Moonpay Wants to Become the PayPal of Crypto

October 23, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 23rd, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The PayPal of crypto — that is what Moonpay is trying to become. Whether they succeed or fail will say a great deal about how the wider crypto market develops.

Crypto company Moonpay made a splashy entrance into the startup world when it raised one of the largest investment rounds ever for a young company — $555 million, around six billion kronor. The idea: to let people buy cryptocurrency and NFTs using ordinary credit cards.

The concept might not sound especially radical, but anyone who has tried to buy and sell cryptocurrency knows it is anything but simple. Moonpay is trying to be the bridge that makes it possible to both acquire and use cryptocurrency.

Actually being able to spend your bitcoin on something is also an unsolved problem. For the sector to achieve a real breakthrough, cryptocurrency needs to become normalised and usable in ordinary shops. That is what makes Moonpay worth watching — they are a telling indicator of how that development is going.

Will it become a new payment method for the masses? Or will we look back on it as a technical experiment that went off the rails?

Business model: Enable people to buy cryptocurrency and NFTs using ordinary credit cards. Notable figure: Raised six billion kronor to become the PayPal of cryptocurrency.

Netflix Launches Ads in Bridgerton and Stranger Things

October 19, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 19th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

In an increasingly squeezed streaming market, Netflix is launching a cheaper, ad-supported tier. But the company may need more radical change to stay competitive.

That was the mood back in April, when Netflix announced it had lost subscribers for the first time in ten years. The stock dropped more than 25 percent immediately. The share price has stayed under pressure, with the company down nearly 60 percent since the start of the year. Markets were therefore watching closely when Netflix presented its quarterly results on Monday evening, eager to see how the company was holding up amid roaring inflation and an approaching recession.

The feeling was something like a comeback. In a letter to shareholders, Netflix now says “we believe we’re on a path to re-accelerating growth.” The company added more than twice as many new subscribers as the market had expected, and the share price surged in after-hours trading. Revenue was slightly lower than the previous quarter, however — so the key factor was really the low expectations set earlier in the year, rather than a clear-cut turnaround.

Much of the way forward will hinge on the new ad-supported tier Netflix is launching in November. The aim is to attract new customers at lower prices — not to push existing subscribers to downgrade. The launch covers twelve countries, though Sweden is not on the list yet.

The ad-supported model is borrowed from Netflix’s closest competitor, the American streaming service Hulu. Hulu offers two types of subscription — one with ads, one without. The latter costs roughly twice as much, but it is actually the ad-supported tier that generates more revenue for Hulu overall. This is an income stream Netflix cannot afford to ignore, even if they held out for as long as they could before looking at advertising solutions.

Looking at the competitive landscape, Hulu sits at the centre of that too — even for the Swedish market, despite the service not being available here. The reason: Hulu is owned by Disney. They hold a majority stake and will be required to buy the remaining 33 percent from telecoms giant Comcast in January 2024. The deal came about after Disney bought 21st Century Fox for $71.3 billion at the end of 2017, gaining a majority of Hulu in the process but negotiating the right to buy out Comcast later. That moment is just over a year away. At that point, Disney will own three separate streaming platforms — Hulu, Disney+, and the sports service ESPN+.

Does that sound complicated? It is. Which suggests more mergers and consolidation to come. You only need to look at deals already agreed to see where this is heading.

Discovery and Warner Media — owner of HBO and CNN, among others — are currently in the middle of a merger that has led to mass layoffs and internal confusion. The resulting company also has two streaming services of its own: Discovery+ and HBO Max. One of the smaller players, Paramount+, is considering merging with the film service Showtime.

So there will be fewer owners of streaming services. And that will likely mean fewer — but larger — platforms competing with each other.

This is Netflix’s core challenge. From being seen as a tech giant, they have shrunk so much on the stock market that they could plausibly be a takeover target themselves.

Big players like Apple and Amazon still treat streaming as a small component of a much larger business. Apple doesn’t need to make money on TV shows as long as people keep buying iPhones. Amazon is happy if streaming brings in more Prime members. As one example, Amazon completed its acquisition of film studio MGM for $8.5 billion this spring — barely a third of what Amazon pulls in annually from Prime subscriptions alone.

Netflix’s quarterly results on Tuesday evening were a step in the right direction. Combined with the new advertising strategy, they could mark a fresh start for the company. But as competitors merge and grow ever larger, Netflix stands alone on the sidelines. Being independent was once a competitive advantage. Now it looks more like a risk.

