Apple’s Reality Pro headset: the question isn’t the hardware — it’s what we’ll do with it

June 3, 2023
by Björn Jeffery
SvD Näringsliv

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

On Monday, the tech world’s worst-kept secret will be revealed. Apple presents its new headset — its first major product launch in nearly a decade. Can Apple breathe life into yet another dormant market?

On a sunny Sunday morning, Sergey Brin sits eating at a popular brunch spot in Potrero Hill, San Francisco. The Google co-founder attracts little interest from the other diners — they’re used to seeing tech billionaires.

This morning, however, there is one thing that makes Sergey Brin stand out. He is wearing Google Glass — the company’s new smart glasses. They consist of a pair of thin metal frames, with a large, visible camera on one side. They look, to say the least, strange. But it’s the mid-2010s, and the promised future of what will come to be called MR — mixed reality — is beginning to take shape. MR is conceived as a kind of digital layer over the real world. But does that mean everyone will walk around with cameras on their faces?

Fast-forward to mid-March 2023 and we have our answer.

The enterprise version of Google Glass is shut down entirely. The consumer version was even shorter-lived. Nobody seems to want to wear this type of product. Or at least there haven’t been sufficiently compelling reasons to do so.

That is the challenge Apple is now taking on. They are launching a new kind of hardware to wear on your head, to access a type of digital experience you’ve never tried before. It may be difficult.

Rumors suggest the product will be called “Reality Pro.”

On Monday, Apple’s annual developer conference WWDC begins. Attending it is almost a pilgrimage for developers who work with Apple’s products. The purpose is to introduce new hardware and software that the company wants developers to work with. This is the time of year when Apple is most accessible through presentations and meetings. Everything suggests Apple’s new MR headset will also be unveiled on Monday.

According to the Wall Street Journal, the company has been working on the product for seven years. In that time, Apple has watched both the failure of Google Glass and Meta’s major push with its Quest headsets — and the lukewarm reception of the “metaverse.”

The concept of a “physical face visor that delivers digital experiences” is therefore not new. But Apple has rarely been first with this kind of product. The iPhone, for example, was not the first smartphone on the market.

The difference has been Apple’s impact when it does launch.

A clear example is the success of Apple Watch. No competitor in the category even comes close. Samsung — which released its first smartwatch the same year as the Apple Watch — has less than half the market share.

Apple’s presence in a market has a tendency to both legitimize it and attract attention and investment. The ability to build apps for the iPhone launched an entire economy of hundreds of thousands of companies working on the platform. This effect extends beyond Apple’s own products. Google, with its Play app store, has undeniably benefited from Apple’s presence, even as a day-to-day competitor.

For one particular competitor — Mark Zuckerberg at Meta — Apple’s entry into the MR market could be bittersweet.

Zuckerberg’s much-questioned metaverse vision may get a boost in attention. At the same time, he faces stiff competition from a longtime rival in this new territory as well.

Being late to the market doesn’t mean all the problems have been solved, however. The underlying and unanswered question remains: what are we actually supposed to do with these headsets? Use them for work? Play games? How Apple addresses that question is the most interesting aspect.

Rumors suggest the product will be called “Reality Pro” and that you’ll be able to make video calls, read books and play games with it. That’s all well and good, but all of this is already possible today with other devices — and done well.

The rumored price tag gives us some indication of how Apple is thinking. The product is said to cost around 32,000 kronor — not exactly a signal that it’s ready for the mass market. It will instead be a product that developers can begin experimenting with, and one that is almost certainly far more advanced than anything the market has seen before. Anything less would be surprising, given Apple’s history.

And time is on their side. As the world’s highest-valued company, they can afford to wait for the right use case to emerge. Can Apple awaken — and redefine — this market too?

OpenAI’s Sam Altman is on a well-choreographed charm offensive

May 26, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 26th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

OpenAI CEO Sam Altman is on a charm offensive among politicians and journalists. He says he wants AI development regulated to avoid a future crisis. But his motives may not be entirely noble.

Neat tie, dark blue suit, Sam Altman settled in front of the microphone.

“It’s an honor to be here. Perhaps even more so than I expected,” he said, with a slightly lopsided smile.

“OpenAI is an unusual company. We created it that way because AI is an unusual kind of technology.”

Several things were unusual that day.

The CEO of OpenAI had been called before the American Congress. It’s a familiar scene by now. “Tech executive questioned by politicians” has played out many times.

This time, however, it sounded a little different.

What usually becomes a rhetorical pie-fight — complex questions reduced to simple yes/no answers — turned, surprisingly, into a more thoughtful hearing.

Josh Hawley, a Republican senator from Missouri, wondered whether AI development was more like the printing press or the creation of an atomic bomb. The formulation didn’t seem designed to score political points. He genuinely seemed to wonder how this was all going to turn out.

The room looked to the 38-year-old Sam Altman, whose official nameplate on the podium listed him as “Samuel.”

But why are America’s leading legislators sitting and listening to him?

