Philippa Kaur

“SOUTH OF THE Huai river few geese can be seen through the rain and snow.” In classical Chinese this verse is a breakthrough—not in literature but in computing power. The line, composed by an artificial intelligence (AI) language model called Wu Dao 2.0, is indistinguishable in metre and tone from ancient poetry. The lab that built the software, the Beijing Academy of Artificial Intelligence (BAAI), challenges visitors to its website to distinguish between Wu Dao and flesh-and-blood 8th-century masters. Anecdotal evidence suggests that it fools most testers.The system, whose name means “enlightenment” and which can emulate lowlier types of speech, derives its power from a neural network with 1.75trn variables and other inputs. GPT-3, a similar model built a year earlier by a team of researchers in San Francisco and deemed impressive at the time, considered just 175bn parameters. As such Wu Dao represents a leap in this type of machine learning, which tries to emulate the workings of the human brain. That delights fans of classical literature—but not as much as it does the Communist authorities in Beijing, which have put AI at the heart of China’s technological and economic master plan first set out in 2017. It spooks Western governments, which worry about AI’s less benign applications in areas like surveillance and warfighting. And it intrigues investors, who spy a huge business opportunity.On the face of it, the plan is off to a good start. The logistics arm of JD.com, an e-commerce group, operates one of the world’s most advanced automated warehouses near Shanghai. In May Baidu, China’s search giant, launched driverless taxis in Beijing. SenseTime’s “smart city” AI models—urban surveillance cameras that track everything from traffic accidents to illegally parked cars—have been deployed in more than 100 cities in China and overseas. China has been deploying more AI-assisted industrial robots than any other country. And in 2020 it surpassed America in terms of journal citations in the field.The five most prominent listed Chinese AI specialists are collectively worth nearly $120bn (see chart 1). The biggest of them, Hikvision, has a market value of $60bn. SenseTime, which went public in Hong Kong on December 30th, is worth $28bn. Two more are expected to list soon. In 2020 investments in unlisted AI startups reached $10bn, according to the AI Index compiled by researchers at Stanford University. In its prospectus SenseTime forecasts that revenues from AI-assisted image-recognition and computer-vision software, the most mature part of the market, could hit 100bn yuan ($16bn) by 2025, up from 24bn yuan in 2021 (see chart 2).Look beyond the headlines or Wu Dao’s elegant verses, however, and things look more complicated. Yes, China has made progress on AI, and even the occasional big splash like Wu Dao. But it almost certainly still lags behind America in terms of both investment and cutting-edge innovation. In 2020, three years into the master plan, privately held Chinese AI firms received less than half as much investment as their American counterparts. And a lot of the public and private money pouring into the sector may end up being wasted.China’s five-year-old AI master plan set out a number of goals. For example, by 2025 the country is to create an industry with global revenues of 400bn yuan, achieve “major breakthroughs” in technology and lead the world in some applications. Five years later it is to dominate the industry (by then worth $1trn in sales), having written its ethical code and set its technical standards, just as Europe and America defined the contours of the Industrial Revolution.Elements of the Communist Party’s approach are characteristically prescriptive. The Ministry of Science and Technology has instructed China’s tech giants with existing ventures in certain subdisciplines of AI—Tencent in medical image recognition, Baidu in autonomous driving—to double down on these. That said, the plan is less hands-on than some of the country’s other development projects, observes Jay Huang of Bernstein, an investment firm. In the words of Huw Roberts of Oxford University and five co-authors, the blueprint acts chiefly as a “seal of approval” which “derisks” assorted AI initiatives championed by central-government entities, local authorities and the private sector.In practice, the derisking involves doling out lots of public money. Some of this takes the form of tax breaks and subsidies, as in the “little giants” programme to nurture 10,000 promising startups across various sectors, including AI. Local governments, even in poor rustbelt provinces such as Liaoning in the far north-east, have also dangled similar incentives in front of AI-curious companies.Another type of support comes from government procurement. Firms do not disclose how much revenue they derive from public-sector contracts. But the share is likely to be significant. Central and local authorities use SenseTime’s surveillance technology. Megvii, which also specialises in image recognition, has extensive dealings with state-owned enterprises.The state is also investing in AI companies directly. The central government runs several tech-investment vehicles. Local governments are increasingly creating their own, often armed with billions of dollars. Tianjin, a coastal metropolis, announced a $16bn AI fund in 2018.Government capital is increasingly helping plug a gap left by foreign investors scared away by American sanctions against some of China’s AI darlings, which are seen as being too close to the Communist Party. A fund