmed saying at the February 1999 meeting, which was later aired by China’s state-run broadcaster, CCTV. “The reward we will receive for the price we pay in the next three to five years is not this apartment, but 50 of these apartments.”

Among the 18 founders was Joseph Tsai, a Taiwan-born Canadian lawyer working for Sullivan & Cromwell in New York whom Ma had persuaded to join the team and help secure funding. By 2000, Alibaba had raised $25 million from investors including SoftBank and Goldman Sachs.

Alibaba.com, which had struggled to find a way to generate revenue, learned that merchants were willing to pay for better displays of their goods. The website attracted 1 million users in 2002 and became profitable that year, according to details released by the company.

It didn’t take Ma long to tackle a bigger challenge: EBay’s expansion in China. To counter it, Alibaba started Taobao, a platform where individual sellers could trade with each other, in 2003. Taobao publicly declared war against EBay, and the resulting media coverage drew attention to the website.

Countering EBay

“By generating a public-relations battle with EBay, there would be a lot of buzz about Taobao, and therefore with every dollar that EBay spent, it would help feed this buzz about Taobao,” said Erisman, a former executive at the company including in the marketing department.

He cites Ma’s professed interest in Chinese martial arts as a motivating strategy: using an opponent’s strength against him.

“EBay is a shark in the ocean; we are a crocodile in the Yangtze River,” Ma was quoted as saying on numerous occasions at the time. “If we fight in the ocean, we will lose, but if we fight in the river, we will win.”

They did. Using search-engine technology that came with Yahoo’s stake in 2005, Alibaba made Taobao listings free for merchants. EBay, which charged them, announced in December 2006 that it would close its unprofitable site in China.

Tai chi

Ma’s management philosophy has roots in tai chi. He sometimes travels with a personal tai chi trainer and formed a company spreading awareness of the Chinese martial art with movie star Jet Li.

Ma also cites motivation in the works of Hong Kong novelist Louis Leung-Yung Cha, who writes under the pen name Jin Yong, and encourages employees to give themselves nicknames based on the novels’ characters.

Inside Alibaba, Ma goes by “Feng Qingyang,” who in one of Ma’s favorite books is a reclusive swordmaster and kung fu guru who trains his apprentice to become a hero. Naming himself after the unpredictable-yet-nurturing Feng traces to Ma’s own roots as a teacher, Ma told Chen Xiao-Ping, a professor at the University of Washington in Seattle, in an interview published last year by the International Association for Chinese Management Research.

“Jin Yong’s martial-arts novels are the most down-to-earth way of explaining Confucianism, Buddhism and Taoism,” Ma said in the interview. “They cherish brotherhood, morality, courage, emotion and conscience.”

New leaders

Ma has handpicked Alibaba’s next generation of leaders, including chief executive Lu and two women: chief financial officer Maggie Wu, and Lucy Peng, who oversees one of the fastest-growing areas of Alibaba’s future, Alipay and its investment platforms including Yu’E Bao. The financial arm isn’t included in the entity Alibaba is listing in New York.

“The success of a CEO should be determined by the number of people he trained that can surpass him,” Ma said in the Chen interview. “If someone warns me about an employee who is trying to overstep me, I reply that I’m a teacher, and that’s the way it should be.”

Ma was born Sept. 10, 1964. His parents were Chinese traditional musician-storytellers in Hangzhou, according to details confirmed by company spokesmen. The city of 8.8 million people about 161 kilometers southwest of Shanghai is a favorite of foreign tourists because of its West Lake, stone bridges and other historic sites.

Meeting foreigners

When he was a teenager, Ma began meeting foreigners just starting to make China a tourist destination again following the Nixon-Mao rapprochement of 1972. For nine years, Ma hung around outside the Hangzhou Hotel, now a Shangri-La, getting up at 5:00 a.m. to talk with travelers, according to the Crocodile in the Yangtze documentary and the Chen interview.

