Why Trump’s social network will flop

October 21, 2021
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 21st, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Banned from the world’s biggest social media platforms — Donald Trump is now starting his own and taking it straight to the stock market. It is set up to fail. The only value Trump will manage to generate is fresh PR for an emerging election campaign.

“Account suspended” is what you see if you visit twitter.com/realdonaldtrump – once one of the most popular Twitter accounts in the world.

In the wake of the storming of the Capitol, the former president was kicked off, almost in unison, every tech company’s platform. Trump was instead reduced to issuing his many pronouncements via press release. The most recent one from this summer – a tribute to an American football coach – is just 25 words long. A tweet without Twitter, in other words.

Now Trump appears to have grown tired of speaking without an audience. In a newly formed media company – Trump Media and Technology Group – he is going straight to the stock market via a SPAC. The first product is a social network that will be called “Truth Social”. The aim, according to Trump, is to “create a rival to the liberal media consortium and fight back against the big tech companies in Silicon Valley”.

“Truth Social” is supposed to launch as early as the first quarter of next year, the company says. After that comes a subscription video service with news, entertainment and podcasts, and in the future also a competitor to the tech companies’ cloud services. Grand plans, to put it mildly.

Even if the company does make it onto the stock market, its first big bet — “Truth Social” — will almost certainly fail. Social media platforms are easy to criticize but very hard to make work in practice.

There are several reasons for this:

Politicians on both sides agree the law needs to change. President Joe Biden has gone as far as saying it should be repealed. The way discussions on social networks are conducted is likely to become harder to maintain if the law is removed or amended. And even if it can be done, it can get expensive. Facebook reportedly has more than 15,000 content moderators – before any change in the law.

The dependence on third parties also means you have to live by their rules. The right-wing social network Parler ran into exactly that when AWS shut it down for breaching its terms of service. Trump’s new service will therefore be reliant on other services wanting to host it. Given the volume of controversies that Trump’s followers, and Trump himself, have generated, that will be challenging.

What’s left is the attention this generates. After the announcement of the SPAC listing and “Truth Social”, everyone is suddenly talking about Donald Trump again. It can be read as the opening act of an emerging election campaign. The launch shows that Trump is back in the media game. But a successful social network it will not be.

Facebook is changing its name — to escape its history

October 20, 2021
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 20th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

That Facebook is reportedly changing its name shows signs that one of its biggest strengths is becoming a weakness. It is also the starting gun for Mark Zuckerberg’s next big bet — the metaverse.

“People should know which companies make the products they use.”

That’s what Facebook’s marketing chief Antonio Lucio wrote in a blog post almost two years ago. At the time he was introducing a new logo intended to distinguish the company Facebook from the products it provides – Instagram, WhatsApp, virtual reality company Oculus, and the well-known blue app that goes by the name Facebook itself. Sharing a corporate name with one of the products can be confusing, but given the brand recognition it has also been an asset. Everyone knows Facebook.

The question is whether that asset is now turning into a liability. The tech site The Verge reports that CEO Mark Zuckerberg plans to rename the company. The blue app will keep its name, while the parent group on top of it gets a new name and houses Instagram and WhatsApp. If the rumors are correct, Facebook is doing the same thing Google did when it renamed its mothership Alphabet.

Zuckerberg, however, has different and more pressing reasons to change the name than his neighbor in Silicon Valley. Google wanted to expand and be associated with more than just search. Facebook, by contrast, wants to leave its current associations behind.

The first hint that Facebook as a brand had become problematic was the camera glasses the company released in September. They were called “Ray-Ban Stories”. The website mentions a partnership with Facebook, but nowhere on the product itself can you find the logo or the name. Perhaps it was deemed unlikely that people would want to walk around with a Facebook logo on their face, even a discreet one tucked onto a glasses frame.

There are two plausible reasons the name has become a burden for the social media giant.

