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enterprise| enterpriseauthorTom KrazitNoneAre you keeping up with the latest cloud developments? Get Tom Krazit and Joe Williams' newsletter every Monday and Thursday.d3d5b92349
September 16, 2020
Velocity is one of the major driving forces behind modern software development, and JFrog quickly showed the public markets Wednesday why companies are interested in tools that help them go fast.
Shares in JFrog rose 47% Wednesday during its first day of trading on the Nasdaq, closing at $64.79, compared to the listing price of $44 per share. That values it at more than $6 billion, a pretty good return for the 12-year-old Israeli company's investors, who poured $226 million in the company as it grew.
"Every company is now a software company," said Shlomi Ben Haim, co-founder and CEO of JFrog, in an interview with Protocol on Wednesday. However, "every company was not created as a software company," and those scrambling to modernize their approach to software development need help making that transition, he said.
JFrog offers a series of software development tools that help companies manage the process of getting software from the idea stage to production. These tools allow companies to manage their code repositories, monitor the entire development pipeline for potential issues or problems, and deploy that code to self-managed servers or cloud services.
This entire process has grown more complex in the cloud era. Software construction used to proceed at a relatively plodding pace through various stages of development, with predetermined release cycles that introduced relatively large changes to the code base. However, the modern approach to software development involves making lots of smaller changes to the code on a more frequent basis, which helps stamp out bugs, introduce new features, and shift priorities according to market forces much more quickly than older processes allowed.
JFrog's software can be consumed as a service on all three major cloud providers or managed on a company's own servers, and customers also pay for support services. JFrog recorded $94 million in revenue during 2019, a 69% jump compared to the previous year.
The company and its investors are betting that the massive number of companies that have yet to contemplate modernizing older tech investments are starting to realize they have no choice, lest they be swept away by newer, more-nimble competitors. Tools like JFrog's are an extension of the DevOps movement, which is as much a cultural shift in thinking inside software factories as a technical one toward faster and more flexible software development.
Over the long term, emerging concepts like serverless computing and low-code development could upend the way companies think about building and shipping software, but JFrog's tools seem well-adapted for companies that built software around virtual machines — the basic processing unit of cloud computing — and are starting to embrace containers.
And as rings true for any company operating on the cloud in 2020, the cloud providers themselves are increasingly interested in providing similar tools to help big clients make the leap onto their platforms. But JFrog executives believe they can operate as a neutral party among cloud vendors and on-premises hardware vendors starting to get into application management services.
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Tom Krazit
Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
People
The future of the cell phone, according to the man who invented it
Martin Cooper comes on the Source Code Podcast.
Martin Cooper with his original DynaTAC cell phone.
Photo: Ted Soqui/Getty Images
January 21, 2021
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
January 21, 2021
Martin Cooper helped invent one of the most consequential and successful products in history: the cell phone. And almost five decades after he made the first public cell phone call, on a 2-pound brick of a device called the DynaTAC, he's written a book about his career called "Cutting the Cord: The Cell Phone Has Transformed Humanity." In it he tells the story of the cell phone's invention, and looks at how it has changed the world and will continue to do so.
Cooper came on the Source Code Podcast to talk about his time at Motorola, the process of designing the first-ever cell phone, whether today's tech giants are monopolies and why he's bullish on the future of AI.