run by the Cyberspace Administration of China, a regulator, has acquired an undisclosed stake in SenseTime, which last month was hit by another round of American sanctions over its alleged involvement in government repression of the Uyghur ethnic minority. (SenseTime says that the sanctions are based on a “misperception” of its business.) A separate vehicle, the Mixed-Ownership Reform Fund, accounted for $200m of the $765m that the firm raised in its initial public offering (IPO). Local governments chipped in another $220m.Lost in translationState dosh, combined with access to plentiful public data, has helped turn Chinese AI firms into powerhouses in certain niches. According to Bain, a consultancy, by last June the cloud division of Alibaba, China’s e-commerce behemoth, was offering 62 AI-enabled services, from voice recognition to video analytics, compared with 47 from its closest Western rival, Microsoft. SenseTime and Megvii mass-produce computer-vision software and hardware that can be adapted to and installed in individual factories. Despite being locked out of most Western markets by the American sanctions, SenseTime raked in 762m yuan in overseas revenues in 2020, compared with 319m yuan two years earlier, mostly from South-East Asia.For all these successes, though, China’s AI industry trails the West in important ways. Despite leading America in the overall number of AI-related publications, China produces fewer peer-reviewed papers that have academic and corporate co-authors or are presented at conferences, both of which are typically held to a higher standard. It ranks below India, and well below America, in the number of skilled AI coders relative to its population. These shortcomings are likely to persist, for three reasons.First, capital may not be being allocated efficiently. It is unclear, for example, how much of Tianjin’s $16bn kitty has actually been deployed. More damaging, Beijing has created a system for rewarding local officials that favours debt-fuelled spending and seldom punishes wastefulness.Many state AI investments have been “reckless and redundant”, says Jeffrey Ding of Stanford University. Zeng Jinghan of Lancaster University has documented the rise of firms that falsely claim to be developing AI in order to suck up subsidies. One analysis by Deloitte, a consultancy, estimated that 99% of self-styled AI startups in 2018 were fake. Such boondoggles not only burn through public cash, Mr Ding notes, but also consume scarce human capital that could more usefully have been deployed elsewhere.China’s second problem is its inability to recruit the world’s best AI minds, especially those working on high-level research. A study in 2020 by MacroPolo, a Chicago-based think-tank, showed that more than half of top-tier researchers in the field were working outside their home countries. America and Europe look more appealing to such footloose brainboxes, including many Chinese ones. Though about a third of the world’s top AI talent is from China, only a tenth actually works there. A shortage of non-Chinese researchers further handicaps China’s capabilities, notes Matt Sheehan of the Carnegie Endowment for International Peace, a think-tank in Washington.Even more problematic for the party, its master plan ignored the cutting-edge semiconductors that power AI. Since its publication Chinese companies have found it ever more difficult to get their hands on advanced computer chips. That is because virtually all such microprocessors are either American or made with American equipment. As such, they are subject to restrictions on exports to China put in place by Donald Trump and extended by his successor as president, Joe Biden. It will take years for Chinese companies to catch up with the global cutting-edge, if they can do it at all.These challenges will continue to bedevil all of China’s high-tech industries for years to come. It could leave its AI businesses stuck in a rut—successfully rolling out relatively unsophisticated products while trailing Europe and America in paradigm-shifting developments of greater financial and strategic value. Consider Wu Dao 2.0. Although it was a huge improvement on GPT-3, it did just that—improve an existing technology rather than break new ground. No amount of Chinese taxpayers’ money is likely to change that. ■This article appeared in the Business section of the print edition under the headline “In search of mastery” More

THANKS TO A venture-capital (VC) boom, it is no longer unusual to find tech unicorns, as unlisted startups valued above $1bn are known, springing up in middle-income countries. However, two coming from Turkey are particularly strange creatures. First, they are big. Trendyol, an e-commerce company, is valued at $16.5bn, giving it the status of a “decacorn” worth $10bn or more. Getir, a pioneer of “superfast” grocery delivery, is reportedly close to joining that select group. Second, they are battle-hardened. Both come from a country wracked by inflation, currency instability and barmy economic policies, any of which can be kryptonite for investors. Most striking, their founders bear no resemblance to archetypal tech bros. Trendyol’s Demet Mutlu is a 39-year-old woman. Getir’s Nazim Salur is a 60-year-old man.And yet look closely at their two companies, now worth more than almost any listed firm in Turkey, and the differences outweigh the similarities. Fittingly for a country that sees itself as a gateway between the Orient and the West, their view from the Bosporus is Janus-like. One takes its inspiration from China, the other looks to Europe