Björn Jeffery

Where’s did the Swedish tech wonder go?

July 18, 2024

This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024.

Many companies seized the opportunity to go public during a period of temporarily high valuations. However, the aftermath is severe, and the Swedish tech miracle is significantly shaken, as revealed by an extensive review conducted by SvD’s tech analyst Björn Jeffery.

A large bell, mounted on a two-meter-high stand. It was the solution to a problem we will likely never face again in our lifetime.

In the spring and summer of 2021, the tech stock market was hot. The list of companies eager to go public was long. Adam Kostyál, then the Swedish head of listings at Nasdaq, faced an unusual challenge. With corona restrictions still in place, filling Nasdaq’s office in Stockholm with people celebrating was not an option. At the same time, it seemed impossible to list a company without ringing the iconic bell.

If the companies couldn’t come to Nasdaq and the bell, the bell had to come to the companies instead.

Thus, the mobile Nasdaq bell was invented.

For a couple of years, it shuttled between the offices of hopeful tech companies ready to meet the stock market. Celebratory and relatively corona-safe.

From 2020 to 2022, about 35 tech companies were listed on Nasdaq Stockholm and First North. Interest rates were low, and risk appetite was high.

“The Swedish tech miracle” is a term often mentioned. It primarily refers to the number of startups and a handful of major successes, like Spotify and King.

Whether it is a miracle or not is debatable. But one thing is clear: on the Stockholm stock market, it is now more “tech crisis” than “tech miracle.”

The development since the many IPOs has been weak. The market deflated completely, and most companies have not recovered.

What happened?

First of all, there is currently no good way to even track the sector described as tech on the Swedish stock market. These are companies that exclusively operate and conduct business in a digital environment.

Nasdaq has a blunt categorization where companies end up in the “Data/IT,” “Finance,” or “Services” boxes. Nasdaq’s own index “OMX Stockholm Technology PI” is a mix of consulting firms, electric vehicle chargers, and various software. Essentially all major and newer tech companies on the stock market are missing from it.

Swedish tech funds like Robur Technology and TIN Ny Teknik do not only invest in Swedish tech companies, making them misleading as a guiding star. Investment banks often have private indices their clients can access, but they are rarely public or complete.

To try to grasp how Swedish listed tech companies are developing, SvD took matters into its own hands. Together with the American service Thematic, we built our own index to depict the development.

The index takes the 30 largest tech companies from Sweden, according to specific criteria, and compiles them into a unified picture. It is reweighted four times a year and includes Swedish companies that have chosen to list abroad – such as Spotify. The index is equally weighted to avoid small price movements in large companies overshadowing everything in the smaller ones.

So what does this index show?

The starting point is set to January 2022. Overall, the Swedish tech stock market has lost more than a third of its value since then – down around 39 percent. This can be compared to the broad index for the Stockholm Stock Exchange (which is weighted) that has declined by 4 percent in the same period.

The absolute best performer among the 30 in our index has been the gaming company Betsson, with an increase of 128 percent. The opposite can be found in Viaplay, where 99.4 percent of the value has been erased since January 2022.

Fortnox – long in the spotlight for its stock market success – saw its significant rise from 2018 to 2022 but has since had a more modest increase of around 13 percent.

The communications company Sinch – which reached its peak in September 2021 – has slid significantly since then. Since the index’s start, they have lost over 79 percent of their value.

Of the 30 largest tech companies on the stock market, only nine have increased in value since January 2022. And two of them – MTG and Lime – have only increased by single-digit percentages.

The global tech sector has also had a tough period. But compared to the tech-heavy Nasdaq 100 index, which has risen nearly 20 percent in the same period, and the S&P 500, which has increased by over 17 percent, the Swedish tech sector’s performance is much worse.

The aforementioned Nasdaq 100 includes many tech companies but is not solely composed of them. Companies like PepsiCo, Marriott, and Starbucks are also among them.

For a more accurate comparison, we need to look at something with a more pronounced tech profile. One option is the exchange-traded fund First Trust Cloud Computing ETF (SKYY), which exclusively contains companies engaged in cloud services.

It includes 65 companies in total and includes some of the largest ones, such as Alphabet (Google) and Amazon. It is not a perfect comparison, but it is illustrative enough to show a picture.

Despite a sharp decline in SKYY from the beginning of 2022, American companies have recovered better. In total, it has fallen by around 8 percent, which is a weak development but significantly better than its Swedish counterparts, which have dropped over 36 percent in the same period.

That tech companies generally underperform on the stock market is not just a Swedish phenomenon. But our index and comparison with the U.S. also reveal something else: the enormous importance of size.

Of the nine tech companies that have increased in our Swedish tech index, only two belong to the lower, smaller half of the index (in terms of market value). Our index only looks at the 30 largest tech companies with Swedish ties, but if we made the list twice as long, the pattern would be the same. To be a successful tech company on the stock market, you need to be big.

On the American SKYY, the pattern is identical. Only four of those with positive development are among the smaller half of the index. The big winners are also very familiar names. Microsoft, Google, Amazon, Oracle, and Salesforce. With only a handful of exceptions, it is clear that smaller tech companies have performed significantly worse on the stock market than the larger ones.

This is largely due to the enormous advantage that tech giants have had over the past 10–20 years. Several have been de facto monopolies in their respective areas. This has created enormous value and an advantage that is nearly insurmountable.

