A trivial conflict — Tesla won’t back down

November 27, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 27th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Two realities collide as Tesla sues the Swedish state. The American challenger is used to going its own way — and is unlikely to yield even to Sweden’s powerful unions.

A three-metre inflatable rat is standing on a pavement in San Francisco. It looks, to say the least, unpleasant — but people walk past as if nothing has happened. They have probably seen it many times before.

It goes by the name “Scabby the Rat.” And it is one of the methods American unions use to apply pressure on employers during disputes.

“Scabs” is the term for those who are strikebreakers, or who otherwise find ways around the union to keep working during a labour dispute. The rat is placed outside the employer to attract attention.

The image of an inflatable, bad-tempered rat as a negotiating tool may be useful to keep in mind when trying to understand why American Tesla has decided to sue the Swedish state. They are well used to union disputes.

According to Dagens industri, Tesla has sued the Swedish Transport Agency over its logistics provider PostNord withholding number plates for their vehicles — a solidarity action in the ongoing dispute over collective agreements between Tesla and the unions. PostNord itself is also being sued.

The court filing states that “through this unprecedented conduct, the Transport Agency has become a deeply damaging instrument in the labour market conflict.”

On Monday afternoon, Norrköping District Court ruled that the Transport Agency must hand over the number plates to Tesla.

In the US, the charged atmosphere between unions and employers is almost standard. Two weeks ago it nearly came to blows in the American Congress. Republican senator Markwayne Mullin challenged Sean O’Brien, head of the Teamsters union, to a fistfight in the middle of a hearing. Bernie Sanders, chairing the session, had to step in and intervene. Labour disputes certainly happen in Sweden too, but they do not usually end with threats of a brawl in the Riksdag.

When Tesla looks at this Swedish union conflict from the other side of the Atlantic, that is the context they have in mind.

Several tech giants have opposed unionisation, including Apple, which actively worked to prevent its retail employees from joining unions. Silicon Valley has historically been very sceptical of trade unions, pointing among other things to the already generous working conditions on offer.

Tesla is a kind of hybrid in this context. In many respects it is a tech company — with investments in self-driving cars, AI, and an advanced service layer for its vehicles. At the same time, it is an industrial player that builds cars in factories. It is the only car manufacturer in the US with no form of union representation whatsoever. The aversion to unions is therefore not something specific to Sweden.

Is Tesla unfamiliar with the Swedish model and the unions’ strong position? More likely, they simply refuse to play by its rules. On home ground in the US, they have held out against the powerful United Auto Workers (UAW) for years. And if you can handle that — surely you can take on the equivalent in a small Scandinavian country?

When it comes to lawsuits, Tesla is well practised. They are currently party to over 1,770 ongoing cases. It is a company whose challenger mentality runs deep through its culture. Being contrarian and questioning established truths is how Tesla has made its way in the enormous car industry.

You could think of it as a tech company that learned to make cars faster than car companies could learn about tech. In many respects, they got it right. Tesla’s success has undeniably accelerated the electrification of the car world.

Given the challenges Tesla has taken on so far, there is little to suggest they will yield to union demands any time soon.

Tesla’s method — in everything — is to challenge and question the establishment. They have already broken the car industry’s dependence on fossil fuels. If one were to hazard a guess, the conflict with Sweden’s unions probably looks fairly trivial by comparison.

The giant blow could trigger a new crypto crisis

November 22, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 22nd, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The world’s largest crypto exchange, Binance, has been fined 45 billion kronor after admitting that Hamas, ISIS, and al-Qaeda were on its customer list. CEO Changpeng Zhao becomes the next crypto figure forced to resign. Could this trigger another crisis?

When things were at their stormiest around crypto exchange FTX, its CEO Sam Bankman-Fried took to Twitter and wrote: “A competitor is trying to frame us with false rumours. FTX is fine. Assets are fine.”

It turned out that neither FTX nor its assets were fine.

There is therefore something of a sense of déjà vu in reading a statement from the aforementioned competitor that goes: “Funds are SAFU!” — assets are safe, in crypto-speak. The person in question is Changpeng Zhao, often known as CZ, and the public face of the crypto world.

On Wednesday he was forced to step down as CEO of the world’s largest crypto exchange, Binance, after a year of investigations by American authorities had concluded.

In the settlement, Binance admits that it allowed transactions with terror groups including al-Qaeda, Hamas, and ISIS. It also permitted more than nine billion kronor to be transferred to Iran, which is likewise illegal.