<div class="rm-embed embed-media"><iframe frameborder="no" height="200px" scrolling="no" seamless="" src="https://player.simplecast.com/21947943-bc81-43d9-9eb3-f18341a6c8b6?dark=true" width="100%"></iframe></div><p><em>The following excerpts from our conversation have been edited for length and clarity.</em><br></p><p><strong>I want to get to the phones, but before we do I want to talk about pagers, because I have this deep obsession with pagers. I think pagers are a much better example of the direct predecessor to the cell phone than landlines. Even though you couldn't make phone calls, it seems like spiritually, pagers were cell phones before they were cell phones. You made pagers, and they were huge. And I guess my big question is, why didn't pagers get their due? We kind of skip over them, but it feels like they were a big thing.</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>Well they were, at the time we did it. In the U.S. there were, at the peak, over 50 million pagers. And the principle is freedom. Our biggest customers were people like doctors, who were trapped next to their patients because they have to be available. And the pager set them free! They could go play a game of golf and know that they could get a beep and be at the hospital at 10 minutes. So the concept of freedom, I don't want to beat it to death, is really the essence of what portability is. </p><p>And since you brought the subject up, one of the battles that I'm engaged in today has to do with education and the need for broadband for education. And the solution that the FCC is proposing is wired broadband. Cable! We're going through the same thing all over again. And I am trying to persuade them that if you want to solve the digital divide in education, it's going to have to be with wireless broadband.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p><strong>I agree. And one of the other things you're involved in right now is 5G stuff, right? I spend all of my time talking to people in tech who are, let's say, overzealous about the potential of 5G. Everybody has spent five years telling me that 5G is going to change everything, that it's the panacea of technology, and I'm not sure that I see it. Tell me what you think about 5G: Is it as big of a change in how all of this stuff works as some people like to make it out to be?</strong></p><p>Not really. I think you put your finger on it: 5G is an incremental change. It introduces a couple of new capabilities to what existed in 4G. One of them is the use of millimeter-wave where there is a much bigger bandwidth, but a big handicap is the fact that the millimeter waves don't travel very far. There are other things that are done that reduce latency. </p><p>So it turns out that those two characteristics — very high speeds and low latency — are very useful in things like running a robot. If you've got a factory and you want to run robots, you're going to need those kinds of things. Unfortunately, for people like you and me, 5G does essentially nothing. You have to understand, I think 5G is a wonderful thing, and we have to keep progressing. But I don't appreciate being deluded. And the carriers have done that: They talk about having remote operations and autonomous cars and things of that nature. And guess who's paying for the 5G? It's you and me.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p><strong>OK, let's go back and talk about the DynaTAC stuff. My favorite scene in the book was when you're at a restaurant in Chicago, and a bunch of people have brought you prototypes of this cell phone. And nobody has any idea what a cell phone is supposed to look like. What's that day like?</strong></p><p>Well, you have to start at the beginning of that, because two weeks previously, I approached Rudy Krolopp. Now, Rudy didn't work for me. He ran the Industrial Design Group for this division. But he was a visionary. I told him where we were going to build a cell phone, and he said, "What's a cell phone?" And I described what a portable phone was like, and he reassigned all the people in his group to come up with their concept of what this portable phone might look like. And so I felt I had to reward them in some way. And that's why I invited them to dinner. </p><p>Each of these guys got up and presented what his vision was, of what a portable phone would look like. And they all ended up being a vision of what actually happened. There was a slide phone, there was a flip phone, and there was what they call a capsule phone. These guys were just remarkable. </p><p>We ended up picking what we called the shoe phone — for obvious reasons — because it was simple.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p><strong>You say you picked the shoe phone because it was simple, but it doesn't seem like it would necessarily be obvious that it was simple, because again, nobody had ever done this before. Most of the parts that were required didn't really exist yet. What's your criteria for thinking, "this is the one we can do?"</strong></p><p>It was mechanically simple. It was just the box. Anytime you put hinges and sliders, things of that nature, they're going to break. We actually ended up all agreeing that this was the way to go. And I wanted to make sure that I appreciated the efforts of these other guys. So even though I picked this one, we selected this as a group. Everybody agreed that this is the way to go. </p><p><strong>I guess it makes sense to say, "We have to invent 1,000 things just to make this work. Why invent 1,001 that we don't have to?"</strong></p><p>That's exactly right. [Pulls an original DynaTAC model out.] Calling this "simple" … the insides of this phone are incredibly complex, much more so than a modern phone. A modern phone has a million times the power of this box that we're looking at now. But the complexity, the number of parts — there are like 10 times more parts in the old phone, and they were all hand-soldered together. It's close to a miracle that we got one to work. And they actually got two to work!</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p><strong>The timing of all this is interesting to me, because you're in the middle of this fight against AT&T. It seems like there was something about that fight, and that moment, that made this whole project go. And I was wondering, if Motorola had been super successful, doing fine, under no real threat from AT&T and the FCC, does a project like this happen? Or does it take this kind of existential threat to push something like the phone forward?</strong></p><p>How could I ever have persuaded my management to start investing? They ended up pretty much betting the company, between 1969 when the Bell System announced their desire to continue their monopoly on cellular, and 1983 when we actually have service. This battle that we engaged in lasted 13 to 14 years, and the company spent $100 million of 1970 dollars. So how would I ever have persuaded them, if we didn't have an enemy? If we didn't have to bet our whole company against them, because they would have put us out of business?</p><p><strong>You really don't think you could have pulled it off by yourself? You had a lot of power and trust and autonomy at Motorola.</strong></p><p>We would have come up with a phone, but getting the FCC to move really took a huge amount of effort. The Bell System had 200 lobbyists calling on the FCC alone. They had two guys assigned to each of the nine commissioners. At that time, our total lobbyists force in Washington was three guys, who called on the FCC, the Congress and all the government agencies. So it really took that kind of challenge to make this thing happen. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="6">
