Philippa Kaur

WITH EYES like saucers, nine-year-old Ralph Miles slowly removes his Quest 2 headset. “It was like being in another galaxy!” he exclaims. He has just spent ten minutes blasting alien robots with deafening laser cannons—all the while seated silently in the home-electronics section of a London department store. Sales assistants bustle around, advertising the gear to take home today. “That would be sick!” enthuses Ralph. “Don’t get him started,” warns his dad.Children are no longer the only ones excited about “extended reality”, a category which includes both fully immersive virtual reality (VR) and augmented reality (AR), in which computer imagery is superimposed onto users’ view of the world around them. Nearly every big technology firm is rushing to develop a VR or AR headset, convinced that what has long been a niche market may be on the brink of becoming something much larger.Meta, Facebook’s parent company, has sold 10m or so Quest 2 devices in the past 18 months; Cambria, its more advanced headset, is coming this year. Microsoft is pitching its pricier HoloLens 2 to businesses. Apple is expected to unveil its first headset by early 2023 and is said to have a next-generation model in the pipeline. Google is working on a set of goggles known as Iris. And a host of second-tier tech firms, from ByteDance to Sony and Snap, are selling or developing eyewear of their own.The tech giants spy two potentially vast markets. One is the kit itself. Only around 16m headsets will be shipped this year, forecasts IDC, a data firm (see chart). But within a decade sales may rival those of smartphones in mature markets, believes Jitesh Ubrani of IDC. “Some people ask, ‘Do you think this is going to be as big as what smartphones created?’” says Hugo Swart of Qualcomm, which makes chips for both headsets and phones. “I think it’s going to be bigger.”That points to the second, still more tantalising opportunity: control of the next big platform. Apple and Google have established themselves as landlords of the smartphone world, taxing every purchase on their app stores and setting rules on things like advertising, at the expense of digital tenants such as Facebook. Whoever corners the headset market stands to acquire a similarly powerful gatekeeping position. “It is going to be the next big wave of technology,” says Mr Ubrani, “and they all want to make sure they get a piece of that.”The search for the next platform comes as the last one shows signs of maturing. Smartphone shipments in America fell from a peak of 176m units in 2017 to 153m in 2021, according to IDC. The advertising model that has powered firms like Facebook and Google is under attack from privacy advocates. In response, Mark Zuckerberg, Meta’s boss, has bet the future of his company on the “metaverse”. Microsoft’s CEO, Satya Nadella, has said that extended reality will be one of three technologies that shapes the future (along with artificial intelligence and quantum computing). Sundar Pichai, his counterpart at Alphabet, Google’s corporate parent, said last year that AR would be a “major area of investment for us”. Venture-capital funds pumped nearly $2bn into extended reality in the last quarter of 2021, a record, according to Crunchbase, a data company.Some 90% of headsets sold today are VR. Since buying Oculus, a headset-maker, for $2bn in 2014, Meta has captured the market, with 80% of VR sales by volume in 2021. The Quest 2, which offers a convincing (if mildly nauseating) experience with no need for an accompanying computer, has been a hit since its launch in 2020, helped by lockdowns and a $299 loss-leader price. Last Christmas the Quest’s smartphone app was the most-downloaded in America. Smaller rivals like HTC, a Taiwanese electronics firm, and Valve, an American games developer, which make VR gear for gaming, are being squeezed. Pico, a headset-maker owned by ByteDance, TikTok’s Chinese owner, is doing well in its home market, where Meta is banned.Meta’s VR strategy still revolves around ads. It is selling headsets as fast as it can in order to build an audience for advertisers, says George Jijiashvili of Omdia, a firm of analysts. Horizon Worlds and Venues, its virtual spaces for hanging out, claim 300,000 monthly visitors. To the irritation of some of them, Meta has already experimented with running ads there. The Cambria, a more expensive “pass-through” headset that combines a VR-like screen with front-mounted cameras to display footage of the world outside, will train cameras on users’ faces. That will enable the capture of facial expressions in virtual form—as well as the monitoring of which ads eyeballs linger on.Meta is also monetising its app store. From next year the market for VR content will surpass that for VR hardware, reckons Omdia. One of Mr Zuckerberg’s motives for pushing the new platform is to liberate Meta from dependence on phonemakers for the distribution of its apps. The firm has become a digital landlord itself, with the power to tax Quest-store pur chases in the same way that Apple and Google take a cut of smartphone app sales (Meta declines to say how much it charges).While Meta ramps up its efforts in VR, others are experimenting with the knottier technology of AR. Unlike VR, which takes you to another place, AR is “anchored in the world around you”, says Evan Spiegel, boss of Snap. His Snapchat social-media app has long provided AR filters for phones, allowing users to turn themselves into cartoon characters or virtually try on products like clothes and make-up with the help of their device’s camera. Snap is now toying with hardware, building a prototype set of AR Spectacles, which have gone out to a few hundred software developers.Your correspondent wandered through a floating solar system and was chased around Snap’s London offices by holographic zombies as he tried out the Specs, which at 134 grams look and feel like a chunky pair of sunglasses. The downside of their slender styling is a battery life of 30 minutes and a tendency to overheat. Limits in optical technology restrict the field of