Why they’re throwing money at Trump

March 26, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 26th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The valuation is astronomical as Donald Trump’s company goes public. The reasons to invest in Truth Social have nothing to do with business fundamentals.

Giving your listed company the same ticker as your own initials is unusual. Doing it a second time should, by any reasonable measure, be unique.

Nothing about it is normal when Donald Trump’s social network, Truth Social, goes public on Tuesday. The company being listed via SPAC is called “Trump Media & Technology Group Corp,” but will trade under the ticker “DJT” — Trump’s own initials.

The prospects look better this time than when Trump took a casino public in 1995 — also under the name “DJT.” That ended with the company running into financial difficulties and eventually filing for bankruptcy protection in 2004.

This time, it is far more than the threat of bankruptcy that hangs over Trump’s new public company. Its figurehead is a presidential candidate facing criminal charges in a string of legal proceedings. He has also been found liable and needs liquidity to pay fines running into the billions.

Despite all this, the SPAC’s shares surged when the merger was confirmed. What are investors hoping for?

It is not anything as conventional as revenues and profitability, at least. DJT — which in all material respects consists solely of the right-leaning social network Truth Social — had revenues of around 36 million kronor and made a loss of over 500 million kronor during the first nine months of 2023. Such numbers make it difficult to justify a valuation of around 53 billion kronor, which is roughly where the share is expected to trade initially.

A simple calculation shows that DJT would then be valued at approximately 1,100 times its annual sales. Comparing that to equivalent figures for other social media companies: Meta trades at 9.5 times, Snap at 4, and the recently listed Reddit at 6.4.

Investing in DJT has nothing to do with business fundamentals. There are, however, two other powerful motivations at play. Either the hope that something irrational will happen, or an expression of ideological conviction.

The irrational dimension finds its clearest expression in Reddit forums like Wall Street Bets — best known as the gathering place for the GameStop hysteria of 2021. There, traders discuss options contracts with extremely high risk. In that context, the quality of the underlying company matters little — what counts is whether you correctly predict how the price will move. A kind of lottery, but on the stock market. A stock like DJT — with Donald Trump as its face — becomes the perfect candidate for a so-called meme stock. Anything can happen.

The ideological dimension is more about investing in Donald Trump, rather than alongside him. Trump has not bought shares in DJT at this valuation; his ownership is a result of the SPAC merger. Buying shares can become a way of expressing support for Trump.

The timing works well for Trump. In the coming days he needs to raise billions to prevent his property assets and other holdings from being seized by the courts. Trump’s agreement with DJT stipulates that he cannot sell any shares during the first six months after the IPO. But the agreement can be renegotiated — no law governs his ownership. Were that to happen, Trump would be able to sell shares and thereby resolve some of his financial difficulties with the justice system.

There is, however, a problem with this plan. To be a seller, you need buyers. Will the market stand ready to buy Trump’s shares at the current valuation, even when the largest shareholder and the company’s namesake is selling? If not, the share price would fall dramatically.

Buying shares from Trump can also be done with other, less noble, motives. In the US, there are laws regulating how much money you can donate to presidential candidates. But buying shares — and making a bad investment — is not illegal. The major Republican donor Jeffrey Yass, for example, is already a significant shareholder in both ByteDance (TikTok’s parent company) and in the SPAC that is now being converted into DJT.

Being close to the man who could become the next President of the United States can be worth a great deal of money. In that context, even a bad stock trade might end up paying off.

The strategy that gave the AI giant a head start

March 19, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 19th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

A supremely confident Jensen Huang presented Nvidia’s plans to the world. The message was unmistakable: without Nvidia, there is no AI development. But on the horizon, competition is stirring from a troubling direction.

Jensen Huang, CEO of Nvidia, walks onstage to bombastic orchestral music that could have come from a Hollywood blockbuster. “You have come to a developer conference,” he clarifies.

The music, it turns out, was written by AI — but performed by a live symphony orchestra. Huang himself, in his now-familiar leather jacket, seemed to harbour a certain rock star energy. But only so much.

