TikTok is challenging the American tech giants

February 20, 2023
by Björn Jeffery
SvD Näringsliv

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

The business models of America’s tech giants are under real pressure. They’re being challenged not only by ChatGPT, but also by China’s TikTok. Now they may be forced to open Pandora’s box.

If you want to find out where the nearest swimming pool or shoe store is, you do what almost everyone in Sweden does. You Google it. We know this because Google has a market share of around 90 percent.

You can look at the search market a bit more broadly than that, though.

The world’s second-largest search engine — one that doesn’t even show up on market share lists — is probably YouTube, which is owned by Google’s parent company Alphabet.

There, many people search for entertainment or practical things — how to fix a product, for example.

That’s how the search market has looked for over a decade.

Now there are signs that this may be starting to break open.

Microsoft has taken a position by integrating ChatGPT into its search engine Bing.

But even closer to home is another familiar source of anxiety for Western tech companies: China’s TikTok.

At a conference last year, Prabhakar Raghavan, a senior Google executive, said their internal research showed that nearly 40 percent of young people used TikTok or Instagram as a search engine when they needed to find a nearby lunch restaurant.

That’s something of a revolution in a market where Google alone generated around 444 billion kronor in revenue during 2022. An app that doesn’t even position itself as a search engine has already changed consumer behavior for millions of users.

TikTok’s success is pressing the tech giants in other ways too.

YouTube’s “Shorts” format — which, like Instagram’s “Reels,” is nearly identical to TikTok — recently changed its business model to better meet the new competition.

To attract creators to post content with them, YouTube now offers 45 percent of ad revenue on Shorts to selected creators. They’re also lowering the entry barrier for accessing the money — you only need 1,000 subscribers to qualify. TikTok’s equivalent threshold is 100,000.

YouTube has had a similar setup for regular video views for a long time. For Meta, the parent company behind Facebook and Instagram, the question is more sensitive.

According to The Information, the idea has faced strong internal opposition, including from former chief operating officer Sheryl Sandberg. The temporary payouts currently in place for Reels could therefore remain just that — temporary.

The concern is reasonable. Paying your content creators is a bit like opening Pandora’s box — once you’ve started, it can be hard to stop. For a company like Meta, where advertising accounts for almost all revenue, it’s a difficult line to draw.

On the one hand, Meta needs to create incentives for users to post content with them. On the other, they can’t cannibalize their entire business by giving away too large a share of revenue.

It’s hard to imagine this situation arising if it weren’t for TikTok.

TikTok was the world’s most downloaded app in 2022, and creators want to be on the platforms that reach the most viewers.

But as the services increasingly resemble each other — short vertical videos — there’s nothing stopping users from posting the same content on all of them simultaneously. That way, you can earn money in three places with no extra effort.

Getting people to do things by paying them might seem like a historically well-proven method. Most people would call it a “salary.” But several social media companies have for many years not needed to pay anything of the sort to the people who created the single biggest reason for visitors to show up in the first place — the users themselves.

With newfound competition from TikTok, those old certainties have now been forced into question.

There’s a certain irony of fate in American giants needing to pay salaries to creators whose primary publishing platform is a Chinese app.

And in that same app reshaping what was once the highly lucrative search market.

Expect the next few years to be very stressful for Google, YouTube, and Meta.

The dynasty: how is Stenbeck’s Kinnevik doing?

February 13, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 13th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

SvD’s podcast Dynastin reveals that Cristina Stenbeck has left the country and no one else in the family is stepping in. Björn Jeffery sees an investment company that looks to be having an identity crisis.

Few expressions bear the unmistakable stamp of tech companies quite like “transformation” and “disruption.”

It sounded familiar, then, when listening to Georgi Ganev, CEO of Kinnevik, present the company’s latest quarterly results in early February.

“We have completed the fifth year of our transformation,” he said.

It has certainly been a transformation. The part Kinnevik calls its “growth portfolio” now accounts for over 70 percent of its holdings — compared to around 10 percent in 2017.

Calling something a “growth portfolio” is symptomatic in itself.

Around 2017, growth was exactly what the tech market demanded. Kinnevik made a series of investments in unprofitable but fast-growing and successful private companies. Familiar names like Pleo, Mathem, and Vivino entered the portfolio.

That changed quickly in 2022. Being unprofitable and fast-growing is no longer as acceptable as it once was.

Now profitability is what’s valued. And when fewer investments are being made, you have to value your companies by comparison with listed peers — which has become difficult, as many of them have crashed. The holdings that formed the foundation of Kinnevik’s transformation have become something of a burden.

“Applying more mature, publicly listed valuation levels to our young, fast-growing private portfolio requires a lot of thought and deliberation,” explained Kinnevik’s CFO Samuel Sjöström.

