Not a Wild Wild Web anymore
And other signals of change this week: New Cold War II battles. Financing a post-pandemic World. Solving the problems that the virus has revealed. Big Tech news
The End of the Wild Wild Web
The internet is changing. Maybe forever: Its own strength as a vehicle for political action is making it impossible to sustain the original “laissez faire” approach to what could and couldn’t be done at the web. This week several apps and websites have banned dozens of accounts, looking to reduce the amount of “hate speech” being spread. Even for companies who were trying to maintain the initial, “neutral” status quo, the pressure has become too strong. And to some analysts it has looked like “a dam breaking, or the changing of a guard” (Story)
Apps are becoming vehicles for political fights: A good example these days is TikTok, the Chinese-owned app for young people, which has recently pivoted from what someone older than 20 could consider a repository of silly videos, to a tool for political activism. The app has helped “Gen Z” people to boycott Trump’s rallies and expand the reach of scenes from “Black Lives Matter” protests. A Columbia professor discusses the phenomenon in this NY Times interview (Story)
This is putting Facebook between a rock and hard place: As the owner of at least two leading social apps, Facebook is in the middle of this turmoil. And they’re suffering for it. The company initially tried to maintain its “neutrality” and avoid content bans that could be controversial and lead into conflict with some groups. But this is looking increasingly difficult, with up to 400 large advertisers like Verizon, Unilever, Ford, Coca-Cola and even Microsoft now having decided or considering to boycott the platform for not being transparent about which kind of content could appear close to their brands. The move could affect the company’s revenues, on top of the structural decline of the advertising market due to the pandemic. This week, the company has been discussing the issue with its biggest advertisers (Story)
The biggest risk for Facebook would be this pressure expanding to the “long tail”, as most of the company’s ad revenues are coming from small and medium-sized companies. According to the FT’s view, the good thing for Facebook is that these companies have few alternatives to send their messages (Story)
YouTube is moving fast to prevent something similar happening to them: YouTube announced this week that they will ban six channels known to promote white supremacist content, and this obviously looks like a way to avoid being accused of “passiveness” and potentially boycotted by advertisers (Story)
Should the message or the messenger be controlled? An interesting debate is emerging in parallel with all this. The way information spreads across the internet reminds of… epidemics, and some specific influencers are responsible of “super spreading” events that cause most of the impact. So maybe “cleaning up” fake news would be easier if platforms would concentrate on a limited number of celebrities (Story)
Regulatory pressure is already increasing on Big Tech companies: And not only for the content / political issues. The US Congress is currently conducting an investigation on Big Tech’s power over the digital marketplace, and we’ve learned this week that the CEOs of Amazon, Facebook and Google have agreed to testify before the House Judiciary Committee by the end of July. Some press reports are expecting “a spectacle for the ages” (Story)
In the US, the Justice Dept. could launch an antitrust lawsuit against Google: There is an investigation under way for monopolistic behavior in the digital advertising market, and some state attorneys general are proposing to expand it to other markets. An additional risk for Google is that this could expand beyond the US, and for instance a similar debate has started in the UK (Story1)(Story2)
Facebook is also under scrutiny for how they manage users’ data: This week they recognized, in a blog post, that they mistakenly had shared some users’ personal data with outside developers for a longer period of time than the 90 days that they had publicly set as a limit. There is a lot of sensitivity to these issues, as data sharing with developers was exactly what provoked the Cambridge Analytica scandal back in 2018 (Story)
(International) taxes are an additional battlefield: Europe has been trying to get more tax revenue out of Big Tech companies, but the US is opposed to that, as it would logically imply that they would receive less. Now the negotiations (within the OECD) are in standby, but the Irish finance minister commented to the FT this week that he’s optimistic that an agreement could eventually be reached (Story)
New battles of Cold War II
The Cold War invading most technology market keeps alive and well. This week we learned more things about different battles under way:
In networks:
American pressure on Chinese 5G suppliers increases: The US telecom regulator (FCC) has decided this week to designate Huawei and ZTE as “national security threats”. This effectively means that rural carriers won’t be able to use the governments subsidies they receive to buy or maintain equipment from the Chinese suppliers. The decision is justified by the vision that the Chinese Communist Party could exploit vulnerabilities that this equipment could create in US communications networks (Story)