Looking at the list known as the “magnificent seven” – the seven tech companies representing around a third of the value on the S&P 500 – several of them reappear: Apple, Meta (Facebook), Amazon, Alphabet (Google), Microsoft, Tesla, and Nvidia.

What SvD’s review shows is an extension of the development for these magnificent seven. The absolutely largest tech companies perform disproportionately well. The rest have had a much tougher development.

The tendency is also noticeable in our Swedish index, where Spotify is among the few in the positive table. They are also by far the largest – and their market value is higher than all the other 29 companies in our index combined.

One question to ask is whether many of the tech companies are small because they have performed poorly, or do they perform poorly because they are small?

It’s leaning towards the latter. In both our own index and SKYY, those who have performed best are many times larger than the rest. They are on the same lists, but are essentially entirely different kinds of companies.

Hemnet – which has performed incredibly well and increased by 73 percent – is today more than six times larger (in terms of market value) than Storytel, whose stock has fallen 65 percent.

Small companies have generally performed worse than the stock market as a whole since January 2022. Down 14 percent for Nasdaq’s Swedish Small Cap index during the period.

But the Swedish listed tech companies are much worse than that. Look at the gaming companies Stillfront and Embracer, for example. Down 70 and 72 percent, respectively, since our index started. Admittedly, they are still up compared to their listing, but the declines are brutal.

Tech investor VNV – which owns a large stake in Voi – is down 73 percent.

The acclaimed communications company Truecaller has also fallen by over 67 percent.

Has it always been the case that smaller tech companies have fared worse on the stock market? It’s possible. But why do tech companies continue to go public then?

It may be related to the reason they even considered the stock market in the first place.

Previously, companies went public to raise money. Historically, this has likely been the reason for most who chose that path. Access to capital and financing – in various forms – increases significantly.

Looking at the smaller tech companies on the stock markets, you also find several examples of the opposite.

Companies that go public so the owners can cash out instead.

Venture capital and private equity firms‘ business model is to sell for more than they bought for. It’s a well-known model that has generated significant value, especially in Sweden. When they take companies public, the purpose is often to create liquidity to sell off a large portion of their shares.

One example is the survey company Cint. At the IPO, funds linked to the venture capital firm Nordic Capital owned over 93 percent of the shares. The company had a good first year on the stock market, but has since seen very weak development. The stock price has fallen over 84 percent since the start. Nordic Capital’s share today is around 8 percent.

Another example is the e-commerce company Revolution Race. The major owners there are the venture capital fund Altor and the couple Pernilla and Niclas Nyrensten. Since the IPO, the major owners have reduced their ownership from around 61 and 34 percent to about 20 percent each.

They have followed their lock-up periods but have gradually reduced their ownership in the company. Revolution Race’s stock has also fallen over 34 percent since the IPO but has rebounded significantly since the worst dip in 2022.

Then there are companies that perhaps should never have gone public in the first place. Their development was boosted by consumer behavior during the pandemic that proved difficult to recreate.

The interior design company Desenio is one such example. When Sweden was indoors avoiding infection, they invested in posters and artwork for decoration. Desenio went public in February 2021.

Three years later, revenue has nearly halved, and the stock price has collapsed. At the IPO, the major owner Verdane sold shares for 72 SEK. Today, the price is just under 0,30 SEK. They are thus excluded from our stock index today.

The selling parties in all these companies have made good deals. The liquidity on the stock market has enabled trading for both funds and small investors. But the development of the stock price since they went public has often been stumbling. While in private ownership, they grew significantly.

A partial explanation for the pattern is that in all three cases, there are venture capital firms among the owners whose model is to exit their investments when favorable. Each company also has its unique situation and motivation behind the listing. Some, like Desenio, had enormous tailwinds that quickly subsided. Others, like Revolution Race, are working to recover from the drop after the introduction and owner sales.

But for many, the stock price collapses seem difficult to reverse. It’s hard not to think that many of these new, smaller listed tech companies may not fit so well on the stock market, after all.

Of course, there are also examples of a different type of journey. The slow company building, using the stock market as a method.

Friday, March 20, 2015. It is the first trading day for the gaming technology company Evolution Gaming on Nasdaq First North. The business press noted the event but had more important things to think about. The Riksbank had just cut interest rates between its regular meetings.

Founders Fredrik Österberg and Jens von Bahr, however, had a good start in the listed environment. They sold picks and shovels to the gold rush in online casinos. Somewhat in the background of the large companies, Evolution made strong progress on Nasdaq’s smaller exchange.

Just over two years later, they were admitted to the Nasdaq Stockholm’s main list. Gambing technology – this somewhat derided genre – had been socially accepted.

A visionary investor who invested in Evolution in 2015 has had an almost unbelievable development. The stock price has increased by nearly 6,500 percent since then. And it has also become a favorite among small investors with around 83,000 private shareholders.

Österberg and von Bahr have sold many shares along the way as well. Both in the IPO and most recently for billions in May 2021. But the difference is that the value of the company has continued to increase for the remaining shareholders since then as well.

The competitor Kindred Group (formerly Unibet) has had a similar development.

They went public in 2005 and have had a price development of over 320 percent since the start. But it has taken them almost 20 years to get there.

The journey that Evolution and Kindred have made is desirable but unusual. They were early, found an incredibly profitable business segment, and delivered quarter after quarter. A role model for new companies on the stock market. They grew and scaled up in the listed environment.

At the same time, it is a type of journey that does not resemble many others in the Swedish tech category – at least not yet.

