Facebook’s Clubhouse clone will fail

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 13th, 2021.

It didn’t even take a week from Mark Zuckerberg guest starring on Clubhouse to the news that Facebook was developing a clone. The pattern of cloning products is recognizable – but rarely works. SvD’s tech analyst Björn Jeffery explains why.

In April 2012, Kevin Systrom received an unusual proposal. Twitter wanted to buy his company Instagram, which at the time had only 13 employees, for half a billion dollars.

His response was even more unusual.

He told Mark Zuckerberg about the sum, went to his house in Menlo Park, and came back with a $1 billion offer from him instead. Systrom and Zuckerberg shook hands, after which he drove up Highway 280 to his home in San Francisco again. The whole deal took three days from start to finish.

Thus began one of the most successful acquisitions in tech history. What looked like a simple photo app has since become one of the world’s largest and most influential social networks. In 2018, Bloomberg valued Instagram at over $100 billion.

In recent weeks, the hype among social media has been about Clubhouse. The app, where you listen and participate in real-time conversations, is spreading quickly and has a unique positioning in the market through its focus on sound. Clubhouse just raised $100 million in venture capital, with a valuation of $ 1 billion.

When Mark Zuckerberg took part in a conversation at Clubhouse the other day, the joke was that it was only a matter of time before Facebook would either buy them or make its own clone. The joke got a little less funny when the New York Times reported a few days later that Facebook was doing just that.

Large companies often find innovative ideas early on. But they often end up in what Harvard professor Clayton Christensen called the innovator’s dilemma. This means that they tend to offer a watered-down version of the innovation to their existing customers, rather than making it perfect for a new customer segment. Facebook has done this many times over with a long line of cloned products that never took off. Who remembers apps like Rooms, Slingshot, or Lasso?

The next difficulty for large companies is how they avoid cannibalizing their existing products. Stratechery analyst Ben Thompson described this as a kind of tax on the company’s own strategy and defined it as “something that makes a product less likely to succeed, but which is included to achieve other business goals”. Google’s failed social network Google+ is an example of how wrong things can get with those kinds of priorities.

Being innovative as a tech company is therefore not as easy as one first might think. You can always copy others, but there is no guarantee of success. It is with this in mind one should view these giant acquisitions. They can be a shortcut to get the best of both worlds: a new, innovative product, and synergies from a larger organization. Since 2007, for example, Facebook has bought 88 companies that we know of.

In the middle of the Clubhouse hype, it’s easy to think back at Instagram. What would have happened if they had decided to go their own way instead? Had we had another tech giant today? The company had – like Clubhouse today – just raised venture capital, so resources were available. But it takes some confidence to turn down a billion dollars for a company that is only two years old.

Now the eyes of the world are on Clubhouse. It is new, innovative, well-funded and is currently spreading virally. But to become completely independent in the future requires perseverance, continuous innovation and, in the long run, a sustainable business model. Clubhouse has time to find all three – even if the giants will be chasing them.

The tech world would be better off with more big players. Therefore we can hope that Clubhouse founders Rohan Seth and Paul Davison look more towards Snap than Instagram when the acquisition offers start coming in.

Zuckerberg also tried to buy Snap for $3 billion in 2013 – but they refused. Today, Snap has an all-time high on the stock market with a market capitalization of over $93 billion.

This analysis was first published in SvD Näringsliv, in Swedish, on February 13th, 2021.

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The n00b of Wall Street

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 4th, 2021.

Live streamed portfolio analysis. Derivatives as entertainment. The Wall Street Bets forum represents a new generation of stock traders who have borrowed their influences from the computer game world.

At the same time as the hedge funds was tearing their hair over extreme losses in Gamestop, a father of small children in Boston, wearing a headband, sat and drank champagne for seven hours – live on YouTube. Keith Gill, the man behind the Gamestop rally, celebrated his success with the dedicated fans who had followed him for a long time. Now, at least on paper, he was suddenly extremely wealthy.

It may not sound like the traditional stock trader. But this is not the first time that the stock market gets new eccentric personalities or, for that matter, reshapes itself.

Take only the last decades where the image of men in braces on the trading floor has long since disappeared and been replaced by high-frequency trading. We have seen lively discussions on social media about individual stocks for many years, and it is still big today. Now we see how the stock market is changing again – and that it borrows many of its influences from the gaming industry. The fact that it was Gamestop that everyone gathered around had mostly to do with short selling, but also contained components of pure nostalgia. People grew up with these American gaming stores, and that meant something to buyers.