and America. One shuns the spotlight. The other craves it. One wants to turn women into go-getters. The other has the male-sounding mantra of “democratising the right to laziness”. They encapsulate several different dimensions of the tech divide. That makes them intriguing to compare and contrast.Start with the division between East and West. In simple terms, this represents a choice between Asian-style super-apps and Silicon Valley-style blitzscaling. Trendyol’s biggest backer is Alibaba, and the Chinese e-emporium’s influence runs deep. The Turkish firm shares Alibaba’s marketplace model: it accounts for more than a third of e-commerce in Turkey and provides a platform for trading about $10bn a year of merchandise. Unlike Amazon, the American giant, it sells only a few of its own goods. Like Alibaba, it calls itself a super-app, aiming to offer a variety of services, including payments, on its platform, and it puts the importance of its small-business sellers, who are everywhere in Turkey, on a par with buyers. International expansion, when it comes, will probably be to emerging markets, such as those in eastern Europe and the Middle East. It believes, as Alibaba does, that the super-app potential is greatest in such young, mobile-mad places.By contrast, Getir’s first international backer was Michael Moritz of Sequoia Capital, an American VC firm. Aptly, its strategy borrows from the Silicon Valley playbook: blitzscale first, make money later. Founded in 2015, Getir claims to have invented the business of delivering groceries in under ten minutes (unsurprisingly in Istanbul, where few people live more than ten minutes from a shop, many of Mr Salur’s friends wondered at first why they would need it). Discounts help get customers hooked, Mr Salur says. Then, he hopes, the temptation to treat Getir like a personal butler will take over. With competition from America’s Gopuff and Germany’s Gorillas growing, speed is of the essence. Since launching its first international operation in Britain a year ago, the firm has moved through the developed world almost as fast as its purple-and-yellow-clad moped riders dash through the streets of London. It is now in 40 cities in Europe and America, from Barcelona, via Bristol, to Boston.Mr Salur has long set his sights on penetrating America—and eventually listing the firm there. “If you’re a startup guy, you want to succeed where the startups are,” he says. In true American style, he revels in media attention. Getir welcomed your columnist to a brightly lit depot (“dark store” is a misnomer) under railway arches in South London to see baskets of biscuits and avocados whizzing out the door. Only when discussing the financials of a cash-guzzling business is Mr Salur guarded. He declines to comment on its latest valuation, which Bloomberg reports to be as high as $12bn. “When money is in the bank, you will hear about it.”Ms Mutlu could not be more different. She has put a China-like media firewall around Trendyol and mostly shuns interview requests. One of the few nuggets commonly repeated about her is that she dropped out of Harvard Business School to set up Trendyol in Turkey. And yet she is more remarkable than that. Besides founding Trendyol, she co-founded another Turkish unicorn, a gaming company sold to San Francisco-based Zynga for $1.8bn in 2020. To put that into perspective: PitchBook, a data gatherer, calculates that of 1,335 unicorns globally, only 185, or just under 14%, have at least one female founder.Furthermore, Ms Mutlu is described by an investor as “maniacal” about tech. Having started out selling fashion items on Trendyol, she is a champion of Turkey’s textile industry. She is also an advocate (albeit a media-shy one) for women in the digital economy. Women make up about half of Trendyol’s employees, including some software engineers, and many of her buyers and sellers. Those who know her say she struggled to be taken seriously as she built her business. Adding to the frustration, she did not know whether it was because she was a woman, or Turkish, or both.Ottoman empire-buildersThese are heady times for startups everywhere. Both companies are aware that they have thrived at a time when VC funding across the globe is frenzied—and sometimes indiscriminate. Neither is likely to do an initial public offering soon, at least until the valuation shortfall of public versus private markets narrows.Yet they have also benefited from growing up in Turkey’s school of hard knocks. Living amid galloping price increases prepares them for a world that is reawakening to the menace of inflation. In a country where VC funding was negligible until 2021, they learned to operate leanly. And they stand proudly behind names that are hard-to-pronounce in English. As Mr Salur quips: “Remember Arnold Schwarzenegger? He didn’t change his name.” It may be time to get used to them. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.Read more from Schumpeter, our columnist on global business:TikTok isn’t silly. It’s serious (Jan 15th 2022)Glencore’s message to the planet (Jan 1st 2022)The billionaire battle for the metaverse (Dec 18th 2021)This article appeared in the Business section of the print edition under the headline “East v West, Venus v Mars” More