Looking at the new Swedish tech companies on the stock market, they have lost 80–90 percent of their value since the introduction. Especially the smaller ones, as mentioned. The stocks will have difficulty recovering in the short term. And doing new share issues at such low prices would lead to a somewhat devastating dilution. If they do not manage to reverse the stock price development in time, there is a risk they will become zombie companies. They live, but are essentially dead on the stock market.

The opportunity to buy them out of there has thus rarely been better – or cheaper.

Can there be another Swedish tech miracle on the stock market in the future? It depends mostly on the quality of the companies that might consider going that route.

A number of larger companies – with a long business history, at least by tech standards – such as the shopping service Klarna, fintech company Trustly, and database company Neo4J, have all been mentioned as potential candidates within the near future. Likely before 2025 ends, unless new major macro crises occur.

For a miracle to happen, long-term owners are also needed. Those who use the stock market to develop and build these companies further over a long time.

The stock market is meant to be a trading place – not a final destination. The big values are usually built over a very long time horizon. But then one must survive an often winding road ahead.

Our index suggests that the stock market is not necessarily the best path for all tech companies. It is easy to be swept along by temporarily high valuations when going public. But for many, these valuations have created a new type of problem – and one that takes a long time to fix. They now need to rebuild trust from the stock market and show that they belong on the stock market – after all.

Here are all the companies that are included in SvD:s tech index, in June 2024

Spotify Technology SA (SPOT)
Evolution AB (EVO)
Fortnox AB (FNOX)
Embracer Group AB (EMBRAC.B)
Kinnevik AB (KINV.B)
Hemnet Group AB (HEM)
Kindred Group Plc (KIND)
Sinch AB (SINCH)
Vitec Software Group AB (VIT.B)
Paradox Interactive AB (PDX)
Better Collective A/S (BETCO)
Betsson AB (BETS.B)
Modern Times Group MTG AB (MTG.B)
Truecaller AB (TRUE.B)
Byggfakta Group (BFG)
Boozt AB (BOOZT)
VNV Global AB (VNV)
Creades AB (CRED.A)
RVRC Holding AB (RVRC)
Stillfront Group AB (SF)
Lime Technologies AB (LIME)
Gaming Innovation Group, Inc. (GIGSEK)
Storytel AB (STORY.B)
Coinshares International Ltd. (CS)
Viaplay Group AB (VPLAY.B)
BHG Group AB (BHG)
Kambi Group Plc (KAMBI)
Cint Group AB (CINT)
VEF AB (VEFFF)
Acast AB (ACAST)*

* Disclosure: I’m on the board of Acast.

This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024.

Embarrassing AI mistakes could knock out top executive

March 11, 2024

by Björn Jeffery

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SvD Näringsliv / The Daily

This column was first published in SvD Näringsliv, in Swedish, on March 8th, 2024.

It is one of the world’s largest and most influential tech companies. Despite this, Google’s AI launches are marked by embarrassing mistakes. Now questions are being raised if it’s time for its leader to step down.

Fire. Described by many as the most important discovery in history.

It’s easy to understand the surprise of legendary journalist Kara Swisher.

The year is 2018 and Swisher is interviewing Google CEO Sundar Pichai on stage.

“We don’t take just a very optimistic view of AI. AI is one of the most important things humanity is working on. It is more profound than, I don’t know, electricity or fire”

Swisher responds with slight skepticism to the tech exec’s comment.

“Fire? Fire is pretty good. But go ahead.”

At the time, Pichai was about two years into his new role as CEO of Google. He had already said that the company would be “AI-first”, but not much attention had been paid to it.

This time he took it a step further. Google took AI very seriously – and would become a leader in the field. AI – more important than electricity and fire.

Fast forward to the fall of 2022. The somewhat oddly named ChatGPT is launched to the outside world by the then rather unknown company OpenAI. A new era of AI starts. But Google is not the one leading it. If anything, they seem to have fallen behind.

What happened to Pichai’s grandiose ambitions?

After a number of unsuccessful launches, there are now many people – both inside and outside Google – who are asking themselves that question.

It started with the chatbot Bard, which was Google’s equivalent of ChatGPT. It was released three months after its competitor, in a move that looked rushed. In its launch video, Bard gave the wrong answer to a question about astronomy. The stock fell by $100 billion in market capitalization when the error was discovered. If Google can’t even show the right answer in its marketing material, can it be trusted at all?

A few weeks ago it happened again.

Google Gemini – the new name for Bard – was rolled out broadly. Now you could create text and images using Google’s latest, and most capable, AI models. But when Gemini was asked to create images of German soldiers from 1943, a user was shown examples of an Asian woman and a dark-skinned man in Nazi uniform.

There were plenty of other mistakes too.

When asked if Hamas was a terrorist organization, Gemini replied that the conflict in Gaza was “complex”. The AI bot also had a hard time deciding whether Elon Musk or Adolf Hitler had done the most damage in the world.

Google was forced to apologize, has paused the launch, and withdrawn some functionality until further notice.

Being first at major technology shifts does not necessarily indicate long-term success. Nokia was way ahead of Apple with mobile phones. Myspace was the biggest in the world before Facebook took over. And even in the search market – although it feels distant today – there was a time when the market leaders were called Altavista and Yahoo instead of Google.

In an interview with the New York Times, Pichai comments on the perceived stress and how he sees it specifically in AI:

“I don’t want it to be just who’s there first, but getting it right is very important to us.”

