Apple’s plan: work around the court ruling

January 17, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 17th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

A court ruling on the so-called “Apple tax” looked set to cost the American tech giant billions. But a similar case reveals how the company plans to circumvent the court’s intent.

Critics have called it a tax — but one levied by one of the world’s largest companies.

Every time an iPhone user buys something digitally in an app, the developer must pay Apple a share of the revenue.

Think of it as a kind of commission. Or a tax, if you prefer. To simplify somewhat: it costs 15 percent on all revenue below ten million kronor per year, and 30 percent on everything above that.

The opposition — driven all the way through the legal system — concerns two things: the level of the commission, and the ability to sell apps through other outlets. If you want to sell to iPhone users through an app, there are no alternatives — you must use the App Store and Apple’s payment system.

When the US Supreme Court on Tuesday declined to take up the prominent case between Apple and Epic Games, the ruling from April last year stood. Apple won on nine of ten counts. Both parties had appealed, but this legal process is now over.

A fairly safe prediction is that it will shortly be replaced by a new one.

At first glance, the tenth point — which Epic Games did win — looked like a significant victory for the world’s app developers. It meant that developers could link to their own payment system from within an app, and thus bypass Apple’s payment system and its fees. Had that been the case, many major developers would be celebrating today — including Spotify, which has long been a loud critic of the current system.

But looking at a similar case from the Netherlands in 2022, it becomes clear that Apple will not accept defeat here. In a dispute over dating apps, the Dutch competition authority forced Apple to change its rules. Dating apps were allowed to process payments independently. But if they did, Apple introduced a new fee of 27 percent instead. On top of that came the costs of running one’s own payment system. In total, what was meant to improve app developers’ margins could instead become a loss-making exercise.

Updated guidelines from Apple, published on Tuesday directly after the ruling, show that the same approach will apply outside the Netherlands. Epic Games CEO Tim Sweeney immediately wrote on X that they would launch a new legal challenge in protest.

Apple’s reluctance to concede on these issues is easy to understand. Billions of dollars in revenue flow through these systems every year. That revenue falls within what Apple classifies as “services” — which is of particular strategic importance, given that iPhone sales have stagnated somewhat in recent years. Services have been the highest-growth segment.

The path to maintaining this strong position, however, is looking increasingly complicated.

From March 7th this year, Apple must start complying with the EU’s Digital Markets Act, DMA. This covers alternative payment methods, but also requires Apple to make it possible to install apps on their phones without going through the App Store. Apple has loudly protested the law, arguing that it creates security risks for users.

To comply, Apple is preparing — according to Bloomberg — to split the App Store in two: one for the EU and one for the rest of the world. This ensures that changes for European users do not spill over to customers elsewhere.

What we are witnessing is a billion-dollar legal cat-and-mouse game. Apple removes one fee and replaces it with another. It allows linking to outside payment systems, but in a way that is extremely cumbersome. It works — technically — but so awkwardly that no developer will want to use it.

But the laws are closing in. So are the calls over what constitutes monopolistic behaviour. Apple’s market position has made it one of the world’s largest companies by market capitalisation. It is easy to understand why they so consistently push back against all external demands for change.

The winds are clearly blowing against them, however, and Apple is running out of cards to play. But for every month they can delay the changes, billions more roll into their accounts. They are in no hurry to enter a more regulated future.

Few options as Viaplay’s fate is decided

January 9, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 9th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When Viaplay convenes for an extraordinary general meeting, the options are very few. Either shareholders approve the board’s plan, or the company risks collapse. The cost, however, is very high — especially for small investors.

On Wednesday at 10am, Viaplay’s registered shareholders will gather at Stockholm Waterfront Congress Centre. The board has called an extraordinary general meeting to vote on a proposed recapitalisation.

In normal circumstances, a general meeting is something of an administrative affair. Management gives a brief presentation, formalities are voted through, there is coffee.

That is unlikely to be the case this time.

Viaplay’s share price has fallen more than 97 percent compared to a year ago. There will probably be more than a few shareholders who are not entirely happy with that development.

The board’s proposal to rescue the struggling company is to carry out a rights issue and a directed share issue to the company’s lenders and its two largest shareholders — French media giant Canal+ and the Czech fund PPF. The result is a dilution that, for other shareholders — every small investor included — will be enormous.