GTC — Nvidia’s own conference — has been held since 2009. Back then it was a small, internal affair. On Monday evening, thousands of participants gathered in San Jose — with many times more following the livestream — to see what the company at the centre of the AI revolution has planned for the future.

Huang is acutely aware of the position he now occupies — and how far they have come since he co-founded the company in 1993. He pauses on 2017, when Nvidia produced a new kind of computer called the DGX-1. “I delivered the first unit by hand to a startup in San Francisco,” he recalls. “They were called OpenAI.”

The message is clear: without Nvidia, no OpenAI, and no AI revolution. Now it is about scaling up further. From the stage, Huang proudly unveils the company’s next major platform — Blackwell — which will make generative AI more powerful than ever. “God, I love Nvidia,” he says spontaneously. It shows. And he has 23 trillion kronor worth of reasons to feel that way — that is Nvidia’s current market capitalisation.

Is there anything that could stop them?

The new-found success has allowed Nvidia to broaden its operations considerably. Not only do they supply the hardware on which AI development runs — they have also expanded into financing the companies that do the developing. Last year, Nvidia invested in over 30 AI-related companies, and a month ago bought a larger position in the listed Arm Holdings. Nvidia had previously attempted to acquire all of Arm, but that deal was blocked in 2022 by competition regulators. At the end of January, the value of these investments stood at over 16 billion kronor.

The investment activity stands out because it creates a kind of financial circular flow. Nvidia invests money in promising AI companies, which then spend a substantial portion of it on buying products and services from Nvidia itself. Access to Nvidia’s chips has been a challenge for the entire industry. Spending newly raised capital on them is entirely rational. What becomes slightly unusual, however, is that the money comes from the same supplier that companies then must buy from. Investments in other companies effectively become direct revenues for Nvidia.

The insights gained into how products are used also help shape the next generation of development — and make inventory management easier, since demand becomes more predictable. Right now it is exploding, but as recently as mid-2022 Nvidia had to write down part of its inventory after misjudging market demand.

Investing in customers also keeps competitors at bay. By financing companies that use Nvidia’s products, Nvidia creates both demand and a head start for those chosen firms.

Competitors do exist, even if the market currently seems to value Nvidia as unbeatable. The share price is up just over 80 percent since the start of 2024, and over 240 percent compared to a year ago. Nvidia leads specifically in what is called the GPU — graphics processing unit — which, broadly speaking, is the type of processor used to train AI models. But established players such as AMD, Intel, and Qualcomm see the explosive growth and are unlikely to let it pass them by forever.

Another competitor that receives less attention is Apple. They do not sell chips to others, but they manufacture their own — which means they can build chips specifically designed to support Apple’s own strategy. Apple is therefore not a competitor to Nvidia in selling chips to external customers, but rather in terms of the AI functionality that is built with them.

Nvidia’s software development platform, CUDA, is today a standard for AI development. But building platforms of this kind is something Apple has been world-class at for years. In the longer run, this could give rise to a new kind of competitive dynamic between giants in the multi-trillion-kronor bracket.

In the short term, Nvidia still stands largely alone at the top. They have outmanoeuvred the existing players in the industry. Who talks about Intel today? And even if players like Apple eventually mount a challenge, it is many years away from becoming reality.

That more competition will come is, however, entirely certain. Large and small — from startups to tech giants — everyone sees the explosive AI development and wants to stake a position. How long can Huang and Nvidia hold on?

This is when TikTok gets banned — or is it?

March 13, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 13th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

This is about politics more than technology as the US House of Representatives voted to ban TikTok. Much suggests the bill will not become reality.

When American TikTok users opened their app last week, they were not met with the usual lip-syncing to music. Instead, they were greeted with a black screen reading “Stop a TikTok shutdown.” Below it sat a red button with a phone receiver and the instruction: “Call now.”