Not Even Meta Believes in Zuckerberg’s Metaverse

October 12, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 12th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The metaverse bet is costing billions — and prompted Facebook to rename itself Meta. The stakes couldn’t be higher, which came through clearly in the pre-recorded message that opened the company’s big developer conference.

Mark Zuckerberg, Meta’s founder and CEO, had a clear message for viewers as the company’s developer conference kicked off on Tuesday evening Swedish time. The metaverse — the three-dimensional world into which Zuckerberg has poured both his prestige and billions of dollars — deserves your belief.

The shift has permeated the company so completely that they changed their name, from Facebook to Meta. Giving up any time soon is simply not an option.

This also explains the slightly desperate, over-eager tone of the opening pre-recorded presentation. Meta needs this massive bet to pay off, and for that to happen, it needs to convince the world’s developers to start building on its new platforms. That the sales figures for select developers were among the first things mentioned was no coincidence. The message was clear: there is money to be made here.

Launching a new tech ecosystem for developers, companies and consumers is notoriously difficult. When Microsoft tried to launch a new mobile operating system in 2015 — Windows 10 — they spent hundreds of millions just convincing app developers to come on board, on top of billions in development and marketing costs. And that was for an established product category — a smartphone operating system — that everyone understood. It still failed, and the project was shelved just two years later.

What Meta is trying to do now is significantly harder. They need to explain why anyone would want to put on a large helmet-style headset and transform into an animated version of themselves. To make things even more complicated, they also need to build the hardware that makes it possible.

The question is entirely fair. Listening to Zuckerberg and his executives, it is all about creating meetings where you feel more “present” and can more easily “express yourself” — a “social” space where you can meet people, play games and work. The presentation featured Microsoft CEO Satya Nadella, who has this time decided to support someone else’s ecosystem rather than build his own. Soon you will be able to use the Office suite in a three-dimensional world. It is hard to believe that was top of anyone’s wish list, though.

Internal analytics showed that not even Meta’s own employees were using the product they were working on.

Even those closest to the project have started to doubt. Internally at Meta, the big metaverse project has reportedly — according to the New York Times — come to be known by the acronym “MMH”: “Make Mark Happy.” Keeping your boss happy is likely a powerful motivator at many companies, but as a business strategy it tends to leave a great deal to be desired.

In a leaked memo, Meta’s head of metaverse Vishal Shah urged staff to spend more time in the company’s flagship VR product, the game Horizon Worlds. Internal analytics showed that not even the employees working on the product were actually using it. Shah summed up the problem in a simple question to his colleagues: “If we don’t love it, how can we expect our users to love it?”

Second Life — influential but only modestly successful — launched back in 2003. Had it come out today, we would have called it a metaverse too. It was a 3D world where you could meet other people, socialise and take part in cultural projects. In 2007, Sweden even built a virtual Swedish embassy there. In hindsight, the project was simply too early, and the platform never really took off.

Now — almost twenty years later — many inside Meta are asking themselves the same question. Horizon Worlds has reportedly 300,000 monthly active users. Compare that to Facebook’s 2.9 billion and you get a sense of what lies ahead before the metaverse becomes a meaningful part of the business. Mark Zuckerberg is certain it will get there. But he appears to be largely alone in believing that, for now.

A Court Founded in 1792 Made Elon Musk Back Down — Now He’s Buying Twitter

October 5, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 5th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

A court founded in 1792 appears to have done something remarkable: made Elon Musk back down. And this before the trial had even begun. It now looks like he will become the owner of Twitter after all.

This sleepy little state, tucked just south of Pennsylvania and New Jersey, has found itself an involuntary centrepiece in the drawn-out battle between billionaire Elon Musk and social media giant Twitter.

In less than two weeks, a trial in Delaware was due to begin. It would determine whether Elon Musk was obliged to go through with the agreement he had signed to acquire Twitter for around $44 billion. In short: Musk appeared to have had second thoughts and wanted out. Twitter wanted him to go through with it. The court would have the final say.

It now looks like there will be no trial — though the very last word has not been spoken yet. Yesterday, Elon Musk’s lawyers sent a letter proposing that the original contract be upheld as intended, on the condition that the trial is put on hold indefinitely. In other words: the legal odds of Musk winning appear to have been rather slim.

