Internet Firms Step Up Efforts to Stop Spying

Ordinary users asked Ms. Mayer why Yahoo was not doing more. Privacy activists were more blunt. “Even after today’s announcement, Yahoo still lags far behind Google on web security,” said Christopher Soghoian, a technology analyst at the American Civil Liberties Union.

For big Internet outfits, it is no longer enough to have a fast-loading smartphone app or cool messaging service. In the era of Edward J. Snowden and his revelations of mass government surveillance, companies are competing to show users how well their data is protected from prying eyes, with billions of dollars in revenue hanging in the balance.

On Thursday, Microsoft will be the latest technology company to announce plans to shield its services from outside surveillance. It is in the process of adding state-of-the-art encryption features to various consumer services and internally at its data centers.

The announcement follows similar efforts by Google, Mozilla, Twitter, Facebook and Yahoo in what has effectively become a digital arms race with the National Security Agency as the companies react to what some have called the “Snowden Effect.”

While security has long simmered as a concern for users, many companies were reluctant to employ modern protections, worried that upgrades would slow down connections and add complexity to their networks.

But the issue boiled over six months ago, when documents leaked by Mr. Snowden described efforts by the N.S.A. and its intelligence partners to spy on millions of Internet users. More than half of Americans surveyed say N.S.A. surveillance has intruded on their personal privacy rights, according to a Washington Post-ABC News poll conducted in November.

The revelations also shook Internet companies, which have been trying to reassure customers that they are doing what they can to protect their data from spying. They have long complied with legal orders to hand over information, but were alarmed by more recent news that the N.S.A. was also accessing their data without their knowledge.

“We want to ensure that governments use legal process rather than technological brute force to obtain customer data — it’s as simple as that,” said Bradford L. Smith, Microsoft’s general counsel, in an interview.

Mr. Smith said his company would also open “transparency centers” where foreign governments can inspect the company’s code in an effort to assure them that it does not plant back doors for spy agencies in its products.

Already, the Snowden revelations threaten to erode the market share of American technology companies abroad.

In India, government officials are now barred from using email services that have servers located in the United States. In Brazil, lawmakers are pushing for laws that would force foreign companies to spend billions redesigning their systems — and possibly the entire Internet — to keep Brazilian data from leaving the country.

Forrester Research projected the fallout could cost the so-called cloud computing industry as much as $180 billion — a quarter of its revenue — by 2016.

“The world is quickly being divided into companies that are secure and companies that are not,” said Bhaskar Chakravorti, a dean of international business and finance at the Fletcher School at Tufts University.

One by one, technology companies have been scrambling to plug security holes.

The best defense, security experts say, is using Transport Layer Security, a type of encryption familiar to many through the “https” and padlock symbol at the beginning of Web addresses that use the technology. It uses a long sequence of numbers — a master key — that scrambles sensitive data like passwords, credit card details, intellectual property and personal information between a user and a website while in transit.

Banks and other financial sites have used such security for years, and Google and Twitter along with Microsoft’s email service made it standard long ago. Facebook adopted https systemwide this year. And Ms. Mayer said Yahoo would finally allow consumers to encrypt all their Yahoo data in January.

AT&T and Verizon Pressed to Detail Roles in U.S. Surveillance Efforts

Two separate but similar shareholder resolutions, from New York State’s comptroller and a large investment firm, say that the two dominant wireless carriers hurt customers’ trust by not disclosing more about the data they share with governments. The resolutions are the latest sign that the flurry of revelations about American spying efforts is putting business pressure on the companies lassoed into providing customer data to the government.

“If a customer is concerned about their privacy perhaps being compromised, they could switch to another service,” said Thomas P. DiNapoli, New York’s comptroller, the trustee of the $160.7 billion New York State Common Retirement Fund. He filed a resolution with AT&T this month demanding that the carrier publish reports on the information it collects and shares.

AT&T and Verizon Wireless, which juggle enormous amounts of phone calls and Internet data over their networks, have been quiet about the types of information they share about their customers. Internet giants like Yahoo and Google, meanwhile, have published so-called transparency reports detailing the types of information they share with government agencies.

Some tech companies, including Microsoft and Apple, have also been outspoken about their desire to release more information on government requests, including how many orders they receive to disclose the contents of email and other communications.

