Commercial Awareness Update – W/C 19th April 2021

The round-up of the stories that a budding Student Lawyer should be aware of this week. Sign up here to get these updates in your inbox every week.

Microsoft to Acquire Speech Recognition Specialist Nuance for $16 billion

Article by Jamie Adair (1st year LLB student at Warwick University) 

Microsoft has agreed to buy the speech recognition pioneer, Nuance Communications, in a deal worth $16 billion ($19.7 billion including debt). The all cash transaction is Microsoft’s second-largest acquisition ever after buying LinkedIn for $26.2 billion in 2016.  The deal arrives approximately two years after the two businesses entered into a partnership to provide AI systems to help doctors record voice conversations with patients for record-keeping purposes.

The Massachusetts-based Nuance, whose technology powered ‘Siri’ is an early developer of speech recognition technology. Nuance’s voice recognition systems have been applied in a number of industries but it has refocused its efforts on a few key markets in recent years due to falling sales. It has seen its revenues shrink in each of the past two years and has divested a number of business units, making the acquisition somewhat risky for Microsoft. It also only managed to achieve a net income of £29 million last year. However, its more recent success in providing cloud-based systems for hospitals and doctors have helped contribute to Nuance’s shares more than tripling since a low point in March 2020. The pandemic has also helped the company achieve a 37% yearly increase in revenue of its cloud services, a trend which is likely to continue into the future.

The deal makes sense for a number of reasons. First, the acquisition will enable Microsoft to sell to a large number of new customers in a number of industries including healthcare, financial services and telecoms. The transaction also means Microsoft will acquire Nuance’s client network, giving it the ability to sell its own AI products to them. Second, the deal will promote closer collaboration following its earlier partnership in 2019 as it could help Microsoft expand the availability of speech recognition technology to its other services. Third, Bloomerg Intelligence senior analyst, Anurag Rana described how the deal “can really help Microsoft accelerate the digitisation of the health-care industry, which has lagged other sectors such as retail and banking”.

Despite a number of recent failures in ventures into speech recognition technologies (such as recently shutting down voice assistant app, Cortana, for iOS and Android), Microsoft will be hoping that its fortunes will change with this ‘big bet’ on Nuance.

You can read about the deal here, here, and here.

China Leads the Race in Digital Currency

Article by Advaita Kapoor (3rd year B.A. LLB (Hons.) student at Hidayatullah National Law University, Raipur, India)

China, marks as the first major economy to inaugurate a national digital currency, called the digital yuan. Where the rest of the world is still dealing with and expanding their digital payments domain, China has moved a step head and started rolling out a trial cyber yuan across the country already. The development of this cryptocurrency has been going on since 2014 and the legal tender itself has come to be replaced by this digital currency.

How does digital yuan work?

In the simplest terms, the cash in circulation is converted into digital Yuan and used in economic transactions. It might sound like a regular online payment through a payments app however, this system is distinct because the money in circulation is programmable, flexible and traceable. It is made with the aim to make domestic and international payments cheaper, faster and resilient.

The catch here is, that it this currency is not like other cryptocurrencies such as Bitcoin which uses block-chain and keeps the user’s anonymity intact. This dystopian mechanism allows Chinese government not only to aid their state surveillance by tracing all payments in the garb of “controlled anonymity” but also makes its usage restricted by programming it. It can set an expiration date for the usage of the money and program it in a way to ensure it is only used for a certain commodity or service.

A two-tier method of circulation has been proposed by the Public Bank of China. The money would first be dispensed to the commercial banks which would in turn distribute it to the consumers. It will be used as a legal tender without needing a bank as an intermediary.

Effect of the digital yuan

Though it can be beneficial to trace illicit flow of money but its drawbacks are much greater. One such hurdle is the Settlement of International Payments. Currently, most international payments take place through SWIFT which is an international payment messaging system where cross-border transactions transpire in US Dollar for ease, giving utmost domination to the US Government to put restrictions and sanctions. However, China’s digital yuan would bypass this global financial system. This endangers the US Dollar significantly, which is the world’s reserve currency. To combat this potential threat, the US is also considering the option of a digital dollar. Apart of this, US and its allies are considering a boycott of the 2022 Beijing Olympics to counter the economic national security threat posed by China.

Another likely effect of this is going to be the discouragement in the use of Bitcoin. China’s move is likely to make other countries to advent a national cryptocurrency, something that many countries such as Sweden, Bahamas etc. had already been considering.

The Scamdemic

Article by Cian Whyte (3rd year LLB student at the University of Bristol) 

We have all once been exposed to online scams that are advertised on the various social media platforms that we use on a day-to-day basis. It would be safe to say that for most people, these scams are easy to spot. However, the age old saying ‘if it looks too good to be true… then it probably is’ is no longer carrying the same weight as it used to. Online scams are becoming increasingly more sophisticated with more and more people falling victim to them each year. Experts believe the UK is currently subject to a ‘scamdemic’ and that tech giants such as Google and Facebook need to start taking more responsibility for their role in passively facilitating these scams.

