Every new business idea goes through a life cycle. When it is new and demonstrates how useful it is, people sell it at high prices and pay a lot of attention to it.
However, as time passes, the cost is expected to drop and people want to pay less attention to it. Consider the telephone: once cutting-edge, now humdrum. Or radio. Or desktop computers.
Now it is time for the third wave of internet companies to face this part of the business cycle. They are no longer cutting-edge; they are mundane services. But they grew too large and need more money to keep their staffs, stockholders and empires afloat.
At this point, the Dot-Com 3.0 crowd are zombie businesses. They gobble up anything they can in order to make this quarter profitable, but have no actual plan, and the value of the services they provide is declining. Crash imminent.
Some are starting to notice how abusive these new monopolists have become:
The upshot here is that both Google’s overwhelming search dominance and their profitable exploitation thereof are almost wholly unmerited in terms of their actual product. Google is a fine tool, but what defines the company is luck. Its profits come from a largely unearned strategic position within a socially-created communication medium. Devouring a small business that provided Google and the internet writ large with quality research simply to keep people fenced onto their own portion of the internet is just one particularly egregious example how this position can be abused.
The technology behind search engines is now well-understood. The real challenges are having enough machines to make a search engine comprehensive, and the “network effects” that arise from having many other people in the market using the product as a kind of de facto standard.
If Google kept itself to 500 employees and a relative stable, blue chip style stock price, it would not have these problems. However, Silicon Valley was always about getting rich quick and the winner taking it all, which has produced a relentlessly self-promoting culture that has destroyed the very thing from which it profits.
Wikipedia, Amazon, Google, Apple and Reddit (WAGAR) are companies that centralize the internet. Instead of being decentralized as originally envisioned, the internet is now used as a means of reaching the big sites where network effects mean that the audience is lurking there. This essentially excludes the actual breadth and depth of information on the internet.
Sane minds fear a repetition of history, which is what happens when “gold rush” style thinking results in massive overvaluation of an industry, which then requires a brutal industry correction to remove the false wealth so that other sectors can function normally:
The tech bubble of the mid-90s was inflated by lies that sent the NASDAQ on a vertiginous downward spike that eviscerated the life savings of thousands of retirees and Americans who believed in the hype. This time around, it seems that some of these business may be real, but the people running them are still as tone deaf regarding how their actions affect other people. Silicon Valley has indeed created some amazing things. One can only hope these people don’t erase it with their hubris.
During the 1990s, the Bill Clinton administration urged more development in tech as a means of replacing the economy which was collapsing under the weight of expensive union labor, too much regulation and lawsuit costs, and inbound immigration which was removing traditional sources of work and forcing all sorts of underqualified people into office jobs.
Now we repeat this process. Politicians hate to point out that the new cash boom is false and we should hold back. Voters, like stockholders, like those bottom lines and really do not think beyond the next quarter.
And yet, history shows us this is a problem. The great postwar wealth boom of the stock market ended in tears with the Great Depression; the huge housing boom collapsed in misery when supply far exceeded demand. The same is happening to Silicon Valley.
Its once-innovative gadgets are now as common as telephones were in the 1990s, and people want them to just work, be very cheap and unobtrusive. All of those things mean reduced profit and importance, which destroys Silicon Valley and its mythos as well.
Even more, it seems that the replacement for the internet, or the centralized form of content browsing known as “social media,” is no longer the hot item it once was:
[Vkontakte founder Pavel Durov] explained his decision to purge: “Everyone a person needs has long been on messengers. It’s pointless and time-consuming to maintain increasingly obsolete friend lists on public networks. Reading other people’s news is brain clutter. To clear out room for the new, one shouldn’t fear getting rid of old baggage.”
Durov is right when he says everyone is on messengers these days.
Back in 2015, messengers overtook social networks in terms of total active users. And back in 2014, when Facebook separated Messenger from its main offering, Zuckerberg himself acknowledged the trend, saying that “messaging is one of the few things people do more than social networking”.
The problem for Silicon Valley is that internet advertising represents a shrinking pool of dollars, and this means that the big companies need to take the majority share in order to stay afloat.
As internet old-timers like myself warned in the early 1990s, advertising is not a stable model for the internet. The audience is not captive, as with newspapers or television, but capable of flitting off or filtering out the nonsense.
To combat this, the industry first tried to make the internet into video. When that failed, they put more ads on every page, which decreased the power of each. Then they tried social media, or making browsing more like passively watching television.
All have failed. A large correction is coming. Grab ahold of your seat and get ready for the crash.