The comptroller and Trillium Asset Management, an independent investment adviser with over $1.3 billion in assets under management, are pushing for similar disclosure from AT&T and Verizon. They say their investments in AT&T and Verizon are at stake because a lack of trust could make customers look for other service providers.

Trillium, which describes itself as a leader in shareholder advocacy, filed its resolution with Verizon Communications this month. “Transparency is essential if individuals and businesses are to make informed decisions regarding their data,” Trillium wrote in its proposal.

Some analysts and American tech executives are also worried that the spying revelations will hurt profits. Many analysts have predicted the government’s actions would especially hurt companies with major business cloud computing services, which have been a particular target of the spying efforts. Cisco recently attributed a decline in sales in China partly to hostility toward American companies.

In the last several months, AT&T and Verizon have come under scrutiny for their cooperation with government surveillance programs. A court order revealed that the Obama administration secretly collected records for calls made between the United States and abroad, as well as calls within the United States. This month, it was revealed that the Central Intelligence Agency paid AT&T $10 million a year for access to its enormous database of phone records, including Americans’ international phone calls.

Historically, there are stronger laws protecting phone information than Internet traffic, said Harold Feld, senior vice president for Public Knowledge, a nonprofit group that focuses on information policy. That is why government requests for phone information is limited to so-called metadata like the name of a caller, the time the call was made and the recipient of the call, as opposed to tapping the phones, he said.

Compared with tech companies, the American carriers have had a closer working relationship with the government. They provide communications services to the American government. And unlike Internet companies like Google and Yahoo, which have global operations, the carriers have less at stake overseas, where foreign customers might be angry about the revelations of American surveillance.

The carriers also work with regulators to obtain spectrum licenses to operate their networks, so it benefits them to get along, Mr. Feld said. “From an economic perspective they have less incentive to fight” pressure from the government, he said. “The carriers have wanted to stay on the good side.”

Bob Varettoni, a Verizon spokesman, confirmed receiving Trillium’s proposal, but declined to comment on the topic of government requests. “We’ve received the proposal and we’re currently evaluating it,” he said.

Mark Siegel, an AT&T spokesman, said, “As standard practice we look carefully at all shareholder proposals but at this point in the process we do not expect to comment on them.”

It may be difficult for the shareholders to convince AT&T and Verizon, the two biggest American carriers, that they will lose customers because of a lack of trust. In general, very few customers leave those networks. At AT&T, for example, churn, the rate at which subscribers leave, was 1.07 percent in the third quarter, compared with 1.08 percent in the same quarter a year ago. Many customers are subscribed to family plans or corporate accounts, making it tricky to switch devices to a different carrier.

But Trillium believes an enormous amount of money is at stake. It cited the Information Technology and Innovation Foundation, which estimates that controversy around surveillance programs could cost the information technology industry at least $21 billion in business over the next three years if foreign customers lose trust in American companies.

Both resolutions may be voted on at shareholder meetings in the spring.

Mr. DiNapoli said privacy was a relatively new issue for AT&T and eventually may become a factor for customers when they choose a provider. “I certainly think there’s a heightened sensitivity that could redirect and reinform consumer behavior,” he said.

This article has been revised to reflect the following correction:

Correction: November 20, 2013

An earlier version of this article included an incomplete reference regarding a resolution filed by Trillium Asset Management. It was filed with Verizon Communications, the parent company of Verizon Wireless.

Bits Blog: Homegrown Efforts to Recruit Women in Silicon Valley

Peter DaSilva for The New York Time Margit Wennmachers, a partner at Andreessen Horowitz, says the wording of job descriptions can discourage women from applying.

Silicon Valley is not exactly known for its diversity. So when Andreessen Horowitz, the venture capital firm, wanted to make sure its job postings were reaching the most diverse audience possible, its partners did what most people in Silicon Valley do when they spot a problem. They turned to software.

They used programs that analyze the language in job descriptions to catch phrases that might turn off certain types of applicants. Looking for a candidate who is “off the charts”? Chances are, not that many women will apply.

“That’s just not how women talk,” said Margit Wennmachers, a partner at the firm. “They say, ‘Must be highly competent.’ ”

It is an example of many homegrown efforts across the Valley to change the face of the tech industry. There have always been big organizations hosting conferences and networking events for women. But newer efforts are springing up from inside companies.