view to a square in the middle of the lens, meaning that overlaid graphics are seen as if through a letterbox. Snap’s main reason for making the device is to discover use cases for AR headsets when they become widely adopted, says Mr Spiegel. In the hardware market, “We have a shot. But our goal is still really on the AR platform itself.”For now, AR glasses are a niche within a niche. High cost and wobbly performance limit their appeal. IDC expects industry shipments of 1.4m units this year. The top seller in 2021 was Microsoft’s HoloLens 2, a $3,500 device used by big clients including America’s armed forces (whose order for 100,000 pairs provoked complaints from Microsoft staff that they “did not sign up to develop weapons”). Magic Leap, a startup in Florida, will launch the second generation of its AR glasses, with a wider field of view, in September. It is targeting industries like health care and manufacturing, rather than consumers.Despite VR’s dominance of the headset space, AR sparks more excitement about mass adoption. Even with Meta’s relentless promotion of virtual concerts, office meetings and more, few people use VR for anything other than gaming: 90% of the $2bn spent on VR content last year went on games, according to Omdia. Tim Cook, Apple’s boss, has criticised VR’s tendency to “isolate” the user. “There are clearly some cool niche things for VR. But it’s not profound in my view,” Mr Cook has said. “ AR is profound.” Apple has shown notably little interest in the immersive metaverse that excites Mr Zuckerberg.Apple’s upcoming pass-through headset will give a taste of the AR experience. A pair of true AR glasses are still in early development. These first products are said to be aimed at designers and other creative professionals, rather like its high-end Macintosh computers. Still, the firm’s entry into the industry could prove to be a watershed. “Apple’s ability to drive adoption is probably unparalleled in the market,” says Mark Shmulik of Bernstein, a broker. It will hope to do brisk business in China, giving it an edge over Meta. IDC predicts that in 2026, 20m pairs of AR glasses could be shipped worldwide, making them about twice as popular as VR goggles are today.Argumented realitiesThe big question is whether headsets can go beyond gamers and professionals, and become a true tech platform rather than just an accessory. Today’s AR and VR gear is good at solving “very specific pain-points”, says Tony Fadell, a former Apple executive who helped develop the iPhone. A generalisable platform such as an iPhone “is a whole different story”, he says. “And I don’t believe it,” he adds, at least for the next five years. In the foreseeable future, Mr Fadell thinks, headsets will be a bit like smart watches, popular but not revolutionary in the way the smartphone has been.Mr Spiegel agrees that headsets will not fully replace phones, just as phones have not done away with desktop computers. But, he points out, “one overarching narrative is that computing has become way more personal.” It has moved from the mainframe, to the desktop, to the palm of the hand. The next step, he believes, is for computing to be “overlaid on the world around you” by AR. Desktop computing was mainly about information processing, and smartphones were mainly about communication. The next era of computing, he suggests, will be “experiential”.In this scenario headsets could be part of a broader ecosystem of wearable technology that draws consumers’ attention—and spending power—away from the smartphones that have hypnotised them for the past decade and a half. With smart watches, smart earphones and, soon, smart spectacles, the phone could become personal computing’s back office rather than its primary interface. Gadgets on your eyes would complement the “things on our wrists, things on our ears and things in our pockets”, thinks Mr Shmulik. One day, he speculates, “you might even forget that you’ve got your phone.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Seeing and believing” More

SCHUMPETER IS NOT a car owner. He bought his last one, a diesel-fuelled Volkswagen, in 2015, days before the emissions-cheating scandal erupted. He was so appalled that when the car’s engine caught fire he vowed never to buy another and took to a bike instead. He has lived in emissions-free smugness ever since. At least he did—until increasing numbers of electric vehicles (EVs) started to swish past, signalling even more virtue. Now his car envy has returned—but with a dilemma. Some of the most appealing EVs in Europe are either made in China (Tesla) or by Chinese-owned firms (MG). Given concerns about the decoupling of trade into ideological blocs, should that be a dieselgate-sized worry?To answer that question, first examine what is known in China as “the catfish effect”, the idea that a predator makes weaker rivals swim faster. For years China led the world in production and purchase of EVs. However, the cars were heavily subsidised and shoddy. They were a response to the government’s desire to scrub the air and leapfrog the internal-combustion engine, a technology in which China was a laggard. Delighting customers was an afterthought. No Chinese EV-maker was as world-beating as Huawei became in smartphones—before America blackballed it in 2019.That same year Tesla set up shop in Shanghai and began rolling Model 3s off the production line. It became, says Gregor Sebastian of the Mercator Institute for China Studies in Berlin, the epitome of a catfish. The effect was similar to the benefit that production of Apple’s iPhone in China brought to the country’s smartphone market, where local suppliers had to raise their game to meet international standards. Chinese carmakers’ ambitions likewise rose. The result has been an accelerated shift towards electrification. BYD, a battery manufacturer turned China’s biggest seller of EVs and hybrids, said on April 4th that it had ceased making full combustion-engine vehicles. As with Tesla, its sales are booming.As yet, no Chinese EV-maker is an export powerhouse. Stockmarket analysts