Tech Update: Microsoft's Social Media Bet
Welcome to The Macro Mail’s Tech Newsletter. Since our last tech mail, a lot has happened - today’s newsletter discusses Microsoft’s $10bn purchase, Amazon’s union battle, and two IPOs abroad
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SOCIAL MEDIA: Microsoft To Acquire Discord
Tech conglomerate Microsoft is in talks to buy social media platform Discord for $10bn. This is the latest move in Microsoft’s expansion beyond its core PC software business, and reflects the increasing market interest in smaller social media companies.
Discord launched in 2015 as a discussion platform for video game players. Its free service offers voice, video and text chat, broadcast features, and the ability to create private or public group chats
Discord has seen a boom in activity as COVID lockdowns boosted the appeal of social media and communications technologies from people unable to socialise in person. It currently has 140 million active monthly users, generating an estimated $130 million in revenue for 2020
Unlike other social media platforms, Discord is ad-free. It makes money from selling premium “Nitro” subscriptions for $9.99 per month, giving users access to larger file-sharing sizes, HD video, and cosmetic features (including more emojis, personalised avatars)
Microsoft is already a major player in the video game industry, with its gaming brand consisting of the Xbox console and games, Xbox live streaming service, and Xbox Game Studios development branch
Xbox first introduced voice chat in 2002, and has been improving it since. In 2011, Microsoft acquired telecom developer Skype for $8.5bn and implemented its voice technology into the Xbox One console. It will likely seek to integrate Discord with its existing broader operations
In June 2020, Microsoft shut down Mixer, its own attempt to create an online streaming platform for Xbox players. Microsoft has yet to announce its exact plans for Discord. Integrating the Nitro subscription with the Xbox Game Pass subscription might provide a path to leverage Discord’s large userbase into a consistent profit for the tech conglomerate.
START-UPS: Deliveroo IPO Woes
Food-delivery company Deliveroo is struggling ahead of its hotly anticipated London IPO on April 7th. The startup is seeking a £7.9bn ($10.8bn) valuation, the UK’s largest in several years, but has encountered criticism over its treatment of workers and corporate structure
Deliveroo was founded in 2013 and now provides food delivery in almost 800 towns and cities across 12 countries. In 2018 (the most recent date for financial figures) Deliveroo had 6 million customers and raised £480m in revenue. It is likely that the online shopping boom due to COVID lockdown has helped Deliveroo to further expand these numbers
However, in the run-up to the IPO, investors have identified key issues with the company, and the initial euphoria has given way to bearishness. The criticism has already had an impact on the market; the new guidance price is £3.90-4.10 per share, down from the initial expectation of £3.90-4.60
Currently, Deliveroo couriers are classified as self-employed and denied the usual rights of holiday and sick pay or pensions contributions. Trade union IWGB has planned a strike to protest working conditions on the date of the IPO
Further concerns have been raised over the dual-class share structure, which will allow company founder and CEO Will Shu a disproportionately high voting share for three years, potentially stagnating changes in corporate governance to take oversee the next stage of growth
Some of the UK’s largest asset managers, including Legal & General, Aviva and Aberdeen Standard, are forgoing investing in the IPO, with the latter stating “we’re looking to invest in businesses that aren’t just profitable, but are sustainable.”
Last month, a court ruling required food-delivery competitor Uber Eats to reclassify its 70,000 UK workers as employees, entitling them to guaranteed minimum wage and holiday pay. Deliveroo continues to deny the need to plan for such a restructuring, raising concerns about the company’s long-term viability.
E-COMMERCE: Amazon’s Union Vote
An important union-membership vote concluded on Monday 29th March at e-commerce giant Amazon. 5,800 workers at a Bessemer, Alabama warehouse voted on whether to join the Retail Wholesale and Department Store Union.
The campaign began seven weeks ago; results are expected to be close and highly contested. Vote counting will begin at 10am eastern time today, overseen by the National Labor Relations Board
Both Amazon and the union will have the opportunity to review ballots to confirm the validity, including ripped envelopes, spoiled ballots, and of particular importance, whether the employee is permitted to vote. Due to large turnover at the warehouse, there have been reports that some former employees received ballots even after leaving the company. Contested ballots will be counted separately, and only reviewed in the case that there are sufficiently many to change the outcome
The conflict has spilled over into Twitter, with the official @amazonnews account replying to US Senator Elizabeth Warren’s criticisms, accusing Warren of “[saying] she’s going to break up an American company so that they can’t criticize her anymore.”
As Amazon has expanded into the second largest US employer, unsubstantiated allegations of workplace exploitation have arisen, including stories about workers urinating in bottles and being fired without notice. Amazon, which ranked #2 on Forbes’s 2020 best employers list, has dismissed these allegations
While we have yet to see the result of Monday’s vote, Amazon appears committed to taking a more active role in defending its public image. Many speculate that the increase in Twitter activity against Amazon’s political antagonists was directly authorised by outgoing CEO and founder Jeff Bezos. In coming days, attention will be turned towards the result of the vote and its potential ramifications on the future of the union-hostile tech industry.
FINTECH: Linklogis IPO
Investors around the world are eagerly awaiting the IPO of Linklogis. The Hong Kong based fintech company, backed by Chinese tech conglomerate Tencent Holdings, is set to start trading in the next week.
Linklogis is seeking a HK$8.3bn ($1.1bn) valuation, despite not having made a profit in the past three years. It aims to price the offering on March 31st and begin public trading on the Hong Kong stock exchange on April 9th
The company specialises in supply chain solutions. Its WeQChain platform helps customers to digitize and optimize their supply chain payment cycle. Their prospectus claims 52% year-on-year revenue growth for September 2020
In 2020, Standard Chartered conducted a strategic private investment in Linklogis, seeking “new opportunities, including the extension of these [sic] solutions to support cross-border flows.”
Investors - including BlackRock and Fidelity who have each committed to $100m - will likely hope the company can expand its business internationally and increase profit margins
The international interest in the Linklogis IPO signifies the continual strength of the Chinese tech market, despite concerns raised over government crackdowns on large tech companies including Jack Ma’s Alibaba, and a selloff in blue chips including internet company Baidu and tech conglomerate Tencent last week. It remains to be seen whether Linklogis can fuel continual growth after their IPO.
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