Uncertain win for Apple even in victory against Epic

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This column was first published in SvD Näringsliv, in Swedish, on May 31st, 2021.

In the recently concluded trial against the gaming giant Epic, it looks promising for Apple. But even a possible win would be less significant than one might think. And Apple’s legal problems are far from over.

Wearing a white shirt, a slim gray tie, and a white face mask, one of the main characters stepped out of an elevator the other day and straight into the biggest tech lawsuit of the year. Apple CEO Tim Cook looked confident and victorious. With his fingers he made Winston Churchill’s historic V sign – “V for victory”.

However, the trial, which ended this week, was not really that simple, either for the favorites Apple or their counterpart, the gaming company Epic. Judge Yvonne Gonzales Rogers clearly signaled during the trial that she did not buy either side’s argument in full. At the end of the trial, she suggested that her upcoming verdict could make both parties dissatisfied.

In short, the case is about Epic claiming that Apple is using its power over the App Store in an unfair way. For example, developers are prevented from informing their users that their products can be purchased elsewhere than through the App store. This makes Apple make more money than they would otherwise have done.

Apple, for its part, claims that they have the right to set their own rules in a store that they own. They see the entire ecosystem with the iPhone hardware, the iOS operating system, and the App Store as one and the same experience. And to ensure that it is both secure and easy to use, Apple itself needs to dictate the terms.

The key issue in the case is the definition of the market. If you look at it as a large gaming market overall – with all consoles, mobile phones and computers included – it is difficult to claim that Apple has made any major control of the market. Epic’s game Fortnite, which Apple shut down from the App Store after breaking their rules, is still available on Xbox, Playstation and Nintendo, among others.

If, on the other hand, you see the market as software distributed to mobile phones, then Apple’s actions will be more controversial. Apple is one of many companies in the gaming market, but is basically one of only two players in the mobile market. Android, and the Google Play store, is the other. Epic has also sued Google Play for similar issues, but that process has not started yet.

All arguments aside, Epic is anything but a perfect representative of the world’s game and app developers. The company has portrayed itself as David in the fight against Goliath, but a more accurate description is rather Goliath against Goliath. Epic had sales of more than five billion dollars in 2020. Certainly significantly less than Apple, but considerably more than almost all other app developers.

Epic is also half owned by the Chinese internet giant Tencent. It would probably have been easier to get sympathy for a smaller developer affected by Apple’s strict rules, than a billion-dollar company that wants to make even more money.

Even if Epic loses this fight, they may still win in the long run. What they have succeeded in doing is shed light on these issues. It will increase the political pressure on legislation in the United States. Both Republicans and Democrats have expressed concern about the increased concentration of power among tech companies, and when this issue becomes relevant again, it may be an appropriate opportunity to implement reforms.

Apple also has legal concerns in Europe. The European Commission is looking at a similar issue regarding payments in the App Store in the music market, with Spotify as a counterpart. This will be even harder to justify for Apple, as their own service Apple Music competes directly with other music services.

The preliminary conclusion from the European Commission is that Apple has abused its dominant market position. Apple will now respond to their comments.

The lawsuit in the US between Epic and Apple is now in the hands of Judge Yvonne Gonzales Rogers. The verdict is not expected until after the summer. A sure tip is that it will be appealed – regardless of the outcome.

This column was first published in SvD Näringsliv, in Swedish, on May 31st, 2021.

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Elon Musk – the Jerome Powell of crypto

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This column was first published in SvD Näringsliv, in Swedish, on May 24th, 2021.

$1 trillion went up in smoke in last week’s cryptocurrency crash. Elon Musk and China got most of the blame, but the problem showed a deep contradiction among the proponents of cryptocurrencies.

When Tesla’s CEO Elon Musk tweets about cryptocurrencies, the market moves.

Mostly upwards, as in the case of dogecoin – the joke that became one of the world’s ten largest cryptocurrencies, much based on the support of Musk.

This week we also saw examples of the opposite, when Musk somewhat dizzily expressed concern about the environmental impact that bitcoin has. The cryptocurrency fell sharply, and many wondered why his environmental analysis came now. It is no secret that the production of new cryptocurrencies is an environmental culprit, and what’s more – Tesla only bought bitcoin for $1.5 billion months earlier and announced it would accept it as a means of payment.

Bitcoin took another turn when the Chinese central bank warned financial institutions of accepting cryptocurrencies. The statement was not noticeably different from the stance expressed by Chinese authorities in both 2013 and 2017, but nevertheless contributed to concerns about increased regulation.

