A new life for social apps?

And also: The world debates the impact of Omicron; Alibaba loses as consumers shift to video streaming e-commerce; Apple prefers Augmented (to Virtual) Reality; Meta's problems with policymakers

New business models could be emerging for social apps

• This week we had two big groups of news pointing in the same direction: the long-time discussed need of social apps to evolve their business models and reduce their dependence on the increasingly questioned model of online advertising

• First, Jack Dorsey has left Twitter. Yes, this may have been driven by activist investor Elliott Management, which had acquired a stake in the company and was not happy about Dorsey being CEO in two companies (Twitter and Square)

• But people like Ben Thompson (in his Stratechery newsletter) point to Twitter’s opportunity to shift its business model to subscriptions, exploiting the company’s strengths (including its role as the preferred vehicle to learn about the news, for many people, and not easily substituted by emerging apps like TikTok). We still don’t know what is going to happen, but the new CEO has already given reasons to speculate about imminent changes, with a large reorganization announced after his appointment

• Simultaneously, in India Meta Platforms is moving to monetize WhatsApp, using the same model as Tencent with WeChat in China, which has become a “portal” for other apps, and gets fees out of the transactions they generate. Reliance Jio, Meta’s local partner in India, is deploying its e-commerce app JioMart in WhatsApp, and Uber is apparently doing the same. Maybe the start of something important

The week

1. Consumers and businesses, after COVID

What is happening

The world debates the potential impact of the Omicron variant on the economy:

• Will it be like Delta (so the markets’ panic would be unjustified)? (FT)

• Or will it intensify current supply chain and inflation problems (as the OECD suggests)? (FT)

• Some have gone so far as to say that this could be the beginning of the end of the pandemic… (Bloomberg)

Google just announced a delay in its employees’ return to the office (WSJ)

Signs of change for China’s economy, driven by young people’s dissatisfaction (Bloomberg)

Emerging consumer risks

• Apple’s new privacy tools, and regulators’ pressures, are driving firms from many industries are now moving to directly capture data from their customers (WSJ)

• Qualcomm presented a new always-on smartphone camera that analysts describe as a “privacy nightmare (TheVerge)

What it means

• A new COVID variant was announced by the end of last week, so this week people have started to speculate on its impact. The initial impression that Omicron caused a milder illness, which made some people (like JPMorgan’s analysts) optimistic about it, as a sign of the end of the pandemic, has now shifted to a more pessimistic view, and most people expect that it will at least intensify some of the current problems

• Meanwhile, Bloomberg explained this week the increasingly active role of the Chinesegovernment in the economy would be partly justified by their intention to address the emerging dissatisfaction of Gen Z Chinese citizens. This looks like a difficult, structural problem, caused by an excess of university graduates that are struggling to find good jobs

2. Platforms and digital enablers

What is happening

WhatsApp starts to move towards monetization, running third-party apps in India: JioMart and Uber (Bloomberg)(Bloomberg2)

Jack Dorsey leaves Twitter, and changes are expected (WSJ)(WSJ2)(FT)

• Ben Thompson on why this could be an opportunity for Twitter to shift to a more sustainable business model (Stratechery)

• The new CEO is under pressure to do things, and has already announced a reorganization “to spur change” (FT)(WSJ)

Alibaba losing steam as Chinese online shoppers move to buy things via short video apps like ByteDance’s Douyin (TikTok) (FT)

Amazon is making significant investments to improve add new (logistics) capabilities toits core e-commerce service (WSJ)

Connectivity:

• Amazon’s cloud unit AWS is moving to play a more significant role in enterprise (5G) connectivity (TechCrunch)

• A rumor of BT being acquired by India’s Reliance makes the share price jump, but is later denied by Reliance (FT), and criticized (by the FT) as a very difficult deal (FT)

Infrastructure:

• A startup is developing a technology to charge electric cars directly fromthe roads (NYTimes)

Cloud:

• AWS’s entry into 5G is seen as one more step towards a fully cloud-centric economy (FT)

Semiconductors:

