Philippa Kaur

MANY PEOPLE, including this columnist, complain that chief executives make bland statements that are full of corporate jargon. It becomes easy to understand why managers are addicted to waffle when a boss foolishly decides to give his employees a piece of his mind.
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The latest culprit was Bill Michael, the British chairman of KPMG, a big consultancy. In a virtual meeting Mr Michael dismissed staff concerns about the pandemic, saying that “you can’t play the role of victim unless you’re sick. I hope you’re not sick and you’re not ill and if you’re not take control of your life. Don’t sit there and moan about it, quite frankly.” Then he waded into the issues of racism and sexism by adding, “There is no such thing as unconscious bias. I don’t buy it. Because after every single unconscious-bias training that’s ever been done, nothing’s ever improved.”
It is possible to put a charitable interpretation on Mr Michael’s remarks. He was hospitalised with covid-19 himself and his definition of sickness may have included mental illness and depression. Those KPMG employees who have been spared illness are probably in a much better position than many other groups of workers. And he may have been arguing that examples of “unconscious bias” are really cases of very conscious prejudice. He followed up by saying: “Unless you care, you actually won’t change.”

But if he was going to make those points, he needed to do so in a more thoughtful and sophisticated manner. He resigned within days, as details of the call were leaked to the media.
Statements to outsiders can be as damaging as those to insiders. Perhaps the most calamitous in recent corporate history were Tony Hayward’s. Then chief executive of BP, an oil giant, he spoke on television in the wake of the Deepwater Horizon tragedy, when 11 workers died and much pollution spread in the Gulf of Mexico. “There is no one who wants this thing over more than I do. You know, I’d like my life back,” he said. The insensitive tone worsened BP’s deteriorating reputation and Mr Hayward was soon gone.
Executives who depart from blandness to express an opinion put their careers at risk. They enjoy little upside and risk plenty of downside. If the executive is the founder, or the business is well-run, they may be spared. It helps if you apologise quickly. John Mackey, chief executive of Whole Foods, an American grocer, dubbed Barack Obama’s health-care reforms “fascist” in 2013 but quickly said he regretted his remarks. He is still in his job.
For Mr Michael, the real killer was the way that his views appeared to insult his staff. Given that KPMG is, above all, a people business, this was a fatal mistake. The modern CEO has to behave more like a cheerleader than a sergeant-major, bucking up their troops rather than berating them. Corporate culture is a slippery concept but if the boss addresses the staff as if they are idiots, the firm is unlikely to prosper.
By the same token, executives should be careful about the stands they take on political issues. When they cause offence, the ramifications can be widespread. Employees want to be proud of the companies they work for, and do not want to struggle to defend their job to their spouses, children or people they meet at Zoom drinks. Some will dub this “political correctness”. In reality it is common sense. Most modern businesses will have many female employees and staff from a variety of ethnic origins. The same is true of their customers. Upsetting the sensibilities of either group is not a sensible strategy.

One thing that the utterances of Messrs Michael and Hayward had in common was that they seemed to be off-the-cuff. Arguably, Mr Hayward had more excuse for misspeaking; he was dealing with wall-to-wall media coverage in the middle of a stressful crisis. Mr Michael appeared to be extemporising in the middle of a long speech. The reverse of Nike’s slogan ought to apply here: just don’t do it. The danger is that top executives are often treated with such reverence by colleagues that they get an inflated view of their own wisdom. Their opinion on non-business matters is worth no more than anyone else’s.
That does not mean executives have to speak entirely in platitudes. There is nothing wrong with having strong opinions about things that are relevant to the business. Warren Buffett’s annual letter to shareholders shows how to combine shrewd observations with humour. But managers should leave the philosophical and political musings to people who stand for election.
This article appeared in the Business section of the print edition under the headline “Foot-in-mouth disease” More

ON FEBRUARY 24th the Financial Times reported that 650 senior partners at McKinsey voted Kevin Sneader, the consultancy’s managing partner since 2018, out of office. The Scotsman’s predecessors typically served two consecutive terms. The vote is seen as a rebuke of his handling of a series of crises, the bulk of which predated his tenure, most recently over McKinsey’s work for opioid producers in America.
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This article appeared in the Business section of the print edition under the headline “McKinsey casts off its managing partner” More

TECHNOLOGY COMPANIES exhibit a curious lexical property. Google and Zoom are verbs. So, in Chinese, is Taobao, the name of Alibaba’s vast e-mall. Uber and Didi, its Chinese ride-hailing rival, are synonyms for “cab”. Facebook means, simply, the internet in Vietnam, where people mostly access the web through its social networks. Amazon, Apple, Microsoft and Netflix are not literally bywords for, respectively, online shopping, smartphones, office software and video-streaming—but they might as well be.
To tech’s critics, these definitional regularities point to something insidious, encapsulating in a word the dominance that each firm wields over its digital fief—some of it possibly ill-gotten. In December American trustbusters sued Facebook for alleged anticompetitive behaviour, and Chinese ones launched an investigation into Alibaba. The central plank of one of three antitrust cases against Google is an agreement under which it pays Apple between $8bn and $12bn a year—about a fifth of Apple’s global profits—for its search engine to appear as the default on Apple devices. Google also allegedly offered Facebook a sweetheart deal not to support a rival ad system backed by news publishers.