The problem for all shareholders is that there is no realistic alternative. In recent days, Viaplay announced that a majority of its lenders had accepted the terms of the board’s proposal — a precondition for the plan to hold together. But even for the lenders, the alternative would likely have been worse. There is a single proposal on the table — one that significantly strengthens the major shareholders’ position, since they are putting in new money. In this situation, getting something back on your loan is better than getting nothing at all.

In the search for other conceivable paths forward for Viaplay, one major shareholder is conspicuously absent: Norwegian media group Schibsted, which among other things owns Svenska Dagbladet. Schibsted bought 10.1 percent of Viaplay in September 2023 but was immediately punished by the stock market, which did not welcome the new media investment. Schibsted’s share price fell around 3 percent immediately, making the investment costly from the outset.

There was likely a thought that Schibsted could use the Viaplay stake to strengthen its position as a Nordic media owner. By gaining visibility — and owning enough to participate in all negotiations about the company’s future — it could help shape the direction Viaplay would take.

But when the new plan for Viaplay was announced, Schibsted was not even mentioned.

The Norwegian media group had its own transformation agenda, announcing in December that it would split the company in two. Schibsted’s media operations are to be delisted and held entirely by the Tinius Foundation. The marketplaces — such as Blocket.se — will remain listed, but under a different name.

A notable detail in this deal was the shares in Viaplay specifically. Despite Viaplay’s clear media profile, they were not to be included in the media operations being spun off. The Tinius Foundation evidently does not want them.

Without owner support, Schibsted could no longer participate in finding alternatives for Viaplay’s future. That avenue is therefore closed. The 380 million kronor that Schibsted invested in Viaplay less than six months ago can essentially be written off.

With no clear alternatives, Viaplay’s board has had to turn to the remaining major shareholders, Canal+ and PPF, to ask for money. And when you negotiate with a single party, the terms are poor. This case is no exception.

The small investors in Viaplay — who are likely furious — might have been more tolerant of the board’s proposal if it were not the same board that got the company into these problems in the first place. They approved extravagant investments in international expansion, the purchase of expensive sports rights, and large-scale bets on content production.

Former CEO Anders Jensen’s strategy was highly aggressive — and evidently entirely wrong. He did resign in June last year, when Viaplay issued a profit warning and the current crisis began to surface. The board remains in place. At Wednesday’s general meeting, they are likely to hear a few things about how their responsibilities have been exercised.

Schibsted had to do something

December 11, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 11th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After years of disappointing shareholders, Schibsted’s news operations are to be delisted. What was once a sideline — the marketplaces — has now taken over the company entirely.

In 1948, Swedish entertainer Karl Gerhard sang a cheerful little melody with the line: “We make up on the swings what we lose on the roundabout.” He could barely have known that this simple phrase would come to sum up the Nordic media market many decades later. The Nordic newspapers have been the roundabout — partially financed for the past 20 years by a range of other businesses.

For Norwegian media group Schibsted, that era comes to an end with Monday’s announcement. Schibsted’s majority owner, the Tinius Foundation, intends to buy out all the news media from the stock exchange and hold them privately instead. Among them are Aftonbladet and Svenska Dagbladet in Sweden, and VG and Aftenposten in Norway. What remains listed will be the marketplaces and financial services — including Blocket, Prisjakt, and Lendo. The deal is conditional on shareholder approval.

The split can be seen as a consequence of how the market has viewed Schibsted in recent years. With their wallets, investors have clearly voted for marketplaces and against news media. In practice, the media operations have acted as a drag on Schibsted’s share price. The market’s reaction to Monday’s announcement was immediate — Schibsted’s stock rose sharply.

The market’s appetite for marketplaces has created a kind of involuntary identity shift for Schibsted as a whole. And it has now reached a point where the company has to do something about it.

To understand this change, we need to go back a few years.

In 2007, Schibsted bought all shares in Blocket.se. Industry publications wrote — characteristically for the time — that “the classified ad market is being consolidated.” What we today call marketplaces were then known as “classifieds” — a digital version of the small ads that used to appear after the text in daily newspapers.

In the early days, the highly profitable marketplaces were seen as a natural match with the newspapers. Aftonbladet was one of Sweden’s most visited websites and could channel its traffic to Blocket. The swings and roundabouts seemed to fit well together.