The first is that Facebook has had a hard time shaking off the recurring scandals around election interference, harm to teenage girls, and privacy. Each controversy stains the brand a little, and creates associations that bleed into the rest of the product portfolio. If the blue Facebook app has handled something badly, it can spill over to Instagram because everything looks like one and the same company. A clearer separation could be preferable. The method has worked before. Scandals at YouTube have been kept reasonably separate from Google, even though they share the same parent.

The second reason is Zuckerberg’s plan ahead, his next big step for the company. He has told The Verge that “we will go from people primarily seeing us as a social media company to being a metaverse company”.

So what is the “metaverse”? It can be described, simply, as a new kind of internet, where in a game-like 3D environment you can shop, work, play and communicate with others. Facebook wants to help build that infrastructure – the underlying system on which this vision can become reality.

The bet is enormous, and broad. Facebook already has more than 10,000 employees working on hardware for augmented reality, expected to be a central piece of its metaverse project. Add to that the people working on virtual reality bets like Oculus and the virtual world Horizon Worlds.

If Zuckerberg pulls this off, he will have created a new digital world that runs in parallel with the one he steers day to day. In that context it is logical to leave the old one – with its positive and negative associations alike – behind. Zuckerberg’s metaverse is meant to be seen as something else entirely. And as a chance to start over – with new ambitions and a new communications plan.

The fight over Big Tech could create legislation havens

October 19, 2021
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 19th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The EU wants the European headquarters of tech companies to determine where they are regulated. But the proposal risks repeating the mistake of the tax havens — where individual countries now compete on legislation.

The nickname belongs to Denmark’s Margrethe Vestager. She is currently Executive Vice President of the European Commission, but previously held the post of Competition Commissioner. It was in that role that she fined Google more than €4 billion – about SEK 43 billion – in 2018 for breaches of competition law. All for abusing its strong position in the market for operating systems.

Vestager won that round, but in recent weeks the parties have been back in court. Google has appealed the ruling, and a spokesperson for the company told the news site Politico that “this case is supported neither by the facts nor by the law”. A verdict is expected sometime next year, though even that can be appealed one further instance.

The reason Google can keep challenging the legislation is that it is both unclear and fairly blunt. A major effort is now underway in the EU to clarify the law through two big initiatives – the Digital Services Act (DSA) and the Digital Markets Act (DMA). They are aimed at, for example, curbing monopoly formation and regulating tech companies’ use of data. The DSA and DMA are still being drafted and are not yet in force.

One big question is where the legislation should sit and how it should be enforced. The EU does not want to leave the laws in the hands of the United States, even though that’s where most of the tech companies come from. The reason is partly about power, partly about a different view on data and privacy on each side of the Atlantic.

The flaring debate around a global minimum tax also plays a role here. When 136 countries at the OECD agreed on 15 percent as a floor for corporate tax, the deal included a clause that specific “digital taxes” would be removed. That could threaten parts of the DSA and DMA.

The minimum tax, however, is still only a proposal, and the EU is pressing on with its own initiatives. In an interview with Reuters, Christel Schaldemose, who is leading the DSA effort in the European Parliament, said they want each EU country to regulate its own tech companies. That would mean the location of the European headquarters determines which legislation applies. For Apple, Google and Facebook that means Ireland, while Amazon would fall under Luxembourg law.

The principle sounds simple. But it also opens the door to a new version of a problem that already exists on the tax side.

The main reason tech companies’ headquarters sit where they do is, today, already driven by tax. Ireland is not an important market for any of the tech giants — what attracts them is a corporate tax of 12.5 percent and generous tax breaks for research and development. In Sweden, corporate tax is just over 20 percent, and in the United States 27 percent. The tech giants also become major employers and important civic actors wherever they land.

The idea that a country like Ireland would want to crack down on tech companies therefore looks unlikely. And were the legislation to land with them, it’s easy to imagine a more permissive stance. Tax havens, in other words, may end up with a new sibling – legislation havens. Whereas companies once chose a country for tax reasons, they may now choose one for its laws.