Ma failed China’s national university entrance exam twice before he was admitted to what is now Hangzhou Normal University. He graduated in 1988 and spent five years teaching English at a local university, earning $15 a month, according to details confirmed by company spokesmen.

With Ma’s net worth now set to be five times what it was in 2012 — when Alibaba delisted its business-to-business unit Alibaba.com from the Hong Kong Stock Exchange after share prices slumped — he’s come a long way from a teacher’s wages.

Ma’s economic interest in Alibaba is about 7.4 percent, after subtracting for stakes he controls through a non-profit organization.

Maintaining control

By listing in New York instead of Hong Kong this time, Alibaba will set up a partnership of executives to nominate the majority of board members. A breakdown in talks with Hong Kong’s stock exchange last year led Alibaba to seek its IPO listing in the US, where Alibaba’s partners will be allowed to maintain greater control over the company. Arrangements allowing shares with different voting rights helped Facebook founder Zuckerberg and Google co-founders Larry Page and Sergey Brin maintain control after they went public.

Controversy in Hong Kong over the move to list in New York, the rift with Yahoo in 2011 over the handling of Alipay, and Ma’s public outspokenness on a number of issues sometimes damages his reputation and draws scrutiny, said Teng Bingsheng, a Beijing-based professor at Cheung Kong Graduate School of Business.

“Ma has a controversial reputation,” said Teng. “He’s willing to take a bet on really big decisions and not be bound by concerns for his reputation.”

Just like Larry Ellison, Richard Branson, Ted Turner and other billionaire founders the world over.

Bloomberg

Related Article:

Alibaba founders set up charity fund

Online news attracts star power and big money

Google – AFP, Rob Lever (AFP), 23 March 2014

Journalist Katie Couric speaks during a keynote address by Yahoo! President

 and CEO Marissa Mayer at the 2014 International CES on January 7, 2014

in Las Vegas, Nevada (Getty/AFP/File, Ethan Miller)

Washington — The news media is generating some big news of its own, as a growing number of star US journalists move online, bringing followers and financial backers with them.

Online news sites have been around for years, but in recent months the trend has gained momentum, defying predictions of a troubled media industry.

The latest was the relaunch of FiveThirtyEight, headed by Nate Silver, a statistician and journalist who made his own headlines with his accurate prediction of the 2012 presidential election.

Yahoo! Vice President of Editorial David

Pogue speaks during a keynote address by

 Yahoo! President and CEO Marissa Mayer

at the 2014 International CES on January

7, 2014 in Las Vegas, Nevada (Getty/

AFP/File, Ethan Miller)

The site, which covers a range of news with a statistician's eye, is backed by the sports broadcaster ESPN, after Silver left The New York Times with his blog.

Also joining the fray was The Intercept, a news site backed by tech entrepreneur Pierre Omidyar with an editorial team led by Glenn Greenwald, the former Guardian reporter who broke news with documents leaked by former National Security Agency contractor Edward Snowden.

Omidyar has pledged to invest $250 million in his First Look Media, which includes a not-for-profit news operation and a separate technology arm for new media.

The Washington Post's popular "Wonkblog" columnist Ezra Klein meanwhile left the newspaper to start a news website backed by Vox Media.

Yahoo wooed television news star Katie Couric and former New York Times tech writer David Pogue. And journalists at The Wall Street Journal-backed tech blog AllThingsD broke off in January to create Re/code, a separate website with support from Comcast's NBCUniversal.

The new energy in Internet news comes as the entrenched news industry faces deepening financial woes, and the model for online profits remains unclear.

Dying or reviving?

So is the news business dying or being reborn?

Alan Mutter, a former Chicago newspaper editor who consults for journalism and technology ventures, said that while traditional newspapers are withering, online news sites may be working.

But the digital news business is likely to be "vertical," covering a segment such as technology, sports or politics, unlike a newspaper, which aims to cover all sectors. Online news can get money from subscriptions, premium content or links to shopping, for example.