Meanwhile, internationalisation began. If Schibsted had done so well in Sweden and Norway, couldn’t the same be done elsewhere? It could. Blocket-style sites were created in countries across the world. Schibsted went from a relatively small Nordic media player to one of the world’s three largest owners of marketplace platforms.

By 2018, the international marketplace operations had grown large enough to require separation into a new company, Adevinta. And in November this year, Schibsted sold 60 percent of Adevinta for around 23 billion kronor. It is that money the Tinius Foundation can now use to buy out all the news media.

Foundation ownership of media companies is not unusual in the world. In the UK, Scott Trust Limited owns The Guardian — its purpose being to enable The Guardian to continue its journalism. The parallel with the Tinius Foundation is easy to draw. You need only look at who chairs both: Norwegian Ole Jacob Sunde appears on both boards.

What happens to journalism when it is freed from the demands of the stock market? One possibility that opens up is more ambitious investments than before. Because the market has reacted negatively to the weak profitability of news media, it has constrained the scope for building them into something larger. Schibsted’s purchase of the Viaplay stake in September caused the share price to fall immediately. That has made it hard to justify initiatives in the media sector.

That problem is now solved under the new model. However, the foundation will still need to ensure that the newspapers do not lose too much money. Resources exist — but they are not infinite.

The question is whether a new, journalism-focused owner will make the investments needed to keep the media relevant going forward. That remains to be seen. The greatest risk in the transition is losing momentum and becoming too comfortable with the status quo. At a time when AI development is moving fast and creating an uncertain environment for media companies, you need owners who know what they want — and dare to act on it.

Being free from the market’s low expectations for the sector is probably also welcome internally. Innovation has happened within Schibsted before, even if it primarily resulted in the adjacent services now being separated off. But now the excuses for not doing deals and making investments in media are gone. When you are free to do what you want — what happens then? There is a great deal for the new owners, Tinius, to live up to.

Note: Svenska Dagbladet is owned by Schibsted.

Two things stand out about the Viaplay crisis

December 1, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 1st, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Small investors are being wiped out as major shareholders step in to rescue Viaplay with new money. And one recently arrived owner is conspicuously absent from the new shareholder list: Norwegian media group Schibsted.

More than six hours after the deadline, Viaplay’s latest quarterly report finally arrived. The figures from the business, however, were not the interesting part. Losing just over half a billion kronor in a quarter actually beat market expectations.

That says something about the state Viaplay finds itself in.

The focus was on the company’s future financing. A comprehensive recapitalisation plan was presented on Friday morning. Four billion kronor is to be injected by major shareholders including Canal+ and PPF through a directed share issue of 3.1 billion kronor and a rights issue of 0.9 billion kronor, in which Nordea Asset Management will take its share. The company’s debts are also to be restructured and written down by two billion kronor, a quarter of which will be converted into new shares.

It might sound encouraging. But as a shareholder, it is anything but. On Friday morning, Viaplay’s share price collapsed by more than 80 percent instantly.

The subscription price for the new shares is one kronor. On Thursday, Viaplay’s share price closed at 23.68 kronor. In January this year it was above 200 kronor.

The dilution for existing shareholders is described as “substantial” in Viaplay’s press release. “Brutal” would be a more fitting word. The company’s value is essentially wiped out by the transaction. Shareholders who are unable to participate in the new plans will lose virtually their entire investment.

The other striking thing is who is not mentioned in any of Friday morning’s documents or presentations: Norwegian media group Schibsted, which also owns SvD, Aftonbladet, and Blocket.

In September, Schibsted bought 10.1 percent of Viaplay — described at the time as “a financial investment” by IR director Jann-Boje Meinecke. It sounded like a strange explanation then. It sounds stranger still today. Schibsted is not a traditional financial investor. More likely, they intended to buy out the Nordic operations from Viaplay and break the company up in its current form. But for this to happen, difficult negotiations with the company’s other major shareholders and lenders were required.

From Schibsted’s perspective, everything points to those negotiations having failed. In September they held eight million shares in Viaplay. According to E24, these cost around 380 million kronor. After the planned recapitalisation, the stake will be worth around 8 million kronor. A neat loss of around 98 percent. Not ideal for something described as “a financial investment.”

Instead, it is French Canal+ that takes the driver’s seat. The British operations were sold back to the previous owners the day before the report, and Viaplay will now focus entirely on the Nordics and the Netherlands.