are playing up the potential, hoping this will bring Tesla-like valuations, says Tu Le of Sino Auto Insights, a consultancy. But most of China’s EV exports are by wholly foreign brands, such as Tesla, or those with Chinese partners, such as BMW. Foreign marques account for most of the 296,000 Chinese-made EVs and plug-in hybrids sold abroad last year—more than quadruple the number in 2020. Because of high American tariffs, the favourite destinations are Europe and South-East Asia.China’s biggest EV firms are adopting a variety of export strategies to catch up. SAIC, a state-owned car company, is making inroads in Europe under the cover of MG, a classic British sports-car brand that it bought in 2007. It keeps its Chinese identity hidden behind the alluring octagonal nameplate, which may be why sales hit more than 52,000 in Europe last year, double the year before, many of which were EVS. BYD, as well as Nio, which hopes to take on luxury marques like Mercedes, have made EV-friendly Norway the springboard for their forays into Europe. In South-East Asia the strategy is to “attack the villages to surround the cities”, says Scott Kennedy of the Centre for Strategic and International Studies, a think-tank in Washington. That means selling low-cost EVs where Western companies do not venture, in order to strengthen supply chains. Taxi fleets are a popular target for firms like BYD.Until recently it was considered a long shot that such low-cost brands could penetrate developed markets as well as developing ones. The EV market in China includes scores of also-rans and it begs for consolidation. The firms lack the overseas sales networks of global rivals. Yet they have their own built-in advantages, including access to the best battery supply in the world and in some cases more sophisticated software than European rivals. China is also taking international safety standards more seriously.If its EV-makers thrive, it would be good for more than just the car market. The more high-quality Chinese products appeal to international consumers, the more of a stake China has in preserving global trade. EVs encompass many of the strategic tensions that burden the trading system. They are heavily reliant on semiconductors, which has become a sore point in China, and on batteries, Chinese dominance of which is a bugbear for the West. They are hugely subsidised. The harvesting of personal information to improve traffic routes, charging and self-driving technology raises thorny questions about privacy, data storage and cyber-security. The EV industry is also exposed to trade wars: since 2018 America has levied 25% tariffs on Chinese battery cells, electric motors and other EV components. The European Union, with its green agenda, is less overtly protectionist for once.Most Western carmakers have enough of a stake in keeping supply chains open, and in maintaining access to China’s own market, that they would prefer not to erect more trade barriers. They know, however, that China is using them as catfish to improve its own industry. At any point it could decide that they have done their job. That could throw the entire global market, including China’s, into turmoil.Completing the circuitYet the catfish effect can work in both directions. Last month Bloomberg reported that CATL, China’s battery behemoth, was considering building a $5bn factory in North America. In response Jim Greenberger of NAATBatt International, a battery trade body, said he would welcome this as long as CATL brought battery-manufacturing tech and know-how in order to foster technology transfer to American firms.That, of course, is the magic of globalisation. Over time, competition and co-operation lead to the exchange of ideas, benefiting all. It will not last if geopolitical tensions, heightened by Russia’s pounding of Ukraine, splinter the world economy into competing blocs. If buying a Chinese car feels unfamiliar, remember that you are supporting globalisation. Not bad as fringe benefits go. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The catfish effect” More

WHITE-COLLAR WORKERS tend to like hybrid working. Research by Nicholas Bloom of Stanford University suggests that, on average, employees reckon the blend of in-person and remote work is a perk equivalent to an 8% pay increase. The biggest attraction of days spent working from home is the absence of a commute. Other benefits include not having to get ready for the office: the proportion of people wearing a fresh set of clothes drops by 20 percentage points when they are not commuting.Executives have been keener to get people back into the office full-time, so that employees can bond with peers, absorb the corporate culture and appreciate the awesome power of laundry. But even sceptics have accepted that hybrid working will be part of the post-pandemic future: in his annual letter to shareholders this week, Jamie Dimon, the boss of JPMorgan Chase, said he thought that about 40% of the bank’s staff would be hybrid. The job now is to make sure that hybridisation works as well as it can for both employees and employers. That depends on one ingredient above all: clarity. Things function best when everyone knows what is expected.Start with the shape of the hybrid week. One of the great theoretical attractions of hybrid working to employees is that they get to choose what days they come in. But the point of in-person working is to spend time collaborating and bonding with their colleagues: that is much more likely to happen if companies are clear about who they want in the office on which days of the week.Clarity also maximises the benefits of work-from-home days. If office time is best spent in a whirlwind of collaborative brainstorming and socialising, home days are logically the time when solo and focused work should get done. That requires bosses to do what comes unnaturally to them, by resisting the temptation to interrupt at will.It is easier to do that if expectations are clear. Anne Raimondi of Asana, a work-management platform, says the firm expects people to come in on Mondays, Tuesdays