Efforts to sever the linguistic links are multiplying. Epic Games, a video-game company that claims Apple is fleecing developers of apps in its App Store, has lodged complaints against it in America and Europe. On February 22nd Britain’s competition watchdog warned of looming antitrust actions against big tech. The European Union is working on regulations to check the firms’ power. Australia has just passed a law that would force them to pay publishers more for news displayed alongside search results or social-media feeds.
From the outside, then, the industry leaves an impression of a cosy club, whose members stay out of each other’s way—or worse, help one another perpetuate their monopolies. And the giants are only becoming more powerful. Last year the world’s ten biggest digital firms by market value raked in net profits of $261bn, as people depended on them for socially distant work, play, shopping and socialising. Their combined market capitalisation swelled by $3.9trn—more than the entire British stockmarket’s worth—implying that investors expect them to gain further clout.
Big tech sees things differently. Alibaba, Apple, Google and Facebook say their various arrangements are perfectly legitimate. The American firms co-operate, it is true, but only in order to ensure interoperability between their products. In fact, all tech titans insist, their relationships are for the most part not chummy but fiercely combative. Brad Smith, president of Microsoft, puts the balance of competition versus co-operation at “80:20” in favour of rivalry. Mark Zuckerberg, Facebook’s chief executive, recently called Apple “one of our biggest competitors”. “We feel like every day we wake up, we are under incredible competitive pressure,” says Phil Schiller, an executive close to Apple’s boss, Tim Cook.

In recent weeks big tech has certainly seen more barbs than bonhomie. Facebook has run ads attacking Apple over new iPhone privacy settings that would ask users if they wanted to opt out of being tracked across other firms’ apps and websites—which, in Facebook’s telling, would hurt small businesses that need it to reach customers (see article). Mr Cook, for his part, has been hinting that Facebook is playing fast and loose with users’ data.
On February 22nd Microsoft teamed up with European news publishers to develop a system similar to the one Google and Facebook had objected to in Australia. When this month Microsoft first expressed support for the Australian scheme, Google shot back that “of course [Microsoft would] be eager to impose an unworkable levy on a rival and increase their market share,” referring to Microsoft’s Bing search engine.
The fighting talk reflects a growing sense within the technology industry that incumbents are under assault. Though dominant firms remain powerful, and occasionally collegial, in one digital market after another challengers are gaining ground. Old-industry champions are at last getting their digital act together, as Walmart is doing in online retail and Disney in streaming. Less-big tech, such as Shopify in e-commerce or Salesforce in the cloud and business software, is also in encroachment mode. A flood of capital pouring into startups could easily translate into even more competition. Most significantly, tech’s mightiest titans are increasingly stomping on each other’s turf.
A defining moment
On this view, the era of winner-takes-all land grabs is fading, as tech enters a new, more competitive phase. If so, the industry’s lexicon may be about to get considerably more complicated.
The shift is furthest along in China. Its two biggest digital groups, Alibaba and Tencent, already compete with each other—and with up-and-coming rivals—across a variety of markets. Alibaba’s share of Chinese e-commerce peaked in 2013 at 62%, according to CLSA, a broker. Last year it was 51% (see chart 1). Once-fragmented competition is consolidating. The next two biggest firms, Pinduoduo and JD.com, an e-emporium backed by Tencent, have captured 24% of the market between them. They could reach 33% by 2026, reckons CLSA. Tencent’s WeChat Pay and Alibaba’s Alipay have long vied to be Chinese shoppers’ digital wallets. Last year Tencent announced it will invest 500bn yuan ($70bn) over five years, a slug of it to catch up with Alibaba in cloud computing.

America’s tech landscape is beginning to change, too. The Economist has looked at 11 big technology markets in America which last year generated combined gross revenue of $1.6trn. According to our calculations, which inevitably involved some guesswork, over the past five years the top firm’s share has plateaued in app stores, business software, cloud computing and online advertising. It has fallen by double digits in food delivery, ride-hailing and video-streaming since 2015.
In most markets, even where the incumbent’s share edged up, as it has in e-commerce and smartphones, the aggregate share of the next two biggest challengers rose faster (see chart 2). In six of the 11 areas the two runners-up now account for a third or more of the market, up from two areas in 2016. Stragglers outside the top three are being left in the dust.

Some of the up-and-comers hail from beyond big tech’s homes in Silicon Valley and Seattle. Disney’s new streaming service has signed up 95m subscribers globally since its launch in late 2019, reaching that number nearly ten times faster than Netflix did. Walmart’s years of investment in online fulfilment began to pay off in the pandemic. Other bricks-and-mortar retailers such as Best Buy, Home Depot and Target have also upped their digital game. Shopify, a 14-year-old Canadian firm, now controls a tenth of the American e-commerce market, up from one-70th in 2015. Its market capitalisation has risen seven-fold in the past two years, to $150bn.