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</div></p><p><strong>So let's talk about monopolies. You've truly been in the center of fighting against one, and now we're having these same arguments again, about Google and Amazon and Apple and Facebook. What do you make about the antitrust fight happening right now? Does it rhyme with history to you, as you see all this stuff happening?</strong></p><p>It's a different problem. But it's still a problem.</p><p>There's no question in my mind that some of the practices that Google and Amazon exercise are anti-competitive. And so we've got to do something about it. But there's a difference between that and a regulated monopoly where the government decides what the price is going to be and the monopoly just makes all the decisions, and they have no competitive pressures. That's what Bell Systems did. </p><p>The whole process was different. Bell Labs — which by the way, was an extraordinary organization — had all the funding that they wanted, because they had a monopoly supporting them. And they would invent something, and they would think, "Oh, this is interesting, let's make a product." And they would turn the product over to Western Electric, which was part of the monopoly, and they would make them all and then they would turn that over to the operating companies. And the operating companies would come to you and say, "David, this is what you want, right?" </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="7">
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</div></p><p>That's exactly backwards from what we do today. Marketers today look at what people need and want, what problems they solve and they work backwards through that process. The research guys work on, hopefully, what are going to solve human problems.</p><p><strong>But then on the flip side, then come questions about how power works differently. And especially as we get to privacy and data collection and all this stuff. Bell Systems <em>felt</em> like a monopoly: You could just look at it and be like, "this is clearly a monopoly." It feels messier now, but maybe not any less consequential.</strong> </p><p>I think the real problem is not Google and Facebook and Amazon. It's the people that think they're getting something for nothing. They're not getting anything free, they're giving up their information, which has value, and they're getting less value in return. When people start realizing that and that they have alternatives, the problem is going to get solved. So once again, it sounds like I'm being overly optimistic. And it may be that the government has to intervene in the process, but the real solution there is education.</p><p><strong>Speaking of the privacy and society side of all of this, when you were in the early days of the cell phone, were you thinking about "what does it mean for society when everyone has a phone like this?" You wrote the book that you imagined that when everybody was born, they'd be given a phone number. And were you guys asking this sort of philosophical question?</strong> </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="8">
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</div></p><p>No.</p><p>You know, it's one thing to be a visionary. And I really think that we were visionaries. We stuck our necks out on that thing. But when people asked me what I was thinking of when we made the first public call, it was, "I hope this thing works." </p><p><strong>Before I let you go, I want to talk about AI. Because I think that's another place we have a lot of optimists and a lot of pessimists, and the way you seem to think about where artificial intelligence and humanity meet is about as optimistic a take as I think I've heard. So convince me that the future of AI is mostly good news.</strong></p><p><strong></strong>When I look at a product, I define the usefulness of a product, or at least the interface, as bad, good and optimum. A bad interface is one where you need an instruction manual to work something. If you have a device or a service that is intuitive — you look at it, and you could figure out what to do without looking at an instruction manual — that's pretty good technology. The optimum technology is invisible. It's there, it works for you, it solves your problem. You don't even have to think about it. Well, if you're going to do that, something has to be behind the scenes, making decisions for you. And that's artificial intelligence.<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="9">
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</div></p><p>There are people that are very optimistic about how quickly that's going to happen. And it turns out that there are some things that the brain does that we haven't even figured out how to copy. It doesn't compute very well, it doesn't remember very well. But other things? It can abstract in ways that machines cannot. And so I think it's going to be a slow process, where the machines are little by little going to take over more and more of the routine things in our lives, are going to make us more efficient. </p><p>Society is much more resilient than people think. People are more resilient. People keep saying, "Oh, no, we are going down the tubes, because the kids aren't talking to each other anymore." Yes, I do see lots of cases where kids sit around the table all looking at their cell phones, but most of them are texting each other. And it takes time for society to embrace and understand new things. </p><p>These things are all new, it's going to take a generation for us to accommodate them. But human minds are very flexible. The brain is amazing. It's going to be many generations before artificial intelligences take over. And when they do take over, we won't even notice it.</p>
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David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
People
Poshmark made ecommerce social. Wall Street is on board.
