Amazon is getting ready – this is how they will take on Sweden

Leave a comment
The Daily

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021.

The start was a failure for the e-commerce giant. But as a new, secret, big owner in the last mile company Airmee, Amazon seems determined to try to take the Swedish market. The deal creates challenges for the other companies – and perhaps also for Airmee.

Tobias Lutke, founder and CEO of the e-commerce platform Shopify, followed the opening of the Nasdaq stock exchange on January 13 this year. At 09.30 Lutke would become extremely wealthy. Or rather – even more wealthy than he already was.

However, the company being listed on the stock exchange was not Shopify. That listing had taken place six years earlier. This time it was the payment company Affirm’s turn. When the bell rang at the end of the stock market day, Lutke’s company Shopify suddenly had shares in Affirm worth about two billion dollars. When Shopify reported its first-quarter earnings, the money from Affirm’s listing accounted for more than 100 percent of its quarterly profits.

It is one of several examples of a trend that has emerged where strategic partnerships are made with co-ownership as a component of the business.

In the case of Shopify and Affirm, it was a partnership that was made six months earlier. Affirm, which can simply be described as an American Klarna, was given the exclusivity to offer “buy now, pay later” in Shopify’s 1.7 million e-commerce stores. As part of the deal, Shopify was given stock options to buy more than 20 million shares in Affirm. Shares that at the stock exchange listing became very valuable.

You can find similar setups around the world. A few weeks ago, Microsoft invested five million dollars in the Indian hotel chain Oyo. It may sound like a lot, but the valuation of Oyo is $9.6 billion. It is therefore not an investment that will finance the company, it is rather a matter of getting Oyo to start using Microsoft’s cloud service Azure to a greater extent. Microsoft – which here competes with Amazon AWS and Google Cloud, among others – has listed the cloud services within Azure as strategically important and one of the company’s major growth areas.

It is therefore noteworthy that the Swedish last mile delivery company Airmee, according to Di Digital, issued option rights to a new, unknown owner for the equivalent of 20 percent of the company. And after the company itself announced that it will have Amazon as a customer, it’s not a bold guess as to who the new owner is.

Amazon’s start in Sweden has been slow and their launch got laughed at by both customers and competitors. Clumsy automatic translations meant that you can now use Amazon in Sweden with English as the language instead. But more than anything else, Swedish Amazon lacked the engine for its entire business – the Prime membership programme.

It provides, among other things, the opportunity to get fast home deliveries at no extra cost. But to be able to offer it, you need a logistics company that can handle so-called “last mile delivery” – companies such as Airmee that can take the product all the way home to the customer’s front door. Amazon’s current logistics partner – Postnord – does also has this service. But just having one supplier for deliveries will not be enough for Amazon.

Should one, therefore, just before the anniversary of Amazon’s launch in Sweden, see this as some sort of fresh start? One where delivery times start to match the picky and e-commerce-savvy Swedes? And which will probably get bundled with the video service Prime Video which was launched in Sweden separately? Yes, probably.

But if the price of landing a strategically important partner is to let them in on the cap table, then the selection of that partner is more important than ever. Partnerships can come and go – but shareholders you will have to live with for a long time after that.

In addition, other customers may have opinions about them now indirectly benefiting one of their competitors. If you, like Airmee, are a supplier to many different e-retailers, this can be a difficult strategic nut to crack. Having a customer like Amazon can tenfold the size of the company. But having a shareholder like Amazon could also make your other customers look around for a new logistics partner.

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021.

Processing…
Success! You're on the list.

New documents expose Facebook – again

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 17th, 2021.

Human trafficking. Drug cartels. Teenage girls getting body image issues. Internal documents reveal how Facebook has been alerted to its problems – and ignored them. Now the company is facing another crisis of confidence.

When Facebook – the world’s largest social network – began crisis management after the Cambridge Analytica scandal in 2018, they made a somewhat ironic media choice. To reach out to the outside world in a clear way, the company purchased full-page advertisements in paper newspapers, including the Wall Street Journal, the New York Times and The Observer.

The headline in the ad read:

“We have a responsibility to protect your information. If we can’t, we don’t deserve it.”

Today, the question is rather whether the users of Facebook don’t deserve to know the information that the company has about themselves?