That deliberation could extend further than how to value the companies. It could also include the question of why those companies are in the portfolio at all. That’s arguably the more important question Kinnevik needs to answer — to both existing and prospective shareholders.

What kind of company do they actually want to be? What is it they’re supposed to be transforming into?

Historically, Kinnevik was strongly owner-driven by the Stenbeck family. The late Jan Stenbeck was a provocateur and entrepreneur who launched telecom and media companies at the edge of what was both legal and possible. That’s how both commercial television and commercial mobile telephony were introduced in Sweden. Taking big risks grounded in technological development has long been part of Kinnevik’s DNA.

The foundation of the business at that time was Korsnäs — the forestry company that merged with Billerud in 2012. It delivered stable, reliable cash flows that Kinnevik could deploy into new investments.

In one sense, Kinnevik’s transformation began the year after, in 2013, when the Billerud Korsnäs shares were sold by then-CEO Mia Brunell Livfors and chairwoman Cristina Stenbeck — one of Jan’s daughters. It looked like the start of something new: a rejuvenation of the investment company. The collaboration with Rocket Internet had begun four years earlier, alongside the enormously successful investments in e-commerce giant Zalando.

It was a reinvention of the company — swapping out large legacy holdings, with a third generation appearing to launch a third era for the family business.

But since then, the Stenbeck family has increasingly stepped away from operational involvement. SvD’s acclaimed podcast series Dynastin revealed that Cristina Stenbeck no longer sits on either the board or the nomination committee of Kinnevik. She has also left the country, now living in London with numerous personal investments outside of Kinnevik.

It’s an unusual model for a major owner — especially in this context. It’s almost unthinkable that the Wallenberg family would not be actively involved in Investor. That the Stenbeck family would not hold positions of trust in Kinnevik would, historically, have been equally inconceivable. But here we are.

A strong brand, but without a clear steer from the ownership level. The associations still exist, though — and they’re used in the marketing. The founding families are often referenced approvingly, for example.

Looking back one year, the share price has fallen over 36 percent. Before that, Kinnevik had distributed the successful Zalando to shareholders with near-perfect timing. That was both elegant and profitable. But the question now is where the growth to replace Zalando is supposed to come from.

Looking at the listed holdings, there’s no obvious successor to the throne.

Healthcare company Babylon Health has lost over 90 percent in the past year. Telemedicine provider Teladoc is down 60 percent. Global Fashion Group — one of the few remaining companies with a connection to former partner Rocket Internet — has also shed over 66 percent. Tele2 stands stable, but it’s alone in that regard. And that investment was made in 1993.

Former Kinnevik companies included Metro, MTG, Billerud Korsnäs, and Millicom. Who can name the equivalent companies in the portfolio today?

The center of gravity has shifted away from listed companies toward unlisted investments, with fewer connections to companies that originated within their own orbit. With the exception of Tele2, which steadily generates dividends, Kinnevik today looks more like a venture capital firm than a traditional investment company.

It’s management-driven and focused on four very different investment areas: software, health, climate, and platforms and marketplaces. These are all areas that are on trend, but they have very little to do with each other. Becoming a good investor in one of those areas is a challenge. Succeeding in all four simultaneously will be difficult.

The venture capital model is about financing companies that, through speed, innovation, and decisive action, manage to challenge the establishment. Traditional players have experience and brand recognition but are often seen as struggling to adapt to new times. It can be hard to let go of the past, and the old culture can cling to the walls.

After talking around with various players in the Swedish investment ecosystem, the question arises whether Kinnevik itself has become stuck in the traditional. A picture emerges of a top-down company that negotiates hard and is still run like a traditional corporate entity where the CEO and CFO call the shots.

That stands in contrast to the venture capital world, with its partner structures and its increasingly vocal positioning on the entrepreneur’s side. Whether that positioning reflects reality varies of course, but founders’ experience is that there’s a big difference between talking to investors and talking to large companies. Kinnevik seems to fall somewhere in between.

Investing in high-risk, technology-based companies is a proven method — for Kinnevik as much as for anyone. The tech boom of the past decade has generated billions in returns for both entrepreneurs and investors with this thesis. But with the air now out of the tech market, the heavy exposure to this sector is becoming increasingly awkward.

And unlike the many competing venture capital firms, Kinnevik must continuously explain and justify to the stock market how it’s thinking and why returns may be delayed. There are reasons why you rarely find this type of operation in a listed environment. Perhaps the stock market has itself become a burden for Kinnevik?

Answering that question requires going back to the fundamental one — what kind of company do they want to be? From the outside, the mix of investments spanning everything from fossil-free steel to e-commerce, digital healthcare, fintech, and food delivery looks scattered and a little unfocused. There may be a strategy that isn’t visible to an outsider. But it resembles a company going through an identity crisis.