And it looks like this could affect these companies’ position in other markets, e.g. the UK: The British Culture Secretary said this Tuesday that the US sanctions against Huawei are “likely” to impact the company’s position in the UK market for 5G equipment. This was the same day when the PM claimed that the government needs to “strike a balance to protect critical infrastructure from hostile vendors” (Story)
Will Nokia (and/or Ericsson) be acquired?: Even the two companies that could apparently benefit from the Huawei ban, Ericsson and Nokia, are perceived to be in an unstable position. For example, there are plenty of rumors that the US could try to acquire a stake in one (or both) of them, directly or by pushing an American tech company to do it. Nokia looks like the weakest of the two, but even at Ericsson an activist shareholder (Cevian Capital) is pressing the top management to consider a potential US takeover (Story)
New “disruptive” players are trying to benefit from all this: We already talked last week about NTT’s acquisition of a stake in NEC, apparently to support the development of “Open RAN” equipment that could then be sold to companies with “Huawei restrictions”. Simultaneously, a Washington Post article this week talked about Inland Cellular, a rural operator in the US, building an “Open RAN” network with Parallel Wireless, a startup vendor specialized in the field, and about O2UK’s claims that this emerging technology is their future, and their trials with Mavenir, another startup vendor (Story1)(Story2)
In applications:
Political tensions with China are pushing India into the anti-Chinese block: This week the Indian government cited cybersecurity concerns and banned dozens of Chinese mobile apps, including massively popular TikTok and WeChat. The actual driver has been a frontier clash between Indian and Chinese troops, in which 20 Indian soldiers died. The result looks favorable for American Big Tech companies like Amazon, Google and Facebook (Story)
Apple, with huge interests in China, is trying to carefully navigate the crisis: Under pressure from the Chinese government, Apple has announced this week that they’re freezing the updates for tens of thousands of mobile games on their App Store, until they can demonstrate that they have a license. There is an enormous value at stake, as China is Apple’s biggest App Store market ((even bigger than the US) with yearly sales of $16.4bn (Story)
And (obviously) in cyber security:
Australia is recruiting 500 “cyber spies”, amid a diplomatic crisis with China: The Australian PM has announced a large public investment ($930m) in digital security and the recruitment of 500 additional “cyber spies” to defend the country against “sustained attacks” from a “sophisticated state actor” that he didn’t name. This comes in the middle of a diplomatic crisis with China, triggered by the coronavirus (Story)
Even security screening equipment at airports is affected: The US is pressing Europe to ban Nuctech Co, China’s largest provider of security scanners for places like airports and border crossings, as these devices could be a threat to Western security and businesses (Story)
Financing a post-pandemic World
In the middle of Cold War II, investors are interested in defense technologies: Anduril, a startup that builds surveillance technology for military agencies and border patrols, has just raised a new funding round at a valuation of $1.9bn. The company is backed by Peter Thiel’s Founders Fund (Story)
The UK investment in a satellite company also has a “geo strategic” flavor: We talked last week of the participation of the British government in a $500m bid for a 45% stake in OneWeb, the satellite company, which looks linked to the need to build an alternative navigation service to current GPS, with potential military applications. Bharti Global, linked to the Bharti telecoms group, has acquired another 45% (OneWeb also had plans to deploy a constellation of satellites to provide wireless internet access globally) (Story)
But there are also more “peaceful” deals, funding tools for massive digitalization… Google is spending close to $200m to acquire North, a startup building “focals glasses” that pick up on signals for people’s eyes. This looks like a second attempt to build the “right” Google Glasses, and the company has said that it is part of their effort to “build towards a future where helpfulness is all around you, where all your devices work together and technology fades to the background” (Story)
… And a greener economy: A German startup developing “indoor farms”, a technology to grow herbs and salads within places like supermarkets and restaurants, is closing a new $200m funding round, capitalizing on investors’ interest in solutions addressing potential food supply problems (that have been apparent during the pandemic) (Story)
Deals continue across the value chain, from connectivity… News this week about the two largest deals under way in the telecom industry, the merger of O2UK with Virgin Media, with British and European regulators competing to give the final authorization of the transaction, and the sales of stakes in Reliance Jio, the disruptive Indian operator, which just announced the entry of one more Western company (Intel) as a shareholder (Story1)(Story2)
… To e-commerce… Also as part of the “Cold War” battle for the technology markets in South East Asia, Google is negotiating with Temasek, the Singapore state-owned holding, to invest together in the Indonesian e-commerce company Tokopedia. Rumors are that this would be a funding round of between $500m and $1bn (Story)