US lawmakers were flooded with calls from angry TikTok users worried that their entertainment — and in some cases their livelihood — was about to be taken away.

The calls were not enough. After passing through a committee in the US House of Representatives with the remarkable vote of 50-0, the full House voted on Wednesday. There too, both sides of the political spectrum agreed that TikTok could be considered a risk to US national security, and should therefore be sold or banned outright.

The bill is written specifically for TikTok and its Chinese parent company ByteDance. If it passes all stages, ByteDance would have only 165 days to divest TikTok. But there is much to suggest this will take considerably longer — if it ever gets that far.

Scepticism towards TikTok is nothing new. As far back as 2020, then-President Donald Trump said his administration was examining options to ban the app in the US. It ended in a kind of compromise, with TikTok promising to separate data from American users and store it on US soil, with database company Oracle ensuring it was not misused.

Two years ago, in 2022, the migration of American user data began under what TikTok called “Project Texas.” The arrangement was on track to be completed.

But it did not stop there. In 2023, President Joe Biden banned TikTok from government phones, and the state of Montana banned the app entirely. Montana’s decision was subsequently struck down by a federal court that ruled it violated freedom of speech.

Trying to ban TikTok again now is therefore far from straightforward — despite unusually broad political consensus on the issue.

The committee that drafted the bill is called the “Select Committee on the Chinese Communist Party,” which suggests which motives have been strongest in driving it forward. When Republican politician Mike Gallagher was appointed committee chairman in December 2022, he said: “Even in a divided government, we have an opportunity to build a united front against the aggressions of the Chinese Communist Party.”

In an election year, few politicians want to risk being associated with China — and Gallagher may have found exactly that in TikTok. Voting against TikTok becomes a clear way to signal that.

The bill still faces a difficult path. It must first be taken up and voted through the Senate — which is not a given. Senate Majority Leader Chuck Schumer has promised to look at it, but no vote has been scheduled. Several Republicans have also expressed doubts about a ban — including Donald Trump, who now appears to have changed his position on the issue.

If it nonetheless passes the Senate — and President Biden signs it, which he has indicated he would — a legal challenge is almost certain to follow. The Montana case suggests this could be difficult. And if nothing else, such a process would take a long time.

One plausible outcome is therefore some form of compromise. ByteDance will not be able to continue exactly as before, but there are paths forward. A complete ban is unlikely. A sale is conceivable, but given that the app is valued at a minimum of 500 billion kronor, the list of plausible buyers is short. The very largest — Meta, for example — would happily buy it. But such a deal would never be approved on competition grounds.

One variant would be for parent company ByteDance to list TikTok on the US stock market. Ownership would then be distributed across many more shareholders, with new major investors entering the picture. ByteDance might then be permitted to remain as a minority shareholder.

Whatever happens, we are unlikely to get any definitive answer on TikTok’s future before the US election in November.

A new Pew Research study showed that 58 percent of Americans aged 13 to 17 use TikTok every day. 17 percent of them said they do so “almost constantly.” They cannot vote yet — but the app has around 170 million users in the US. Upsetting that many people in an election year is something few politicians are willing to do.

3 books, 3 movies, 3 songs + 1 prediction

March 11, 2024
by Björn Jeffery
Newsletters

👋

I have been writing so much lately. But since I haven’t sent you a newsletter since… August 2021(!?), I can’t blame you for not knowing that. It has also been almost exclusively in Swedish (sorry).

I have also been reading a lot more books and listening to a lot of music. Which brings me to what this newsletter once was intended for and named after – my recommendations.

With that in mind – below are some things that I’d like to recommend!

/Björn

Three books that stayed with me after I finished them

When We Cease to Understand the World by Benjamín Labatut
One of the best and most fascinating books I have ever read. It moves seamlessly between fact and fiction to create something quite unique. A book I will read again.

The Guest by Emma Cline
A novel which follows a young woman through a series of serendipitous encounters. It has a stressful feeling throughout the whole book – a bit like watching The Bear. Stressful, but in a good way. Hard to put down.

Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy by James B Stewart and Rachel Abrams
If you like Succession, this is the book for you (and if you don’t, why are you reading this?) Logan Roy and Sandy Furness are both partially based on Sumner Redstone, the patriarch behind CBS and Paramount, and this book captures his escapades. The real story is incredibly juicy.

Three movies that made me think

The Zone of Interest by Jonathan Glazer
Perhaps no one has missed this one, but just in case you have: see it. The setting is a Nazi commandant that lives next to Auschwitz with his family. Life goes on, and on the other side of the adjacent wall – it ends. Also, I’ve never watched a movie with sound design like this.

Aftersun by Charlotte Wells
A father and daughter go on vacation together, seemingly to create the illusion of normality. But real life simmers in the background. A beautiful and somewhat tragic illustration of the juxtaposition between being a parent and an adult.

Past Lives by Celine Song
A sort of modern day “Sliding Doors”, without the clichés. About a potential life that gets lost and then makes a new appearance. The one that got away? Or perhaps the one that could never have been?

Three songs that I’ve been playing over and over

Bzrp Music Sessions, Vol. 58 by Young Miko
The Argentinian producer Bizarrap has a series where he invites artists to collaborate. The best one I’ve seen is with the Puerto Rican rapper Young Miko who has an incredible flow on this one.

Bye by Ariana Grande
The best track from Ariana’s new album that just dropped. Classic pop, but so well-produced.

Deeper Well by Kacey Musgraves
Likely the artist I’ve listened the most to over the last few years. The dark post-divorce album Star-Crossed was a favourite of mine, but she seems to have turned a corner now. A simple, but beautiful melody.

One prediction I have made

Embarrassing AI mistakes could knock out top executive (in Swedish here)

After a series of embarrassing mishaps, I think Sundar Pichai – the CEO of Google – will step down before the end of the year. Being late to the AI game is okay. But being bad at it – even in its infancy – is not.

Originally published on Substack on March 11th, 2024.

Embarrassing AI mistakes could knock out top executive

March 8, 2024
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on March 8th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

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.

Musk’s new path to power reeks of desperation

March 4, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on March 4th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

OpenAI is being sued by co-founder Elon Musk. He claims to want to preserve the company’s original non-profit ambitions. But Musk has other reasons to want to slow down what has now become his competitor.

The complexity of the case is revealed immediately in the lawsuit Elon Musk has filed with the California court system. On one side stands “Elon Musk, an individual.” On the other: OpenAI’s leaders Sam Altman and Greg Brockman — and eight different OpenAI entities, all with names along these lines: OpenAI LP, OpenAI LLC, and OpenAI GP LLC.

Does all of this really exist for something that was meant to be a non-profit aimed at doing good for the world through artificial intelligence? Musk doesn’t think so — and is now suing them.

Elon Musk was one of OpenAI’s original founders and among its earliest and largest funders. It is true that the company subsequently restructured to include a more commercial entity. Hence all those interlocking company names.

But this transformation happened back in 2019. So why is Musk only suing now, five years later?

The first — and most charitable — interpretation is that it is only now that OpenAI has truly broken through at scale. AI development is accelerating in step with the enormous investments being made in the field. The risks that some AI researchers have warned about may therefore be becoming more urgent.

OpenAI was originally set up to ensure that AI technology is used with good intent and in a way that benefits humanity. Musk has been clear about his desire to colonise Mars as an alternative home for humanity. If he genuinely fears that AI could be used in the wrong way, this is the moment to try to stop it.

Working against this interpretation, however, is reporting in The New York Times suggesting that as recently as 2018, Musk was encouraging OpenAI to accelerate its development pace in ways that one researcher there considered “reckless.”

The second reason is that Musk now competes directly with OpenAI through his own companies. The publication Semafor has previously reported that Musk attempted to take over OpenAI in 2018 following a dispute with Sam Altman. When that failed, Musk withdrew a large planned donation.