The above movements in the market would not have been so strange, if they had been about a more normal asset. Sure, volatility is unusually high, but there are other financial products that can have similar movements.

But cryptocurrencies are not normal in this regard. The whole idea behind everything is called decentralized finance (defi). With defi, there are no central platforms that govern either monetary policy or economic measures. It is an economy that is network-based and managed from node to node, and which together creates an economy where everyone can participate.

In a decentralized financial world, it is therefore strange that Elon Musk’s statements are carefully analyzed in the same way as they are with Jerome Powell, the chair of the US Federal Reserve. The slightest indication of a change in course creates immediate surges. It was precisely this type of institution that this new world would avoid. How could we end up in a place where Elon Musk became something of a dictatorial central bank chair – one that no one asked for?

The answer lies in the immature market that cryptocurrencies still consist of. In simple terms, its participants can be divided into two distinct groups: the enthusiasts who believe in a decentralized financial world, and the investors and speculators who agnostically see an opportunity for good and immediate returns. Possibly you could add a third group – the professional criminals who use crypto to anonymously launder and transfer money. The latter group, however, may get a little sweatier in the future when the US Treasury Department just proposed that all crypto transactions over $10,000 needs to be registered with the US Internal Revenue Service. A clear indication that more regulation is on the way.

The first two groups do not have much in common other than that they are in the same market. But where enthusiasts see an emerging new financial infrastructure, investors see fast money. More hype gives higher prices and better returns. This also applies to the enthusiasts where many quickly became millionaires on their early insights about cryptocurrencies, whether it was their intention or not.

When Elon Musk tweets positively, everyone with cryptocurrencies gets richer. But that effect has been treacherous for the enthusiasts. You can not cheer on when an individual increases the value of your portfolio by thousands of percent, and at the same time think that it is problematic when the opposite happens. But of course it’s easy to be idealistic – until you see how rich you have become on his latest tweet.

For the cryptocurrency world to reach its full potential and approach the decentralized financial world, it might be most appropriate to look at the relationship with Elon Musk. Should one simply end it?

As the situation is today, he acts as central bank governor in a market that says it does not need one.

This column was first published in SvD Näringsliv, in Swedish, on May 24th, 2021.

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After the hoarding of toilet paper – here comes gas in plastic bags

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

Residents who bunkered gas in plastic bags. Oil prices rose. The hacker attack in the US not only acts as an eye opener on how vulnerable society is to cyber attacks – but above all on how unprepared many people seem to be.

“Software is eating the world”. That’s how the venture capitalist Marc Andreessen began a now legendary essay in the Wall Street Journal in 2011. Not a day goes by in Silicon Valley without the expression being repeated in some context. His point was that basically all areas of the world would be affected – and in some cases revolutionized – with the help of software. The last ten years has in many ways proved him right. Last week it happened again.

In the city of Alexandria, Virginia, gasoline suddenly ran out after residents began stockpiling fuel, much like many people did with toilet paper at the beginning of the pandemic. It is easy to laugh at the fact that American authorities officially stated that “plastic bags should not be filled with petrol”, but in fact this was just another proof of Andreessen’s thesis. The indirect reason why the situation arose was, in fact, software.

The company that operates the Colonial Pipeline, the largest oil pipeline in the United States, had been subjected to a cyber attack, which stopped the supply of gas for six days and made the price of oil rally. A wake up call for how vulnerable the United States is, according to the US Minister of Transportation, Pete Buttigieg.

The Colonial Pipeline is not alone in being hit. The number of ransomware attacks – the type of attack that locks a computer or IT system and requires an unlocking fee – has doubled in just one year.

Like the security policy expression “we do not negotiate with terrorists”, it is sometimes said that one should not negotiate with hackers either. But the numbers speak a different language. By 2020, hackers are estimated to have earned at least $350 million through extortion – an increase of 311 percent in just one year. The real figure is also probably much larger, not everyone wants to publicly acknowledge that it has happened to them.

The reason why the attacks increase so much is simply because they are profitable. Colonial Pipeline paid $5 million to reopen.

One can wonder why authorities and companies have not gone further in preventing these attacks from hackers. There are many factors to consider, but here are three possible explanations:

Firstly, it may be that large parts of the business community are increasingly using software, but lack any real experience of managing IT security. Inadequate routines, albeit temporary, can be all that is needed to make oneself vulnerable.