"When we go social, we're not going back," says co-founder Tracy Sun.
Tracy Sun is Poshmark's co-founder and SVP of new markets.
Photo: Poshmark/Ken Jay
January 14, 2021
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
January 14, 2021
Investors were keen to buy into Poshmark's vision for the future of retail — one that is social, online and secondhand. The company's stock price more than doubled within a few minutes of its Nasdaq debut this morning, rising from $42 to $103.
Poshmark is anything but an overnight success. The California-based company, founded in 2011, has steadily attracted a community of 31.7 million active users to its marketplace for secondhand apparel, accessories, footwear, home and beauty products. In 2019, these users spent an average of 27 minutes per day on the platform, placing it in the same realm as some of the most popular social media services. This is likely why Poshmark points out in its S-1 that it isn't just an ecommerce platform, but a "social marketplace." Users can like, comment, share and follow other buyers and sellers on the platform.
<p>For the first time since its founding, Poshmark <a href="https://www.sec.gov/Archives/edgar/data/1825480/000119312520320132/d66583ds1.htm" rel="noopener noreferrer" target="_blank">turned a profit</a> in its quarter that ended in June, and was again profitable the following quarter. It makes money by charging sellers a fee: 20% for items over $15, and $2.95 for everything else. And though Poshmark markets itself as a <a href="https://blog.poshmark.com/2020/02/26/the-revival-of-iconic-handbags/" rel="noopener noreferrer" target="_blank">trusted source for luxury items</a> (it provides <a href="https://poshmark.com/posh_authenticate" rel="noopener noreferrer" target="_blank">free authentication</a> for items over $500), the average order value in 2019 was just $33.<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>Co-founder and SVP of New Markets Tracy Sun spoke with Protocol soon after Poshmark's market debut. Sun discussed the importance of social commerce, why users are spending so much time on Poshmark, and how the company is investing for long-term growth. </p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>As you went through the IPO process, what were some common questions from investors?</strong></p><p>The main questions we get from investors are about our social commerce marketplace and the magic behind it. Here's the thing: A lot of social networks are tacking on commerce, and a lot of commerce companies are tacking on social. Poshmark is different in that we built our business with social and commerce integrated from the very beginning. This means we are at the forefront of social commerce and this puts us in a leadership position. </p><p>Many people are aware that social commerce is a global phenomenon. So they really want to understand, "How does it work? Where is the momentum coming from? And why have we been able to get to where we are today?"</p><p><strong>What's driving customers to spend those 27 minutes each day on Poshmark? Are customers treating it as a social experience, even if they have no immediate intention of buying?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>Shopping, historically, has always been social. Hundreds of years ago, people wanted to talk to one another about the items they were buying. They wanted to know the people they were buying from. That's just inherent in us in shopping.</p><p>With the rise of ecommerce, all of that engagement and vibrancy that human beings have when they connect with one another got stripped out of shopping. What we see online is the photo of the product and price. What Poshmark does is put all of that vibrancy of social community connections back into shopping.</p><p>To your question of what people are doing on the platform: They are talking to one another; they are getting to know who they're buying from and selling to; they're getting inspiration; they're getting recommendations; they're asking questions about color, fit, sizing and everything else we're accustomed to asking in a social environment. And honestly, this is the way people are shopping today. Gen Z and the younger generations refuse to have one-way communication, they want to be involved, talk to their peers and socialize. So we've built this social marketplace in order to help enable that, and, as a result, help our buyers and sellers thrive.</p><p><strong>There's a fairly large gap between your average selling price of $33 and the authentication threshold of $500. How does Poshmark build consumer trust for customers making purchases below $500?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Buyer and seller trust is extremely important to us. As you mentioned, we offer authentication services on certain items. There are also a lot of investments we're making — on the human, technology and program side — to protect our community.</p><p>We have machine learning in the background that helps strengthen the integrity of our marketplace. We have a community program where we enable anyone on our site to flag any listings that violate our politics, and our politics are very clearly stated on our site. We also have a team of people who are constantly monitoring listings.</p><p><strong>Poshmark experienced a dip at the onset of the pandemic in March, but then performed really well in the subsequent months. How do you plan on retaining that momentum as the pandemic hopefully subsides?</strong></p><p>There are three trends driving momentum in commerce: the shift online, the shift to social, and the shift to resale or secondhand. Over the past year, those trends that were already there have accelerated. Once we go online, we're not going back. When we go social, we're not going back. These trends are here to stay. </p><p>We see ourselves at the intersection of these trends and the leader at this intersection. We are focused on continuing to build long-term growth. So we started with women's products and added men's and kids'. Last year we added home goods, and most recently we launched beauty. We'll continue to add more categories so that our buyers and sellers can transact with more items, [and] international [expansion]. Then the last one is building enterprise-grade tools and services to support those sellers that are looking to move a high volume of inventory. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