Several years later, Musk now runs multiple companies with AI connections — including Tesla and the newer project xAI. Interestingly, xAI has been registered as a commercial “benefit corporation,” a legal form designed to benefit more than just its shareholders — a kind of hybrid between the non-profit and the commercial. Regardless of how xAI is structured, it is a direct competitor to OpenAI. Slowing down or forcing OpenAI to restructure could meaningfully benefit Musk’s own ventures.

The third reason is a question of power. Access to AI services is growing explosively, but the underlying systems that provide them are few. At present, it is primarily Google, OpenAI together with Microsoft, Anthropic, Meta, and a handful of others that underpin almost all AI services. This means that the concentration of power is very high — resembling the position that the tech giants have occupied on the internet for the past fifteen years.

Musk is not one of those power players today. And it must sting that he helped fund something that now generates both profits and a formidable competitive position for several of his rivals.

Neither Microsoft nor OpenAI accepts Musk’s characterisation of their relationship. They argue it is a commercial partnership, but that Microsoft cannot control what OpenAI does — and that the non-profit element of OpenAI remains intact as the legal entity where the governing board sits.

It is easy to be idealistic about the current development of AI and how one wants it to be used. But the reason OpenAI went to Microsoft for money in the first place was that the operation required enormous resources — as we can see not least from chipmaker Nvidia’s extraordinary rise. Had OpenAI been funded through donations, it would almost certainly not have achieved the results we see today, nor would it have accelerated competitors’ appetite for investment. Billions of dollars have been committed to this development.

Elon Musk was early in recognising the potential of artificial intelligence. It is easy to see that he would have liked a larger hand in shaping it. Now he has another chance to get that — not through technology, but through the courts. It is a move that carries a whiff of desperation. A San Francisco judge will decide whether he succeeds.

The music giant reaches for the atomic bomb

February 29, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 29th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Thousands of videos went silent on TikTok when music giant Universal protested against poor terms. The conflict is now escalating — and the power struggle between tech and music is intensifying sharply.

It is widely accepted that Spotify’s greatest achievement was not its technical innovation. Being able to play all the world’s music at the press of a button was admittedly an impressive feat. But the truly hard part was persuading the record labels to participate.

In an early 2013 interview with The Guardian, CEO Daniel Ek described it this way: “I was literally sleeping outside their offices and coming in week after week, knocking down argument after argument.”

Without the goodwill of the record labels, there would have been no Spotify. A question the music industry is now asking itself is whether the same applies to TikTok.

At the end of January, thousands of videos went silent on TikTok after the licence agreement with the world’s largest music company — Universal Music Group (UMG) — expired. Negotiations broke down after UMG demanded higher payments for its music, which TikTok refused. UMG then simply switched off all its music on the platform. Those who wanted to listen to Taylor Swift or Billie Eilish were met with total silence instead.

The result was somewhat strange: the videos remained but were now completely mute — and therefore considerably less enjoyable to watch.

The situation has become problematic for both TikTok and its content creators. Many of them earn their living through commercial partnerships with brands, being paid to feature them in their content. As many videos fell silent, their popularity dropped sharply, with serious financial consequences for the creators.

Much now points to this dispute becoming substantially larger.

In the music industry, there are, broadly speaking, two kinds of rights. There are the rights attached to the recording of a song — what used to be a physical record, and which is now most often a recorded track on Spotify. These are the rights that UMG has so far removed from TikTok.

The second kind of rights belongs to those who wrote and produced the songs themselves. These are called publishing rights. Every song — as anyone who has watched the Eurovision selection process knows — can also have a long list of songwriters.

On Tuesday, UMG activated what the industry is now calling “the nuclear option.” This means the label is removing music for all songs in which they represent at least one songwriter. Exactly what proportion of all popular music this covers is disputed. Industry experts put the figure at around 80 percent, while TikTok itself claims it is closer to 30 percent.