There are programs to teach girls to code, like Girls Who Code, for which companies like Twitter and Google lend office space and teachers. CodeChix, started by engineers at companies like VMware, hosts coding workshops that promise to be “non-alpha.”

The Club is an application-only group trying to provide an alternative to golf courses and men’s membership clubs by coaching women leaders in Silicon Valley. It was founded by Annie Rogaski, a partner at Kilpatrick Townsend, a Valley law firm.

Rachel Sklar, who started a group called Change the Ratio, is introducing an organization called The List where members who pay have access to other women for advice, financing and conference speaking gigs.

“It’s to achieve the function of the classic old boys’ club, which funnels very easy advice and access and opportunity,” Ms. Sklar said.

At Andreessen Horowitz, the firm asks real people, not just software, to review all job descriptions, too — so in addition to the hiring manager, people who are women, African American and from other minority groups in Silicon Valley have input.

The firm also has a partner in charge of diversity who helps acquire a broad set of candidates for the firm’s talent agency, which its 200 portfolio companies tap for engineering and leadership roles. Despite those efforts, all of the firm’s investing partners are men.

“There’s a huge talent war going on, so we are doing a lot of things to try to surface all kinds of diverse talent and bubble that up to our portfolio companies,” Ms. Wennmachers said.

“What I’d like to see is Marla Zuckerberg and Mary Jobs and Joann Bezos.”

Facebook Advertising Efforts Face a Day of Judgment

The stakes could not be higher. Facebook made its initial public offering in May with an eye-poppingly high valuation, but its share price has plummeted since then. Advertising, largely in the United States, accounts for the bulk of its revenue, and the company is under intense pressure to show that it is growing fast enough to justify its high value.

In short, to please Wall Street, Facebook must first curry favor with Madison Avenue, and it is scrambling to do just that.

“Advertisers need more proof that actual advertising on Facebook offers a return on investment,” said Debra Aho Williamson, an analyst with the market research firm eMarketer. “There is such disagreement over whether Facebook is the next big thing on the Internet or whether it’s going to fail miserably.”

Facebook’s unique asset is the pile of personal data it collects from 900 million users. But using that data to serve up effective, profitable advertisements is a daunting task. Google has been in the advertising game longer and has roughly $40 billion in annual revenue from advertising — 10 times that of Facebook. Since the public offering, Wall Street has tempered its expectations for Facebook’s advertising revenue, and shares closed Friday at $28.76, down from their initial price of $38.

In an indication of how critical it is for Facebook to get its advertising products right, the company called on Gokul Rajaram, an engineer who once ran Google’s lucrative AdSense engine, to take charge of its own advertising products division. Facebook hired Mr. Rajaram in 2010, when it acquired his start-up, Chai Labs, which had built artificial-intelligence-based algorithms to analyze online data.

Part of the challenge is that advertisements, as Mr. Rajaram once put it, should not feel like advertisements. “You would much rather hear a message from your friend than hear a message from a brand,” he said at a conference sponsored by TechCrunch last year.

Today, he leads a team of engineers who are rolling out a variety of advertising tricks, including tools that can do what Google does so profitably: reach consumers across the Web.

Facebook declined repeated requests for an interview with Mr. Rajaram, and offered no details of its new advertising efforts.

Among the most promising of those efforts, from a marketer’s point of view, is Facebook Exchange, which is intended to track the behavior of Facebook users when they are visiting other sites and serve up tailored advertisements when they return to Facebook.

Orbitz, the travel company, is among the advertisers that are trying Facebook Exchange. If it sees a consumer looking for, say, a business hotel in New York, Orbitz can place an advertisement for New York hotels on that user’s Facebook page, with the hope that the user will return to the travel site and make the booking. Chris Stevens, senior director of retail for Orbitz, said it was too early to determine the impact on sales.

“If it does work, it’s going to be great,” said Karsten Weide, an International Data Corporation analyst who has been skeptical of Facebook’s advertising prospects. “They have to prove advertising on Facebook works.”

Another prominent experiment is Facebook’s effort to let marketers reach its users outside of its garden walls. In June, it began showing targeted banner advertisements to Facebook users on the gaming site Zynga. Facebook has declined to say whether or how it plans to expand this tool, which comes closest to rivaling Google’s power to advertise across the Web.