WHEN UNILEVER bought Bestfoods for $20.3bn at the turn of the millennium, it was one of the largest cash acquisitions ever. After two failed bids, the British consumer-goods giant dug up an extra $2bn to sweeten the deal. It divested 700 of its brands in the year that followed but replenished its larder with Bestfoods’ Knorr soup and Hellman’s mayonnaise. Now, in pursuit of another mega merger that could be four times as big, Unilever has been prepared to dispose of the larder entirely.Unilever’s new target has been the consumer-health unit of GlaxoSmithKline (GSK), a British drugmaker. On January 15th it emerged that the soup-to-soap group was offering to pay £50bn ($68bn) for the business. GSK, which has been keen to ditch the division in order to focus on more lucrative prescription medicines, refused to bite. The markets choked: Unilever’s share price fell by 7% the next trading day. Analysts are almost uniform in their view that the deal is a bad idea, arguing that it presents more risk than Unilever, with a market capitalisation of £94bn, can stomach. Selling lagging categories like food may not be enough to fund the transaction, of which nearly £42bn would be in cash. Fitch, a ratings agency, warned that Unilever could lose its A credit rating if it took on too much debt.Alan Jope, who took over as chief executive three years ago, sees the future of consumer goods in health and hygiene products rather than food. Hand sanitiser and paracetamol have certainly sold well during the pandemic. Moreover, Unilever has a big presence in developing countries, which could create new markets for GSK’s brands such as Sensodyne toothpaste and Advil painkillers. Still, on January 19th the company, possibly having read all the warning labels about the deal, said it would not raise its offer above £50bn, which GSK’s bosses said undervalued their division. This may end the pursuit.It won’t end Mr Jope’s troubles. He is under immense pressure to improve the group’s performance. The affable Scotsman has so far been unable to reignite growth in his three years in charge. Unilever’s share price has declined in the pandemic even as those of rivals such as Nestlé, a Swiss giant, or Procter & Gamble (P&G), an American one, have gone up by more than 20% (see chart). A career-defining deal might have set him apart from his predecessor, Paul Polman, who was known for eschewing financial engineering. If the £50bn transaction came to pass, it would be one of Britain’s biggest-ever.There is also a growing sentiment that Unilever’s zeal for purpose-driven brands, first instilled by Mr Polman, has run out of steam. From ethically sourced tea and fighting deforestation with sustainably-sourced palm oil to marketing Dove soap as a women’s-self-esteem project, the firm has sought to connect with shoppers on their values and draw investors interested in environmental, social and governance (ESG) factors as well as profits. Although ESG remains popular, hints of a backlash against it are appearing. This month Terry Smith, an asset manager who is among Uni lever’s top ten shareholders, groused that the firm has “lost the plot” by pursuing sustainability medals at the expense of financial performance. A hard-headed pivot to a more profitable health business could, if successful, allay such worries.The deal would have been problematic, and not just because it looked like a heavy lift for Unilever. Megamergers seldom work out as advertised, and Mr Jope’s firm is not renowned for stellar execution. Moreover, the consumer-health market is expanding but incumbents’ share of it is not. Established brands have a place—people need to brush their teeth—but growth in the sector increasingly comes from a new pharmacopoeia of clever products and services, many of them with digital features. Even in good years GSK’s consumer-health division has grown at best in single digits. The long-term growth prospects for its brands look pale. Antacids and nicotine patches have only limited potential, even in emerging markets.Unilever’s rivals have been more discerning with their acquisitions. In 2020 Nestlé acquired Aimmune, a novel peanut-allergy medication, and a year later it bought Nuun, a challenger in the sports-beverage market. Both deals gave the Swiss firm a foothold in profitable, underdeveloped niches. P&G is dabbling in premium skincare, one of the industry’s fastest-growing categories, with its latest acquisitions Tula Skincare and Farmacy Beauty. If Unilever does end up disposing of its food business, it may also miss out on the boom in alternative proteins, notes Bruno Monteyne of Bernstein, a broker. Meat substitutes appear certain to become more popular with time and companies like Unilever stand to benefit, given their mix of solid research-and-development base and brands beloved by consumers.Unilever says it has another, undisclosed initiative up its sleeve to improve performance. It had better. The pandemic boost notwithstanding, the entire consumer-goods industry has experienced slower growth over the past decade. With the exception of Nestlé, European companies have done poorly. Unilever needs some refreshing, but more toothpaste won’t do the trick. ■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 “Health cheque” More