and Thursdays, and has a “no meetings” day on Wednesday. If a manager wants to have a meeting that day, they have to “recontract” with their team and explain why it is needed.By the same token, being explicit when a reply is needed on an email saves everyone scurrying around in a desperate bid to answer the boss first. Defining what kinds of work can be done asynchronously and what requires everyone to get together is a recipe for fewer, better meetings. Encouraging a set of do-not-disturb protocols makes it less likely that employees will be bothered unnecessarily.Clear protocols also make hybrid meetings go better. Harry’s, a shaving firm that has published its guidelines for hybrid working, expects each attendee to have their own screen and promises not to keep discussing the matter at hand once remote colleagues have left the meeting (though commenting on who is wearing the same clothes as they did yesterday is presumably fine).Some of this will be deeply alarming to managers who worry about slippery slopes. First you give people space to focus at home, and soon enough you cannot contact anyone because they have changed their settings on Slack and are binge-watching “Bridgerton”.There are three answers to such worries. First, expectations are firmly in the gift of managers. Asana’s no-meetings day does not extend to meetings with customers, for example.Second, burnout is as much of a risk as slacking. New research from Microsoft finds evidence for what it calls a “triple-peak day”. As well as the usual large crests in activity in the early morning and after lunch, around 30% of employees at the tech giant also experience a smaller, third bump in work in the late evening. That may be a sign of people getting work done when it suits them—or of the workday extending relentlessly into every waking hour. Setting expectations, over things like how quickly notifications need to get a response, can help determine which one it is.Last, good performance is not defined by employees’ locations at specific times of the day but by what they achieve—what Mr Bloom calls “managing outputs, not inputs”. If bosses can articulate what counts as productive activity, and evaluate it regularly, it matters less whether employees are at headquarters or stinking out the spare bedroom. Managers may have concerns about hybrid working, but it is pretty clear what will make it successful.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The value of clarity” More

HARVARD BUSINESS SCHOOL is all about its graduates’ “lifelong impact” on society. INSEAD exhorts its alumni to “drive business as a force for good”. Believe these and other MBA prospectuses, and a student arriving as an ordinary human being will leave as a virtuous do-gooder. Such claims have always strained credulity. A new working paper by Daron Acemoglu, Alex He and Daniel le Maire, a trio of economists, puts numbers on the disbelief.The authors look at newly appointed CEOs in America and Denmark. They find those with MBAs increase returns on assets in the five years after their appointment—by a total of three percentage points on average in America and 1.5 points in Denmark. But that is not because they boost sales, ratchet up investments or raise productivity. Rather, the higher returns are the result of suppressing workers’ wages, which fall by 6% in America and 3% in Denmark over the five years after an MBA takes charge. In short, ushering MBAs into corner offices seems to boost shareholder value by slicing the pie in certain ways, not by making the pie bigger.The researchers put this phenomenon down to change in business-school syllabuses. MBA programmes, says Mr He, have over the years grown less focused on technical aspects of finance and management, and more obsessed with maximising shareholder value and corporate leanness. The result, he and his colleagues contend, is that workers have increasingly been seen as “costs to be reduced” rather than an investment in human capital.People drawn to MBA courses in the first place may, of course, simply be more ruthless than holders of other degrees. But there may be something to the syllabus hypothesis. Chief executives who earned their MBAs after 1980 were likelier to stint on employees than graduates from earlier MBA classes. If the general shareholder-friendly zeitgeist which took hold around that time were the whole explanation for this intergenerational difference, then MBAs and non-MBAs ought to be equally affected. The study shows this was not the case. Further work will be needed to see whether feeding MBAs modules such as “Reimagining Capitalism” (Harvard) and “Business and Society” (INSEAD) does anything to reverse the trend.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Degrees of unconcern” More

WHAT WILL he do with it? That was the big question after Elon Musk let it be known on April 4th that he had amassed a stake of 9.2% in Twitter, making him the social-media firm’s largest shareholder. Will the world’s richest man buy more shares or even take Twitter private? Will the boss of Tesla take a hands-on role in Twitter’s management? Will the libertarian troll press to bring back Donald Trump, kicked off the platform after inciting an assault on the Capitol in January 2021? Speculation mounted after Twitter said a day later that Mr Musk would join its board.As is his wont, Mr Musk will reveal his plans in his own time and probably in his own tweets to the 80m people who follow him on the social-media platform (not many fewer than followed Mr Trump before he got the boot). In posts published before he announced the investment, he complained that Twitter “serves as the de facto public town square” but fails “to adhere to free-speech principles”. He urged the company to open up the algorithm that decides which tweets users see. Given his sympathies for cryptocurrencies and their underlying technology, the blockchain, he could try to turn Twitter into a decentralised service controlled by users.It is hard to see how that would make the company more profitable. Investors rejoiced