There’s a weird feeling afoot these days, in the Valley, and in San Francisco. Across the rest of the world — Denver, Santiago, Toronto, Berlin, “Silicon Glen,” “Silicon Alley,” “Silicon Roundabout“, Station F — it seems every city still wants to be a startup hub, dreaming of becoming “the new Silicon Valley.” But in the Valley itself? Here it feels like the golden age of the startup is already over.
Hordes of engineering and business graduates secretly dream of building the new Facebook, the new Uber, the new Airbnb. Almost every big city now boasts one or more startup accelerators, modeled after Paul Graham’s now-legendary Y Combinator. Throngs of technology entrepreneurs are reshaping, “disrupting,” every aspect of our economy. Today’s big businesses are arthritic dinosaurs soon devoured by these nimble, fast-growing mammals with sharp teeth. Right?
Er, actually, no. That was last decade. We live in a new world now, and it favors the big, not the small. The pendulum has already begun to swing back. Big businesses and executives, rather than startups and entrepreneurs, will own the next decade; today’s graduates are much more likely to work for Mark Zuckerberg than follow in his footsteps.
The web boom of 1997-2006 brought us Amazon, Facebook, Google, Salesforce, Airbnb, etc., because the Internet was the new new thing, and a handful of kids in garages and dorm rooms could build a web site, raise a few million dollars, and scale to serve the whole world. The smartphone boom of 2007-2016 brought us Uber, Lyft, Snap, WhatsApp, Instagram, Twitter, etc., because the same was true of smartphone apps.
Because we’ve all lived through back-to-back massive worldwide hardware revolutions — the growth of the Internet, and the adoption of smartphones — we erroneously assume another one is around the corner, and once again, a few kids in a garage can write a little software to take advantage of it.
But there is no such revolution en route. The web has been occupied and colonized by big business; everyone already has a smartphone, and big companies dominate the App Store; and, most of all, today’s new technologies are complicated, expensive, and favor organizations that have huge amounts of scale and capital already.
It is no coincidence that seed funding is down in 2017. It is no coincidence that Alphabet, Amazon, Apple, Facebook, and Microsoft have grown from “five big tech companies” to “the five most valuable public companies in the world.” The future belongs to them, and, to a lesser extent, their second-tier ilk.
It is widely accepted that the next wave of important technologies consists of AI, drones, AR/VR, cryptocurrencies, self-driving cars, and the “Internet of Things.” These technologies are, collectively, hugely important and consequential — but they are not remotely as accessible to startup disruption as the web and smartphones were.
AI doesn’t just require top-tier talent; that talent is all but useless without mountains of the right kind of data. And who has essentially all of the best data? That’s right: the abovementioned Big Five, plus their Chinese counterparts Tencent, Alibaba, and Baidu.
Hardware, such as drones and IoT devices, is hard to prototype, generally low-margin, expensive to bring to market, and very expensive to scale. Just ask Fitbit. Or Jawbone. Or Juicero. Or HTC. (However, in fairness, software and services built atop newly emerging hardware are likely an exception to the larger rule here; startups in those niches have far better odds than most others.)
Self-driving cars are even more expensive: like biotech, they’re a capital-intensive battle between huge companies. A few startups may — will — be expensively acquired, but that’s not the same as having a realistic chance of actually becoming major competitors themselves.
AR/VR is already far behind its boosters’ optimistic adoption predictions, and is both an expensive hardware problem and a complex software problem. Magic Leap has raised almost two billion dollars without releasing a product (!), but is by most (admittedly sketchy) accounts struggling. Meanwhile, Microsoft’s HoloLens, Google’s Cardboard / Tango / ARCore, and Apple’s ARKit continue to build successfully on their existing platforms.
Cryptocurrencies aren’t about making startups valuable; they’re about the making the currencies themselves, and their decentralized ecosystems, valuable. The market capitalization of Bitcoin vastly exceeds that of any Bitcoin-based startup. The same is true for Ethereum. True believers argue that cryptocurrencies will overturn everything, in time, but read this Twitter thread and see if, like me, you can’t help but finding yourself nodding along, even if, like me, you truly want the Internet and its economy to be decentralized:
So where does all this leave tech startups? Struggling, and probably hoping to be acquired by a larger company, ideally one of the Big Five. While some breakout startups will still doubtless arise, they’ll be far rarer than they were during the boom years.