Even if Altman’s name is unfamiliar to most people, he is effectively royalty in Silicon Valley.

He took the classic entrepreneur’s path via Stanford University, dropped out after a year, and started a mobile social network he called Loopt. That was in 2005 — two years before the iPhone launched — and Altman managed to raise around $30 million in venture capital. Loopt never really took off. In 2012 it was sold to a credit card company for $43.4 million. That may sound like a lot of money, but by Silicon Valley standards, it was a defeat.

Altman moved on to the well-known company incubator Y Combinator, where he quickly became a partner. Y Combinator had grown from a small operation in Mountain View sharing an office with a robotics company, to becoming one of the central hubs of the new startup era in the region. Companies like Stripe, Dropbox and Airbnb passed through the incubator, and in a 2015 blog post Altman wrote that the combined valuation of all the companies in the program had reached $65 billion. Y Combinator co-founder Paul Graham was seen as a king in Silicon Valley — which made Sam Altman something of a crown prince.

He was not yet an AI expert, however.

Y Combinator invested in companies across every conceivable domain — from storage services to electric aircraft to social networks. Sam Altman became co-chairman of the research project OpenAI. Y Combinator’s other co-founder, Jessica Livingston, was also one of OpenAI’s founders, so the two were already connected in a way.

The project was not without controversy. Another of OpenAI’s founders, serial entrepreneur Elon Musk, resigned from the company’s board in 2018 — citing, in his own words, potential conflicts of interest around Tesla’s own AI plans. Altman, however, claimed that Musk had tried to take over OpenAI and that the board had rejected this. The following year, Altman himself stepped up to become OpenAI’s full-time CEO.

In parallel with this came a major restructuring of OpenAI’s corporate form. From being an American nonprofit, OpenAI became a commercial company. The stated reasons were several, but primarily they needed to attract both investors and employees who could share in the company’s success. Recruiting world-class talent without being able to offer equity was too difficult, it was said. Outsiders — including Elon Musk — expressed skepticism about those reasons. Nonprofits don’t necessarily struggle to attract talent.

The result was a kind of hybrid. OpenAI became a commercial company that would maintain the original nonprofit’s goal of developing general artificial intelligence that benefits humanity. That may sound like a technicality, but this hybrid status would prove to be an important part of the position OpenAI would come to occupy.

Back, then, to the question of why Altman is in Washington educating politicians.

Senator Richard Blumenthal put his finger on what’s at stake in a broader sense, in his opening remarks about the intersection of politics and technology:

“Congress has a choice. We had the same choice when we faced social media. We failed to capture that moment.”

AI has become an important issue — and a source of anxiety. Open letters call for pausing AI development. Eminent researchers like Dr. Geoffrey Hinton — often called the godfather of AI — begin expressing concern about their own life’s work.

AI development stands at a crossroads. Politicians are somewhat confused, but they don’t want to repeat the same mistake that gave a handful of social media companies essentially free rein for over a decade.

Altman understands this. And you can understand his methods by reading his own blog post, modestly titled “How to be successful.”

“Believing in yourself is not enough — you also need the ability to convince others of what you believe,” Altman writes.

“My second major sales tip is to show up in person when it matters.”

That’s why Sam Altman shows up in person at the US Congress.

Because it matters that the politicians understand these issues — in the right way.

He also has OpenAI’s quasi-nonprofit status to lend him credibility. The message seems to be: he’s not here for the money. That Microsoft has invested $11 billion in the company is not something you bring up loudly in these settings.

But the information campaign aimed at elected officials didn’t begin with the congressional hearing. In the podcast Hard Fork, New York Times journalist Cecilia Kang reports that Altman has visited Washington DC multiple times and that, the same week as the congressional appearance, he attended a dinner with over sixty members of the House of Representatives. He has given technical demonstrations to individual politicians to explain how it all works. In short, he has made himself available to lawmakers in a way that is unusual. Silicon Valley generally keeps to its own coast and only comes east when absolutely necessary.

Most concerns about AI development are still hypothetical. Compare this to Mark Zuckerberg, who was summoned to explain the Cambridge Analytica scandal — and called back multiple times since. The situation here is nearly the opposite.

Altman is getting ahead of the problems, rather than being dragged before Congress because of them.

Even if the timing is different, there are many similarities to the kind of language we’ve heard from tech company leaders before. Altman is asking politicians to regulate AI. But he is neither the first nor the only one to do so.

Back in 2019, Facebook’s then-COO Sheryl Sandberg said “new rules need to be written for the internet and we want to help make that happen.” The following year, Alphabet CEO Sundar Pichai said “companies like ours cannot simply build promising technology and let market forces dictate how it gets used.”

“Technology needs to be regulated,” Apple CEO Tim Cook told Time in 2019. “There are too many examples where lack of regulation has resulted in real harm to society.”

Almost every chief executive of a major tech company has, on multiple occasions, said they welcome regulation. Yet billions have been spent on lobbying to make sure it happened in the right way — and preferably very slowly. American regulation has largely failed to materialize, and the European process took a very long time. From that perspective, the lobbying appears to have worked quite well.