anyway. Some may be believers in the “Elon markets hypothesis”, which holds that stocks should be valued based not on fundamentals but on their proximity to Mr Musk. Others may hope that he can really shake things up. Twitter has been a much bigger cultural success than a commercial one. Before Mr Musk’s move sent its share price up by a third, the firm’s market value had been languishing around $30bn, not much higher than where it was when it went public in 2013. By comparison, its social-media rival Meta (née Facebook), briefly became a $1trn company and its market capitalisation is up more than five-fold in the same period despite a recent tumble (it is currently worth $631bn).Whatever Mr Musk’s designs for Twitter, one near-certainty is that they will require money, time and attention. That raises another question: is the self-styled Technoking overextending himself? Financially, he isn’t. The investment in Twitter, which cost less than $3bn, is chump change for Mr Musk—about 1% of his net worth. A bigger concern, especially to investors in his other firms, is over his workload. Twitter comes on top several big corporate commitments. Besides running Tesla, a $1.1trn electric-car giant with nearly 100,000 employees, he heads up SpaceX, a privately held rocketry firm valued at $100bn. He also helped found two drilling startups, one making big holes to build tunnels (The Boring Company), the other making tiny ones to implant electrodes in the brain (Neuralink). Adding a board seat on Twitter to his résumé may overtax even a functioning workaholic and astute delegator like Mr Musk. Now 50 years old and the father of eight, he has been putting in hundred-hour weeks for decades, as he recently revealed in an interview.Where Mr Musk may be most overextended is in his trolling—not so much of his numerous critics (though he does plenty of that in his spare time) but of regulators. America’s Securities and Exchange Commission was already after him for allegedly violating a court agreement to have his tweets lawyered before publishing, reached after he tweeted in 2018 that he had “funding secured” to take Tesla private, which he ended up not doing. The Twitter investment may get him into further trouble. He made it public a few days after the deadline for such disclosures. And his filing suggested that he would be a passive investor, which seems at odds with his joining the board. Expect his Twitter habit to raise even more eyebrows now that he is no longer just a big user but a large shareholder, too.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

WITH EYES like saucers, nine-year-old Ralph Miles slowly removes his Quest 2 headset. “It was like being in another galaxy!” he exclaims. He has just spent ten minutes blasting alien robots with deafening laser cannons—all the while seated silently in the home-electronics section of a London department store. Sales assistants bustle around, advertising the gear to take home today. “That would be sick!” enthuses Ralph. “Don’t get him started,” warns his dad.Children are no longer the only ones excited about “extended reality”, a category which includes both fully immersive virtual reality (VR) and the newer technology of augmented reality (AR), in which computer imagery is superimposed onto the user’s view of the world around them. Nearly every large technology firm is rushing to develop a VR or AR headset, convinced that what has long been a niche market may be on the brink of becoming something much bigger.Meta, Facebook’s parent company, has sold perhaps 10m Quest 2 devices in the past 18 months and will launch Cambria, a more advanced headset, later this year. Microsoft is pitching its pricier HoloLens 2 to businesses. Apple is expected to unveil its first headset near the end of the year, and is said already to have a next-generation model in the pipeline. Google is working on a set of goggles known as Iris. And a host of second-tier tech firms, from ByteDance to Sony and Snap, are selling or developing eyewear of their own.The tech giants spy two potentially vast markets. One is the kit itself. Only around 16m headsets will be shipped this year, forecasts IDC, a data company (see chart 1). But within a decade their sales may rival those of smartphones in mature markets, believes Jitesh Ubrani of IDC. “Some people ask, ‘Do you think this is going to be as big as what smartphones created?’” says Hugo Swart of Qualcomm, which makes chips for both headsets and phones. “I think it’s going to be bigger.”That points to the second, still more tantalising opportunity: the chance to control the next big platform. Apple and Google have established themselves as landlords of the smartphone world, taxing every purchase on their app store and setting rules on things like advertising, at the expense of companies such as Facebook, their digital tenants. Whoever wins control of the headset market stands to acquire a similarly powerful gatekeeping position. “It is going to be the next big wave of technology,” says Mr Ubrani, “and they all want to make sure they get a piece of that.”The search for the next platform comes as the latest one shows signs of maturing. Smartphone shipments in America fell from a peak of 176m units in 2017 to 153m in 2021, according to IDC. The advertising model that has powered companies like Facebook and Google is under attack from privacy advocates. In response, Mark Zuckerberg, Meta’s chief executive, has bet the future of his company on what he calls the metaverse. Microsoft’s boss, Satya Nadella, has said that extended reality will be one of three technologies that shapes the future (along with artificial intelligence and quantum computing). Sundar Pichai, his counterpart at Alphabet, Google’s corporate parent, said last year that AR would be a “major area of investment for us”. Venture-capital funds pumped nearly $2bn into extended reality in the last quarter of 2021, a record, according to Crunchbase, a data firm.Some 90% of headsets sold today are VR. Since buying Oculus, a headset-maker, for $2bn in 2014, Meta has cornered the