Musk is used to getting his way, and has never been afraid of controversy — in his personal life or in business. Tesla, of which he is CEO, bought his cousin’s company SolarCity for billions despite widespread criticism. And just days ago, he proposed a peace plan for Russia and Ukraine that was met with both fury and mockery.

In the Twitter case, however, his real opponent was not so much the social media company itself as a state’s entire identity.

Delaware is, in a word, extraordinarily business-friendly. Its population is just over one million. Its registered companies number 1.8 million. In 2021, 93 percent of all IPOs came from companies incorporated there.

Most of those companies have no actual operations in the state — making it, in effect, a kind of American tax haven. Certain fees and taxes must still be paid to take advantage of these benefits. This is lucrative for Delaware, and has become a cornerstone of how the state earns its money.

Central to all of this is that everyone feels comfortable doing business with Delaware-incorporated companies. And this is where the court — the Delaware Court of Chancery, founded in 1792 — comes in. It is one of just three states with a court of this kind, and it differs from others in its more flexible approach to disputes in areas where there is no precise legislation. Corporate matters fall squarely in that category.

Twitter’s argument was straightforward: Musk signed a contract to buy the company. He had to honour it. This brought a fundamental question into the frame — one the Delaware court might be called upon to resolve. Are signed contracts no longer binding? Uncertainty over something this basic could prove fatal to business confidence. Previous cases in the same court have compelled companies to complete deals they tried to walk away from.

Musk’s argument was that the volume of spam and fake accounts was large enough to damage the company, and that he should therefore not be required to complete the deal. But even on that point, the court has precedents around what constitutes “material harm” — how significant the damage must be to matter legally. That threshold is very high: around a 40–50 percent drop in revenue. Musk’s alleged bot problem would not have reached that bar, even if his numbers were right.

It now appears that Musk is being forced to close his multibillion-dollar Twitter deal after all. His legal advisors presumably looked at the full picture and concluded they were likely to lose — if for no other reason than this: Delaware cannot afford to introduce uncertainty into business contracts. The entire state runs on simplicity, clarity, and the fees that come with them.

Elon Musk is stubborn, innovative, and has achieved many apparently impossible things — mass-producing electric cars, building reusable rockets. Funny, then, that it took a court from the eighteenth century to make him give in this time.

Kardashian’s Fine Signals a New Era for Crypto Regulation

October 4, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 4th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Kim Kardashian’s million-dollar fine sends a clear signal to the crypto world: regulation is catching up. And nobody is safe.

Gary Gensler — chairman of the SEC, the US financial regulator — gave a speech at the Aspen Security Forum in Washington DC. Gensler had barely warmed his seat, having spent less than six months in his new role.

He then posed a rhetorical question: what does the SEC have to do with crypto?

Just over a year later, we have our answer: quite a lot. And it is only going to grow.

The Wild West era of cryptocurrency is drawing to a close, and regulators are now making it unmistakably clear that they are back in the game. How else do you interpret fining Kim Kardashian — one of the most famous people on the planet — for improperly promoting a cryptocurrency? Kardashian is neither the first, the last, nor the worst offender in this regard. But the signal value could hardly be greater.

In a slick, slightly tongue-in-cheek video, Gensler walks through how you often cannot tell whether the person promoting a cryptocurrency has been paid to do so, or whether their interests align with yours. So far, nothing especially radical. More interesting is the language used just above the video: the SEC charged Kardashian with peddling a “crypto security” — a crypto-based financial instrument.

That was precisely what was implied at the Washington DC speech in 2021. Cryptocurrencies should be treated like any other security, and we already have laws that regulate securities. The SEC stands for “Securities and Exchange Commission.” It was always inevitable that they would view this as a security.

Gary Gensler has credibility on these issues. He has taught courses on cryptocurrency at MIT. Within the industry, he has been seen as a guarantor that any new regulation would be workable and realistic — something that cannot always be said when politicians attempt to regulate technology. That said, crypto traders would probably prefer to keep things exactly as they are today — that is, an essentially unregulated market.

