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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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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The world’s most expensive keystroke

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This column was first published in SvD Näringsliv, in Swedish, on March 14th, 2021.

The big banks’ outdated software costs them market shares to fintech companies that run both faster and better by making things from scratch. By challenging in a niche and then expanding, a new banking world emerges.

It is August of 2020. An administrator at Citibank has just had the worst working day of their life. With a few keystrokes in an ancient computer system, the person has mistakenly made a payment that is almost 900 million dollars more than intended.

Even worse: a judge in New York, Jesse Furman, will later decide that the recipients of the money are not liable for repayment.

In his statement, the judge wrote: “To believe that Citibank, one of the world’s most sophisticated financial institutions in the world, would have made a mistake that has never happened before, in the billion-dollar district, would be almost irrational.

The money was an old debt that belonged to the cosmetics company Revlon, and Citibank only intended to pay the interest on the amount. But after the employee at the bank accidentally clicked the wrong buttons in their system, the entire amount was transfered, whereupon the debt was inadvertently settled.

The question is whether it is really so irrational and surprising that banks make mistakes of this kind. The banking world has a large debt of a completely different nature than what is usually found on their balance sheets – their technical debt.

The term “technical debt” refers to the cost of redoing old technical choices that are now outdated and expensive to maintain. The banks’ infrastructure is a good example of this. In the United States, 95 percent of all ATMs use an old programming language called Cobol. Many Swedish banks are run in the same way. The problem with Cobol is that there are very few who can program in it, which in itself means great limitations. All banks know about this, but it is too expensive and cumbersome to get rid of it completely.

A large part of the success in fintech can be explained by the lack of technical debt. You simply start from the beginning. It initially takes longer, which is why fintech companies often focus on a limited part of the major banks’ total offering. The result is a company that is created to deliver a niche product and nothing else.

Thereafter, the company can expand and gradually compete with more services offered by the traditional banks. This is the journey that, for example, Klarna has made very successful. And that is also why the Klarna of today isn’t necessarily the Klarna of tomorrow.

Even outside fintech, people reason similarly. The Swedish company H2 Green Steel recently raised 500 million SEK to develop a completely new type of fossil-free steel. The assessment was that it is easier to start from scratch – completely without established structures and heritage – than to restructure an existing company.

Tesla and Apple – now competitors – share the same philosophy, that it is easier for software companies to learn how to build cars than for car companies to learn software. At least when it comes to self-driving cars, which is what they have in mind. The car industry has, of course, been involved in software for many years, but historically it has mainly been a side job. Now that balance is changing.

In a business that will increasingly be about software, companies’ attitudes and strategies around technology will be absolutely crucial. There is an enticement in starting something new to gain immediate benefits. But at the same time, the uphill battle of building such a company will be enormous.

The Swedish phrase “it sits in the walls” usually has a negative connotation, but everyone who has started their own company knows that there are components you would like to have brought with you from previous workplaces. Everything from culture to infrastructure.

Losing $900 million in one day is, of course, awkward – to say the least. But that figure should probably be seen as low compared to the values ​​the banks risk losing due to their slow actions. For each individual bank offering – from loans to stock trading – there are a plethora of competitors who are ready to take its place.

This column was first published in SvD Näringsliv, in Swedish, on March 14th, 2021.

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Google has their hands in the cookie jar

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This column was first published in SvD Näringsliv, in Swedish, on March 4th, 2021.

The battle for internet advertising is escalating. But that Google is changing the technology that determines which ads you see is not only done to prevent tougher rules – it is also done to make it more difficult for smaller competitors.

The question of your ad data has polarized Silicon Valley for many years. On one side you have Apple, which is pushing a very hard line against data collection. Since Apple does not sell ads nowadays, they have very little to lose with this stance. On the other side are Google and Facebook, which have ads as their primary business model, and which dominate the digital advertising market worldwide.

Now this balance of power is about to be shifted. It started when Google announced that it intends to remove support for so-called third-party cookies by the end of next year. This means that it becomes more difficult to track consumer behavior between different sites. For you as a consumer, this means that you can avoid seeing that shoe ad wherever you surf, just because you once happened to click on a pair of shoes at a web shop. The announcement comes just a few months after Apple also changed the rules for advertising on its platform iOS and in its browser, Safari, which is the second largest on the market.