Putting legislation in the hands of each individual EU member state also risks creating internal competition between countries on these questions. That’s plausibly the opposite of the clarity Vestager and her colleagues are aiming for with the DSA and DMA. On top of that, you can question the ability of smaller countries to actually enforce the laws. There need to be resources to run legal proceedings at a high enough level.

Whichever country you look at, a reasonable guess is that the tech companies’ legal budgets are meaningfully larger than the state’s equivalent on the other side of the courtroom. Take Luxembourg. It has about 630,000 inhabitants. Amazon has 1.3 million employees.

If LinkedIn can’t operate in China — who can?

October 15, 2021
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 15th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

There used to be only one realistic way into China for a foreign company. Now even that may be closed. As LinkedIn dismantles its social network in the country, it could mark a new era for tech companies in China.

The accepted wisdom has long been that the only way to enter China as a foreign company is through partnerships. Local legislation and the relationship with the Chinese state simply require some form of Chinese co-ownership. But play those cards right and an enormous market opens up.

That was the pitch for LinkedIn too, when it launched in China in 2014. The Microsoft-owned social network had partnered with venture capital firms China Broadband Capital and a Chinese arm of Sequoia Capital for precisely this reason. Which makes it striking that LinkedIn has now announced it is shutting down the part of its service where users can post articles and updates. It looks like the relationship with the state was, after all, not enough to keep the operation going.

Earlier in the month, reports had already emerged that LinkedIn had begun removing content from journalists who cover China. A reporter at the news site Axios got a notice from LinkedIn saying that “your profile and public activity, such as your comments and the links that you share with your network, will not be visible in China”. Exactly which material was being referenced wasn’t specified, but the common thread was that the notice went to journalists who had been covering China — and who had, in the process, sometimes been critical of the country.

The theory that this is about the expression of inconvenient opinions is supported by the fact that LinkedIn is keeping some operations in the country, but through a newly launched app focused on job listings. The company itself is not banned from China – it’s only one specific part of the operation that can no longer be run there. LinkedIn’s own framing is that it has become a “significantly more challenging operating environment and greater compliance requirements in China”.

LinkedIn isn’t alone in this “challenging environment”. The entire Chinese tutoring industry was wiped out almost overnight after the state decided it was not appropriate for anyone to make money from it. This week the industry got a small reprieve, with those companies now allowed to assist with vocational training at least. The point is to fit in as a piece in the modern China that Xi Jinping wants to build. And those swings can come fast – even for the companies that are on the inside.

The picture being painted is a China that is closing in on itself. The intense pressure put on the domestic tech companies has drawn the world’s attention and pushed share prices down. When even established foreign companies – which followed the playbook – are now being forced to rethink their operations, that may add to the uncertainty for global investors.

If not even the world’s second most valuable tech company, Microsoft, can navigate the political landscape – what hope is there for everyone else?

Play to earn: gaming’s lawless new crypto frontier

October 11, 2021
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on October 11th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

When crypto technology meets the gaming world, players turn into investors. A new trend has the potential to turn gaming on its head.

“When I started, I played almost four to five hours a day,” says John Ramos, a 22-year-old man from the Philippines.

It sounds like the kind of quote you’ve heard many times before from someone caught in a gaming addiction. But this is something else, and it ends differently than these stories usually do.

Ramos has turned gaming into a job. He has recently bought several houses with the winnings he has earned in the game “Axie Infinity” since he started last November. It’s part of a new phenomenon in the gaming and crypto worlds called “play to earn”.

Behind the game is the Vietnamese game studio Sky Mavis, recently valued at $3 billion – about SEK 26 billion – when American venture capital giant Andreessen Horowitz invested in them. This for a company only three years old. The growth has been fast – and is still accelerating. Revenue from in-game purchases inside Axie Infinity is projected to reach $1 billion in 2021, with 17 percent of that going to Sky Mavis.