But in this case, they were neither first nor right. If Pichai thinks quality in AI is so much more important than speed, why are their launches plagued by so many mistakes?

Although right-wing American media saw the Gemini examples as a telling sign of a company that was now too “woke”, there is a lot to suggest that the service simply wasn’t very good – and was poorly tested. Not finished. It is well known that AI services “hallucinate” and create things that do not exist.

If Google wasn’t in a rush to launch, obvious mistakes like these should have been caught before it was released to the public.

All in all, there’s a company leader – for one of the world’s largest and most influential companies – who seems significantly more stressed than he lets on. And there are other clues that suggest this too. More and more reports pop up online from disgruntled employees who think Google has become bureaucratic and slow. Unable to create new, world-leading products. Can Pichai withstand this pressure?

Big tech trends like cryptocurrencies and the metaverse have passed Google by. There was nothing in them that directly affected either their core business or their future ambitions.

AI, however, is of a completely different nature. It is an area that could shake up the somewhat stagnant search market that has been incredibly profitable for Google for the past 20 years. They don’t have to be first, although Pichai would probably like to be. But if they are not the first, they must at least be the best.

Currently, they are neither.

One could understand that Pichai might be a little bit worried after all. If it continues like this, he may have to look for a new job before the end of the year.

This column was first published in SvD Näringsliv, in Swedish, on March 8th, 2024.

If even Linkedin can’t function in China, who can?

September 2, 2022

by Björn Jeffery

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The Daily

This column was first published in SvD Näringsliv, in Swedish, on October 15th, 2021.

There was only one realistic way into China as a foreign company. Now even that seems to be closed. When Linkedin dismantles its social network in the country, it could mark a new era for tech companies in China.

An established truth is that the only way to enter China as a foreign company is through partnerships. The local legislation and relations with the Chinese state simply require some form of Chinese ownership. But if you play those cards right, a huge market can open up.

It was the same story for Linkedin, when they launched in China in 2014. The Microsoft-owned social network partnered with venture capital firms China Broadband Capital and a Chinese branch of Sequoia Capital for exactly this reason. It is therefore noteworthy that Linkedin now announces that they are shutting down the part of the business where you can post articles and updates to each other. It seems that relations with the state were not sufficient to allow this activity to continue.

At the beginning of the month there were reports that Linkedin had started to remove content from journalists covering China. A reporter at the news site Axios received a message from Linkedin stating that “your profile and public activity, such as your comments and links you share with your network, will not be visible in China.” It was not specified which material was intended, but a common theme was that the message was sent to journalists who covered China, and who were thereby able to be critical of the country.

The thesis that it is about the expression of uncomfortable opinions is supported by the fact that Linkedin still retains some business in the country, but that it is through a newly started app that provides job ads. The company as such is therefore not banned from the country – it is only a certain part of the business that can no longer be carried on. The company itself specifies that it has become a “significantly more challenging environment and greater requirements for regulatory compliance in China”.

Linkedin is not alone in experiencing this “challenging environment”. In one fell swoop, the entire Chinese tutoring industry was shut down after the government deemed it unsuitable for profit. This week that industry received some redress, when those companies are now allowed to assist with vocational training at least. That fits well with the modern China that Xi Jinping wants to build. And those types of swings can happen quickly – even for the companies that are on the inside.

The picture being painted is of a China that is closing itself more and more. The harsh pressure that has been put on the domestic tech companies has attracted the world’s eyes and caused stock market prices to fall. When established foreign companies – which followed market practices – are forced to reconsider their operations, this could create more uncertainty among the world’s investors.

If even the world’s second highest valued tech company, Microsoft, can’t manage to navigate the political landscape – what will all other companies do?

This column was first published in SvD Näringsliv, in Swedish, on October 15th, 2021.

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New phenomenon turns players into investors

September 2, 2022

by Björn Jeffery

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The Daily

This column was first published in SvD Näringsliv, in Swedish, on October 11th, 2021.

– When I started, I played almost four to five hours a day, says John Ramos, a 22-year-old man from the Philippines.

It sounds like a quote you’ve heard many times before from someone caught up in a gaming addiction. But this is something else, and it ends in a different way than they usually do.

Ramos has made gaming into a job. He has recently bought several homes with the winnings he has accumulated in the game “Axie Infinity” since he started last November. It is part of a new phenomenon in the gaming and crypto world called “play to earn”.

Behind the game is the Vietnamese game studio Sky Mavis, which was recently valued at $3 billion when the American venture capital giant Andreessen Horowitz invested in them. It is a company that has only existed for three years. Development has been rapid – and continues to do so. Revenue from purchases inside Axie Infinity is projected to reach $1 billion by 2021, with 17 percent of that going to Sky Mavis.

The trend is in an early phase, but can also be found in Sweden. The game developer Antler Interactive is developing a game called “My Neighbor Alice” together with the blockchain company Chromaway. It uses its own cryptocurrency Alice, which was publicly launched in March this year. While the trading of Alice is already underway, the actual game itself is not finished yet. It is expected to be released sometime next spring.

Making money playing computer games is nothing new in itself. But “play to earn” still differs from e-sports and game streaming to the extent that it is the game itself that generates the revenue – not the viewers and sponsors around. E-sports is rather similar to regular sports in its business model. You play to collect virtual objects and cryptocurrency within the game itself, and it can then be traded on crypto exchanges outside.

It may sound like a small difference in the grand scheme of things, but it turns the traditional business models of the gaming world upside down.