"The future of digital publishing is the antithesis of traditional publishing," Mutter told AFP.

Journalist Ezra Klein speaks

during the opening plenary

session of Families USA's 

Health Action 2014 conference 

January 23, 2014 in 

Washington, DC (Getty/

AFP/File, Alex Wong)

Newspapers try to get a broad audience by offering comics, coupons and recipes, while covering news ranging from local crime to politics to walks on the moon, and online sites are changing that model.

The shift is similar to what happened in retailing, with multi-sector department stores hammered by specialty apparel, housewares or electronics stores.

"Newspapers are basically following a publishing-model mindset that is locked in 1958," Mutter said.

"They take the same content and put it on a website or put it on mobile and they say they have a digital strategy."

Low cost of entry

Ken Doctor, a media analyst with Outsell who writes the Newsonomics blog, said it has become easier to launch news sites.

"The technology has gotten much better and cheaper in the past few years," Doctor said.

"And once you create the content, the social world is able to find new audiences at practically no incremental cost."

News startups can expand internationally and gain a far larger audience than they would with a local or even national US newspaper, he noted.

"You can ramp up one of these businesses and create a national or international brand for $5 million to $10 million," Doctor said.

Without the legacy costs of newspapers like printing, distribution and longstanding pensions, websites can become profitable relatively quickly.

While not all ventures will succeed, they are attracting venture capital because "you could double or triple your money if you pick a winner," Doctor said.

The startups are often personality driven -- Klein has 441,000 Twitter followers and Silver 680,000. Former Daily Beast journalist Andrew Sullivan got 35,000 paid subscribers for his "The Dish" blog.

'Golden age of journalism'?

One of Silicon Valley's most prominent venture capitalists, Marc Andreessen, sees huge potential.

Glenn Greenwald testifies in Brasilia on

 October 9, 2013 before the investigative

 committee of the Senate that examines

 charges of espionage by the United States 

(AFP/File, Evaristo Sa)

"I am more bullish about the future of the news industry over the next 20 years than almost anyone I know," said a blog post by Andreessen, who founded the early Internet group Netscape Communications.

"Maybe we are entering into a new golden age of journalism, and we just haven't recognized it yet."

Andreessen said the news business is breaking free of the "monopolies and oligopolies" that controled it for much of the post-World War II era and that the Internet is allowing new businesses to get to a scale where they can support high-quality journalism.

"On the Internet, there is no limitation to the number of outlets or voices in the news chorus," he said.

The economics of online news has allowed some sites to move beyond the practice of "aggregation," and into more in-depth reporting traditionally seen as the domain for newspapers.

But analysts point out that while Internet news outlets which can gain readers nationally and internationally can thrive, the same is not true for local news organizations, which many Americans rely on for coverage of their communities.

"It's a tale of two worlds," Doctor said. "Local newspapers are still in a death spiral, with layoff after layoff."

Related Articles:

Pierre Omidyar commits $250m to new media venture with Glenn Greenwald

Greenwald quits Guardian for 'dream' project

WeFightCensorship publishes banned articles

Washington Post sold to Amazon founder Jeff Bezos for $250m

"Recalibration of Free Choice"–  Mar 3, 2012 (Kryon Channelling by Lee Caroll) - (Subjects: (Old) Souls, Midpoint on 21-12-2012, Shift of Human Consciousness, Black & White vs. Color, 1 - Spirituality (Religions) shifting, Loose a Pope “soon”, 2 - Humans will change react to drama, 3 - Civilizations/Population on Earth,  4 - Alternate energy sources (Geothermal, Tidal (Paddle wheels), Wind), 5 – Financials Institutes/concepts will change (Integrity – Ethical) , 6 - News/Media/TV to change, 7 – Big Pharmaceutical company will collapse “soon”, (Keep people sick), (Integrity – Ethical)  8 – Wars will be over on Earth, Global Unity, … etc.) - (Text version)