Kenyatta Cheese, an expert in Internet culture, described the Gamestop boom as “a place for collaborative participation whether you invest or not”. He then explained how the incentives for each person vary greatly. Some are there to make money, some just for fun. Some are Keith Gills fans and most want to tag along to him.

You don’t need to trade stocks yourself to participate. For many, it is enough to watch when others do. Twitch – the streaming service for games that Amazon bought in 2014 for close to a billion dollars – has an average of 1.4 million viewers at any time of the day. Watching and discussing games is seen as an equal way to participate, just like with regular sports and the fan culture that is there. Now we also see it in stock trading.

The language used is familiar to those who know gaming and internet culture.

In Sweden, close to 400,000 people watched e-sports in 2017 daily, a figure that is said to be significantly higher today. The fact that we will soon have established Swedish stock streamers is therefore not far off.

The language used is also familiar to those who know their gaming and internet culture. Memes and emojis are more the rule than the exception. They talk about stocks as “stonks”, a deliberate misspelling of “stocks” that has been a meme for several years. “To the moon” followed by emoji rockets means that it is believed that the value of the share will skyrocket.

The jargon is playful, internal and closely related to the online culture in general. This means that many can move more seamlessly between games, social media and stock trading in a familiar way. Language and humor become the bridge between the different areas and open up a world that for many of them may have been a bit closed before.

As the stock market approaches the gaming world, risks follow for both the individual and the system. The fact that access to complex financial instruments was limited also meant that the risks for small traders were reduced. You seldom lost more money than you had, and usually not the whole amount either. When access to options and other derivatives increases, it has the opposite effect. And it can have fatal consequences. In June last year, a young man took his own life after misunderstanding his debt in the Robinhood app.

In addition, the share price itself could be a threshold. But Robinhood, which offers brokerage-free trading and also gives new customers a free share, now allows stock trading with so-called “fractional shares”, ie parts of a share. That means you can buy Tesla shares for $100, even if a single share costs around $850. That makes it easier to participate in the market, even with very small amounts. Lowering the barriers to entry for the stock market is a double-edged sword – both a democratization and an increased risk exposure.

The biggest factor that distinguishes what we now see from what we have been used to is its scale. When I wrote about the Wall Street bets forum on Reddit last week, it had 3.5 million members. Now the figure is 8.4 million. When millions of people can buy shares, on their mobile phones, with as little as $10 in investment – then shock waves are created in the financial system. Shock waves that get bigger by millions of participants who watch, discuss and trade on the stock exchange together. Many of them are now also forced to discover a truth that the most hardened stock traders have known for a long time: stocks do not just go up in value.

A stock market bubble filled with anger

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 28th, 2021.

First the Capitol was stormed by users from internet forums. Now it’s Wall Street’s turn. The Gamestop story is a perfect storm of pent-up anger and risky financial instruments that are now traded at the touch of a button.

In the early 2000s, the American journalist James Surowiecki wrote an acclaimed book called “The wisdom of crowds”. His thesis was that a properly composed group of people together arrive at better answers than each individual.

What we have seen in recent days in the Reddit forum Wall Street Bets is closer to “The anger of crowds”. This is not wisdom from a group – it is anger. An anger that is coordinated, risk-prone, and directed directly at hedge funds and the rest of the Wall Street establishment. By coordinating the purchase of heavily shorted shares, the internet forum has succeeded in creating such a sharp rise that hedge funds must buy shares to save their positions – a so-called short squeeze. Surowiecki describes the development with Gamestop and a number of other shorted shares as a modern internet-mediated stock manipulation.

It would be easy to dismiss the events as just that. But if you read more closely in the forum, this is not just a tactic to make money on option contracts. It is equally important that hedge funds lose huge amounts of money. There were cheers, for example, when hedge fund Melvin Capital needed a $3 billion capital injection as a result of their actions. It is seen as legitimate after many years of what they think is inadequate regulation and huge gains on Wall Street. Or as one Twitter user eloquently summed it up: “Oh no, the wrong people are manipulating the stock market.”

What is happening is a perfect storm that we are likely to witness for a long time to come.

We have a generation that has grown up on the internet, and that seamlessly organizes, discusses, and socializes on social media. Their financial situation looks significantly worse than their parents’, while US student debt amounts to $1700 billion – a doubling since 2010. They saw their worldview change with 9/11 and their economy shattered in the financial crisis.