Perhaps the most salient feature of the new grammar of competition is the growing overlap between America’s five tech behemoths. Alphabet (Google’s parent company), Amazon, Apple, Facebook and Microsoft are beginning to echo, on an even grander scale, the rivalry between Alibaba and Tencent. James Anderson of Baillie Gifford, a large asset manager that invests in tech firms around the world, does not yet see the “fight-it-out-on-the-beaches spirit” of the Chinese titans. But as Mark Shmulik of Bernstein, a broker, puts it, in a nod to the Boolean algebra that underpins modern computing, big tech is moving from the disjunctive world of “or” to the conjunctive world of “and”.
To be sure, the companies have an interest in ensuring their systems work seamlessly together. Demand for iPhones is encouraged by consumers’ desire to access Google’s search engine and Gmail, or Facebook’s social networks. Cheap cloud computing provided by Amazon translates into more apps for Apple’s App Store. Amazon is one of Google’s biggest advertisers. Microsoft licenses Android for its Surface Duo smartphone.
The quintet’s senior executives and cleverest clogs also know and, recent sniping notwithstanding, mostly respect each other. When Satya Nadella took over as Microsoft’s chief executive in 2014, he binned a pro-privacy ad campaign alleging that Google scanned emails to serve targeted adverts. According to Microsoft insiders his friendships among Google engineers probably played a role in his decision. Mr Nadella also decided to stop trying to out-Google Google in search.
The etymology of competition
A lot of earlier incursions big tech firms made against each other ended in tears. In the early 2010s all the big companies tried getting into device-making; remember Amazon’s Fire Phone? Microsoft’s Zune music player was no iPod and Bing is no verb. Many iPhone users navigate with Google Maps, not Apple’s unloved alternative. Facebook Gifts, the social network’s early foray into e-commerce, proved about as welcome as yet another pair of socks.
Indeed, the five American giants continue to derive the bulk of their revenues and, for the most part, profits from the businesses which made them into trillion- or near-trillion-dollar companies. Last year online ads generated 80% of sales at Alphabet and 98% at Facebook. Fully 80% of Apple’s revenues in 2020 came courtesy of its sleek devices (chiefly iPhones). Microsoft continues to rely on business software for a large chunk of revenues, and Amazon on its online emporium, though most of its (comparatively meagre) profits were generated by its cloud-computing arm, Amazon Web Services (AWS).
However, these figures used to be higher. With the number of first-time iPhone buyers declining, Apple has reduced its reliance on iPhones, iPads and Mac computers by moving into payments, finance and entertainment. The proportion of total revenue from services, at 20%, is double the share five years ago. Some of them, such as video- or music-streaming, compete with Amazon Prime Video and Prime Music, as well as with dedicated providers such as Netflix and Disney (for video) or Spotify (for audio). Amazon’s revenue share from e-commerce has declined from 87% in 2015 to 72%; a tenth of sales now comes from the cloud and 6% from digital advertising. The proportion that Alphabet got from advertising last year was ten percentage points lower than it was in 2015.
Those percentage points relinquished by the core are instead coming from an ever wider array of new ventures. Many involve the big five getting in each other’s way. Nearly two-fifths of their revenues now come from areas where their businesses overlap, up from a fifth in 2015 (see chart 3). If you split tech into 20 or so business areas, from smartphones and smart speakers to messaging and videoconferencing, each giant is present in most of them, according to Bernstein.

Many of these endeavours have yet to make much money. But the giants’ stratospheric stockmarket valuations—of between 25 and 82 times annual earnings—require ambitious growth plans. As their main businesses mature and slow, they must seek fresh sources of growth somewhere else. With trustbusters on high alert, snapping up startup rivals—or otherwise neutralising them—is getting harder, says a Silicon Valley venture capitalist. “Growth might depend on competing through homegrown efforts in known big markets.”
The mutual toe-treading that ensues takes several forms. First, the companies are increasingly selling the same products or services. Second, they are providing similar products and services on the back of different business models, for example giving away things that a rival charges for (or vice versa, charging for a service that a competitor offers in exchange for user data sold to advertisers). Third, they are eyeing the same nascent markets, such as artificial intelligence (AI) or self-driving cars.
Direct competition is fiercest in the cloud, a $63bn business expanding at an annual rate of 40%, which Wall Street expects to become a $1trn one within a decade or two. Jeff Bezos, Amazon’s boss, once joked that Barnes & Noble understood within months it had to copy Amazon’s Kindle e-reader but it took his genius techie rivals years to twig they should ape AWS. They got there in the end.
Microsoft’s 11-year-old Azure cloud-computing division rakes in an estimated $20bn a year in revenue. Bernstein expects cloud-computing to make up 12% of Google’s revenues by 2024, up from 7% in 2020. Acknowledging the unit’s importance, in January Google broke out the operating results of its cloud business (which lost $5.6bn in 2020).