“…6 - The News

Number six. I'll be brief. Watch for your news to change. It has to. When the media realizes that Human Beings are changing their watching habits, they're going to start changing what they produce for you to watch. Eventually, there's going to be something called "The Good News Channel," and it will be very attractive indeed. For it will be real and offset the drama of what is today's attraction. This is what families at night, sitting around the table, will wish to watch. They'll have something where the whole picture of a situation is shown and not just the dramatic parts. You will hear about what's happening on the planet that no one is telling you now, and when that occurs [we have no clock, dear one], it's going to compete strongly with the drama. I keep telling you this. Human nature itself is starting to be in color instead of black and white. Watch for it. And that was number six ….”

"The Recalibration of Awareness – Apr 20/21, 2012 (Kryon channeled by Lee Carroll) (Subjects: Old Energy, Recalibration Lectures, God / Creator, Religions/Spiritual systems  (Catholic Church, Priests/Nun’s, Worship, John Paul Pope, Women in the Church otherwise church will go, Current Pope won’t do it),  Middle East, Jews, Governments will change (Internet, Media, Democracies, Dictators, North Korea, Nations voted at once), Integrity (Businesses, Tobacco Companies, Bankers/ Financial Institutes, Pharmaceutical company to collapse),  Illuminati (Started in Greece, with Shipping, Financial markets, Stock markets, Pharmaceutical money (fund to build Africa, to develop)), Shift of Human Consciousness, (Old) Souls, Women, Masters to/already come back, Global Unity.... etc.) - (Text version)

“…  Government

Let us speak of government. We're not speaking of your government, but of any government - the way it works, how it survives, how it has survived, the way it campaigns, and how it elects leaders. It's going to change.

Years ago, I told you, "When everybody can talk to everybody, there can be no secrets." Up to this point on this planet, government has counted on one thing - that the people can't easily talk to each other on a global scale. They have to get their information through government or official channels. Even mass media isn't always free enough, for it reports that which the government reports. Even a free society tends to bias itself according to the bias of the times. However, when you can have Human Beings talking to each other all at once, all over the planet without government control, it all changes, for there is open revelation of truth.. …”

UK spies 'intercepted webcam images of Yahoo users'

BBC News, 27 February 2014

Related Stories

• Q&A: David Miranda detention
• NSA allies 'spied on US law firm'
• Merkel proposes secure European web

Almost 2 million users' images were
stored in a six-month period, the report
said

British spy agency GCHQ intercepted webcam images from millions of Yahoo users around the world, according to a report in the Guardian.

Yahoo denied prior knowledge of the alleged programme, describing it as a "completely unacceptable" privacy violation.

According to leaked documents, sexually explicit images were among those gathered - although not intentionally.

In a statement GCHQ has said all of its actions are in accordance with the law.

The operation, which was called Optic Nerve and was aided by the US National Security Agency, is alleged to have stored images between 2008 and 2010. In one six-month period in 2008, images from 1.8m users were gathered.

The report originated from documents leaked by whistleblower Edward Snowden.

It suggested that sexually explicit content would be captured by the system.

"Unfortunately … it would appear that a surprising number of people use webcam conversations to show intimate parts of their body to the other person," it read.

"Also, the fact that the Yahoo software allows more than one person to view a webcam stream without necessarily sending a reciprocal stream means that it appears sometimes to be used for broadcasting pornography."

'Whole new level'

"We were not aware of nor would we condone this reported activity," Yahoo said in an emailed statement.

"This report, if true, represents a whole new level of violation of our users' privacy that is completely unacceptable and we strongly call on the world's governments to reform surveillance law consistent with the principles we outlined in December.

"We are committed to preserving our users' trust and security and continue our efforts to expand encryption across all of our services."

A statement from GCHQ said it would not comment on matters of intelligence, but added: "All of GCHQ's work is carried out in accordance with a strict legal and policy framework which ensures that our activities are authorised, necessary and proportionate, and that there is rigorous oversight, including from the secretary of state, the interception and intelligence services commissioners and the Parliamentary Intelligence and Security Committee.