Historically, the answer would have been found on the inside. Jan Stenbeck was an unusual, polarizing, and highly successful businessman. But no one seems to describe him as unclear. The vacuum after him was filled by Cristina Stenbeck and a transformation of the investment company began.

With the Stenbeck family now having stepped back from positions of power, something seems to be missing: a crystal-clear direction and identity. And without the presence of the major owners, that will be hard for anyone else to supply.

Kinnevik’s board

James Anderson, chairman — British, formerly a partner at fund manager Baillie Gifford, which is Kinnevik’s largest shareholder by capital at 11 percent. Susanna Campbell, board member — board professional and former CEO of investment company Ratos, which also co-owns companies with Cristina Stenbeck. Harald Mix, board member — founder and CEO of private equity firm Altor, and chairman of H2GS where Cristina Stenbeck has invested. Charlotte Strömberg, board member — board professional and former CEO of real estate advisor Jones Lang LaSalle. Cecilia Qvist, board member — head of Lego Ventures, the venture capital firm controlled by the owning family behind the Lego group. All board members are described as “independent in relation to the company’s major shareholders.” CEO: Georgi Ganev — previously CEO of Dustin and Bredbandsbolaget.

Kinnevik’s largest shareholders by votes

1. Verdere (Cristina Stenbeck): 19.1% — 2. Alces Maximus (Sophie and Hugo Stenbeck): 11.6% — 3. CMS Sapere Aude Trust (Cristina Stenbeck): 6.6% — 4. Baillie Gifford & Co (British fund company): 5.5%

Microsoft’s big advantage — they have nothing to lose

February 8, 2023
by Björn Jeffery
SvD Näringsliv

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

Side by side in Seattle. OpenAI founder Sam Altman stood alongside Microsoft’s CEO and unveiled what is genuinely a real innovation. SvD’s tech analyst Björn Jeffery answers three questions about what it means for you.

At an event that brought Apple product launches to mind — think visionary CEO on stage in a long-sleeved garment that isn’t a suit — albeit in Microsoft’s version (think the Office suite) — the new Bing was unveiled.

The tech giant’s search engine received a substantial upgrade powered by new artificial intelligence from partner OpenAI. The launch was somewhat expected — several screenshots had already leaked, and the day before, Sam Altman, CEO of OpenAI, had posted a photo alongside Microsoft’s Satya Nadella.

Traditional search results will now appear side by side with more detailed and comprehensive answers generated by the AI.

Microsoft also launched a new version of its browser Edge, which competes with Google’s Chrome and Apple’s Safari.

The new Bing can already be tested with a limited set of questions, while the full version will be released in the coming weeks.

Competitor Google, which presented Bard — a similar product — on Monday, is still testing it internally.

After many years of stagnation in the search market, we are now starting to see some genuine innovation. We’re all used to “googling” things every day, but over time most of us have also learned how to do it well.

Finding factual information — what year something happened, or where the nearest Japanese restaurant is — is straightforward. But how do you find out which shoes are on trend for spring? Or how to write a truly great speech for an 18-year-old’s birthday?

This is where AI technology could make a real difference for ordinary users. The next generation of search engine lets you “ask a question” rather than “perform a search.”

The results are immediately different, and you can also ask follow-up questions — something that doesn’t work at all today. “I want the speech to rhyme” or “write it as a haiku” are examples of how you can refine the answers you get. It feels more like a dialogue than a traditional search.

Those who have tried ChatGPT are already familiar with the concept. What has been missing there are mainly two things: the ability for everyone to do unlimited searches, and more recently updated information.

With Microsoft’s search engine Bing, both of those things are solved. And even though Bing has a very small market share, it still has a substantial number of visitors — estimates put it at over one billion visits per month. That’s modest compared to Google, but a solid base for testing things at scale.

When talking about new challengers, it’s worth remembering that Google has a market share of around 93 percent — a position it has earned over many years by having the best product for searching the internet.

Google’s brand recognition is enormous, and few companies have had their name become synonymous with a verb that describes an entire category. That’s a major advantage that isn’t going anywhere soon.

Microsoft’s advantage is almost the opposite — they have nothing to lose. When the market leader is so much bigger, the strategy becomes almost obvious: try something different.

Investing the equivalent of 100 billion kronor in OpenAI to gain access to its technology looks, in that context, fairly logical — if bold. Microsoft needed to do something new to disrupt the status quo. And they have now done exactly that.

As a side effect, this has also woken Google up. After CEO Sundar Pichai declared six years ago that the world would be AI-first, those of us using his services haven’t seen much of it. Until now — when competition suddenly comes calling.

For ordinary users, the search market is about to become more interesting than it has been in a long time. And in a few years, we might even stop “googling.”