There is, however, a great deal that needs regulating. The scale of the problems has grown so large that it can no longer be dismissed as a niche issue. The cryptocurrency Terra, with a market cap worth hundreds of billions of kronor, lost 99 percent of its value in less than a month. The man behind Terra, Do Kwon, is now the subject of an international arrest warrant. Crypto lender Celsius Network went bankrupt last summer with a multi-billion kronor hole in its balance sheet. Just before the bankruptcy — and before customers had their accounts frozen — founder Alex Mashinsky managed to withdraw a large sum for himself. This was done, apparently, only to cover his taxes, according to a spokesperson.

On an almost daily basis, there are reports of people being hacked, technical failures that have wiped out savings, or outright fraud in the crypto space. Failing to take any legal action against this is becoming an embarrassment for regulators. That is the context in which to read Kim Kardashian’s fine — a warning shot of what is to come.

The regulation itself may turn out to be more familiar than many had expected. In another speech a few weeks ago, Gary Gensler said that “nothing in the crypto market is incompatible with securities laws.” This suggests there will be no bespoke regulatory framework for this new industry after all. Its participants may simply have to do what everyone else who deals in securities does — follow the laws that already exist. That could prove painful enough for the many reckless and unscrupulous players in the crypto market.

Viceroy Research’s Truecaller Bet Signals a New Era for Swedish Tech

October 3, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 3rd, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Viceroy Research’s short bet against Truecaller signals a new era for Swedish tech companies. Financial actors actively looking for opportunities to sink them is the kind of challenge many newcomers have never faced.

A lot can happen in 18 months.

During the spring and summer of 2021 sentiment was still hot and IPOs followed one another in quick succession. Barely a year and a half later we are in the diametrically opposite position. Tech companies have crashed all over the world — in many cases losing well over 50 percent in value.

Now comes the next blow.

Short sellers have started taking positions in Swedish tech companies and are pushing their agenda as activists to drive them down further. When momentum has turned, it is easier than ever to push the price of individual companies lower.

The latest example came last week, when Viceroy Research announced that they had taken a short position in app company Truecaller. On Twitter they described the company as follows:

“Truecaller is a Swedish ad and spyware app powered by a public phonebook that purports to prevent spam (not a joke).”

Not mincing words. In a 29-page document, Viceroy Research goes through what they argue is Truecaller’s breach of GDPR and a long list of other objections. Truecaller has responded to the claims and called them “incorrect and false”.

Frequent readers of the business press may recognise the name Viceroy Research. It is the same firm that last winter accused Ilija Batljan’s real estate company SBB of being “uninvestable”. This has led to a long-running conflict that has probably consumed a great deal of time and energy from both sides. In SBB’s case too, the criticism came at a point when the share price had started to move downward, and it has fallen sharply since.

Tech company Sinch ran into something similar this summer. The firm Ningi Research shorted them while accusing their financial reporting of being misleading by billions. Sinch shortly afterwards changed the way they report, and dismissed their CEO.

Shorting, as is well known, means speculating on falling share prices, something that is hard to do when stocks only go up. As long as the market valued growth highly, plenty of companies had a strong share price regardless of what their fundamentals looked like. Now that the market has turned, earlier lofty valuations add extra fuel for the short sellers.

In several cases it has been enough for them to argue that the company is overvalued. When they then make their case public, it has been an effective way to accelerate the move downward. Something both Truecaller and Sinch have now experienced.

The events show a new kind of challenge and phase for listed tech companies. The fall from the record levels of recent years is high — and there is money to be made on it.

For newly listed companies — or for retail investors following tech companies — a set of situations has emerged that we have not seen in many years in the tech world. When the Japanese super-fund SoftBank previously invested in companies, the world’s eyes turned to them. It was seen as a stamp of strength, and often came with high valuations. SoftBank was the investor that set Klarna’s highest valuation to date at $46 billion.

Now the situation is suddenly reversed. When SoftBank recently announced they had sold their stake in Sinch — Sinch’s share price went up instead. The market treated SoftBank as a risk rather than the mark of quality you might have got 18 months earlier.

The challenges are many for tech companies on the stock market right now. The market’s wish for growth has been swapped out for profitability. Share prices are under pressure and have fallen sharply, which makes staff option programmes worthless. And on top of that now come short sellers who profit from pushing this down further. Newcomers on the stock market look set for a rough ride ahead.

Why Gaming Companies Keep Getting Bought Up

September 26, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on September 26th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Billion-dollar deals in the games industry keep coming as the giants fight over the next big shift — games via subscription.

“These days every little game studio has an investment bank working for them.”