Google has a lot of power in the advertising world. First, they are one of the world’s largest advertising companies and thus influential in what is considered the standard. Second, they own by far the largest browser, Chrome, and can use it to determine the type of technology that advertisers are allowed to use.

Why is this happening now? Politicians’ interest in data and privacy issues has increased a lot and is expected to be the focus of future legislation and regulation. The changes that Google makes should thus be seen as a way to prevent something that would probably need to be changed anyway. But acting early they can gain more political leeway. Google itself refers to “users demanding more data integrity, which includes transparency, choice and control over how their data is used”. That is certainly true, but this change will not take place until the end of 2022. It is reasonable to assume that users would like to have more data integrity straight away.

The second reason for the timing is that it hits harder on their competitors than on Google itself. The IT giant will continue to track your behavior on its own sites. So if you use their search engine, watch Youtube or read emails on Gmail, Google will still link that browsing behavior. And it’s no small feat – Alphabet (which owns Google) reaches billions of people through its services. For ad networks that do not control equally large sites, however, it becomes much more difficult. And it almost forces competitors like Facebook to adapt their way of controlling ads as well.

Google’s self-regulation will not stop any ongoing legal processes. Of course, Google knows that. Instead, the outcome may cement another problem – that of a fair market where everyone works with the same set of rules.

When Google itself changes the global standard for digital ads, it does so in a way that benefits them. They have tens of thousands of employees working on these issues. Not all companies have the cost and resources required in order to be able to keep up.

Google has benefited from the unregulated system that made them market leaders. Now they are introducing a new standard that ensures that they stay that way.

This column was first published in SvD Näringsliv, in Swedish, on March 4th, 2021.

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Why digital art is selling for millions of dollars

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This column was first published in SvD Kultur, in Swedish, on March 1st, 2021.

The legendary auction house Christie’s is selling a digital work of art and thus joining a trend that is growing explosively. The items are suddenly sold for record sums. Will it last?

$1.4 million in seven minutes. This is how much the American artist Micah Johnson sold his new digital artwork “Genesis.001” for recently. But unlike a traditional auction, 1,402 different people were able to buy the work at the same time, and received a certificate as proof of their ownership. The art itself is digital and can be viewed by anyone with a web browser.

The technology behind this new phenomenon is called NFT, which stands for “non-fungible token”. It can be compared to bitcoin and other cryptocurrencies in that the ownership is completely digital and stored in a kind of public logbook, also called a blockchain. The logbook regulates who owns what, and ensures the uniqueness of the purchase.

This is needed as we are talking about digital works of art that could be saved on any mobile phone, completely free. What is sold is therefore more of a formal right to own and trade, rather than the piece itself.

This week, NFT moved into the mainstream, when the historic auction house Christie’s began the first auction of its kind. The artist Beeple’s work “Everydays: The first 5 000 days” will be auctioned off for two weeks and at the time of writing is up to 3 million dollars – and it is likely to increase.

In many ways, this is a natural continuation of Christie’s acclaimed auction of “Portrait of Edmond Belamy”, created by a GAN – Generative Adversarial Network – that is, art created by algorithms. The final price there ended up at 432,500 dollars, almost 45 times higher than estimated.

This new technology raises a wide range of questions. The focus on trade leads to the idea of ​​pure speculation rather than the practice of arts or crafts. The rise in Bitcoin and other cryptocurrencies has led to a general interest increase of all types of digital assets, and this is probably also why NFT has received this recent and major boost.

At the same time, it is too easy to dismiss this category as purely speculative business. The digital format enables both new creative processes and outcomes. In the creation of the series “Arcade machine dreams”, the artist Brendan Dawes used old game graphics which algorithms then processed to create abstract computer sculptures. The result was a playful way to combine nostalgia with a fleeting popular culture.

Another interesting dimension is that the technology enables a new kind of resale right for the artist. When NFT works of art are sold on the secondary market – by both auction houses and private individuals – about ten percent of the sale price goes back to the artist in question.