E-commerce, which the pandemic has turbocharged, is another area being contested. Facebook has had a second-hand goods market called Marketplace for a while. In May it launched Facebook Shops to take Amazon on more directly, giving the 160m or so businesses which already use the social network or its sister app, Instagram, as a shop window a way to sell their products. Facebook and Google are also both working with Shopify, whose merchants flog theirs on their platforms. Even Microsoft is eyeing retail, albeit by a more circuitous route, with plans to sell automated checkout technology to Walmart.
Social media—Facebook’s bread and butter—are likewise in rivals’ sights. Last year Microsoft hoped to beef up its consumer business, which includes Surface tablets and the Xbox video-game console, by buying TikTok, a Chinese-owned short-video app. This year it considered acquiring Pinterest, a photo-sharing network. Neither deal came to pass, but it was a clear statement of Microsoft’s intent.
Amazon, too, “would be crazy” not to look at social media, says an executive close to it. In 2013 it bought Goodreads, a platform where people rate books and find recommendations, which has been described as “Facebook with books”. The millions who rate purchases on Amazon’s online-shopping platform constitute a germ of a possible future social network. A former Amazon executive wagers that “it will be easier for Amazon to go into social than for Facebook to move into shopping,” because the logistics of delivery, which Amazon has mastered, are trickier to bootstrap than a social network.
Then there is search. Microsoft, emboldened by its cloud success, could start investing more in the decent but marginal Bing. Amazon has concluded that if merchants on its e-commerce platform want to flaunt their wares to online shoppers, why let Google make all the money? Its search-ad business remains a fraction of Google’s. But these days most product searches begin in Amazon’s app or on its website.
Apple, too, harbours search ambitions. In 2018 it poached John Giannandrea, Google’s head of search and AI. People have noticed that Applebot, a web crawler, has become more active of late, presumably gobbling up data on which to train. Siri, Apple’s voice assistant, “is basically a search engine”, says one tech insider. Apple could, he adds, “skim the cream” by answering the most valuable queries—those by well-heeled iPhone users.
Unlike Amazon, which competes with Google head-on for advertising dollars, Apple seems unlikely to want to profit from search-advertising directly. Instead, its search project may be aimed at luring the privacy-conscious deeper into the safety of its “walled garden”—much to Mr Zuckerberg’s understandable chagrin.

This illustrates the second sort of competitive behaviour. Undermining Google’s or Facebook’s business model may not be the explicit aim of Mr Cook. It nevertheless forces his advertising-dependent opposite numbers, Mr Zuckerberg and Alphabet’s Sundar Pichai, to come up with services and product that would persuade users to respond “yes” to the tracking question.
Mr Pichai, for his part, is doing something similar by giving away all manner of products, from cloud-based word processors, spreadsheets and Hangouts video chat to TensorFlow, Alphabet’s machine-learning software, and Kubernetes, a cloud-computing project. Some observers see these giveaways, bankrolled by Google’s ad dollars, as an attempt to create a perfectly competitive profit desert that rivals have no incentive to enter—leaving Google with a Sahara’s worth of data.
Rather than electing to enter new technology niches, the companies are being dragged in, often by their users. As Amazon sees it, according to a former executive, the internet and copious amounts of data mean if you are in one business, you simply have to get into the one over the fence. E-commerce and social media offer a good example. “Social shopping”, where retailers organise mass virtual sprees for buyers on social media, are all the rage in China and may soon be in the West.
Thanks to customer bases in the hundreds of millions or billions, technology platforms can diversify easily and cheaply. Facebook’s Marketplace, for one, started after the company spotted large numbers of people buying and selling various things in Facebook groups, notes Javier Olivan, who oversees the company’s core products.
This process looks likely to intensify as the firms shift from looking over the others’ shoulders to gazing ahead. Often they end up staring in the same direction: towards data and AI. Four of the giants already offer digital assistants, which they would love to become consumers’ primary gateway to the internet. Everyone is also hungrily eyeing payments, especially in light of the recent success of PayPal, which has been gaining clout at the expense of Visa and Mastercard.
Big tech is pouring billions into ambitious AI projects. Apple has been in talks with several carmakers to build a self-driving car, which within the tech quintet has hitherto been the preserve of Waymo, an Alphabet subsidiary. Nothing has materialised but the idea of an Apple car is almost certainly here to stay. Last year Amazon bought Zoox, a self-driving startup. Alibaba and Baidu, a Chinese search engine, are also both interested in cars.
Not everything has improved. There is still scant competition in handsets. The two dominant mobile operating systems, Google’s Android and Apple’s iOS, remain a duopoly. So do their app stores. The online advertising market looks more competitive overall, but it is unclear if Amazon is really playing in the same sandbox as Google in search, or whether TikTok is a direct rival to Facebook in social media.
The tech giants have also become adept at playing the antitrust referees to keep potential competitors busy defending their core businesses from regulators, and thus less able to encroach on other markets. “Everyone is desperate to say it’s not me, it’s the guy over there,” says a tech executive. Microsoft got the antitrust ball rolling against Google in the late 2000s by building a coalition of companies against its dominance of search. Members of that coalition such as Yelp, a local search and reviewing site, are once again agitating against Google, leading insiders to chortle about how Microsoft “sleeper cells” have come to life.
Lina Khan of Columbia Law School, who was legal counsel for a congressional committee that investigated big tech, says that the giants are skirmishing in some areas, like the cloud and voice assistants. But still, she says, they are not battling over core territory, and, what is more, describing this as a fight risks overlooking the broader ways in which the firms mutually benefit from their collective dominance.
New coinage
If the skirmishes intensify, that could lead to lower profitability for the tech companies. Margins in cloud computing, where competition is most pronounced, are already tightening. According to Mr Anderson of Baillie Gifford, Google’s tilt at the AWS/Azure quasi-duopoly has pushed down prices. Tencent’s cloud investments are likely to add pressure.
Alphabet’s operating margins have declined by 13 percentage points over the past ten years. Even Apple’s are ten percentage points below their peak in 2012. Those of Facebook have come down from a lofty 50% in 2017 to less than 40%. The companies mostly keep mum about how their individual businesses are doing. But one possible explanation for slimmer overall margins is greater competition. Another is that entry into new markets eats into profits from core businesses. This could eventually put pressure on rivals also present in those markets.
The presumption that the tech giants are either colluding to divvy up the planet’s digital pie or carefully steering clear of each other is no longer right. Many people would of course prefer to see more than a handful of firms slug it out for the modern economy’s critical digital markets. Still, so long as they truly are slugging it out, that is good news for everyone else. ■
This article appeared in the Business section of the print edition under the headline “Collusion and collisions” More