The trend is in an early phase, but you can find it in Sweden too. Game developer Antler Interactive is working with blockchain company Chromaway on a game called “My Neighbor Alice”. It uses its own cryptocurrency, Alice, which launched publicly in March this year. Trading in Alice is already underway, but the game itself isn’t finished. It’s expected to launch sometime next spring.

Making money from playing computer games is nothing new in itself. But “play to earn” is different from e-sports and game streaming in that the game itself generates the revenue – not the viewers and sponsors around it. E-sports is closer to traditional sport in its business model. With play to earn, you play to collect virtual objects and cryptocurrency inside the game itself, but they can be traded on crypto exchanges outside it.

That may sound like a small distinction. But it turns the traditional business model of the gaming world upside down.

Normally, the revenue from a game flows directly to the studio that built it. Sometimes the money is shared with publishers who helped develop and market it. To simplify: the more people play, the more profitable the game becomes – regardless of the underlying business model.

With “play to earn”, you’re also playing games, but the difference is that the more people who join, the more valuable the things you own inside the game become. As a player, you benefit from the game’s success because the assets you’ve collected suddenly have more potential buyers. The most expensive Axie – a cartoon creature that looks like a cross between a cat and a fish – sold late last year for around $125,000, more than SEK 1 million.

The more players, the more people there are to trade with. From this perspective, it looks more like a cryptocurrency or a regular stock, where value is set by supply and demand. Drape this trade in a game, and you get a hybrid where players have a clear incentive to spread the game to others. They aren’t necessarily spreading it because it’s fun – they’re spreading it because they can profit from doing so.

This development is interesting and fast-growing, but it also carries an aftertaste of industries you might not want to be associated with. Recruiting new players to make your own investment more valuable looks a lot like MLM (multi-level marketing, where individuals sell directly to other individuals) and even has certain similarities to a pyramid scheme.

When you start playing computer games to make money, a lot of new questions appear. Is this entertainment or an investment activity? Does it look more like a casino than a board game? In an almost lawless frontier between gaming and crypto, we’ve only seen the beginning of this trend – and its problems.

Is the hype the start of a new internet?

October 5, 2021
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Speculation in cryptocurrencies has turned many into both paupers and millionaires. But when phenomena like NFTs begin to mature, they can form the basis of something entirely new – a different type of internet than the one we know today.

A shiba inu dog that looks a little lost. The image is at the center of a series of seemingly strange events that make derivatives trading feel uncomplicated and risk-free by comparison. Come along for the latest adventures in the crypto world – and which, according to some, point out the direction of a future internet:

First there was a meme, a funny photo montage, called “doge”. The picture depicted the aforementioned dog.

Subsequently, the cryptocurrency dogecoin was created as a joke, with the dog as its symbol.

After this, the image was sold as an NFT – that is, the digital right to the original image to a group of investors. Price? Around 4 million dollars. At this point, many people probably start to think that it sounds strange because anyone can download a JPG image for free on the internet.

Then these investors took the NFT image, and split it into 17 billion small parts instead – so-called “fractionalization”. Now anyone could buy a share of the image. This in turn created another cryptocurrency called dogcoin (without the “e” at the end). After an auction of 24 hours, this new cryptocurrency – and the image of the dog – was worth 225 million dollars.

Now, just over a month later, the value has plummeted to just over 27 million dollars. Still a considerable amount of money.

This of course sounds absurd. How can a photo of a dog that everyone can Google become worth 225 million dollars overnight?

The first factor is the huge speculation that has taken place in cryptocurrencies in recent years. Although there are many legitimate uses, the great interest in crypto has not been driven by average joes who have a philosophical interest in a decentralized social economy. They have mostly wanted to make quick money. And many of them have succeeded. Huge runs (and crashes) over the course of a single a day are hard to find in the regular stock market, but they do occur here.

The great interest has also created a number of new millionaires. People who bet a couple of thousand at the right time are now sitting on huge crypto resources. However, the use for cryptocurrencies is still very limited. There are simply very few things you can buy with the currency, unless you decide to exchange it back to regular dollars. But if you do that – then you are once again outside the market.

