The Sunday Times Business & Money - UK (2021-11-14)

BUSINESS

This is a

system

of smart

people

falling

into a

black

hole

P

acky McCormick, a writer

and investor in New York,

recently sold, for $45,

(£34,000), several dozen dig-

ital copies of an article he

wrote. The sum was more

than the typical annual jour-

nalist’s salary in America.

McCormick then used the

cash to fund “scholarships”

for dozens of people in the Philippines to

play a video game.

It gets weirder. In the game, called Axie

Infinity, players control teams of cartoon

creatures that do battle with others to

earn “Smooth Love Potion” — a reward

that can be converted into cryptocur-

rency and sold for cash.

The game has proved wildly popular in

the country, giving rise to stories such as

that of John Aaron Ramos, a 22-year-old

who bought two houses with his earnings

this year. In the Philippines, where the

average monthly income is less than

$270, Axie has become an industry. The

catch: one must buy three “Axies” — the

creatures go for several hundred dollars

each — to start playing and earning.

Hence McCormick’s fundraising drive.

Through one lens, this cascade of digi-

tal wealth, flowing from the fans of a New

York technologist to dozens of people on

the other side of the world who can now

earn cryptocurrency to keep roofs over

their heads, is a fun story.

Through another, it is the future of the

internet, a sign of the inexorable rise of

what has come to be known as Web 3.0.

Web 2.0 is what we have today — an

ad-driven internet controlled by half a

dozen companies that make the rules and

extract most of the rent. The next iteration

of the web, goes the theory, would be gov-

erned not by powerful men running pow-

erful corporations but by software —

decentralised protocols that make it easy

for anyone to create and trade digital

goods without middlemen taking their

pounds of flesh. It is the internet turned

Big Tech,

such as Mark

Zuckerberg’s

Facebook, are

in the sights

of Web 3.

upstarts

SEASON FOUR OF

DANNY IN THE VALLEY

HINK BETTER’S HEATH

JANSEN: ‘RIDING THE

MILLENNIAL

SUPERCYCLE’

THESUNDAYTIMES.CO.UK/DANNYINTHEVALLEY

RIDING THE

AL

CLE’

Bid talk for

Boots after

Pessina

turns seller

After decades of takeovers, the Italian

pharmacies billionaire has been

shrinking his empire. Sam Chambers

diagnoses the future of his UK chemists

has set up an online hub

connecting consumers to GPs

and physiotherapists, and is

even about to begin trials for

delivering medicines by

drone.

Like-for-like sales rose 15

per cent in its most recent

quarter, albeit from

depressed levels.

Despite online sales rising

by 54 per cent last year,

Boots’s fortunes are

inextricably linked with the

high street.

It is thought to own 30 to

40 per cent of its 2,

stores, and on the remainder

it is stuck in leases with an

average of about ten years to

run, leaving it on the hook for

£2 billion of rent. That could

prove a stumbling block to

any Pessina plot to sell the

business.

“It is a lot of wood to

chop,” one banker said. “I

think Walgreens would be

minded to sell Boots — I’m

just not sure who is on the

other end of that telephone.”

Still, where Pessina and

dealmaking is concerned,

history shows that almost

anything is possible.

billion; 6,500 jobs — roughly

11 per cent of the total — were

cut and 200 stores were shut.

In the year to August 2020,

Covid pushed Boots to a loss

of £258 million on sales of

£5.95 billion.

Last year, Pessina

dispatched Ornella Barra, his

long-term partner and

Walgreens’ co-chief operating

officer, to whip the business

into shape. Described by one

former colleague as “ice-cool

and hard as nails”, Barra’s

arrival threatened to make

life uncomfortable for Boots’s

managing director Seb James,

a breezy old Etonian.

James, though, is said to

have charmed Barra with his

high-society connections

and seems to be benefiting

from a little more

investment.

Boots has opened 100

beauty halls, with another 50

planned. It is also trialling GP-

style appointments for those

unable to book one on the

NHS. James claims patients

could be diagnosed and

treated in their local store for

the price of a Nando’s meal.

On top of that, the chain

Walgreens put it up for sale.

Large freehold property

portfolios, lowly valuations

and healthy cash generation

have put unloved bricks-and-

mortar retailers on the radar

of the buyout barons, which

have already swooped on

Asda and Morrisons.

The £477 million

acquisition of Boots rival,

Lloyds Pharmacy, by private

equity firm Aurelius this

month has served to intensify

speculation around Boots.

Pessina merged his

European powerhouse

Alliance Unichem with Boots

15 years ago to form Alliance

Boots.

Just one year later, he

teamed up with private

equity giant Kohlberg Kravis

Roberts to take the business

private in a highly leveraged

£11 billion buyout.

The deal junkie’s next

move was to sell a 45 per cent

stake to Walgreens in 2012.

The US giant bought the rest

two years later, spending a

total of £10 billion to gain full

control. Pessina took a 20 per

cent stake in Walgreens.

Boots contributes only

June 2 was a turning point in

Stefano Pessina’s incredible

career. After four decades of

audacious takeovers to build

the world’s biggest

pharmacies group, he made

his first major disposal.