Christoph Hartmann, head of Amazon’s games division, sums up the state of the games industry in a simple way.

“I’ve been doing this for 25 years, and the number of game companies I’ve seen compared to what’s left today… […] Who is even still around?”

The question is entirely fair. The games market is in the middle of an enormous consolidation wave that is not yet over. Hence the need for bankers at game studios. There are lots of people calling to see if they want to become part of something bigger.

Just look at these deals from this year alone:

Swedish Embracer has so far made 17 acquisitions — just since February. Looking at the whole market, in the first six months of the year a total of 651 gaming deals worth $107 billion were struck — which is 25 percent more than all the deals in the whole of 2021. Consolidation is accelerating. But why?

There are three plausible reasons.

The first is how Covid affected the games industry at large. More time at home and limited opportunities for other activities benefited gaming companies enormously. Tailwinds in revenue gave game publishers the confidence to spend more on new projects — and to buy each other up. Add historically low interest rates for a long time and you have both cheap financing and unusually strong revenue. It became easy to go big on games — even for players that have traditionally not been particularly active there, such as Amazon.

Interest rates are now rising, but the trend appears to be holding, if you believe the analysts. “We are absolutely not in the final phase of this yet,” says Serkan Toto of analyst firm Kantan Games.

The second reason may be a shifted strategy around risk in game development. Embracer CEO Lars Wingefors described it like this to the Financial Times:

“If you make one game, you have a big business risk. But if you make 200 games, like we do, the business risk is smaller.”

Games — like TV series and films — are heading toward becoming ever more expensive and taking longer to produce. Quality expectations have risen sharply. But like other media, the risk is therefore also high. You can test your way to a certain point, but even a large investment is no guarantee that a game will be a hit. A single game studio can live and die with a single project — and perhaps work for several years on something that is never even released.

Embracer, the best example of a company pursuing this strategy, is betting that the sheer volume of titles released will guarantee a stability that individual studios struggle to create. But for that to work, you have to buy a lot of them. Which they have done.

The third, and probably most important, reason is a change in the business model for games. Big players like Microsoft and Sony are both betting heavily on games via subscription through services like Xbox Live Pass and PlayStation Plus. Even Apple — which has primarily been a platform for other people’s games — has had success with its subscription product, Arcade.

The subscription services have been around for a while but have become a major strategic focus in recent years. It is a big shift from buying games at a single price (common on console or PC) or buying smaller upgrades inside games (common for mobile games). Games often have to be designed differently to work in this new context. On top of that, you continuously need new games to motivate players to keep their subscription.

Like Netflix or HBO — who wants to pay for them if new series and films never come? And one way to guarantee a steady supply of new games is to own your own game studios.

It is not the first time the games industry has come together and grown bigger. Large companies like Electronic Arts and Japanese Square Enix reached their strong positions partly through acquisitions. But shifting your business model at the same time as you try to keep order among many new colleagues around the world — that is a new kind of challenge for the games industry.

TikTok’s Silence Speaks Volumes

September 23, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on September 23rd, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

TikTok dominates youth culture in the West, but when critical questions come up, they put a lid on it.

Who actually calls the shots at the world’s most popular app right now?

The question is being widely debated around the world, but a blog post by Swedish Marika Tedroff, a former employee on TikTok’s policy team, offers some insight. By her third week on the job she was writing global policies — that is, the rules dictating which content is published and prioritised — that affected a billion people.

In an interview with the newsletter Platformer, she describes how decisions were made lightly and quickly.

“I never got the impression that they [TikTok] had bad intentions, but rather a lack of awareness. […] I think the company’s hierarchical culture influenced these kinds of decisions; finishing the task was more important than doing it properly.”

Tedroff stresses in the interview that her experience at TikTok was mixed — she describes the company as both a fantastic place to work and toxic at the same time. A picture confirmed by others SvD has spoken with.

Keeping order among a billion users, while understanding how content is viewed in different cultures, is a complex task to say the least. And with low transparency both inside the company and toward the outside world, plenty of question marks remain about how decision-making at TikTok actually happens.

In connection with the Pontus Rasmusson investigation, SvD has contacted the company several times without receiving a reply. It is probably easier for TikTok to stay silent than to explain how they view Pontus Rasmusson’s posts, with their repeated sexual references, or the fact that he let young users call premium-rate numbers during a live broadcast on the app.