The question has become relevant in connection with a major exposé in the Wall Street Journal about Facebook. The newspaper has read a large number of internal documents and reports, and interviewed former employees. The documents show that their platform has been used for everything from human trafficking to misinformation about vaccines against covid-19. Facebook has been aware of this and has been warned by its own employees. Still, it has continued.

A common line of reasoning in situations like these is that the internet only reflects the society around it. What is happening in the world is also happening on the internet. Human trafficking did not start on Facebook. Thus, it is wrong to blame the platforms for a behavior that probably would have taken place even without them.

There is also some research support for this thesis. Amy Orben and Andrew Przybylski, researchers from Oxford University in England, showed in a 2019 study that 99.6 percent of British teenage children’s satisfaction with life had nothing to do with social media at all. The area is very controversial and under development, and there are several studies that also show the opposite.

While there is merit to the reasoning around the reflection of society, this is a situation where you need to keep two thoughts in your head at the same time. Just because you have not created the problem in question, does not mean that you should necessarily be completely neutral towards it. If a school knows that bullying is taking place in the schoolyard, it may not be the school’s fault. But with that knowledge – do they have no responsibility to curb that behavior? Of course we expect them to.

Take Instagram as an example – the photo service that Facebook bought for a billion dollars in 2012. In an internal document from 2020, a survey showed that 32 percent of teenage girls felt worse about their bodies after using Instagram. In another internal study from 2019, the internal research was summed up with the quote “we make body complexes worse for one in three teenage girls”. This knowledge had thus been known to the company for several years. In that context, it is therefore strange when the top manager on Instagram, Adam Mosseri, in May this year said that the research he took part of showed that their effect on teenagers was probably “quite small”.

Time and time again, we see examples of how Facebook messes up in different ways, and is forced to apologize. But their underlying thesis is that, on the whole, it is positive when people in the world are connected in the way that Facebook does. They believe that mistakes have been made, but they have been unintentional. Reports like the one above allows one to begin to question this lack of intention. On the contrary, there is much to suggest that Facebook’s problems have been well known for a long time, but simply not prioritized. Maybe for the benefit of the company’s growth.

Facebook is once again facing the difficulty of explaining its behavior as a company. How long can they continue to claim that what they are doing is positive for the world? And perhaps more importantly – how long will their users believe them?

This column was first published in SvD Näringsliv, in Swedish, on September 17th, 2021.

Processing…
Success! You're on the list.

Tiktok’s superpower – a nightmare for Xi Jinping

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 16th, 2021.

While the Chinese authorities are pushing their tech companies hard, a silent revolution is taking place at the same time. Tiktok, Shein and Tencent pose a serious challenge to American tech giants – but their success is perhaps also their biggest Achilles heel.

“I think we should talk to them. If nothing else to make it more expensive for Yahoo.”

It’s entertaining to read the Google management’s internal emails from the winter of 2005, when they became interested in the startup Youtube. At the time, advertising executive Jeff Huber, who is also behind the quote above, speculated that a price tag could land at $10-15 million.

A little more than a year later, Google made their move and bought the video site. However, they had to pay $1,65 billion for the company, so Huber’s precision with price could have been better. At the time, it was one of Google’s biggest acquisitions, and it raised concerns about a valuation bubble.

However, Youtube grew to become the world’s second largest search engine – after Google’s own. An analyst valued Youtube at around $300 billion in 2019, if it were an independent company. It has been considered to have an almost impenetrable position in the video market.

Or impenetrable until now, perhaps one should say. In Sweden, the Chinese app Tiktok has been downloaded more times this year than both Netflix and Disney+. And this week, the analysis company App Annie reported that users of Tiktok now on average spend more time there than on Youtube in both England and the USA.

Although Youtube is still bigger when looking at the total user time, the shift is significant. This is the first time anyone has managed to seriously challenge Youtube, and in addition there is the threat from China. Traditionally, Chinese tech companies have otherwise been mainly successful in their local market.

It’s not just Tiktok that has succeeded in breaking into the western world’s tech markets. Sweden’s most downloaded shopping app is neither Zalando, Blocket nor Amazon. It’s called Shein, which together with Klarna dominated the shopping category in both Apple’s and Google’s app stores throughout 2021.

Shein has also made a big impact in the United States. In June, the Chinese company had larger e-commerce sales in the US than both H&M and Zara, according to a report from the analysis company Earnest Research. The market for so-called “fast fashion” grew 15 percent in the US from January to June. Shein’s growth during the same time? Almost 160 percent.

