IRS Reducing Size Of Cybersecurity Staff

The Internal Revenue Service, which confirmed rumors of a breach of 100,000 taxpayer accounts, has been consistently reducing the size of its internal cybersecurity staff as it increases its security spending. This may seem paradoxical, but one observer suggested it could signal a shift to outsourcing.

In 2011, the IRS employed 410 people in its cybersecurity organization, but by 2014 the headcount had fallen by 11% to 363 people, according to annual reports about IRS information technology spending by the U.S. Treasury Department Inspector General.

Despite this staff reduction, the IRS has increased spending in its cybersecurity organization. In 2012, the IRS earmarked $129 million for cybersecurity, which rose to $141.5 million last year, an increase of approximately 9.7%.

This increase in spending, coupled with the reduction in headcount, is an indicator of outsourcing, said Alan Paller, director of research at the SANS Institute. Paller sees risks in that strategy.

“Each organization moves at a different pace toward a point at which they have outsourced so much that the insiders do little more than manage contracts, and lose their technical expertise and ability to manage technical contractors effectively,” said Paller.

An IRS spokesman was not able to immediately answer questions about the IRS’s cybersecurity spending.

This breach is drawing congressional scrutiny. On Tuesday, U.S. Senator Orrin Hatch (R-Utah), who heads the Senate Finance Committee, called the breach “unacceptable.”

The IRS’s total IT budget in 2014 was $2.5 billion, an increase from the prior year’s $2.3 billion, with 7,339 employees last year, little change from 7,303 reported in 2013.

The agency’s IT budget has fared better than the agency overall. Congress has been cutting spending at the agency. IRS funding has been reduced by $1.2 billion over the last five years, from $12.1 billion in 2010 to $10.9 billion this year. An IRS official told lawmakers earlier this year that the budget cuts have delayed critical IT investments of more than $200 million, which includes replacing aging IT systems.

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Self-Healing Software On The Way

Researchers at the University of Utah have developed self-healing software that detects, expunges and protects against malware in virtual machines.

Called Advanced Adaptive Applications (A3), the software suite was created in collaboration with US defence contractor Raytheon BBN over a period of four years.

It was funded by DARPA through its Clean-Slate Design of Resilient, Adaptive, Secure Hosts programme, and was completed in September, Science Daily reported on Thursday.

A3 features “stackable debuggers”, a number of debugging applications that cooperate to monitor virtual machines for indications of unusual behaviour.

Instead of checking computer object code against a catalogue of known viruses and other malware, the A3 software suite can detect the operation of malicious code heuristically, based on the types of function it attempts.

Once the A3 software detects malicious code, it can apparently suspend the offending process or thread – stopping it in its tracks – repair the damage and remove it from the virtual machine environment, and learn to recognise that piece of malware to prevent it entering the system again.

The self-healing software was developed for military applications to support cyber security for mission-critical systems, but it could also be useful in commercial web hosting and cloud computing operations.

If malware gets into such systems, A3 software could detect and repair the attack within minutes.

The university and Raytheon demonstrated the A3 software suite to DARPA in September by testing it against the notorious Shellshock exploit known as the Bash Bug.

A3 detected and repaired the Shellshock attack on a web server within four minutes. The project team also tested A3 successfully on another six examples of malware.

Eric Eide, the research associate professor of computer science who led the A3 project team along with computer science associate professor John Regehr, said: “It’s pretty cool when you can pick the Bug of the Week and it works.”

The A3 self-healing software suite is open source, so it’s free for anyone to use, and the university researchers would like to extend its applicability to cloud computing environments and, perhaps eventually, end-user computing.

Professor Eide said: “A3 technologies could find their way into consumer products someday, which would help consumer devices protect themselves against fast-spreading malware or internal corruption of software components. But we haven’t tried those experiments yet.”

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Will Zynga Survive?

Nobody expected Zynga’s results for this quarter to be great, so nobody was exactly surprised when the company announced a decline in almost every number that matters. It turned a small profit, but that’s a bright spot in an otherwise deeply unimpressive set of results. The really important figures – the number of people playing and, crucially, the number of people paying – are all down. Zynga’s business may not be hemorrhaging money, but it’s losing audience, and in a business so heavily focused on scale, that’s a really bad thing.

The company likes to present itself as being on the cusp of a turnaround, or perhaps already embarked upon a slow but steady turn. If so, it’s the oddest turnaround imaginable. The firm’s MAUs – Monthly Active Users – dropped from 292 million to 253 million year on year, so nearly 40 million people have simply stopped logging in to a Zynga game even once a month. Worse still, though, is the disproportionate fall in the number of Monthly Unique Payers – those who make at least one transaction during a month-long period. This number fell from 3.5 million to 2.5 million, a precipitous year-on-year drop of almost 30%.

It bears emphasising just how bad that actually is. For a social gaming business, MUPs are the real customers. There is huge value to having a large audience (MAUs), of course, and companies need to be very careful about not trying to force players into becoming paying customers before they’re good and ready – but ultimately, non-paying users are like footfall in a store. They’re not customers, in a strict business sense. Zynga’s not-quite-so-bad loss of 13% of its players (MAUs) is a side-show compared to the fact that it’s lost 30% of its paying customers (MUPs). Imagine, by comparison, a shop loudly announcing that the number of people walking past its window had fallen 13%, distracting from the fact that the number who came in and bought something had fallen 30%.