It may also be because many companies have old and outdated systems that are expensive to administer – that they have a so-called technical debt. These systems can be vulnerable only by the way they are designed, and would preferably need to be replaced completely.

In addition, hackers, like cybersecurity, have become much more sophisticated than before. An example of this is the emergence of EKANS, a ransomware virus from 2019 that was created specifically to attack industrial systems.

However, the intentions between different hackers differ. Darkside, the group behind the software used in the attack on Colonial, apologized, saying “our goal is to make money, not create problems for society” and that they are apolitical. This naive view of one’s own actions paints a picture that is more of an opportunist than a terrorist.

However, a lot of hacking is very much political. Both performed by individual states, but also protected by them.

Perhaps the big question that authorities, companies and individuals should ask themselves is not when it happens again – but when it happens to them? There is no indication that the attacks will decrease or disappear in the future.

In ten years, the number of IT attacks increased from 12 million to over 800 million, and Sweden is of course no exception. In November 2020, there was an extensive attack on several large Swedish companies, in addition, for example, Swedbank has had countless problems that have caused their services to be down. This doubles the exposure – you can be affected both by a careless push of a button in an email, or by the services you use.

What is needed going forward is an approach that assumes that companies and institutions will be attacked, rather than being surprised when it happens. Many companies are already there today. But when socially critical infrastructure can be knocked out – as in Alexandria, Virginia – it clearly illustrates that there is a long way to go before these risks are properly managed.

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

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The $2 billion deli

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This column was first published in SvD Näringsliv, in Swedish, on May 10th, 2021.

It has a turnover of a few thousand dollars but has a multi-billion valuation on the stock exchange. This is what happened when a small restaurant in New Jersey ended up at the center of the debate about how the financial market is really doing.

The American flags are flying outside a gray, anonymous room in Paulsboro, New Jersey. The sign outside promises Italian delicacies. The Hometown Deli restaurant looks like it was taken from any American suburb. But it stands out on an important point. It is the primary asset of a listed company that with warrants – a leveraged instrument with long call options – included is valued at over two billion dollars.

Hometown Deli – and the parent company Hometown International – have quickly come into focus when analyzing the current market conditions. The debate started when hedge fund manager David Einhorn from Greenlight Capital described the market as “quasi-anarchy” and sourly commented on Hometown Deli that the “pastrami must be fantastic”.

It is easy to understand Einhorn’s criticism. The cryptocurrency dogecoin, which started as a joke, currently has a market value that is three times higher than the tech company Slack, and so far this year, as many as 314 new spac companies have been listed in the USA. The Gamestop share, which was temporarily pushed up to astronomical heights after an internet forum united to buy it, is still up over 800 percent since the beginning of the year.

When you, like Einhorn, belong to a more kind of traditional player in the market, it is easy to look what is happening as both strange and threatening. When individual stock holders succeed in influencing the market in the same way as established banks and funds, a transfer of power takes place which is to the detriment of the establishment.

In the case of Hometown International, however, it is not the individual stock buyers that have had another run, even if at first glance looks like the next Gamestop rally. Instead, it is investors from Hong Kong with a background from hedge funds that are behind the sky-high valuation. The assets mainly consist of Hometown Deli (which only had sales of a few thousand dollars last year), but it would be wrong to see this as a future restaurant empire. A better parable is rather a SPAC, but in a miniature format. Or as John Coffee, a professor at Columbia University, put it: “a parody of a SPAC”. He also added that “this is what I would expect in the final stages of a bubble”.

Hometown International is thus rather a shell company, where the value mainly lies in the position as an American listed company. After that, you can merge the company with an unlisted company and thus get directly to the American stock exchange. It’s cheaper than a SPAC, which can cost millions of dollars in administrative fees alone. The restaurant thus becomes a way to avoid being classified as just a shell company, which means different regulation by US authorities.

New forms of investment such as cryptocurrencies and SPACs are both volatile and complicated to understand, even for the most experienced investors. However, this does not mean that the people behind it necessarily have a bad intentions. In Einhorn’s letter, he writes that “it is as if there are no prosecutors in financial crime”. Although Einhorn exaggerates, his concerns can be understood. Given that interest in the stock market and investments has increased so much, those who want to make quick money at the expense of others are also attracted. The combination of new types of investors and new forms of investment quickly risks leading to costly misunderstandings.