market, with nearly 80% of VR sales by volume. Its Quest 2, which offers a convincing (if mildly nauseating) experience with no need for an accompanying computer, has been a breakthrough hit since its launch in 2020, helped by pandemic lockdowns and a $299 loss-leader price. Last Christmas the Quest’s smartphone app was the most downloaded in America. Smaller rivals like HTC, a Taiwanese electronics firm, and Valve, an American games developer, which make gaming-focused VR headsets, are being squeezed. Pico, a headset-maker owned by Bytedance, TikTok’s Chinese parent company, is doing well in its home market, where Meta is banned.Meta’s VR strategy revolves around ads, the source of Facebook’s riches. It is selling headsets as fast as it can in order to build an audience for advertisers, says George Jijiashvili of Omdia, a firm of analysts. Horizon Worlds and Venues, its virtual spaces for hanging out, claim 300,000 monthly visitors. Meta has already experimented with running ads there, to the irritation of some of them. Its forthcoming Cambria headset, a pricier “pass-through” model that combines a VR-like video screen with front-mounted cameras to display footage of the world outside, will train cameras on users’ faces. That will enable the capture of facial expressions in virtual form, as well as the monitoring of which ads eyeballs linger on.Meta is also monetising its app store. From next year the market for VR content will surpass that for VR hardware, estimates Omdia (see chart 2). One of Mr Zuckerberg’s motives for pushing the new platform is to liberate Meta from dependence on smartphone-makers for the distribution of its apps. The company has now become a digital landlord itself, with the power to tax Quest store purchases in the same way that Apple and Google take a cut of smartphone app sales (Meta declines to say how much it charges).While Meta ramps up its efforts in VR , others are experimenting with the knottier technology of AR. Unlike VR, which takes you to another place, AR is “anchored in the world around you”, says Evan Spiegel, boss of Snap. His Snapchat social-media app has long provided AR filters for smartphones, allowing users to turn themselves into cartoon characters or virtually try on products like clothes and make-up with the help of their phone’s camera. Snap is now toying with hardware, building a prototype set of AR “Spectacles” which have gone out to a few hundred software developers.Your correspondent wandered through a floating solar system and was chased around Snap’s London offices by holographic zombies as he tried out the Specs, which at 134 grams look and feel like a chunky pair of sunglasses. The downside of their slender styling is a battery life of 30 minutes and a tendency to overheat. Limits in optical technology restrict the field of view to a square in the middle of the lens, meaning that overlaid graphics are seen as if through a letterbox. Snap’s main reason for making the device is to discover use cases for AR headsets when they become widely adopted, says Mr Spiegel. In the hardware market, “We have a shot. But our goal is still really on the AR platform itself.”For now, AR glasses are a niche within a niche. Their high cost and wobbly performance limits their use to a small number of businesses. IDC expects industry shipments of 1.4m units this year. The top seller in 2021 was Microsoft’s HoloLens 2, a $3,500 device used by clients including America’s armed forces (whose order for 100,000 pairs provoked complaints from Microsoft staff that they “did not sign up to develop weapons”). Magic Leap, a Florida-based startup, will launch the second generation of its AR glasses in September, boasting a wider field of view. It, too, is targeting businesses, in industries like health care and manufacturing, rather than consumers.Despite VR’s dominance of the head space, AR is the technology that sparks most excitement about mass adoption in future. Even with Meta’s relentless promotion of virtual concerts, office meetings and more, few people use VR for anything other than gaming: 90% of the $2bn spent on VR content last year went on games, according to Omdia. Tim Cook, Apple’s boss, has criticised VR’s tendency to “isolate” the user. “There are clearly some cool niche things for VR. But it’s not profound in my view,” Mr Cook has said. “AR is profound.” Apple has shown notably little interest in the immersive metaverse that excites Mr Zuckerberg.Apple’s expected pass-through headset will give a taste of the AR experience around the end of this year, followed by a pair of true AR glasses that are still in early development. Its first products are said to be aimed at designers and other creative professionals, rather like its high-end Macintosh computers. Still, the firm’s entry into the industry could prove to be a watershed. “Apple’s ability to drive adoption is probably unparalleled in the market,” says Mark Shmulik of Bernstein. It will hope to do brisk business in China, where its rival Meta is banned. IDC predicts that in 2026 20m pairs of AR glasses could be shipped worldwide, making them about twice as popular as VR goggles are today.The big question is whether headsets can go beyond gamers and professionals, to take on the ubiquitous role that smartphones play—in other words, to become a true tech platform rather than just an accessory. Today’s headsets are good at solving “very specific pain-points”, says Tony Fadell, a former Apple executive who helped develop the iPhone. A generalisable platform such as an iPhone “is a whole different story”, he says. “And I don’t believe it,” he adds, at least for the next five years. In the foreseeable future, Mr Fadell thinks, headsets will be like smart watches, popular but not revolutionary in the way the smartphone has been.Mr Spiegel agrees that headsets will not fully replace phones, just as phones have not done away with desktop computers. But, he points out, “one overarching narrative is that computing has become way more personal”. It has moved from the mainframe, to the desktop, to the palm of the hand. The next step, he believes, is for computing to be “overlaid on the world around you” by AR. Desktop computing was mainly about information processing, and smartphones were mainly about communication. The next era of computing, he suggests, will be “experiential”.In this scenario, headsets could be part of a broader ecosystem of wearable technology that draws consumers’ attention—and spending power—away from the smartphones that have hypnotised them for the past decade and a half. With smart watches, smart earphones and, soon, smart glasses, the phone could become personal computing’s back office rather than its primary interface. Gadgets on your eyes would complement the “things on our wrists, things on our ears and things in our pockets”, says Mr Shmulik. One day, “you might even forget that you’ve got your phone.” More