Of course, the two figures are related, and the disproportionately large drop in MUPs figures into that relationship to some degree. The process of encouraging players of a social game to spend money is focused around a number of principles, but the key temptation lies in buying items or currency that will give you the ability to match or overtake your friends’ progress, or to create a fantastic character, farm, castle or whatever which will “impress” the many friends who are also playing the same game.

For that psychology to work, of course, you actually need to have lots of friends playing the game. Most social games, as the name suggests, don’t work terribly well if you don’t have friends active in the game. “Active” is a key aspect here too – if you see that your friends are losing interest, logging in less often or spending less time tending to their farm, castle, town or whatever, then you also tend to lose interest rapidly. Hence, a game that gives the impression of being “in decline” – with players losing interest in some visible manner – will likely experience a precipitous decline in revenue, because even though lots of people are still playing, the sense of decline removes the key psychological drive to spend money on the game. (It doesn’t help, of course, that social game operators have established a pattern of shutting down unsuccessful games rapidly, which creates a feedback loop in which players are unwilling to spend money on a game they think might be in commercial trouble.)

The psychology of what Zynga is experiencing is clear enough, then, but the figures on the bottom line are still pretty dreadful. Whatever the reasons or the mechanism, the company is losing paying customers, and that kind of damage is extremely hard to recover from.

A stark contrast to Zynga’s woes can be found on the other side of the Pacific, where mobile developer GungHo this week topped a $9 billion valuation on the Osaka Stock Exchange, making it into a larger mobile gaming company than even fellow Japanese giants GREE and DeNA. GungHo’s valuation is ridiculous, a bubble that will inevitably pop in relatively short order, but there’s a genuine success driving the excitement – a single game, Puzzle and Dragons, which is the most successful mobile game in Japan (and is launching in other territories as well). Puzzle and Dragons reportedly makes about $2 million a day; it certainly makes enough to justify prime-time adverts in evening slots on Japanese TV.

GungHo is an extreme example of a phenomenon which is completely unavoidable in the social and casual game sphere. Mobile utterly dominates this sphere. Facebook, it turns out, was a flash in the pan in gaming terms. Smartphones, and to some extent tablets (though they’re arguably more “midcore”), are the social gaming platforms of today. Zynga, for all its cash (the company still has plenty of liquid assets), its clout and its former dominance, still hasn’t made a successful transition to being a mobile-first company. Clinging to the wreckage of the Facebook social gaming model which it so successful exploited (in doing so, perhaps hastening the downfall), Zynga is being overtaken time and again by smaller companies who have mobile gaming in their DNA from the outset. With this week’s results came a fresh claim that the company will be focusing more heavily on mobile, but a good, nimble firm would have accomplished that focus shift 12 months ago, at least. Zynga right now feels like it’s plodding along in everyone else’s wake.

The other great white hope for the company, of course, is gambling. It has cautiously launched gambling services – what it calls “real money gaming” – in the UK, and wants to expand into other territories. Plenty of pundits like to tap their noses sagely and suggest that Zynga will become a gambling giant down the line – although in doing so, they’re just following in the well-worn footsteps of a large number of video games industry pundits, executives and even developers who have regarded the gambling industry with something like the avaricious wonder of wannabe prospectors hearing about a new gold rush.

I don’t see any gold rush for Zynga in “real money gaming”. Investors and executives consistently overstate the allure and possibilities of this kind of gaming, because by dint of being investors and executives, they tend to be exactly the sort of person who is very attracted to gambling risks (you wouldn’t have an investment, or a career, anywhere within spitting distance of tech stocks otherwise). Moreover, by moving into the online gambling arena, Zynga is entering a market that’s already incredibly crowded with companies who are deeply, deeply expert in this field – not just in the customer-facing psychology of the casino, but also in the legal and regulatory minefield of operating a gambling enterprise online. Many major markets simply aren’t open to this kind of business; most others require you to jump through all manner of hoops simply in order to set up shop. The notion of Zynga having an open goal in “real money gaming” is born either from complete naivety or utter desperation – it could make money in the gambling business, but it has its work cut out for it.

It’s worth highlighting, all the same, that Zynga did make a small profit this quarter – it may only be one bright spot, but it’s bright all the same. The company’s scale still also arguably works in its favour, allowing it to buy talent and IP that smaller firms could never afford. Yet after several grim quarters, it’s also worth highlighting that talk of a “turnaround” is optimistic at best. Something about Zynga – its culture, its leadership or a combination of both – is blocking this company from moving in the agile, intelligent way a firm in its position desperately needs. Inventing fairy stories about the magical potential of gambling games or constantly reassuring the world that a pivot to mobile is definitely happening any day now won’t cover up the cracks for much longer. If Zynga wants the world to buy the “turnaround” story, it needs to start showing evidence; if not, it needs to start making big changes, starting right at the top.