There are, however, other motives for requesting regulation beyond slowing or softening legislation.

Altman says his motivation is concern that AI could cause harm in the world. But a less noble explanation than the one he gave Congress can be inferred from a leaked memo written by a Google engineer. In it, the memo describes how the real threat in AI — from both Google’s and OpenAI’s perspective — does not primarily come from other large tech companies. The threat comes from the many projects using open source. These projects aren’t as powerful as the largest and most expensive systems, but the results are surprisingly good. And, more importantly, they are free. The growing use of these open-source projects will also improve them further over time. What happens to competition when there are hundreds or thousands of AI developers, rather than just a handful?

When Sam Altman proposes a licensing regime for AI development, you should keep that argument in mind.

Like Facebook and Google, OpenAI developed its market lead in an era of minimal regulation. In many cases, practically none at all. Facebook would find it substantially harder to push through its acquisition of Instagram if it happened today. Competition regulators have woken up to these questions in a way that simply didn’t exist before.

If tech companies are regulated now, you can get the best of both worlds: the ability to grow freely in an open market, combined with the ability to close off competition by loading new entrants with a mass of regulatory requirements. Being large and well-resourced — as Google or OpenAI are — means you can afford to absorb regulation. For a smaller startup, it’s an entirely different kind of challenge.

Regulation becomes a way of defining what all market participants are permitted to do. But it also works to keep new entrants out.

From Altman’s blog post on how to become successful, again:

“Building up influence makes you hard to compete with. You can do this, for example, by having good relationships, a strong personal brand, or by becoming skilled in areas that overlap.”

Altman appears to have taken his own advice to heart.

He has built political relationships that have made him popular among lawmakers. He is knowledgeable, articulate, and clear-headed about AI. He understands the context he’s operating in.

Listening to Sam Altman himself, that is also the recipe for becoming hard to compete with. And it explains why this Silicon Valley executive is playing his cards differently from his predecessors.

The opportunity now exists to set the tone for an entirely new market — one in which his own OpenAI sits in the driver’s seat. It is, to say the least, elegant. But it is not only noble motives and a desire to improve the world that lie behind the charm offensive currently underway.

Google’s answer on AI is logical — but hollow

May 16, 2023
by Björn Jeffery
SvD Näringsliv

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

Google is positioning itself as the responsible player in artificial intelligence. It sounds good. But the stance could become complicated as competitors pick up the pace.

There was no rock band performing. It was more like a tech festival — with AI as the theme.

The stage at Shoreline Amphitheatre in Mountain View, California, was unusually colorful when Google CEO Sundar Pichai stepped up.

Google’s annual developer conference, I/O, tends to be a fairly sleepy affair. A raft of internal projects is presented at an event aimed primarily at the developers who build on Google’s products.

For the average user, the presentations can easily feel a bit too technical and inward-looking.

This time, however, there was a theme the outside world was genuinely interested in. AI — artificial intelligence — is on everyone’s lips, and now we would finally learn how Google planned to respond to the threat from products like ChatGPT.

It took only a few minutes into Pichai’s presentation before the key word was uttered: “responsible.”

“With a bold and responsible approach, we are reimagining all of our core products — including Search,” Pichai said.

It has now been seven years since he declared that Google would become an “AI-first company.” But if that was the case, how had they ended up falling behind in this latest boom? The apparent internal answer seems to be precisely that Google has been more “responsible” than the rest. The phrase recurred many times throughout the presentations.

To understand where this framing of responsibility comes from, we need to rewind a little.

On the same stage in Mountain View in 2018, the same presenter — Sundar Pichai — demonstrated how an AI tool could phone a hair salon and book an appointment, apparently without the hairdresser realizing she was speaking with a robot.

The reception was cool. Professor and columnist Zeynep Tufekci described it as an example of Silicon Valley having lost its ethical bearings.

Two years later, Google found itself in controversy again, after firing researcher Timnit Gebru. She had led a team examining the ethics of AI and the potential consequences of its development.

Gebru was also co-author of a research paper that a Google manager objected to. The dispute couldn’t be resolved, and Gebru was let go.

The summer of 2022 brought the next headache. Google employee Blake Lemoine claimed that one of their AI language models, LaMDA, had expressed itself in human-like ways. Had the technology gone too far? Lemoine was subsequently fired.

Seen in this light, the word “responsible” becomes more legible. Google has been at the forefront of these questions, but has also run into difficulties navigating the complicated territory between AI technology and ethics.

Google now wants to communicate that it hasn’t been slow — but rather has been taking responsibility for a more careful approach to progress in the field.

The timing, however, argues against this framing.

At the end of January, Google’s leadership declared a “code red” after ChatGPT’s immediate global success. Suddenly there was urgency — even Google’s co-founders Larry Page and Sergey Brin were brought in to work on the AI strategy.