At the same time, it is difficult not to see Einhorn’s letter as a desire to stick to the old view of the market – the one where Wall Street’s most powerful institutions sit in the driver’s seat and make billions. It would be easy to write off Gamestop, for example, as an anomaly, but Hometown International shows that the changes come from all sides – both from private individuals and institutions. It is a transfer of power and influence from the establishment to new, risk-averse, players. What remains to be seen is how many of these individual investors dare to entrust them with their savings.

This column was first published in SvD Näringsliv, in Swedish, on May 10th, 2021.

“Tiger King” devours the stars of the tech world

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This column was first published in SvD Näringsliv, in Swedish, on May 3rd, 2021.

The offer is simple: cash on the table – fast. The success is enormous. The hedge fund Tiger Global is turning the venture capital world upside down. It is only a matter of time before the aggressive Spotify investor enters Sweden again.

Venture capitalists like to emphasize their ability to identify and invest in disruptive companies earlier than others. All with a methodology that, somewhat simplified, is about building relationships with entrepreneurs, discussing the business idea with colleagues, spending weeks in different phases of due diligence and then offering a first term sheet to negotiate.

That approach, the very standard model for how business is conducted, has been torn apart by the hedge fund Tiger Global (sometimes called “Tiger King” with reference to the popular Netflix series). Away with slow processes and due diligence. Away also with the ambition to only do a handful of deals per year. And in with a strategy that is more about going wide – four investments in just one week and often under much more loose conditions.

When Tiger Global invested in Innovaccer, a cloud healthcare company, it only took three days from the first call until there was a signed letter of intent. The deal meant that the company’s value increased to $1.3 billion, which can be compared with $305 million a year earlier. As investor Everett Randle of the Founders Fund put it – “Tiger is eating your lunch (& your deals)”.

The explanation why Tiger Global act like they do can be found in how they view their capital. In normal cases, venture capitalists invests the money fairly evenly over the life of the fund, which is usually several years. Tiger has instead decided to invest as much as possible, as quickly and as early as possible.

This means that the companies in which the hedge fund has invested develop longer before the fund’s maturity ends. Or – as is often the case with companies that are financed by venture capital – they go up in smoke altogether. But as Tiger Global often enters later phases, accuracy is high. The fund’s investments include Coinbase, Square, Alibaba and Spotify, which they owned around 7 percent of at the IPO in 2018. It is only a matter of time before they invest in a Swedish company again. There is plenty of capital and they have become increasingly aggressive.

Tiger Global has 13 funds with assets of $65 billion. The latest fund, which closed in early April, is one of the world’s largest to date with a value of $6.5 billion.

More investments provide increased transparency in the companies, which in turn makes it easier to be able to invest even more in the companies that are doing well. Those who do not do well are ignored – this is how the model works for the entire venture capital industry. This gives Tiger Global a larger selection to evaluate, and expects that the success of the companies that are doing well will compensate for those who drop out.

By acting quickly, they also turn another accepted truth upside down: that there are methods and skills around how to identify which companies can be successful. Tiger Global’s new model thus seems to be about the opposite – that you do your best to invest in as much as possible, with large positions in late stages and at high valuations. For entrepreneurs, this means more capital at a lower dilution.

The speed of the investments raises some critical questions. To almost completely skip ordinary due diligence leads to an increased risk of irregularities. It is conceivable that the investors in Tiger Global have temporarily let this slide, but the risk is still latent. In addition, having such a large portfolio of investments also means that it is not possible to spend very much time with each one. Tiger Global solves this by offering the companies services from Bain, one of the world’s largest management consulting firms. It is almost the opposite of the established trend where you help your investments with everything from strategy to recruitment. Tiger Global also does not want any board seats. The company gets fast money that it can use to grow, but gets no help in doing so.

As with all funds of this kind, it takes many years before you see the outcome of a change in strategy. On the other hand, it is quite clear that Tiger Global has garnered a great deal of astonishment and concern in venture capital circles.

Last week, a Swedish investor was asked about their view of Tiger Global and cautiously replied that they hoped that personal relationships also weigh in when an entrepreneur chooses who they want to work with. The question that the entire industry is now asking itself is whether these relationships weigh more heavily than a fast process – and a higher valuation.

This column was first published in SvD Näringsliv, in Swedish, on May 3rd, 2021.

Dogecoin – the world’s most expensive joke

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This column was first published in SvD Näringsliv, in Swedish, on April 26th, 2021.

It started as a parody of cryptocurrencies – and recently became as valuable as Spotify. The cryptocurrency Dogecoin captures the present in a very clear way. Now the success risks undermining confidence in the entire market.