DARREN WOODS made some revealing remarks this week about global warming. His ruminations matter in America’s oil industry for he is the boss of ExxonMobil, the largest Western oil major. His firm has historically been less enthusiastic than its rivals about taking climate change seriously. But a shareholder revolt last May placed three green-tinted directors on its board. That has put pressure on the Texan company’s management to curb emissions with more ambition.On January 18th Mr Woods unveiled the firm’s long-awaited update to its climate strategy. “Is society sincere in its desire for a lower-emissions future?” asked the veteran oilman when pressed on the thinking behind the plan. It is, he says. “And so are we.” Evidence for this lies in a newfound willingness to commit to hard targets for cutting greenhouse-gas emissions.The first, long-term target is for the company eventually to achieve carbon neutrality in its operations by 2050. It has been fashionable of late for big firms to claim that they will achieve “net zero” emissions by some distant date. Not all of them lay out concrete plans for how they will actually do this. Often, they plan to rely heavily on carbon offsets, which could let them buy emissions credits of dubious quality cheaply rather than making painful emissions cuts and costly changes to their operations. Mr Woods has previously dismissed such proclamations as nothing more than a “beauty competition”.In contrast to such pageants, ExxonMobil’s new long-term goal is accompanied by concrete plans for cutting emissions this decade. And in a big U-turn, the firm will commit to absolute cuts in its carbon emissions—a step it has long resisted in favour of squishier reductions in “emissions intensity”. It pledged to emit about 20% less greenhouse gases by 2030 relative to 2016, with emissions from exploration and production set to decline by approximately 30% over that period. Thirty-plus operating divisions will each get a binding target, which will add up to the company-wide total. Managers at each division will then be held accountable for achieving those cuts, with no wiggle room or trading among divisions permitted.[embedded content]The firm’s plans for its shale business in America’s Permian region are illustrative. ExxonMobil says it will achieve net-zero operating emissions in this region, responsible for over 40% of its American hydrocarbon output, within the decade. It plans to achieve most of that through the use of novel low-carbon technologies and improvements in its practices, from replacing leaky compressors and powering operations with green energy to carbon capture and storage (CCS). It is flaring less methane, a potent greenhouse gas, and working with third parties to monitor fugitive emissions using satellites, aerial reconnaissance and sensors. The firm insists it will rely on carbon offsets for at most “a few percentage points” of emissions cuts.ExxonMobil’s new plan is, then, an improvement on its earlier climate recalcitrance. How much it actually does for the planet is another matter. Unlike many rivals, ExxonMobil does not count emissions from fields operated by joint-venture partners, which gives a fuller picture. Most important, the road map covers only emissions emanating from the company’s own operations and energy use (scope 1 and scope 2 emissions, respectively, in the jargon). European rivals such as BP, Shell and TotalEnergies have additional targets to reduce the emissions intensity of their products by 2050. That is why they have piled into renewables.Some oilmen argue that the makers of petrol-burning cars or their drivers should share more of the responsibility for limiting these “scope 3” emissions. Such arguments, though not wholly without merit, are also self-serving: end users can account for 80-90% of the total climate-warming gases associated with fossil fuels. Ignoring them in your carbon accounting seems mighty convenient.ExxonMobil’s plan does open the door to a pursuit of fuller net-zero beyond scopes 1 and 2. But it is not interested in renewables, which is a lower-margin business than oil (as reflected in the European firms’ lower valuations). Instead, it is investing $15bn over the next five years in areas such as hydrogen, CCS and biofuels. The snag is that these promising low-carbon technologies have not yet found profitable business models.They may never do, at least without government inducements. ExxonMobil believes that decarbonisation carrots in the form of tax credits and subsidies will offset some of the higher costs of its low-carbon bets and help keep the firm’s overall margins high. Ultimately, Mr Woods says, low-carbon strategies will require some state support in order to generate good returns. If big oil is to make big profits from the energy transition, in other words, it needs big government. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

A RATHER GOOD black comedy called “Another Round” depicts what happens when a bunch of disenchanted Danish school teachers constantly top up the levels of alcohol in their blood. At first the experiment goes well: the students respond enthusiastically to their newly inspiring teachers. But unconsciousness, bed-wetting and worse soon ensue. By the end of the film, it is almost like a normal day in Downing Street.A series of revelations about parties held in the home of the British prime minister during the pandemic, while the rest of the country was subject to covid-19 restrictions that banned such jollity, has put Boris Johnson’s job on the line. The story has brought with it allegations of a culture of drinking among staff in Number 10: whip-rounds among colleagues to buy a wine-cooler; “prosecco Tuesdays” and “wine-time Fridays”; a suitcase used to ferry booze into the office.Downing Street is a specific place: most people can socialise outside work without worrying about journalists eavesdropping. “Partygate” nonetheless raises the wider question of whether alcohol belongs in any office.The pitfalls of combining drink and work are obvious. One is safety: a study from 2005 found that one in four industrial accidents worldwide could be attributed to drugs or alcohol. A second is that it encourages addiction. Alcohol use is