People
Affirm CEO Max Levchin: ‘I see an ocean of opportunities’
The fintech startup's stock soared more than 90% in its IPO debut today.
January 13, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 13, 2021
It was a blockbuster debut for Affirm. The fintech startup's shares soared more than 90% when it went public on Wednesday.
The day itself began quietly for CEO Max Levchin: He kicked it off with a Zoom call with his kids, made a latte for his wife and joined a group chat with some high school friends, one of whom is recovering from COVID-19. "We were very happy to hear that he's doing well," he told Protocol shortly after his startup began trading on the Nasdaq Global Exchange.
<p>Affirm's stock opened at $90.90 after pricing at $49 a share, before climbing to as high as $96.07 in late trades.</p><p>Levchin took some time off to share his thoughts into what the successful trading debut means and what's next for the fintech startup.</p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>Quick thoughts on why the stock is rallying?</strong></p><p>I think the market does what it does. I choose to interpret it as, "People love what we stand for beyond the opportunity for financial gain." We have a story to tell, and our story is special. We built a product that actually improves lives in financial services.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p><strong>What were the common questions you were asked by investors in the IPO process?</strong></p><p>The question I heard a bunch — and I enjoyed answering — was: What makes you different? It's a hot space. There are tons of incumbents and a lot of new players. What do you do that makes you special? One big part of it is how much we attach ourselves to the idea of honest financial products, not just an opportunity for profit. It's really powerful, and that's resonated with millions of consumers and thousands and thousands merchants. That's part of our story and we tell it every time.</p><p>We took the time to build a fully universal solution. We will scale with the merchant up and down, something as enormous and complex as Walmart, and as technologically advanced and sophisticated and demanding as Shopify, and literally thousands of brands that we would have only heard of if we were looking for very specific things. We are built by a lot of engineers who are very technology-first. And that allowed us to do things right.</p><p><strong>Some analysts, while acknowledging your growth, also point to the state of the economy. Given that consumers are still facing a lot of uncertainty given the pandemic and the economic downturn, how do you reflect on those concerns?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>I think they are justified in the sense that the U.S. economy took a giant step back, in many ways, and yet also transformed itself, in some pretty fantastic ways. We saw the massive acceleration of the offline to online movement in commerce. I think the economy is being forced to modernize itself.</p><p><strong>Are there things in the way the economy has changed over the past year since the pandemic began that worry you, that you feel could be a problem?</strong></p><p>Part of what makes us different and special is we work with our consumers and our merchants to evaluate every transaction. So in many ways, I think our products are more important than ever to consumers. Some of them have lost their jobs, some of them are trying to be a little bit smarter about budgeting and affordability. I think these folks really benefited from Affirm. And we take great pride in helping them navigate the uncertainty and complexity around them. From a more macro view, income inequality is something that our society struggles with and is right to be concerned about.</p><p><strong>What are the biggest challenges for you this year, post-IPO?</strong></p><p>We are fundamentally limited by a number of things we can build and ship in per-unit time. I see an ocean of opportunities, and probably prioritizing them, and being focused and not trying to do everything for the exact same time despite the fact that it feels like we can do so much to help, is probably my personal challenge.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p><strong>What was the toughest part of the IPO process for you?</strong> </p><p>The level of effort and intensity that our team brought to bear to make this happen constantly made me feel like I'm just not working hard enough. The sheer amount of work we were able to do in a shorter period of time was something else. That said, we weren't going to cut corners. We were going to do it right. We were going to go out when we were ready and when the market was ready for us.</p>
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Power
Affirm takes 'buy now, pay later' public today. Investors may balk at the risk.