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ID Theft Projected To Cost $21B

A new audit of the Internal Revenue Service (IRS) has discovered that the agency paid refunds to criminals who filed fraudalent tax returns, in some cases on behalf of people who had died, according to the Treasury Inspector General for Tax Administration (TIGTA), which is part of the U.S. Treasury.

The IRS stands to lose as much as US$21 billion in revenue over the next five years due to identity theft, according to TIGTA’s audit, dated July 19 but publicized on Thursday.

TIGTA noted that the IRS did not agree with the $21 billion figure, but wrote that the figure does include estimated savings from new fraud control filters. Without new controls, TIGTA estimated losses of $26 billion.

Part of problem is that the IRS is not gathering enough data about fraud trends, such as how a return was filed, income information from W-2 forms, the amount of refunds and where those refunds were sent, TIGTA said.

“We found that $8.1 million in potentially fraudulent tax refunds involved tax returns filed from one of five addresses,” the audit said.

The IRS said it detected 938,664 fake tax returns during the 2011 processing year, which would have cost $6.5 billion. While TIGTA said the figure was “substantial,” it believes the IRS doesn’t know how many identity thieves are filing bogus returns and how much money is lost.

The IRS has implemented new fraud detection measures, but TIGTA found that institutional procedures were undermining those efforts. For example, taxpayers can begin filing returns in mid-January, but third parties that have information linked to those tax returns do not have to file until March 31.

The IRS is contacting some taxpayers to verify their identity. That simple measure stopped the issuance of $1.3 billion in potentially fraudulent tax returns as of April 19, TIGTA said.

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Nokia And Ford Team Up

Ford has teamed up with Nokia to equip its cloud-connected vehicles with the Finnish phone maker’s Location Platform.

The Nokia Location Platform consists of a suite of client and server-side programming interfaces that allow developers to build interactive applications with maps and map-related services.

The possible integration of the service into Ford vehicles in the future could help Ford learn driver behaviour and control, improve and personalize vehicle performance.

“Another area of Ford’s research is designed to optimise hybrid powertrain efficiency,” Nokia said in a press release. “The Nokia Location Platform could automatically regulate a car’s powertrain as it travels through established or driver-specified ‘Green Zones’.”

Christof Hellmis, VP of the Map Platform in Nokia’s Location and Commerce business unit said the integration of Nokia’s Location Platform is not scheduled for production and has so far only been seen in the Ford Evos concept car.

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Nokia Sold 1 Million Lumina Smartphones

Nokia reported a one billion year over year loss for the quarter ended 30 December 2011, only slightly offset by its launch of Lumia Windows Phone smartphones.

The firm shipped 113.5 million mobile phones during the quarter, down eight per cent from the same period in 2010. However, the figures were up from the 106.6 million units shipped in the third quarter of 2011, as the company benefited from its launch of the Lumia 800 smartphone in October, its first Windows Phone handset since it announced its deal with Microsoft.

Nokia shipped 19.6 million smartphones during the final quarter of 2011, down from the 28.6 million it shipped a year earlier, but up 17 percent from the 16.8 million sold in the third quarter of 2011.

The company reported net sales of $10 billion for the quarter, 20 percent down from the same quarter a year earlier. Full year sales were $38.7 billion, a nine percent decline from 2010.

Nokia reported that it sold one million of its Lumia smartphones since they went on sale in October. The firm said it is accelerating investment in its Lumia range of devices running Microsoft Windows Phone, claiming it has sold “well over one million Lumia devices to date”.

Nokia CEO Stephen Elop said, “Just six months after signing an agreement with Microsoft, we introduced our first two devices based on the Windows Phones platform – the Nokia Lumia 800 and the Nokia Lumia 710. We brought the new devices to market ahead of schedule, demonstrating that we are changing the clock speed of Nokia. To date, we have introduced Lumia to consumers in Europe, Hong Kong, India, Russia, Singapore, South Korea and Taiwan.

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Nokia’s Lumina 800 Receives An Update

Nokia has started rolling out a software update to its Lumia 800 smartphone starting today.

The company has kept the promise it gave last month to upgrade the Lumia 800 to fix power efficiency problems. There is more than one patch in the update, which will also bring new features on top of the power fix.

Nokia said, “Starting today and rolling out over the next few weeks we will be releasing software updates to deliver exciting new features and performance enhancements including charging improvements to the award winning Lumia 800.”

“With the fastest growing app store and the highest positive user feedback, the Windows Phone experience on the Lumia 800 is setting the pace in the mobile community. Additional updates will come in early 2012.”

We’ve updated our Lumia 800 today but the notification mentioned only fixes for email and voicemail issues. We haven’t experienced any power problems with our particular handset since we’ve had it.

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Facebook Growth Very Good

Facebook Inc’s business is growing faster than forecast several months ago and the social media company is on track to surpass $2 billion in earnings before interest, taxes, depreciation and amortization in 2011, according to a story in The Wall Street Journal.

Facebook’s growth is above the growth projections that circulated when Goldman Sachs and Digital Sky Technologies invested in the closely held Internet company, the newspaper said in its online edition.

The newspaper did not indicate by how much Facebook may exceed those original expectations.

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