Fraudsters are paying companies like Instagram, Facebook and Google to place ads on their pages so that their scams may reach a much wider audience. Until now, the attention has been placed on banks to compensate people who have fallen victim to these online scams, yet banks are now becoming increasingly concerned with the rising costs and argue that they should share some of the burden with the tech companies that run the ads. NatWest now spend as much detecting fraud and compensating victims as they do, operating their entire branch network.

Ruth Evans (Stop Scam UK Chair) said “It is incredibly important that there is shared responsibility and commitment to stop scams… although we have now begun to do fantastic cross-sector collaborations, we would be able to do so much more”. Furthermore, one senior banker told The Financial Times “if you’ve been scammed on Facebook marketplace, why can’t Facebook help with putting that customer right?”.

Google claim that in the past year that have removed 3.1bn ‘bad ads’ from its platform. A staggering 123m of these ads were related to financial services. Facebook also claim that they are actively trying to tackle fraudulent activity and have dedicated a group within its content moderation team to identify and take down ‘scam’ advertisements. However, these Tech companies are still accepting payment to advertise scams whilst ‘actively trying to prevent them’ which is a practice that can only be described as immoral.

There is now an alliance amongst Banks and Telecom companies across the UK to convince Tech companies to join the fight against financial fraudsters. This alliance is also putting pressure on MPs and regulators to call on the Tech industry to do more. The Governor of the Bank of England, Andrew Baily, believes the government should be taking a much tougher stand against Tech companies who fail to regulate financial promotions on their online services.

One way this could be done is through the Online Harms Bill, first proposed by Theresa May’s government back in April 2019. Digital Secretary, Oliver Drowden, believes that Britain should be setting the global standard for safety online which can be achieved by the Online Harms Bill. The Bill could force Tech giants like Google to be more active with taking down fraudulent advertisements on their site. It could grant Ofcom the power to fine firms if they fail to abide by the new regulations with fines potentially reaching an unprecedented £18m or 10% of global turnover. However, the Bill proposal drew criticism from Dom Hallas, executive director of Coadec (representatives of the start-up sector) saying that the bill “risks being a confusing minefield that will have a disproportionate impact on competitors and benefit big companies with the resources to comply”. Ultimately, the government needs to work collaboratively with the financial sector and tech companies to reach a solution that will regress the surge of online scams in the UK.

Coinbase Valued at £72.5b after Direct Listing on NASDAQ

Article by Ben Pattinson (LPC student at BPP University)

 Coinbase is a trading platform for cryptocurrencies, it has around 56 million users in more than 100 countries. Coinbase directly listed on NASDAQ on 14 April and was valued at £72.5 billion giving the company a larger market capitalisation than Tesco and BP. This article will outline the benefits of a direct listing compared to a traditional Initial Public Offering (IPO) and will explore why Coinbase has been valued so highly.

A direct listing involves a company selling existing shares to the public, these shares are owned by employees and early investors. Whereas an IPO can involve the sale of new shares and also existing shares. An underwriter (usually an investment bank) plays a key role in IPO’s as they agree to purchase leftover shares that were not purchased on the listing. The underwriter will also take part in a roadshow where they pitch the shares to institutional investors who buy the shares. Underwriters charge the listing company a large fee due to their major role in an IPO. However, a direct listing does not involve an underwriter and solely relies on the public to purchase the shares when they are listed on the market. This can help the listing company save costs as they do not pay the underwriters fee, but they risk a lower share price and not all their shares being sold. However, the risks did not impact Coinbase as the shares were purchased due to high public demand.

Coinbase’s high valuation is reflective of the success that cryptocurrencies had over the past year, for instance, in March 2020 one bitcoin was worth $6,483 whereas today it is worth $62,926. This high yield has attracted investors who want to make a high return on their investment. Also, Tesla’s, Mastercard’s and BlackRock’s plan to incorporate digital currencies into their businesses has helped convince investors that cryptocurrencies are a safe asset to invest in. Coinbase is less risky than investing in one type of cryptocurrency as the investment is into the trading platform that relies on the success of the entire cryptocurrency market, not just the success of one type of cryptocurrency. The direct listing also came at a time of a stock market bubble where investors have shown high demand for newly listed companies which meant it was more likely that the shares of Coinbase would be purchased at a higher price.

Despite the success of Coinbase’s listing, the company does face threats from competitors such as Robinhood which is also developing a trading platform to trade cryptocurrencies. Robinhood is a major threat as they do not charge commission for trading on the app whereas Coinbase does. Additionally, the cryptocurrency’s sector steep rise has attracted regulators attention as some cryptocurrencies are linked to organised crime. Additionally, they harm the environment as they are stored on hardware systems that require a large amount of energy consumption, Bitcoin mining generates 37 million tonnes of CO2 each year. Regulators may impose strict rules on the cryptocurrency sector which may decrease the trading and use of cryptocurrencies and will therefore diminish the value of Coinbase. However, for now, the high valuation of Coinbase reflects the major success of cryptocurrencies.