The San Francisco startup's rise highlights the rapid growth of payment and lending platforms, especially among millennials.
January 13, 2021
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 13, 2021
Affirm, the "buy now, pay later" startup, is going public on Wednesday in one of the most anticipated IPOs this year.
Affirm's IPO, which could value the company at a reported $10 billion, highlights the rapid growth of ecommerce and related payment and lending platforms amid the pandemic, as well as new ways that consumers, particularly younger ones, seek to make purchases: Many are eschewing credit cards to avoid going into debt.
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Still, the San Francisco fintech company's debut also turns the spotlight on a trend that one analyst likens to payday loans, a system that makes it easier for consumers to make purchases instantly, but which has also sparked concerns about growing consumer debt in a wobbly economy.
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"They don't like to call it a payday loan, but essentially, that's what it is," IDC analyst Jerry Silva told Protocol. "The trend overall is this ability to do better risk management around credit, and then based on that, to start offering products that we've never seen before."
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</div></p><p>Shares of Affirm opened at $90.90 after pricing at $49, and soared on the Nasdaq, trading at $96.07 as of 2:50 p.m. ET.</p><p>
Affirm, which launched in 2012, is one of the large players in BNPL — as "buy now, pay later" is known. The system lets consumers make online purchases, such as a piece of furniture, a household appliance or an exercise machine, and pay in monthly installments.
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Affirm offers interest-free and interest bearing loans, but says it doesn't charge late or hidden fees. BNPL has taken off mainly among middle-class consumers, including millennials, who are looking for an easier way to make purchases, especially for pricier items. Since the 2008 financial crisis, <a href="https://fortune.com/2018/02/27/why-millennials-are-ditching-credit-cards/" target="_blank">many millennials don't want to use credit cards</a>, so they have looked at other options, Klarna U.S. head David Sykes said.</p><p>
Affirm said more than 6.2 million consumers made roughly 17 million transactions on its platform with more than 6,500 merchants from July 2016 to September 2020. That represented total gross merchandise volume, or total sales transactions on the platform, of $10.7 billion.
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The startup recorded revenue of about $510 million in its fiscal year that ended in June 2020, up 93% year-over-year.
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One of its top rivals, Klarna, which is still private, reported gross merchandise volume of $35 billion for the first nine months of 2020, up 43% year-over-year. The Sweden-based company said it had 11 million U.S. customers and 2 million monthly active app users as of November 2020.
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Silva said advances in technology, especially in AI and big data analytics, are driving the BNPL trend. These new tools are providing merchants and banks a faster, in-depth look at consumers' ability to pay their bills.
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"What's expanding is credit, and we attribute that to the improved performance of AI-based risk models," he said. "When you think about it, credit all comes down to risk. How likely is this person to pay off whatever loan we're giving them?"
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In fact, Affirm and Klarna target consumers with higher credit scores, so their credit risk is relatively low, said Fabrice Grinda, founding partner at FJ Labs, a Klarna investor. Neither company has been significantly affected by the pandemic downturn, he said.
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"Affirm and Klarna are catering to people with high credit scores," he told Protocol. "Those people are doing relatively well — lawyers, doctors, bankers, consultants."
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Affirm's relatively more affluent customer base was highlighted by one fact it disclosed in its IPO filing. The company said its top merchant partner is exercise bike maker Peloton, which comprised roughly 28% of its revenue in the fiscal year ending June 2020.
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Grinda said that even if there were a longer recession that affected this higher-income group, he thinks companies like Affirm and Klarna will be relatively safe.
