Building infrastructures for the future

And also: Cybercurrencies' path to mainstream. Nation States against Big Tech. Other stories of Technopolitics

Feb 21, 2021

Building the future infrastructure: Geo-strategical implications

We need to build a new infrastructure, and chips are a key element: Just look at what this nice recent presentation by ARK Invest identifies as key trends in technology for the coming years. The needs of computing infrastructure to run increasingly complex Deep Learning models are drastically stressing the demand for advanced, faster and more energy efficient chips. The analysis concludes that there is going to be a structural change in the semiconductor industry, with x86 processors being massively replaced by ARM / RISC-V architectures, and with GPUs becoming more valuable than CPUs. Not a surprise then, if governments and companies all over the world are looking at chips as a critical geo-strategic asset (ARK)

The pandemic has accelerated demand, and we have a chip shortage now: As both Bloomberg and the Financial Times explained this week, the lockdowns initially pushed up demands of chip-intensive products, triggering volatility driven by market uncertainty. Then, Huawei and other Chinese companies accelerated the trends, as they tried to hedge a potential disruption from US sanctions that threatened to cut off their chip supplies. The result now is a shortage already being felt e.g. by car manufacturers (currently expected to lose $61bn of sales because of this) (Bloomberg)(FT)

The crisis has increased attention on supply chains globally, bringing more nationalism… Governments have started to perceive the strategic importance of chips, and the fragility of their current supply chains, and this is pushing many countries to look for self-sufficiency. The risk is that this could increase costs of production, and lead to many other inefficiencies. As this FT article argues, state subsidies to develop alternatives to foreign rivals often bring “flabby and inefficient also-rans”. Europe knows this well (FT)

Europe may not have the right incentives for investment in advanced connectivity: Or at least that’s what Ericsson’s CEO said this week. He believes that European operators could be doing / investing more in the next generation of wireless communications (5G), but that they’re not doing so because they are not currently able to recover their costs of capital. He suggests that this is a consequence or inefficient market structures, with too many competitors per country. Not a new story, anyway… (FT)

However, many analysts see that the European telecom sector could be on the way to recovery: In contrast to this comments from Ericsson, several investment banks, and also this analysis at the Financial Times, are looking at European telecoms with some optimism. Shares are cheap these days, so they shouldn’t fall much more. This could also stimulate some M&A deals that would reduce the competitive pressure. But even without M&A, the 5G rollout has started and some people think that demand for 5G could add to pricing power and profits in the sector (FT)

Even Warren Buffet seems to think that telecoms are more interesting now: Warren Buffett’s fund, Berkshire Hathaway has just revealed some changing in its portfolio during 4Q20, including a reduction of its stake in Apple and, most interestingly, the acquisition of a stake in Verizon (Bloomberg)

Apple is starting to work on 6G: Apple, which made a mistake by betting on Intel to provide the 5G modems for the iPhone (it didn’t work and that lead to delay in the 5G models) seems to have learned the lesson, and is now working to become fully self-sufficient in the next wireless generation. This is also an example of the shift of many companies to better control their chip supply chains, even if Apple is only looking to design the modems, as they’re already doing with all their CPUs, and will probably depend on Asian vendors like TSMC or Samsung to build them. This could also be seen as a blow to Qualcomm, which has recently had significant disputes with Apple (Bloomberg)

Innovative technologies will be key to fight climate change

Bill Gates has published a “Green Manifesto”, discussing the role of technology against climate change: Bill Gates published a “Green Manifesto” this week, in which he asks for a more direct involvement of technology to address and solve the problem. An FT columnist discussed the content and claimed that, even if Gates seems quite focused on “Hardware-centric” solutions, like fine particles to block out the sun and cool the planet, or nuclear fusion, there is also a role for market regulations. In particular, the author believes that the question of energy consumption and global warming could be related to the parallel need to better align objectives of algorithms with actual human needs and values. So the fossil fuel industry could be seen as an “AI system” which currently works with the objective of maximizing profit, but that could be “redesigned” through the right market incentives, to deliver the desired outputs (FT)(FT2)

Venture Capital is also coming to the rescue: In this interview with a blogger, Albert Wenger, a partner in the well known NY-based fund Union Square Ventures, and a very interesting thinker, explains why the firm has decided to create a new “Climate Fund” of $162m, to invest in opportunities related to the fight against climate change. Wenger is a firm believer that technologies against global warming will eventually generate profits (he sees this as a business opportunity, as much as others in USV’s portfolio). He also makes a very good (and necessary these days) point about the need for entrepreneurs and governments to work together to address the challenge (Ideaspace)

Other innovation themes

Cars are becoming a central theme for technology companies, like Baidu in China: As an example, the project to build cars is saving Baidu’s valuation. Baidu (“the Chinese Google”) is still a Chinese Big Tech company, but it has lost steam with respect to the leaders, Alibaba and Tencent. Baidu’s latest results this week, confirmed the trend, with the company’s core search business not growing enough. Interestingly, the value of the company is being defended by their project to build an electric car. And this is so much so that the analysts at the FT are recommending to shift resources to “new themes” (like cars) at the expense of the core business (WSJ)(FT)