the biggest risk factor for premature death and disability among 15-to-49-year-olds globally, according to the World Health Organisation. Research carried out in Canada found that norms encouraging workplace drinking, whether getting a round in after work or making booze available in the office, were predictive of alcohol problems.A third consideration is the effect of sloshed colleagues on their co-workers. Roughly one-sixth of Norwegian employees say they experience harm from their colleagues’ drinking, whether through unwanted sexual attention or simply feeling excluded. A recent 12-country survey found that 9% of employees each year experience some negative spillover effect, principally through having to cover for their co-workers in some way.No wonder some organisations ban drinking on the premises or in working hours. Lloyd’s of London, an insurance marketplace long associated with boozing, stopped its own employees from imbibing between 9am and 5pm in 2017; two years later it extended the prohibition to the much larger group of people with access to its building. But boundaries are hard to police. Lots of work-related drinking happens after hours and out of the office. That is especially true in the wake of the pandemic, when the lines between office and home have become so blurred. Is someone working at home with a glass of wine drinking on the job?Bans can also be counterproductive. Lunches may not be as liquid as they once were, but salespeople will still sometimes want to wine and dine a client. A paper from 2012 found that a certain level of intoxication improved people’s problem-solving ability; writers at The Economist have been known to combine claret and keyboard. Work drinks are a simple way to show appreciation for employees. Plenty of people enjoy alcohol and are capable of doing so in moderation. Leaving dos and office parties would be a lot less fun for many without a glass in hand.The liberal argument—that, within reason, people should be able to make their own choices—is a good way to frame policies on work-related drinking. Let people have a tipple, so long as it does not impair their productivity. Make sure that choice genuinely goes both ways: stigmatising non-drinkers is a problem, particularly in boozy cultures like South Korea’s. Normalise restraint, by restricting the frequency of work events and the amount of drink on offer.And if you do worry about your drinking culture, the Downing Street shambles can help. Here are ten signs that things may be getting out of hand:• You think a suitcase is a unit of measurement.• You try to expense your fridge as a piece of office equipment.• You bring booze to work events and laptops to parties.• Your behaviour requires you to apologise to the queen.• You cannot count to ten.Alcohol and work can go together, but in moderation. That may not be the most original advice in the world, but following it would have left Mr Johnson with less of a headache. More

EVEN FOR Microsoft, which boasts a market capitalisation of around $2.3trn, $69bn is a lot of money. On January 18th the firm said it would pay that sum—all of it in cash—for Activision Blizzard, a video-game developer. It is both the biggest acquisition ever made in the video-game industry and the biggest ever made by Microsoft, more than twice the size of the firm’s purchase in 2016 of LinkedIn, a social network, for $26bn (see chart). The move, which caught industry-watchers by surprise and propelled Activision Blizzard’s share price up by 25%, represents a huge bet on the future of entertainment. But not, perhaps, a crazy one.The gaming industry was growing apace before the pandemic. Covid-19 lockdowns bolstered its appeal—to hardened gamers with more time on their hands and bored neophytes alike. Worldwide revenues shot up by 23% in 2020. NewZoo, an analysis firm, puts them at nearly $180bn. Microsoft is already a big player in the business, thanks to its Xbox games console. It has made a string of gaming acquisitions since 2014, when Satya Nadella, its chief executive, took the reins. The Activision Blizzard deal would cement its position. Once completed in 2023, it will make Microsoft the third-largest video-gaming firm by revenue, behind only Tencent, a Chinese giant, and Sony, Microsoft’s perennial rival in consoles.Activision Blizzard’s share price had slid by around 40% between a peak last February and the deal’s announcement, as the company was embroiled in a sexual-harassment scandal and some of its games underwhelmed. That may have made it look cheap in relative terms, given the benefits it brings to Microsoft. It boasts annual revenues of around $8bn and net profit margins of 30%. Most important, Activision Blizzard offers plenty of content—and in video games, as in the rest of the media industry, content is king, says Piers Harding-Rolls of Ampere Analysis, another research firm. Like the film business, where “Star Wars” films, even bad ones, are reliable money-spinners, video games rely increasingly on “franchises”—popular settings or brands that can be squeezed for regular new games. Activision Blizzard boasts, among others, “Call of Duty”, a best-selling series of military-themed shoot-em-ups, “Candy Crush”, a popular pattern-matching mobile game, and “Warcraft”, a light-hearted fantasy setting.In the short term, the deal gives Microsoft more of a foothold in the smartphone-gaming market, to which it has had little exposure. King, a mobile-focused subsidiary of Activision Blizzard, boasts around 245m monthly players of its smartphone games, most of whom tap away at “Candy