ogc163
Superstar
Silicon Valley is broken. Instead of building transformative tech, the industry has become boring, repetitive, and greedy.
In the year 2021, it's almost impossible not to be a techno-pessimist.
Silicon Valley's promises of revolutionary technological advancement just a decade ago have gone unfulfilled. No self-driving cars, just more expensive cabs. Sure, we got next-day delivery with Amazon Prime, but at the expense of our local corner store. The promise of instant connection with anyone in the world has only brought us closer to those who would do us harm. Our screen time gives us anxiety, and our eyes are getting tired.
The problem is that the way we build technology is fundamentally broken. In the old days, the government, academic researchers, and private enterprise worked symbiotically to create exciting new technology, such as Ethernet and computer operating systems. But the way we make technology has become siloed, both intellectually and financially. Researchers chase knowledge, and private enterprise chases profit. Neither collaborates to find innovative ways to solve real-world problems. And when innovation does happen, entrepreneurs live in fear their work will enter the "kill zone," where they will be clobbered or cloned by monopolistic tech giants such as Facebook, Amazon, and Google.
The result is a Silicon Valley that has become lazy and derivative, leaning almost entirely on its greatest hits. Venture capitalists give money only to startups that jump on the hottest trend, and entrepreneurs in turn are stuck trying to iterate on those trends, rather than innovating. A lot of people are running hard and fast at the same unoriginal ideas. Tech stars may talk about changing the world, but tech has always been about making money. Deep in the Valley's DNA is the soul of a '49er — a gold-rush prospector heading West for riches, digging as close as possible to the spot where someone else struck gold.
It's coming from inside the house
Our basic internet infrastructure may have held together during the coronavirus pandemic, but not even the titans of tech have been satisfied with what Silicon Valley provided us over the past year. In an April 2020 essay to everyone in particular, the venture capitalist Marc Andreessen, who cofounded the storied firm Andreessen Horowitz, wondered where all our stuff was — all the useful technology that could have helped get us through the COVID-19 calamity.
Where, he wondered, were the cities of the future? Why didn't we have the capacity to scale up the manufacturing of medical supplies? Or to create more affordable housing? Or delivery drones and supersonic aircraft?
Why, he asked, haven't we been building?
It's a good question. Set aside, for the moment, that Andreessen is the man who, a decade ago, cheered that software would eat the world. Or that his latest successful ventures have all surrounded cryptocurrency — a technology that has no use case aside from speculation and crime. His sentiment is correct, and we can see it in the numbers. American productivity has ground to a halt. During the most recent tech boom, from the late 1990s to the early 2000s, annual productivity growth — a measure of how much a worker can produce an hour — hovered at about 2.5%. Since 2007, according to the Bureau of Labor Statistics, it has averaged only 1.5%. For all its success on the stock market, Silicon Valley has not been the innovation engine that we hoped it would, or that it promised.
Publicly, Silicon Valley will tell you everything is working as it should. Services like Facebook, they point out, are free, so their benefits aren't reflected in the productivity numbers. In a recent CNBC interview, the Founders Fund general partner Keith Rabois said the movement in Washington to break up Big Tech was nothing but a political fabrication. Everyone outside the nation's capital, he insisted, loves tech just the way it is.
But privately, tech leaders acknowledge something is wrong. The incentives surrounding who gets money for which idea are askew, and funding is being allocated in ways that actually stifle innovation. Some entrepreneurs acknowledge Silicon Valley's promise to save the world was always part manipulation — a way to get employees to buy in to long hours and to get consumers to overlook growing monopolization. Others will tell you the worst thing to happen to tech entrepreneurship was to become the toast of elite business schools, to be glamorized as a way to get rich, to be turned into a Hollywood production written by Aaron Sorkin.
One veteran entrepreneur told me venture capitalists didn't get docked for failing to invest in innovative, useful technology — but they would for not hitting a hype cycle. VCs that ride the latest hype cycle are more likely to get markups — follow-up investments from other VCs, at higher prices — and markups get them more cash in their funds. The Silicon Valley hoodies may not love Wall Street suits, but they do love Wall Street money, and Wall Street has never met a hype cycle it didn't love.
That means startups outside the sectors that produce hype cycles are starved for cash. According to PwC, 83% of all venture-capital investments from 1995 to 2019 went to startups dealing in life sciences or in information and communication technologies. That leaves crucial sectors, like energy, out of the mix.
Thanks to this perverse incentive structure, a lot of entrepreneurs invent (or reinvent) with an eye toward the exits. And right now those exit options are getting acquired (if a company has managed to avoid entering the kill zone, where bigger tech companies either clone or kill their product) or going public into our current super-bubbly stock market.
Before it went public, Facebook attempted to acquire Snap for $3 billion. When that didn't work it simply cloned its features. Google bought the rival navigation service Waze and then slowly started integrating its navigation features into Google Maps. Going public has never been easier for tech companies now that the stock market is in the throes of a SPAC — special-purpose acquisition company — boom. Companies that go public through a SPAC are required to offer forward-looking projections to investors, not the detailed prospectus required for an initial public offering. That works out just fine for the SPAC sponsors who collect richer fees than IPO underwriters, but it ends up rushing companies that are nowhere near ready for a public debut.