Shein is not a classic fashion company but should rather be considered a tech company. They have adopted an established business model with low prices, fast trends, and high turnover and increased the speed considerably. According to industry media, the company can take a garment from idea via design and production to sale in the app in less than three days. Shein has launched at most over 5,000 new products – in a single day.

In the way they work, they can predict the next popular product and what will be in demand, Jialu Shan, a researcher at the IMD School of Business in Switzerland, told SvD this summer.

The model works. According to Chinese media reports, Shein made a profit of 10 billion dollars last year – about 86 billion SEK. In comparison, H&M made a profit of 2 billion SEK in 2020.

Another area where you see new Chinese dominance is in the gaming world. From being a market where the USA and Japan were at the forefront, Chinese Tencent and Netease have now sailed up as some of the world’s largest gaming publishers. Tencent has, among other things, released the game Pubg, which has the most players in the world, and also owns the Finnish game studio Supercell, which is behind “Clash of clans” – one of the world’s most successful mobile games.

The new global tech success may be a factor in President Xi Jinping’s plan to regain control of them. In recent weeks, Chinese authorities have reportedly developed legislation to prevent certain tech companies from being listed abroad, and announced the opening of a new domestic exchange for small and medium-sized companies.

China’s tech companies are now facing a complicated market situation. The success abroad has made them catch the eyes of the outside world, and the competition will intensify considerably. Youtube will not give up first place without a fight and maintaining its newly gained market share will be a challenge in itself.

For President Xi Jinping, the balancing act is not easy either. Too strong challengers among tech companies can threaten the balance of power with the Chinese Communist Party’s position in the country. The Financial Times reported that Beijing wants to divide the payment company Ant Financial into several parts – one of which would be partly owned by the Chinese state. At the same time, Chinese success in this sector will make the whole country look good – all over the world. It is geopolitically valuable.

Both the authorities and the tech companies now need to tread carefully. Can the tech companies manage to handle both increased international competition and the Chinese state at the same time? If not, China risks losing the position it has worked for over 20 years to achieve: successful global tech – made in China.

This column was first published in SvD Näringsliv, in Swedish, on September 16th, 2021.

Facebook’s glasses: an unusually bad idea

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 11th, 2021.

A new book about Facebook describes a company that puts growth above everything else. When they now release a pair of sunglasses with a built-in camera, it enhances the image of a company that wants to be everything, for everyone, at almost any price.

Sheryl Sandberg, chief operating officer at Facebook, sat in her conference room and received bad news. It did not rhyme very well with the name of this particular room – “Only Good News”.

Facebook’s head of security, Alex Stamos, had just informed their board that Russia’s influence on the US election in 2016 was much greater than they first thought. Sandberg was angry and shouted at Stamos that he threw her under the bus in front of the board. It seemed to be a bigger issue than the Russian disinformation itself.

This and much more can be read about in a new book about Facebook, which was published in Swedish this week. “An Ugly truth” is the result of hundreds of interviews conducted by New York Times journalists Sheera Frenkel and Cecilia Kang. The book paints a picture of a company that, in its quest to grow and connect all the inhabitants of the world, has missed the mark on several occasions. And this without necessarily learning much from that process. The back cover of the book has a long list of public excuses that Sandberg and CEO Mark Zuckerberg have had to make in recent years.

The timing is therefore comical as Facebook on Thursday released its new hardware product – a pair of sunglasses with a built-in camera, made together with the Ray-Ban brand.

The idea may sound strange, but it’s not new to Silicon Valley. Snap released a pair of similar sunglasses, Spectacles, already in 2016. Several versions have come since then. A couple of years before that, Google came up with an early version, but which essentially had the same idea – Google Glass. It’s a kind of smart camera that you carry on your face. The difference now is that you probably won’t notice when someone is wearing the Facebook version. Discretion is the point. Bearers of Google Glass were laughed at because they looked so strange.

It’s hard not to make comparisons between Facebook’s history and this new product. As so often, there are two things happening in parallel.

First, there is a technical product that enables things that were previously difficult to accomplish. Like allowing all the people of the world to communicate with each other, pretty freely. Secondly, there are consequences of using this product, which Facebook has not always thought through before launching it.