This group has now been armed with financial instruments that were previously inaccessible to the broad market. Apps like Robinhood, which offers brokerage-free mobile trading, have enabled option trading for millions of people. It is high risk and moves fast. Many people see the stock market more as a casino than as a trading place. In this respect, there are also great similarities with the cryptocurrency bitcoin.

These two things combined have created a risk-averse, angry, and skilfully organized new power factor on the stock market. The people’s own activist fund.

The behavior is also extremely difficult to regulate. The Wall Street Bets forum has over 3.5 million members. On Tuesday, Gamestop was the world’s most traded security. These are not institutions that act. It is crowds of individuals who synchronously do it with the same kind of outcome. But who is then responsible?

What we saw in connection with the storming of the Capitol and with Gamestop this week are two sides of the same coin. These are self-organized groups that are tired of a system that they think has disadvantaged them. They are angry, and now they are taking matters into their own hands – albeit in very different ways.

The rules of the game are now being rewritten very quickly and have no real precedent in history. The personal financial risks are enormous, and can be a severe blow if the air goes out. As Bloomberg journalist John Authers put it: “I don’t want to see the consequences when history’s first angry bubble bursts”.

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Apple snubbed Tesla – now they are competing for the cars of the future

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 28th, 2021.

Elon Musk wanted to sell Tesla – but did not even get a meeting with Apple’s CEO Tim Cook. Today, they are about to become competitors instead. But both have a common view on how the cars of the future will be developed – electric and self-driving.

With today’s share price, it feels like ancient history. But in 2013, things looked dark for Tesla’s CEO, Elon Musk. Car sales did not pick up and it would be another four years before they could launch their cheaper version, the Model 3. Musk approached Apple CEO Tim Cook at the time to inquire if they were interested in buying the company.

Cook refused to even meet with Musk.

The rest is, as we say, history. Cook probably regrets it today. Apple’s long-standing and infamous car investment – Project Titan, which has been going on since 2014 – is delayed, Tesla shares soared and made Elon Musk the world’s second richest person. On Wednesday night, the two companies came with earnings reports – very strong results for Apple, a market disappointment for Tesla.

To understand why cars are even on Apple’s agenda, one need look no further than to Silicon Valley, where I lived and worked for eight years. Every day I saw anonymous cars crammed with sensors. Two people were sitting in each car – but they were self-driving. Their job to collect data calibrate the software. This is also confirmed by vehicle analyst Sam Abuelsamid, who told Axios that “the only thing we actually know for sure is that they have developed and tested automated driving systems”. Building cars is about hardware engineering. Building self-driving cars is about software.

Apple’s interest in cars is not surprising. They are usually not the first with innovations – iPhone and Apple Watch were far from that in their respective segments – but are good at combining hardware and software to create a good experience.

The focus in recent years has been on service development where margins are better and predictability greater. And it has worked – in Apple’s latest quarterly report, services account for 14.1 percent of revenue, $15.8 billion in total.

Apple’s view of margins gives us a clue as to how they think about the car investment. Apple has a gross margin of 38 percent, while the corresponding figure for Volvo Cars is around 16 percent and Tesla at 19 percent. Regular car sales from Apple is therefore unlikely – it simply does not fit. If, on the other hand, you see self-driving cars as a service, rather than a product, it becomes more logical. Maybe Apple Taxi, rather than Apple Car?

This is also where Musk and Cook meet. Elon Musk predicted that he would have a fleet of driverless Tesla taxis by the end of 2020. That has still not happened. But what other carmaker would even formulate that idea? And here we also find part of the explanation for Tesla’s incredible price development over the past year.

Aswath Damodaran, a professor at New York University, describes Tesla as a “story stock”. That definition requires that you are a young company, that you act in a giant market, and that the CEO is a brilliant storyteller. Tesla has all three. And this type of story attracts attention, even from people who do not normally trade in stocks.

When the app Robinhood, which offers brokerage-free stock trading, summed up the year for a 20-year-old student, it turned out that he checked Tesla’s stock price 18,656 times in 2020 – over 50 times a day. When you have that kind of appeal, in combination with an app that has opened up the stock market for a new generation, a p/e ratio over 1,700 matters less.

Tesla represents a new generation of car companies that believe that it is easier for a software company to learn how to build cars, than it is for a car company to learn software. This applies to both electrification and self-driving. These two changes are so great that a clean piece of paper can be a better starting point for speed than being a colossus with a lot of history.

