The voting machine duopoly


November 6, 2020

PLUS: DOJ v. Visa.
November 6, 2020
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Who knew a week could be this long? Lucky for you, we’ve got Election Shower Thoughts down there to help take the edge off. Enjoy.

The Big Idea
voting machines

The voting machine duopoly, explained

Here is a running list of the world’s famous duopolies:

  • Airbus and Boeing (airplane manufacturing)
  • MasterCard and Visa (credit cards)
  • Coca-Cola and Pepsico (beverages)
  • Google and Bing (search)

With the current insanity of this election cycle, we’re adding another one to the list: Election Systems & Software (ES&S) and Dominion Voting Systems.

Together, these two generic-sounding companies “produce technology used by over three-quarters of US voters” per the Wall Street Journal.

The voting machine industry brings in ~$300m a year

Sniffing that sweet cheddar, private-equity players have gone on a consolidation spree over the last decade.

According to a research paper cited by the WSJ, the industry has shrunk from 8 major vendors down to the aforementioned duopoly and one more firm which owns a smaller share (Hart InterCivic).

What’s actually wrong with industry concentration?

A ProPublica report highlights various episodes when the ES&S technology has failed.

While tech mishaps happen everywhere, election experts say the way the industry is regulated “works against innovation.”

With a lack of competition, the companies face less impetus to improve the product. ES&S keeps its leading position by other means, according to ProPublica:

  • Suing competitors
  • Hiring former election officials to lobby on its behalf
  • Locking in government buyers with long-term contracts
  • Donating to campaigns at a far higher level than competitors

ES&S says it’s in compliance with all state and federal laws

The PE firm behind Dominion tells the WSJ that the company spends 10-20% of its revenue on R&D, which is comparable to Big Tech: Google (15% of revenue on R&D), Microsoft (12%), Amazon (10%).

To be clear, none of this is to suggest the current presidential vote counting will be flawed.

The larger point is that the industry’s structure doesn’t punish stagnant technology and the players involved lack the much-needed transparency and oversight of public firms.

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Snippets
  • Facebook has started adding “friction measures” to slow the potential spread of election misinformation.
  • Stonks keep stonking, heading for their best week since April as the prospect of a divided government means a low likelihood of passing corporate tax hike legislation.
  • Bitcoin keeps Bitcoining, crossing $15k for the first time since January 2018; separately, the US government seized $1B of BTC linked to dark web marketplace Silk Road.
  • Minted: Streaming service Roku saw Q3 revenue rise +73% YoY while payments app Square did even better: its top line gained +174% over last year.
  • TikTok’s parent ByteDance is in talks to raise $2B at a $180B valuation ahead of a potential public listing in Hong Kong.
  • Bonus: 100 new emojis come with the new iOS 14.2 update… finally, they have green olives.
 
State of Voting Tech
mail ballot

Voting machines have transitioned from punch cards to scanning tech, but problems persist

Over the previous 4 election cycles (2004, 2008, 2012, 2016), the majority of ballots have been counted by scanning technology and direct-recording electronics (DRE) according to research from MIT.

The 4 cycles preceding these ones (1988, 1992, 1996, 2000) were heavily weighted towards punch cards.

Of course, we all know what catalyzed this change.

The Great Sh*tshow Florida Recount of 2000

The heavily contested presidential election between George W. Bush and Al Gore introduced America to various terms related to punch card malfunctions:

  • “Hanging door chad” = 1+ corners of a punched hole hanging on
  • “Pregnant chad” = all corners attached, but indentations show

In the aftermath of that election, Congress passed the Help America Vote Act, which banned punch cards and lever machines in federal elections.

Current voting tech dates back to the 1960s

According to computer scientist and voting machine expert Douglas Jones, the authors of that hanging chad bill expected DRE to become the new norm.

But the machines — which allow you to select candidates via touchscreen — have one big flaw: they’re hard to audit.

Like pulling a lever, you can’t be 100% sure if the machine is properly recording selections “short of taking it apart and actually being able to inspect the mechanism,” Jones says.

Scanning leaves a paper trail

The vast majority of votes in the US today are recorded on paper ballots that are filled in by hand, then scanned — a la standardized tests — making them easier to audit.

Even so, the entire voting process leaves a lot to be desired. Journalist Glen Greenwald notes that in 2018, Brazil was able to count over 100m votes by 6pm on the day of its presidential election.

America is a long way from hanging chads — but the country clearly still got some work to do.

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Antitrust
Visa Credit Card

Visa’s $5.3B marriage to fintech startup Plaid just got blocked by the DOJ. Why?

Feel like you’ve been stuck in purgatory the past few days? Zach Perret knows a thing or two about that.

The CEO and co-founder of Plaid — one of the world’s hottest fintech firms — has been waiting anxiously since January to close the $5.3B sale of his startup to Visa.

And yesterday, the DOJ filed an antitrust suit to block the deal.

Let’s say you visited a corporate matchmaker…

Behind curtain 1 is a ~$420B financial services beast that tussles with Mastercard for pole position in the race to dominate electronic payments.

Meet Visa.

Behind curtain 2 is a flashy newcomer that thinks “tech first, finance second.” It builds APIs that connect with client bank accounts and integrates with apps like Venmo and Robinhood.

Meet Plaid.

It’s a great match but troubling from a competition standpoint

While Visa is a major player in credit cards, its real stranglehold is in debit transactions, where it controls 70% of the US market. Plaid has links to ~200m bank accounts and 11k financial institutions.

Visa’s CEO Al Kelly previously called the Plaid acquisition an “insurance policy” against a “threat to our important US debit business.”

Turns out, when you publicly acknowledge an anticompetitive motive, the DOJ will remind you of it (they literally highlight Kelly’s own words in the antitrust suit).

And, now, Perret will have to keep waiting.

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Fun and Games

Voting machine? Or something else…

Now that we’ve read up on voting machines, let’s get some visuals in this bad boy.

Below are 4 sets of images. Each set has:

  • 1 image of a voting machine used throughout US election history
  • 2 images of another item

Your job? Find the voting machines:

1. Candle holder OR ballot box?

2. Lever voting machine OR standing music box?

3. Punch card reader OR fax machine?

4. DRE voting machine OR electrocardiogram (ECG) machine?

Answers:

  1. A (a glass globe ballot jar)
  2. A (an Acme lever voting machine)
  3. B (a punch card reader)
  4. A (definitely not an ECG)
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Shower Thoughts
Election Shower Thoughts

  1. If Homer Simpson were a Democratic congressman from Springfield, Ohio, he’d be “Homer Simpson (D-OH)”
  2. One extra perk of becoming president is that your last name isn’t incorrect in spell check anymore
  3. Due to coin flips, George Washington still makes decisions to this day
  4. USB sounds like a backup in case the USA fails
  5. It would’ve been ironic if in 2020, we elected a blind president
via Reddit
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Today’s email was brought to you by @TrungTPhan.
Editing by: Zachary “Duopoly Dude” Crockett, Gustav Muffler, Bela Cartok (Staff Composers).

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