As more and more music disappears, the pressure on TikTok grows. The dispute challenges the power balance that the music industry has had with TikTok since the platform broke through. Many popular artists — including Lil Nas X, Olivia Rodrigo, and Doja Cat — all broke through significantly with the help of their popularity on TikTok. And the way the service allows users to discover new music is an argument TikTok presses hard.

TikTok wrote in a statement: “It is sad and disappointing that Universal Music Group has put its own greed above the interests of its artists and songwriters. […] They have chosen to walk away from the powerful support of a platform with well over a billion users that serves as a free promotional vehicle for their talent.”

UMG, for its part, said that TikTok accounted for only 1 percent of their revenues, and added: “Ultimately, TikTok is trying to build a music-based business without paying fair value for the music.”

These are strong words — and do not suggest two parties who are anywhere close to an agreement.

Wise from experience with streaming services, music companies like UMG have a clear picture of how they want to be compensated for their music. In Spotify’s case, negotiations ended with the major labels becoming shareholders in the company. For TikTok — already an established multi-billion-dollar business — that is an unlikely solution.

Something must give, however. And as history has shown, record labels follow each other. If Universal Music Group gets paid more, you can be fairly certain that rivals Warner Music Group and Sony Music will demand the same.

The outcome may be costly — but is likely unavoidable — for TikTok.

Jan Stenbeck’s legacy is being dismantled

February 26, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 26th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Kinnevik is selling Tele2 for 13 billion kronor, but the investment company’s transformation sits uneasily with its history. The risks of the chosen path are enormous. Will the owners dare to continue?

Sharp pivots and high risk. These have been among Kinnevik’s hallmarks since the days of Jan Stenbeck. At first glance, today’s deal — selling Tele2 for 13 billion kronor — might look like more of the same.

But what is happening now is more than just a large transaction. It is a dismantling of the very foundations on which Kinnevik has historically operated. The question is: why?

That Tele2 would eventually be sold was widely expected. In January this year, Kinnevik’s chairman James Anderson told Affärsvärlden the following about a potential sale: “It would support the strategy that came about the year before I joined — to become a company that fully owns growth companies.”

Kinnevik is selling Tele2 to Freya Investissement — a company partly owned by the largest shareholder in Millicom, another former Kinnevik holding. The total price tag is 13 billion kronor.

For those looking to invest in growth companies — particularly in tech — the timing is arguably good. Valuations have come down sharply from 2021 onwards, and those with deep pockets can now invest on considerably better terms than they could for years.

Kinnevik already has a large balance sheet, even before the Tele2 deal. The most recent annual report listed cash of 7.9 billion kronor. That goes a long way — particularly given that Kinnevik has said it will focus more on a handful of existing holdings rather than spreading capital across many new ones.

In the press release — which is remarkably sparse with detail about what the new proceeds will actually be used for — there is one key sentence. CEO Georgi Ganev mentions in passing that the board will “review our capital structure in consultation with major shareholders.”

What do the owners actually want the company to do? There are two clear alternatives.

The first is to continue on the current path. Kinnevik invests heavily in digital growth companies and now buys itself a longer runway to do so. If the depressed valuations prove temporary, the position of such a company could be attractive. However, this carries very high risk — even for those who believe tech valuations will return to 2020 levels. Finding the right companies to back is a challenge that is not meaningfully helped by a rising tide lifting all boats. The current strategy has faced growing scrutiny, not least from the stock market, which has consistently traded the shares at a significant discount.

The second alternative is to return a large portion of the proceeds to shareholders. With today’s Tele2 sale, the transformation Kinnevik began in 2018 has been completed. The last piece of Jan Stenbeck’s creation has been dismantled. What remains is a portfolio of investments of uncertain value and an enormous cash pile — over 40 percent of net asset value is now cash. With that composition, it would be reasonable to return some of it to shareholders.

For the controlling shareholders — the Stenbeck and Klingspor families, among others — the risk profile of the new Kinnevik looks nothing like the company the patriarch Jan once built. Their appetite for the company going forward may not be entirely aligned. SvD’s documentary series Dynastin described this dynamic clearly.

