IT WAS not the sort of do-it-yourself activity that Castorama, a French home-improvement chain, usually promoted. The search engine on the firm’s website started offering customers puerile responses to their inquiries. Its auto-complete text function suggested such intriguing products as a “bollock hammer” or “cock sander”. It also returned offensive anti-Semitic phrases. The firm blamed manipulation by unnamed actors and had to briefly scrap its search function.
That incident, two years ago, was a reminder that much online search occurs within websites. Internet giants such as Google excel at bringing users to sites but once there customers often rely on websites’ own search functions to find products or services. Some firms build their own engines; others use open-source software, such as Elasticsearch, to supply them. The results can sometimes be painfully slow and undiscerning.
As e-commerce grows, so does demand for search systems that are fast, accurate and resilient to typos or tampering. A firm that saw an opportunity in this is Algolia, a French startup founded in 2012. It has a search application that hunts the client’s website and swiftly offers consumers relevant results.
Algolia is growing unusually fast for a European startup. It has some 200 engineers and other staff, up from 60 in 2016, most of them based in penthouse floors at its new headquarters behind Paris-Saint-Lazare station (its legal headquarters and a marketing office are still in San Francisco). The firm says it has over 4,500 clients, more than double the tally of two years ago, mostly in America. Its platform is processing 41bn search requests a month, as of March, again more than double the equivalent figure two years ago.
One client, Twitch, a live-streaming video platform owned by Amazon, sees nearly 1bn visits to its site each month, leading to lots of searches. Other customers include Stripe, a cloud-based payments firm; Medium, a publisher; Crunchbase, a database for techies; and various Fortune 500 and CAC 40 firms.
Its figures sound impressive, but there is no ad spending attached to its searches since users are already on company websites. Algolia’s model is to charge clients for its bespoke service, rather than selling ads and scooping up data about users. Its revenues reached $1m in 2014, two years after founding, rose to $10m in 2016 and doubled to $20m last year.
Julien Lemoine, Algolia’s co-founder, sees opportunity among midsized European firms, which are belatedly aware that they must expand their digital offerings. He has plans for operations in Germany and Japan, after opening in Australia this year. Engineers are focused on “natural-language processing” to improve search in tricky tongues like Arabic and Japanese.
A perennial complaint about young tech firms in France is that—despite their gifted engineers and smart ideas—few know how to scale up fast enough to interest big investors. Cedric Sellin, a Paris-based business angel, reckons that locals are too scared of venturing abroad early. “Too many startups try to nail it here, before they think of going elsewhere,” he says. Algolia, in contrast, uses English in all its offices and sought clients in America from the start. The founders’ experience at Y Combinator, a revered school for startups in California, helped them become unusually comfortable, for a French outfit, about taking risks.
Raising serious amounts of capital early also helped. France may have plenty of seed funds for the smallest startups, but ambitious firms usually have to relocate across the Atlantic in search of big investments. But Algolia drew in $74m from investors led by Accel, a venture-capital firm in London, that were attracted by the firm’s global ambitions. Turning l’Hexagone into a “startup nation” means looking beyond France’s borders.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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