This is exactly what one of the US ditto – General Motors – realized when they already in 2016 acquired the self-driving company Cruise for over a billion dollars. Today, Cruise is valued at $30 billion and has just raised $2 billion in new capital from Microsoft and Honda. At the same time, GM’s own share price is up close to 100 percent in the last quarter.

For all car companies – old and new – it is ultimately about how many cars you can deliver. And here it is worth remembering the actual starting point. In the last quarter of 2020, Tesla delivered just over 180,000 cars, while the corresponding figure for GM was just over 770,000. Apple has – so far – not delivered a single one.

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The gloves are off in the Biden-Zuckerberg fight

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 23rd, 2021.

“I think he’s a real problem.” Joe Biden’s statement about Mark Zuckerberg means that the gloves are off in the battle between Washington and Silicon Valley.

Suddenly, almost everything felt normal again. Just a couple of hours had passed since Joe Biden took over as president when Twitter began filling up with jokes. Not least thanks to the historical photos of Bernie Sanders, who was wearing a winter jacket and mittens during the ceremony. Twitter breathed a sigh of relief after four years of chaos.

It will likely be a brief break, especially for the tech companies’ executives who will probably need to take a deep breath and prepare for the next two years. Much is at stake and all political power is currently with one party – the Democrats control the White House, the Senate and the House of Representatives.

Everyone can agree that these are important issues to be settled. The amount that tech companies spend on lobbying has increased as Silicon Valley has become even more visible on Washington’s political agenda. Today it amounts to about $80 million – up over 600 percent since 2005. That is more than the financial world or the automotive industry spends.

The tech companies are now looking closer at three key points.

1: The tech companies do not want to split up – but can ask for more regulation.

There is already a historic lawsuit running against Google. It’s about them being the default search engine in many browsers. This is considered to be the first of many similar processes where other companies will soon come into focus. Joe Biden’s view of Facebook, for example, became clear when he commented on its CEO Mark Zuckerberg with the words “I think he’s a real problem” and the addition “I have never been a fan of Facebook.”

Here, Facebook’s lobbyists are might pursue a, for many, surprising line of argument – to expand the regulation of tech companies. One can see legislation as a way to limit the power of individual companies, but one can also see it as a way to keep new companies out of the market. Dealing with complex legislation is expensive, something that Facebook can afford. Smaller competitors do not necessarily have the same financial muscles. The regulation could thus prevent small companies from growing, even if that isn’t the intention.

Additionally, there is political momentum from both political sides regarding these issues. The question arose even before Biden took power, when the lobby group American Economic Liberties Project released a series of reports that specifically pointed to the problems that arise from increased power centering around Amazon, Google and Facebook.

The work of the lobby group is led by Sarah Miller. She worked closely with Joe Biden in his transition team, regarding issues such as the size and position of tech companies.

2: A disputed law gets torn up – and to the delight of the tech giants gets a cumbersome replacement.

After the storming of the Capitol, it is clear that the current legislation is not only inadequate, but can also be directly detrimental to democracy. The storming was planned on the tech companies’ platforms, without being able to hold them accountable at all. The issue falls under Section 230 – a law that decouples tech companies from what is said on their services.

In an interview with the New York Times, Joe Biden said that “Section 230 should be revoked immediately.” He also approached the EU by saying that “we should set standards, not different ones that Europeans have in terms of integrity”. A welcome position for the EU after years of more frosty transatlantic diplomacy. The President of the European Commission, Ursula von der Leyen, has called Biden an “ally” when it comes to regulating tech companies. This is an opening for more international co-operation regarding legislation.

Taking responsibility for what is expressed on one’s platform is time consuming and expensive, but not impossible. It is therefore conceivable that the large companies do not lobby to keep Section 230, but ensure that the law that replaces it becomes cumbersome to follow. It would also benefit large and resourceful companies – those who also primarily lobby in Washington.

3: Return to pole position in the international talent hunt.

As one of his first actions, Joe Biden extended DACA – the law that was enacted during Barack Obama’s time in the White House and that gives children with parents without residence permits a path to American citizenship. Apple CEO Tim Cook noted with satisfaction that “we welcome President Biden’s commitment to push through comprehensive immigration reforms that reflect the American values ​​of justice and dignity.”

Although the tech companies have some employees who are affected by DACA, their interest in these issues is mainly about labor immigration.