Apple, Amazon and Alphabet all beat earnings — what comes next

February 3, 2023
by Björn Jeffery
SvD Näringsliv

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

Apple, Amazon, and Alphabet all reported the quarters everyone had been dreading. Not even the very biggest can stand against the macro environment.

Thursday started so well for stock traders.

The Nasdaq Composite surged and recorded its best start to a year since 1975. The S&P 500 was up and pushing toward its highest point in five months.

Was this the moment the tech market would turn upward again?

Because even though individual stocks showed strong gains, really only three names mattered on Thursday — Apple, Amazon, and Google’s parent company Alphabet. All three chose to report quarterly results on the same day, offering a collective picture of how the tech giants are faring.

The tone was set by Alphabet CEO Sundar Pichai, who opened his presentation to investors in grim terms:

“It’s clear that after a period of significant growth in digital spending during the pandemic, the macroeconomic environment has become more challenging.”

A translation without all the corporate polish would go something like: “it was fun while it lasted, but the party seems to be over.”

Revenue from Google’s search ads fell for only the second time since the company went public in 2004. YouTube revenue also fell, causing Alphabet to come in below market expectations. Alphabet’s share price, which had risen alongside the general optimism earlier in the day, immediately reversed course.

Apple’s numbers arrived shortly after, and they didn’t exactly lift the mood.

Apple posted a 5 percent decline in sales — its biggest drop since 2016. Production problems in China, the strong dollar, and the aforementioned “macroeconomic environment” were all cited as contributing factors by CEO Tim Cook. The company also missed analyst expectations on both revenue and profit. It was the first time in seven years Apple had done so.

“We had record revenue in markets like Canada, Indonesia, Mexico, Spain, Turkey, and Vietnam,” Tim Cook said at the start of his presentation on Apple’s results.

All credit to those markets, but the company has had to dig deep to find optimistic signals when countries like these are being cited in this kind of context.

Two countries were absent from the list — the US and China. Apple’s two most important markets by a wide margin. Successes in Vietnam or Spain cannot compensate for weakness there.

The third tech giant, Amazon, fared somewhat better than the others.

But that was partly because it had already absorbed the blow in the previous quarter, when it gave a weak forecast heading into the crucial holiday season — and the stock fell 20 percent. The latest quarterly figures were more or less in line with expectations, but one concern was that growth in the important cloud services unit AWS slowed sharply. That may signal growing cost-consciousness among businesses and fewer new investments.

The three companies are often seen as competitors — Amazon and Google both sell cloud services, for example — but they are also partners. Apple sells products on Amazon, Amazon buys enormous amounts of advertising from Google, and Google pays Apple billions to be the default search engine in Apple’s Safari browser. Even the tech giants aren’t big enough to be completely independent of each other.

Despite their different business models, they operate in the same markets and are affected by the same macro factors.

None of them — not even Apple, which has held up best on the stock market among the largest — can resist inflation, supply chain disruptions, pandemics, and a potentially approaching global recession. Thursday’s reports make clear that even the biggest players struggle to manage a volatile world.

When the giants stumble, the consequences reach far beyond their own balance sheets.

The largest tech companies have for many years acted as locomotives for both the tech sector and the stock market as a whole. These three stocks — Apple, Amazon, and Alphabet — together account for nearly 11 percent of the entire S&P 500 index. They weigh heavily in most people’s fund portfolios, whether or not they have actively bought the shares.

How they perform also affects tech companies around the world. There isn’t a CEO anywhere who isn’t watching these numbers and drawing conclusions about what they might mean for their own business.

Being a tech giant is a privileged position. For many years they have shown total dominance in their respective markets, with metrics that most other companies can only dream about.

But after a long stretch of seemingly endless gains, we are now seeing signs of weakness. For the first time in many years. You may be giants — but no one is bigger than the macro.

The party is over — and the activist investors have arrived

January 29, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 29th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

A philanthropist as owner. World-class artists like Alicia Keys, Foo Fighters, and U2 at the massive company party. Now everything may be about to change — activist funds have set their sights on tech company Salesforce.

In a large grey-blue hulk in San Francisco’s Mission Bay district sits the city’s newest hospital, UCSF Benioff Children’s Hospital. Standing below and looking due north, you see an enormous skyscraper — the tallest in the city — with rounded corners and walls of glass. That’s Salesforce Tower, an office building that also features a landscaped rooftop park with trees and shrubs, and a bus terminal.

The man behind both buildings is one and the same — Salesforce CEO and founder Marc Benioff. He funded the hospital, and the skyscraper is his new office.

Benioff is a well-known philanthropist in San Francisco, and the imprint of both him and his company is visible across the city. Since 2018 he has also been the owner of the storied magazine Time.

A busy man, in other words.

And perhaps a man who no longer has his full focus on delivering value to shareholders. At least that’s what activist funds Elliott Management and Starboard Value appear to believe.