Binance thus acknowledges money laundering, unlicensed money transfers, and violations of US sanctions. For this it must pay fines of 4.3 billion dollars — around 45 billion kronor. It is one of the highest amounts any company has ever had to pay in American history.

CZ himself appears to be taking it in his stride. He writes that he plans to take a short holiday and is considering becoming an advisor to various startups instead. A fairly cool attitude, given that he himself must pay more than half a billion kronor in fines, and could face up to ten years in prison. The fine, however, amounts to a rounding error for CZ, who is said to be worth around 240 billion kronor. Since he has admitted wrongdoing, he may also receive a significantly lighter prison sentence.

That Binance is being punished in this way may be hard to grasp if you are not embedded in the crypto world. It is a giant of the industry. Around two-thirds of all transactions made with cryptocurrencies pass through the company.

If this had happened to an ordinary bank, the world would have been shocked. It is not, when it comes to Binance. The investigation has been underway for some time, but above all, trust in crypto institutions has been severely shaken since FTX collapsed roughly a year ago.

The underlying promise of cryptocurrencies is that they are decentralised — meaning no intermediaries should be needed when transactions take place. In practice, that is not how things have played out. On the contrary, the complexity of the market has given rise to large exchanges where cryptocurrencies change hands, providing a marketplace for trading and derivatives where buyers and sellers meet. Traders could theoretically manage this themselves — in a decentralised way — but it requires finding a counterparty. Into this gap, platforms such as the now-bankrupt FTX, Binance, and Coinbase have moved in. This has in turn led to assets being held with them, just as one keeps shares, funds, and liquid holdings with a bank.

Binance holds around 700 billion kronor in cryptocurrency. Ten billion kronor in outflows were registered in the first 24 hours after the ruling. Looking back a year, that is precisely how events unfolded with FTX — they experienced a bank run as anxious customers rushed to withdraw their money. It is unclear whether Binance has any liquidity or asset problems, but a mere perceived sense of insecurity among customers is enough to cause trouble.

In the crypto world, the expression “not your keys, not your coins” is often invoked. It essentially means that if you do not hold your own cryptocurrency yourself, it is not safe. Those who had assets with FTX found that out the hard way last year.

In many cases, convenience wins out. It is easier to keep money at a bank than in a virtual mattress. But unlike ordinary banks, crypto exchanges are largely unregulated, have a history of questionable dealings, and a generally low level of trustworthiness. That customers do not dare keep their assets there is not particularly surprising.

Are there bigger problems at Binance that we are not yet aware of? We do not know today. But confidence in the company is already low. If customers decide to play it safe, it could mark the start of a new crisis in the crypto world.

The risk he took has now exploded

November 20, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 20th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The drama around Sam Altman and OpenAI has clearly shaken Microsoft. Now CEO Satya Nadella is taking AI development into his own hands.

Our current era of AI development can be traced back to a single decision made around four years ago. It was not when AI development started — that was in the 1950s — nor was there any individual technical breakthrough.

It was, as so often, about money.

Satya Nadella, Microsoft’s CEO, decided to invest one billion dollars in what was then a kind of research project called OpenAI. Among those behind the project were Sam Altman and Elon Musk.

The investment was probably not as visionary as it appears today. A large portion of the money came in the form of credits from Microsoft’s cloud and data centre platform, Azure. Through the investment, Microsoft could acquire a prestigious customer for Azure and signal to the world that it was ready for AI development. In exchange, OpenAI got the opportunity to develop its AI technology without the enormous costs it entails, since Microsoft footed the bill.

That was in 2019. Fast forward to autumn 2022 and Nadella’s investment looks like a stroke of genius. OpenAI launches ChatGPT and a new era of technology development begins. The star power of OpenAI spills over onto Microsoft, which subsequently invests a further ten billion dollars in the company.

But there is a complication. And it was this that accelerated over the weekend when OpenAI dismissed its CEO, Sam Altman. Despite many billions in investment, it is not Microsoft that is in charge.

The legal structure behind OpenAI can be traced back to when it was considered a purely research-focused project. It is a non-profit which in turn — a couple of levels down — owns a commercial company, and that is what Microsoft and others have invested in. But the board that controls everything sits at the top of the structure, within the non-profit.

Every investment carries risks. The most obvious risk in the case of OpenAI was probably that they would not get anywhere — that the ideas behind AI development would not work. But the other clear risk was precisely this governance issue. Investing over 100 billion kronor in a company over which you have no direct visibility or control is highly unusual.

This is the risk that has now blown up in Nadella’s face. And all signs suggest he has no interest in experiencing it again.