The executive chairman of

Walgreens Boots Alliance -

owner of Boots - offloaded

Alliance Healthcare, its

European wholesaling

business for $6.5 billion (£4.

billion).

Pessina, 80, has shaken

hands on upwards of 1,

deals since taking on his

father’s failing pharmacy in

Naples in the 1970s,

invariably leaving the

negotiating table in control of

a larger business.

The sale of Alliance

Healthcare has achieved the

opposite, sparking

speculation that Boots could

be the next business that

Pessina and Walgreens deem

surplus to requirements.

“Half of the bankers in the

City are running around

trying to get something going

on Boots,” a private equity

source said, adding that his

firm would be interested if

about 6 per cent of

Walgreens’ $132.5 billion

annual sales, but has paid it

more than £1 billion in

dividends.

As dividends flowed out,

the stores grew tired.

Discounters and

supermarkets undercut it on

toiletries; online beauty

retailers and pharmacists

emerged. Faced with losing

more market share to rapid

grocery delivery services,

Boots struck a deal with

Deliveroo in August of trial

deliveries of everything

from nappies to

paracetamol in as little as

20 minutes.

“Boots... has to work

really hard to just keep

sales flat. But on the

other hand, it’s an

absolute cash machine. I

would not be in the least

bit surprised if Walgreens

sold it to a private equity

house,” a former executive

said.

After sales at Boots

almost halved in

lockdown, Walgreens

wrote down the value of

its UK subsidiary by $

Ornella Barra has

been running the

rule over Boots

ROBOTS FALSE DAWN

Uber

After betting billions on its

self-driving unit, Uber did a

strategic about-turn and sold

the division in December 2020

to start-up Aurora.

Waymo

The original self-driving car

project dates back to 2009. It

has raised $5.7 billion from outside

investors since 2020, but chief

executive John Krafcik left in

April amid slow progress.

Zoox

The San Francisco start-up raised

$800 million before firing its founder

Tim Kentley-Klay in 2018. Amazon

paid $1.2 billion for it in 2020 — a

third of its previous value.

Cruise

Acquired by GM in 2016, it raised

$7.5 billion from Honda and others in

2019. It promised a robotaxi service
      for as little as a $1.50 a mile in 2019.
      It is about to launch a limited service
      in San Francisco.

into a co-op: Facebook owned by its

three billion users rather than Mark Zuck-

erberg. Web 3.0 is the umbrella term for

the suite of software protocols that will

deliver us all to the promised land.

Naval Ravikant, a prominent investor

known for his early bets on Uber and

Twitter, told podcaster Tim Ferriss that

the movement would be “the source of

the greatest wealth creation and innova-

tion since the internet came to be”. Chris

Dixon, a partner at venture capital firm

Andreessen Horowitz, wrote in The

Economist magazine that, in 2022, Web

3.0 would “chip away at the stranglehold

the big tech companies have on the inter-

net”. Andreessen has raised nearly $3 bil-

lion to plough into the sector, making it

by far the single biggest funder.

So what, exactly, is it? At its most basic

level, Web 3.0 is cryptocurrency

rebranded. The white paper that intro-

duced bitcoin as a “peer-to-peer elec-

tronic cash system” came out in 2008.

Since then, enthusiasts have riffed on

that idea to create a host of adjacent tech-

nologies to enable the broader vision of a

decentralised internet. Digital money has

been paired with property rights in the

form of non-fungible tokens (NFTs) that

can be linked to unique digital assets and

then bought and sold. Discrete communi-

ties that crop up to work on new projects

can issue tokens to users and builders so

they all have skin in the game.

An oft-used example of Web 3.0’s

potential is in music. Instead of collecting

fractions of a cent each time a song is

played on Spotify, an artist could leave

the platform and instead link their songs

to their own smart contract, which auto-

matically pays them a far healthier rate

with each play. They are no longer serfs

living on Spotify’s land, scraping by on

the few pennies its master throws down —

and fans have a more direct relationship

with the artist they like.

Upstarts aim to apply that communal

dynamic to virtually every service online.

Alexis Ohanian, founder of Reddit and

776, a venture capital firm, announced a

$100 million fund last week with

Solana Ventures to back Web 3.

social networks that would reward

creators who today generate traffic

for the likes of Facebook and Twit-

ter but receive none of the resulting

value. Solana’s Raj Gokal said:

“Web 3.0 turns users and creators

into owners and stakeholders.”

It is a delicious idea: a leaderless

movement of coders and hackers

rising from the shadows of Big Tech

to create a more equitable alterna-

tive. But it also requires a heroic

suspension of disbelief. In the last

quarter, Facebook, Microsoft and

Alphabet brought in nearly $50 billion

TECH TALK

GETTY IMAGES

People and money could bypass the giants in a decentralised dream

Can the internet

be wrestled back

from Big Tech?

A self-driving car has navigated the streets of San Francisco — but the journey is far from over

in combined profits — an average 37 per

cent increase from the same time last

year. These are money-making machines

unmatched in recent economic history.