Not many people thought that the cryptocurrency Dogecoin would be anything other than what it was intended to be – a joke. The new financial world wanted something else.

The creation that the American engineer Billy Markus and his friend launched in December 2013 was based on a meme about the dog breed Shiba Inu. The joke is that the dog, who looks a bit lost, can hardly spell anything – not even his own name. Doge therefore becomes a misspelling of the English word “dog”.

Under normal circumstances, this meme had quickly been transferred to Internet history. But what happened is anything but normal. This week, the value of all Dogecoins temporarily exceeded $50 billion – surpassing the value of companies such as Ford, Twitter and Spotify.

How could this happen? To understand the underlying mechanisms, we do not have to go very far back in time. It is enough to take a closer look at the Gamestop hysteria at the beginning of the year.

Then, just like now, the rise has been driven by feverish activity on internet forums such as Reddit and Discord. The success there, as well as the fact that Bitcoin has skyrocketed in value, seems to have given many confidence that they’ve found the next shortcut to fast money. Because even if Gamestop fell after the worst hype, the share is still up over 800 percent since January 2021.

The method of talking up assets on forums works. The problem arises when the same people want to realize their profits and sell their assets. It requires an influx of new buyers that you can sell to. This is called “the greater fool theory” and is the investment world’s equivalent of the Swedish card game Svarte Petter – you do not want to be “the greater fool” when the game is over.

And it’s just like a game you should see the rise of Dogecoin. This is not about an analysis of economic fundamentals or an insight that the rest of the market lacks. Instead, it is more like a casino where you think you have found a trick to win more often. The fact that it is a cryptocurrency also makes it easier to justify extreme volatility. The much more established Bitcoin, for example, has increased over 80 percent during the year, from an already high historical level.

The rise in Dogecoin, which has accelerated around 18,000 percent in one year, is now creating problems for the entire crypto world. Companies like Tesla, WeWork and Time Magazine accept Bitcoin as a currency when you shop with them. Mastercard will also start accepting bitcoin in their network. The professionalization and acceptance of cryptocurrencies as legitimate means of payment that has taken place over the past year gets damaged by the association with Dogecoin.

The image that the crypto market is a financial playground for speculation is exactly the one that Bitcoin enthusiasts are trying to distance themselves from. In that context, a market value of $50 billion for Dogecoin, which later quickly fell to $35 billion, will not be an asset for the cryptocurrency world – but rather a burden.

The difference in maturity between cryptocurrencies makes it increasingly difficult to describe them all as a single market. Is it an emerging global currency? Is it a digital asset class? Is it the penny stocks of the digital age – a way to make quick money based on nothing?

The answer is yes to all of those questions.

It would therefore be wrong to let Dogecoin represent all of these strains. It is both a digital tulip field and an ongoing financial revolution.

This column was first published in SvD Näringsliv, in Swedish, on April 26th, 2021.

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Anxiety bubbles with super hot SPACs

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

Blank checks worth $100 billion. That’s how much money that has been sent straight into the super hot investment form SPAC just this year. Now the clouds of unrest are rolling in. American investors have begun to question the valuations of the untested companies – and put their hand on the handbrake.

Sweden got its first SPAC less than a month ago. In the US, several new ones are launched every day. This year alone, there are 308 of them worth 100 billion dollars, compared to last year’s 248 or 2019’s 59.

This week another milestone was reached for the investment form that has changed the rules of finance lately. The Uber competitor Grab, based in Singapore, will enter the New York Stock Exchange via the SPAC company Altimeter in a deal that values ​​the company at $40 billion. It places the company in the same order of magnitude as Match Group and Electronic Arts.

This record listing also shows signs of why investors’ enthusiasm has waned.

Altimeter is “only” investing $500 million of the total capital raise of $4.5 billion. The remaining part comes from new investors in a so-called PIPE, or private investment in public equity as it is called.

And it is with PIPE – rather than SPAC – that it has started to get a bit rocky in the market. The initial capital that a SPAC takes in is usually not enough as financing. The model is based, just as in the case of Grab, on first finding a suitable company to merge with, and then getting more capital to be able to complete the deal. However, as PIPE investments are locked up while the transaction is being completed, and also often for a period afterwards too, the the investment is considered illiquid. And, as one banker recently put it to the Financial Times, “there is only a certain amount of illiquid exposure that investors will want.” In other words, there is a risk of the PIPEs running out.

The slowdown leaves many SPAC companies exposed from two different directions.