Normally, the revenue for a game goes directly to the gaming company that developed it. Sometimes the money is shared with game publishers who helped develop and market the game. Somewhat simplified, you can say that the more people play, the more profitable the game becomes – regardless of the underlying business model.

With “play to earn” you also play games, but the difference is that the more people participate, the more valuable what you own in the game becomes. You as a player thus profit from the success of the game by the fact that the assets you have acquired in the game get more potential buyers. The most expensive Axie – a cartoon animal that looks like a mix of a cat and a fish – was sold at the end of last year for about 125,000 dollars.

The more people playing, the more people can participate in the trade. Seen from this perspective, it is more like a cryptocurrency or a common stock, where the value is governed by supply and demand. If you then drape this trade in a game, you get a hybrid where players have clear incentives to spread the game on to others. You don’t spread the game necessarily because it’s so much fun – but because you can profit from it yourself.

This development is interesting and fast-growing, but it also brings with it an aftertaste of industries that one might not want to associate with. Recruiting new players to make one’s own investment more valuable is similar to MLM (multi-level marketing, i.e. sales where individuals sell directly to other individuals) and also has some similarities to pyramid schemes.

When you start playing computer games to earn money, many new questions appear. Is this entertainment or an investment business? Is it perhaps more like a casino than a board game? In an almost lawless land between gaming and cryptocurrencies, we’ve only seen the start of this trend – and its problems.

This column was first published in SvD Näringsliv, in Swedish, on October 11th, 2021.

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Is the hype the start of a new internet?

September 2, 2022

by Björn Jeffery

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021.

Speculation in cryptocurrencies has turned many into both paupers and millionaires. But when phenomena like NFTs begin to mature, they can form the basis of something entirely new – a different type of internet than the one we know today.

A shiba inu dog that looks a little lost. The image is at the center of a series of seemingly strange events that make derivatives trading feel uncomplicated and risk-free by comparison. Come along for the latest adventures in the crypto world – and which, according to some, point out the direction of a future internet:

First there was a meme, a funny photo montage, called “doge”. The picture depicted the aforementioned dog.

Subsequently, the cryptocurrency dogecoin was created as a joke, with the dog as its symbol.

After this, the image was sold as an NFT – that is, the digital right to the original image to a group of investors. Price? Around 4 million dollars. At this point, many people probably start to think that it sounds strange because anyone can download a JPG image for free on the internet.

Then these investors took the NFT image, and split it into 17 billion small parts instead – so-called “fractionalization”. Now anyone could buy a share of the image. This in turn created another cryptocurrency called dogcoin (without the “e” at the end). After an auction of 24 hours, this new cryptocurrency – and the image of the dog – was worth 225 million dollars.

Now, just over a month later, the value has plummeted to just over 27 million dollars. Still a considerable amount of money.

This of course sounds absurd. How can a photo of a dog that everyone can Google become worth 225 million dollars overnight?

The first factor is the huge speculation that has taken place in cryptocurrencies in recent years. Although there are many legitimate uses, the great interest in crypto has not been driven by average joes who have a philosophical interest in a decentralized social economy. They have mostly wanted to make quick money. And many of them have succeeded. Huge runs (and crashes) over the course of a single a day are hard to find in the regular stock market, but they do occur here.

The great interest has also created a number of new millionaires. People who bet a couple of thousand at the right time are now sitting on huge crypto resources. However, the use for cryptocurrencies is still very limited. There are simply very few things you can buy with the currency, unless you decide to exchange it back to regular dollars. But if you do that – then you are once again outside the market.

NFT solves this – admittedly self-created – problem. It is a digital asset that may increase in value, and which preferably must be purchased with cryptocurrency. It allows speculators to use their newfound profits and still remain in the market. And the interest is great. The art series “Cryptopunks” had over a billion dollars in total sales by the end of August this year, and is now traded for around 20 million dollars every day. Speculation is rampant, in other words. There are similar art projects around digital apes, or almost what you can imagine, where transactions for millions are made repeatedly.

The other influencing factor is the huge amount of venture capital invested in the sector. This past summer, over 17 billion dollars worth of investments had been made in crypto companies – in the first half of the year alone. That’s almost as much as the total amount invested in crypto in all other years combined.

Venture capital, by its very nature, is looking for the next big thing. The amount of capital invested in crypto suggests that the industry believes it may be just that. Or that it can serve as the starting point for something new, something bigger.

The last 20 years on the internet have been characterized by an enormous centralization around the very largest companies: Apple, Google, Facebook and Amazon in the USA. Alibaba, Tencent, Baidu in China. The crypto trend can be seen as a backlash to just this – a decentralization of the internet. This is what has started to be called “Web 3”.

A new kind of Internet, as “Web 3” might be, would also mean new category winners, and that is where venture capital’s interests lie. Who creates Facebook for “Web 3”? That’s the question investors all over the world are pondering.

But while the venture capitalists are guessing with their money, a new generation of entrepreneurs is sitting with well-filled coffers and experimenting. Sometimes the result is an overpriced image of a dog that no one will want in six months. Sometimes it becomes a building block for a completely new kind of internet.

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021.

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Credit cards are threatened – for the first time since 1958

September 2, 2022

by Björn Jeffery

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 27th, 2021.

In 1958, all residents of the American city of Fresno received a letter from Bank of America, regardless of whether they were customers or not. It contained what would become the key to all modern commerce for the next 60 years.

The mailing was an experiment, and Fresno was small enough that a public fiasco could be avoided.