The tech companies have a hard time finding enough engineers and have become dependent on visas that allow people from other countries to work in Silicon Valley. Donald Trump severely limited the number of visas issued, which created major problems when it came to recruitment. Here it is up to the tech companies to quickly ensure that the political power enables international talent hunting again. Something you have been lagging behind since Trump’s changes.

Three points – three battles. The fight can begin.

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No one wins in a lawless land for tech companies

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 15th, 2021.

The uncertainty about what applies when infrastructure giants such as Amazon Web Services shuts down individual companies benefits no one.

In August 2017, after the riots in Charlottesville, USA, Cloudflare decided to shut down the Nazi site The Daily Stormer. Cloudfare is a company that provides cloud services and in a blog post, its CEO, Matthew Prince, explained his actions:

Like a lot of people, we’ve felt angry at these hateful people for a long time but we have followed the law and remained content neutral as a network. We could not remain neutral after these claims of secret support by Cloudflare.

Now, having made that decision, let me explain why it’s so dangerous.

Matthew Prince, CEO of Cloudflare

He then questioned his own decision, asking for guidelines that all companies could follow in similar situations.

Matthew Prince was clearly ahead of his time. But no clear directives or legislation have emerged since his statements.

Last week’s attack on the US Congress – and the actions of the big tech giants – illustrated the consequences of just that. When Twitter and Facebook shut down Donald Trump and also threw out a large number of other users, they did so based on their own policies.

Most recently, it was Amazon Web Services’ AWS turn when they shut down Parler, the right-wing app. The discussion that followed has been about both the tech companies’ role on the internet and about freedom of speech in general – should private companies be able to decide which sites can be hosted on their servers?

This is no small matter. AWS is one of the world’s most important internet companies. You probably use them every day without noticing it. Like Cloudflare, they belong to a category of companies that offer cloud services that enable the world’s largest sites to work.

These companies thus have enormous power. Starting a new website or app and not relying on any third party services is virtually impossible today. Everyone who builds something digitally is to some extent dependent on services similar to AWS.

And when they decide to close a service, the principle of their decision carries a lot of weight.

AWS itself has justified the closure of Parler by referring to its terms where it prohibits “activities that are illegal, that violate the rights of others, or that may be harmful to others”.

The fact that there has been no legislation can be partly explained by the slowness of politics. But regulating these types of services and businesses is anything but easy. The servers are often owned by US companies, but can be located anywhere in the world. Sites can also use cloud servers from many places at once, and have users from all over the world. No matter what one thinks of legislation or regulation, it is not obvious which body would even be appropriate to push through and ensure compliance.

It remains to be seen whether the events of recent weeks will lead to the kind of regulation that Matthew Prince asked for, four years ago. It is clear that the current situation creates an uncertainty that does not benefit any party.

In the near future, consequences in business is more likely. For Amazon, the political risk with AWS may soon become too great. They are already a major powerhouse in e-commerce and probably do not want to attract more attention for it. A possible solution for Amazon would therefore be to spin out AWS as a separate company instead. Last year, AWS had sales of $40 billion so the size alone could justify such a move.

Whatever happens, no one is happy with the current situation. While the world waits for order on these issues, tech leaders continue to question their own actions. As Jack Dorsey, CEO of Twitter, put it:

I do not celebrate or feel pride in our having to ban @realDonaldTrump from Twitter, or how we got here. After a clear warning we’d take this action, we made a decision with the best information we had based on threats to physical safety both on and off Twitter. Was this correct?

Jack Dorsey, CEO of Twitter.

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The storming of the Capitol is a failure for Twitter and Facebook

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 11th, 2021.

The fact that Twitter and Facebook closed down Donald Trump’s accounts doesn’t only reveal how arbitrarily their own policies are enforced – it also shows the failure of politicians in regulating them.

With two weeks left of Donald Trump’s presidency, what critics have constantly asked for over the past four years finally happened: his accounts on Facebook, Twitter and a number of other social networks were shut down. The companies justified their actions in a similar way – that Trump’s remarks threaten a peaceful and democratic transition of power in the United States to Joe Biden.

These are historical decisions. But they also reflect the lawless country that the tech companies are in, and what a difficult balancing act they have ahead of them.

In the absence of regulation and clear laws, tech companies have had to develop their own policies. The actions over the last few days, however, have shown how they are stumbling in the dark, seeking the public’s approval of how to deal with these issues in a consistent manner in the future. Just look at Twitter, where the threats of what could happen to Trump’s private account, which had about 90 million followers, often seemed to change with public opinion.