Crush”. It is also a strike against Sony. If Microsoft controls the rights to “Call of Duty”, it can decide whether or not to allow the games to appear on Sony’s rival PlayStation machine. When Microsoft bought ZeniMax Media, another games developer, for $7.5bn in 2020, it said it would honour the terms of ZeniMax’s existing publishing agreements with Sony, but that Sony’s access to new games would be considered “on a case-by-case basis”.In the longer term, says Mr Harding-Rolls, the deal should help Microsoft achieve its ambition to make gaming cheaper and more accessible (including, if hype is to be believed, in the virtual-reality “metaverse”). Its “Game Pass” product already offers console and PC gamers access to a rotating library of video games, which usually cost $40-60 each, for $10 a month. Adding Activision Blizzard’s catalogue to the service could boost its appeal. It could also strengthen Microsoft’s two-year-old game-streaming service, which aims to use the firm’s Azure cloud-computing division to do for video games what Netflix did for video. Microsoft hopes to stream games across the internet to a phone, television or PC, removing the need to own a powerful, dedicated console or PC. That could lower the cost of the hobby and draw in more players, especially in middle-income countries where smartphones are common but consoles are rare. And that, in turn, would make exclusive content even more valuable.Other firms—both games-industry veterans and arriviste tech titans attracted by the sector’s growth—have streaming ambitions of their own. Sony runs its own service, called “PlayStation Now”. Amazon launched an early version of its own “Luna” service in 2020. “GeForce Now”, a streaming offering from Nvidia, a maker of gaming-focused microchips, launched the same year. But none is as well-placed as Microsoft, which has decades of experience in the games business and boasts the world’s second-largest cloud-computing operation after Amazon. And the more content Microsoft owns, the more attractive it can make its service compared with its rivals.Such thinking may provoke more deals by Microsoft’s competitors, eager to snap up franchises of their own while they can. The gaming industry was already seeing plenty of merger activity. Last year saw five deals worth $1bn or more. On January 10th Take-Two Interactive, a game developer and publisher, spent $13bn to buy Zynga, a maker of mobile-phone games. Besides Amazon, both Apple and Netflix have dipped their toes into the video-game business in recent years; an acquisition by either one could help boost their presence. Consolidation is the name of the game.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

THE PANDEMIC has given a big shove to all forms of digital communication. Video-conferencing platforms have become verbs. Venture capitalists make their bets after watching virtual pitches. Products like Loom and mmhmm help workers send pre-recorded video messages to their colleagues. More than a third of Slack users each week are now “huddling”—using the product’s new audio feature to talk to each other. And all this is before the metaverse turns everyone into an avatar.A workplace dominated by time on screens may seem bound to favour newer, faster and more visual ways of transmitting information. But an old form of communication—writing—is also flourishing. And not just dashed-off emails and entries on virtual whiteboards, but slow, time-intensive writing. The strengths of the written word have not been diminished by the pandemic era. In some ways they are ideally suited to it.*The value of writing is a staple in management thinking. “The discipline of writing something down is the first step toward making it happen,” reckoned Lee Iacocca, a quotable titan of the American car industry. Jeff Bezos banned slide decks from meetings of senior Amazon executives back in 2004, in favour of well-structured memos. “PowerPoint-style presentations somehow give permission to gloss over ideas,” he wrote.Some executives write for themselves. Andrew Bosworth, a bigwig at Meta (formerly Facebook), has a blog in which he muses interestingly on many topics, including on writing itself: “In my experience, discussion expands the space of possibilities while writing reduces it to its most essential components.” Others do so to reach an audience. Shareholder letters from Larry Fink and Warren Buffett are the corporate equivalent of a blockbuster book launch.But the move to remote working has enhanced the value of writing to the entire organisation, not just the corner office. When tasks are being handed off to colleagues in other locations, or people are working on a project “asynchronously”, meaning at a time of their choosing, comprehensive documentation is crucial. When new employees start work on something, they want the back story. When veterans depart an organisation, they should leave knowledge behind. Writing everything down sounds like an almighty pain. But so is turning up to a meeting and not having the foggiest what was decided last time out.Software developers have already worked out the value of the written word. A research programme from Google into the ingredients of successful technology projects found that teams with high-quality documentation deliver software faster and more reliably. Gitlab, a code-hosting platform whose workforce is wholly remote, frames the secret of successful asynchronous working thus: “How would I deliver this message, present this work, or move this project forward right now if no one else on my team (or in my company) were