When SvD investigated TikTok last autumn with a focus on how the app handled issues around eating disorders, it also took a long time before a written answer came. Just before Christmas last year, TikTok announced that they had problems with the algorithm serving the same content and that it could be problematic if it concerned things like “extreme dieting”.

In light of the above, the interview with Marika Tedroff is interesting. She describes a complex internal process preceding decisions about TikTok’s rules. According to her, it involves legal, PR, lobbying, child safety and advice from outside experts. And she is clear that their work made a difference.

Fair enough. But without transparency about how these rules are followed, it is hard to judge what responsibility the platform actually takes for its content.

Several heavyweight names internationally are now taking a similar line.

Mathias Döpfner, CEO of media group Axel Springer, said in a conference speech that “TikTok should be banned in all democracies”. He accused Western governments of being “naive and dangerous” for allowing the app to operate in their countries. In the follow-up interview, Döpfner went a step further and called the app “a tool for espionage” for the Chinese regime.

One important dimension is that TikTok is only a product for Western markets. The domestic predecessor Douyin (which is also very popular, but in China) has entirely different rules and regulations. This despite the fact that the parent company, ByteDance, is the same. For Douyin the entertainment profile has been toned down considerably, and the company now says it is on its way to becoming more of a “lifestyle app” instead. That Chinese tech companies have shifted strategy in response to input from Beijing is something we have seen many times before.

The question the West should now be asking is how to relate to the power and influence the big tech platforms have. A billion people in a single app means many minutes spent every day. And even if the app is not explicitly engaged in outright spying, influence can still happen through the content that is presented. Former employees at parent company ByteDance have claimed they gave more visibility to pro-China news in another of the company’s apps. That this happens on TikTok can therefore not be ruled out.

Given all this, you can understand why TikTok does not want to respond when SvD gets in touch. The silence is telling. Do the Swedish spokespeople even know themselves how everything works?

But as long as the users keep coming back, the criticism is a lesser problem for TikTok. For the rest of us, the problem risks becoming all the greater.

Instabox and Budbee Merge as Venture Capital Demands Profitability

September 19, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on September 19th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When Instabox and Budbee merge, a new delivery giant is born. Behind the merger sits a bigger trend: venture capital owners think it is time for the companies to get big — so they can become profitable.

This summer the American magazine The Atlantic ran a piece on how the subsidies for the millennial lifestyle were over. After years of cheap taxi rides, food deliveries and parcel couriers, reality had finally caught up. It was time to pay what it actually cost to deliver all these services — and it turned out to be pretty expensive.

That is the same reality now catching up with both Swedish startups and consumers. For many years, historically low interest rates led to over-enthusiasm among investors around growth and high risk. Startups could — and were encouraged to — burn money to win market share. The idea was that new habits would be established with consumers, economies of scale would emerge and then the market would normalise (read: price hikes and less competition).

This is the light in which to view the big deal where delivery companies Budbee and Instabox are merging. Combined valuation: SEK 18 billion. Delivering parcels is profitable. Or rather — delivering parcels is going to be profitable. The companies together lost around SEK 190 million last year on combined revenue of just over SEK 1.3 billion.

Increasing scale is a central part of the deal. Both companies work in freight and deliveries and reasonably have many similarities in their organisations. To SvD, the company’s new CEO Fredrik Hamilton plays down cost synergies and says it is too early to say. It is an understandable comment, but it would be close to unreasonable to assume the merger will not lead to savings.

The elephant in the room is called PostNord.

But cost cuts alone are not what makes scale important. A larger company has an easier time negotiating with business partners and can expand faster internationally. The aforementioned economies of scale mainly appear at very large scale, and it is cheaper to reach that together than as separate companies. In some categories, the business is impossible to run profitably without being a giant.

An additional advantage is that the two companies no longer have to compete with each other and can instead focus on the other players in the market. The elephant in the room is called PostNord — by far the biggest on the Swedish market. Another is competitor Airmee, which has Amazon as a major customer.

The deal between Instabox and Budbee is conditional on approval from the Swedish Competition Authority. A safe bet is that the deal goes through. You only have to look at the American market to see where the big threats are coming from — as early as 2020, Amazon’s own shipping arm became bigger than FedEx in terms of volume. Having large domestic players that can take on global giants could, if anything, be seen as positive for competition.

Venture capital has been paying your tab for many years.