Early on Monday morning, Swedish time, Nadella announced that Microsoft had hired both Sam Altman and Greg Brockman, co-founder and former chairman of OpenAI. They will both work in a new AI team at the tech giant. Brockman then wrote that they were bringing along three more OpenAI employees. “The mission continues,” he added. A letter signed by 505 of OpenAI’s 700 employees also demanded that the board resign, and threatened to follow Altman to Microsoft.

Nadella now faces a tricky balancing act. Microsoft has integrated much of OpenAI’s technology into its existing products. Microsoft’s developer conference, Ignite, wrapped up as recently as last Friday, and featured a long list of AI initiatives. Abandoning them because OpenAI is changing CEO and losing staff could cause delays and problems.

At the same time, it is crystal clear that OpenAI’s board and Microsoft do not share a common vision for how the business should be run. Much therefore suggests that Nadella is building up his own AI operation — owned and financed by Microsoft, with Altman at the helm — and that once it is sufficiently developed, they can let go of OpenAI entirely.

In hardware, there is a concept called “hot swap.” It refers to replacing components in a computer without shutting it down. The system keeps running while you upgrade it from the inside. What Nadella is attempting now is a kind of “corporate hot swap.” He wants to replace his existing AI supplier with one of his own — without losing momentum.

For now, parallel tracks are the order of the day. Expensive parallel tracks.

The resources to manage this do exist, however. The perceived lead in AI that Microsoft currently holds has taken it to its highest market capitalisation ever — approaching an almost incomprehensible 29,000 billion kronor. The company’s direction on AI is set and appears firm. This is now about risk minimisation.

With Altman at the helm, talent will flock to Microsoft in a way that has not been seen in decades. If OpenAI’s staff follow through on their threat to move to Microsoft, it would be invaluable. Add to that the opportunity to maintain the lead over competitors like Google in AI.

There is probably no price tag in the world that Nadella would not pay for that.

Sam Altman ousted from OpenAI: Who controls AI now?

November 18, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 18th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

AI development’s leading spokesperson, Sam Altman, has been fired as CEO of OpenAI. Just hours earlier, he was on stage in front of both the US and Chinese presidents. The aftershocks have only just begun.

If you get into a car in the northern part of Silicon Valley and drive south, you will be out of it roughly two hours later. That is all it is. This limited stretch of land is home to many of the world’s largest companies, and is the epicentre of the most important software development on the planet.

No technology has more eyes on it right now than AI. Since OpenAI released ChatGPT just over a year ago, a flood of new companies and initiatives in the field have emerged. Right now, around half of all investment capital in the entire world flowing into AI is going to Silicon Valley alone. Around 118 billion kronor streamed into the area in just the first quarter of this year.

It is against this backdrop that one should understand the bombshell that dropped late on Friday evening, Swedish time.

Sam Altman, CEO of OpenAI, was fired with immediate effect. The single most important person, at the most important company, in the most important area of technology development was forced out by his own board. In a statement, OpenAI’s board wrote that Altman had not been “consistently candid in his communications” with them. Interim CEO will now be Mira Murati, the company’s chief technology officer. Altman himself has not gone into detail about what happened, beyond saying that he will miss his job.

The event came as a complete surprise to everyone involved. Microsoft, which has invested more than 100 billion kronor in OpenAI, only found out about the news a few minutes before the press release was sent out. Altman himself had just been at the major Asia-Pacific Economic Cooperation summit alongside Xi Jinping and Joe Biden.

He went directly from there to a video call with the board, where he received the news. The board’s chair and one of OpenAI’s co-founders, Greg Brockman, was also asked to step down but was allowed to retain his position at the company. He chose to resign of his own accord a few hours later.

Corporate governance played a central role in what unfolded. To say that it is often inadequate at tech companies in Silicon Valley is an understatement. Companies are frequently controlled through dual-class shares by their founders, which renders boards toothless. Tesla has Elon Musk’s own brother on its board. The collapsed crypto exchange FTX had no board at all, despite having 120 different investors.

OpenAI’s board consisted of research chief Ilya Sutskever, the now-departed Greg Brockman, and three independent members: Adam D’Angelo, Tasha McCauley, and Helen Toner. According to news site The Information, there had been internal conflicts between Sutskever and Altman in the period leading up to the announcement.

The disputes had centred on whether OpenAI was developing its AI technology safely enough, given the risks it entails. At an internal meeting following the announcement, Sutskever was asked whether Altman’s dismissal could be seen as a coup. He disagreed with that characterisation, but added that the way it had happened had not been ideal.