The tech companies have had many years to clarify their rules so that everyone, including Donald Trump, understands what applies. They could have shown that breaking the rules earlier has consequences. But while companies have worked on their internal rules and regulations, they have at the same time allowed disinformation and conspiracy theories to receive millions of views – completely unchallenged. It is a late awakening that is happening.

For example, Reddit shut down a notorious forum where Trump’s supporters discussed the alleged election fraud. Apple’s App Store and Google Play shut down the right-wing network Parler, which has been around since 2018, because they did not moderate the discussions in their app well enough. But in order to gain credibility in these matters, it is of course also important to first take care of your own issues. Youtube, owned by Google, is responsible for millions of views of conspiracy theories. Here, the company has so far chosen not to act.

This is therefore a situation that the tech companies have largely put themselves in. And it is urgent to find sustainable solutions. The alternative is for politicians, who should no longer be able to close their eyes after the storming of the Capitol, to do so for them. That would probably not be to Silicon Valley’s advantage – the politicians’ competence in these matters has historically proved to be lacking.

Because even if the problems culminate now, they are not new. Politicians have neglected their responsibility to regulate these companies for more than ten years.

So far, much of the discussion in the US has been about Section 230, which regulates the responsibility of tech companies for what is said on their platforms. Trump just got his first veto, in which he tried to get the legal protection revoked, overruled by the Senate.

The politicians, however, could have done a lot that does not concern this particular law. They could have been more forward-looking. They could have blocked new acquisitions that reduce competitiveness. They could have legislated on data ownership so that consumers could easily switch to new digital services. This would have enabled new companies to start and become competitive without having to start from scratch.

Instead, much in the US and the EU has been about lawsuits over events that have already occurred, such as anti-trust. But the same politicians who now question this particular concentration of power, were the same ones who approved Facebook’s acquisition of Instagram and Whatsapp. They approved Google’s purchase of Youtube, Nest, and most recently Fitbit. The biggest policy reform on the European level – GDPR – has been accused of being toothless and lacking the resources to be effective. As a consumer, you notice it mainly through more pop-ups on the web.

In Sweden, we follow the EU agenda to a large extent. But there is room for national initiatives here too, even if they have so far been largely absent. Denmark, for example, has its own tech ambassador whose mission it is to create better relations with the tech companies and understand Silicon Valley to a greater extent. There is nothing similar in Sweden, but when the expertise is lacking with politicians, maybe it could be something to look at? During the Christmas weekend, we learned that our own Prime Minister never even shopped online. Before we get elected officials who prioritize – or even use – technology, we are unlikely to be at the forefront of these issues.

There is therefore a great risk that the lawless country – in which politicians neither understand nor are able to legislate tech companies in a clear way – is allowed to continue to grow almost unhindered, and where faltering tech companies will have to try to develop and enforce their policies.

Left, squeezed between tech companies and politics, are we – the consumers. The ones who see the surreal pictures from Washington DC on Facebook or Instagram. Without many of us even reflecting on how the two things are connected.

This analysis was first published in SvD Näringsliv, in Swedish, on January 11th, 2021.

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Opened 300 restaurants in one day – without any kitchens

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 24th, 2020.

An American Youtube star opened 300 new restaurants in one day. Without either staff or premises. The phenomenon “ghost kitchens” is expected to reshape the restaurant world – and already exists in Sweden.

“Ghost kitchens” – or “cloud kitchens” as they are also called – can simply be described as a restaurant kitchen without its own front of house. Instead, the owner relies entirely on food suppliers such as Foodora, Wolt or Uber Eats. Where the food is made does not matter, as long as it tastes good and is delivered as planned. And that is what makes “ghost kitchens” so successful, and its emergence so logical.

The first wave of home delivery, which came five or six years ago, was mainly about getting well-known restaurants and restaurateurs to join the food apps. Then it was all about trying to drive people’s behavior towards starting to use these services.

In the second wave, customers had begun to become loyal users, and could search directly in the apps for the type of food they wanted. In some cases, the search results became more important than the original brands.

This week we saw the beginning of the breakthrough for the third wave when MrBeast – a 22-year-old Youtuber from North Carolina with nearly 50 million subscribers – opened 300 hamburger restaurants across the United States. In a single day. Without either restaurant staff or kitchens.