They have recently taken billion-dollar positions in Salesforce because they want to see change. Over the past year the share price has fallen more than 30 percent, and high-profile acquisitions like the communications platform Slack look — in times like these — very expensive.

The equivalent of 283 billion kronor was paid for Slack in January 2021. That purchase can probably be seen as marking the absolute peak before tech stocks began their fall to earth.

Activist funds are nothing new for either the stock market or tech companies. But it’s harder to build momentum for a major change campaign when companies are already doing very well. The low-interest-rate environment during the pandemic benefited tech companies enormously. Stock prices surged and they hired tens of thousands of people.

Google, or Alphabet as the parent company is called, is a clear example. At the end of 2019, Google had around 119,000 employees. Two years later that number had grown to over 156,000. Today it’s around 200,000. The layoffs of 12,000 people last week should be seen in this light. It’s a modest pullback — not a real cut.

Now there’s a different momentum in the tech market, and that creates the potential to come in and drive change at a faster pace. This is where activist funds play a clear role. Unsentimental, numbers-driven, and with an iron grip on corporate governance. There may well be layoffs, a new board, and new management before they’re done.

Salesforce is in many ways a perfect candidate for this. Through a series of acquisitions, Benioff has over the past fifteen years transformed what was otherwise a fairly dull sales-support company into a giant that does everything from internal communications to marketing.

And they’ve done it in grand style. The offices are one thing, but you also can’t forget their annual conference — Dreamforce.

Salesforce books world-class acts and shuts down entire blocks of San Francisco for it. Metallica, Stevie Wonder, and Red Hot Chili Peppers have all performed — as have Alicia Keys, Foo Fighters, and U2.

But grand style often comes at a cost. Something shareholders may accept in a bull run, but which can stick in the eye when things go the other way. This year’s edition of Dreamforce is planned for September, though no artists have been announced yet.

Another thing that points toward change is the ownership structure. Benioff is the public face of Salesforce, but he owns only three percent of the shares. That makes him a large shareholder for an individual, but very small relative to the company as a whole.

Look at Spotify, for example: they have so-called dual-class shares, meaning different voting rights for different classes of stock. That means even though Daniel Ek and Martin Lorentzon own a minority of shares in the company, together they hold a majority of the votes.

The model is familiar from the US. Companies like Snap, Alphabet, and Meta all have a similar structure.

In practice, it means a handful of individuals control the company’s entire future by themselves, despite other large shareholders. Salesforce does not have this structure — and that’s exactly why it’s a strong candidate for activist funds.

The last time Elliott Management was involved in a major tech company that lacked vote control, there was change at the top.

That was Twitter — before Elon Musk bought it — and Elliott Management was a contributing factor in the departure of then-CEO and founder Jack Dorsey.

Now that tech stock prices have been pushed down substantially, many companies — in the US and in Sweden alike — are stuck with habits and a cost structure that feel out of place.

It’s probably only a matter of time before Swedish tech companies also receive a visit from a type of owner they haven’t had to deal with before. Companies like Truecaller have protected themselves by keeping control with the founders. The rest have every reason to keep a close eye on their new shareholders.

H&M’s Market Position Is Under Threat

January 27, 2023
by Björn Jeffery
SvD Näringsliv

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

Falling profits and major technical challenges. H&M’s position in the market is under threat.

Few things are as popular in business as inventing terms that make your operations sound better and more modern. The emperor is almost always naked, of course — everyone in the industry knows what the expressions actually mean. But it sounds good.

In retail, one such expression is “omnichannel.” In H&M’s quarterly report released Friday morning, they write instead about “further integrating the two channels.” Both are just elegant ways of saying “the customer can shop however and wherever they want” — order online and collect in store, scan an item in a store to find it online, and so on.

Any clothing shopper under 30 would call this something else entirely: obvious.

With over 4,600 stores around the world, having omnichannel capability is a necessity, not a competitive advantage. If customers want to shop online — what do you do with all the stores? You make them part of a new type of consumer behaviour that typically starts online.

The strategically interesting question is whether H&M would have made the same choices if it were starting from scratch today.

A possible answer can be found by looking at one of H&M’s fastest-growing competitors: Chinese company Shein. If H&M is a fashion company undergoing digitalisation, Shein is more accurately a tech company that happens to sell clothes. Shein does not have an omnichannel strategy, and does not appear to need one.

In the first half of 2022, industry sources suggested Shein’s revenues were around 54.5 billion kronor — roughly comparable to H&M’s figure for the same period. That number should be taken with a pinch of salt since Shein is not publicly listed.

Where H&M and its former main rival Zara became known for “fast fashion,” Shein is closer to “ultra-fast.” They can reportedly take an idea to sale on the app in just three days — and start selling products before deciding whether to produce them at scale.