For a company that had claimed for seven years to prioritize AI above all else, everything now had to happen at once. It looks rather more like competition accelerating the product roadmap than any sudden resolution of ethical questions.

Around this time, AI heavyweight Dr. Geoffrey Hinton chose not only to leave the company but to publicly warn about the pace of AI development.

Positioning around a specific concept is a familiar strategy. Apple’s emphasis on privacy — “privacy” — has not gone unnoticed by anyone.

But Apple’s privacy commitment has genuinely dented competitors. It’s hard to see how Google’s “responsibility” framing could have the same effect.

Responsibility is also a relative concept. When have you taken enough? And does it extend so far that you would sacrifice good business for what others consider to be the right thing? These are the questions Google will face as AI development accelerates.

Being responsible is — and sounds — good. But it’s easier to say than to be. Especially when things are moving fast and the competition is breathing down your neck.

Bluesky is the internet’s latest hype — and social media challengers rarely break through

May 9, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 9th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Twitter challenger Bluesky is the internet’s latest hype. But don’t count on it succeeding. There are good reasons why new social media platforms rarely manage to scale.

Anyone who has ever been to a nightclub is familiar with the concept of “the queue.”

The logic is simple and well-tested. You keep the line outside deliberately long to create the impression of popularity. If that many people are waiting to get in, surely it can’t be bad? Until you finally make it inside and discover the place is empty — more guests on the outside than the in.

That, roughly speaking, has been the marketing strategy for most new social media services that have launched. Remember the audio app Clubhouse? That’s exactly what they did. And now it’s happening again: over a million eager users queuing for access to Bluesky, the new Twitter challenger.

In the wake of Elon Musk’s takeover of Twitter, a slew of alternatives to the text-based social network appeared. The technically complex Mastodon, Donald Trump’s Truth Social, and Bluesky — which comes from Twitter co-founder Jack Dorsey himself, launched during his own time as Twitter’s CEO, no less.

A charitable interpretation would see this as an attempt to correct the mistakes Dorsey made with Twitter the first time around. A more critical reading would point out that it’s precisely all the similarities to Twitter that are the problem.

Because Bluesky is — intentionally, of course — very similar to Twitter. It says “reposted” instead of “retweeted,” but an untrained eye would barely be able to tell the two services apart.

Those similarities also mean that the same types of challenges are likely to arise.

The spread of misinformation, harassment, and automated bots have been difficult problems for Twitter to solve for over a decade. Even knowing in advance that these issues will emerge, there are no obvious solutions to them.

Like Clubhouse — which rose like the sun and set like a stone — Bluesky will likely struggle to maintain the atmosphere that exists with around 50,000 users once that number grows tenfold or a hundredfold.

A large part of the challenge in the social media category lies precisely in scale.

Imagine hosting a dinner party for a handful of guests. It’s pleasant but fairly predictable. You know who’s coming and you know, more or less, how they’ll behave. Now compare that to running a restaurant with 300 covers. You can prepare, of course, but things will happen that you didn’t anticipate.

That’s why it’s misleading to look at the temporary success of small social media challengers. Succeeding in the genre with a small number of users is an entirely different kind of challenge.

Scale also attracts actors with intentions other than making new friends or posting cat videos. The state-sponsored disinformation campaigns that have made headlines arise wherever there are large numbers of people to influence.

Is there nothing genuinely new about these challengers? Bluesky and the similar Mastodon both emphasize one aspect that differs from Twitter: control over the platform and ownership of your own content.

Bluesky is decentralized, meaning each user can take their content with them and switch to a different provider. This sidesteps the monolithic — and, since Musk took over, constantly shifting — rulebook that Twitter operates under. If the rules don’t suit you, you can move elsewhere, or start your own version.

Here, however, we encounter another truth about social networks. Users choose the path of least resistance. You can configure extremely specific settings on Facebook that control exactly which friends see which content. But how many people actually do that?

Being able to float freely in a decentralized world is theoretically possible — but the vast majority of users will never even understand why they might want to.

Bluesky does one thing very well. Like the nightclub with the long queue, it creates a feeling of wanting to belong. The demand is so intense that invitations are being sold on eBay. But once you’re inside, you’ll likely discover what always turns out to be true: it looked better from the outside than it actually is.

Nvidia is winning the generative AI gold rush

May 8, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 8th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Behind the hype — and the anxiety — surrounding next-generation AI lies a simple question. Who controls the essential hardware? The answer has geopolitical implications.

Should you mine for gold yourself, or sell pickaxes and shovels to those who do?

The question from the gold rush era keeps returning to California. What was once a literal business opportunity in 1848 has become a metaphor for a particular kind of business model — one that enables other companies to succeed.

Now the next gold rush appears to be starting: the explosion of artificial intelligence. And it has focused attention on a specific type of computer chip required to perform the most advanced calculations. Put simply, without the right chip, large-scale AI doesn’t happen.

At the center of this accelerating trend are companies that were previously consigned to being under the hood — invisible, but entirely essential. No company has benefited more from this moment than American chipmaker Nvidia.

