Posts in category Business


ApprovedBusinessBusiness and finance

False news items are not the only problem besetting Facebook

“MARK ZUCKERBERG, dead at 32, denies Facebook has problem with fake news.” The satirical headline, which made the rounds online this week, nicely encapsulates the most recent woes of the world’s largest social network: its algorithms, critics say, filled users’ newsfeeds with misinformation—and in the process influenced the American election result. But this is not the only problem the firm is grappling with. A volatile share price, privacy policies and advertising metrics have also kept Mr Zuckerberg (pictured) busy.

“News” that the Pope had endorsed Donald Trump or that a pizzeria in Washington, DC, is the home base of a child-abuse ring led by Hillary Clinton, were not confined to Facebook (nor were fake stories only a right-wing phenomenon). They often originate elsewhere, for instance on fake-news websites in Macedonia, which make good money via online ads, and on Twitter. But Facebook’s algorithms give prominence to such misinformation. They are tuned to maximise “engagement”, meaning they present users with the type of content that has already piqued their interest, as outrageous headlines tend to do.

Yet despite…Continue reading

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Samsung is sucked into South Korea’s political crisis

IT WAS the third raid on the Samsung group in as many weeks. On November 23rd state prosecutors combed more offices of the South Korean consumer-electronics firm, part of a probe into an influence-peddling case that could be the undoing of President Park Geun-hye’s administration. The deepening inquest compounds a miserable few months for Samsung, which recently recalled 3m faulty washing machines and killed a new line of Galaxy Note phones after dozens exploded due to flawed batteries.

Last week prosecutors accused Ms Park of conspiring to coerce 50-odd companies to funnel 80bn won ($70m) to two foundations, Mir and K-Sports, controlled by Choi Soon-sil, a confidante indicted for abuse of power. The biggest grant, 20.4bn won, came from Samsung. Prosecutors suspect that it funnelled a further €2.8m ($3m) to Ms Choi through Widec Sports, a German company she used to buy horses and equestrian lessons for her daughter, a dressage athlete.

Investigators had said that the firms, including many in the pantheon of South Korean business, such as Lotte, a retail giant, and SK Group, a conglomerate, both of whose offices were raided this week,…Continue reading

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Donald Trump’s conflicts of interest

THE NEW Trump Tower in Worli, a buzzing district of Mumbai, looks like any building site but its marketing sells a dream. A golden structure soars to the sky alongside a picture of Donald Trump. He is—potential residents are assured—the gold standard around the globe, a dealmaker without peer who operates across the gateway cities of the world and the man who built the American dream. Until a few days ago the developer, Lodha, carried a message on its website: “Congratulations Mr President-elect”. But now that a storm has blown up over the possible conflicts of interest between the various operations of Mr Trump’s group and his new job, it has been deleted.

The self-embellished legend is of a global tycoon. In a kind of mirror image, outraged suspicion is mounting that the Trump Organisation could morph into a vast global network of cronyism. America has been treated to reports of multi-billion dollar projects across the planet, to photos of Mr Trump glad-handing businessmen and to images of exotic, Trump-branded buildings standing like monuments to the decay of American ethics. Paul Krugman, a left-of-centre economist, has suggested that the…Continue reading

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Technology firms may struggle to disrupt the food business

THE office parks of Silicon Valley boast many firms that are trying to change the world. But there are plenty with more modest goals. Zume Pizza, a tiny startup that is located a few miles from the sprawling headquarters of Google, wants to redesign the way pizzas are made. Zume has programmed robots to make pizzas that are then cooked inside vans as they hurtle towards customers. Ovens are timed to finish cooking in sync with the vehicles’ arrival at their destination, so the pies are always piping hot.