In the envelope was a card with the text “Bank Americard”. In one stroke, the 60,000 residents were suddenly given the opportunity to shop on credit. The credit card – in its modern form – was invented.

Since then, credit and debit cards have been a central, and relatively unthreatened, part of global payment flows. In Sweden, 97 percent of the population has a debit card and it is the dominant form of payment.

Now we see – for the first time – a real threat to the dominance of card purchases. The reason is spelled BNPL, short for buy now, pay later. Sweden is at the forefront as the world’s fourth largest country in the BNPL market in terms of transaction value.

While Klarna has been early and dominant in Sweden and parts of Europe, the BNPL market is gaining real momentum elsewhere as well. Last summer, the payment company Square announced that they would buy the Australian BNPL company Afterpay for 29 billion dollars, around 250 billion SEK. A few weeks ago Paypal bought the Japanese ditto, Paidy. The listed BNPL company Affirm has made a cooperation agreement with Amazon, and Apple is said to be building its own BNPL product together with Goldman Sachs.

The change is interesting in all parts of the value chain.

For merchants, the benefit of BNPL is not primarily to provide a credit, but to increase the average order value and reduce the number of buyers with last minute regrets. Somewhat simplified, you can say that the more and faster ways you can pay, the more purchases are made. With BNPL, the e-tailer also bypasses the credit card systems and their fees altogether, without losing sales. However, it is not completely free – even the BNPL companies may have fees.

At the same time, for individual brands, there is an opportunity for more purchase data that can be used for more precise campaigns. When purchases are made via credit card, the details of exactly which goods have been purchased disappear. With more data, brands can offer specific discounts and installment plans down to the individual product level. This is next to impossible for anyone who does not work with BNPL payments today.

For consumers, it creates the opportunity to shop in a fast and flexible way. BNPL often provides a credit to shop with, but that has been around for a long time with credit cards too. However, credit cards are not available to everyone. A 2016 survey found that only 33 percent of American 18-29 year olds had one. For them, BNPL can be a way to buy something that was previously unavailable.

The conditions surrounding the credit may differ between different ways of paying, but the fact that some consumers find it difficult to manage it seems to be similar. A survey from the US found that a third of all BNPL buyers were behind on their payments. This is exactly what Klarna states as the reason why they recently extended their payment deadline for invoice purchases to 30 days. The question is whether it is enough to curb the underlying problem. On Tiktok there are countless (admittedly joking) videos about not being able to pay their Klarna bills – and the hashtag #klarna has a whopping 36.9 million views.

There have been attempts to get around the credit card companies and their fees in the past, but it has rarely worked in practice. The BNPL structure has the potential to be the one that actually succeeds, making it the first truly credible threat to the credit card market. It poses questions to giants such as Mastercard and Visa – remain motionless in their business model, or enter the takeover battle for the BNPL companies?

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Amazon is getting ready – this is how they will take on Sweden

July 18, 2022

by Björn Jeffery

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021.

The start was a failure for the e-commerce giant. But as a new, secret, big owner in the last mile company Airmee, Amazon seems determined to try to take the Swedish market. The deal creates challenges for the other companies – and perhaps also for Airmee.

Tobias Lutke, founder and CEO of the e-commerce platform Shopify, followed the opening of the Nasdaq stock exchange on January 13 this year. At 09.30 Lutke would become extremely wealthy. Or rather – even more wealthy than he already was.

However, the company being listed on the stock exchange was not Shopify. That listing had taken place six years earlier. This time it was the payment company Affirm’s turn. When the bell rang at the end of the stock market day, Lutke’s company Shopify suddenly had shares in Affirm worth about two billion dollars. When Shopify reported its first-quarter earnings, the money from Affirm’s listing accounted for more than 100 percent of its quarterly profits.

It is one of several examples of a trend that has emerged where strategic partnerships are made with co-ownership as a component of the business.

In the case of Shopify and Affirm, it was a partnership that was made six months earlier. Affirm, which can simply be described as an American Klarna, was given the exclusivity to offer “buy now, pay later” in Shopify’s 1.7 million e-commerce stores. As part of the deal, Shopify was given stock options to buy more than 20 million shares in Affirm. Shares that at the stock exchange listing became very valuable.

You can find similar setups around the world. A few weeks ago, Microsoft invested five million dollars in the Indian hotel chain Oyo. It may sound like a lot, but the valuation of Oyo is $9.6 billion. It is therefore not an investment that will finance the company, it is rather a matter of getting Oyo to start using Microsoft’s cloud service Azure to a greater extent. Microsoft – which here competes with Amazon AWS and Google Cloud, among others – has listed the cloud services within Azure as strategically important and one of the company’s major growth areas.

It is therefore noteworthy that the Swedish last mile delivery company Airmee, according to Di Digital, issued option rights to a new, unknown owner for the equivalent of 20 percent of the company. And after the company itself announced that it will have Amazon as a customer, it’s not a bold guess as to who the new owner is.

Amazon’s start in Sweden has been slow and their launch got laughed at by both customers and competitors. Clumsy automatic translations meant that you can now use Amazon in Sweden with English as the language instead. But more than anything else, Swedish Amazon lacked the engine for its entire business – the Prime membership programme.

It provides, among other things, the opportunity to get fast home deliveries at no extra cost. But to be able to offer it, you need a logistics company that can handle so-called “last mile delivery” – companies such as Airmee that can take the product all the way home to the customer’s front door. Amazon’s current logistics partner – Postnord – does also has this service. But just having one supplier for deliveries will not be enough for Amazon.