More signs that an Apple Car may be on the way: Those who said last week that it would be easy for Apple to find manufacturing partners different from Hyundai were apparently right. The new rumor is that Apple is talking to Nissan now, and the conversations would be focused on a project to build an autonomous car. Nissan’s CEO only had to say that they’re “open to work with technology groups” to send the company’s share price up +5.6% (FT)

Video games will be “multi-device”. Zynga shares this vision with EA: Last week we saw how EA is moving to develop a multi-device position for its gaming business, with their expansion to mobile. This week we see Zynga, coming from the very different space of casual games, showing signs of sharing the same vision. They claim to be looking for developers of games that can be played in several different platforms (FT)

Clubhouse’s days of wine and roses could be reaching their end. This analysis at the New York Times discusses the recent meteoric success of the new audio-centric social app, and argues that it’s living its “days of wine and roses”, with viral growth but still not so expanded as to be subject to the political / social pressures that Facebook or Twitter currently suffer. But the first signs of trouble are already visible, with some accusations of “hate content” in the platform, and even of discrimination against women or people of color, having already appeared (NYTimes)

Clubhouse also needs to start thinking about monetization: The Financial Times this week compares them with TikTok (a very successful project if you look at their revenues) and warns about risks for Clubhouse to be excessively focused on celebrities, which tend to be less effective to generate a loyal audience (and advertising revenues) (FT)

Shopify keeps showing they’re one of the big winners of the pandemic: Shopify presented a nice set of results this week, with revenues practically doubling. The company claims they’ve benefitted from the need from many small retailers to shift to online, amid the pandemic. However, shares fell due to concerns on what will happen next. Many investors speculate that an eventual end of the pandemic will bring customers back to physical stores, so the need for Shopify’s platforms will decrease. The company counters that their share of total e-commerce sales is still very small (9% vs. 39% for Amazon) so they will have plenty of space to grow, in any case (FT)(Bloomberg)(WSJ)

And Roku, riding the video streaming wave, is another one: Roku, the provider of one of the most successful video streaming set top boxes, also presented results this week, and like Shopify, they’re growing explosively with the pandemic, with sales increasing +58% vs. last year. The company is already controlling about 30% of the market for internet-connected video streaming boxes (WSJ)

IBM wants to focus on the Cloud, and could sell one of its “jewels” (Watson Health): The Red Hat acquisition ($34bn) had already shown how much commitment IBM had on becoming a leading cloud provider, as their key goal for the future. But now this is even more clear, with the company considering the sale of one of its “Crown Jewels”, the Watson Health division, which has been working (probably with results below initial expectations) on applying AI technologies to medicine and health. One would say that this is a field that will grow fast in the coming post-pandemic years. But IBM seems to believe that the “hybrid & multi-cloud” opportunity, enabled by the Red Hat technology, is a more clear opportunity (WSJ)

TikTok-envy continues to expand among Big Tech companies. The latest example of a tech giant entering the space of another one is Google’s YouTube project to build a TikTok-like app. This has already been done by Facebook (with Reels). Now YouTube is expected to release “Shorts”, next month, an app that will let users create and upload 15-second videos (exactly the average duration of TikTok videos) (Bloomberg)

Cybercurrencies’ path to going mainstream

Bitcoin is (again) trading at record prices, and on the way to become mainstream: This week Bitcoin crossed the value of $50,000 for the first time in its history, and it looks like the dominant cyber currency is on the way to become a mainstream store of value, probably to the disappointment of its (many) critics. Several institutions and famous investors, including e.g. Stanley Druckenmiller, have started trading bitcoins, and this is creating the feeling that the trend is here to stay. Even the city of Miami is said to be exploring the use of bitcoin, including for payments of their employees’ salaries(WSJ)

There may be more behind the rally than the traditional volatility: The support from institutional investors and the expanding belief that bitcoin will become a mainstream asset class are two key differences between the current rally and the previous boom in bitcoin valuation, back in 2017. Some advocates predict that the volatile that has characterized bitcoin trading up to now is on the way to disappear, as long-term buyers enter the market. And Tesla’s recent acquisition ($1.5bn) would be an example of this (Bloomberg)

Wall St is looking attentively: Apart from celebrity investors, Wall St institutions like Morgan Stanley could be considering large investments in bitcoin. Canada has actually approved a bitcoin exchange-traded fund. And several financial service providers, including MasterCard, are starting to offer bitcoin-related services to their customers(Bloomberg)

Tesla is partly responsible of this new “fever”, and Musk is fully supportive: In part, the current rally has been triggered by Tesla’s decision to use bitcoin as one of the vehicles to store their cash. This week Elon Musk used Twitter to support the move, and quite in line with his usual style, said that bitcoin is “simply a less dumb form of liquidity than cash”. He also mentioned the current “negative real interest” for fiat currency as a reason to “look elsewhere”, like his company is doing(Bloomberg)