In recent weeks spies from rival pizza companies and from food-delivery firms have been driving by in unmarked cars taking photographs of the office and the vans, says Julia Collins, one of Zume’s co-founders. To protect its business, the startup has patented the process of cooking food in ovens while a vehicle is moving (the patent probably gives Zume fairly defensible intellectual property, according to one patent lawyer). The company only operates in Mountain View, but has expansion plans. Since its founding last year it has reportedly raised $6m from investors, among them Jerry Yang, a co-founder and former boss of Yahoo, an early giant of…Continue reading

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The sharing economy brings tycoon lifestyles within reach of some

LAMENTING the rise of inequality is one of the few growth industries in an age of stagnation. One authority on the American wealthy, Robert Frank of CNBC, a TV channel, worries that the rich are “floating off” into their own country. Chrystia Freeland, a journalist-turned-politician, frets about the rise of the “new global super-rich” and the fall of everyone else. Charles Murray, America’s gloomiest social scientist, warns that society is “coming apart” as the rich retreat into their gated communities.

At the top of the income scale, however, a small counter-trend is observable. Never before have so many people been able to get access to the accoutrements of tycoonery—private planes, luxury yachts, fancy cars and interior-designed, exclusive homes. There is only so much comfort to be had from the fact that it is easier for the merely rich to lay claim to the lifestyle of the super-rich. But as a result of a combination of new technologies and businesses, that is nonetheless what is happening.

Tycoon living begins with a private jet. Whereas yachts are dispensable (not everyone wants to float around for weeks with the…Continue reading

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ApprovedBusinessBusiness and finance

Clash of the Tatas

COMPANY bosses who get the sack react in different ways: some quietly leave, others graciously wish their successor luck, most try to nurse hurt pride as best they can. Not Cyrus Mistry, who on October 24th was ousted as chairman of the Tata Group, India’s biggest conglomerate. Bemused and angered at having his predecessor, Ratan Tata, suddenly seize back control, he has refused to go. The schism at the heart of Tata has drawn attention to what made it possible in the first place: an overly complex structure trying to oversee too many businesses, deficient corporate governance and a penchant for opacity. Whether these problems are addressed, and how, will shape the group and its reputation for decades to come. 

Tata’s reasons for sacking Mr Mistry are unclear. He is from a family that has had a nearly 20% shareholding in the group for decades (most of the other shares are controlled by charities that are chaired by Mr Tata). Allies say that after four years in the job, Mr Mistry had got to grips with the inner workings of the company. He was ready to start changing it.

His critics, on the other hand, never believed that any executive…Continue reading

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ApprovedBusinessBusiness and finance

Amp my ride

“THE car is the ultimate mobile device,” said Jeff Williams, an executive at Apple, last year. It was taken as another sign that the maker of iGadgets would be deepening its interest in the automotive sector (among other projects, it is developing an in-house smart car that is codenamed Project Titan). Now Samsung Electronics, its big rival in the smartphone world, is following. On November 14th the South Korean company said it would pay $8bn for Harman, a firm based in Stamford, Connecticut, that makes internet-connected audio, information and security systems for cars. The deal is Samsung’s largest ever, and the first big transaction for its vice-chairman and heir apparent, Lee Jae-yong, grandson of the firm’s founder.

Though it is best known for its sound systems, Harman is one of the world’s largest supplier of smart parts for “connected cars” that help owners to drive by linking to the internet and to chip-enabled devices. It made $7bn in revenue in the year to September, two-thirds or so of it from the car sector, and has over three times that in new orders. Its products are the first step towards autonomous vehicles. Over 30m…Continue reading

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Vein hope

DONALD TRUMP’S grandfather, Fred, got his start in the hotel industry at the turn of the 20th century supplying rooms, food, booze and female company to prospectors flocking to north-western Canada in the so-called Klondike gold rush. It may be part of this legacy that gave America’s president-elect his taste for golden fixtures and fittings. But it may also make miners a bit wary of Mr Trump. After all, their pockets have been “mined” by a Trump once before.

So the world’s biggest mining companies are downbeat about the rally in commodities prices that accompanied Mr Trump’s election victory, which briefly pushed up prices of copper at their fastest rate in five years and sent iron-ore prices to two-year highs close to $80 a tonne. On November 15th Rio Tinto, one of the world’s biggest mining companies, told 440 workers at an iron-ore mine in Western Australia to take two weeks off at Christmas, not as a celebration, but as a precautionary measure to reduce supply. It expects conditions to get much tougher in 2017. Its main rival, BHP Billiton, is also nonplussed. It predicts economic uncertainty, political instability and a…Continue reading

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Polluting the outlook

So they hope

IT WAS on November 16th that the International Energy Agency (IEA), an organisation that represents oil- and gas-consuming countries, announced its prediction that over the next quarter of a century renewable energy, such as wind and solar, and natural gas will hugely eclipse the traditional role that coal and oil have played in satisfying the world’s growing demand for energy (see chart). That is the base case for what it says is a powerful shift in the global energy landscape towards cleaner fuels.