As a tech analyst, it is impossible not to see parallels with other industries going through major disruption: an establishment player locked into old structures and costs, being challenged by a completely new entrant that rewrites the rules from scratch. Shein is, in this analogy, the Tesla of the fashion world. Like Tesla, it started from zero and was free to think entirely differently from the outset. And like Tesla, it has faced quality problems and serious criticism over its labour conditions.

A Channel 4 investigation into Shein described women working 18-hour days. In one factory, workers received no monthly wage — instead, they were paid just under 50 öre per finished garment. But H&M has had its own problems too. As recently as November, Swedish newspaper Aftonbladet revealed how polluted water was being released from factories in Bangladesh.

H&M becomes, in this comparison, the Volvo Cars of the fashion world: a traditional company built on brand recognition, structure and experience. They know the industry, have established relationships and know how to avoid the big mistakes. But being part of the establishment also comes with an anchor that slows you down.

In tech, there is a concept called “technical debt” — the accumulated cost of old systems that were built years ago and have become expensive to maintain. The systems are outdated, but replacing them entirely feels too drastic given how much has already been invested in them. It is like a crumbling foundation under a house: you know it is bad, but tearing down the whole building just to repour the concrete is a big call.

After a digitalisation journey now over 20 years long, H&M almost certainly carries significant technical debt. Its “Business Tech” unit, responsible for digital development and operations, employed around 4,000 people before the recently announced cuts. The resources are there. But the question is how they are distributed between maintaining existing systems and building genuinely new ones.

H&M’s strategy also leans heavily on sustainability — an area Shein seems far less concerned with. Holding that flag high within your market category is a real differentiator. But it is a difficult position to build a full competitive advantage around.

Despite war and global uncertainty, CEO Helena Helmersson says in the quarterly report that H&M “stands strong with a robust financial position.” Sales were up 10 percent (largely driven by currency effects), while profit fell sharply. The proposed dividend is unchanged from the previous year.

Being the Volvo Cars of the fashion world is not a bad position. But in the rear-view mirror, there is a Tesla — and it may be closing fast.

The Genius Who Outsmarted Zuckerberg — Twice

January 22, 2023
by Björn Jeffery
SvD Näringsliv

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

He created the teen app that launched and sold within a hundred days. The former Meta employee has now done what CEO Mark Zuckerberg cannot — for the second time.

There are around 1.8 million apps in Apple’s App Store. Of those, only 37 reached number one on the daily US charts during 2022. Familiar names like HBO Max, YouTube and McDonald’s appear on that list.

But one app stands out above the rest: Gas.

Gas is not even available in Sweden yet, but it has taken American teenagers by storm. With just six employees, the team managed to launch and then sell their app to chat service Discord — in under a hundred days.

The mind behind the app is Nikita Bier, a California-based entrepreneur who has made viral teen apps his speciality. This is, notably, the second time he has done exactly this.

In August 2017, Bier launched his first app, TBH — short for “to be honest.” The app let teenagers send anonymous compliments to each other and exploded in popularity almost instantly. Forty-eight days later, it had been sold to Facebook (now Meta).

Bier worked at Meta for four years, until the terms of the sale expired. On the day his contract ended, he resigned and started working on the idea that would become Gas.

The concept was close at hand, because Gas is essentially identical to TBH. Both are anonymous apps designed to help shy teenagers say nice things to each other. Want to know exactly who said what? That costs money. Two months after launch, it was sold to Discord.

While Bier and his colleagues are clearly talented, their success also reveals something important about the difficulty the largest tech companies have in this category. During the four years Bier worked at Meta, his team tested products like “Messenger for High Schools” and “Instagram Polls.” Neither was ever released to the public. You have almost certainly never heard of them.

There are countless similar examples — product ideas generated at Meta or Google that never shipped. The success of TBH and Gas suggests the problem is not a lack of knowledge or resources. Rather, the big tech companies have become bureaucratic colossi. The speed, lightness and adaptability that define startups disappear quickly as companies scale. Demands for immediate scalability, integration with existing services and thick layers of internal politics make the process of building new products slow and hard. The tech giants are simply too big to be nimble.

Between 2014 and the FTC investigation, Meta made at least 68 acquisitions. That door is now effectively closed. Meta still makes smaller purchases from time to time, mostly for its VR arm Oculus, but regulators allowing them to buy apps like Instagram and WhatsApp again in 2023 is extremely unlikely. The buyer of Gas — Discord — is still small enough that the deal attracted no regulatory concern.

If you cannot buy new products and cannot build them yourself, you end up in a complicated position quickly. This is especially true when it comes to attracting teenagers — one of the most coveted audiences for Meta. The answer to that problem used to be Instagram, but competition from TikTok is fiercer there than ever.

Small challengers keep finding ways through where the giants get stuck. But that a former employee was the one to do it this time must sting more than usual for Mark Zuckerberg.