Firstly, an American SPAC only has about two years to find a good enough and suitable company for its merger. If it doesn’t find anything, it needs to pay back the money to the investors. It raises the question how many suitable companies can be found and that fit this profile in the coming 12-24 months. Secondly, they need to find financing for these deals through a PIPE, which may now prove to be more difficult than expected.

But to better understand why investors are getting a bit cautious, you also need to look at the type of company that is most suitable for a SPAC. What is often mentioned as an advantage for companies is the possibility to move fast and lower overall complexity. The company you are merging with has already gone through the listing process, which means that a large number of formalities have already been completed.

However, there is another – equally, it not more important – variable. It is what Matt Levine at Bloomberg describes as “regulatory arbitrage” – a kind of exploitation of existing legislation.

When an American company is to be listed on the stock exchange, this is done primarily by presenting historical key figures and accomplishments. It describes past financial performance, and indirectly suggests how it may perform in the future. However, issuing clear financial forecasts is often too risky, as investors can sue the company if they do not occur. Sure, the law in question (Private Securities Litigation Reform Act) accepts future-looking forecasts with certain reservations, but these don’t apply to IPOs.

This is where a SPAC is treated differently. As the SPAC company is already listed on the stock exchange, it is thus okay for the new company to market itself with forecasts and promises about the future without any financial history.

The Wall Street Journal, for example, recently listed six electric car companies – all listed with a SPAC – that say they will go from zero to ten billion dollars in revenue within six years. By comparison, that is faster than what Google, Facebook, Amazon and Tesla managed in the same time. SPAC thus opens the door to the stock market for a completely new category of companies – young, innovative, but also basically unproven.

It is therefore not surprising that investors are not entirely convinced of the benefits of these deals. From being a quick shortcut to the stock market, SPAC has now also become a way of listing companies that realistically would never have gotten there otherwise. Without historical financials, it looks more like a venture capital investment, but in a listed environment. Or maybe, as analyst Byrne Hobart called it, simply a call option for hype?

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

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China’s pressure makes tech companies think twice

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This column was first published in SvD Näringsliv, in Swedish, on April 10th, 2021.

The stock market rise for the American tech companies has reached new heights. In China, the exact opposite is happening – an involuntary power struggle has flared up with politicians. It has made the stock market debutants tune in to the assembly line.

China Nasdaq. That’s how the new tech exchange Star Market was introduced when it started in Shanghai in the summer of 2019. Already there and then two things stood out.

At the opening, they did not ring the usual bell. A gong was struck. And those who held the sticks were no less than the leaders of the Shanghai Party and the chairman of the Chinese Financial Supervision Authority. A sign as good as any of how difficult it can be to separate politics from business in the country.

That balance of power is further complicated by the great success of the Chinese tech companies. Take mobile payments as an example. The market is completely dominated by two players – Wechat from Tencent and Alipay from Ant Group, which was broken out from Alibaba. Together, they have a market share of 94.4 percent. A position that gives a lot of power in the Chinese economy.

It was therefore big news when Ant Group was to be listed for the world record sum of 37 billion dollars on Star Market last year – and suddenly canceled. 48 hours before the stock exchange premiere, the Chinese state had suddenly changed the rules on how much capital was deemed needed to run Ant Group’s operations. The uncertainty that arose forced them to postpone everything. Even today, there is no new plan for when the stock market debut can happen.

All this turned out to be the starting point for more caution. New figures released by the Financial Times showed that 76 Chinese companies canceled or postponed their IPOs on Star Market just last month. This is twice as many as in February, and means that the total number is over 180 companies since the start in 2019. The corresponding figure when Ant Group surprisingly pressed the pause button in November was only twelve.

There are several reasons for the cancelations, but it is mainly due to a sharp increase in control by the Chinese authorities. When Star Market was launched, it was promised as a a quick and easy way to the stock market. Instead it seems to have become the exact opposite, with demands that managers share their personal finances and account for all transactions that exceed a few thousand dollars. This has resulted in sharply increased listing costs and an increased complexity that tech companies like to avoid.

This makes things difficult for everyone involved.

The ambition of the Chinese state’s was to become the financial hub of Chinese tech companies in Shanghai. Several large domestic companies have admittedly been able to be traded on the stock exchange for a long time, but outside of China. Tencent, Alibaba and Baidu, for example, are all also listed in the US and constitute some of the 217 Chinese companies that were listed in the US last year. Together they were worth $2.2 trillion. But a law that Donald Trump introduced just at the end of his term – Holding Foreign Companies Accountable Act – can force companies to be delisted if they are controlled or owned by foreign states. Which many Chinese companies are – directly and indirectly.