The food is made by various chefs around the United States, whom MrBeast has probably never even met. He then uses the food delivery services to get the food delivered, but keeps the customer relationships in his own channels. And that’s the main reason for the immediate success, as the new app MrBeast Burger went up as number one on the US App Store. He handles the marketing all by himself via his Youtube channel to his fans for no money at all.

However, MrBeast has not been quite as innovative as it sounds. He himself is just one of many celebrities that Virtual Dining Concepts – the company behind MrBeast Burger – works with. For example, you can also buy chicken from the rapper Tyga or cookies from Mariah Carey.

The difficulty with this model is maintaining quality. Many restaurant chains has as a concept that the food should taste the same no matter where you eat. That is difficult to achieve if the kitchens work with different ingredients and ways of cooking it.

That an individual restaurateur can be attracted by the concept is not surprising. Becoming a franchisee with one of the big chains is often expensive. Building your own chain of physical restaurants around the country is even more expensive. Avoiding these costs, and being able to be a so-called virtual kitchen for several different brands, can therefore be appealing. Because if you still do not have a front of house – why limit yourself to one kitchen, or one brand?

For the consumer, on the other hand, it becomes unclear who actually cooked one’s food and where it comes from. On the other hand, how many people today know where the food at their favorite restaurant comes from?

The phenomenon “ghost kitchens” also exists in Sweden. For example, if you have ordered food from Singapore Spice in Stockholm, you may be surprised to hear that it does not exist as a restaurant. It’s just a brand used for Asian food. The same kitchen on Östermalm also makes Italian food under the Nonna Donna brand. Maybe you have ordered from both without noticing anything. That is the whole point.

It is easy to see in front of you how Swedish influencers pick up on this trend and drive the big breakthrough. Swedish consumers are now used to ordering food and having it delivered to their homes. The question is more about what to eat than from whom. And it is basically the same question (“What should I shop?”) that has created a completely new professional category as an influencer on Instagram and Snap. It is therefore not entirely unbelievable that we will soon see people like Bianca Ingrosso, Kenza Zouiten and Therése Lindgren make their entrance into the Swedish restaurant world.

You click, Foodora delivers, and Bianca Ingrosso is suddenly also a restaurateur for the next generation. It will be difficult for an average restaurant to compete with her 1.2 million followers on Instagram – and with her credibility in the target group.

This analysis was first published in SvD Näringsliv, in Swedish, on December 24th, 2020.

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The situation for Apple resembles a two-front war

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 18th, 2020.

“We’re standing up to Apple for small business everywhere.” That is what Facebook wrote in a series of full-page ads in American newspapers this week. The situation for Apple is now beginning to resemble a two-front war when both Silicon Valley and the media world attack from different directions.

In recent years, Apple has taken an increasingly clear stance on transparent data management. Their view is not to store data from users – unless they know about and accept it. But in order to gain acceptance, one must also ask the question. This is the issue for Facebook, which has had a long conflict with Apple regarding these matters.

In Apple’s new operating system iOS14, the company will ask if you want to allow data collection from each app. If the user says no, the accuracy of the ads will be worse for instance. This is a minor issue for Apple, which does not have ads as its business model, but for competitors such as Amazon, Google and Facebook, it could be devastating. The accuracy of the ads deteriorates radically. And especially for Facebook, this is bad and also the timing, as they are pressured by a new major political investigation.

So what do the small businesses mentioned in the ads have to do with this? Not much really. But as so often, tech giants use them as a front to protect their own interests. Apple recently did the same with smaller app developers. Now it is Facebook’s turn, when it claims that small businesses will have a 60 percent worse effect on their ads if the change is implemented. That could be true, but don’t think for a second that this is where Facebook’s real problem lies in this issue. It is that the company itself, as a direct consequence, risks selling fewer ads. Small and medium-sized companies today account for the majority of the company’s revenues.

This week, Apple also got other worries, albeit from elsewhere than Silicon Valley. A lobby group calling itself the Coalition for App Fairness (CAF) announced that a large number of media companies have joined as members, including the New York Times, the Washington Post and the Financial Times. CAF is pursuing the issue of “Apple Tax”, which is what the detractors call the 30 percent fee that Apple charges in the App Store for purchases made there. Among the members of CAF you will also find Epic Games (which makes the game “Fortnite”), Match Group (which owns Tinder), and Swedish Spotify.