Wall Street Cheers Netflix’s Numbers — But the Bland Era Is Coming

January 20, 2023
by Björn Jeffery
SvD Näringsliv

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

Strong subscriber numbers lifted Netflix after its earnings report. But the effects of its cheaper, more mainstream content have not yet arrived. And a bigger problem has emerged: Disney.

It is easy to be confident when your company is growing fast.

Netflix’s outgoing CEO Reed Hastings said the following in an interview after presenting quarterly results almost exactly three years ago: “We want to be the safe haven where you can explore, be stimulated, have fun, enjoy, relax — and without any of the controversy around exploiting users with advertising.” He added that “in the long run, there is no easy money to be found there.”

Fast forward to Thursday evening and Netflix is in a very different position.

Hastings, who co-founded the streaming giant in 1997, is stepping down as CEO and moving to the role of chairman. He was wrong about never introducing advertising — Netflix launched an ad-supported tier in November 2022. But he was right that there was no easy money to be found. Thursday’s quarterly results showed that all money is quite difficult at the moment: revenues were the lowest of the year, growth slowed to 1.9 percent, and profitability was weak, partly due to the strong dollar.

The subscriber numbers told a different story, however. Analysts had expected 4.57 million new subscribers; Netflix brought in 7.66 million. Wall Street cheered.

How subscribers split between price plans has not yet been disclosed. But even before the report, there were signs the new ad-supported model was not an immediate hit. Data from analytics firm Antenna showed in December that the ad-supported tier was the least popular of Netflix’s offerings — only 9 percent of new sign-ups chose it. The equivalent figure for Disney-owned Hulu is 57 percent. Netflix offered no further details in its report, only noting that it was “early” to evaluate and that they were “satisfied.”

Disney has become an increasingly significant concern for Netflix. Last summer, Disney surpassed Netflix in total subscribers across its streaming portfolio. Disney+ is the largest, available in Sweden and elsewhere, but the portfolio also includes Hulu, sports channel ESPN+ and Latin American service Star+.

Growing at Disney’s pace is expensive, however — the company lost $1.5 billion in streaming last quarter. One area being speculated about is gaming. Disney has circled that sector before. Now they could potentially add games to Disney+.

Netflix is pursuing a similar strategy. They already offer more than 40 mobile games to subscribers and have acquired six game studios. The logic behind the gaming push can be summed up in two words: high interest rates.

“When borrowing was cheap, you could borrow lots of money and invest it in content,” said Shahid Khan, global media head at consulting firm Arthur D. Little, to Reuters. “Given current interest rate levels, Netflix will need to be very selective about approving new content — and how to finance it.”

Film and TV were cheap to produce when rates were low. Now they are considerably more expensive, which affects the type of content Netflix commissions. That means cheaper and more mainstream series going forward. Gaming, by comparison, can be a lower-cost way to keep subscribers engaged — and a hedge against expensive prestige production.

The subscriber figures in the latest quarter show that Netflix’s pull still exists. But the content being watched now was commissioned and financed long ago — TV production cycles are long. The acclaimed war film All Quiet on the Western Front, recently nominated for 14 BAFTA awards, is a clear example of the old, premium model.

When the new, cheaper material starts dominating the screen, we will see whether subscribers prove equally loyal.

Microsoft’s Investment in OpenAI Is Starting to Look Like Genius

January 17, 2023
by Björn Jeffery
SvD Näringsliv

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

Never underestimate Microsoft. That is the lesson many in Silicon Valley are learning right now. Satya Nadella’s masterstroke has put the M back on the map.

“FAANG.” In the 2010s, it was the only acronym that mattered in tech. It stood for the first letters of Facebook, Apple, Amazon, Netflix and Google.

A few years on, the acronym has become “MAAMA.” Two companies have changed their names — Meta (formerly Facebook) and Alphabet (formerly Google) — while Amazon and Apple remain. Netflix has shrunk and dropped off the list entirely.

What is left is one letter: M. M as in Microsoft.

The dominant tech company of the PC era has been on a long journey. Early in the internet age, competition regulators came down hard on it for using its browser, Internet Explorer, to entrench its dominance. That opened the door to rivals — Firefox, Google Chrome, Apple’s Safari.

When PCs gave way to smartphones, Microsoft failed to launch a successful mobile operating system. The Nokia acquisition was expensive and went badly. Bing never achieved verb status the way Google did. For a while, it seemed as though Microsoft dominating anything on the internet was a distant prospect.

But behind the scenes, the picture looks quite different.

If you visited any websites today, there is a reasonable chance they were served by Microsoft’s cloud platform, Azure. Microsoft is the second-largest cloud provider in the world, just behind Amazon AWS — and more than twice the size of Google Cloud. Office subscriptions (Microsoft 365) are popular. Xbox with its Game Pass subscription likewise. Add Windows and the social network LinkedIn, acquired in 2016, and an entirely different kind of company emerges.