LUXURY BRANDS used to speak in monologues. News about their latest collections flowed one way—from the boardroom, via billboards and editorial spreads in glossy magazines, to the buyer. In the age of social media, the buyers are talking back. One group, in particular, is getting through to fashion bosses: influencers. These individuals have won large followings by reviewing, advertising and occasionally panning an assortment of wares. Their fame stems not from non-digital pursuits, as was the case with the A-list stars who used to dominate the ranks of brand ambassadors, but from savvy use of Instagram, Snapchat or TikTok. Their posts seem frivolous. Their business isn’t.For consumers, influencers are at once a walking advert and a trusted friend. For intermediaries that sit between them and brands, they are a hot commodity. For the brands’ corporate owners, they are becoming a conduit to millennial and Gen-Z consumers, who will be responsible for 70% of the $350bn or so in global spending on bling by 2025, according to Bain, a consultancy. And for regulators, they are the subject of ever closer scrutiny. On March 29th news reports surfaced that China’s paternalistic authorities are planning new curbs on how much money internet users can spend on tipping their favourite influencers, how much those influencers can earn from fans, and what they are allowed to post. Taken together, all this makes them impossible to ignore.Few reliable estimates exist of the size of the influencer industry. One in 2020 from the National Bureau of Statistics in China, where influencers gained prominence earlier than in the West, estimated its contribution to the economy at $210bn, equivalent to 1.4% of GDP. As with many things digital, the pandemic seems to have given it a fillip, as more people were glued to their smartphones more of the time.EMarketer, a firm of analysts, estimates that 75% of American marketers will spend money on influencers in 2022, up from 65% in 2020 (see chart). Brands’ global spending on influencers may reach $16bn this year, more than one in ten ad dollars spent on social media. Research and Markets, another analysis firm, reckons that in 2021 the middlemen made $10bn in revenues globally, and could be making $85bn by 2028. The ranks of firms offering influencer-related services rose by a quarter last year, to nearly 19,000.The influencer ecosystem is challenging the time-honoured tenets of luxury-brand management. Apart from being one-directional, campaigns have tended to be standardised, unchanging and expensive. An exclusive group of white actresses with the right cheekbones was supposed to signal consistency, as well as opulence. The same smile from the same photograph of the same Hollywood star would entice passers-by to purchase an item for many years. Julia Roberts and Natalie Portman have been the faces of Lancôme’s bestselling La Vie est Belle perfume and Miss Dior, respectively, for a decade. Stars and brands alike are tight-lipped about how much money changes hands, but the figures are believed to be in the millions of dollars. One report put the amount spent by LVMH on the entire Miss Dior campaign at “under $100m” in the past year.Such star-led campaigns can feel aloof to teenagers and 20-somethings who prize authenticity over timeless glamour. And influencers, with their girl- or boy-next-door charm, offer this in spades—for a fraction of the fee of a big-name star. The best ones are able to repackage a brand’s message in a way that is harmonious with their voice, their followers’ tastes and their platform of choice (Instagram is best for all-stars with over 2m followers and TikTok for niche “micro-influencers” with up to 100,000 followers and “nano-influencers” with fewer than 10,000).Influencers are particularly adept at navigating social-media platforms’ constantly evolving algorithms and features. For example, when Instagram’s algorithm seemed to begin favouring short videos (“reels”) over still images, so did many influencers. As social-media apps introduce shopping features, influencers are combining entertainment and direct salesmanship. Such “social commerce” is huge in China, where it was invented. In October 2021 Li Jiaqi, better known as Lipstick King, notched up nearly 250m views during a 12-hour streaming session in which he peddled everything from lotions to earphones ahead of Singles’ Day, that country’s annual shopping extravaganza. He and Viya, a fellow influencer, flogged $3bn-worth of goods in a day, half as much again as changes hands daily on Amazon.Many influencers manage their production in ways that traditional ambassadors never could. They are video editors, scriptwriters, lighting specialists, directors and the main talent wrapped into one. Jackie Aina, whose beauty tips attract over 7m followers across several platforms, explains the importance of high-quality equipment that can show texture, accurate colour grading—“Not to mention the lighting.” Ms Aina’s 30-second lifestyle TikToks can take hours each to make.This production value, combined with access to the influencers’ audiences, translates into value for the brands. Gauging how much value, precisely, is an inexact science. Launchmetrics, an analytics firm, tries to capture