A new kind of war
And also: The new world of work, after the pandemic; Private Equity moving to consolidate digital infrastructures; brain-computer interfaces and the Metaverse; platform business models and safety
Are the US and China already at war?
This week in the Financial Times, Gillian Tett told us about Graham Allison, an American political scientist who wrote a best-selling book that compared the current situation between the US and China with what happened to Sparta and Athens 400 years BC. His takeaway is that situations in which a ruling power is challenged by a fast-rising rival (like Sparta vs. Athens, but also like China vs. the US today) often lead to war
This might already be the case between the US and China, even if (fortunately) it’s not (yet) a military one. Celebrity investor Ray Dalio claims there are up to five kinds of war, including Trade, Tech, Geopolitical, Capital and Military conflicts. And we would already be at war on the first four flavors
It certainly looks like we’re in the middle of a Tech war, that we have called a “Second Cold War” here. As a new example supporting this, this week we learned that the US is imposing an export ban on a dozen Chinese groups working on Quantum Computing, that have been buying technology from US suppliers, and that could use them to build tools to break US military encryption systems
In addition to all this, the ex-Chief Software Officer from the US Air Force published an opinion piece urging the US Pentagon to develop and execute an “AI Strategy”, arguing that “Whoever wins the AI race will control the planet”, and warning that “by this time next year it will be too late” to catch up with the Chinese
The week
1. Consumers and businesses, after COVID
What is happening
The new world of work
It is increasingly clear that the pandemic has changed many people’s attitude to work. In some countries, like the US and the UK, many have left their jobs, leading to labor shortages, and impacting the economy (e.g.: more inflation) (FT)(FT2)(Bloomberg)
Different countries have been affected by this in different ways, and it is not yet clear if it just a short-term issue. For instance, in France and other EU countries the proportion of working-age people employed has grown (FT)(FT2)
Emerging consumer risks
Hackers are already working to attack retail investors in the crypto world, a risk we had already mentioned here (WSJ)
The UK has a plan to sequence the genome of its whole population. The intention is good, but still… (Wired)
Supply chain issues
Some signs in the US suggest the problem could be on the way to be solved (WSJ)
But some analysts talk about the risk of an increased economic volatility, driven by supply chain shocks (FT)(WSJ)
What it means
The pandemic has made many people reconsider their attitudes towards work, beyond the question of location. The figures in the US and UK are clear. However, the effect is far from homogeneous across countries, and in markets where workers have more negotiation power vs. companies (like France), more people are working with respect to pre-pandemic times
Signs this week about an increasing need of regulations to protect people from potential security issues in crypto trading
Also, the drastic reduction in costs to sequence DNA offers big opportunities to personalize healthcare, but also creates significant threats from a privacy perspective
2. Platforms and digital enablers
What is happening
E-commerce companies have an increasing interest in real, “brick & mortar” store locations, to support deliveries, and as “product showrooms”) (WSJ)
Large traditional retailers are moving to compete with Amazon as wholesale marketplaces for smaller “third parties” (FT)
Twitter is testing video-streaming shopping, following a trend that is now growing in China (TheVerge)
Alibaba is reorganizing, reacting to market pressures in China (WSJ)
Connectivity:
The KKR / TI affair goes on, now with CVC (another fund) potentially supporting the offer (Bloomberg)
TI’s CEO has just resigned, after a clash with Vivendi triggered by the offer (FT)
Analysts see the irruption of Private Equity as an obstacle for the telecom industry consolidation in Europe (Bloomberg)
Ericsson acquires Vonage, a useful tool for them to evolve from equipment vendors to enterprise service providers (Bloomberg)
Infrastructure:
KKR is also interested in data center assets, as seen with an offer for Global Switch (Bloomberg)
DigitalBridge, another Private Equity firm, will dedicate $73bn to digital infrastructure (WSJ)
Semiconductors:
Apple plans to build its own 5G modems for the iPhone, and is talking to TSMC about that, with the target for a commercial release in 2023 (Nikkei)
What it means
Private Equity firms like KKR are clearly seeing a big opportunity in controlling (and potentially) consolidating physical infrastructure across the telecom and the (cloud) computing industries
The synergies between ”dense” real estate and e-commerce sites are nothing new. But they’re starting to be more evident, as online shopping adoption becomes massive. Interestingly, we’re starting to see assets shift to ”attention hubs”, as one more sign that attention now rules over capital (not the opposite)
Video-streaming shopping could come to the West, according to Twitter. But let’s see what customers think
Apple sees chip design as something they need to control. It was already clear that this vision included 5G modems
3. Financing digital innovation
What is happening
Samsung’s investors want to know what will the company do with its $100bn cash reserves, Many deals are possible… (FT)
Before Sequoia announced its re-positioning, Tiger Global had already started to apply a “diversified portfolio” approach to VC, focused on trends rather than specific firms (FT)
Emerging themes for investors:
Wall St tries to imagine how the world will be in 20 years (NYTimes)
Metaverse: Negative reactions emerge to Facebook’s enthusiasm on this topic (Recode)(FT). Meanwhile, progress in brain-computer interfaces could make it more exciting (or creepy) (Wired)
Web3: Analysts start to see the promise to disrupt Big Tech with crypto, but they remain skeptical (FT)
Electric Vehicles: Electric bicycles are having a massive success, well before cars (IEEESpectrum). Wall St expects a $100bn wave of EV IPOs, catalyzed by public stimulus (also in China) (Bloomberg)(WSJ)
Autonomous cars: China is expected to move faster (also) with this technology than the US (FT)
Energy:More optimistic visions about nuclear fusion’s ability to help us with some of the challenges from the current energy transition (FT)
What it means
Brain-computer interfaces could enable a more direct experience of the metaverse, by supplying direct signals to human brains. Several research groups are working on inducing specific perceptions through electric signals. Fascinating (but creepy)
Samsung could emerge as a new SoftBank, with a similar volume of cash available for deals. Also, in an industry (semiconductors) under deep transformation, with deals proliferating ($118bn in M&A during 2020)
VC funds could be becoming more similar to ETFs, with more diversified, longer-termportfolios, shaped according to trends rather than specific founders or firms. Tiger Global is the most recent example
Tech giants are already working to avoid disruption by decentralized apps. Let’s see what happens
4. Building new rules for the (digital) game
What is happening
Customer protection: privacy & safety:
Israel’s NSO Group, linked to spyware widely used by governments worldwide, is in serious problems. Apple just announced they’re suing the company over iPhone hacks (WSJ)(FT)(NYTimes)
In China, the government keeps making pressure on local Big Tech on how they manage consumers’ data. Tencent will need to ask for explicit permission to launch new apps (FT)
The FT made proposals for platforms to ”stop viral content” (FT)
Antitrust:
Good news for Google this week in the UK, where regulators said that the company’s proposals to ensure competition in digital advertising do “address its concerns” (FT)
The “Tech Cold War”:
Gillian Tett thinks China and the US are already at war (just a different kind) (FT)
An ex-Pentagon officer claims that the US could be losing the (key) battle about AI (FT)
The US is blacklisting twelve China’s Quantum Computing firms (FT)
What it means
The debate continues on how to make digital platforms safer from a user safety perspective. This week the FT made some interesting proposals to reduce “viral content”, based on what Frances Haugen (Facebook’s “whistleblower”) has suggested. The bad news (for platforms) are that some of these would be in direct conflict with social apps’ current business models
The (bipartisan) shift among US policymakers to better control “strategic technologies” exports to China is increasingly evident. Quantum Computing is now a key part of all this, because of its potential to affect military encryption systems. At the same time, AIis seen as a tool to “dominate the world”, and pressure grows for Big Tech to cooperate with the Pentagon on this