Nvidia’s involvement in the AI segment started early. Geoffrey Hinton — often called the “godfather of AI” — built a product back in 2012 that performed advanced image recognition: software that can understand what a photograph depicts. The results were seen as a major breakthrough in AI, and underpin products used by millions of people today.

According to Hinton, it would not have been possible without Nvidia’s chips. Those chips weren’t originally designed for this purpose — they were primarily used for video games. But their architecture turned out to be particularly well suited to this new application as well.

Looking at the most discussed AI product today, ChatGPT, it is believed to have been trained using 10,000 GPU chips from Nvidia. When Sundar Pichai, CEO of Google’s parent company Alphabet, recently presented his quarterly results, he explicitly cited his company’s access to Nvidia chips as a competitive advantage.

The attention has translated into financial results. Nvidia’s share price has risen nearly 100 percent so far this year. Compare that to rivals Intel and Qualcomm, which are up 11 and 8 percent respectively.

The enormous demand for this type of chip is now creating complications.

Early in the pandemic, there was a major shortage of a different kind of chip — semiconductors — which led to delays in everything from cars to consumer electronics. That shortage has since been resolved, partly due to lower demand.

The constraints on AI-grade chips stem from the fact that their manufacture is extremely advanced, and only a handful of actors globally can produce them. Nvidia doesn’t fabricate its own chips; it uses suppliers for that. Among them is Taiwanese company TSMC — also the world’s largest semiconductor manufacturer.

Securing access to the right type of chips is becoming a geopolitical question.

Today, China spends more money importing various types of chips than it does importing oil, according to the book Chip War by Chris Miller, professor of history at Tufts University. China is also attempting to circumvent the American blockade on certain chips by renting access rather than importing them outright.

Both the US and EU have launched initiatives to bring more chip manufacturing to their respective regions. The European Chips Act is one such effort — committing roughly 490 billion kronor to increase Europe’s share of global chip production from 10 to 20 percent. The American equivalent, the CHIPS and Science Act, is similar in ambition and scale.

While manufacturing is concentrated among a handful of global players, chip design — how the chip actually functions — is becoming an increasingly important competitive differentiator. Apple is the clearest example of a company that has shifted strategy, moving away from off-the-shelf chips in favor of custom-built variants engineered for specific functionality. Apple’s new chips are notable in particular for their ability to perform AI calculations on-device.

Amid the explosion of AI products, there are more fundamental questions beneath the usual ones about ethics and existential risk, about who owns AI models and the concentration of power in the field.

Under all of that lies a very simple and practical question: who has access to the right physical chips? Because access to hardware may prove to be a decisive factor in how advanced an AI you can develop. It’s easy to understand why politicians, companies, and entire countries are starting to get nervous.

AI is the word of the quarter at Microsoft and Google

April 26, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 26th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

While the AI race continues, the core businesses of Microsoft and Google are performing well. That points to billions more in new AI investments to come.

Something unusual happened to Sundar Pichai recently. The CEO of Alphabet — Google’s parent company — appeared on television. Specifically, he was a guest on the CBS interview program 60 Minutes. To talk about AI.

For an ordinary CEO, that might sound like a dream. Interviewed in prime time for the entire American public.

But the CEOs of tech giants are anything but ordinary. They prefer to operate in the shadows and avoid drawing too much attention to themselves and their enormously profitable companies.

The fact that Pichai agreed to appear on television therefore signals that something isn’t quite right.

The issue is that Google has fallen behind and now faces real competition in the hotly contested AI space.

Being anything other than market leader is a position Google is entirely unaccustomed to. After being spoiled with a search market share of over 90 percent, it seems unfamiliar to suddenly be neither the biggest nor the best.

The main competitor in AI, however, is very familiar.

It’s Microsoft — led by CEO Satya Nadella — that has successfully reinvented the company through its billion-dollar investments in OpenAI.

The two tech giants have long competed across several areas, including enterprise software and cloud services. But services like ChatGPT have made the world question the future of the lucrative search market in a way that hasn’t happened before.

It was therefore fitting that both rivals reported their quarterly results at the same time. On Tuesday evening they both surprised with strong results, revealing two companies ready for a continuing and intense contest.

Google beat analysts’ modest expectations on both revenue and profitability. Particularly notable was Google Cloud turning profitable for the first time. Revenue growth was a modest 3 percent year-over-year, however, and it was the third quarter since Google’s 2004 IPO in which revenue had declined.

Microsoft countered with something similar. They also beat expectations, with stalwarts like Office for business growing 14 percent. Their newer cloud services, including Azure, grew 27 percent — lower than previous quarters, but at the top end of their own guidance.

The fact that both companies’ core businesses remain strong argues for even larger investments ahead — particularly in AI. That much was clear when the abbreviation “AI” was mentioned an almost parodically large number of times by both CEOs in their briefings to press and analysts.