"All our operational processes rigorously support this position."

Related Articles:

Senators to investigate NSA role in GCHQ 'Optic Nerve' webcam spying

UK spy agency intercepted webcam images of millions of Yahoo users worldwide

Spying Fears Abroad Hurt U.S. Tech Firms

The Wall Street Journal, Michael Hickins, Feb. 3, 2014

Google has said a potential law in Brazil could bar it from doing business
there. Pictured, its California headquarters. Getty Images

Revelations about the National Security Agency's eavesdropping on electronic communications have given governments overseas an opening to restrict U.S. technology companies, which some foreign politicians have depicted as too compliant with or complicit in the spying.

Germany's new governing coalition has issued a policy document that includes a call for using more technology developed in Europe, as well as open-source software, which is harder for potential eavesdroppers to penetrate.

Lawmakers in Brazil have been debating a bill that would require data about Brazilians to be stored within that country's borders. "There is a serious problem of storage databases abroad," Brazilian President Dilma Rousseff said recently. "That certain situation we will no longer accept."

On Monday, Google Inc., GOOG +0.49% Microsoft Corp., Yahoo Inc., YHOO +0.69% LinkedIn Corp. LNKD +0.09%  and Facebook Inc. FB +1.20%  released figures on how many requests for user information they received from U.S. intelligence agencies in the first half of last year. The reports followed an agreement by the Justice Department last week that allows such releases of broad figures with a six-month lag. Companies with popular email services–such as Google, Microsoft and Yahoo—had the most affected accounts.

If Brazil adopts its proposed new law, U.S. computer-services providers could be forced to build costly new data centers in that country to continue doing business there. Google, for example, the most popular Internet service provider in Brazil, may store emails and other data from its users on servers in the U.S., where it is subject to U.S. law.

Richard Salgado, Google's director of law enforcement and information security, told a Senate hearing in November that under the new law Brazil is considering Google could be "barred from doing business in one of the world's most significant markets or be obligated to pay hundreds of millions of dollars in fines."

Several U.S. tech companies have said the threat of such initiatives and privacy measures already on the books in countries such as Germany, France and Canada are hurting their business. Some of them have said they would build local data centers to help customers comply with new data-residency rules, but in many cases they will pass along the cost.

Meanwhile, some U.S.-based multinationals are worried that new laws abroad meant to shield personal data from spying could prevent them from moving their own business data from foreign affiliates to their home offices.

Daren Orzechowski, a partner at law firm White & Case LLC in New York, said "there is a concern that countries will put up barriers like this," and said they would come at a price. "It's going to weaken the benefit of the technology and impact the ability of people to conduct global e-commerce and to collaborate internationally," he said.

Daniel Castro, an analyst with the Information Technology and Innovation Foundation, a Washington-based think tank, said data-privacy rules and other restrictions now in force in some countries could slow the growth of the U.S. technology-services industry by as much as 4%.

In cloud computing, companies like Google's could be particularly vulnerable, because they constantly move their customers' data to server locations with excess capacity to get the most out of their networks. Corporate clients hire these companies to provide Web-based software and services like email and data storage. That strategy often allows businesses to cut costs or to add or subtract their computing resources as needed.

But some foreign cloud-computing clients are beginning to reassess their relationships with U.S. providers, responding to their own customers' concerns that private data could fall into U.S. government hands. Detlev Gabel, a White & Case partner in Frankfurt who advises clients on data privacy, said in an email that German companies are stepping up their scrutiny of potential IT providers and are looking more to European vendors.

Mr. Castro says new regulations could cost U.S. IT services companies up to $35 billion in revenue over the next three years.

Keller Williams Realty Inc., a U.S.-based real-estate franchising company with 700-plus offices in the U.S. and Canada, is building out its computing infrastructure to support an international expansion planned over the next 12 to 24 months, beginning with Turkey. The company relies on Google Apps to simplify email and data-management operations for its network's 95,000 users. It also uses Salesforce.com Inc. CRM -3.40%  's cloud platform for business applications that help brokers manage offers and steps required for closings.