Hordes of engineering and business graduates secretly dream of building the new Facebook, the new Uber, the new Airbnb. Almost every big city now boasts one or more startup accelerators, modeled after Paul Graham’s now-legendary Y Combinator. Throngs of technology entrepreneurs are reshaping, “disrupting,” every aspect of our economy. Today’s big businesses are arthritic dinosaurs soon devoured by these nimble, fast-growing mammals with sharp teeth. Right?
Er, actually, no. That was last decade. We live in a new world now, and it favors the big, not the small. The pendulum has already begun to swing back. Big businesses and executives, rather than startups and entrepreneurs, will own the next decade; today’s graduates are much more likely to work for Mark Zuckerberg than follow in his footsteps.The web boom of 1997-2006 brought us Amazon, Facebook, Google, Salesforce, Airbnb, etc., because the Internet was the new new thing, and a handful of kids in garages and dorm rooms could build a web site, raise a few million dollars, and scale to serve the whole world. The smartphone boom of 2007-2016 brought us Uber, Lyft, Snap, WhatsApp, Instagram, Twitter, etc., because the same was true of smartphone apps.
Because we’ve all lived through back-to-back massive worldwide hardware revolutions — the growth of the Internet, and the adoption of smartphones — we erroneously assume another one is around the corner, and once again, a few kids in a garage can write a little software to take advantage of it.
But there is no such revolution en route. The web has been occupied and colonized by big business; everyone already has a smartphone, and big companies dominate the App Store; and, most of all, today’s new technologies are complicated, expensive, and favor organizations that have huge amounts of scale and capital already.
It is no coincidence that seed funding is down in 2017. It is no coincidence that Alphabet, Amazon, Apple, Facebook, and Microsoft have grown from “five big tech companies” to “the five most valuable public companies in the world.” The future belongs to them, and, to a lesser extent, their second-tier ilk.
It is widely accepted that the next wave of important technologies consists of AI, drones, AR/VR, cryptocurrencies, self-driving cars, and the “Internet of Things.” These technologies are, collectively, hugely important and consequential — but they are not remotely as accessible to startup disruption as the web and smartphones were.
AI doesn’t just require top-tier talent; that talent is all but useless without mountains of the right kind of data. And who has essentially all of the best data? That’s right: the abovementioned Big Five, plus their Chinese counterparts Tencent, Alibaba, and Baidu.
Hardware, such as drones and IoT devices, is hard to prototype, generally low-margin, expensive to bring to market, and very expensive to scale. Just ask Fitbit. Or Jawbone. Or Juicero. Or HTC. (However, in fairness, software and services built atop newly emerging hardware are likely an exception to the larger rule here; startups in those niches have far better odds than most others.)
Self-driving cars are even more expensive: like biotech, they’re a capital-intensive battle between huge companies. A few startups may — will — be expensively acquired, but that’s not the same as having a realistic chance of actually becoming major competitors themselves.
AR/VR is already far behind its boosters’ optimistic adoption predictions, and is both an expensive hardware problem and a complex software problem. Magic Leap has raised almost two billion dollars without releasing a product (!), but is by most (admittedly sketchy) accounts struggling. Meanwhile, Microsoft’s HoloLens, Google’s Cardboard / Tango / ARCore, and Apple’s ARKit continue to build successfully on their existing platforms.
Cryptocurrencies aren’t about making startups valuable; they’re about the making the currencies themselves, and their decentralized ecosystems, valuable. The market capitalization of Bitcoin vastly exceeds that of any Bitcoin-based startup. The same is true for Ethereum. True believers argue that cryptocurrencies will overturn everything, in time, but read this Twitter thread and see if, like me, you can’t help but finding yourself nodding along, even if, like me, you truly want the Internet and its economy to be decentralized:
So where does all this leave tech startups? Struggling, and probably hoping to be acquired by a larger company, ideally one of the Big Five. While some breakout startups will still doubtless arise, they’ll be far rarer than they were during the boom years.
by Jon Evans, TechCrunch | Read more:
Image: Wikipedia Commons