How OpenAI functions and is run is a question that affects far more than just the company’s employees and customers. Many of the billions invested in the field involve products and services that rely on OpenAI’s technology in various ways. It is Microsoft’s single most important investment, and a cornerstone of their strategy.

OpenAI is also the first company in over a decade to genuinely shake Google — the search giant whose AI ambitions only really accelerated once it began to face external competition.

Much has been said about the future risks of AI development and the kinds of problems it might cause down the line. What has been talked about considerably less are the immediate problems that the concentration of power in the field is creating right here and now. A handful of well-known giant companies control all of the development that society is currently witnessing.

When individual board members, with unclear motives, make decisions of this kind, enormous shockwaves ripple through an entire industry. The transparency, scrutiny, and accountability applied to these power-holders is virtually nonexistent.

The question everyone is now asking — the same one OpenAI’s staff and very likely Sam Altman himself are sitting with — is this: who actually controls AI development?

Seven American tech stocks are deciding your pension

November 16, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 16th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The influential S&P 500 is said to show how the American stock market is doing. But in practice, it is seven individual tech stocks that are holding the entire index — and millions of Swedish pension savers — under their wings.

The city of Omaha, Nebraska, is rarely as popular as it is every May. That is when the world flies in to attend the annual meeting of Berkshire Hathaway. A normally rather ordinary event has become a kind of show where Warren Buffett and Charlie Munger hold court and dispense aphorisms.

“For most people, the best thing they can do is own an index fund with S&P 500. A lot of people pay a lot of money for advice they don’t really need,” said Buffett at the 2020 meeting.

The S&P 500 is a stock index comprising 500 of the largest listed companies in the US (that also meet a range of other criteria). How it performs is considered an indicator of the health of the American equity market as a whole.

Or at least that has been true until now.

Pull out seven stocks from the 500 and a completely different picture emerges.

The Economist calls them “the magnificent seven.” They are familiar company names to anyone who reads these analyses. Tech giants Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla account for 1.4 percent of the index by number — but represent a full 29 percent of its value.

So far this year, the S&P 500 has risen around 15 percent. Remove the seven tech giants and look at the remaining 493, and the picture is not as cheerful. The S&P 493 — as The Economist calls them — actually fell 2 percent in the first ten months of the year. The seven tech companies rose 52 percent.

Swedish tech companies have not enjoyed the same dazzling performance. The OMX Stockholm Technology PI index — a selection of tech companies on the Stockholm Stock Exchange — has fallen around 10 percent since the start of the year. And that is before counting individual casualties outside the index: streaming service Viaplay (down 87 percent), investment company Kinnevik (down 32 percent), and gaming company G5 Entertainment (down 31 percent).

There are no tech giants in Europe or Sweden remotely comparable to the American seven.

The enormous size of these seven companies also creates challenges around how various indices are weighted. It means that Swedes can end up with very large exposure to these seven giants — even if they have not explicitly bought any tech funds. They are so large that they appear in both US funds and global funds. Look at the popular Swedish fund Länsförsäkringar Global Index and its seven largest holdings are precisely the tech giants listed above. The same pattern holds at other major funds in the Swedish market.

“The magnificent seven” dominate among the most popular pension funds too. The default fund AP7 Såfa, owned by close to 5.3 million Swedes, follows the same pattern: of its ten largest holdings, all but one are in the tech sector. A total of 16 billion kronor of these pension savings sit in chip company Nvidia, currently trading at a rich valuation of 37 times revenue. The equivalent figure for Apple is around 8. And this is the fund you are automatically placed in when you have made no active choice about your premium pension.

Two things become clear when looking at this distribution.

First and foremost, it is evident that the very largest tech companies in the US have left the stock market and the rest of their category far behind. They are now in their own orbit — far removed from their industry peers. Talking about tech companies as a single category is no longer meaningful without distinguishing these seven from the rest of the list.

The second is that Swedish retail investors and pensioners have a greater exposure to tech companies than they probably realise. Savers who explicitly buy tech funds know what they are getting into. But that the tech giants dominate ordinary funds to this degree is not equally obvious.

Even those who have made no active choice about their pension at all now have a stake in billions of kronor worth of chips being sold for AI development. Because whether you believe in them or not, these tech stocks are almost certainly somewhere in your savings.

For all our sakes, let us hope they keep doing as well going forward.

OpenAI’s ChatGPT Store borrows Apple’s playbook

November 7, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 7th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

OpenAI has borrowed the strategy of Silicon Valley’s most successful company. Now they want to become the app store of the AI era.

It is called “Cerebral Valley” these days — something like Brain Valley or the Intellectual Valley.