The architect of this transformation is Satya Nadella — Microsoft’s CEO since 2014. He was the third person to hold the role since the company’s founding in 1975, taking over from Steve Ballmer and Bill Gates. The timing was perfect. Nadella led a cultural overhaul to break old habits. The tech boom provided strong tailwinds. Despite the downturn in 2022, Microsoft’s share price has risen more than 560 percent since he took over.

Nadella is now on everyone’s lips because of an investment Microsoft made back in 2019. OpenAI was then seen more as a research project than a proper commercial company, with the stated goal of developing AGI — artificial general intelligence. Put simply, that is when a computer begins to think and act on its own, in a more human-like way.

Microsoft invested a significant sum and, crucially, agreed to run OpenAI’s systems on Azure. Training AI models requires enormous computing capacity and gets expensive fast. By hosting OpenAI, Microsoft absorbed a large part of those costs. In return, it gained a prestigious client, a system that would grow alongside Azure over time — and a relationship with a company sitting on potentially groundbreaking technology that Microsoft could apply across its own products.

The investment attracted little attention until a few weeks ago, when OpenAI launched ChatGPT and took the world by storm. Suddenly, AI became more concrete and comprehensible to ordinary people.

And Microsoft’s 2019 bet looked like a stroke of genius.

The two companies are now reportedly close to a further investment of $10 billion — around 100 billion kronor. The technology could help the Bing search engine become a genuine threat to Google for the first time in its history: a search engine that answers questions, rather than returning a list of links. Google’s leadership has reportedly issued an internal alarm and begun redirecting resources to meet the new competition.

After many years of quiet, the playing field for the tech giants may be about to shift dramatically. And they may soon experience what many learned during the PC era: never underestimate Microsoft.

The Winklevoss Twins’ New Crypto Battle

January 12, 2023
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 12th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

They believed Mark Zuckerberg stole their social network idea. Now they claim a business partner has stolen their customers’ money. The Winklevoss twins saw crypto as a fresh start — but now they are stuck.

Imagine Swedbank promised its customers around 7 percent interest on a special account, with the freedom to withdraw at any time. An attractive offer for most people.

To deliver that return, Swedbank needs to lend the deposited money to SEB. SEB in turn makes higher-risk investments, aiming to earn more than the 7 percent. The margin is split between the banks — everyone is happy.

Then something happens. It turns out SEB has lost the deposited money and refuses to pay it back. Swedbank is furious. Its customers are furious. And now Swedbank and SEB are fighting each other, very publicly, on Twitter.

None of this has anything to do with Swedish banks.

Swedbank in this scenario is Gemini — a crypto exchange founded by Cameron and Tyler Winklevoss, known from the film The Social Network. On the other side is Genesis Global, a crypto trading platform owned by the conglomerate Digital Currency Group (DCG). The Winklevoss brothers are the latest in a long line of prominent figures caught up in the storms that swept through the industry in 2022.

In total, around 9 billion kronor is missing from roughly 340,000 Gemini customers — and the atmosphere is deeply hostile.

The Winklevoss brothers say they tried to resolve the situation directly with DCG’s CEO Barry Silbert. When those talks broke down, they took to Twitter and resorted to open letters instead. Silbert’s position is that they owe Genesis nothing until 2032. The standoff remains unresolved, and there is a palpable sense of desperation in the air.

The dispute says a great deal about the state of the crypto market more broadly. In the chase for fast, high returns, enormous risks were taken — risks that stayed hidden as long as prices kept climbing.

For its own customers, Gemini described its lending partners as having been “evaluated with our risk management framework.” That may well have been true. But when 9 billion kronor disappears, perhaps the framework itself deserves a review.

Like the 2008 financial crisis, crypto markets were interconnected in ways that were not visible to individual participants. The collapses of FTX, BlockFi, 3AC and Celsius cascaded through the industry on multiple levels. Enormous amounts of capital were wiped out in direct losses as trading partners failed. The crashes drove the prices of many cryptocurrencies sharply lower, reducing the value of whatever holdings remained. And finally, trust in the market eroded — making recovery that much harder.

The Winklevoss brothers once used their settlement money from the Facebook dispute to invest heavily in crypto through Winklevoss Capital. It was meant to be a fresh start — and for a time, they presented themselves as serious, visionary entrepreneurs in a new and open market.

In an article on their site from 2020, they wrote that the price of Bitcoin could reach $500,000. At the time of writing, it is just under $17,500. Their company description also states that “those who dare to fail greatly, dare to achieve greatly.”

The Winklevoss brothers are perhaps used to turbulence by now. But when 9 billion kronor goes missing, it is doubtful their customers feel quite the same way.