đ Reshaped #35
Renewed antitrust, chips innovation, SPAC deals, new class schemes, oil and gas climate policies and much more
Welcome to a new issue of Reshaped, a newsletter on the social and economic factors that are driving the huge transformations of our time. Every Saturday, you will receive my best picks on global markets, Big Tech, finance, startups, government regulation, and economic policy.
This week, I am providing you with some updates about antitrust regulation and the evolution of the software industry. You will also find some interesting news about the semiconductor industry and SPAC acquisitions.
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The state
This week, the antitrust case against Big Tech monopolies entered a new phase both in the US and the EU. In the US, the House Antitrust Subcommittee released a ground-breaking report about the monopoly power of tech platforms and the need for new regulatory measures. David Cicilline, who chairs the Subcommittee, and his staff have been working on the report for months, analyzing many documents and â as reported in previous issues of this newsletter â interviewing many players in the tech industry, including Big Tech CEOs.
The report dedicates separate sections to Amazon, Apple, Facebook, and Google, explaining how they take advantage of their dominant position to the detriment of competition. These accusations should not be new to anybody interested in the topic, but their explicit and direct statement represents a milestone in antitrust regulation. For a review of each of them, see The New York Times. For a more comprehensive view of the many issues at stake, I recommend Rana Forooharâs Donât Be Evil: How Big Tech Betrayed Its Founding Principles â and All of Us.
However, as summarized by Matt Stoller, the report is not only a static representation of the current landscape of tech platforms. It is also plenty of historical references and practical recommendations about how to structure a renewed antitrust enforcement.
Basically, Cicilline wants to fix the problem we have with big tech, make sure it doesnât recur by changing the laws that led to it, and make enforcement better by pressuring public officials and empowering ordinary citizens themselves to enforce anti-monopoly laws. So recommendations fall into four buckets: (1) a legislative break-up and restructuring of big tech platforms to restore competition online (2) a strengthening of laws against monopolies and mergers, (3) institutional reforms to fix and fund the Federal Trade Commission and DOJ Antitrust Division, and (4) restoring the ability of ordinary citizens to take monopolists to court on their own.
To me, the stricter regulation of M&As is the most interesting topic as it prevents a phenomenon I have regularly written about in the past weeks: the possibility of Big Tech giants to absorb any potential opportunity or threat arising in the market thanks to their incredible cash availability. Due to the relevance of exits for tech startups and their backers and the narrow IPO windows of the last years, retaining the control of this market means having the chance to heavily influence the rewarding system of the innovation economy. Not to mention the impact that these platforms have on venture building and business modeling: as Byrne Hobart brilliantly put it, âbig platforms build potential S-curves for other companies to rideâ.
Even if Democrats and Republicans differ in their approach to regulation, the worries about the monopoly power of Big Tech giants are bipartisan (CNBC). In particular, they agree on one crucial point: that the DOJ should be strengthened and adapted to a new era of antitrust regulation. On the other hand, tech titans are already starting to prepare their counterattack. Recently, Facebook released a report that explains how a breakup of its divisions (including Instagram and Whatsapp) would be nonsense (The Wall Street Journal).
In parallel, the Financial Times reported that the EU is going to regulate how tech companies collect and share their data. Apparently, they had the chance to see an early draft of the forthcoming Digital Services Act. Data regulation is at the core of the EU competition policy, which is consistently different from that of the US. However, such an ambitious program might be hard to implement. One thing is setting up data trusts specialized in a vertical domain â for instance, a local or national healthcare data trust could effectively provide some order on how data is collected and managed. But this is a much bigger intervention on the business model of the tech industry as a whole. The goal is bold and ambitious, but without a strong roadmap it may result in nothing more than another philosophical statement on data ethics.
The markets
This was a very intense week for tech companies, especially in the software segment. The much-anticipated case between Oracle and Google went to the Supreme Court. It will have to decide on an old case that âdates back a decade to when Google reverse-engineered Java while building its Android platformâ (The Verge). Oracle accused Google of copyright infringement on some of its Java APIs; in turn, Google claims it is a case of fair use. As perfectly highlighted by Tom Krazit on Protocol, the entire software industry is at stake if Oracle wins the case â but not tech giants.
The Oracles and Googles of the software industry will be fine, regardless of which way the justices decide to vote. After all, they have billions of dollars in cash and armies of lawyers that will allow them to iron out licensing agreements and preserve interoperability across their key products. But an Oracle victory could drag software development back into a world of silos, in which only the software built by a single vendor or across a consortium of powerful vendors would be able to enjoy the benefits of interoperability that have made the modern internet so compelling. Such a victory could create a new tax on software development, just as software becomes indispensable to the modern economy.