Ganev told Dagens industri that “we are doing exactly what Jan Stenbeck did — continuing to redraw the map.” In the old Kinnevik, high-risk ventures were indeed undertaken — but there was always a base layer of stability. Launching satellite television from England was done at the same time as packaging company Korsnäs was delivering predictable profits. Without Tele2, the cash flow is now cut off, making Kinnevik increasingly dependent on divesting companies or borrowing over the longer term.

The new Kinnevik, after today’s Tele2 deal, has nothing resembling that kind of stability. It is a company that is betting one hundred percent on its ability to create value through investments in internet companies. Since spinning out Zalando in 2018, that has been the company’s entire focus — but the results have largely failed to materialise. The share price is now substantially lower than it was when the new direction was adopted.

Even if the owners are satisfied with the strategy, they will likely be asking whether the company really needs all 13 billion kronor — on top of the 7.9 billion already held — to achieve its goals. Much points towards a substantial distribution and a materially smaller Kinnevik going forward.

Today’s deal marks the final transformation of one of Sweden’s most storied investment companies. Kinnevik will not be the same again. It now remains to be seen whether the owners want to try to rebuild it once more.

Caia’s trump card: Bianca Ingrosso

February 20, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 20th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

An extremely strong macro trend in beauty and skincare. An extremely well-known entrepreneur. While other companies are fighting for survival, cosmetics brand Caia is swimming against the current. Rumours of a sale are circulating once again.

“Beauty is an experience — and people are obsessed with sharing experiences.”

Emily Weiss, the founder of beauty brand Glossier, is on stage in Las Vegas. The year is 2018, and an attentive audience wants to know how she managed to break into the fiercely competitive beauty industry from what seemed like nowhere — and with a brand that started as a blog.

Weiss goes on to offer an insight that sounds simple, but would go on to define the coming wave in the beauty industry: “People look to other people rather than experts when they are in the discovery phase.”

The years that followed were tough for brands that, like Glossier, sold their products directly to customers. It was called DTC — “direct to consumer” — though a less euphemistically inclined person might simply call it mail order.

Selling direct had long carried low status, but DTC brands turned that perception on its head. Via pastel-coloured ads on social media, you could now buy everything from frying pans to razors straight from a tidy website — and have it delivered to your door. This allowed companies to cut out middlemen and control the customer experience from start to finish.

There was just one problem with the DTC model: it rarely made any money.

Companies like Away (luggage), Warby Parker (glasses), and Allbirds (shoes) raised billions in venture capital to build their positions. But as marketing costs climbed, growth began to slow. The pandemic disrupted the supply of both raw materials and products, and the companies suffered further. Allbirds went public in November 2021; its share price has since fallen more than 96 percent.

There are, however, companies going entirely against this trend. One of the strongest examples in Sweden is Caia Cosmetics — the beauty brand with Bianca Ingrosso at its helm, which is now rumoured, according to Breakit, to be up for sale. The company has not commented on the rumour.

Caia Cosmetics is also a DTC company. But unlike many others, it is both fast-growing and profitable. Its operating profit for 2023 is reported by Breakit to be just under 200 million kronor. Since 2020, Caia has been 60 percent owned by private equity firm Verdane.

What has Caia managed that so many others in the industry have not?

The first factor is an extremely strong macro trend in beauty and skincare. Interest is reaching ever younger age groups, with eleven-year-olds now requesting face creams as Christmas presents. The category has expanded to a broader audience while also becoming more sophisticated. On TikTok videos, people discuss multi-step skincare routines — and therefore many different products. More people are buying, and those who buy are buying more.

Cosmetics follow the same trend. The phenomenon of “GRWM” — “get ready with me” — is huge on TikTok. It consists of videos in which young women show how they apply their makeup while talking about their lives. The hashtag #GRWM currently has over 10 million videos. The way cosmetics and skincare are used has become a kind of content that does not primarily aim to sell products — but it takes no great leap of imagination to believe that it does so indirectly. Makeup has become entertainment.