“It’s sort of the first step in trying to expand outside of Facebook,” said David Eastman, worldwide digital director at the advertising agency JWT. “This is simply part of Facebook’s strategy to monetize themselves, and is likely the beginning of a series of products coming out in the next six months to a year designed to grow advertising revenue.”

Reaching mobile users will have to be an essential part of Facebook’s advertising strategy. Nearly half of Facebook users log in on their tablets or phones, and the company has acknowledged that its most pressing challenge is to figure out how to profit from them. It recently started allowing marketers to buy advertisements only on mobile platforms, which is where many companies, like retailers, are chasing potential customers.

“They’re going to have to crack the mobile piece,” Mr. Eastman said.

While advertising accounts for more than 85 percent of its revenue, Facebook is also looking for other ways to make money. In June, it announced that it would make it easier for users to buy online goods and services, including monthly subscriptions to video and music streaming services like Spotify, on the Facebook platform. It discontinued its virtual currency, Facebook Credits, which was mainly used to play games, and said it would accept credit card payments in local currencies worldwide. Analysts applauded it as a step toward pleasing Wall Street.

As a byproduct of its meteoric rise, Facebook is facing an inevitable hurdle: in the United States, where it makes most of its advertising revenue, it is not drawing new users. The latest numbers from comScore, a market research firm, showed that in May, 158.01 million unique visitors logged on to the network, down slightly from 158.69 million in April. Advertisers, and by extension shareholders, will look closely at whether Facebook can keep those users glued to the site for longer stretches of time.

Facebook is still growing in several countries, like Brazil and India, but it makes little to no money in those places.

Manuel A. Henriquez, chief executive of the venture capital firm Hercules and an investor in Facebook, called Thursday’s earnings report a test for the company’s chief executive and founder, Mark Zuckerberg, and his management team. “They have the data,” Mr. Henriquez said. “If they can show effectively their ability to monetize domestic subscribers at an increasing rate, they’ll have a lot of legitimacy.”

That task falls squarely on the shoulders of Mr. Rajaram’s engineering team, which is charged with writing the algorithms that will show the right advertisements to the right people. Its members often refer to themselves as the Math Men, in contrast to the Mad Men who once ruled the industry, and it helps that Mr. Rajaram, who has degrees in computer science and business, is the son of a high school math teacher.

But his challenge is much more than writing the right code. He must also apply Facebook data to marketing in a way that does not alienate users or invite scrutiny in court.

Indeed, Facebook hit a legal roadblock in May, when it reached a tentative settlement in a class-action lawsuit over the use of sponsored stories, one of its most effective advertising tools. In the would-be settlement, the company promised to inform users explicitly that their “likes” could be used as endorsements for a brand or page, and that they could opt out. By one estimate, it could cost Facebook $103 million in revenue.

Facebook Advertising Efforts Face a Day of Judgment

The stakes could not be higher. Facebook made its initial public offering in May with an eye-poppingly high valuation, but its share price has plummeted since then. Advertising, largely in the United States, accounts for the bulk of its revenue, and the company is under intense pressure to show that it is growing fast enough to justify its high value.

In short, to please Wall Street, Facebook must first curry favor with Madison Avenue, and it is scrambling to do just that.

“Advertisers need more proof that actual advertising on Facebook offers a return on investment,” said Debra Aho Williamson, an analyst with the market research firm eMarketer. “There is such disagreement over whether Facebook is the next big thing on the Internet or whether it’s going to fail miserably.”

Facebook’s unique asset is the pile of personal data it collects from 900 million users. But using that data to serve up effective, profitable advertisements is a daunting task. Google has been in the advertising game longer and has roughly $40 billion in annual revenue from advertising — 10 times that of Facebook. Since the public offering, Wall Street has tempered its expectations for Facebook’s advertising revenue, and shares closed Friday at $28.76, down from their initial price of $38.

In an indication of how critical it is for Facebook to get its advertising products right, the company called on Gokul Rajaram, an engineer who once ran Google’s lucrative AdSense engine, to take charge of its own advertising products division. Facebook hired Mr. Rajaram in 2010, when it acquired his start-up, Chai Labs, which had built artificial-intelligence-based algorithms to analyze online data.