Compare this to Meta, for example, where weak growth has forced them to focus on “efficiency” — a euphemism for laying off tens of thousands of employees. Doubling down on the much-discussed metaverse is harder to justify when the core business is struggling.

Neither Google nor Microsoft will have that problem.

On the contrary, Microsoft has more wind in its sails than it has had in a long time. When it also turns out that the company’s existing products haven’t suffered — and in some cases have directly benefited — from the AI focus, continued investment becomes a foregone conclusion.

Microsoft has also managed to demonstrate what a more practical application of AI could look like. GitHub, which Microsoft acquired in 2018, has for example launched an AI product called “Copilot” that can assist software development — essentially an AI assistant that helps you write better code.

For Google, the task is to catch up. They were — and are — one of the world’s leading companies in AI. They are now reorganizing to move faster.

This is Sundar Pichai’s single greatest challenge. His pay last year — roughly 230 million kronor — suggests the expectations are high.

Google cannot afford to lose this battle, and a failure here would likely mean Pichai’s departure. His television appearance last week suggests he is taking the challenge seriously. Tuesday’s quarterly numbers mean he’ll have the resources to act on it. Whether he can deliver remains to be seen.

Alphabet beat expectations in its first-quarter results, with revenue of $69.8 billion against an estimated $68.9 billion. Earnings per share came in at $1.17, versus the Wall Street analyst consensus of $1.07. Microsoft also exceeded expectations in its third-quarter results, posting earnings of $2.45 per share against an anticipated $2.23. Revenue reached $52.9 billion — a 7 percent increase year-over-year, above the $51.0 billion analyst consensus.

The ‘Alecta effect’ is threatening Swedish tech companies

April 21, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 21st, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After Alecta’s billion-kronor blunder, Sweden’s institutional capital is now focused on one question: how do we avoid the same thing? The answer risks prolonging the tech winter considerably.

A lot can happen in two years.

In 2021, the tech market was booming. The list of companies eyeing a stock market listing was long.

Alecta, together with other institutional investors, was actively investing in what’s known as the “pre-IPO” phase — companies not yet listed but intending to reach the market within 18 to 24 months.

Fast-forward 24 months and the picture couldn’t be more different.

Anxiety, inflation and rising interest rates sent tech stocks tumbling. And Alecta found itself in serious trouble after losing billions in the Silicon Valley Bank collapse.

The criticism of the pension company was fierce, and Alecta’s CEO Magnus Billing was fired.

Even though the investments in question were in American bank stocks, there is now a real risk that the large tech investments in Sweden will dry up entirely — at precisely the moment they are needed most.

As the tech sector has fallen sharply on the stock market, companies at earlier stages have also begun to feel the effects. Valuations have dropped, which can create a trap for companies that haven’t managed or haven’t yet been able to transition to profitability. The industry now talks of significantly longer fundraising processes than before, and tougher terms. For many companies, cash is running low, profitability is a distant prospect, and raising capital at decent valuations is harder than ever.

Meanwhile, the prospect of a stock market listing is more remote than it has been in years. For a tech company to go public in 2023 is widely considered a non-starter. Optimists sense a possible window opening sometime next year. Pessimists aren’t convinced about that timeline either.

In many ways, this is a golden moment for institutional capital. Those investors are sitting on well-stocked war chests and can access tech companies at far more attractive valuations than they’ve been able to achieve in recent years. Competition has cooled, valuations are down, and the need is great. Could the setup be better?

In theory, the moment is perfect. But in practice, the tech sector may have been contaminated by anxiety around Alecta’s banking losses. The association is right there in the name — Silicon Valley Bank. A bank with direct exposure to the world’s most dynamic region for startups and tech innovation.

Tech stocks carry high risk by nature. In a low-interest-rate world, investors went looking for returns wherever they could find them. The macro environment is now almost the opposite: high inflation, rising rates, and a war in Europe. Very little favors a high appetite for risk in this segment.

The question therefore becomes: how much tech-related risk is Swedish institutional capital willing to take on right now? The probability that Alecta would make further large tech investments this year has to be close to zero. Industry news that Kinnevik’s holding, food delivery company Mathem, has lost nearly 90 percent of its valuation since 2021 doesn’t help either.

Given Alecta’s outcome, attention now shifts to players like the AP funds, AMF, and Swedbank Robur. Will they take advantage of the market opportunity? With the risk that a handful of bad bets makes their own leadership team the next Magnus Billing? If one were to hazard a guess, most will sit tight and wait out this wave.

The “Alecta effect” may therefore have effectively shut down institutional tech financing for late-stage companies — at least for the rest of this year. Possibly longer. The irony is not lost: valuations haven’t been this low in over a decade.

A peculiar deal that raises many questions — Yubico’s SPAC listing

April 19, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 19th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When Bure’s SPAC vehicle ACQ wants to take security company Yubico public, it raises many questions. The main one: why are the buyers and sellers largely the same people from the same firms?

At Wednesday morning’s press conference, Patrik Tigerschiöld, chairman of ACQ Bure, posed the question that every ACQ shareholder ought to be asking.