awake?” Gitlab’s answer is “textual communication”. Its gospel is a handbook that is publicly available, stretches to more than 3,000 pages and lays out all of its internal processes.The deliberation and discipline required by writing is helpful in other contexts, too. “Brainwriting” is a brainstorming technique, used by Slack among others, in which participants are given time to put down their ideas before discussion begins. Lists of corporate values can make greeting cards seem hard-hitting. But thoughtful codification of a firm’s culture makes more sense in hybrid and remote workplaces, where new joiners have less chance to meet and observe colleagues.Purists will sniff that none of this counts as writing. But good prose and useful prose share the same essential qualities: brevity, structure, a clear theme. Cormac McCarthy, a prize-winning novelist, copy-edits scientific papers for fun. Ted Chiang says that his science-fiction short stories and his technical writing both draw on a desire to explain an idea clearly.Writing is not always the best way to communicate in the workplace. Video is more memorable; a phone call is quicker; even PowerPoint has its place. But for the structured thought it demands, and the ease with which it can be shared and edited, the written word is made for remote work.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 “Of remote work and writing” More

THE BOSSES of Germany’s 3.6m medium-sized and small manufacturing firms would have loved to see last year’s general election yield a pro-business government of the centre-right Christian Democrats and the liberal Free Democrats (FDP). What the Mittelstand got instead was a pact between the Social Democrats (SPD), the FDP and the Greens. That is still too leftie for many tastes. But it could have been worse. Plenty of chief executives feared that Olaf Scholz, the new SPD chancellor, would row back his pre-election vow not to form a business-bashing coalition that would include Die Linke, a hard-left party.A disaster averted may be one reason why the Mittelstand is not despondent at the start of the new year. Another is that big chunks of the coalition treaty, which runs the length of a slim novel, “go in the right direction”, says Hans-Jürgen Völz, chief economist of the BVMW, a Mittelstand trade body. Still, several gripes remain.One is taxation. During the election campaign the SPD, the Greens and Die Linke mooted the idea of re-introducing a wealth tax and raising inheritance taxes. Such a move would hit the Mittelstand’s family firms hard. It now appears to be off the table thanks to opposition from the FDP, whose boss, Christian Lindner, is the new finance minister. But so, too, is the prospect of a corporate-tax cut, from a headline rate of 30% to 25%, and the abolition of the personal “solidarity” tax (known as soli), the proceeds from which flow to the formerly communist east.The Mittelstand’s second peeve is red tape. “Bureaucracy is costing German business around €50bn ($57bn) a year,” says Mr Völz. Over the last decade parliament has passed three legislative packages to ease the bureaucratic burden on the Mittelstand. But little real progress has been made. According to Nikolas Stihl, head of the supervisory board of Stihl, the world’s leading maker of chainsaws, excessive bureaucracy helps explain why Germany is 30 years late with big infrastructure projects such as the feeder road for the 55km railway tunnel that is being dug beneath the Brenner Pass linking Austria and Italy. “We don’t know any more how to implement big projects,” sighs Mr Stihl.Besides these longstanding gripes the Mittelstand has two more pressing ones. As in many countries, German firms struggle to find qualified workers—or any workers. Bosses want Mr Scholz to push the EU to extend the “blue card”, a work permit that helps university-educated migrants take up job offers in the bloc, to blue-collar workers. A separate Chancenkarte (opportunity card) promised in the coalition treaty would enable migrants to look for work in Germany provided they fulfil criteria such as a working knowledge of German.The most burning problem for manufacturers is the soaring cost of energy. Many also fret about Germany’s dependence on Russian gas. “Even worse than the 70% increase of our company’s energy costs is the worry about security of supply,” says Ferdinand Munk, owner and boss of Günzburger Steigtechnik, a maker of ladders and rescue kit in Bavaria. He worries that “the gas taps could be turned off at any time.” So far Mr Scholz has not signalled how he plans to tackle the energy problem.At least the Mittelstand’s mood is leavened by bursting order books. As demand for goods ballooned in the pandemic, German firms in the manufacturing supply chain have thrived. “We have the highest number of orders in our nearly 100-year history,” beams Andreas Möller, a spokesman for Trumpf, a maker of machine tools in the south German city of Ditzingen. A covid-era gardening boom helped lift Stihl’s sales from €3.9bn in 2019 to €4.6bn in 2020—and the firm is poised to report record revenues in 2021, too.More than half of the firms polled by the BVMW in a recent survey reported that they were in good or very good shape. Nearly 45% said they would hire more staff this year. Over 70% will maintain or increase investments. If shortages of workers or energy prevent these pocket powerhouses from fulfilling orders, Mr Scholz may lose much of the remaining goodwill that the Mittelstand still harbours. ■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 “What the Mittelstand wants” More