This analysis was first published in SvD Näringsliv, in Swedish, on June 7th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
The advantage of being a tech giant is on full display now that Apple, in a single move, risks turning all of Klarna’s business into just one feature among many.
Every year in June, Apple holds its conference for software developers. It’s called WWDC — Worldwide Developers Conference — and it’s meant for everyone building applications for Apple’s various platforms.
It’s usually a festive occasion at which the otherwise secretive company opens up and talks to the outside world. But there’s always a certain fear that Apple will do what it has done so many times before — take an idea from developers and make it its own. Which usually means your project is doomed.
The process is known as getting “sherlocked”. It’s named after Apple expanding its then-search tool, Sherlock, to include essentially everything the developer Dan Wood had built in his own search product “Watson”. Wood’s app was now worthless. Who would buy software that did the same thing as what Apple was giving away for free?
That was 2002. Exactly 20 years later, it’s Klarna’s turn to be sherlocked. Or at least to get a taste of what it might feel like.
During the keynote on Monday, Apple launched a new product called “Apple Pay Later”. A clear nod to the phenomenon known as BNPL, short for “buy now, pay later”. The launch was expected, but the listed BNPL company Affirm still dropped 5 percent immediately after the news.
But the hit probably landed hardest on Klarna — the market leader in the segment.
Apple Pay Later is launching this autumn, and only in the US to begin with. The service isn’t an immediate threat to Klarna. It will take time for Apple to build both customer awareness and usage, and the market is large and probably far from saturated. Klarna, meanwhile, is available in twenty countries and has an established customer base among both consumers and merchants. The Swedish BNPL giant isn’t about to lose all its customers overnight to Apple — not by a long shot.
The problems are on another level. Klarna has already been squeezed by tougher market conditions, and has been forced to lay off up to ten percent of its staff. The company is also in the process of raising more money from investors, and media reports indicate the valuation is down around 30 percent.
All of this happened before Klarna had to compete with one of the world’s largest and most cash-rich companies. Apple’s definitive entry into this market will make tough conversations with investors even tougher.
Competing with the biggest tech companies is notoriously hard. Their core businesses are so strong they can afford to make bets that lose money for many years. Or simply to keep the existing business intact. Amazon, for instance, has spent billions on its video service Prime Video, which is an add-on to its popular subscription service Prime. But they compete directly with Netflix, whose video service is its only business. Amazon can afford to do things Netflix can’t. And that’s the risk Klarna now faces.
Apple doesn’t need to take Klarna’s customers to become a problem. It’s enough for Apple to subsidise with better terms for a few years to erode margins across the industry. Apple can afford to buy market share for a long time while it builds up its service. And it can roll the service out to all partners that already support its existing payments service, Apple Pay. And who has been one of Apple Pay’s partners? Klarna itself. But biting the hand that feeds you is less of a problem when you’re Apple’s size and wield Apple’s influence.
The BNPL trend is probably here to stay, and Apple’s entry will accelerate it. That can actually benefit Klarna. But history shows that when your core business becomes just one feature among many at the big tech companies, competing gets much harder. And the looming threat was the last thing Klarna needed right now.