The small hipster neighbourhood in San Francisco is actually called Hayes Valley. Wedged between a motorway and the slightly more upscale Fillmore district, Hayes Valley is ordinarily a place where you buy green juices, eat brunch, and browse home furnishings.

Over the past few months, it has also become a centre of AI development in the San Francisco area — and the world at large. Entire buildings in the neighbourhood have been transformed into collectives where AI development takes place at a furious pace.

That Sam Altman, CEO of OpenAI, chose to hold his first developer conference in San Francisco was therefore no coincidence.

Altman — a Silicon Valley veteran — knows how important it is to have developers on side. And he had clearly drawn inspiration from a particular, black-clad business leader from the region when he presented OpenAI’s news to the world on Monday evening Swedish time.

“Later this month, we will be launching the GPT Store,” Altman said from the stage.

A lone enthusiast in the audience spontaneously applauded, interrupting him, before being thanked for his encouragement by Altman with a laugh.

The GPT Store will be a kind of app store for AI products. Instead of an “app,” it is called a “GPT.” But the purpose is the same as Apple’s App Store or Google’s Play. It is a place where developers can distribute their AI products to the public, and where users can find ready-made applications of AI technology.

Altman was sparing with the details, but specifically mentioned the possibility of sharing revenue between OpenAI and the developers.

The announcement came roughly one year after the product ChatGPT took the world by storm and started the great AI wave we are now living through. OpenAI’s valuation is reported to be around 985 billion kronor today.

Just over 15 years earlier, Steve Jobs — then CEO of Apple — stood in a black turtleneck in San Francisco and presented the concept of the “App Store.” The store came after the iPhone had launched, and was introduced in a somewhat similar fashion to the way Altman did on Monday. The message was: now you as a developer can reach all iPhone users with your product. And we will share revenue with you when you sell your product to them.

It was, of course, no coincidence that the introduction looked so similar.

Analyst Ben Thompson coined the term “aggregation theory” to describe when a company brings together dispersed products, services, or users and packages them all in one place.

If you manage to aggregate enough of something, you become very difficult to compete with. Why go anywhere else when everything is already available in one place?

Through aggregation theory, you can understand the strategy behind Amazon (aggregate all products), Google (aggregate all search results), and Facebook (aggregate all relationships). Apple has also benefited from this — but perhaps most powerfully through the App Store itself.

By aggregating all apps, Apple built a destination for iPhone users and a vital sales channel for developers. Apple sits at the centre of this entire app economy. You cannot go around them even if you wanted to — they permit no other stores on their platform, a matter that has been before the courts on numerous occasions.

For Steve Jobs and Apple, the App Store became a masterstroke of strategy. Not only did it supply their hardware with a vast array of games and services; it became an entire economy in its own right. A study commissioned by Apple itself showed it had sold digital goods and services worth around 1.1 trillion kronor in 2022 alone. And in the middle sits Apple — earning on every transaction, both directly and indirectly.

Just as app development exploded in the late 2000s, it is now AI development that has taken the equivalent position. OpenAI launched it on a massive scale with ChatGPT. You could call it AI development’s iPhone moment — the starting point for a new era. What, then, could be more logical than following the same strategy when it comes to the store?

The GPT Store instantly becomes the hub for this AI development — a place where you will find new, exciting AI products, and where companies can sell what they have built.

But this time, it is not Apple in the driving seat. It is Sam Altman and OpenAI. He has seen how it tends to go when a new era arrives.

All you have to do is borrow the strategy from Apple — the most successful company in Silicon Valley — and make your own version.

Sam Bankman-Fried is convicted — but it’s not over yet

November 3, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 3rd, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The guilty verdict against Sam Bankman-Fried came after just a few hours. A historic fraud has been exposed — but it is not over yet.

An entire room of interns stood watching an odd man flipping a coin in the office, over and over again.

It was to settle a bet with a colleague. You might think flipping a coin would be a simple way to decide such a thing. Not in this case. There was a mathematical model underpinning the whole thing.

That is the perspective Sam Bankman-Fried — or SBF, as he is usually known — has on the world at large.

The scene comes from Michael Lewis’s book “Going Infinite.” At that point, Bankman-Fried was trading funds at Jane Street Capital in New York.

Most recently, he was CEO of the cryptocurrency exchange FTX — the company that imploded almost exactly a year ago.

On Thursday, the verdict came after an 18-day trial. The jury needed just a few hours to reach a conclusion.

Guilty on all seven counts — primarily various forms of fraud.

When Theranos CEO Elizabeth Holmes was convicted in another high-profile case, the jury took a full eight days to decide. The contrast says something about the weight of the evidence against Bankman-Fried.