In the year 2021, it's almost impossible not to be a techno-pessimist.
Silicon Valley's promises of revolutionary technological advancement just a decade ago have gone unfulfilled. No self-driving cars, just more expensive cabs. Sure, we got next-day delivery with Amazon Prime, but at the expense of our local corner store. The promise of instant connection with anyone in the world has only brought us closer to those who would do us harm. Our screen time gives us anxiety, and our eyes are getting tired.
The problem is that the way we build technology is fundamentally broken. In the old days, the government, academic researchers, and private enterprise worked symbiotically to create exciting new technology, such as Ethernet and computer operating systems. But the way we make technology has become siloed, both intellectually and financially. Researchers chase knowledge, and private enterprise chases profit. Neither collaborates to find innovative ways to solve real-world problems. And when innovation does happen, entrepreneurs live in fear their work will enter the "kill zone," where they will be clobbered or cloned by monopolistic tech giants such as Facebook, Amazon, and Google.
The result is a Silicon Valley that has become lazy and derivative, leaning almost entirely on its greatest hits. Venture capitalists give money only to startups that jump on the hottest trend, and entrepreneurs in turn are stuck trying to iterate on those trends, rather than innovating. A lot of people are running hard and fast at the same unoriginal ideas. Tech stars may talk about changing the world, but tech has always been about making money. Deep in the Valley's DNA is the soul of a '49er — a gold-rush prospector heading West for riches, digging as close as possible to the spot where someone else struck gold.
It's coming from inside the house
Our basic internet infrastructure may have held together during the coronavirus pandemic, but not even the titans of tech have been satisfied with what Silicon Valley provided us over the past year. In an April 2020 essay to everyone in particular, the venture capitalist Marc Andreessen, who cofounded the storied firm Andreessen Horowitz, wondered where all our stuff was — all the useful technology that could have helped get us through the COVID-19 calamity.
Where, he wondered, were the cities of the future? Why didn't we have the capacity to scale up the manufacturing of medical supplies? Or to create more affordable housing? Or delivery drones and supersonic aircraft?
Why, he asked, haven't we been building?
It's a good question. Set aside, for the moment, that Andreessen is the man who, a decade ago, cheered that software would eat the world. Or that his latest successful ventures have all surrounded cryptocurrency — a technology that has no use case aside from speculation and crime. His sentiment is correct, and we can see it in the numbers. American productivity has ground to a halt. During the most recent tech boom, from the late 1990s to the early 2000s, annual productivity growth — a measure of how much a worker can produce an hour — hovered at about 2.5%. Since 2007, according to the Bureau of Labor Statistics, it has averaged only 1.5%. For all its success on the stock market, Silicon Valley has not been the innovation engine that we hoped it would, or that it promised.
Publicly, Silicon Valley will tell you everything is working as it should. Services like Facebook, they point out, are free, so their benefits aren't reflected in the productivity numbers. In a recent CNBC interview, the Founders Fund general partner Keith Rabois said the movement in Washington to break up Big Tech was nothing but a political fabrication. Everyone outside the nation's capital, he insisted, loves tech just the way it is.
But privately, tech leaders acknowledge something is wrong. The incentives surrounding who gets money for which idea are askew, and funding is being allocated in ways that actually stifle innovation. Some entrepreneurs acknowledge Silicon Valley's promise to save the world was always part manipulation — a way to get employees to buy in to long hours and to get consumers to overlook growing monopolization. Others will tell you the worst thing to happen to tech entrepreneurship was to become the toast of elite business schools, to be glamorized as a way to get rich, to be turned into a Hollywood production written by Aaron Sorkin.
One veteran entrepreneur told me venture capitalists didn't get docked for failing to invest in innovative, useful technology — but they would for not hitting a hype cycle. VCs that ride the latest hype cycle are more likely to get markups — follow-up investments from other VCs, at higher prices — and markups get them more cash in their funds. The Silicon Valley hoodies may not love Wall Street suits, but they do love Wall Street money, and Wall Street has never met a hype cycle it didn't love.
That means startups outside the sectors that produce hype cycles are starved for cash. According to PwC, 83% of all venture-capital investments from 1995 to 2019 went to startups dealing in life sciences or in information and communication technologies. That leaves crucial sectors, like energy, out of the mix.
Thanks to this perverse incentive structure, a lot of entrepreneurs invent (or reinvent) with an eye toward the exits. And right now those exit options are getting acquired (if a company has managed to avoid entering the kill zone, where bigger tech companies either clone or kill their product) or going public into our current super-bubbly stock market.
Before it went public, Facebook attempted to acquire Snap for $3 billion. When that didn't work it simply cloned its features. Google bought the rival navigation service Waze and then slowly started integrating its navigation features into Google Maps. Going public has never been easier for tech companies now that the stock market is in the throes of a SPAC — special-purpose acquisition company — boom. Companies that go public through a SPAC are required to offer forward-looking projections to investors, not the detailed prospectus required for an initial public offering. That works out just fine for the SPAC sponsors who collect richer fees than IPO underwriters, but it ends up rushing companies that are nowhere near ready for a public debut.
