CrowdStrike’s fallout, where Harris stands on tech and Yandex’s rise from the ashes

On today’s episode of Equity, Rebecca Bellan did a deep dive into the CrowdStrike outage that affected around 8.5 million Windows devices around the world, causing disruptions in air travel, banking, hospitals, media outlets, federal agencies and businesses of all kinds. The outage began when CrowdStrike, a cloud security giant, sent out a defective software update. While CrowdStrike quickly identified the issue and deployed a fix, the fallout continued over the weekend and will probably continue into this week, particularly for the travel sector. United, American and Delta airlines all collectively saw thousands of flights canceled and delayed, which will have ripple effects into the week. Rebecca went into how this outage – despite not being a cyberattack – has provided the world with a stark example of just how vulnerable our critical infrastructure systems are, a big problem if our adversaries decide to get any bright ideas. She also discussed the reputational damage CrowdStrike experienced, the startups that have smelled blood in the water and are poised to strike, and the potential need to regulate monopolies that offer essential services. Moving on, Rebecca took a look at what U. S. Vice President Kamala Harris’s stance on technology has been, now that President Joe Biden has stepped out of the race for the presidency and officially endorsed his right hand. Harris appears to favor oversight for big tech companies to protect consumer privacy, as well as AI regulation to stop companies from prioritizing profits over people and society. While some big names in the VC and tech world have backed former President Donald Trump due to his laissez-faire approach to regulating AI and crypto (something we talked about on last week’s Friday episode!), others in the industry have shown support for Harris. VCs like John Doerr and Ron Conway were among her early supporters, and as a presidential candidate, Harris was quickly endorsed by LinkedIn co-founder Reid Hoffman. Rebecca also looked at a Reuters report detailing Nvidia’s plans to build a version of its new flagship AI chips for the Chinese market that are compatible with current U. S. export controls. The U. S. tightened controls of exports of semiconductors to China in 2023, a move designed to limit the Chinese military’s breakthroughs in supercomputing, but it appears Nvidia isn’t so keen to let that market go. Finally, Rebecca took a look at a deep dive from TechCrunch’s Paul Sawers on Yandex, once referred to as the “Google of Russia” and its comeback from Nasdaq limbo. Yandex’s publicly traded Dutch entity has severed all ties with Russia, selling off the entirety of its Russian assets in a fire sale earlier this year. The “new” company has adopted the name of one of its few remaining assets, a Finnish data center and AI cloud platform called Nebuis AI. The company is now operating as something of a corporation-startup hybrid. Its goal? To be a European AI compute leader. Equity will be back on Wednesday to interview Maven Ventures’s Sara Deshpande about why the VC is bullish on consumer funding and how venture is looking at AI companies, so tune back in then! Equity is TechCrunch’s flagship podcast, produced by Theresa Loconsolo, and posts every Monday, Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod. For the full episode transcript, for those who prefer reading over listening, check out our full archive of episodes over at Simplecast. Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:11Rebecca Bellan?

  Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. Today is July 22, 2024, and I'm Rebecca Bellan, a senior reporter here at TechCrunch. This is our Monday show, where we take a look at the weekend and get you ready for the week ahead. And what a weekend it's been. On today's show, we have what the hell happened with CrowdStrike, VP Kamala Harris's stance on tech, Nvidia's Chinese chips, and Yandex's comeback story. Let's get started.

• 0:39Rebecca Bellan?

  First up, we've got CrowdStrike's update fail. On Friday morning, we all woke up to absolute chaos, with much of the Windows-using world being greeted with a blue screen of death. And no, it wasn't a cyber attack, apparently. CrowdStrike, a cloud security giant, did this to itself. The outage ended up grounding planes, disrupting banks, hospitals, trains, media outlets, and businesses all around the world. CEO George Kurtz said, again, it wasn't caused by a cyber attack, despite what many people have been saying on social media. Rather, it was a defect in a software update for its flagship security product, the Falcon sensor. So this defect caused any Windows computers with Falcon installed to crash without fully loading. Some critics have chastised CrowdStrike for rolling out

• 1:22Rebecca Bellan?

  this update everywhere, all at once, rather than staged and controlled. The CEO said, though, that actually, they did roll it out in a staged way, which is maybe why Microsoft said only 8.5 Windows devices were affected, out of an estimated 1.5 billion. But 8.5 million is a lot, and maybe this rollout should have been a little more staged. I don't know about you guys, but I feel like somebody's getting fired in the next few days. Anyway, CrowdStrike said the issue was quickly identified and a fix was deployed, but the fallout has continued over the weekend, particularly in the travel sector. We've all seen the pictures all over social media. Major US airlines, including from United, American Delta halted operations. As of Friday night, something like 4,400 flights were canceled on Friday alone,