The trouble is that after the projections were calculated, Donald Trump, who is both a climate sceptic and a fossil-fuel fan, was elected as America’s next president. As Fatih Birol, the IEA’s executive director, pointed out this week, no one knows what his energy policies will be. Yet he will run the world’s biggest producer and consumer of oil and natural gas.

Many…Continue reading

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ApprovedBusinessBusiness and finance

Pot of gold

Flat white joint to go

IN THE 1990s Snoop Dogg, a rapper, called cannabis “chronic”. The drug was illicit and cool. In 2016 Mr Dogg is a cannabis investor, and the drug is poised to earn another title: consumer staple. On November 8th four states, including California, voted to approve recreational cannabis use. Four other states eased rules for medical marijuana. About three-fifths of America’s population lives in states that now allow cannabis use in some form.

So pot entrepreneurs face the thrilling prospect of normality. This week industry leaders were meeting in Las Vegas to discuss how the sector might expand. They have in prospect a vast, partially established market. More than 32m Americans already use cannabis. As the business becomes more normalised, it is sure to attract new customers. “It’s not often that you see an industry and you know the inevitability of it,” says Brendan Kennedy of Privateer Holdings, a private-equity firm that specialises in cannabis. Last year legal sales reached $6bn, according to the Arcview Group, an investment and market-research firm. By 2020 Arcview expects legal sales to be…Continue reading

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BusinessBusiness and finance

An uncertain time for business

 

AN AGE of uncertainty is upon us. For the past three decades or so, businesspeople have been able to steer by a few lodestars. Trade negotiators lowered and simplified trade barriers. Central bankers tried to keep inflation to a minimum. Policymakers around the world negotiated multilateral treaties on the environment. Global bodies such as NATO provided security in Europe. Today the lodestars are exploding, one after the other.

Meanwhile, Donald Trump is making policy on the hoof. It turns out that the Affordable Care Act of 2010, or Obamacare, is not so bad after all. A big section of his planned wall on the border with Mexico will be a fence. In the past presidents have always arrived in the White House with a detailed set of policies. Mr Trump arrives with a tatty envelope scrawled with a few jottings on the back. Across the Atlantic, Brexit has opened a Pandora’s box: nobody knows whether Britain will leave the European single market or negotiate the equivalent of an associate membership. The Supreme Court has yet to determine how much say Parliament will have in shaping the negotiations.

One of the big promises from…Continue reading

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ApprovedBusinessBusiness and finance

Seize the day

“THE biggest risk in Europe is the Italian referendum,” said Gianfelice Rocca, head of Assolombarda, Milan’s chamber of commerce, this summer. For corporate Italy, much is at stake in the vote on constitutional reform, which will be held on December 4th. Victory for Matteo Renzi, the business-friendly prime minister, could mean a big fillip for firms of all sizes, whereas a loss would be “a shock in the system”, said Mr Rocca.

The national employers’ federation, Confindustria, agrees with him. If those campaigning for a “yes” vote are to be believed, firmer government, easier conditions for investors and generally brighter economic prospects would follow. The two main issues to be decided are reform of the Senate’s powers—whether to let the lower chamber pass future laws, even when opposed by the Senate—and whether decision-making powers should be brought back from regional governments to the centre.

Francesco Starace, the chief executive of Enel, a giant European electricity company that is one of Italy’s more successful firms, sets out a strong case that the proposed changes would bring important benefits to…Continue reading

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The big sort

“THE vultures all start circling, they’re whispering, ‘You’re out of time’…but I still rise!” Those lyrics, from a song by Katy Perry, an American pop star, sounded often at Hillary Clinton’s campaign rallies but will shortly ring out over a less serious event: a late-night party in Shenzhen to kick off “Singles’ Day”, an online shopping extravaganza that takes place in China on November 11th every year.