LAST WEEKEND Mark Murrell, the founder of Get Maine Lobster, bought an Oculus virtual-reality (VR) headset. It is a plaything, but he quickly thought of business. “I can’t wait until everybody has one,” he says. “If only I could have an ad in one of those.” His business is delivering lobsters, at an average $190 a box, to homes across America. In his fantasy VR world, he would take customers via their headsets out on boats to see the catches, or give them cooking lessons—all while gently nudging them to place orders. Since his business started in 2009, its primary means of reaching new customers has been through ads on Facebook. It is not lost on him that Oculus is also owned by the social-media giant. “I was like ‘wow, watch out!’,” he says.
As one of the biggest online-advertising platforms, Facebook understands the hidden depths of the digital world like a lobster fisherman knows the topography of the sea floor. But Mark Zuckerberg does not set the rules in all the places where his company lurks. The most lucrative hunting grounds are those controlled by Apple, maker of the iPhone, whose users last year spent on average almost five times as much per person buying stuff on its iOS operating system as those on devices using Android, its (Google-owned) rival. Apple has said that this spring it will upgrade iOS to toughen restrictions on the way advertising platforms access data, including by requiring apps to ask users for permission to track them across apps and websites owned by other firms. Those that rely on Apple’s individual-device identifiers for data-tracking will be affected. Facebook, the tracker-in-chief, has most to lose.

Apple justifies its actions as part of a commitment to protect its users’ privacy. Facebook says it is resisting on behalf of millions of its small and medium-sized business clients that rely on its data-hunting algorithms to reach customers. On the surface it looks like a typical territorial dispute of privacy versus access. Mr Murrell’s Oculus fantasies provide a glimpse of why it goes much deeper than that.
The giants’ efforts to portray their positions as high-minded and altruistic are self-serving. But each has a point. Apple’s boss, Tim Cook, is right, in his thinly veiled attacks on Facebook, to lament the way polarisation and disinformation keep people glued to their screens to enable sites to exploit more data. Mr Zuckerberg is right to deride Mr Cook’s assertion that advertising does not need personalised data because it survived for decades without them. That system was skewed in favour of big companies with pots of money to spend on adverts. Smaller firms’ ability to reach customers with cheap online ads is one of the great novelties of the digital age. Get Maine Lobster, which pays Facebook about $45 for every crustacean-craver it lands, thrives because of it.
More privacy will hurt but not kill the personalised-ad model. Some Apple users, preferring targeted ads to random ones, will opt to allow data-tracking. Google, which has split loyalties because of its own online-ad juggernaut, may make its Android platform privacy-lite. That would create a bifurcated web: on the one side, a privacy-focused, gentrified iOS system; on the other, a freer-for-all Android one. Ad-supported social-media sites, from Facebook to Snapchat and TikTok, will compete to develop technologies, such as artificial intelligence, to combine personalisation with more privacy. Ultimately, they could even pay people to track their data (though Apple’s rules currently forbid this). Omdia, a media consultancy, says the iOS upgrade will cause iOS in-app advertising revenue to drop by almost a fifth this year. But it expects it to rebound by 2024.

