Daily Tech Snippet: Thursday January 29

• In an unusual move, a Chinese government agency slammed Alibaba, sending its stock down 4%: Alibaba hit back, personally criticizing a government official. More coverage here: In unusually blunt criticism, a Chinese government agency on Wednesday took aim at the e-commerce giant Alibaba Group for what it said were unlicensed merchants, fake goods and other illegal practices on its hugely popular shopping websites. The news sent Alibaba’s shares down more than 4 percent in New York China’s main corporate regulator, the State Administration for Industry and Commerce, released a report summarizing its findings of the deficiencies on Alibaba’s sites, including Taobao Marketplace and Tmall.com. In a statement on its website, the regulator said that after a thorough review, it had discovered “the long-term existence of illegal problems regarding the management of transaction activity and other issues.” The agency said that it had presented the findings to unidentified top Alibaba executives in a July 17 meeting at the company’s headquarters in the eastern city of Hangzhou, but that it had kept the results confidential at the time so as “not to affect Alibaba’s preparations for a stock market listing.” Alibaba went on to raise a record $25 billion in September in an initial public offering in New York. The regulator’s report, first made public on Wednesday, said it had found 19 problems in five main areas on Alibaba’s sites. Those included a number of unlicensed or unregistered vendors selling items, including knockoffs and goods that were improperly imported or banned from sale in China. Such items included fake cigarettes, wine and mobile phones; knockoff handbags; gambling equipment; wiretapping devices; and restricted types of knives. In a response on its verified account on the social messaging service Weibo, Taobao on Wednesday said that it had been a victim of fakes and had gone to great lengths to prevent them from being sold on its site. At the same time, the company took issue with the regulator’s approach, saying that it “welcomes fair and just supervision” but that the agency had not been objective. Taobao went further still, and in a rarely seen public criticism of a government official, it accused Liu Hongliang, a bureau chief at the administration for industry and commerce, of using inappropriate procedures in carrying out his investigation. The company said it would file a formal complaint to the agency.

• "Secure and controllable": Chinese rules on technology have significant and worrying implications for technology firms: China will force companies which sell computer equipment to banks to hand over secret source code, undergo sensitive audits and set up research and development centers in the country, the New York Times reported on Thursday. Beijing wants 75 percent of technology products used by China's financial institutions "secure and controllable" by 2019, the paper reported, citing an official document expected to be circulated to businesses in the next few months. The new rules have aggravated concerns among foreign companies that Chinese authorities are trying to force them out of the country, the Times said. Approved by authorities late last year, the rules do not specify what is meant by "secure and controllable", the paper added. Source code - the usually tightly guarded commands that create programs - for most computing and networking equipment would have to be turned over to officials, according to the incoming regulations. Firms planning to sell computer equipment to Chinese banks would have to set up research and development centers in the country, get permits for workers servicing technology equipment and build "ports" which enable Chinese officials to manage and monitor data processed by their hardware. It quoted a letter sent on Wednesday to a top-level Communist Party committee on cybersecurity from foreign business groups, including the U.S. Chamber of Commerce, accusing them of protectionism.

• Facebook earnings: Q4 revenue $3.85B, +49% Y/Y; net income $701M, +34% Y/Y; sharply higher expenses send stock down 2%: When Mark Zuckerberg warned investors three months ago that Facebook’s expenses were going to rise sharply, he really meant it. The company reported on Wednesday that revenue increased 49 percent in the fourth quarter compared to the previous year, exceeding Wall Street’s expectations. But expenses rose even faster, up 87 percent from the same quarter a year ago, driven in part by a huge increase in stock payouts to employees. The social network, which makes most of its money by including advertising in the news feeds of its users, said about 69 percent of its advertising revenue came from mobile devices, which have become the most common way people tap into the service. Facebook reported that it had 1.39 billion monthly users worldwide in December, up 3.2 percent from September. Facebook said that it had revenue of $3.85 billion in the fourth quarter, compared to $2.59 billion a year ago. Net income was $701 million, or 25 cents a share, up from $523 million, or 20 cents a share, in the previous fourth quarter. After excluding certain expenses, the company’s profit was 54 cents a share. On that adjusted basis, Wall Street had expected the company to earn 49 cents a share on revenue of $3.77 billion. Facebook’s share price was down about 2 percent in after-hours trading after the results were announced. The stock is up more than 40 percent over the last year. The company said it brought in an average of $9 in revenue per American and Canadian user during the quarter. European and Asian users are much less lucrative, while newer areas of focus for the company, like Africa, bring in virtually no revenue. Over all, the average Facebook user was worth $2.81 to the company in the quarter. Video, which Facebook began highlighting last summer, was particularly strong in the quarter, the company said, with users viewing three billion videos a day. Ms. Sandberg said the company still anticipated huge opportunities to sell more ads, and was investing heavily in measurement technology to prove to advertisers that the platform delivers results. At the same time, Facebook is in no rush to make money from the separate services it owns, including Instagram, a photo-sharing service which has 300 million users, and WhatsApp, which has 700 million.