it by tracing a campaign’s visibility across print and online platforms. The resulting “media impact value” (MIV) reflects how much a brand would need to spend to gain a given degree of exposure—itself indicative of the expected return from a marketing drive. On this measure, which brands use to see how they stack up against rivals, the three-day wedding of Chiara Ferragni, an Italian with 27m Instagram followers, a fondness for pink and a Harvard Business School case study, generated a total of $36m in MIV for brands including Dior, Prada, Lancôme and Alberta Ferretti, which made the bridesmaids’ gowns. That compares with $25m for the more conventional—and almost certainly pricier—video campaign for Louis Vuitton’s autumn/winter 2021 collection for which the fashion house enlisted BTS, a hit South Korean pop group.As well as new opportunities, influencers present new risks, especially for brands whose luxury identities rely on price discipline and exclusivity. Influencer-led live-streamed shopping events in China by Louis Vuitton and Gucci were ridiculed for cheapening their brand. And full-time influencers’ large teams can run up quite a tab. Adam Knight, co-founder of TONG Global, a marketing agency with offices in London and Shanghai, notes how Lipstick King’s live-streaming success has fuelled demand for his services among brands—but also his own kingly demands. Mr Li’s fees, commissions and exclusive perks only pay for themselves if the event is a smash hit. Otherwise, Mr Knight says, the client’s profit “just completely erodes”.There are more indirect costs to consider, too. A host of younger and more unpredictable brand ambassadors is harder for brands to control than one or two superstars on exclusive contracts with good-behaviour clauses. Though influencers’ shorter contracts make them easier to replace should they step out of line, untoward antics can be costly. Before the latest clampdown Chinese authorities had already forced 20,000 influencer accounts to be taken down last year on grounds of “polluting the internet environment”. Luxury brands are reportedly cutting their influencer spending in China in response. Regulators around the world, as well as some social-media platforms, are beginning to clamp down on influencers who do not tag their content as advertorials.Such worries explain why some luxury houses are leery of influencers. Hermès, the French purveyor of scarves and Birkin bags, maintains a social-media presence that is conspicuously influencer-free. But more feel the benefits outweigh the costs. Despite Louis Vuitton’s and Gucci’s live-streaming flops, LVMH and Kering, the brands’ respective owners, continue to rely on influencers to create social-media momentum. To be a top-ten brand, says Flavio Cereda-Parini of Jefferies, an investment bank, you have to know how to play the digital game. If you don’t, “you are not going to be top ten for very long.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The rise of the influencer economy” More

WHAT DOES it take to rein in two of the biggest companies on the planet? A coalition of Swedish music-streamers, South Korean politicians and Dutch dating apps, apparently. They seem to be succeeding where America’s federal government has failed: to force changes to the way Apple and Google run their app stores.The app stores are big businesses, with combined sales last year of $133bn, three times the total five years earlier (see chart). Apple and Google take a cut of up to 30%, which is thought to contribute a fifth of the operating profits at Apple and Alphabet, Google’s parent company. The 30% levy began in Apple’s iTunes music store and was copied to its iPhone app store, launched in 2008. As people came to use their phones for gaming, streaming and much else, it evolved into a tax on digital activity. Sign up to a service like Disney+ on your phone and Apple or Google get a cut of your subscription for ever. Apps have had to use the tech duo’s payment systems, and could not tell users about other ways to sign up. Gripes from app developers have forced only minor concessions: last year Apple said it would let them link to external payment pages and Google reduced its fees for subscriptions. Now, though, the dam is bursting.Last summer South Korea banned app stores from forcing developers to use a particular payment system. In December Dutch regulators made a similar ruling against Apple, after a complaint by developers of dating apps. On March 23rd the trend went global. Google announced a deal with Spotify, a vocal critic of app-store fees, to let the music-streamer handle its own billing. Google will lower its commission rate, probably in line with the four-percentage-point cut agreed in South Korea. It says more deals are on the way.Google’s magnanimity anticipates laws that may require bigger concessions. A bill before America’s Congress would force app stores to allow payment alternatives and let apps advertise other ways to sign up. A bigger threat comes from the EU’s Digital Markets Act (DMA), approved in draft form on March 24th. The colossal bill covers various aspects of digital markets, including app stores. The DMA, which is on track to come into force next year, would force mobile platforms to allow third-party app stores and “sideloading” of apps directly from the web—something Google permits but Apple does not. Offenders face fines of up to 20% of worldwide revenue and bans on acquisitions. Breaking open walled gardens, the DMA’s proponents say, will strengthen competition.Apple’s boss, Tim Cook, has warned that sideloading would “destroy the security of the iPhone”. That is a bit much: Apple allows sideloading on its desktop computers without calamity. But Apple’s much bigger share of the mobile market could make the iPhone a juicier target for malware. And the company trades heavily on privacy and security. Despite what the authors of the DMA seem to believe, writes Benedict Evans, a tech analyst, you cannot “pass laws against trade-offs”. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Store wars” More