Should one, therefore, just before the anniversary of Amazon’s launch in Sweden, see this as some sort of fresh start? One where delivery times start to match the picky and e-commerce-savvy Swedes? And which will probably get bundled with the video service Prime Video which was launched in Sweden separately? Yes, probably.

But if the price of landing a strategically important partner is to let them in on the cap table, then the selection of that partner is more important than ever. Partnerships can come and go – but shareholders you will have to live with for a long time after that.

In addition, other customers may have opinions about them now indirectly benefiting one of their competitors. If you, like Airmee, are a supplier to many different e-retailers, this can be a difficult strategic nut to crack. Having a customer like Amazon can tenfold the size of the company. But having a shareholder like Amazon could also make your other customers look around for a new logistics partner.

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021.

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New documents expose Facebook – again

January 7, 2022

by Björn Jeffery

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SvD Näringsliv

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

Human trafficking. Drug cartels. Teenage girls getting body image issues. Internal documents reveal how Facebook has been alerted to its problems – and ignored them. Now the company is facing another crisis of confidence.

When Facebook – the world’s largest social network – began crisis management after the Cambridge Analytica scandal in 2018, they made a somewhat ironic media choice. To reach out to the outside world in a clear way, the company purchased full-page advertisements in paper newspapers, including the Wall Street Journal, the New York Times and The Observer.

The headline in the ad read:

“We have a responsibility to protect your information. If we can’t, we don’t deserve it.”

Today, the question is rather whether the users of Facebook don’t deserve to know the information that the company has about themselves?

The question has become relevant in connection with a major exposé in the Wall Street Journal about Facebook. The newspaper has read a large number of internal documents and reports, and interviewed former employees. The documents show that their platform has been used for everything from human trafficking to misinformation about vaccines against covid-19. Facebook has been aware of this and has been warned by its own employees. Still, it has continued.

A common line of reasoning in situations like these is that the internet only reflects the society around it. What is happening in the world is also happening on the internet. Human trafficking did not start on Facebook. Thus, it is wrong to blame the platforms for a behavior that probably would have taken place even without them.

There is also some research support for this thesis. Amy Orben and Andrew Przybylski, researchers from Oxford University in England, showed in a 2019 study that 99.6 percent of British teenage children’s satisfaction with life had nothing to do with social media at all. The area is very controversial and under development, and there are several studies that also show the opposite.

While there is merit to the reasoning around the reflection of society, this is a situation where you need to keep two thoughts in your head at the same time. Just because you have not created the problem in question, does not mean that you should necessarily be completely neutral towards it. If a school knows that bullying is taking place in the schoolyard, it may not be the school’s fault. But with that knowledge – do they have no responsibility to curb that behavior? Of course we expect them to.

Take Instagram as an example – the photo service that Facebook bought for a billion dollars in 2012. In an internal document from 2020, a survey showed that 32 percent of teenage girls felt worse about their bodies after using Instagram. In another internal study from 2019, the internal research was summed up with the quote “we make body complexes worse for one in three teenage girls”. This knowledge had thus been known to the company for several years. In that context, it is therefore strange when the top manager on Instagram, Adam Mosseri, in May this year said that the research he took part of showed that their effect on teenagers was probably “quite small”.

Time and time again, we see examples of how Facebook messes up in different ways, and is forced to apologize. But their underlying thesis is that, on the whole, it is positive when people in the world are connected in the way that Facebook does. They believe that mistakes have been made, but they have been unintentional. Reports like the one above allows one to begin to question this lack of intention. On the contrary, there is much to suggest that Facebook’s problems have been well known for a long time, but simply not prioritized. Maybe for the benefit of the company’s growth.

Facebook is once again facing the difficulty of explaining its behavior as a company. How long can they continue to claim that what they are doing is positive for the world? And perhaps more importantly – how long will their users believe them?

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

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Tiktok’s superpower – a nightmare for Xi Jinping

January 7, 2022

by Björn Jeffery

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SvD Näringsliv

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

While the Chinese authorities are pushing their tech companies hard, a silent revolution is taking place at the same time. Tiktok, Shein and Tencent pose a serious challenge to American tech giants – but their success is perhaps also their biggest Achilles heel.

“I think we should talk to them. If nothing else to make it more expensive for Yahoo.”

It’s entertaining to read the Google management’s internal emails from the winter of 2005, when they became interested in the startup Youtube. At the time, advertising executive Jeff Huber, who is also behind the quote above, speculated that a price tag could land at $10-15 million.

A little more than a year later, Google made their move and bought the video site. However, they had to pay $1,65 billion for the company, so Huber’s precision with price could have been better. At the time, it was one of Google’s biggest acquisitions, and it raised concerns about a valuation bubble.

However, Youtube grew to become the world’s second largest search engine – after Google’s own. An analyst valued Youtube at around $300 billion in 2019, if it were an independent company. It has been considered to have an almost impenetrable position in the video market.

Or impenetrable until now, perhaps one should say. In Sweden, the Chinese app Tiktok has been downloaded more times this year than both Netflix and Disney+. And this week, the analysis company App Annie reported that users of Tiktok now on average spend more time there than on Youtube in both England and the USA.

Although Youtube is still bigger when looking at the total user time, the shift is significant. This is the first time anyone has managed to seriously challenge Youtube, and in addition there is the threat from China. Traditionally, Chinese tech companies have otherwise been mainly successful in their local market.