This has been the case with everything from the selection of news that is displayed in the users’ news feed, to what is now in practice a hidden camera that people will carry on their noses. According to reviews, it works well. But one wonders if the consequences of the product are completely well thought out, and at least clear enough for their immediate physical surroundings?

This, combined with Facebook’s long history of data that has often been inadvertently shared, portrays a company that has a self-image that does not always match that of the world around it. Although the technology is impressive in itself – how many people want Facebook to be the ones providing it?

We already have a well-documented – and surveilled – society with mobile phones and security cameras in every corner. Getting tens of thousands of new Facebook cameras on people’s faces is probably not something that everyone is looking forward to.

This column was first published in SvD Näringsliv, in Swedish, on September 11th, 2021.

Processing…
Success! You're on the list.

Apple’s concessions are too late

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 2nd, 2021.

Developers and legislators around the world are questioning Apple’s business model. Slowly, the company has been forced to back down. But the latest concession will not solve the big app conflict.

Once we are making over $1B a year in profit from the App Store, is that enough to think about a model where we ratchet down from 70/30 to 75/25 or even 80/20 if we can maintain a $1B a year run rate?

That’s what Apple executive Phil Schiller wrote in an email in 2011 to, among others, Steve Jobs, then CEO of Apple. Even then, ten years ago, it was suggested that the profitability of the App store could be maintained with a different revenue split.

“70/30” that Schiller refers to is the commission model that Apple has in the App Store. For every dollar a developer sells for, Apple charges 30 percent. That fee was also the first concession that Apple made, when the company last year lowered the commission to 15 percent for developers who had less than $1 million in revenue per year.

This change affected the majority of developers – close to 97,5 percent, according to the computer company Sensor Tower. But the reduction was criticized because it would not, in principle, affect Apple’s revenue at all. Moody’s, a research firm, estimated the effect to be less than 1 percent of Apple’s profits from the App Store, whose total revenue is secret.

The App Store is very top heavy – it is the biggest developers who basically make all the money. Retaining these developers – and revenue from them – is Apple’s primary interest. It is in light of this that last week’s rule change, and Wednesday’s adjustment should be seen. Apple will now allow apps that provide video, music, and news to link directly to a web page where you can charge your customers without having to give Apple any commission.

In practice, this is a very small change. Major apps such as Netflix and Spotify are already charging outside Apple’s ecosystem. The only difference now is that they can link directly to their web pages instead of relying on users to find their web sites on their own. The change will therefore mostly symbolic, and does not cost Apple anything. A way of trying to appease both politicians and developers, but which will have very little economic impact.

The big question for Apple concerns mobile games. This is where the absolute majority of revenue in the App Store comes from. If the gaming companies can circumvent Apple’s payment system completely, this could start to make a dent , even in the income statement. A decline in revenue in their important service sector could worry a stock market that has seen this as an area for growth. Giving Spotify and Netflix a link to a website is therefore a cheap concession – as long as the regulators allows Apple to keep a tight grip on game developers.

Another question is whether this attempt at self-regulation is coming too late. This week, South Korea – as the first country in the world – came up with legislation that forces Apple and Google to allow more payment systems in their app stores. The big lawsuit between Epic and Apple, where a verdict is expected this fall, has pointed the spotlight on the issues. Judge Yvonne Gonzales Rogers has indicated that neither party will be completely satisfied with her decision. But just the fact that there is now talk of Apple as a monopolist can be seen as a win for Epic, regardless of the outcome of the case.

In parallel, lawsuits and legislation are underway in several countries, all of which look at issues of competition and monopolistic behavior. It is unlikely that all these instances would be satisfied with the small adjustments that Apple itself has initiated. For many years, Apple refused to adapt its rules at all, and that attitude has upset both developers and legislators. A more pragmatic approach could have deescalated the issue. Instead, Apple is now in a position where they are playing defense and trying to reduce the damage of potential regulation, rather than proactively changing their rules before the problems arise.

This column was first published in SvD Näringsliv, in Swedish, on September 2nd, 2021.

Processing…
Success! You're on the list.

The crypto hype has reached Lionel Messi’s pockets

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on August 28th, 2021.

When Leo Messi closed the door on FC Barcelona, another one opened wide – and it shows that Silicon Valley is currently tearing down old structures in sport. One of the many ways he is compensated is through the club’s own cryptocurrency.