This addresses what one could think of as an old injustice where many artists have not been able to take part in the great increase in value that their work has created. The technology also makes counterfeiting impossible as you can follow every transaction that has taken place since the work was created.

If you look outside the world of art, you will also find NFT in popular culture, humor, and sports. Eric Nakagawa, the founder of the now classic meme site “I can haz cheezburger”, is now selling the image that started the whole trend of funny cat memes on the internet. More familiar from the physical world is Top Shot, where the American basketball league NBA has created digital collector images, in the form of videos. You can now bid on and own them.

Why then should you own something that others can use in exactly the same way? Maybe it creates a permanence in what is otherwise an almost infinite flow of information, humor and memories. The scrolling on your mobile phone stops temporarily, and you create a traceable manifestation of internet culture.

Art and literature are constantly trying to capture the present. Could this be a way to do just that, for a generation that grew up on the internet?

This column was first published in SvD Kultur, in Swedish, on March 1st, 2021.

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The fight with Facebook where everyone might lose

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This column was first published in SvD Näringsliv, in Swedish, on February 22nd, 2021.

From having lived in symbiosis – to now being in open conflict. The media companies may have emerged victorious from the first round against the tech giants, but it risks becoming an expensive story that leaves few, if any, winners, writes SvD’s tech analyst Björn Jeffery.

“I get it, Facebook is a terrible, terrible company and deserves lots of blame for lots of bad things that it does. But this ain’t it.”

That’s what Mike Masnick, journalist and CEO of the think tank Copia Institute, said after Facebook chose to block links to Australian news media. This was a counter to the new law that required the tech giants have to pay for domestic journalistic content. Their competitor Google, on the other hand, agreed to this at a cost of an estimated $100 million.

New legislation is also to be expected in Sweden. The Swedish newspaper publishers’ acting CEO Thomas Mattsson said last week that he wants the tech companies to pay for journalism and that it should provide “more fair and reasonable competition.” The relationship between news media and social media, on the other hand, is more symbolic and entangled than what the newspapers’ industry representatives make it sound like.

Let’s back up a little. 2004 was the year Mark Zuckerberg launched his creation “TheFacebook” at Harvard. No one knew that it would change the media world forever, and the media industry breathed optimism – a year later, the American newspapers set a new revenue record.

Then business models started crumbling, but not just because of Facebook.

First, it started with newspapers losing significant revenue from their highly profitable classified ads to sites such as Blocket in Sweden and Craigslist in the USA. Then came a sharp increase in precision in search advertising from companies like Google, and print lost both circulation and revenue. In Sweden, the market share for print advertising fell from 57 percent in 2010 to 20 percent in 2019, according to the Swedish Institute for Media Studies. At the same time, digital ads made the opposite journey – up from 20 to 58 percent over the same period.

Media companies changed, but now needed to drive more traffic to their sites to increase their digital advertising revenue. And where did that come from? Well, from Google and Facebook. I myself have run large-scale search engine optimization projects in a Swedish media group with exactly that purpose. Thomas Mattsson – then editor-in-chief of Expressen – was one of several journalistic leaders who appointed dedicated social media editorial staff in 2014. The tech companies needed content. Media companies needed traffic.

Back to 2021. Where did the symbiosis go?

It is, to say the least, a bit messy since many media companies have invested time and money in building a following in social media, only to then see themselves being downgraded in the algorithms. If you want to be seen now, you have to pay Facebook. A classic bait and switch.

But there is more under the surface. While many media companies have struggled uphill since 2005, the tech giants have broken countless traffic and stock market records. Facebook reached 2.8 billion users in Q4 2020. When media mogul Rupert Murdoch turns this into politics in Australia and passes a bill, which can be partly interpreted as tech companies being held responsible for media companies’ revenue reduction, we risk having a one-sided debate.

It also shifts the focus from regulating the many problematic areas that exist in tech to a single issue of media company financing. These are two important issues to look at, but they are not one and the same. A much better way could have been to tax the tech companies more in each individual country and manage the support for journalism through that.