• 2:04Rebecca Bellan?

  and total flight delays surpassed 40,000, according to FlightAware. Now, not all of those were actually caused by this outage. FlightAware tracks all flight delays and cancellations, but probably a good amount of them were. Hilariously, though, Southwest was unaffected because it hasn't updated its Microsoft computer in 32 years. The banking industry also took a hit. Bank of America, Capital One, Chase, TD Bank, Wells Fargo, even investment companies like Charles Schwab, Fidelity, TD Ameritrade, all took a hit. Back in my old home of New Zealand, actually, a bunch of friends were telling me that they pretty much couldn't do anything. Everything ground to a halt. If you wanted to pay for anything, it had to be cash, and in some cases, FPOS. Many office workers were locked out of their work laptops for the day and enjoyed having

• 2:48Rebecca Bellan?

  the day off, according to some gleeful photos of employees on social media holding up their blue-screen-of-death laptops, although sadly for many, Teams and Outlook weren't affected. And now, while this wasn't actually a cyber attack, this obviously goes to show just how vulnerable our critical infrastructure is if adversaries wanted to get any bright ideas. Of course, George Kurtz, the CEO, says that, "Well, we're a cybersecurity company, and we're still doing a great job at that." He says that they're staying one step ahead of the bad guys, and that requires these types of content updates. In other words, the call came from inside the house, so we can all chill out, right? Uh, we'll see. I do appreciate, though, how transparent the CEO has been about what happened, what went wrong, and how they're aiming to fix it.

• 3:33Rebecca Bellan?

  That said, cybercriminals are already taking advantage of the confusion to send out more phishing scams. Federal agencies have warned people to be cautious at this time. Quote, "Criminals will attempt to use this IT outage to pretend to be IT, or pretend to be you, to steal access, passwords, codes, etc., so keep an eye out." In terms of other fallout, there's reputational risk here. CrowdStrike's share price took a 15% hit Friday morning. Dan Ives, a Wedbush analyst, said CrowdStrike could become a household name, but not for any good reasons. On the other hand, Okta had a data breach this year and kept most of its customers, so maybe this will fade away for CrowdStrike? Regardless, there is definitely blood in the water, and other startups in endpoint

• 4:15Rebecca Bellan?

  security market will use this opportunity to seize market share. Already, a couple of competitors are seeing their shares go up. Palo Alto Networks and Sentinel One, for example, both saw their shares increase on Friday. I say more competition is better. The problem with monopoly is that if we're all relying on one service like CrowdStrike or like Microsoft, if an outage or an attack happens, then what do you do? Max von Thun, European Director of Open Markets, which is a nonprofit dedicated to stopping monopolies, talked about how the IT systems from corporations are undergirding essential services and yet they face shockingly little public scrutiny or accountability. He said that today's tech giants need to be recognized for what they are, essential utilities, and regulated accordingly. This means not just making sure that infrastructure is secure and resilient, but also getting

• 5:00Rebecca Bellan?

  rid of their ability to abuse market power over customers. He suggests developing alternatives to today's cloud computing oligopoly and redirect public procurement budgets toward competitors and invest in secure, public, cloud infrastructure. This does resonate with me, but I'm open to other opinions. Listeners, what do you think?

• 5:20Rebecca Bellan?

  Next up, Biden is out and Harris might be in. So what does that mean for tech? Over the weekend, President Joe Biden stepped down as the Democratic presidential nominee and has endorsed Vice President Kamala Harris as his replacement. Now, she might not be the candidate to stand against Trump come November, but it's worth looking at her stance in the tech sphere today. Harris has had a long history with tech in San Francisco. For those who don't know, she was San Francisco's district attorney and then California's Attorney General before being elected to the Senate in 2016. Venture capitalists like John Doerr and Ron Conway were among her early supporters, and as a presidential candidate, she was quickly endorsed by LinkedIn co-founder Reid Hoffman. Some critics have said, though, that she didn't do enough, well, in San Francisco, to curb the spread of big tech's power.

• 6:03Rebecca Bellan?