Facebook’s insinuations about the dark motives behind Apple’s iOS upgrade are probably overstated. Even though services are a fast-growing source of Apple’s revenue, attempting to rig the market in favour of its App Store and mine it for better advertising data would make a mockery of its privacy campaign, which it sees as paramount for attracting customers. More likely, Apple is changing the rules in favour of more privacy because it can. It controls its integrated stack of hardware and software. Facebook does not. That gives Apple the freedom to assert its power.
But it is also a demonstration of paranoia. Facebook has growing ambitions to become a direct competitor to Apple. One way would be for Facebook to combine its namesake social network with its Instagram photo-sharing app and WhatsApp messenger into a “super-app” akin to Tencent’s WeChat in China, melding social media, messaging, e-commerce, gaming and payments. That would give it more freedom to offer personalised ads, since Apple cannot control data-tracking within the Facebook family of apps.
Subtracting ads
Another way would be to start a new hardware craze that overtakes the iPhone. Overshadowed by Mr Zuckerberg’s prickly attacks on Apple are revelations of what he calls his dream, “since I was a kid”, to build a new computing platform. Following a tradition that started with mainframes, then PCs, then browser-based computing, then mobile phones, he hopes to develop “immersive computing”, based on virtual and augmented reality. Oculus is a start, especially for gaming. Augmented-reality glasses are in the future. This year Facebook plans to launch “smart glasses” in partnership with Luxottica, which makes Ray-Bans. If they do not suffer the fate of ungainly Google Glass, they could start an arms race. Reportedly, Apple is working on a VR headset and glasses. Samsung, a South Korean smartphone-maker, may be working on augmented eyewear, too. And VR is not the only potential breakthrough. Smart speakers and cars are other contenders.
Whatever comes next, even Facebook acknowledges that privacy will need to be an important component. Many people, like lobsters, crave their nooks and crannies. The more so knowing that, thanks to firms like Facebook, merchants have become ever better at luring them into their pots. ■
This article appeared in the Business section of the print edition under the headline “Headsets at dawn” More

AFTER UNFRIENDING each other last week, Facebook and Australia are pals again. On February 23rd the world’s largest social network announced that it would reverse its decision to switch off the sharing of news on its site in Australia, as well as the sharing of Australian news sources globally. For its part, the Australian government said it would amend its proposed News Media and Digital Platforms Mandatory Bargaining Code, which had so upset Facebook.
Both sides claim victory. The government points to the fact that news will soon be restored to the platform, and that Facebook has agreed to make payments to Australian media companies. Yet the last-minute amendments will allow Facebook and other tech companies to avoid the code’s most exacting terms if they are deemed to be contributing enough. The upshot is that big tech will be able to sidestep regulation if it is willing to pay off its media critics—an outcome that suits both parties, if not necessarily consumers.

The central idea of the code, which was approved by Australia’s Senate on February 24th and is expected to go through the House of Representatives the next day, is that tech platforms benefit unfairly from content created by others. Companies like Google and Facebook make money from ads, which sit alongside links to news articles, among other things. The publishers of those articles say they deserve a share of the ad revenue.
The tech platforms retort that, on the contrary, publishers benefit from the traffic referrals they get when their content is shared online. If publishers disagree, they are under no obligation to post their stories to social networks or have them listed by search engines. Paying for link-sharing threatens freedom of speech—and, more worrying to tech bosses, their entire business model. If Google or Facebook must pay for displaying links to news, what is to stop them being forced to pay for the billions of other pieces of content they link to?
Australia’s code looks particularly fearsome. If an online platform and a media company are unable to reach a deal, an official arbiter will make a binding decision. Rather than splitting the difference between bids, it will choose between each side’s final offer. If it sides with the newsmen, platforms could be on the hook for hefty sums.
The concessions made by Australia’s government remove these risks, for a price. The high-stakes arbitration mechanism will be preceded by a two-month mediation period, giving platforms a chance to strike more palatable deals. Non-differentiation provisions, which would have forced platforms to pay all media companies on an equal basis, have been scrapped. Most important, the decision on whether the code should apply to a tech platform at all must now take into account whether the platform “has made a significant contribution to the sustainability of the Australian news industry through reaching commercial agreements with news media businesses”. In other words, if they dish out enough money, Facebook and others can avoid being subject to the code altogether.

Tech platforms are already making such payments, in a bid to ward off regulation. Last year Google launched its “News Showcase”, under which it plans to distribute $1bn over three years to publishing companies around the world. Facebook’s “News Tab” shares advertising revenues in a similar way (The Economist is a participant). Currently operating in America and Britain, it is to be launched in more countries. On February 24th Facebook announced that it too would dole out $1bn for journalism over the next three years.
The question is whether this will be enough to placate other governments. Canada is drafting its own code on the matter, expected to be published later this year. Last week Steven Guilbeault, the minister in charge, said: “I suspect that soon we will have five, ten, 15 countries adopting similar rules…Is Facebook going to cut ties with Germany, with France?” Britain is also drawing up new rules, as is the European Union. Microsoft, whose unloved search engine, Bing, stands to benefit from anything that hurts Google, is working with publishers’ associations in Europe to put together a blueprint for an arbitration mechanism.
Discretionary pay-offs to old media companies look as if they will become part of tech firms’ business in more and more countries. That is something the tech platforms, not short of money, can live with. The bigger risk would be any law that imposed a systematic obligation to pay for the content around which their business is built, or regulated the way in which that content is presented. They have managed to ward off this threat for now, by getting out their wallets. More

HAINAN, A TROPICAL island 450km south-west of Hong Kong, used to be a sleepy backwater populated by budget resorts catering to Chinese tourists unable to afford a trip to Hawaii. Today it draws travellers with considerably fatter wallets. Buying a Gucci gown or a Tiffany trinket in one of Hainan’s giant, posh malls feels no different from shopping on Fifth Avenue in New York or Avenue Montaigne in Paris—until the tills are rung. Instead of walking out with their bling, visitors from mainland China pick up their items at the airport on their way home, or get them dispatched there directly. Under rules devised a decade ago, which mean that for duty purposes Hainan is treated as a separate zone from mainland China, they are exempt from a variety of taxes and duties. Savings can reach 30% as a result.
Duty-free shopping conjures up images of crowded airport terminals. As the covid-19 pandemic has emptied these of passengers, the shops inside have suffered commensurately. Having reached $86bn in 2019, according to Generation Research, a consultancy, duty-free sales collapsed by two-thirds last year. Mauro Anastasi of Bain, another consultancy, forecasts travel-retail sales will not reach those levels again in real terms before the second half of the decade. Intercontinental passengers and business travellers, the biggest spenders, are likely to take longest to return to the skies. Chinese tourists, by far the most prized by duty-free operators, are shunning countries with poor track records at handling the pandemic.