• The FTC joins the opposition to Nvidia’s acquisition of Arm (WSJ)(FT)(Bloomberg)

• But analysts believe that Nvidia will be OK (WSJ)

What it means

• WhatsApp, moving towards a similar monetization model to the one that Tencent has successfully exploited in China, and Twitter, with a large reorganization after Jack Dorsey’s departure, might be signs that things are changing for social apps’ commercial models

• Amazon’s AWS made an expected move to provide enterprise 5G services, integrating ITsolutions running on its cloud, with 5G connectivity (with networks also running on the cloud). In some markets they still need operators’ spectrum, but this is just a first step (maybe “test” would be more accurate)

• BT’s investors were clearly excited with the acquisition rumors this week, but the FT explains that it would be challenging for an acquirer to capture value

3. Financing digital innovation

What is happening

DiDi will delist from the New York Stock Exchange (WSJ)(FT)(Bloomberg)

• This is seen as a sign that China doesn’t need Wall St anymore (NYTimes)

• But also of a risk that the government’s intervention could hurt local tech companies’ growth perspectives (WSJ)(FT)(FT2)

Emerging themes for investors:

• Metaverse: People are starting to think about trading digital goods (WSJ)(FT), and even digital “real estate” assets (NYTimes)(WSJ) within the Metaverse. Also, as Meta prioritizes Virtual Reality, Apple’s innovation efforts seem focused on Augmented Reality (WSJ)

• Batteries: China is on the way to dominate batteries, too (Bloomberg)

• Electric Vehicles: Nissan was penalized by investors this week, after the announcement of a lukewarm bet on battery-powered cars (WSJ)(FT)

• Autonomous cars: Not only China (as we saw last week), but also Japan is making faster progress with robotaxis (Bloomberg)

• Energy: One more week, nuclear fusion confirmed as a hot topic for investors. This week, a startup (Commonwealth Fusion Systems) raised more than $1.8bn in a funding round (WSJ)

What it means

• The Chinese government is accelerating the split of the technology world in two different halves. It will be increasingly difficult for Chinese tech firms to get funding in the West. The pressure comes from Chinese concerns that a company’s presence in American exchanges might give the US access to sensitive data about Chinese citizens. Of course, all this doesn’t look good for progress

• Brands (like Nike or Gucci) moving to sell digital products within Virtual Reality games show the way for a future monetization of the Metaverse. Also, they show the need for potential regulation. For instance, some customers have already started to demand the portability of the products across different apps. And there is also the question of potential piracy (fake items showing the brands)

4. Building new rules for the (digital) game

What is happening

Customer protection: privacy & safety:

• After the NSO Group scandals, Apple announces new tools to detect spyware within iPhones (NBCNews)

• US regulators believe that Big Tech firms “amplify” hate speech, and seem determined to solve the issue (NYTimes)

Antitrust:

• The UK has blocked Meta Platforms’ acquisition of Giphy, the GIF app, in a controversial decision (FT)(FT2)

• As a result, people are speculating that Big Tech firms could now suspend / decelerate their M&A deals (Wired)(FT)

The “Tech Cold War”:

• AI weapons emerge as a significant existential threat for humanity. And analysts suggest that we might urgently need rules to control them (FT)(FT2)

• China could be using its “Digital Silk Road” initiative for emerging markets as a tool to play a stronger role in places like Africa. Europe wants to compete with its owninitiative in the same field, but it will be quite a challenge (RestofWorld)(Bloomberg)(FT)

What it means

• The UK’s Competition and Markets Authority (CMA) has blocked the acquisition of Giphy (World’s biggest GIF provider) by Facebook. This is only partly justified, and might be seen as a sign of governments’ increasing hostility to Facebook, and thus a structural problem for the company

• Europe wants to compete against the Chinese “Digital Silk Road” program, which hasincreased Chinese influence in Africa (favoring companies like Huawei vs. Ericsson or Nokia). This would require a lot of money from European countries, to have a chance tosucceed

• AI weapons are developing fast and becoming a (very scary) threat. It would probably make sense to start negotiating about them in the same way as with  nuclear weapons