The event was not dreamt up by Alibaba, but the e-commerce giant dominates it. Shoppers spent $14.3bn through its portals during last year’s event. That figure, a rise of 60% on a year earlier, was over double the sales racked up on America’s two main retail dates, Black Friday and Cyber Monday, put together. Chinese consumers are still confident, so sales on this Singles’ Day should again break records.  

It points to an intriguing question: how will all of those purchases get to consumers? Around 540m delivery orders were generated during the 24-hour spree last year. That is nearly ten times the average daily volume, but even a slow shopping day in China generates an enormous number. By the reckoning of…Continue reading

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ApprovedBusinessBusiness and finance

Fighting fit

CONTROVERSY over the relationship between BAE Systems, Europe’s largest defence company, and one of its main customers, Saudi Arabia, was raging when Ian King, its chief executive, started his job in 2008. BAE’s link to Saudi Arabia was forged 30 years ago with the first “al-Yamamah” arms deal. It saved the firm amid a difficult business environment, but embroiled it in a long-running corruption scandal that even led to Mr King’s immediate predecessor, Mike Turner, being briefly detained by America’s Department of Justice just before he stepped down.

The new boss’s mandate eight years ago was to banish BAE’s old, buccaneering ways and make it the acme of squeaky-clean corporate governance. Now, as Mr King prepares to leave and hand over to a successor, the firm is once again under fire for its ties to the house of Saud, this time for supplying its wares to support the kingdom’s war in neighbouring Yemen. A rising chorus accuses the Saudi-led coalition of using its Western-supplied and maintained air power indiscriminately in its campaign against Iranian-backed Houthi rebels.

Human-rights activists are trying to use…Continue reading

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A long road to recovery

THERE are two ways of dealing with a worrying problem in a car engine. One is a complete overhaul; the other is to tinker under the bonnet and hope the trouble goes away. Volkswagen’s efforts to deal with an emissions-cheating scandal that emerged in September 2015 are of the tinkering type. The German carmaker is desperate to draw a line under its ill-fated decision to fit software to 11m diesel cars that detected emissions tests and artificially reduced the amount of nitrogen oxide pumped out. But the disconcerting rumbles continue.

The latest setback came on November 6th, when VW said that a German investigation of market manipulation was examining the role of Hans Dieter Pötsch, chairman of its supervisory board. The probe, which began in June, is looking at whether Martin Winterkorn, VW’s former chief executive, and Herbert Diess, who oversees the core VW brand, should have disclosed the emissions cheating before the company publicly admitted wrongdoing. This is deeply uncomfortable for both VW and Mr Pötsch, who used to be the chief financial officer and was nominated to become chairman on the day the crisis began. It is also a reminder…Continue reading

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African potholes

“I WAS lucky my customers were three big white guys,” says Themba, an Uber driver in Johannesburg recounting a close call with taxi-drivers who tried to block him from collecting passengers at the airport that serves South Africa’s economic hub. “They pushed them out the way and we managed to drive off.”

The ride-hailing app has made a splashy if slow start in Africa. Of the 529 cities in which Uber connects riders with drivers, just 14 are on the continent. Yet Africa is fertile ground for a firm offering cheap and safe transport. Most passengers have to spring for overpriced cabs or catch a white-knuckled ride on the back of a motorcycle taxi.

In Abuja, locals have long used a low-tech version of ride-sharing. Many folk simply stick out a hand at the roadside to hail any passing car before negotiating a fare. Yet locals warn that fake taxis cruise the streets with robbers hiding in the boot, ready to jump out at a traffic light. In Lagos some taxi-drivers are even thought to be in cahoots with kidnappers. Not surprisingly, Uber seems to be growing quickly in the few cities where it has launched. In many places rides cost less…Continue reading

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The great divergence

ONE of Joseph Schumpeter’s best-known observations was that successful businesses stand on ground that is “crumbling beneath their feet”. A danger is that standing still and resting on your laurels can precipitate a swift tumble. Rivals, meanwhile, can draw on the available stock of knowledge and technology to catch up with the leaders. To stay ahead, front-runners must keep inventing new things. This means that capitalism is inherently unforgiving: today’s leader is tomorrow’s failure. But it also means that it is inherently progressive, since clever ideas are quickly spread through the economy.