NFT solves this – admittedly self-created – problem. It is a digital asset that may increase in value, and which preferably must be purchased with cryptocurrency. It allows speculators to use their newfound profits and still remain in the market. And the interest is great. The art series “Cryptopunks” had over a billion dollars in total sales by the end of August this year, and is now traded for around 20 million dollars every day. Speculation is rampant, in other words. There are similar art projects around digital apes, or almost what you can imagine, where transactions for millions are made repeatedly.

The other influencing factor is the huge amount of venture capital invested in the sector. This past summer, over 17 billion dollars worth of investments had been made in crypto companies – in the first half of the year alone. That’s almost as much as the total amount invested in crypto in all other years combined.

Venture capital, by its very nature, is looking for the next big thing. The amount of capital invested in crypto suggests that the industry believes it may be just that. Or that it can serve as the starting point for something new, something bigger.

The last 20 years on the internet have been characterized by an enormous centralization around the very largest companies: Apple, Google, Facebook and Amazon in the USA. Alibaba, Tencent, Baidu in China. The crypto trend can be seen as a backlash to just this – a decentralization of the internet. This is what has started to be called “Web 3”.

A new kind of Internet, as “Web 3” might be, would also mean new category winners, and that is where venture capital’s interests lie. Who creates Facebook for “Web 3”? That’s the question investors all over the world are pondering.

But while the venture capitalists are guessing with their money, a new generation of entrepreneurs is sitting with well-filled coffers and experimenting. Sometimes the result is an overpriced image of a dog that no one will want in six months. Sometimes it becomes a building block for a completely new kind of internet.

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021.

Credit cards are threatened – for the first time since 1958

September 27, 2021
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 27th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

In 1958, all residents of the American city of Fresno received a letter from Bank of America, regardless of whether they were customers or not. It contained what would become the key to all modern commerce for the next 60 years.

The mailing was an experiment, and Fresno was small enough that a public fiasco could be avoided.

In the envelope was a card with the text “Bank Americard”. In one stroke, the 60,000 residents were suddenly given the opportunity to shop on credit. The credit card – in its modern form – was invented.

Since then, credit and debit cards have been a central, and relatively unthreatened, part of global payment flows. In Sweden, 97 percent of the population has a debit card and it is the dominant form of payment.

Now we see – for the first time – a real threat to the dominance of card purchases. The reason is spelled BNPL, short for buy now, pay later. Sweden is at the forefront as the world’s fourth largest country in the BNPL market in terms of transaction value.

While Klarna has been early and dominant in Sweden and parts of Europe, the BNPL market is gaining real momentum elsewhere as well. Last summer, the payment company Square announced that they would buy the Australian BNPL company Afterpay for 29 billion dollars, around 250 billion SEK. A few weeks ago Paypal bought the Japanese ditto, Paidy. The listed BNPL company Affirm has made a cooperation agreement with Amazon, and Apple is said to be building its own BNPL product together with Goldman Sachs.

The change is interesting in all parts of the value chain.

For merchants, the benefit of BNPL is not primarily to provide a credit, but to increase the average order value and reduce the number of buyers with last minute regrets. Somewhat simplified, you can say that the more and faster ways you can pay, the more purchases are made. With BNPL, the e-tailer also bypasses the credit card systems and their fees altogether, without losing sales. However, it is not completely free – even the BNPL companies may have fees.

At the same time, for individual brands, there is an opportunity for more purchase data that can be used for more precise campaigns. When purchases are made via credit card, the details of exactly which goods have been purchased disappear. With more data, brands can offer specific discounts and installment plans down to the individual product level. This is next to impossible for anyone who does not work with BNPL payments today.

For consumers, it creates the opportunity to shop in a fast and flexible way. BNPL often provides a credit to shop with, but that has been around for a long time with credit cards too. However, credit cards are not available to everyone. A 2016 survey found that only 33 percent of American 18-29 year olds had one. For them, BNPL can be a way to buy something that was previously unavailable.