… And food delivery: Uber, which was recently rumored to be interested in acquiring Grubhub, is now in talks to buy Postmates, another food delivery startup, based in San Francisco, at a valuation of about $2.6bn. The first takeaway is that Uber seems to believe in the potential of its Uber Eats subsidiary (Story)
Filling the gaps that the virus has revealed
Internet access emerging as a new “human right”: The UN actually declared access as a human right back in 2016, but the COVID crisis has shown to what extent this is becoming a key issue, as the economic impact of the pandemic is expected to be very different for professional classes in rich countries, which tend to have good access, vs. remote rural and rundown urban communities with no connection to the digital world. So now a priority is emerging for governments to close the massive “digital divide” that has been revealed (Story)
Even in advanced countries, some infrastructures are not prepared for a “new normal”: In the US, there are lots of concerns these days about the potential impact that lockdowns could have on telecom networks in the coming weeks. Infrastructures have withstood the surge in traffic from people working and studying from home, around +50% according to some estimations, but this may have been because the first affected areas have been mostly urban and relatively affluent. Now, with the virus expanding to states with large rural populations, outages and service disruptions are being expected (Story)
We need better tools to fight epidemics: Many proposals are being discussed: algorithms to predict where the pandemic will move next (Story), autonomous robots to minimize human tasks at factories and preserve social distancing (Story) , self-cleaning surfaces, ultraviolet lamps (on robots) or next-gen ventilation systems to protect office spaces (Story)
Commerce needs to (further) shift to digital: And, as we have already discussed in previous reports, companies like Shopify, specialized in helping businesses move online, are enjoying an unexpected success. The company’s “online retail operating system” has driven a growth in sales of more than +60% in just six weeks. In a different, but obvious, way Amazon is also a beneficiary of the crisis, or that’s what investors expect, and the reason why the company’s market cap has increased by +$400bn this year (Story)
But people still seem reluctant to abandon cash: Even amid this fast transition to digital commerce, data revealed this week by a former Bank of England executive show an increase of bills in circulation in Western economies. In these markets, this could have been a consequence of panic, with people seeing banknotes as a “safer” tool than bank accounts. On top of that, in emerging markets there is a “banking divide” problem, with many people without access to the banking system, and a “digital divide” affecting small businesses that cannot easily shift to digital. In summary, it seems that “death of cash” reports have been largely overestimated (Story)
Do we really need massive (physical) events anymore? Apple just organized a virtual version of their Developer Conference, and everyone seems very happy about it. Even if guests accept they missed the “serendipitous social interactions” from past “physical” conferences, this was offset by the easier access to the event and by the “more productive” presentations (Story)
Other Big Tech news…
App developers trying to circumvent Apple’s App Store rules: Some app developers, including big brands like Netflix, Amazon or Rakuten, are sacrificing part of the customer experience to avoid paying Apple’s App Store (30%) fees. Increasingly, customers need to leave the apps and visit the companies’ webpages to formalize their subscriptions. Other apps are just shifting the fees to the end users, with prices on the app approx. +30% higher than on the web (Story)
The NY Times will no longer provide stories for Apple News: We discussed last week that media companies and Big Tech platforms were on the way to finally work together. But there are significant exceptions to this, and a good example came this week, with the NY Times announcing they will remove their content from Apple News (Apple’s news aggregation app), looking to “ensure more control” over their content. At the end of the day, this also looks like a money question, as the newspaper mentions the need to be “fairly compensated”, and the “control” issue looks to be precisely linked to the ability to lead customers into paid subscriptions (Story)
Amazon’s gaming ambitions hit a hurdle: Amazon has retired their first big-budget video game (“Crucible”) from circulation , and moved the title to “invitation-only” while developers implement some changes, after an unsuccessful launch with plenty of negative reviews (Story)
The two Chinese Tech Giants (Alibaba and Tencent) on a collision course: The new CEO of Ant Group, the financial services subsidiary of Alibaba, wants to accelerate Alipay’s evolution into an online “everything store” and catch up with the emerging trend of customers shifting to “mini programs”, or light apps running on top of WeChat, the messaging app owned by the other Chinese Tech Giant, Tencent. 400m users every day are now using these apps to rent bicycles, order food or even buy apartments, all from within the messaging app. Could this anticipate a similar clash between Amazon and Facebook in the other markets? (Story)