It’s not just Tiktok that has succeeded in breaking into the western world’s tech markets. Sweden’s most downloaded shopping app is neither Zalando, Blocket nor Amazon. It’s called Shein, which together with Klarna dominated the shopping category in both Apple’s and Google’s app stores throughout 2021.

Shein has also made a big impact in the United States. In June, the Chinese company had larger e-commerce sales in the US than both H&M and Zara, according to a report from the analysis company Earnest Research. The market for so-called “fast fashion” grew 15 percent in the US from January to June. Shein’s growth during the same time? Almost 160 percent.

Shein is not a classic fashion company but should rather be considered a tech company. They have adopted an established business model with low prices, fast trends, and high turnover and increased the speed considerably. According to industry media, the company can take a garment from idea via design and production to sale in the app in less than three days. Shein has launched at most over 5,000 new products – in a single day.

– In the way they work, they can predict the next popular product and what will be in demand, Jialu Shan, a researcher at the IMD School of Business in Switzerland, told SvD this summer.

The model works. According to Chinese media reports, Shein made a profit of 10 billion dollars last year – about 86 billion SEK. In comparison, H&M made a profit of 2 billion SEK in 2020.

Another area where you see new Chinese dominance is in the gaming world. From being a market where the USA and Japan were at the forefront, Chinese Tencent and Netease have now sailed up as some of the world’s largest gaming publishers. Tencent has, among other things, released the game Pubg, which has the most players in the world, and also owns the Finnish game studio Supercell, which is behind “Clash of clans” – one of the world’s most successful mobile games.

The new global tech success may be a factor in President Xi Jinping’s plan to regain control of them. In recent weeks, Chinese authorities have reportedly developed legislation to prevent certain tech companies from being listed abroad, and announced the opening of a new domestic exchange for small and medium-sized companies.

China’s tech companies are now facing a complicated market situation. The success abroad has made them catch the eyes of the outside world, and the competition will intensify considerably. Youtube will not give up first place without a fight and maintaining its newly gained market share will be a challenge in itself.

For President Xi Jinping, the balancing act is not easy either. Too strong challengers among tech companies can threaten the balance of power with the Chinese Communist Party’s position in the country. The Financial Times reported that Beijing wants to divide the payment company Ant Financial into several parts – one of which would be partly owned by the Chinese state. At the same time, Chinese success in this sector will make the whole country look good – all over the world. It is geopolitically valuable.

Both the authorities and the tech companies now need to tread carefully. Can the tech companies manage to handle both increased international competition and the Chinese state at the same time? If not, China risks losing the position it has worked for over 20 years to achieve: successful global tech – made in China.

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

Facebook’s glasses: an unusually bad idea

January 6, 2022

by Björn Jeffery

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 11th, 2021.

A new book about Facebook describes a company that puts growth above everything else. When they now release a pair of sunglasses with a built-in camera, it enhances the image of a company that wants to be everything, for everyone, at almost any price.

Sheryl Sandberg, chief operating officer at Facebook, sat in her conference room and received bad news. It did not rhyme very well with the name of this particular room – “Only Good News”.

Facebook’s head of security, Alex Stamos, had just informed their board that Russia’s influence on the US election in 2016 was much greater than they first thought. Sandberg was angry and shouted at Stamos that he threw her under the bus in front of the board. It seemed to be a bigger issue than the Russian disinformation itself.

This and much more can be read about in a new book about Facebook, which was published in Swedish this week. “An Ugly truth” is the result of hundreds of interviews conducted by New York Times journalists Sheera Frenkel and Cecilia Kang. The book paints a picture of a company that, in its quest to grow and connect all the inhabitants of the world, has missed the mark on several occasions. And this without necessarily learning much from that process. The back cover of the book has a long list of public excuses that Sandberg and CEO Mark Zuckerberg have had to make in recent years.

The timing is therefore comical as Facebook on Thursday released its new hardware product – a pair of sunglasses with a built-in camera, made together with the Ray-Ban brand.

The idea may sound strange, but it’s not new to Silicon Valley. Snap released a pair of similar sunglasses, Spectacles, already in 2016. Several versions have come since then. A couple of years before that, Google came up with an early version, but which essentially had the same idea – Google Glass. It’s a kind of smart camera that you carry on your face. The difference now is that you probably won’t notice when someone is wearing the Facebook version. Discretion is the point. Bearers of Google Glass were laughed at because they looked so strange.

It’s hard not to make comparisons between Facebook’s history and this new product. As so often, there are two things happening in parallel.

First, there is a technical product that enables things that were previously difficult to accomplish. Like allowing all the people of the world to communicate with each other, pretty freely. Secondly, there are consequences of using this product, which Facebook has not always thought through before launching it.

This has been the case with everything from the selection of news that is displayed in the users’ news feed, to what is now in practice a hidden camera that people will carry on their noses. According to reviews, it works well. But one wonders if the consequences of the product are completely well thought out, and at least clear enough for their immediate physical surroundings?

This, combined with Facebook’s long history of data that has often been inadvertently shared, portrays a company that has a self-image that does not always match that of the world around it. Although the technology is impressive in itself – how many people want Facebook to be the ones providing it?

We already have a well-documented – and surveilled – society with mobile phones and security cameras in every corner. Getting tens of thousands of new Facebook cameras on people’s faces is probably not something that everyone is looking forward to.

This column was first published in SvD Näringsliv, in Swedish, on September 11th, 2021.

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