Five additional counts remain and will be addressed in March 2024, which is also when Bankman-Fried will receive his sentence from the judge.

It will likely be long. Several of the counts individually carry up to 20 years in prison, and in total the sentence could reach 115 years — before the remaining counts are factored in.

The verdict was expected. Testimony from close colleagues at FTX and the connected hedge fund Alameda Research has been devastating. Most damaging of all was the testimony of his closest colleague and former girlfriend, Caroline Ellison.

Ellison was CEO of Alameda Research, and described how the fund had used FTX customers’ money as a kind of bank. The fact is that customer funds always sat at Alameda, because FTX — hard as it is to believe — had no proper bank account. This was due to restrictions from ordinary banks and their scepticism towards crypto trading.

When customers deposited money into FTX, it ended up in Alameda’s bank account instead. That was a problem in itself. But the bigger problem came when Alameda made a long series of bad trades, having borrowed from unknowing FTX customers. When the crypto market crashed, it was impossible for Alameda to repay the loans. When FTX customers subsequently tried to withdraw their money, it was no longer there. FTX filed for bankruptcy protection.

89 billion kronor had vanished.

According to Caroline Ellison, there were many signs of irregularities before everything collapsed. Bankman-Fried — founder and largest shareholder of both FTX and Alameda — knew that seven different balance sheets existed for Alameda, and asked her to send versions to partners that did not show the loans from FTX.

This was done to make the internal finances look better to worried lenders. Ellison admitted in court that these different balance sheets were “dishonest.” Examples like these were stacked up throughout the testimony, supported by audio recordings, documents, and saved chat logs.

After the verdict, prosecutor Damian Williams said that “Sam Bankman-Fried has perpetrated one of the largest financial frauds in American history.”

That prosecutors had strong evidence was apparent from the outset. It is very unusual for cases like these to go to trial unless the prosecution is confident of winning. Research institute Pew showed that fewer than one percent of all cases that reached court in 2022 ended with the accused being acquitted. Bankman-Fried now contributes to the prosecutors’ strong statistics.

But it is not quite over. There is a strong case that the verdict will be appealed. When I was at the courthouse in New York earlier this week, observers and press had a theory that an appeal — perhaps on legal technicalities — was the primary defence strategy for Bankman-Fried. As the trial developed, the defence may have shifted focus towards finding grounds for appeal rather than winning outright.

Bankman-Fried’s parents — Barbara and Joseph, both law professors at the prestigious Stanford University — participated actively throughout the trial, in continuous discussion with the defence team.

Several counts remain outstanding, and a successful appeal is far from certain.

What we do know is that Sam Bankman-Fried likes to think mathematically about himself and the world around him. The odds of him succeeding are bad — but they are not zero.

Microsoft’s unexpected comeback is making Google sweat

October 25, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 25th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Billion-dollar AI investments and the world’s largest gaming acquisition. CEO Satya Nadella has repositioned Microsoft for the future — and aimed it directly at Google. The quarterly reports suggest even more investment lies ahead.

Satya Nadella was in a good mood when he was recently in Berlin to accept an award — and took the opportunity to talk cricket.

Microsoft’s Indian CEO sat relaxed in a dark suit, without a tie, and told anecdotes about what he had learned from his favourite sport.

“Learn from your competitors, but don’t be in awe of them.”

That philosophy is easy to recognise in what the new Microsoft looks like. Who would have thought, a year ago, that the tech giant from Seattle could credibly challenge Google in search? And position itself as a leader in the exploding AI wave?

But that is where Microsoft finds itself now. How fitting, then, that both tech giants chose to report their quarterly results on the same day.

The reports from both companies on Tuesday evening were strong. Both Google and Microsoft beat analyst expectations on all key metrics. Revenue rose 11 and 13 percent respectively, and profits grew solidly at both companies. For Google, it was the advertising business in search — the company’s heartbeat — that looked strongest, while Microsoft showed robust growth in its cloud services, with revenues up 19 percent. The core businesses of both are performing powerfully — even as they have been somewhat overshadowed in terms of public attention.

Expectations aside, the biggest Microsoft news came a few weeks earlier.

That was when the acquisition of gaming giant Activision Blizzard was completed, after months of negotiations with competition authorities in several countries. The final price tag was 755 billion kronor, moving Microsoft to become the world’s largest game developer by revenue.

The acquisition builds on Microsoft’s successes with the Xbox console. It has previously bought additional studios such as Bethesda and Swedish Mojang.