“And then perhaps you ask yourself — ACQ has been looking for a company to acquire for two years, and ends up buying a company that Bure already owns a stake in. This fact has been a challenge for me and the entire team.”

Yes, that does sound like a challenge. A communications challenge in particular. How do you spend two years searching for something your own parent company already had in its portfolio?

No such explanation was forthcoming, unfortunately. And it leaves a long list of questions unanswered in the wake of today’s announcement about security company Yubico — founded by Stina Ehrensvärd — which may soon be listed on Sweden’s Nasdaq First North Growth Market.

Investing in a SPAC is a kind of bet more than anything else. The idea is that the SPAC’s management will scour the market for strong listing candidates, evaluate them, and ultimately execute a merger that results in a fast and efficient public debut for a promising company. That’s how it’s meant to work in theory.

In practice, it’s worth noting that there was a considerably cheaper and faster way to get Yubico to market. To understand why, you only need to look at the names on each side of the deal.

Among Yubico’s largest sellers: Bure (via Bure Growth), AMF Tjänstepension, and AMF Fonder.

Among ACQ Growth’s largest owners: Bure, AMF Tjänstepension, and AMF Fonder.

The conflict of interest is obvious, and it has led several board members to recuse themselves from the decisions. Valuation is another problem. How do you price a company when the buyer and seller are largely the same people?

The proposed structure solves a headache for ACQ Bure, whose SPAC format has completely fallen out of favor with investors. In 2021, 791 new SPAC vehicles were created worldwide. In February this year, that number was 10. The SPAC concept is currently dead.

But for SPACs that are already listed, the obligation remains: find a merger partner or return the money to investors. ACQ Bure had until March 2024 to find a suitable company. That problem is now solved.

Even for technically listed SPAC companies, the current market backdrop can’t be ignored. Over the past year, the tech-heavy American Bessemer Cloud Index has fallen 24 percent. In Sweden there are many examples of tech companies down far more — sometimes over 80 percent.

When SvD asked management directly about the tech market environment, they acknowledged it had been poor both last year and this year. But according to Bure CEO Henrik Blomkvist, Yubico is something “special and unique.”

There is indeed something unique about this deal. But it isn’t only the impressive technology that Swedish-American Yubico has developed over its 16 years as a company, or the fact that it has helped set the global standard for cybersecurity — an impressive achievement by any measure.

What may be rather more unique and special here is how majority owners Bure and AMF have handled their responsibilities toward other shareholders and pension savers. It took them two years and significant costs to identify a company they already owned — in order to then list it in the toughest tech market since 2008. That does sound uniquely special, in its own way.

Note: Yubico is one of the nominees for SvD Affärsbragd 2023.

Apple’s savings account could be just the beginning for big banks

April 19, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 19th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Apple’s latest product isn’t a gadget — it’s a savings account. But the real threat to traditional banks is what the tech giant might do next. Because Apple, as usual, has several aces up its sleeve.

In a dimly lit, elegant restaurant in Palo Alto, California — at the heart of Silicon Valley — a major Swedish bank’s board and senior leadership are gathered. It’s the early 2010s, and the bank’s executives are in town to be inspired by digital technology and learn from it. The invited guests are local entrepreneurs with some connection to Sweden. I’m one of them.

The conversation turns to challengers in the banking and finance world. Apps are demonstrated, potential disruptors described. The bank’s board is not particularly impressed.

They reference a recent customer satisfaction survey. Customers are happy — therefore competition from new players is not a problem.

That’s the usual script. Among the headlines about “new challengers,” very few in practice actually challenge large and established players. Especially in heavily regulated areas like banking and finance.

Even Klarna — themselves a sort of challenger — recently dismissed the threat from Apple’s relatively new “buy now, pay later” feature. Klarna has many customer offerings and is established across its markets. There’s therefore no reason to worry, you could infer from the interview with CEO Sebastian Siemiatkowski.

When Apple launches a savings account in its mobile app for American customers, Swedish banks are therefore unlikely to be particularly concerned — despite the generous interest rate of 4.15%. They’re used to being able to write off new competitors as ambitious but irrelevant.

A savings account here or there probably doesn’t make much difference.

But it would be a mistake to underestimate what a company like Apple can do when it has decided to take on an industry.

Apple’s financial services are built in partnership with investment bank Goldman Sachs — which has itself had difficulties breaking into the more consumer-facing side of banking.

In January, Goldman Sachs announced that its consumer division had lost around 30 billion kronor since launch in December 2020. Given this, the relative calm among big banks is understandable — even a major bank from a different part of the financial sector appears to find it hard to compete on their home turf.

But Apple is not like other companies. Even setting aside its capacity for innovation, it has an asset that is difficult to compete with: a great deal of money.

A very great deal, in fact.

At the start of the year, Apple held over 210 billion kronor in liquid assets — plus around 350 billion kronor in securities. That’s roughly equal to the combined market capitalization of Handelsbanken, Swedbank and Danske Bank. There are resources to work with.