• Facebook ad targeting has led to spectacular monetization improvements in the US and Europe: Facebook’s been a quest to improve its ad measurement, and it’s definitely paying off. In Q4 2014, Facebook’s user count in the US & Canada only grew by a tiny 0.97% from 204 million to 206 million, but the average ad revenue it earns from each of those users grew 24% from $6.64 to $8.26. It means that through better ad targeting to connect customers to the brands they’re likely to buy from, and improved online and offline sales measurement to track those purchases, it’s been able to grow ad revenue about 25X faster than user count. That’s not just in North America. In Europe, average ad revenue per user was up 21% on just 1.3% user growth. Now the question is whether can figure out how to do the same in the developing world. In the “Rest Of World” region that includes many developing nations in Africa and South America, user count grew 3% from 423 million to 436 million users, yet average ad revenue per user there only grew 12% from $0.82 to $0.92. That’s strong, but not like it is in the US and Canada.

• Facebook video is on fire: Facebook Now Has Over 3B Video Views Per Day: If it’s starting to feel like every visit you make to Facebook these days is full of videos, you are not alone. Facebook today reported in a strong set of Q4 earnings that there are 3 billion videos viewed on its site each day. With the company also reporting daily active users of 890 million, this works out to more than 3 videos per day. Facebook more specifically later noted that over 50% of people in the US who come to Facebook daily watch at least one video per day. It doesn’t break out how many of those are auto-played but did noted that over 65% of Facebook video views occur on mobile. CEO Mark Zuckerberg pointed out in the call that while usage of Facebook has shifted over the last ten years, from primarily text through to “primarily photos with some text and video,” he may be understating things a bit. As a point of comparison, he noted that there are 2 billion photos each day shared across Facebook sites — or, put another way, 1 billion less photos than videos posted to Facebook daily. And as a sign of just how much Facebook is pushing video growth, it was only in June 2014 that the company passed 1 billion video views per day. Facebook said that in the last year, the number of video posts per person on Facebook increased 75% globally and 94% in the U.S. Facebook reported $3.6 billion in advertising sales on overall revenues of $3.85 billion but did not break out how much of that came from video advertising versus other formats.

• Amazon Web Services on Wednesday announced Amazon WorkMail, an email service that adds a new front to the fierce competition in the cloud. WorkMail, which works behind existing interfaces like Microsoft Outlook, is being promoted as safer and cheaper than other systems. “Customers have repeatedly asked us for a business email and calendaring service that is more cost-effective and simpler to manage than their on-premises solution, more secure than the cloud-based offerings available today, and that is backed by the same best-in-class infrastructure platform on which they’re reliably running so many of their current (and future) workloads,” said Peter De Santis, vice president of AWS Compute Services, said in a news release. More here: Amazon.com accelerated its efforts to win over corporate clients on Wednesday by announcing an email and scheduling service that will compete with Microsoft Corp (MSFT.O) and Google Inc (GOOGL.O). The service, dubbed WorkMail, will launch in the second quarter and has been developed by the company's cloud computing unit, Amazon Web Services (AWS). It highlights Amazon's efforts to convince deep-pocketed companies, called enterprises in tech parlance, to shift more of their work to AWS. Launching an email and scheduling service is likely the first step toward a broader suite of Amazon tools to gain corporate clients, analysts said. For example, Google's Gmail offers many other services beyond email and calendars including file-sharing and video conferencing. AWS has spent the last couple of years trying to get corporate clients on board because big businesses spend more on data centers than startups, who were the initial focus of its business. But there are concerns that Amazon is spreading itself too thin, given its other sizeable investments in areas like Hollywood-style production and consumer devices. "Email is a Trojan Horse into the enterprise," Baird analyst Colin Sebastian said. He added that email is a $1 billion opportunity for Amazon given the popularity of AWS and Amazon's willingness to sacrifice margins for volume.

• Samsung Electronics reported its lowest annual profit since 2011 as its smartphone sales continue to suffer from increasing competition. In 2014, the company’s profit was 25 trillion won, a 32 percent drop from a high of 36.8 trillion won in 2013. Its 4Q2014 net profit fell 27 percent to 5.3 trillion won year-over-year, in-line with Samsung’s earning guidance earlier this month. The Korean tech giant reported that its mobile unit’s earnings dropped 64 percent year-over-year to 1.96 trillion won, marketing its fifth quarterly decline in a row. Mobile sales accounted for just 58 percent of Samsung’s total operating profit last year, a significant decrease from 70 percent in 2013. The company said smartphone shipments fell in 4Q2014 and will continue to decline this quarter. Samsung’s semiconductor business helped buoy up its profits, even though it didn’t make up for shortfalls in its mobile unit’s performance. The unit posted 4Q2014 operating profit of 5.3 trillion won and said its performance will continue to improve as more smartphone and tablet manufacturers order chips from Samsung, especially for high-end devices. The performance of Samsung’s mobile unit stands in contrast to its arch-rival Apple, which yesterday reported that it had sold a record-breaking 74.5 million iPhones during the first quarter of its fiscal 2015 year. Apple gained ground thanks to the popularity of the iPhone 6 and 6 Plus, especially in China, where it competes with Samsung as well as domestic smartphone makers like Xiaomi and Lenovo. In fact, research firm Canalys reported that Apple topped smartphone shipments in China for the first time last quarter. This means that Samsung is now in third place, behind Apple and Xiaomi.