What has unfolded is nothing more than a power struggle that is likely to be more public than the Chinese state would prefer. Jack Ma – the outspoken founder of Alibaba and Ant Group – made headlines around the world when he suddenly disappeared for a couple of months. According to media reports, Chinese President Xi Jinping is said to have personally ordered Jack Ma to cancel Ant Group’s IPO. When this did not happen, he forced it forward anyway, whereupon Ma had to take a few steps back. Or as the Wall Street Journal put it: “Jack Ma is getting a lesson about who is in charge.”

It is often said that what markets dislike most of all is uncertainty. This is true in China too. The charm offensive that was going to build a domestic Nasdaq has not had the intended effect. Because if the Chinese government can stop a $37 billion IPO overnight – what could they do to everyone else?

At the same time as the capital of the world’s stock markets is looming, Chinese tech companies are now becoming increasingly pressured. On the one hand, a hardening legal and foreign policy climate in the United States. On the other hand, an increasingly clear Chinese ambition to regain power and control in a rapidly growing tech industry.

Most likely, the Chinese state will emerge victorious from this battle. If you can get Jack Ma to dance to your tune, the rest of the country’s tech entrepreneurs will find it difficult to do anything else.

This column was first published in SvD Näringsliv, in Swedish, on April 10th, 2021.

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Apple exposes the powerlessness of politics

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This column was first published in SvD Näringsliv, in Swedish, on March 25th, 2021.

The EU and the US are currently getting ready to regulate the digital world. But Apple’s latest giant reform shows that the tech giants still rule almost unrestricted in their market, writes Björn Jeffery.

Those who waited to hear about the EU and the “game of the digital economy” received an unusually quiet introduction.

The microphone did not work for the European Commission’s Deputy Head in Sweden, Annika Wäppling Korzinek, who was welcoming everyone. You could not hear much other than the rustling of a sound engineer.

The context was a webcast seminar this week on the EU’s major new digitization initiative for 2030. The first two points were “a digitally competent population” and a “secure, high-performance and sustainable digital infrastructure”.

It is a good thing that we have nine more years left before these goals are to be met.

The main guest at the seminar was Margrethe Vestager from Denmark, Executive Vice President of the European Commission and a familiar critic of all tech giants from her previous role as Competition Commissioner. She sat with a blurry webcam, EU flag in the background, and spoke about how 670 billion SEK would be distributed to achieve these new goals.

Even more interesting was what Vestager only mentioned in passing, an equally important issue for politics and probably the next headache for companies such as Apple, Google and Facebook.

These are the EU’s new legislative proposals – the Digital Markets Act (DMA) and the Digital Services Act (DSA). The proposals are a remake of how the EU should be able to regulate the use of data and curb monopolistic behavior.

There is a dark side to all digital“, as Vestager announced.

The proposals include a ban on the exclusive right of app stores and fines for violations of up to 10 percent of the companies’ revenues.

The question, however, is whether it is too little and too late. Already today, fundamental restructuring of the digital economy is taking place – without political impact. Instead, it is run by the tech giants who have acted on what is an almost unregulated playing field for over 20 years.

An example is Apple and its crusade against ad data. As SvD has written about before, there is currently a minor revolution around how advertising on the internet should work. Apple – which has not made any money from advertising since 2016 – has decided that it will not be allowed to track user behavior between sites and apps on their products. Not without the person in question having approved it at least, which will happen when Apple updates its operating system shortly.

The change is bigger than it sounds. It overturns entire categories of companies that have relied on this type of advertising. Many will not be able to change and will thus be relegated to history.

A necessary evil to get people’s data and privacy back on the internet? Possibly. But having an individual company – Apple in this case – make these decisions on their own is a very particular way of conducting policy. There is no possibility of further examination, and there are no appeals.

The question is how to catch up politically. Initially, new blood is needed. President Joe Biden has appointed two well-known tech critics to his administration – Lina Khan, as commissioner of the Federal Trade Commission, and Tim Wu of the National Economic Council.

But Biden’s new line-up has a difficult task. Not only must they ensure a fair game plan for all tech companies, they must also ensure that they do not cement the imbalances that already exists. Too little regulation leads to a lawless country. Too much regulation can lead to the companies that are large today being able to hinder new competitors from entering the market. Following regulations requires resources and that naturally benefits capital-strong players.