  But Harris is certainly calling for change now. She has called for oversight of big tech companies to ensure consumer privacy, and she believes in regulating AI so companies don't prioritize profit over well-being of their customers and of society. She'll also likely support many of Biden's policies around technology. For example, Biden signed the Inflation Reduction Act in 2022, making available billions of dollars of federal funding to onshore manufacturing for the clean energy sector. I've actually been tracking specifically the amount of new investment from automakers and battery manufacturers into building EV battery factories. By my count, the total investment from the private sector as a direct result of the IRA is hitting around $112 billion. Biden has also signed the CHIPS Act to revitalize the domestic semiconductor manufacturing

• 6:48Rebecca Bellan?

  industry, and he's appointed Lina Khan as FTC Chair, who has gained a reputation for challenging big tech companies over antitrust issues. These regulatory policies have caused some in the VC and tech space to turn away from Biden and throw their weight behind Trump, who signaled a willingness to basically not regulate AI or crypto at all. On our Friday news roundup last week, we talked about how Biden's proposal to tax unrealized capital gains is what Marc Andreessen called "the final straw that led him to support Trump," despite years of being a Democrat. We'll see how this convo plays out as we get closer to November, so keep an eye on techcrunch.com and equity to see how the election is being impacted by the tech world. Moving on, Nvidia doesn't want to stop selling chips to China.

• 7:32Rebecca Bellan?

  Cast your mind back to 2023, when the US tightened controls of exports of semiconductors to China in a move that's designed to limit the Chinese military's breakthroughs in supercomputing. Nvidia, it appears, is not so keen to let that market go. According to a Reuters report, the chip leader is working on a new version of its flagship AI chips for the Chinese market that are compatible with current US export controls. This would potentially be the fourth chip from Nvidia tailored specifically for the Chinese market. Now, before those controls from the Biden administration, China had made up roughly a quarter of Nvidia's customer pool. That number has fallen over the last two years to around 17%, which has allowed Chinese tech companies like Huawei and Enflame to make inroads domestically for advanced AI processors.

• 8:15Rebecca Bellan?

  The pressure from the Biden administration is expected to continue, although we don't know what will happen come November. But as of today, there have been preliminary plans to put guardrails on most advanced AI models, like ChatGPT. Bloomberg News also reported last week that the Biden administration is weighing a measure called "Foreign Direct Product Rule" that would allow the US to stop a product from being sold if it's made using American technology. That, and Trump's comments that Taiwan should pay the US for defense, caused chip stocks to fall last week. We'll be keeping an eye out this week to see if those stocks have rebounded.

• 8:51Rebecca Bellan?

  And for our last story of the day, from the ashes of Yandex rises Nebuis. Yandex, as you may well recall, was once referred to as the Google of Russia. It encompassed everything from search, e-commerce, ad tech, maps, transportation, and more. Now, after the Russia-Ukraine war turned out to be very bad for business, Yandex's Dutch entity has severed all ties with Russia. In February, it sold off the entirety of its Russian assets, the lion's share of its business, in a fire sale, earning just $5.4 billion valuation, with $2.5 billion paid in cash and the rest in its own shares. Part of the reason for this is because there's a Russian rule that demands a discount of 50% for divestment involving a parent company

• 9:35Rebecca Bellan?

  that's incorporated in an unfriendly country, and apparently, the Netherlands is an unfriendly country. This new company has adopted the name of one of its few remaining assets, a Finnish data center and AI cloud platform called Nebuis AI, and it's operating as something of a corporation startup hybrid. Its goal: to be a leader in the European AI compute space. Its main competition is the dedicated GPU-as-a-service startups, like US-based CoreWeave or French startup FlexAI. Despite having something like a thousand of Yandex's engineers and a good chunk of its leadership onboard, Nebuis is kind of a startup, but again, it's also got some of Yandex's old assets to play with, including an AV company called AVRide based in Texas, a generative AI and LLM company called Toloka AI,

• 10:19Rebecca Bellan?

  and an ed tech platform called Triple Ten. All of this allows Nebuis to position itself as a full-stack AI infrastructure company with plans for a large-scale network of GPUs. Nebuis launched less than a year ago and already has thousands of GPUs and a cloud partner in Nvidia. In short, it's got a leg up on the competition, so we'll be tracking Nebuis's growth in Europe.

• 10:43Rebecca Bellan?

  That's it for me this morning, but Equity will be back on Wednesday with Mary Ann Azaveto, who has an interview with Sarah Deschbande from Maven Ventures. They're going to talk about why Maven is bullish on consumer funding, how Maven is looking at AI companies, and a throwback to Maven's early investments into Zoom and Cruise. If you want to keep up with us in the meantime, though, you can find Equity on X and Threads at EquityPod. Thanks for listening.

• 11:08Speaker 01

  Equity is produced by Teresa Loconsolo with editing by Kell. Bryce Durbin is our illustrator, and we'd like to give a big thanks to our audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thanks so much for listening, and we'll talk to you next time.