Some striking new research suggests that this Schumpeterian mechanism may have broken down. The leaders are staying ahead much longer than is desirable. A group of researchers at the OECD, a club of mostly rich countries, examined the performance of a representative set of companies in 24 of its 35 member countries between 2001 and 2013. They discovered that the top 5% of them, dubbed “frontier firms”, have continued to increase their productivity while the other 95% (the laggards) have been stagnant in this regard.

Plenty of economists…Continue reading

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System crash

The world according to Thiel

“I’D LIKE to wake up now please,” tweeted Sam Altman, who heads Y Combinator, Silicon Valley’s foremost startup school. The sentence neatly encapsulates the mood in the high-tech hub. To many in the technology industry, America under Donald Trump means dystopia. Perhaps no other sector regards his victory with less enthusiasm.

The main reason is that his stated views are antithetical to the beliefs that most entrepreneurs and tech types hold on a range of topics from trade to offshoring to policy on immigration. By one estimate the tech industry gave nearly $8m to Hillary Clinton’s campaign. Silicon Valley also worries that it will lose its direct lines to the administration in Washington. According to the Campaign for Accountability, a transparency group, no fewer than 22 former White House officials have gone to work for Google since Barack Obama moved in. Under Mrs Clinton the door would have kept revolving.

Only one noted Valleyite is likely to have the president’s ear: Peter Thiel, a venture capitalist. He alone supported Mr Trump, speaking at the Republican convention…Continue reading

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Meet the new boss

ALTHOUGH he styles himself as a chief executive who can turn the country around, Donald Trump is an outsider in the world of American business. His commercial operation is tiny by the standards of the country’s mega-firms and few of their bosses have ever viewed the president-elect as an equal or ally. He has “no friends” among the business elite, sniffed a private-equity baron a few weeks ago, who will doubtless now join a queue of executives waiting at Trump Tower to curry favour and to assess the new man’s priorities before he assumes office.

Those supplicants will soon discover that Mr Trump’s attitude towards business has three contradictory strands. He is passionate about unleashing the might of the private sector in order to revive growth. There is certainly plenty of scope: last year listed American companies invested a mediocre 46% of their total cashflow. Yet he is also a populist who thinks the economy is rigged in favour of big business and crony capitalists, and he is a protectionist. In the coming months these three different strands will respectively excite, worry and scare the business world.

Start, first, with the…Continue reading

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China’s big aerospace ambitions are delayed

I think we need to make it bigger

STEALTH fighter jets are designed to be as furtive as possible and sneak through radar without being noticed. China’s new J-20 stealth fighter demanded plenty of attention as it roared over the heads of spectators during its public debut at the Zhuhai air show this week. The message was clear: China is aiming high in the aerospace business. That ambition, though, is as much about commercial aircraft as it is about fighter jets, and in particular one model was noticeably absent from the show: the C919, a single-aisle short-haul passenger jet which China is developing to take on Airbus and Boeing.

\Over the next 20 years both the European and the American aerospace giants forecast that China will become their biggest single market due to demand for new aircraft by Chinese airlines keen to meet the rising middle classes’ desire for air travel. Boeing estimates that…Continue reading

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Digital advertisers battle over online privacy

ONLINE advertising is booming. Digital-ad revenues in America in the first half of the year reached a record $32.7bn, according to the latest figures from the Interactive Advertising Bureau, a trade group. For marketing folk, digital ads have great appeal because consumers’ online data can be used to direct what they think are the right advertisements to the right shoppers. But tracking has become increasingly contentious in both America and Europe.

On October 27th America’s Federal Communications Commission (FCC) announced a new rule to protect personal privacy online. Internet-service providers, such as AT&T and Comcast, must now ask consumers for permission if they want to gather and share data deemed to be sensitive, including financial information and users’ browsing history.

However, the FCC’s rule is notable not for settling a debate, but stirring it. Marketers and digital-ad firms insist that they already police themselves well. They consider data on browsing and apps, in particular, to be essential for targeted advertising. Under the FCC’s rule consumers can “opt in” to share this information, but firms fear that many will not.