“Bartomeu was plugging holes in the short term and mortgaging the club in the long term. That leaves us a dramatic inheritance. […] In total, our debt is now €1.35bn”

That’s how the newly appointed Joan Laporta, chairman of the soccer team FC Barcelona, ​​described the financial situation in the club a couple of weeks ago. The person he blamed the financial problems on was his predecessor, Jose Maria Bartomeu. With wage costs exceeding revenues by 115 percent, one can understand his frustration.

However, the almost $1.6 billion that the club has in debt says more about a traditional view of how to conduct business than an individual’s poor judgment. And on the horizon, we now see how Silicon Valley – with both its innovations and compensation structures – is beginning to find its way into the sports world.

The first indication of this is how the super star Lionel Messi, from the just mentioned FC Barcelona, ​​negotiated his new contract with the French soccer club PSG. In addition to a salary of around $41 million per year, he also received a bonus in the club’s own cryptocurrency, called $PSG Fan Tokens. The cryptocurrency can be used to influence smaller decisions in the club. But it can also be traded – and speculated on – as any currency. After the news about Messi, the club sold fan tokens for another $35 million. The price is now up over 350 percent in one year, according to Coinmarketcap.

Cryptocurrencies are a way to take advantage of the strong fan culture that prevails in the soccer world. By going directly to your fans and involving them with both commitment and financial incentives, you can create a more direct relationship. There are already clubs that are publicly traded today, including the English Manchester United and the Italian Juventus. But the shares there do not come with any promises of more impact on the business than an average investor who owns shares in an industrial company. Mostly a theoretical idea, in other words.

Today, much of the soccer world’s revenue comes indirectly from fans. These include club memberships, ticket sales, merchandise, and TV rights to broadcast the games. The TV rights are where the really big money is, but there are also many middlemen before the fans’ TV subscriptions finally reaches the club in the form of revenue. A separate cryptocurrency bypasses many of these intermediaries and reaches fans directly, although the company Socios – which provides the technology for PSG’s cryptocurrency – also takes a share. PSG is not alone in creating cryptocurrencies. Clubs such as Manchester City and AC Milan have also launched their own variants, as has the Soccer Association of Argentina.

Someone else who has reacted to Barcelona’s poorly managed economy is the Silicon Valley legend Mike Moritz, partner at the venture capital company Sequoia and board member of Klarna. In an op-ed in the Financial Times, Moritz writes that the soccer world should look at Silicon Valley and its way of compensating its employees. If Barcelona paid Messi with shares in the club instead of just cash – and in addition ensured that he had to sell the shares when he left – then both parties in the deal would have been in a much better financial position, Moritz states.

Paying with options and shares is standard with the big tech companies, but unusual in a sports context. It is, however, not impossible. When David Beckham left Spanish Real Madrid to play for LA Galaxy in the American MLS league in 2007, many were surprised. However, part of Beckham’s contract was an option to buy an MLS team when he had stopped playing. Since 2013, he owns part of the club Inter Miami CF, and paid a greatly reduced price to get them into the MLS league.

Silicon Valley influences the outside world through both technology and behavior. The technology NFT, which a year or so ago seemed obscure and a bit absurd, is today one of the American basketball league NBA’s newest and fastest growing revenue streams. In total, they have sold digital NFT collector images via their service NBA Top Shot for over 700 million dollars.

One of PSG’s other big stars – Kylian Mbappé – is now said to be on his way. If so, what will his compensation look like? Will he get cryptocurrency to change clubs? The soccer world – with its enormous global interest – has so far only scratched the surface for how technology could help them grow even more.

This column was first published in SvD Näringsliv, in Swedish, on August 28th, 2021.

Processing…
Success! You're on the list.

Tech giants just the first to get aligned in China

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on August 20th, 2021.

Contribute to the state’s goals – or suffer the consequences. This is the message that the Chinese state has recently sent to the country’s tech companies. Fears are now being raised that the same harsh stance will spread to more sectors.

50 billion yuan – about 7,75 billion dollars – will be invested to revive the countryside and raise wages for Chinese low-wage workers. The major investment, announced this week, was an addition to an earlier reform of another 50 billion yuan aimed at supporting “sustainable social values”.

As a political reform, this may not sound too controversial. But the money is not coming from the Chinese state – it is a donation from the Chinese internet giant Tencent.

The company called its move a “proactive response to the national venture” and stressed that the company “constantly thinks about how we can use our technology and our digital skills to help society develop, and give back to society.”