Shoppers will one day return to airports. Yet when it emerges from the current crisis, duty-free shopping will have been profoundly transformed: unabashedly focused on luxury, less connected to travel and closer to Asian high-rollers. Hainan points the way.
Rebate tectonics
Before covid-19, selling stuff to travellers had been one of the few bright spots of the brick-and-mortar retail world. The practice has been popular ever since cruise ships on the high seas plied their passengers with booze and cigarettes free of government levies. In 1950 Ireland applied the principle to aviation. As mass tourism took hold, airports the world over turned themselves into tax-free shopping malls with departure gates. Annual growth of around 8% in recent pre-pandemic years—twice the figure for other shops—was fuelled by sales of cognac, sunglasses, purses and other knick-knacks. Sales have grown eight-fold since the late 1980s (see chart). Excited marketers referred to duty-free shops as “the sixth continent”.

Covid-19 has deflated that enthusiasm. It has also, as in many other areas, accelerated pre-existing trends that were reshaping the duty-free business. The first has to do with the mix of stuff sold in duty free. Alcohol and, particularly, cigarettes have dwindled over the years. Posh brands became mainstays of airport concourses as they cottoned on these were good places to pitch to wealthy people, particularly Asian passengers. Luxury goods, perfumes and cosmetics now dominate travel retail, accounting for two-thirds of sales.
The second development is the shift away from airports. Though the terminal remains its natural habitat, duty-free shopping has in recent years expanded into locations farther afield. Spending per passenger in airports was sagging even before the coronavirus hit.
At the same time specialised downtown shops in tourist hotspots have lured visitors eligible for tax discounts if they repatriate what they buy. These locations, particularly popular in Asia, now represent nearly 40% of all sales. Rules vary globally, but some allow shopping even from those with a tenuous link to travel, for example a ticket booked several months hence.
Tax-exempt outlets are popping up across mainland China, catering to domestic travellers who have returned from overseas (and, soon, who plan to travel there in future). Chinese shoppers in Hainan, for example, now enjoy a duty-free allowance of 100,000 yuan ($15,500), thanks to a recent tripling of the tax break.

The final trend, also on display in Hainan, is duty free’s eastward drift. In 2011 Asia-Pacific overtook Europe as the largest regional market. (America, where most flights are domestic, has always been a laggard.) Before the pandemic Seoul’s Incheon, a two-hour flight from Beijing, became the biggest airport shop in the world. Revenues for Prada and Hermès in Asia excluding Japan have jumped by over 40% in 2020, owing heavily to splurges in Hainan. Sales there are reported to have reached $5bn last year, more than doubling from 2019. Industry watchers predict they could grow five-fold within a decade.
Although Chinese buyers have been the world’s biggest luxury consumers for years, accounting for a third of global sales, brands were reluctant to consider places like Hainan as top-tier luxury venues. Around two-thirds of Chinese spending on handbags, watches and other baubles took place overseas. The Communist Party is keen to change that. The ever-more-generous tax breaks for the well-heeled are “the key tenet of a long-term government mission to maximise domestic consumption and repatriate travel-related shopping from abroad,” says Martin Moodie of the Moodie Davitt Report, a travel-retail newsletter. Daniel Zipser of McKinsey, a consultancy, expects the overseas share of luxury spending to decline. As a result, luxury groups’ attitudes towards venues like Hainan “have changed dramatically”, says Cherry Leung of Bernstein, a broker.
If the Chinese continue to buy their baubles at home, that will suck away more business from the duty-free operators that have historically dominated non-Chinese airports, such as Dufry of Switzerland and DFS, part of the LVMH luxury empire. Last year China Duty Free, a state-controlled group, overtook Dufry as the world’s largest purveyor of tariff-free luxury goods. The market capitalisation of China Duty Free’s Shanghai-listed arm has more than tripled over the past year to $112bn, making it one of the most valuable retailers in the world.
In an acknowledgment of the shifting balance of spending power, some travel retailers from Europe have tried to muscle in on Hainan. Dufry has sold a stake to Alibaba in the hope that the Chinese e-commerce giant can improve its fortunes there. Last month Lagardère Travel Retail, part of a French conglomerate, launched a second shop on the island.
Airports will remain good places to find well-off shoppers. Bored people waiting for their flights to be called are perfect marks for luxury brands. Most retailers spend fortunes attracting customers to their shops or websites, points out Julián Díaz González, boss of Dufry. “For us it is just moving them from the corridor to the shops.” As the industry continues to evolve, Mr Díaz may increasingly find it is a matter of moving the duty-free shops to the customers. ■ More