Cary Sylvester, the company's vice president of technology innovation and communication, said cloud computing makes it easier to manage applications for Keller Williams's far-flung business but that the company might not be able to get by with just a single system world-wide.

"It would be a big annoyance" to have to find local vendors to comply with local regulations, she said. "That's part of the reason we chose to partner with Google and Salesforce, because they're going to have to solve that problem rfor themselves," she said.

Marc Benioff, chief executive of Salesforce.com, which markets sales-account-management, or CRM, software, said he hasn't "had a lot of inquiries from customers." He said that the data in the company's system belongs to its customers, and that his company "would never let a government or anyone else access that data without getting [customers'] permission. We do not provide any government with access to our servers, either directly or indirectly."

Mr. Benioff pointed out, however, that the type of data in many business databases, such as next quarter's projected sales to a given customer, would be of little interest to intelligence analysts. "CRM is boring," he said.

International Business Machines Corp. plans to open 15 new data centers in 2014, including one in China, to help its customers comply with local laws prohibiting data about their citizens from leaving the country.

A spokesman for Amazon.com Inc. AMZN -0.15%  's Amazon Web Services unit said its customers can choose to have their data reside in any of the company's 10 infrastructure regions world-wide, and that it will "continue to build out new regions regularly."

Mr. Benioff said that if customers asked Salesforce.com to open new data centers to comply with local regulations, the company would do so, but might charge them extra as a result.

That prospect troubles people like Ken Grady, chief information officer of New England Biolabs Inc., which supplies biotech labs. Mr. Grady said his company is planning to use Salesforce.com's service, beginning in April, and expects to be able to use the cloud-based application in all its locations, which include sites in Canada, Europe and Asia.

"It should be seamless, and it should be transparent to our organization in terms of use, with no change in functionality and scope."But he recognizes that things may not pan out that way. Mr. Grady said Salesforce.com has told him it is working to ensure that its facilities comply with applicable local laws abroad, but the company hasn't been able to tell him if this will add to his costs. "I expect it to be low. I'm going to push for it to be low, if at all," he said.

U.S.-based multinationals face another problem: figuring out how to move their own customer and employee data from overseas to their home offices.

"What if we're running Microsoft Dynamics and Brazil shuts it down, and we can't get the data out of there; what can Microsoft do to help us get the data out of that country?" said John Milazzo, CIO of KodakAlaris, a privately held document imaging company spun out of Eastman Kodak Co. Dynamics is used to manage financial and human-resources data such as revenues and payroll data.

Microsoft declined to comment, but pointed to an open letter signed by several large cloud vendors and a blog post by its chief legal officer, Brad Smith, which call on governments to curb electronic eavesdropping.

Andrew Bartels, an analyst with Forrester Research Inc., takes a more sanguine view of the spying revelations: "The NSA has given a particular face for that, but the risk [of data loss in the cloud] was already there through different means. Is this a bad thing for people to be aware that using cloud software poses risks? The answer is no," he said.

Mr. Bartels said that the revelations have given foreign countries the chance to foster rivals to Amazon.com or Google. "It will have and is having some reduction in growth rates for cloud vendors." But he added that cloud spending will simply shift elsewhere. "I don't think these U.S. technology firms have a God-given right to dominate," he said.

Corrections & Amplifications

An earlier version of this article incorrectly described Eastman Kodak Co., which has reorganized as a commercial-imaging company, as defunct. It also reported incorrectly that Amazon.com Inc.'s Amazon Web Services unit is among the cloud-computing companies that constantly move their customers' data to server locations with excess capacity to get the most out of their networks; in fact, its customers can pick the region in which their data will reside.

—Danny Yadron and Rachael King contributed to this article.

Write to Michael Hickins at michael.hickins@wsj.com