There is a limit to the FCC’s order, which perversely makes it only more controversial. It will restrict data collection by internet providers, but have little impact on broader online tracking….Continue reading

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How to rev up Japanese startups

Naka does it her way

WANTEDLY, a LinkedIn for Japan’s millennials, would not be out of place in California. The thriving firm’s offices feature trendy furniture and a ping-pong table. Akiko Naka, the 32-year-old chief executive leads a young team that forgoes the usual black-and-white attire of Japanese business to pad around in jeans and socks. Meeting rooms are named after characters from a famous manga comic.

Yet Wantedly is a rarity. Since the fertile years of the 1980s, and a brief dotcom boom that began in the late 1990s, Japan has fared badly in encouraging similar startups. Just 31% of Japanese think being an entrepreneur is a good career choice, beating only Puerto Rico at the bottom of a study carried out in 2014 by Global Entrepreneurship Monitor (GEM), a report compiled by a group of universities worldwide. By comparison, America scored 65%, China 66% and the Netherlands 79%. Shinzo Abe, Japan’s prime minister, has tried to encourage people to start new businesses to help revive the economy. Startups create more jobs, and more productive ones—something Japan desperately needs. (Its…Continue reading

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Tech firms shell out to hire and hoard talent

LARGE technology firms used to hold on to their high-flying employees by agreeing not to poach them from each other. “If you hire a single one of these people, that means war,” Steve Jobs, Apple’s then boss, warned Sergey Brin, a founder of Google, in 2005. That was an illegal arrangement, and in 2015 Apple, Google, Adobe and Intel paid a $415m settlement to engineers whose pay had been held down as a result.

Today wage suppression in Silicon Valley is even more of a distant memory than dial-up internet and mainframe computers. Last year technology companies in America recorded expenses of more than $40bn in stock-based compensation. Exact comparisons are difficult, but to put that sum in perspective it is roughly 60% more than the bonus pool paid to the New York employees of Wall Street banks.

The money tech firms throw at employees has ballooned as competition to hire and hang on to top talent in engineering, data science, artificial intelligence and digital marketing has soared. Even entry-level engineers can easily earn $120,000 a year, more than most people their age can make on Wall Street; mid-career executives with technical…Continue reading

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The niche in phones that are different

You’ll have to speak up, I’m on my niche phone

ON JANUARY 9th 2007 Steve Jobs stood before an audience of some 45,000 people in San Francisco and announced a “revolutionary and magical product”: a slight slab of expansive black touchscreen with just a single button. Compared with the ugly, cluttered devices of the day, the iPhone was revolutionary. It was also hugely influential. A technicolour pageant of rival designs—the clamshell, the slide, the banana, the candybar and the BlackBerry—resolved into a uniform black mirror. And nearly every smartphone on the planet still looks like the device which Jobs revealed that day.

Nor is that similarity to be found just in hardware design. Nearly a fifth of smartphones sold last year operate on Apple’s iOS software. The rest run variations of Android, an open-source operating system provided by Google. Just two companies—Apple and Samsung—accounted for over 40% of smartphones sold in 2015, according to CCS Insight, a research firm. Huawei came in a distant third with 8%.

In this bland and uniform market some producers spy an opportunity. One of those is…Continue reading

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Los Angeles booms as startup hub

Better than surfing down Sand Hill Road

HOLLYWOOD has produced plenty of films about underdogs rising to claim the limelight. Now Los Angeles is experiencing its own real-life Cinderella story, as the area’s technology scene has been transformed from backwater to boomtown in just a few years. Hordes of venture capitalists from northern California, once long dismissive of their southern neighbour, now regularly commute in search of deals in a less heavily hunted spot than the Bay Area. In 2016 the city’s startups received around $3bn in funding, around six times more than in 2012, according to CB Insights, a research firm.

Evan Spiegel went to Stanford University in the heart of Silicon Valley, but he wanted to live and work close to the sea. So he based his new company one block from the Pacific in Venice Beach, which is better known in Los Angeles for its silicone-enhanced bodies than the silicon chips that gave the Valley its name. Mr Spiegel’s firm, Snap, is best known for its ephemeral Snapchat social-media messages and is now valued at a whopping $18bn. Other successful technology firms are thriving nearby, including…Continue reading

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