In addition, they need to find a more international consensus on how this type of regulation affects global tech companies. Margrethe Vestager has flirted with Joe Biden several times by using his campaign slogan – “build back better”. Neither the EU nor the US will probably be able to do this on their own.

Apple’s latest maneuver shows with great clarity that the giants are still dominant when it comes to rules and policy in the digital world. The political actors need to be sharper and faster in order not to be run over.

Sweden’s Minister for Digitization, Anders Ygeman, also did not talk about regulation at the seminar, but about the expansion of broadband in Sweden. His and Sweden’s ability to influence these issues is also limited. Part of the DMA proposal is that no single EU country can enact stricter laws than what has been proposed.

The minister also had microphone problems. The sound went out in the broadcast, but not to the participating panel.

– What, I have no sound? Ygeman asked.

This column was first published in SvD Näringsliv, in Swedish, on March 25th, 2021.

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$69 million for something that is free

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SvD Näringsliv

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

5,000 free Instagram photos – for $69 million. The auction price for “Everydays: The first 5000 days” turned the art world upside down. Signs of both a bubble and careless spending? Rather, a new type of investor has presented itself – those who prefer non-traditional asset classes such as cryptocurrencies and shares in collectibles.

When the historic auction closed last week, it was not Agnes Martin, Mark Rothko or Yayoi Kusama who’s signature was on the art. Nor was it a watercolor painting that was sold – but a jpeg by Beeple, whose raw material you can find for free on Instagram. The price: around $69 million.

The auction was, as you probably already suspected, unique. And not just for the reasons just mentioned, or that theauction house Christie’s for the first time accepted the Ether as payment. Nor because the total was the third highest ever for a work of art sold by a living artist, second only to Jeff Koons and David Hockney. But mainly because it marked NFT’s entrance into the real art world.

NFT stands for “non-fungible token” and can best be described as a kind of digital ownership certificate. By trading with the certificate, you can ensure both who is the rightful owner and that the work in question is genuine. The underlying technology also enables the creator of the work to receive a share of each future transaction – a kind of digital resale right.

All of this may sound odd. But in many ways, it is not surprising that the sale takes place. Rather, it only illustrates the trend of a new type of investor. Those who complement traditional assets such as stocks, mutual funds and paintings with either cryptocurrencies or pop-cultural objects, but whose purpose is the same – to make money through speculation and perceived market knowledge. The methods and types of assets are different.

The phenomenon is so big that new marketplaces are emerging for each individual niche. So far, they fall into four different categories:

  • Crypto exchanges: A mixture of an exchange and a bank that enables transactions between different cryptocurrencies. Most famous here is Coinbase, which, ironically, will be listed on the US Nasdaq in the days to an estimated value of 100 billion dollars.
  • Digital art & NFT galleries: Marketplaces where artists and cultural creators can sell the rights to their digital works. It’s a virgin market, but Opensea and Nifty Gateway are two platforms that are often mentioned.
  • Fractional investment markets: Markets that buy cultural artifacts such as art or collectibles and enable people to buy shares in them. A big player here is called Otis, which offers both video games and skateboards as items you can buy shares of. Otis stores the objects themselves and acts as a guarantor of its quality and authenticity.
  • Pop culture exchanges: Trade with clothes, shoes and accessories that are often released in limited editions. Stock X and Goat are two of the largest, selling limited Nike shoes and Cartier watches.

These are all forms of stock exchanges but without stock trading. Instead, they use technology that ensures ownership of something that in many cases you will never physically own. Instead, ownership represents something that you believe in, and that you believe will increase in value. Just as a share is to a company – that sense is not linked to a physical share certificate.

The NFT market in particular is in the middle of a gold rush. History suggests that many enthusiasts will be burned and disappointed if, or when, the bubble starts to burst. At the time of writing, Twitter’s and Square’s CEO Jack Dorsey has a bid of $2.5 million for his first tweet. Elon Musk, CEO of Tesla and Space X, just released a song (!) about NFTs as an NFT in itself. So there are tendencies that things are starting to derail. But the underlying behavior and these new markets are not likely to disappear. We have had stock trading since the 17th century. What’s to say that only stocks and commodities are things you should invest in?

Back to the auction at Christie’s. Who bought Beeple’s work? An investor who goes by the pseudonym “Metakovan”. He told Bloomberg confidently that he thinks it will be worth over a billion dollars, “I just do not know when.”

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

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