The conditions surrounding the credit may differ between different ways of paying, but the fact that some consumers find it difficult to manage it seems to be similar. A survey from the US found that a third of all BNPL buyers were behind on their payments. This is exactly what Klarna states as the reason why they recently extended their payment deadline for invoice purchases to 30 days. The question is whether it is enough to curb the underlying problem. On Tiktok there are countless (admittedly joking) videos about not being able to pay their Klarna bills – and the hashtag #klarna has a whopping 36.9 million views.

There have been attempts to get around the credit card companies and their fees in the past, but it has rarely worked in practice. The BNPL structure has the potential to be the one that actually succeeds, making it the first truly credible threat to the credit card market. It poses questions to giants such as Mastercard and Visa – remain motionless in their business model, or enter the takeover battle for the BNPL companies?

Amazon is getting ready – this is how they will take on Sweden

September 20, 2021
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

The start was a failure for the e-commerce giant. But as a new, secret, big owner in the last mile company Airmee, Amazon seems determined to try to take the Swedish market. The deal creates challenges for the other companies – and perhaps also for Airmee.

Tobias Lutke, founder and CEO of the e-commerce platform Shopify, followed the opening of the Nasdaq stock exchange on January 13 this year. At 09.30 Lutke would become extremely wealthy. Or rather – even more wealthy than he already was.

However, the company being listed on the stock exchange was not Shopify. That listing had taken place six years earlier. This time it was the payment company Affirm’s turn. When the bell rang at the end of the stock market day, Lutke’s company Shopify suddenly had shares in Affirm worth about two billion dollars. When Shopify reported its first-quarter earnings, the money from Affirm’s listing accounted for more than 100 percent of its quarterly profits.

It is one of several examples of a trend that has emerged where strategic partnerships are made with co-ownership as a component of the business.

In the case of Shopify and Affirm, it was a partnership that was made six months earlier. Affirm, which can simply be described as an American Klarna, was given the exclusivity to offer “buy now, pay later” in Shopify’s 1.7 million e-commerce stores. As part of the deal, Shopify was given stock options to buy more than 20 million shares in Affirm. Shares that at the stock exchange listing became very valuable.

You can find similar setups around the world. A few weeks ago, Microsoft invested five million dollars in the Indian hotel chain Oyo. It may sound like a lot, but the valuation of Oyo is $9.6 billion. It is therefore not an investment that will finance the company, it is rather a matter of getting Oyo to start using Microsoft’s cloud service Azure to a greater extent. Microsoft – which here competes with Amazon AWS and Google Cloud, among others – has listed the cloud services within Azure as strategically important and one of the company’s major growth areas.

It is therefore noteworthy that the Swedish last mile delivery company Airmee, according to Di Digital, issued option rights to a new, unknown owner for the equivalent of 20 percent of the company. And after the company itself announced that it will have Amazon as a customer, it’s not a bold guess as to who the new owner is.

Amazon’s start in Sweden has been slow and their launch got laughed at by both customers and competitors. Clumsy automatic translations meant that you can now use Amazon in Sweden with English as the language instead. But more than anything else, Swedish Amazon lacked the engine for its entire business – the Prime membership programme.

It provides, among other things, the opportunity to get fast home deliveries at no extra cost. But to be able to offer it, you need a logistics company that can handle so-called “last mile delivery” – companies such as Airmee that can take the product all the way home to the customer’s front door. Amazon’s current logistics partner – Postnord – does also has this service. But just having one supplier for deliveries will not be enough for Amazon.

Should one, therefore, just before the anniversary of Amazon’s launch in Sweden, see this as some sort of fresh start? One where delivery times start to match the picky and e-commerce-savvy Swedes? And which will probably get bundled with the video service Prime Video which was launched in Sweden separately? Yes, probably.