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But the expansion of BNPL companies at a time of lingering uncertainty due to the pandemic is making some analysts and investors nervous.
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"It's creating too much credit, which is always a big issue in consumer spending countries like the U.S.," said Kenn So, an investor with Shasta Ventures. He said Affirm appears to be doing a good job managing risks and delinquencies, "but with COVID decimating jobs and dragging the economy, I hope BNPL does not lead to excessive purchase behaviors."
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Jonah Crane, a partner at investment firm Klaros Group, said "fraud and chargeback risks loom large" in BNPL.
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"The ability of companies like Affirm to manage that risk appropriately is going to be absolutely critical to survive," he told Protocol. This is particularly important in a system in which customers typically are making a one-off transaction: "That's a challenging thing, from a fraud risk perspective, to deal with."
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Klarna's Sykes said the company's credit risk is relatively low because Klarna's average order size in the U.S. is $150. "It's not like we target the subprime market," he said.
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Joe Floyd, general partner at venture firm Emergence Capital, which isn't an investor in Affirm or Klarna, said investors should probably not be valuing Affirm and similar companies as software companies, but instead as lenders whose business is heavily dependent on transactions and risks.
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Affirm, which raised its IPO price range from $33 to $38 to between $41 and $44, is looking to raise roughly $1.1 billion when it begins trading under the ticker AFRM on the Nasdaq Global Market. It's reportedly eyeing a valuation of more than $10 billion.
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"There's always risk if you're lending," Floyd said. "If I were a public market investor, I would not want to apply the same multiples as I do to pure software companies."
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</div></p><p><em><strong>Update</strong>: This article was updated at 8:15 a.m. PT to clarify the types of loans Affirm offers, and again at 11:52 a.m. PT to include its opening stock price. </em><br></p>
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Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
Power
The NYSE China flip-flop: A battle between profit and accountability
Western investors want transparency. But what if guaranteeing that closes a door on the U.S. profiting from China's tech success?
The New York Stock Exchange can't decide whether to delist certain Chinese tech apps.
Photo: Julien Chatelain
January 7, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
January 7, 2021
The New York Stock Exchange's flip-flopping statements this week over the delisting of Chinese tech stocks highlight a longstanding dispute over how much access Chinese corporations should have to U.S. capital markets. It's a debate that some experts say pits profit against accountability, and one that will likely continue under the Biden administration.
The confusion began last week, when the NYSE announced that it would delist the stocks of three Chinese telecom companies — China Telecom, China Mobile and China Unicom — to comply with the Trump administration's order in November barring U.S. companies and individuals from investing in Chinese firms that work with the Chinese military.
<p>The NYSE reversed that decision on Monday, only to change it again on Wednesday when it reaffirmed the plan to delist the stocks. Trading in the Chinese telecom company shares will cease at 4 a.m. Eastern Time on Jan. 11, <a href="https://ir.theice.com/press/news-details/2021/NYSE-Announces-Suspension-Date-for-Securities-of-Three-Issuers-and-Proceeds-with-Delisting/default.aspx" target="_blank">the NYSE said</a>.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>The NYSE could not be reached for further comment. </p><p>Stephen Diamond, a law professor at Santa Clara University, said the exchange may have been caught flat-footed by yet another unexpected move by the Trump administration, which has been waging a bitter trade and economic war against China. "The NYSE just got caught in this whole mess that is Trump," he told Protocol. "It's like every other administrative effort. It's driven by Trump's ego, not by rational policy."</p><p>A <a href="https://www.wsj.com/articles/u-s-considers-adding-alibaba-tencent-to-china-stock-ban-11609961075?mod=tech_lead_pos2" rel="noopener noreferrer" target="_blank">report by The Wall Street Journal</a> on Thursday suggested that U.S. officials are also considering a ban on Americans investing in Alibaba and Tencent.