However, there are many indications that the donation was anything but proactive. Rather, a reactive response to the ever-increasing pressure that the Chinese state put, and continues to put, on its domestic tech companies.

The latest tightening, which came on Friday, is about new legislation regarding data management and which will be introduced from November. Chinese tech stocks fell sharply on the news, including Alibaba, which has also seen its share price pushed down sharply these past months. In total, Nasdaq’s Golden Dragon index, which lists the largest Chinese stocks traded on the US stock markets, has plummeted nearly 53 percent since its peak in February, according to the Financial Times.

The uncertainty in the market, on the other hand, is not so much about an individual new law, but more about how the Chinese state acts. Admittedly, it may almost be a matter of symbolic politics, since in practice the state could still have gotten its will through. But by using legislation, they now get better control tools for curbing the unwanted behavior of the tech companies.

We have seen several examples of the state having the power and mandate to act. When the financial group Ant Group was to be listed on the stock exchange last year, China quickly changed the law on capital requirements just 48 hours before the introduction. The listing had to be canceled with immediate notice. The Chinese transport company Didi has lost almost half of its market capitalization after the Chinese state set new, higher requirements regarding data security.

The Chinese state’s ambitions to get tech companies to contribute to their long-term, strategic goals for the country are about both power and economy. They want companies such as Tencent, Alibaba and Bytedance to act as good citizens by contributing to the goals that have been set for the country as a whole. These goals include dealing with a rapidly aging population, and maintaining China’s strong position in the manufacturing industry. But the ambition to contribute applies to more than just the tech companies. Xi Jinping himself said in a meeting that he wanted to “encourage high-income earners and companies to give back more to society”. Both increased income and wealth tax for private individuals are now expected.

Concerns are now spreading that the tougher pressure will also affect other sectors. Kweichow Moutai, the world’s largest alcohol producer, fell five percent on the stock market just after rumors that China would introduce new legislation to reduce alcohol consumption in the country. Several pharmaceutical companies have also been turbulent since online sales of prescription drugs were criticized in the state-friendly newspaper People’s Daily.

The question now is how far Chinese companies need to go to satisfy Xi Jinping. When Tencent’s CEO, Martin Lau, spoke to investors this week, he touched on the new reality they are in. He said that “we should expect more legislation in the near future”, but also that “we want to establish us as completely accommodating towards it ”. Tencent’s donation of 15 billion dollars can be assumed to be a good step in that direction.

This column was first published in SvD Näringsliv, in Swedish, on August 20th, 2021.

Processing…
Success! You're on the list.

Crypto world shaken after million dollar theft

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on August 13th, 2021.

This week’s million dollar theft of cryptocurrency has shaken the financial world. The theft comes in the middle of a major discussion about increased regulation of cryptocurrencies, writes SvD’s tech analyst Björn Jeffery, and clarifies the crossroads the industry is facing.

Imagine the following scenario:

A bank is robbed of 610 million dollars.

The next day, the robbers decide to give back a little more than half of the money. They explain to the bank and their customers that they only robbed it to prove that it could be robbed. And a little because they thought it was fun too.

As compensation for the fact that they have now returned $342 million, they would like the customers, the bank, and possibly other people to donate some more money to them as a thank you. This is in addition to the $268 million they still had left from the robbery.

This is exactly what happened this week, although the bank was a platform for cryptocurrencies and the robbers were hackers. The affected platform is called Poly Network and provides a way to link different blockchains.

According to Bloomberg, security experts have found personal information about the hackers, which may have been one of the reasons why some of the money was returned. It is the biggest theft in the crypto world so far, and it also comes at the completely wrong time for its enthusiasts.

In April this year, all cryptocurrencies reached a market value of over $2,000 billion in total. Interest from the establishment, despite repeated criticism of the phenomenon from many places, is also steadily increasing.

According to a study conducted by the fund manager Fidelity, seven out of ten institutional investors expect to invest in cryptocurrencies in the future and half of those surveyed had already done so.

But as the institutional capital begins to roll in, questions about security, taxation and regulation are also raised. In order for investors to feel completely comfortable with investing in cryptocurrencies, a regulatory framework is needed that ensures that normal requirements for investments are met. This is largely missing today.