This regulation can also have far-reaching consequences for the internet in general. Charging to link is an unusually radical proposition. Tim Berners-Lee recently thought that a large-scale rollout of this type of team could “make the web unusable around the world.” And he should know. He invented the World Wide Web in 1989.

The media industry may have won the first battle, but it could be a Pyrrhic victory. In the long run, a free and open internet is best for all parties. Because when one party starts charging for links, others will to follow. That could get expensive for all of us.

This column was first published in SvD Näringsliv, in Swedish, on February 22nd, 2021.

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The Game Stop hysteria is about to get worse

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This column was first published in SvD Näringsliv, in Swedish, on February 18th, 2021.

The hysteria has barely subsided before it is time for the political aftermath. But when the Game Stop mess now reaches Congress, there’s a big risk that things derail again. The legislator’s knowledge about the internet is simply too low, writes SvD’s Björn Jeffery who lists three questions he wishes they would ask.

A nervous Mark Zuckerberg was wearing a blue suit, white shirt, and a light blue tie. It was April 2018 and he was called to testify before the US Senate about the Cambridge Analytica scandal. Facebook’s CEO was a bit stiff, possibly because he had not done very well on previous occasions in these public contexts.

His rescue came from a somewhat unexpected direction.

In the hearing, Republican Senator Orrin Hatch asked the question “How can you maintain a business model when users do not pay for your service?” Zuckerberg paused, thought about it, and then responded with the now classic phrase “Senator, we run ads.”

He immediately appeared superior to the confused politicians, who did not even understand basic Internet economics.

This is what it usually looks like when the tech giants are summoned for hearings of this nature. A political spectacle where many of the questions are just awkward. Expectations are therefore low when a committee from the House of Representatives on Thursday summons Steve Huffman, CEO of Reddit, Vlad Tenev, CEO of Robinhood, and Youtuber, who started the entire Game Stop rush, Keith Gill.

Here are three areas that politicians should dig further into, but that they probably won’t articulate sharply enough to get any real answers to.

1: Who benefits from your business model?

To understand how tech companies prioritize, one must understand how they make their money.

If the Robinhood app, which offers brokerage-free mobile trading, does not charge for buying and selling shares – where does the revenue come from? Well, to a large extent it comes from them reselling users’ share orders to companies such as Citadel Securities. They can in turn use the data to feed their high frequency trading and take advantage of temporary market imbalances to make money.

The question to Robinhood that should be asked is: Are your app users only there to act as a data source for Citadel’s algorithms?

2: Whose side are you really on?

In Robinhood’s case, they have – with their choice of name if nothing else – positioned themselves as an app for all the people. They have gamified options and derivatives trading. But when the their users came together to trade these financial products, then Robinhood pulled the handbrake and blocked several shares from trading. If you position yourself as a stock app for the people – why do you pander to established Wall Street companies and what did the possible pressure that Robinhood got from the giants look like?

3: Whose interests are represented in the forums?

The Reddit forum Wall Street Bets has over 9 million members. Most write anonymously, with an alias. But as we have also seen in Sweden, there are times when these anonymous accounts act in a strict self-interest, albeit disguised as something else. Ola Serneke is currently being investigated by prosecutors for just this.

Being anonymous on the internet may seem like a right. But that does not mean that you have the right to deceive other people. One would therefore like to ask Reddit’s CEO: When more than nine million people follow one and the same forum – how do you ensure that it does not become a place for structured market manipulation? By either large groups of enthusiasts, or even by the companies in question?

Hearings of this kind unfortunately often become a way for politicians to show themselves in public, rather than actually conducting policy. The reason why tech companies end up in trouble all the time is partly because current legislation allows them to continue as they wish.

The question is how long the public, organizations, and other companies that suffer the consequences from this will think it is good enough. And instead, perhaps start arguing as the Turkish sociologist and journalist Zeynep Tufekci does. She summed it all up like this: “We should stop asking questions to these companies, and start giving them answers instead.”

This column was first published in SvD Näringsliv, in Swedish, on February 18th, 2021.

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Facebook’s Clubhouse clone will fail

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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.