</p><p>The NYSE announced that its delisting would be pushed through after Treasury Secretary Steven Mnuchin told it that he disagreed with the reversal, <a href="https://www.cnbc.com/2021/01/06/nyse-will-delist-three-big-china-telecoms-reversing-decision-once-again.html" rel="noopener noreferrer" target="_blank">according to CNBC</a>. Diamond said delisting the Chinese companies' stocks was clearly not in the interest of the NYSE.</p><p>"They didn't want to do this in the first place, probably," he said. "The NYSE has been pretty aggressive about courting Chinese stocks. … It earns revenue from listing fees and trading commissions. … Their motivation is to obviously keep as many of these listings as they can."</p><p>Edith Yeung, a general partner at venture firm Race Capital, who writes the <a href="https://www.scmp.com/tech/apps-social/article/3018026/chinese-internet-firms-are-no-longer-copycats-heres-how-china" rel="noopener noreferrer" target="_blank">China Internet Report</a>, said delisting Chinese companies could also drive many Chinese firms to other exchanges, shutting out U.S. investors from fast-growing businesses. Of the private companies globally that raised the most funding in 2020, the top 10 raised $13.6 billion combined, and six of those 10 were based in China, she said, citing Crunchbase data.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>"The Treasury Department and the New York Stock Exchange need to make up their mind," Yeung told Protocol. "If U.S. IPO markets continue to jerk Chinese companies around, it will send a really unwelcome signal to these high-growth Chinese companies that maybe they should consider listing in Hong Kong and Shanghai instead."</p><p>But Diamond said the NYSE's move also turns the spotlight on longtime concerns about the lack of <a href="https://qz.com/1858632/its-too-late-for-the-us-to-get-rid-of-chinese-stocks/" target="_blank">transparency</a> and <a href="https://www.cnbc.com/2020/04/28/china-cracks-down-on-fraud-and-tries-to-cleans-up-image-with-luckin-probe.html" rel="noopener noreferrer" target="_blank">accountability</a> from many Chinese corporations. The latest was Luckin Coffee, which was <a href="https://www.wsj.com/articles/luckin-coffee-drops-nasdaq-appeal-shares-to-be-delisted-11593188282" rel="noopener noreferrer" target="_blank">delisted</a> from the Nasdaq after reportedly being under investigation after disclosing financial fraud. With many Chinese companies, "things like corporate governance or shareholder rights … don't exist in any meaningful way," he said.</p><p>Diamond cited the recent controversy over Chinese tech titan Jack Ma, who has reportedly been forced to keep a low profile amid an apparent dispute with the Chinese government. Beijing is <a href="https://www.wsj.com/articles/chinese-regulators-try-to-get-jack-mas-ant-group-to-share-consumer-data-11609878816?mod=tech_lead_pos1" rel="noopener noreferrer" target="_blank">reportedly pressuring Ant Group</a> — the Chinese fintech that was <a href="https://www.protocol.com/bulletins/ant-groups-ipo-has-been-suspended" target="_self">on the cusp of a record-breaking IPO</a> and for which Ma is the major shareholder — to share the financial giant's consumer-credit data.</p><p>"If Jack Ma disappears, what is CalPERS going to be able to do about an investment it makes?" Diamond said, referring to the California Public Employees' Retirement System, a major institutional investor. "Nothing." </p><p>"This whole issue of Chinese access to the U.S. capital market is a critical issue that has to get taken seriously by the new SEC and the new administration," he said. "As ham-handed and clumsy and, frankly, sometimes even racist some of the criticisms [by] the Trump administration have been of China, there is a real issue about transparency and accountability for Western investors."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>In fact, the incoming Biden administration is widely expected to <a href="https://www.wsj.com/articles/biden-trump-xi-china-economic-trade-strategy-policy-11609945027" rel="noopener noreferrer" target="_blank">rebuild traditional U.S. alliances</a> as a way to counter China's growing influence, especially on the economic front. Biden plans to meet with some of the world's major leaders at an international gathering called <a href="https://www.politico.com/news/2020/11/28/biden-democracy-summit-440819" rel="noopener noreferrer" target="_blank">Summit for Democracy</a>. China and Russia are not expected to be invited.</p><p>Charles Elson, a finance professor at the University of Delaware and a corporate governance expert, said the controversy over the delisting of Chinese telecom stocks underscores the balancing act that the NYSE is often forced to undertake.</p>"By delisting, you lose the revenue from those listings," he told Protocol. "By including those listings, you get the revenue — but there's a public perception issue. Are you supporting a position that's antithetical to the national interests of the United States?"
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
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