Liron Shapira, an angel investor, said

he had yet to see a single company that

had come up with an application capable

of making a dent in their dominance, or

in how the web operates. “The tell-tale

sign is that all these companies can talk

only in abstractions; they can never pro-

vide specific examples,” he said. “This is

an ecosystem of smart people falling into

a black hole, and Andreessen propping it

up with billions of dollars.”

Indeed, when it gets down to the actual

steps required for this diffuse set of peo-

ple to deliver this diffuse set of technolo-

gies, the breathless predictions turn to

hand-waving vagaries. One apt tweet

compared the discourse around Web 3.

to “being a farmer who’s trying to learn

about marijuana as a prospective agricul-

tural product from people who can only

talk about how high they are”.

S

ilicon Valley has a long history of

inflating bubbles until they pop.

The question is, when this hype

cycle runs out of steam, what will

be left? Tim O’Reilly, the tech prog-

nosticator known for coining the term

“Web 2.0” after the dotcom crash, sees

similarities here: “The companies that

made it in Web 2.0 were the ones already

making money, like Google. They had a

critical mass of users. That’s where I

would look — who’s making money?”

In other words, are enough people

invested and involved so that when the

inevitable crash comes, the key compo-

nents will survive? The most charitable

answer: not yet. There are an estimated

ten million people in America who have

crypto wallets — the basic requirement

for buying, selling or trading cryptocur-

rencies, as well as the derivative activities

such as buying NFTs. That is about 3 per

cent of the US internet-going public.

This in itself is not necessarily a sign

that Web 3.0 is an illusion. The history of

technology shows that a small group of

enthusiasts can create world-changing

inventions. The Homebrew Computer

Club, a hobbyist group that coalesced in

1970s Silicon Valley, was hugely influen-

tial. Its members included Apple

founders Steve Jobs and Steve Wozniak.

Perhaps that is where Web 3.0 is — the

passion project of a collection of gen-

iuses who will change the world. Or

maybe it’s just a computer club.

As tech commentator Benedict

Evans puts it: “The fact that it

doesn’t work, and it’s not clear it

will, doesn’t tell us it will never

work or never become anything. It just

tells us we’re not there yet.”

Driverless car tech in a cul de sac

One night recently in San

Francisco, a driverless taxi

studded with sensors silently

ascended one of the city’s

vertiginous hills and rolled to

a stop. Kyle Vogt, founder of

GM’s self-driving car arm

Cruise, got in and was so

nervous that he tried to put

on the wrong seat belt. “This

is just nutty,” he said, as he hit

“drive” on his app and the

electric GM Chevrolet Bolt

began its journey across the

city. The Bolt, though,

seemed calmer than Vogt.

“The car feels really

confident,” he said.

For self-driving techies,

and their investors, the ride

was a milestone. San

Francisco, a city known for its

perilous slopes, fog and

urban density, is a difficult

place to drive in. If computers

can make it here, they can

make it anywhere. Maybe.

California’s transport

regulator recently approved

Cruise and rival Waymo,

Google’s sister company, to

commence self-driving

services. Autonomous taxis

are not yet approved but test

rides without a human driver

are now available to Cruise

employees. There are limits,

though. Cruise can only

operate from 10pm to 6am

and at less than 30mph.

Waymo vehicles must keep a

safety driver at the wheel.

Might the launch of these

services portend the long-

promised dawn of self-driving

cars, after $80 billion-plus in

investments and countless

flame-outs? Or will it be

another false start?

Self-driving cars have long

been held as a technology

that will save millions of lives

and, at scale, obviate the

need to own a car. Vogt once

pledged to launch robotaxis

by 2019. Elon Musk promised

a million would be on the

road by 2020. Neither of

these predictions came true.

DANNY FORTSON IN SAN FRANCISCO

Melanie Mitchell, an AI

specialist at the Santa Fe

Institute, said that while

autonomous cars were likely

to become a reality, they will

not be the revolution once

touted. She explained: “The

view of the general public is

they will drive anywhere, any

time, in any weather. And

that’s just way too hard.”

Indeed, Waymo has been

working on this since 2009.

Its vehicles have clocked up

millions of miles. Yet in

Chandler, Arizona, where it

runs a small taxi programme

in the sparsely populated

area, the system was recently

flummoxed by traffic cones —

underlining the difficulty of

creating software that can

respond to any stimulus.

It is the final 1 per cent

relying on human intuition —

the many micro-judgments

made by drivers — that has

proved so hard.

Critics need only cite 15th

Avenue in San Francisco. For

a period last month, Jaguar I-

Paces operated by Waymo

would head down the dead-

end street, do a U-turn, then

head back out. Then another

would repeat the manoeuvre.

And another. The culprit: a

temporary sign that prohibits

vehicles on a nearby street.

Waymo’s “driver” responded

to it by always turning down

the same cul de sac.

“Smart” cars queuing up to

U-turn out of a dead end is a

Monty Python farce. It also

underlines that the revolution

remains a long way off.