The second factor is harder to replicate. It comes down to Bianca Ingrosso herself — an extraordinarily well-known influencer and now entrepreneur, who entertains audiences both through her own social channels and on a talk show on television.

Caia has four founders, but if you ask who is most associated with the brand, the answer is unambiguous. Bianca Ingrosso is Caia — whatever goes on behind the scenes. Ingrosso’s position in Sweden is formidable, and so Caia’s position is too.

A clear illustration of this was the enormous queue that snaked through central Stockholm when Caia opened a pop-up store at NK. Part of the explanation was that Bianca Ingrosso was there in person. But even afterwards, young women have loyally queued to buy the products.

Attaching a well-known person to products is a familiar and well-proven approach. American Kim Kardashian’s clothing brand Skims was valued at over 40 billion kronor last summer. Products from both Caia and Skims may well be good on their own merits — but it is the association with the individuals that allows them to break through the noise in the first place.

As Caia Cosmetics is now rumoured to be approaching a sale, it is easy to understand why there would be many interested parties. The question is whether a new — likely industrial — owner will take Ingrosso on an international expansion. Or whether Caia is now strong enough to stand on its own feet.

Either way, a new billion-kronor company has been built in Sweden — in a category that is often underreported and misunderstood. Hopefully, this much-talked-about deal will put an end to that.

This is the cruel AI irony for tech workers

February 16, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 16th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Tech giants are laying off thousands of employees even as they invest massively in AI. The irony is that the very tools they are building may be what makes those cuts permanent.

In January 2023, Google announced it would lay off approximately 12,000 employees — around six percent of its global workforce. The cuts came despite the fact that the company had grown its headcount by roughly 55,000 people since the start of the pandemic.

The pattern was not unique to Google. Microsoft, Meta, Amazon, and others made similar announcements in the same period. The narrative was straightforward: the pandemic had driven an unusual surge in demand for digital services, the companies had hired aggressively to meet it, and now the correction had arrived. The boom was over.

But something else is happening alongside this correction — something with longer-term consequences. These same companies are simultaneously making enormous investments in artificial intelligence. The capital expenditure required for AI — chips, data centres, infrastructure — is staggering. And it is running in parallel with a period in which the core growth of these businesses has slowed to single digits.

The term “dogfooding” comes from the tech industry. It means using your own product internally before releasing it to the world. The idea is to catch problems early, but also to build genuine conviction in what you are making. If you would not use it yourself, why would anyone else?

The tech giants are now dogfooding AI in a very direct sense: they are deploying it to handle tasks that engineers and analysts previously performed. Code review. Documentation. Internal tooling. Routine data analysis. These are precisely the kinds of tasks that junior and mid-level engineers spend much of their time on.

An average software engineer in Silicon Valley costs around 1.5 million kronor per year in total compensation. At that price, the incentive to replace even a fraction of that work with AI tools is significant — especially when the same companies are under pressure to demonstrate that their massive AI investments will eventually translate into efficiency gains.

This is the irony at the heart of the current moment. The companies that built the AI are among the first to face the consequences of deploying it. The layoffs of 2023 were framed as a pandemic correction. But the structural pressure that follows — from AI automating the kinds of cognitive work that tech companies pay most handsomely for — may mean that the giants never return to their previous headcounts.

We may, in other words, be at peak tech worker. The largest technology companies in the world may never be larger, in terms of employees, than they are right now.

That is a remarkable thought. These companies have long been among the most sought-after employers in the world. They have shaped the labour market, driven wage inflation across the knowledge economy, and served as benchmarks for how high-skilled work could be compensated. If they begin to shrink — not through failure, but through the success of their own technology — the ripple effects will extend far beyond Silicon Valley.

It would be the ultimate irony if those who built this technology were also among the first to lose their jobs to it.