But if the price of landing a strategically important partner is to let them in on the cap table, then the selection of that partner is more important than ever. Partnerships can come and go – but shareholders you will have to live with for a long time after that.

In addition, other customers may have opinions about them now indirectly benefiting one of their competitors. If you, like Airmee, are a supplier to many different e-retailers, this can be a difficult strategic nut to crack. Having a customer like Amazon can tenfold the size of the company. But having a shareholder like Amazon could also make your other customers look around for a new logistics partner.

This column was first published in SvD Näringsliv, in Swedish, on September 19th, 2021.

New documents expose Facebook – again

September 17, 2021
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 17th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Human trafficking. Drug cartels. Teenage girls getting body image issues. Internal documents reveal how Facebook has been alerted to its problems – and ignored them. Now the company is facing another crisis of confidence.

When Facebook – the world’s largest social network – began crisis management after the Cambridge Analytica scandal in 2018, they made a somewhat ironic media choice. To reach out to the outside world in a clear way, the company purchased full-page advertisements in paper newspapers, including the Wall Street Journal, the New York Times and The Observer.

The headline in the ad read:

“We have a responsibility to protect your information. If we can’t, we don’t deserve it.”

Today, the question is rather whether the users of Facebook don’t deserve to know the information that the company has about themselves?

The question has become relevant in connection with a major exposé in the Wall Street Journal about Facebook. The newspaper has read a large number of internal documents and reports, and interviewed former employees. The documents show that their platform has been used for everything from human trafficking to misinformation about vaccines against covid-19. Facebook has been aware of this and has been warned by its own employees. Still, it has continued.

A common line of reasoning in situations like these is that the internet only reflects the society around it. What is happening in the world is also happening on the internet. Human trafficking did not start on Facebook. Thus, it is wrong to blame the platforms for a behavior that probably would have taken place even without them.

There is also some research support for this thesis. Amy Orben and Andrew Przybylski, researchers from Oxford University in England, showed in a 2019 study that 99.6 percent of British teenage children’s satisfaction with life had nothing to do with social media at all. The area is very controversial and under development, and there are several studies that also show the opposite.

While there is merit to the reasoning around the reflection of society, this is a situation where you need to keep two thoughts in your head at the same time. Just because you have not created the problem in question, does not mean that you should necessarily be completely neutral towards it. If a school knows that bullying is taking place in the schoolyard, it may not be the school’s fault. But with that knowledge – do they have no responsibility to curb that behavior? Of course we expect them to.

Take Instagram as an example – the photo service that Facebook bought for a billion dollars in 2012. In an internal document from 2020, a survey showed that 32 percent of teenage girls felt worse about their bodies after using Instagram. In another internal study from 2019, the internal research was summed up with the quote “we make body complexes worse for one in three teenage girls”. This knowledge had thus been known to the company for several years. In that context, it is therefore strange when the top manager on Instagram, Adam Mosseri, in May this year said that the research he took part of showed that their effect on teenagers was probably “quite small”.

Time and time again, we see examples of how Facebook messes up in different ways, and is forced to apologize. But their underlying thesis is that, on the whole, it is positive when people in the world are connected in the way that Facebook does. They believe that mistakes have been made, but they have been unintentional. Reports like the one above allows one to begin to question this lack of intention. On the contrary, there is much to suggest that Facebook’s problems have been well known for a long time, but simply not prioritized. Maybe for the benefit of the company’s growth.

Facebook is once again facing the difficulty of explaining its behavior as a company. How long can they continue to claim that what they are doing is positive for the world? And perhaps more importantly – how long will their users believe them?

This column was first published in SvD Näringsliv, in Swedish, on September 17th, 2021.

Tiktok’s superpower – a nightmare for Xi Jinping

September 16, 2021
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on September 16th, 2021. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

While the Chinese authorities are pushing their tech companies hard, a silent revolution is taking place at the same time. Tiktok, Shein and Tencent pose a serious challenge to American tech giants – but their success is perhaps also their biggest Achilles heel.