There is also a strategic ambition for growth, with Apple having identified financial services as one of its chosen areas. iPhone sales are stable but no longer growing the way they once did. Building out an ecosystem of software services to complement the hardware has therefore been CEO Tim Cook’s focus in recent years.

Apple Pay — the ability to pay by tapping your phone, with no physical card needed — is popular with users. It could be seen as something of a Trojan horse in this context. Customers are already paying with their iPhone. Which card handles the underlying transaction becomes, in that way, rather less important.

Apple also has something that the big banks neither have nor can acquire quickly — a brand that people actually like.

That became clear when the company finally opened the doors to its new store in Mumbai, India, drawing enormous crowds.

It’s also visible in surveys. Consulting firm Interbrand publishes an annual ranking of the world’s most valuable brands. Top of the list in 2022? Apple. The first financial name doesn’t appear until position 24, with bank JP Morgan Chase.

If we set aside Apple’s savings account and instead focus on the direction of travel, a picture emerges that should be more troubling for the financial establishment.

Imagine Apple acquiring Goldman Sachs’s struggling consumer division. They already work together. Apple could then integrate banking services and payments directly into the operating systems running across more than 1.8 billion active devices in the market.

They could offer exclusive deals to everyone who has — or buys — a new iPhone. And they do it with a brand that stands far higher in public esteem than any of the big banks.

Last but not least — Apple can afford to do it.

In fact, they can afford to lose money on this for decades. Because they have what no other bank has — entirely different revenue streams.

Core parts of the big banks’ business would, in this scenario, become something of a side benefit for a company like Apple. That is something worth feeling threatened by.

Banning TikTok could become a geopolitical game of cat and mouse

April 17, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 17th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

While American politicians try to ban TikTok, a similar app — with the same owner — is climbing the charts. The stage is set for a geopolitical game of cat and mouse.

“Mr. Chew, can TikTok access home wireless networks?”

Republican congressman Richard Hudson looked concerned as he questioned TikTok’s CEO, Shou Chew, at the end of March. Together with colleagues, he grilled Chew for five hours in an effort to better understand the popular social media app. The quality of the questions varied considerably, and often seemed more focused on looking good on television than on actually learning anything.

The backdrop to the hearing is the geopolitical tension between the US and China. TikTok first ran into trouble during the Trump presidency, when it came close to being forced into a partnership with American IT giant Oracle — to ensure that data from American users didn’t end up with the Chinese government. President Biden reversed that decision, but has since had to return to something resembling the original plan. After it emerged that TikTok had spied on journalists, the app is now under investigation and faces the prospect of being banned entirely from the American market.

The question to ask is: how much effect can banning a single app actually have?

In the US, an app called Lemon8 is now rapidly gaining popularity. It resembles TikTok in many respects and has received over 650,000 downloads in the past two weeks. The company behind it is called Heliophilia Pte Ltd — a name most people are unlikely to recognize. Its registered address, however, is more familiar: it’s identical to TikTok’s office in Singapore. Both apps share the same majority owner — Chinese conglomerate ByteDance.

As an ordinary mobile user, it can be difficult to know who actually owns the popular apps you use. In Sweden, for example, the video editing app CapCut sits high on the app charts. It is also owned by ByteDance. A few positions lower is FaceApp — the digital face filter app whose parent company is registered in Cyprus, but whose founder, Yaroslav Goncharov, previously sold companies to — and worked at — Yandex, often described as “the Russian Google.” The app was investigated by the FBI a few years ago over concerns about Russian counterintelligence.

Banning a single app may sound like a simple solution, but the situation is more complex than that. In some cases — as above — it requires genuine detective work to figure out who actually owns the apps in question.

China has made things easy for itself in this regard. For many years, it has blocked the largest American internet companies. Facebook, YouTube, Reddit and Pinterest are all on the list of products shut out of the country. China’s strong censorship means many of these sites fall foul of existing laws. It was therefore somewhat ironic when China protested to American authorities about the prospect of TikTok being kicked out of the US. There is no symmetry here.

Successfully regulating this messy situation is no easy task. The poor technological literacy of American lawmakers doesn’t help either. Congressional hearings with tech executives over the years have been near-parodically bad, and have produced no concrete legislation. Focusing a hearing on a single foreign app is one way to simplify the critique. Politicians — both Democrats and Republicans — appear to be saying “we believe China can spy on us via TikTok,” and have through this managed to find common ground. The proposed legislation, however, doesn’t name TikTok specifically — it would enable bans on technology services from any country the US has designated as an adversary. A list that can change over time.

It is now quite possible that TikTok will be forced into a sale or IPO to shed its Chinese ownership. A full ban from the US market is less likely. But even if that happened, the problem wouldn’t be solved. Lose one app and a thousand more appear. Should every popular app undergo a national security review? That’s not sustainable in practice. New services and apps that could pose a risk emerge every day. But that reality doesn’t make for good television hearings.