There is also a great deal of ignorance from almost everyone in the market. Cryptocurrencies and blockchains are technically complex systems that use some terminology from the established banking and finance world, but basically does not work in the same way – intentionally. In fact, systems are often designed to be completely decentralized, and thus difficult to monitor and control. For many crypto enthusiasts, this was the appeal from the very beginning.

The fact that politicians and the judiciary are starting to look more closely at cryptocurrencies is therefore not met with cheers from all sides of the market. But the proposals for regulation now come from an unusually qualified place. Gary Gensler, chairman of the SEC, has himself lectured on, among other things, cryptocurrencies and blockchains at the prestigious American university MIT.

Gensler gave a speech at the Aspen Security Forum earlier this summer in which he clearly pointed out that the SEC regarded many cryptocurrencies to be just like any other type of security. Thus, they should be regulated accordingly. The speech was received with relative calm, probably driven by Gary Gensler’s experience in the field. The market has expected some form of regulation, but the nightmare would be rules that are technically impossible to live up to. With Gensler, it significantly reduces that risk.

The crypto world is therefore at a crossroads. The explosive development that has taken place in recent years is what has attracted everything from individual speculators to large institutions and corporations. If strict regulation and correct taxation are introduced, there is a risk that that enthusiasm could diminish.

At the same time, there’s a need for legitimization in order to be truly accepted into the old school world of finance, where the really big money is. This will be difficult to get when the market is more like the “Wild West”, as Gary Gensler himself described it.

On Friday, the news came that Poly Network had offered the hackers half a million dollars as a thank you for noticing a weakness in their security. The payment would be part of the negotiation to get back the remaining stolen money.

Whether the hackers in question accepted the offer was still unclear on Friday afternoon. In any case, it is clear that the discussion about regulation of the crypto world is unlikely to diminish in the future.

This column was first published in SvD Näringsliv, in Swedish, on August 13th, 2021.

Processing…
Success! You're on the list.

China to the tech giants: Contribute or be punished

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on August 6th, 2021.

China’s attacks on the country’s own tech giants look like attacks on an entire sector, but behind it is a more conceived idea, writes SvD’s tech analyst Björn Jeffery. If companies do not contribute to China’s national goals, they are in a risky position.

“To get rich is glorious.”

That quote is often attributed to Deng Xiaoping, the man who was China’s supreme leader from the late 1970s until his death in 1997. It is debatable whether he actually expressed himself in that way, but it is in line with the distinct change of course China took under Xiaoping. His reforms and views on prosperity laid the foundation for what would become the new and economically fast-growing China we have seen in recent decades.

A more modern adaptation of the quote would perhaps rather be “to get rich is gloriousbut not in any way“. The Chinese tech sector has recently experienced this.

In a series of initiatives, Chinese authorities have pushed everyone from Alibaba founder Jack Ma to most of the education sector and, by all accounts, the entire Chinese gaming industry. All this within a few months. The company Didi, often described as Uber of China, fell sharply on the stock market in July when Bloomberg reported that the company could be severely fined for concerns regarding data security. In the worst case, they would have to delist from the stock exchange altogether.

The sudden outbursts can be seen as a way for the Chinese state to clarify the balance of power in a sector that has exploded in value and size for many years. Tech companies have done a lot to digitize China’s economy, but its success has become a double-edged sword.

The fact that there is a tug-of-war over market share is nothing new in either the tech or corporate world. The difference in China is that the successes in the tech world often take place at the expense of the Chinese state, which to a large extent represents the establishment that is being overthrown. When Jack Ma creates new banking and financial services with Ant Group, existing banks in the country are challenged. And who owns these banks? Well, usually the Chinese state.

But it is not only the amount of power that the authorities oppose, but also what it is used for.

One of the founders of Tech Buzz China, the Chinese analyst Rui Ma, believes that tech companies must both adapt to the national strategic goals for China, and create more value for the country than just money. These goals are, for example, to deal with the demographic changes in the country and to maintain its position regarding industrial production.

Rui Ma urges Chinese companies to try to understand the intentions of the regulation.

“Do understand the intent. What you probably need to first decide is if you can understand this framework. If you can’t, maybe don’t stick around. If you can, then you can start assessing risks. ”

The taxi service Didi does not help any of these national and strategic goals. Companies like Huawei, on the other hand, which produce digital infrastructure, still seem to have strong support from the authorities. This is despite the fact that the company, with its size, possesses both power and influence.