The pressure is now increasing on Apple. While dealing with the high-profile lawsuit with Epic Games, where the game developer claims that Apple is abusing its dominant position in the mobile apps market, a long series of political processes are underway to examine whether the company has acted as a monopoly. The fact that more and more well-known companies are raising their voices shows that this is not an individual dispute between Apple and a game developer, but a major structural issue that probably will need to be resolved politically.

Among the smaller developers, criticism has been aimed at Apple for several years, but very few have been willing to speak about it in public. The risk of ending up in conflict with their most important – and perhaps only – marketplace has been too great. The importance of several large companies joining CAF is therefore great, as each individual developer is less exposed.

When it comes to advertising, Apple has undoubtedly chosen a smart strategy. By positioning itself as the user’s best friend regarding data, it has also set hooks for its competitors. It is difficult to sell ads without the data, and the iOS platform is incredibly important for all advertisers.

However, it should be remembered that this is a relatively new strategy for Apple. In 2010, they bought a company called Quattro Wireless for $275 million. It then laid the foundation for Apple’s own advertising system – iAd – which they had until the summer of 2016. In four years, they have gone from selling ads themselves, to making life difficult for all other advertising networks. That this matter is solely about the users’ best interests is therefore, to say the least, a beautification.

Apple and Facebook have – despite all the quarrels – one thing in common. They look after their own interests first, but prefer to talk about the users and small businesses that benefit from their success.

This analysis was first published in SvD Näringsliv, in Swedish, on December 18th, 2020.

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Dylan has millions of reasons to thank Spotify

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 9th, 2020.

Artists often complain about the payouts from Spotify – but this week Bob Dylan had reason to thank them instead. Spotify has boosted the value of his song catalogue, which has been sold for around $300 million.

During the early 2000s, the music industry looked rather gloomy. They had major problems with illegal downloads, and record sales went downhill. From 1999 to 2014, the record industry lost around 44 percent of revenue.

Then came Spotify, which launched in 2008. It was not only the start of a huge Swedish success story in tech, but also changed how the music industry and songwriting work. The business model fundamentally changed.

Simplified: When you previously bought a CD, the record company, the artist, and the songwriters all got their share of the pie. The more records you sold, the more money you made. But it also meant that if you did not release any new records, earnings were limited.

On services such as Spotify and Apple Music, the business model is instead based on the amount of listening. This means that old songs can keep on generating new money. An artist like Bob Dylan, who has millions of fans around the world, is also quite predictable when it comes to the number of streams. The number of people who listened to “Like a Rolling Stone” last year is probably about as many as the year after. It makes it easier to calculate the value of the old music rights. In the last five years, music catalogues have sold for up to 20 times higher than the annual royalty income.

This predictability has created a completely new market where old rights are now being bought and sold actively, not infrequently by new listed companies such as Hipgnosis and Round Hill Music. The goal is not only to manage the music, but in many cases also to work together with the songwriter, who sometimes retains a share of the rights, to increase the number of listens.

The fact that Bob Dylan is now selling his entire song catalog to Universal Music Publishing Group for an estimated $300 million is a telling example. The deal won’t be the last in the mega-trend that has now begun to sweep through the industry. Stevie Nicks and RZA from the Wu-Tang Clan, among others, have previously sold parts of their rights in 2020.

Investing in these assets is attractive. In a market where interest rates are low, there is risk-willing capital to invest in more unconventional places. In recent years alone, the rights companies Concord, Primary Wave and Hipgnosis have jointly spent over $3 billion on buying music catalogues.

The growth for the companies come from that streaming is gaining ground. In some countries, it has barely begun. In Japan, the CD has a market share of 69 percent, while streaming is 19 percent. In Sweden, the corresponding proportion for streaming is over 90 percent.

The companies that buy these rights thus believe that listening to music in countries like Japan will follow the Swedish development. It is also believed that more money will be paid out from other types of music services over time – for example from YouTube or Tiktok. Music rights then become digital commodities, which can be valued with the help of data, and refined through marketing.

Selling music rights in this way is not always uncontroversial. Pop star Taylor Swift has in the past year been in a very public feud with the music profile Scooter Braun, who bought Swift’s previous record company and thereby much of the rights to her music. Braun recently resold the rights to Shamrock Capital, a company owned by the Disney family. Taylor Swift will now make new recordings of her songs, to try and avoid others capitalizing on what she considers to be her music.

As Bob Dylan himself once said – in the song that has over 140 million listens on Spotify – “the times they are a-changin ‘”.

This analysis was first published in SvD Näringsliv, in Swedish, on December 9th, 2020.

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