The plan of a tighter geographical focus sounds sensible, but comes far too late. Expensive sports rights, a failed internationalisation, fierce international competition in the streaming market, and pressure from both high interest rates and inflation have made this an extremely tough year for Viaplay. The problems did not begin in January — they had been building for several years through extravagant investments that never paid off.

Simon Duffy, acting chairman of Viaplay, says the following in a press release: “It is unfortunately a consequence of too many of the investments that the Group previously made not having been realised as planned, as several of the business models on which they were based turned out to be optimistic.”

That optimism feels distant today. And expensive. Every small investor lured in by the promise of the streaming market’s rise will be essentially wiped out by today’s plan. When the dust settles, it would be appropriate to look at who was responsible for this remarkable destruction of value in such a short time.

The current Viaplay probably won’t exist much longer

November 28, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on November 28th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Viaplay is pushing back its quarterly figures once again. All focus is now on which owners will step forward and want to reshape the company.

When listed companies report their quarterly figures, the conversation usually turns to how they have performed against market expectations. The most basic expectation is that the quarterly figures actually show up.

That did not happen for Viaplay at the end of October, when they were originally due. Instead, a press release went out the evening before announcing they would arrive by November 29th at the latest.

Early on Wednesday morning came the next update: the report was being pushed back by one more day.

Delaying your results is not something you do unless you really have to. The press release speaks of talks between existing shareholders about how the business should be financed going forward. There is good reason to think the conversations are more complicated than that.

Viaplay — in its current form — is unlikely to survive much longer.

In mid-September, Norwegian media giant Schibsted* stepped in as a major new shareholder in Viaplay. They took what is known as a “corner” — 10.1 percent — which is just enough ownership to block any sale of the company without Schibsted’s consent. Other major shareholders include French group Canal+ and the fund PPF Cyprus Management.

It is this group that now needs to sort out Viaplay’s future. The exact agenda of each major shareholder is hard to speculate about, but in Schibsted’s case, recent events point clearly in one direction.

In September 2018, Schibsted announced it would split the company in two. Its marketplaces would be separately listed and renamed Adevinta. The rest of the business would remain under the Schibsted name.

There were, however, some clear exceptions. Not all of Schibsted’s marketplaces would go into the newly formed Adevinta. Swedish Blocket, Norwegian Finn, and Finnish Tori were retained. The split was made along geographical lines — the Nordic companies stayed, and the rest were shipped off. The message was clear: Schibsted is to become a purely Nordic company.

Adevinta is relevant here for another reason too. Last week, Schibsted announced its intention to sell 60 percent of its stake in Adevinta to a newly formed consortium, receiving around 23.5 billion kronor.

When the Adevinta deal was finalised, Schibsted’s CEO Kristin Skogen Lund declined to link it to Viaplay. “First and foremost, the money belongs to our shareholders,” she told Dagens industri.

Although Viaplay might be thought of as a Swedish company, it also has operations in the US, Canada, the UK, Poland, and the Netherlands, among others — parts that Schibsted is almost certainly not interested in at all.

The negotiations between the major shareholders have most likely been about how to divide Viaplay’s different markets between them. Schibsted will want the Nordics, but not much else. On top of that comes the division of the expensive but potentially valuable sports rights. The rest would either be taken over by Canal+, restructured into a standalone entity — or sold, assuming a buyer can be found.

Meanwhile, as negotiations continue, the day-to-day business is in deep trouble. Viaplay’s share price has fallen more than 88 percent this year. It has payment obligations of 38 billion kronor for sports rights over the next three years — more than double the company’s entire annual turnover.

Given these complicated circumstances, it is understandable that the quarterly report has been delayed. And that a temporarily disgruntled stock market is the least of Viaplay’s problems.

If the owners can reach agreement, we may see the outlines of a new Nordic media giant take shape. Schibsted would then considerably strengthen its position, owning TV and streaming operations in addition to the news media and internet services it already has.

With a billion-kronor injection from the Adevinta sale, further Nordic acquisitions could well follow.

If the negotiations fail, Viaplay faces a very difficult road ahead. Divided major shareholders, a structural crisis in the streaming market, and high interest payments to service. Something has to give. All signs suggest that the Viaplay we see today will be very short-lived.

*Schibsted is listed on the Oslo Stock Exchange. In Sweden, the group owns, among others, Svenska Dagbladet, Aftonbladet, Blocket, and Lendo.

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.