EMMANUEL FABER used to be seen as the spiritual son of Franck Riboud, honorary chairman and former boss of Danone, whose father Antoine co-founded the French yogurt-maker. Mr Riboud handpicked Mr Faber as his successor and loyally backed his transformation of Danone into France’s first entreprise à mission, a corporate form with a defined social purpose.
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In recent months the relationship has soured. According to the French press, Mr Riboud thinks Mr Faber is more interested in saving the planet than saving his firm. Danone’s share price fell by 27% in 2020 while those of rivals such as Nestlé and Unilever made gains amid pandemic larder-stocking. Its full-year results, due on February 19th, are unlikely to inspire investors’ confidence.

Danone has been hit harder by covid-19 than rivals because of its large bottled-water business. Its Evian, Badoit and Volvic brands make money mainly from sales in restaurants, bars and airports. But that is not the only problem. In 2017 Danone overpaid for WhiteWave, an American maker of health-focused fare that it bought for $12.5bn. The deal, which strained the balance-sheet but did not produce hoped-for returns, is the main reason for Danone’s current malaise, says Alan Erskine of Credit Suisse, a bank. Bruno Monteyne of Bernstein, a broker, points to years of underinvestment in brands, which face stiff competition from supermarkets’ private labels, at a time when Danone’s dairy and baby-food businesses slow as birth rates fall and people drink less milk.
Faced with these challenges, in October Mr Faber announced an overhaul of the business along more geographic lines. Perhaps 2,000 jobs will be cut. It was the fifth reorganisation on his seven-year watch.
Enough already, huffs Artisan Partners, an American investment fund which says it is Danone’s third-biggest shareholder with a 3% stake. In a meeting with board members on February 16th it demanded Mr Faber’s exit, a stop to his latest restructuring, and the sale of struggling brands such as Mizone, a Chinese vitamin drink, and the Vega range of plant-based foods.
Artisan is the latest Anglo-Saxon meddler to pile on the pressure. In November Bluebell Capital Partners, a London-based hedge fund that owns a stake in Danone, demanded that the firm boot out Mr Faber and split the role of chairman and CEO. Causeway Capital Management, an American fund, has echoed Bluebell’s call.

Mr Faber’s entourage refers to the demands, which appear to have the blessing of 65-year-old Mr Riboud, as a “revolution of gunslinger grandpas”. The activists may still succeed, and not just because they are not in fact that wizened. Helpfully, the French state is staying out of the fray; its spokesman said it had no comment. The government has no stake in Danone, but in 2005 declared it an “industrial jewel” to be defended against foreign buyers. Maybe not when they have an ally on the inside. ■
This article appeared in the Business section of the print edition under the headline “Culture wars” More

MINING BOSSES often leave under a cloud, ousted after a profit slump, a public-relations disaster or pit-hole calamity. Not so Ivan Glasenberg. For his last set of results on February 16th the boss of Glencore offered shareholders—including himself—a reinstated dividend and an upbeat outlook. Leaving on a high after 19 years in the top job will not make life easier for his anointed successor, Gary Nagle.
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All miners have had a bull run of late as commodity prices have surged. China’s appetite for natural resources is unabated. America and Europe are planning infrastructure pushes that will juice demand. The green tinge of such stimulus spending is especially good news for Glencore, a big producer of the cobalt, copper and nickel needed for electric cars and the like.

Investors on the earnings call were as focused on life after Mr Glasenberg. It may not be so different. Those used to seeing the Swiss firm run by a fast-talking South African accountant who has spent much of his career on the coal side of the business might not notice the handover, due to happen in the next few months. Like his predecessor, Mr Nagle is all those things. He will become only the fourth boss to lead the company since its founding in 1974.

Investors expect continuity in the business. Mr Glasenberg has re-engineered a pure commodities trader into a firm that also digs the stuff up. The model has not delivered stellar returns, at least since the firm went public in 2011 (see chart). But trading profits last year were fat and Mr Nagle says the set-up is fit for purpose.
Three thorny dossiers will keep him busy. The first is coal, of which Glencore is the biggest shipper. The banks that fund its trading arm are under pressure to cut ties to polluters. Glencore has some green credentials and says it is running down coal assets gradually. But a more radical move, like a spin-off, may be needed.
Then there is the Democratic Republic of Congo. A big source of copper and cobalt profits, it is also in the sights of America’s Department of Justice. Glencore denies any wrongdoing. After the Congolese elected a new president in 2018 some faces that helped Glencore thrive are being replaced. Dan Gertler, who teamed up with Glencore to develop assets in the DRC, recently earned a partial reprieve from American sanctions (he also denies wrongdoing). The copper belt is rife with rumours that Mr Gertler may be looking to cash out.
Perhaps the trickiest dossier is Mr Glasenberg. He will not upgrade himself to chairman, as some CEOs are wont to do. But he intends to keep his 9% stake, making him the second-biggest shareholder. And, potentially, its biggest back-seat driver.■

This article appeared in the Business section of the print edition under the headline “Pit stop” More