With mobile game developer King — the Swedish company behind the mega-hit Candy Crush Saga — included in the new acquisition, Microsoft also becomes by far Sweden’s largest owner of gaming studios, with a combined revenue of more than 10 billion kronor.

Like the television industry, gaming is moving towards a subscription model. Xbox Game Pass is Microsoft’s service that offers games this way, and acquiring studios is a means of ensuring a pipeline of new titles for it. This move is aimed primarily at rival Sony, which owns PlayStation, and much of the regulatory negotiation focused on ensuring access to certain titles across all platforms. That says something about the position that video games have reached in the world.

Google’s exposure to gaming is very limited. The company owns Google Play — the largest store for Android devices — and made a larger push into streaming games through a project called Stadia. Google approached the gaming world — true to form — with advanced technology designed to create a better experience through cloud services. But the reception was lukewarm, and the service was barely launched before it was shut down.

For both Google and Microsoft, their enormous scale is a challenge in itself. It creates a kind of Darwinism in which only the very largest initiatives receive sufficient attention to survive internally. An acquisition of 755 billion kronor is of course enormous — but it has to be seen in the context of Microsoft’s market capitalisation of close to 27 trillion kronor. If initiatives are not large enough, they make no difference to the companies as a whole. With this perspective, one can also understand the massive billion-dollar investments both companies are making in AI right now. Not investing on a sufficiently large scale becomes almost pointless.

The challenge for both tech giants is to balance enormous, long-term investments with the here-and-now of the business. While the market waits for efficiency gains and sales increases from AI, there is an ordinary core business delivering profits day to day. Lose focus on that, and you erode the ability to keep investing in the future. But with reports as strong as the ones both companies delivered on Tuesday evening, we can expect more major investments and acquisitions from both Microsoft and Google going forward.

Viaplay crashes after delayed quarterly report

October 24, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 24th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Crisis-hit Viaplay is crashing on the stock market after failing to deliver its quarterly report on time. Fraught negotiations with the new owners have added more disorder to an already difficult situation. But there is one conceivable solution.

“The situation is complex and takes time because we have several stakeholders,” says Viaplay CEO Jørgen Madsen Lindemann.

The word “complex,” however, does not quite do justice to the situation. Streaming company Viaplay is under enormous pressure — from the outside world, from partners, and now from its own owners. And on the stock market, the share price is in freefall.

The company’s quarterly report was due to be released on Tuesday, but late on Monday evening the board decided to push it back by roughly a month. The stated reason is negotiations with some of the largest shareholders about how the business should be financed going forward. The fact that they have not reached a conclusion in time to meet the market says something about how difficult those negotiations are.

There are three primary problems to manage.

The first is a structural crisis in the streaming market. The growth of new customers is over — it is now about taking market share from competitors. That may sound unremarkable, not unlike many mature industries, but this is not a situation Viaplay has had to navigate before. The company does have conventional broadcast TV operations too, but it is streaming that the market is counting on for the future. If that stalls, Viaplay stalls too. With competitors like Netflix, Disney, and Warner Bros. Discovery, this challenge will not be easy. If Netflix — with its global reach and enormous resources — cannot solve it, Viaplay is unlikely to fare better.

The second problem is the existing commitments the company has made. What primarily drives subscription sales in the Nordics is sports rights. The service that offers Premier League or Champions League will attract a large influx of customers. Viewers are, however, more loyal to their favourite clubs than to the service broadcasting the matches. Long-term contracts with rights holders are therefore signed to retain those newly acquired customers over time. Viaplay has won several of these negotiations and secured very attractive sports rights.

Over the next three years, Viaplay must pay 38 billion kronor in costs for these rights. Last year the entire company turned over 15.6 billion kronor, and its market capitalisation at the time of writing is around 1.8 billion kronor. On top of that, there is a currency risk: the contracts are written in dollars and euros, and the Swedish krona has fallen since they were signed.

To be able to enter commitments of this size requires financing — and through that, bank guarantees. This is likely where things are getting uncomfortable for CEO Madsen Lindemann. If the banks become uncertain about whether Viaplay can honour these obligations under the terms of the agreements, it could trigger a restructuring. This is where strong, supportive owners are needed — which brings us to the third problem: the ownership structure.

Just over a month ago, Norwegian media owner Schibsted bought into Viaplay. They took what is known as a “corner” — just enough shares to make it impossible to sell the company without them at the table. Schibsted now owns 10.1 percent. French group Canal+ and the Czech fund PPF were already on the register. Getting this disparate group of owners — who may each have entirely different interests — to agree is, to say the least, a challenge. Not only is Viaplay under pressure and in a weak negotiating position; those sitting on the other side of the table may have completely different views on how to resolve it.