As a consumer you may sometimes wonder how certain services can even add up. Some things have been unreasonably cheap for a very long time. You don’t have to look further than the pavement and all the e-scooters to see a clear example.

The answer is that venture capital has been paying your tab for many years. They have done it so the companies they invest in become indispensable in your life. To become the market leader that survives and thrives. But not all e-scooters or delivery solutions will survive. Companies will withdraw from markets, go bankrupt or merge as risk-willing capital dries up. This is only the beginning.

The companies that do survive, however, will dictate terms and prices. And it will get more expensive. Instabox and Budbee are the first on the Swedish market to merge and make a combined push. But they will not be the last.

YouTube Is Practically Lawless When It Comes to Children

September 14, 2022
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on September 14th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Platforms like YouTube earn billions from children using their service. But the big grey zones that arise are something neither influencers nor the platforms want to tackle.

“Today we’re launching YouTube Kids, the first Google product built from the ground up with the littlest ones in mind. The app makes it safer and easier for children to find videos on subjects they want to explore.”

That was the messaging back in 2015, when YouTube and its parent Google first created a dedicated app for children. Before that, children had to click around the video site like everyone else, potentially ending up in unsuitable corners of the internet.

There was only one problem — children didn’t have to use the app.

It was just as easy to keep watching the way they had before, except now YouTube had an alibi that the main site was only for adults. The age of the site’s viewers has always been unknown — even if you could make an educated guess about who was watching children’s cartoons for hours on end.

Five years later, YouTube was forced to rework its systems anyway. The US Federal Trade Commission, FTC, hit them with a $170 million fine and pushed through changes where videos made for children had to be treated differently in terms of user comments, and the precision of ads was reduced.

This caused profitability for children’s videos to drop sharply — in many cases by more than half.

If you wonder why video creators don’t want to be classified as making content for children, it is now crystal clear: you make less money. Here is a possible explanation for the actions of Pontus Rasmusson, the influencer SvD has investigated in podcasts and articles.

There is no doubt that Pontus Rasmusson is a children’s idol. But according to YouTube’s systems, he makes videos for adults.

Looking at their own rules, though, you end up in something close to a Catch-22 around Rasmusson — the references to sex make his videos inappropriate for children. At the same time, the audience for the content is obvious. And in that grey zone, nothing happens.

Beyond ad views, YouTubers also make money on the content itself, through what is euphemistically called “collaborations”. These are ads dressed up as regular content, handled directly between the company and the video creator. YouTube as a platform cannot regulate this.

But the fact that Pontus Rasmusson “collaborates” with toy company Moose Toys gives a clear indication of who both parties to the transaction believe his audience to be.

The question this raises is how parents are supposed to know what their children are watching. In a comment to SvD, YouTube says that they “give parents the ability to control which YouTube content their children can see, including the ability to allow only content from trusted partners” — provided you use the YouTube Kids app.

But, as noted, not all children do.

Not in 2015 when the app came out, and not in 2022 either. Why would they start? The video content for children is still on the main site too — and then some.

The possibility of controlling the video offering for your children — channel by channel — is also wholly unrealistic for the average parent. It would be like having to pre-listen to every song on Spotify before the children could hear it. Theoretically possible — sure. But in practice both impossible and undesirable for most.

All platforms that involve children have an interest in painting pictures of families sitting on the sofa watching educational videos together. It probably looks like that sometimes. But the most common scenario is that the children are sitting alone, choosing what to watch, far from parents’ gaze and attention. The solutions need to start from reality and how it actually works, rather than from a glamorised ideal society.

Companies like YouTube and Instagram tend to say these are hard problems to solve. The precision of content judgements is not always as good as one might wish. That’s true. But this is a problem that did not have to exist in the first place.

You don’t have to mix content for children and adults together. You can restrict access to videos with various kinds of age verification. But all the economic incentives go against doing that. It is more profitable to put the burden on every individual parent than to fix the problem you yourself helped create.

SvD’s investigation of YouTuber Pontus Rasmusson shows that it is still close to a lawless land for children online. And the economic incentives point to it staying that way.

He is one of Sweden’s biggest YouTubers — among children. But parents accuse him of tricking their fans out of money. And why does he mix the child-friendly clips with constant sex references? Alice Aveshagen and Henning Eklund portray the Pontus Rasmusson phenomenon. A documentary from SvD.