Meanwhile, IBM spun off its technology services business to focus entirely on cloud computing and other high-margin segments (The New York Times). After that, its stock rose by 6%, reflecting how public markets reward the evolution of technology companies towards new business models. Speaking of old technologies, take a look at this nice explanation of the impact of Adobe Flash â which, after almost 25 years, will cease to exist â on the gaming industry.
At the same time, the semiconductor industry is continuing to evolve. AMD is close to buying Xilinx for $30 billion (The Wall Street Journal). AMD is interested in taking control of the most relevant product in Xilinxâs portfolio: Field Programmable Gate Arrays (FPGA). FPGAs would allow AMD to upgrade its CPUs for data centers to sustain higher AI-driven workloads â which means filling the gap with Intel, which acquired Altera for the same reason in 2015. Again, this is a step in the consolidation of the sector after the Nvidia-Arm deal.
On the other hand, Nvidia announced that it will âdevelop Cambridge-1, a new ÂŁ40 million AI supercomputer that will be used for research in the health industry in the country [the UK], the first supercomputer built by Nvidia specifically for external research accessâ (TechCrunch). Working in partnership with GSK, Nvidia will strengthen drug vaccine and discovery while building a physical space dedicated to testing AI technologies in a knowledge-intensive sector.
For a brilliant analysis of the semiconductor industry, I strongly recommend a recent report by the Information Technology & Innovation Foundation (ITIF). This is by far my weekâs must-read.
The speculators
While Airbnb is planning to raise $3 billion from its upcoming IPO with a potential valuation of $30 billion (Reuters), some interesting deals contributed to the roaring SPAC wave. Recent deals include:
Momentus Space, a startup that provides space infrastructure services to other space companies, which was generously valued at $1.2 billion (Quartz).
Clover Health, a health insurance company that will join Chamath Palihapitiyaâs SPAC (Financial Times).
Faraday Future, an EV startup with a troubled past (TechCrunch).
Romeo Systems, a producer of batteries for EV (Reuters).
Meanwhile, players in the investment management industry are putting more pressure on green policy. BlackRock has just launched an ETF that weights countries based on their greenhouse gas emissions or climate risk (Financial Times). Sovereign bonds from Germany, Spain, Belgium, Ireland, and the Netherlands will be strongly underweighted with respect to the European Government Bond Index, reflecting their higher environmental risk or impact.
On the other hand, JP Morgan will push its clients to improve their sustainability performances to meet the Paris Agreement standards (The Wall Street Journal). It also announced a five-year $30 billion investment to support racial justice initiatives. More specifically, the bank âplans to invest a mix of loans, equity and direct funding to support its new commitments, which include promoting and expanding affordable housing, homeownership and access to banking, helping grow Black and Latinx-owned businesses, and building a more diverse workforceâ (CNN).
The big picture
This week, The big picture is dedicated to some interesting reads for the weekend. My first recommendation is to take a look at the FT/McKinsey business book of the year shortlist, which includes Rebecca Hendersonâs Reimagining Capitalism in a World on Fire and Jill Leporeâs If Then: How the Simulmatics Corporation Invented the Future. Both focus on some of the core topics of this newsletter and are highly recommended.
Oil Change International published a new discussion paper that analyzes the climate plans of some of the major oil and gas companies in the world (see picture below). Spoiler: it draws no optimistic scenario.
Books & Ideas recently published an interview with Daniel Oesch that helps to understand the evolution of labour markets and class schemes over time. In turn, this evolution generated huge effects on the political debate and the positioning of many political parties, as you can read below.
As the working class continued to shrink, parties to the left began to court the salaried middle classes, the best example being the Labour party under Tony Blair with its Third Way program that consisted in moderating economic policy. Labour would no longer be a working-class party, but a middle-class party supporters to join his shift from âthe old establishment to a new, larger, more meritocratic middle class.â The working class did not only become less visible in public discourse. Moreover, as leftist parties moved towards the centre on economic issues, political conflict on economic issues between the left and the right diminished. As a consequence, political differences over cultural issues of community and identityânotably migration, religion and European integrationâhave become much more salient.
On The Conversation, Gavin Harper and Allan Walton provide a concise analysis of the many implications of Boris Johnsonâs announcement about the UK offshore wind revolution. However, such a strategy could be hampered by the Chinese monopoly on some fundamental rare metals.
Thanks for reading.
As always, I am waiting for your opinion on the topics covered in this issue. If you enjoyed reading it, please leave a like (heart button above) and share Reshaped with potentially interested people.
Have a nice weekend!
Federico