“I think we should talk to them. If nothing else to make it more expensive for Yahoo.”

It’s entertaining to read the Google management’s internal emails from the winter of 2005, when they became interested in the startup Youtube. At the time, advertising executive Jeff Huber, who is also behind the quote above, speculated that a price tag could land at $10-15 million.

A little more than a year later, Google made their move and bought the video site. However, they had to pay $1,65 billion for the company, so Huber’s precision with price could have been better. At the time, it was one of Google’s biggest acquisitions, and it raised concerns about a valuation bubble.

However, Youtube grew to become the world’s second largest search engine – after Google’s own. An analyst valued Youtube at around $300 billion in 2019, if it were an independent company. It has been considered to have an almost impenetrable position in the video market.

Or impenetrable until now, perhaps one should say. In Sweden, the Chinese app Tiktok has been downloaded more times this year than both Netflix and Disney+. And this week, the analysis company App Annie reported that users of Tiktok now on average spend more time there than on Youtube in both England and the USA.

Although Youtube is still bigger when looking at the total user time, the shift is significant. This is the first time anyone has managed to seriously challenge Youtube, and in addition there is the threat from China. Traditionally, Chinese tech companies have otherwise been mainly successful in their local market.

It’s not just Tiktok that has succeeded in breaking into the western world’s tech markets. Sweden’s most downloaded shopping app is neither Zalando, Blocket nor Amazon. It’s called Shein, which together with Klarna dominated the shopping category in both Apple’s and Google’s app stores throughout 2021.

Shein has also made a big impact in the United States. In June, the Chinese company had larger e-commerce sales in the US than both H&M and Zara, according to a report from the analysis company Earnest Research. The market for so-called “fast fashion” grew 15 percent in the US from January to June. Shein’s growth during the same time? Almost 160 percent.

Shein is not a classic fashion company but should rather be considered a tech company. They have adopted an established business model with low prices, fast trends, and high turnover and increased the speed considerably. According to industry media, the company can take a garment from idea via design and production to sale in the app in less than three days. Shein has launched at most over 5,000 new products – in a single day.

– In the way they work, they can predict the next popular product and what will be in demand, Jialu Shan, a researcher at the IMD School of Business in Switzerland, told SvD this summer.

The model works. According to Chinese media reports, Shein made a profit of 10 billion dollars last year – about 86 billion SEK. In comparison, H&M made a profit of 2 billion SEK in 2020.

Another area where you see new Chinese dominance is in the gaming world. From being a market where the USA and Japan were at the forefront, Chinese Tencent and Netease have now sailed up as some of the world’s largest gaming publishers. Tencent has, among other things, released the game Pubg, which has the most players in the world, and also owns the Finnish game studio Supercell, which is behind “Clash of clans” – one of the world’s most successful mobile games.

The new global tech success may be a factor in President Xi Jinping’s plan to regain control of them. In recent weeks, Chinese authorities have reportedly developed legislation to prevent certain tech companies from being listed abroad, and announced the opening of a new domestic exchange for small and medium-sized companies.

China’s tech companies are now facing a complicated market situation. The success abroad has made them catch the eyes of the outside world, and the competition will intensify considerably. Youtube will not give up first place without a fight and maintaining its newly gained market share will be a challenge in itself.

For President Xi Jinping, the balancing act is not easy either. Too strong challengers among tech companies can threaten the balance of power with the Chinese Communist Party’s position in the country. The Financial Times reported that Beijing wants to divide the payment company Ant Financial into several parts – one of which would be partly owned by the Chinese state. At the same time, Chinese success in this sector will make the whole country look good – all over the world. It is geopolitically valuable.

Both the authorities and the tech companies now need to tread carefully. Can the tech companies manage to handle both increased international competition and the Chinese state at the same time? If not, China risks losing the position it has worked for over 20 years to achieve: successful global tech – made in China.

This column was first published in SvD Näringsliv, in Swedish, on September 16th, 2021.