Part of the challenge is that advertisements, as Mr. Rajaram once put it, should not feel like advertisements. “You would much rather hear a message from your friend than hear a message from a brand,” he said at a conference sponsored by TechCrunch last year.

Today, he leads a team of engineers who are rolling out a variety of advertising tricks, including tools that can do what Google does so profitably: reach consumers across the Web.

Facebook declined repeated requests for an interview with Mr. Rajaram, and offered no details of its new advertising efforts.

Among the most promising of those efforts, from a marketer’s point of view, is Facebook Exchange, which is intended to track the behavior of Facebook users when they are visiting other sites and serve up tailored advertisements when they return to Facebook.

Orbitz, the travel company, is among the advertisers that are trying Facebook Exchange. If it sees a consumer looking for, say, a business hotel in New York, Orbitz can place an advertisement for New York hotels on that user’s Facebook page, with the hope that the user will return to the travel site and make the booking. Chris Stevens, senior director of retail for Orbitz, said it was too early to determine the impact on sales.

“If it does work, it’s going to be great,” said Karsten Weide, an International Data Corporation analyst who has been skeptical of Facebook’s advertising prospects. “They have to prove advertising on Facebook works.”

Another prominent experiment is Facebook’s effort to let marketers reach its users outside of its garden walls. In June, it began showing targeted banner advertisements to Facebook users on the gaming site Zynga. Facebook has declined to say whether or how it plans to expand this tool, which comes closest to rivaling Google’s power to advertise across the Web.

“It’s sort of the first step in trying to expand outside of Facebook,” said David Eastman, worldwide digital director at the advertising agency JWT. “This is simply part of Facebook’s strategy to monetize themselves, and is likely the beginning of a series of products coming out in the next six months to a year designed to grow advertising revenue.”

Reaching mobile users will have to be an essential part of Facebook’s advertising strategy. Nearly half of Facebook users log in on their tablets or phones, and the company has acknowledged that its most pressing challenge is to figure out how to profit from them. It recently started allowing marketers to buy advertisements only on mobile platforms, which is where many companies, like retailers, are chasing potential customers.

“They’re going to have to crack the mobile piece,” Mr. Eastman said.

While advertising accounts for more than 85 percent of its revenue, Facebook is also looking for other ways to make money. In June, it announced that it would make it easier for users to buy online goods and services, including monthly subscriptions to video and music streaming services like Spotify, on the Facebook platform. It discontinued its virtual currency, Facebook Credits, which was mainly used to play games, and said it would accept credit card payments in local currencies worldwide. Analysts applauded it as a step toward pleasing Wall Street.

As a byproduct of its meteoric rise, Facebook is facing an inevitable hurdle: in the United States, where it makes most of its advertising revenue, it is not drawing new users. The latest numbers from comScore, a market research firm, showed that in May, 158.01 million unique visitors logged on to the network, down slightly from 158.69 million in April. Advertisers, and by extension shareholders, will look closely at whether Facebook can keep those users glued to the site for longer stretches of time.

Facebook is still growing in several countries, like Brazil and India, but it makes little to no money in those places.

Manuel A. Henriquez, chief executive of the venture capital firm Hercules and an investor in Facebook, called Thursday’s earnings report a test for the company’s chief executive and founder, Mark Zuckerberg, and his management team. “They have the data,” Mr. Henriquez said. “If they can show effectively their ability to monetize domestic subscribers at an increasing rate, they’ll have a lot of legitimacy.”

That task falls squarely on the shoulders of Mr. Rajaram’s engineering team, which is charged with writing the algorithms that will show the right advertisements to the right people. Its members often refer to themselves as the Math Men, in contrast to the Mad Men who once ruled the industry, and it helps that Mr. Rajaram, who has degrees in computer science and business, is the son of a high school math teacher.

But his challenge is much more than writing the right code. He must also apply Facebook data to marketing in a way that does not alienate users or invite scrutiny in court.

Indeed, Facebook hit a legal roadblock in May, when it reached a tentative settlement in a class-action lawsuit over the use of sponsored stories, one of its most effective advertising tools. In the would-be settlement, the company promised to inform users explicitly that their “likes” could be used as endorsements for a brand or page, and that they could opt out. By one estimate, it could cost Facebook $103 million in revenue.