The bitcoin rally could be the consequence of deep geopolitical changes under way: A Financial Times columnist views all this a “the last functioning fire alarm” for the global financial system. An alarm that would be “warning us of some very big geopolitical changes ahead”. According to her, the rise of digital currencies would be linked to the emergence of a more “multipolar world”, where there is not a central control point, unlike what happened in the previous age with the US and the dollar. In this context, cybercurrencies’ ability to work independently, and not subject to political forces, would turn them into an alternative option to support the financial system(FT)

Digital currencies are also a hot topic in China, but in a (very) different way… In the “parallel” Chinese digital world, China’s Communist Party is working on the country’s own digital currency. According to Western observers, Chinese policymakers are much more advanced than Western counterparts in terms of understanding digital currencies, and would be thinking on them as a way to drastically reinforce their surveillance of all economic transactions in the China. Reading this Financial Times article is a bit scary, and the message confirms that digital technologies that initially promise to increase individual freedom, can often be turned into instruments against it. If this is happening in China, why not in the West? (FT)

A new cold war? Big Tech vs. Nation States

Nation States at war with Big Tech: It has been cooking for some time, but this month a rather serious battle has started in Australia, where the government is using arguments about competition in digital markets to justify a rather direct action to protect local media companies. According to the government’s point of view, Google and Facebook would have been using their “monopolistic” market power to link to these companies’ sites for free, both in the search engine (Google) and in the news feed (Facebook). So a new law is under way to force internet platforms to pay for these links. Of course, there could be some elements of fairness behind the project. But it is difficult to avoid the feeling that through this kind of rules, national governments are actually taxing global companies (that they’re often unable to control) to subsidize traditional local media firms, obviously much easier to control for them.Aligned with this view, some comments this week are claiming to set global, fully transparent rules for Big Tech firms, rather than local initiatives that look too much as a way to protect the previous status quo (and power structures). This could be seen also as one more clash between globalism and nationalism. And the battle could be expanding to more countries…

The reactions of Google and Facebook have been quite different:

Google has agreed a deal with News Corp, and could be negotiating with others: After years of controversy, Google has finally signed an agreement with Rupert Murdoch (one of the company’s most aggressive critics). The deal includes payments for links to News Corp’s content shown on Google’s new News Showcase feature, a joint development of a subscription platform, and (most importantly) the sharing of ad revenue. Many people have seen this a a sign that Google’s search engine’s quality of experience could suffer if they eliminated the links to local news sites. This is a global (but bilateral) deal, so apart from (partially) solving the problem in Australia, Google would be anticipating controversies in other markets(FT)(WSJ)

Facebook has decided to fight: news content in Australia can’t be shared through Facebook’s platforms anymore: The company argues that news are typically shared in its platforms either by end users or by media companies themselves, which look to increase the traffic at their sites and their advertising revenues. They also claim that these news do not represent a significant fraction of the platforms’ content. So the conclusion is that the proposed law “fundamentally misunderstand the relationship between the platform and publishers who use it to share news content”, and that this leads Facebook to stop allowing news content on its services (“with a heavy heart”) (Bloomberg)(WSJ)

Facebook’s reaction has created significant controversy: As expected, the Australian government has not received Facebook’s decision very well. And, in quite a “retaliatory” tone, some of its representatives are saying that they will now make the point that the content in Facebook is not coming from organizations that do fact-checking. They don’t go so far as to suggest that the absence of content from Australian media leads to a “fake-news-only” situation, but it sounds close to that… Meanwhile, an FT editorial links the Australian government’s position to the fact that newspaper groups have much more “lobbying power” (or political influence) on national governments than global Big Tech platforms (FT)(FT2)

The debate is expected to expand to other countries: For the WSJ, the whole affair reveals the massive “pent up demand” in national governments to regulate Big Tech companies, which would have “painted big targets at their backs” for tax authorities everywhere. In practice, what the Australians would be doing is actually to tax Google and Facebook to then subsidize local groups. The authors expect “more governments around the world to open fire soon” (WSJ)

Could Europe (and its Nation States) be next?

France wants to have power to “police more types of content”: France wants to change the EU’s upcoming regulations on Big Tech companies, to include “more power” for the governments of every member state to police more types of content. EU officials see this as a potential conflict with the implementation of a single digital market in Europe, and a risk that tech companies become subject to “27 authorities” (FT)

Some initiatives could lead to an European “walled garden”: A Vice-President of the European Parliament writes in the Financial Times to warn about the risk to create a “walled garden” for content in the EU. She claims that some countries want “tight control”, as the only way to address hate speech, but that this could lead to “barriers to non-European services and data flows” and to attempts to create “European champions” with public money. Yes, all of us know how these things tend to end… (FT)

Political pressure could lead to internet fragmentation, and lost opportunities: Shira Ovide at the New York Times explains that the question about who should make content moderation decisions for internet platforms in each country is not an easy one. Yes, it doesn’t look reasonable to let global Big Tech firms make all the decisions. But relying exclusively on national governments also creates risks, because authoritarian leaders could use the same rules to silence dissidents. At the bottom of all this, the pessimistic view is that the original vision of the internet as a tool for freedom of speech across national boundaries could evolve into a much darker reality of higher national barriers and digital surveillance tools reinforcing authoritarian regimes or political parties (NYTimes)

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