Facebook's business model under question
And also: A new approach to work, after the pandemic. Pressure on AI to deliver. Momentum growing for long-term "impact investing". Governments vs. Big Tech, a fight for power
A difficult week for Facebook
Facebook’s business model is being put under question: The woman who told the WSJ about questionable internal practices testified at the US Senate. She claims she “wants to fix the company”
The consensus has started to be that the company could actually be weaker than it looked. A debate has emerged on how to actually “fix it”:
Accusations about misleading investors on audience size are seen as a key priority
Attention-seeking algorithms and content moderation look like obvious targets, but there is the challenge that policymakers don’t really understand the business model, so they’re worried about potential collateral effects of any actions. Conservative voices prefer to empower parents (to protect teenagers) vs. censoring content
Others are more radical, and claim that Facebook is already “dead”, so we need to start thinking in a “post-Facebook” world
Ben Thompson (Stratechery) thinks decentralized apps could be part of that world, even if he thinks that ”not much will change, at least in the short term”
For now, the company has decided to slow down product development, to do “reputational reviews”
The week
1. Consumers and businesses, after COVID
What is happening
After the pandemic, people are reconsidering their work-life balance:
In the US, jobs growth is slower than expected, impacted by people giving up job search (WSJ)
Flexibility is becoming the fastest-rising job priority (WSJ)
The Financial Times tells us about the “Great Re-evaluation”, of work, with autonomy, recognition, flexibility and holidays becoming more important, and gaining weight vs. money (FT)
An Indian startup offers 3-day weeks to attract new talent (Bloomberg)
Emerging risks:
The way digital payments reduce friction could be making people lose control and spend too much (WSJ)
The future of business:
The “Supply Chain disaster” is getting worse (Bloomberg)
The global energy crisis is making it more difficult: Apple’s supply chain impacted in China. Prices soaring across Asia (FT)(Bloomberg)
What it means
As expected, the pandemic is causing a deep re-evaluation of the ways we live and work. Digital technologies will benefit from this, as they help people have more flexible time schedules and make it possible for new segments to access previously inaccessible products and services
As shown by the example of digital payments discussed this week, as well as by the debate around Facebook these days, the massive shift to digital will require a social adaptation, to address new challenges and risks
The supply chain crisis is becoming even worse, reinforced by the current global energy crunch. And even powerful buyers like Apple are starting to feel the pain
2. Platforms and digital enablers
What is happening
Pressure on Facebook grows: the WSJ whistleblower testified at the US Senate and a debate has started on how to fix Facebook, and even on how the post-Facebook world will be (WSJ)(NYTimes)(FT)
Also, a massive outage affected Facebook’s apps on Tuesday, and problems kept happening even by Friday (FT)(WSJ)
This reminded everyone about the central role that Facebook still plays in people’s lives (WSJ)(WSJ2)
The company says all was due to an internal problem (WSJ)
Apple’s increasing strength in financial services is making credit card companies uncomfortable (WSJ)
Amazon sees a big opportunity in video games (Bloomberg)
AI: Google’s DeepMind has started to be profitable, as AI keeps expanding its scope (e.g.: replacing dub actors) (FT)(WSJ)
However, this week there were also claims that AI is not ready yet (FT)(Bloomberg)
Devices: In parallel with a (possible) Apple car project, the company wants to be the operating system of future cars (Bloomberg)
Semiconductors: TSMC (Bloomberg) and Samsung (FT)(WSJ) post record sales, leveraging shortages. But GlobalFoundries (Bloomberg) is suffering
Meanwhile, Qualcomm is betting on diversification, and they’re “in a hurry” (WSJ)
What it means
Lots of uncertainties around what is coming next, after the current debate about Facebook. What looks clear is that the “dominant” monetization model for the company (and formany others at the internet), based on maximizing user engagement to exploit personalized ads, will have to change. Facebook is already working on this (e.g.: FB and Instagram shops, WhatsApp monetization, etc.)
This could lead to more competitive collisions among previously “separate” Big Techcompanies, e.g.: advertising shifting to Amazon, where engagement doesn’t depend on algorithmic feeds; and Facebook / Google shifting to e-commerce, looking to diversify beyond online ads
Pressure increases on AI to deliver (beyond app user engagement…)
3. Financing digital innovation
What is happening
Financial markets are hyper-active, after the worst months of the pandemic: stock market volatility and a global M&A boom (expected to “last for years”) (Bloomberg)(Bloomberg2)
The sustainability debate continues:
New calls this week for investors to support long-term societal causes, including scientific research on health issues (FT)(FT2)
But Allbirds have removed the initial “sustainability” claims from their IPO’s equity story (FT)
Emerging themes for investors:
Next computing platform: Roblox keeps expanding its scope, including pop music events (WSJ)
The car revolution: A series of articles at the FT ends with a vision (FT) of a deep change in the industry. In particular, parts suppliers are need to diversify and potentially transform into software providers (FT). Also, pressure on GM to deliver on their narrative (WSJ)
Space: A startup building a “solar sail” rocket attracts investors after a NASA contract (Bloomberg)
Quantum Computing: Like IonQ last week, Rigetti also announces it is going public (through a SPAC) (FT)
What it means
Investors’ skepticism has been growing on claims of “ESG compliance”, and that probably makes sense because many companies have converted this field into one more marketing activity. Still, there is an emerging “long-term investment” trend to identify the ”next big themes” in projects that address long-term human / societal issues. This week we heard more about this, with specific focus on health (a particularly hot space after the pandemic)
As the market for electric cars expands, the car industry is expected to be deeply transformed. Investors are already looking for exposure to the new supply chain, including batteries. Meanwhile, traditional parts suppliers will need to shift into other models, involving software, and this could be quite challenging for many of them
4. Building new rules for the (digital) game
What is happening
Customer protection: privacy & safety:
Facebook keeps dominating the scene. This week the WSJ whistleblower testified at the US Senate and accused the company of maximizing engagement (and profits) at users’ expense, building momentum for regulation (WSJ)(FT)(FT2)
Facebook says that is not true, but shows disposition to work with policymakers (Bloomberg)(Bloomberg2)
Meanwhile, more pre-emptive moves by YouTube: bans on misinformation, closure of controversial channels, removal of ads from politically incorrect content (NYTimes)(FT)(WSJ)(NYTimes2)
New rules in the UK to keep children safe while online (FT)
Antitrust:
Apple fights against the court order to allow apps to offer alternative payment methods (the only significant loss they made at the recent Epic trial) (WSJ)
Tech geo-strategy:
A Bloomberg opinion piece claims that Amazon and Facebook should enter the United Nations (Bloomberg)
The EU plan to close the semiconductor gap, under question (FT)
What it means
Together with a substantial change in the monetization models, that could happen even without a very active role from regulators, the Facebook affair is opening the door to more discussions about content moderation vs. freedom of expression. Of course, thisimmediately leads to political discussions, and shows how Big Tech firms have turned into political entities, often with more power than governments. Just like in China, thecurrent controversies are also a fight for power, that governments and nation states don’t want to lose
Apple had a very favorable result in the court process against Epic Games a few weeks ago. However, the single concession that they were forced to make affects a very strategic element (payments), so they seem to be trying to delay its execution