On the horizon, there is one conceivable — if very difficult to execute — solution for Viaplay. If Schibsted takes a more active role and finances the company, there is a consolidation to be done in the Nordics. Telia has been trying to sell TV4 for some time, but there are few buyers in this market. Merging Viaplay and TV4 would solve two problems at once: it would end the bidding war for sports rights, and allow for shared cost reductions. A new Nordic TV giant would be created, with Schibsted as the majority owner. Schibsted is rumoured to be on the verge of selling its stake in the marketplace company Adevinta, which would give it substantial capital to deploy.

There is still a long way to go before such a deal could take shape. Whether competition authorities in the various countries would approve it is also highly uncertain. But it may be worth attempting. Because Viaplay needs change.

Footnote: Svenska Dagbladet is owned by Schibsted.

The tech giants are feeding disinformation

October 18, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 18th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Major news events drive people to social media. But the channels flood with disinformation — spread further by the tech giants’ own algorithms.

Working in media means constantly reading obituaries for your own industry. A few have come from this pen over the years too. The challenger in recent years has always been the same: social media.

The appeal is obvious. When major news events occur in the world, both eyewitness accounts and reporting from journalists on the ground are shared on social platforms. The speed and authenticity of active social media users is said to challenge the role of traditional news media.

And it has undeniably become a challenge — for both media companies and society. But not for the reason that was first assumed.

The report “Swedes and the Internet 2023” shows clear differences in how and where people of different generations consume news. Among those born after 2000, 56 percent say they get news from social media — 16 percentage points ahead of the next largest medium, television, at 40 percent. The corresponding figures for those born before the turn of the millennium look markedly different: there, television, radio, and websites are all individually larger than social media.

Beyond the choice of channel, one should also look at the type of news and information being conveyed there. In complex conflicts such as the ongoing one in Israel and Palestine, engagement on social media platforms like X and TikTok was enormous. A large part of the content turned out to be false — everything from video game footage to fireworks from other occasions was presented as part of the fighting. Drawing on the new Digital Services Act (DSA), the EU required X to share content data and the platform was subsequently forced to remove thousands of posts.

Tech companies owning services like Facebook, TikTok, and Instagram have long encouraged news consumption on their platforms.

This is how it sounded in 2017, for example, when Facebook hired journalist and then-CNN anchor Campbell Brown to lead their news team:

“Right now we’re seeing a massive transformation taking place in the news industry — both in how people consume news and how reporters distribute news. Facebook is an important part of this transformation.”

Facebook did indeed become an important part of how news spread in the months that followed — but perhaps not in the way Brown had intended. The following year, 2018, the Cambridge Analytica scandal exploded, and Facebook CEO Mark Zuckerberg was called to testify before Congress.

Two weeks ago, Campbell Brown left Facebook (now Meta, which also owns Instagram and WhatsApp). X has also let go of staff working on similar issues.

What will happen to Meta’s investment in news and fact-checking is therefore unclear. But the timing could hardly have been worse. The fighting between Israel and Hamas is ongoing, as is the war in Ukraine. And within a year, there is a US presidential election. All are major news events with impact far beyond their immediate surroundings.

In Sweden, a parallel form of information distribution via social media is also playing out. SvD’s Emil Arvidson recently reported on how parts of a criminal network livestreamed themselves on a Sunday evening. Around 17,000 user accounts watched as both weapons and gang members were put on display. A live broadcast is just one button press away — whether you are a local politician or a criminal gang.

That individuals are responsible for the content is central to the entire concept of social media. There is something both appealing and democratic about it. Being able to express oneself publicly is now easily accessible to everyone.

The problem, however, is not this form of digital freedom of expression — it is how the platforms amplify these voices to others. When actors consistently spread disinformation through influence campaigns, they do not only reach those immediately around them; they are amplified by the services’ algorithms. News, information, or outright propaganda that engages people gets increased distribution — regardless of whether it is true. When all content and all senders are treated the same way, a culture of discourse is built in which the loudest, most controversial, and sometimes most reprehensible content is often what spreads furthest.

This is worth bearing in mind as more and more people go directly to these channels to form a view of the world. The companies behind social media care about the number of people watching, rather than the quality of the sender. In this way, the medium shapes its own content.

Given what that content has looked like in recent weeks, it is clear that the tech giants need to take greater societal responsibility. Not everyone needs to get their news from the same place. But it should be possible to tell who the sender is — and, as far as possible, to trust that what is being said is true.