To say that China is marking its power against Chinese tech companies is therefore a truth with some modification. The marking is rather towards those who are not considered to contribute to more than their own income statement. The companies that steer their operations to be in line with China’s other national priorities should not have to be as worried.

China’s many investments in AI can also be seen in this light. It is a centralized technology that can be used for both industrial production and national security. It can be profitable in individual companies, but also contribute to more strategic goals.

The enormous success that, for example, the chat service Wechat has had in the country has created a platform for a completely new wave of Chinese companies. The demand created there is extremely valuable and has become a driving force in the Chinese economy. But when only two companies – Wechat and Alipay – have a combined market share for digital payments of over 94 percent, it is difficult not to see them as potentially problematic power players at the same time.

It is unclear what the ultimate goal is for the Chinese state’s new attitude. It is probably under development for themselves as well. What is happening now in China’s tech sector has never happened before. But it is clear that the country’s tech companies have a new reality, where companies must guess at what is required to be able to continue as before. And where an unintentional violation can suddenly become devastating.

This column was first published in SvD Näringsliv, in Swedish, on August 6th, 2021.

Processing…
Success! You're on the list.

How Apple’s ideals in China collapse

Leave a comment
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on June 28th, 2021.

A new service from Apple is intended to protect privacy. But it also exposes one of the IT giant’s biggest challenges right now – choosing a path in China, where they are squeezed between the country’s exercise of power and its own ideals.

Happy and confident, Apple CEO Tim Cook stepped up to the podium in Washington DC. The year was 2015 and he was just about to give a speech to graduate students at George Washington University. Cook, who had previously been the chief operating officer in the shadow of Steve Jobs, was four years into the role of CEO of Apple and had now begun to find his stride.

In his speech to the students, he referred a lot to Jobs and the philosophy he had introduced at Apple. But in a nutshell, he also revealed his views on leadership, which would fundamentally change Apple.

I was trained to be pragmatic – a problem solver.

There is a lot to be said for Steve Jobs, but pragmatic he was not. Quite the opposite – stubborn, visionary and a little headstrong.

And nowhere has Apple’s new pragmatic view been more clearly felt than in their stance towards China, under Tim Cook’s rule.

The country has been an important production partner for Apple for the past 20 years. China was the country that got to produce Apple’s then major new product line, the iPhone. This would probably not have happened if China had not joined the WTO in 2001, which facilitated a larger establishment there. The success of the iPhone also cemented the importance of good relations between the two parties, and laid the foundation for more factories and data centers to be built.

Meanwhile, the country also began to grow as a market for Apple. The Chinese started buying iPhones, iPads and Macs like never before. In the most recent quarter, their Chinese revenue was $17.7 billion. This means that almost every fifth dollar that Apple earns comes from China. And the country’s importance is growing rapidly. Growth in the market was 87.5 percent compared with the previous year.

But lately, it has started to get a little rocky for Apple. Their ongoing war against Silicon Valley neighbors like Facebook and Google over ad data comes from a strategy to position themselves for the privacy and security of each individual. “Integrity is a fundamental human right,” Apple tends to say.

It is therefore a bit precarious when the company launches a new service, “Privacy relay”, which will reduce the tracking of individuals’ web data – but that does not work in China. And not in other countries such as Belarus and Saudi Arabia either. Due to their local laws.

This is where the view of the individual’s integrity is crossed with the importance of maintaining good relations with one of Apple’s most important markets and production partners. What will Apple’s values ​​end up costing them?

The attitude risks undermining Apple’s principled argumentation in data issues around the world. If the principles do not apply in all countries – then what is the real motive behind them?

That Tim Cook would prioritize China and its legislation at this stage, however, is no surprise. As early as 2017, he spoke at a conference on whether Apple should be in China or not, and how they related to developments in the country.

— My strong opinion is that you show up and participate. You are in the match, because nothing can change if you are off the field.

This is how it sounds when a pragmatist reasons. The question is how far he is willing to go to appease a country that does not share Apple’s fundamental view of integrity. Unlike its competitors in Silicon Valley, Apple has succeeded very well in China.

But that success has now come at a high price. The more Apple loosens up, the harder China can push. And soon Tim Cook could get so cornered that his pragmatic way of working may end up being forced out altogether.

This column was first published in SvD Näringsliv, in Swedish, on June 28th, 2021.

Processing…
Success! You're on the list.