Bay Area job market rebounds from earlier ‘false scares’
siliconvalley.com
siliconvalley.com
It's pretty clear that most of these predictions have been motivated by sentiment or mood affiliation (e.g. "these new startups don't really make anything, techies are ruining San Francisco, so they must therefore be bound to fail") rather than economic facts.
So, I just don't listen to those predictions anymore. If a slowdown, or a slump, or a crash happens, I'm sure I'll notice it without the naysayers' help. I'll start to worry when it becomes significantly easier to hire engineers.
That doesn't mean I believe anyone who backs their prediction with money. Necessary but not sufficient condition.
There are thousands saying it's going to the moon tomorrow, and thousands saying it's going to crater tomorrow. Someone's going to be right no matter what. When the cost of failure is zero, everyone's going to have an opinion and there's no way to know if anyone's opinion mirrors their true preference. Their true preference may yet be wrong, but at least it's their true preference, so it may be worthwhile to spend time finding out why and see if it truly applies.
Obviously AIG got to where it did because of a flawed system that allowed AAA rated companies to issue insurance with no capital, but the analogy of a system of largely rational actors making collective mistakes still holds. One collective bubble argument in tech is ad driven. Every ad driven app & game I've tried has been largely advertised other ad driven games. This represents and form of investment -- spend ad money now and get back more ad money over time. If a few actors are overly optimistic, they'll be outbidding other advertisers and raising the return on ads.
Which can produce a couple of adverse feedback loops. Firstly, other companies look at the going rate, and have no way of predicting a crash in ad rates. But if the rate is high now, they will probably choose to produce more ad driven apps. Second incumbent advertising networks (Google, Facebook) will derive immediate benefit, and have extra cash to invest to support more opportunities further out on the risk-reward spectrum. Thirdly, the optimistic actors themselves have a sort of feedback loop -- if rates rise based on their entrance, then their models may well predict rates continuing to rise. Emboldening to buy more, and higher.
The trouble is, we don't know if this is the case or not. It seems possible, but there's also a number of micropayment based games that might explain an increasing ad rate. And we can tell ourselves that ad blockers are way less common and less effective on mobile, so maybe we shouldn't expect desktop and mobile markets to converge to the same place.
Similarly, before 2008, mortgage lenders knowingly lent to borrowers who were very likely to default, because the lenders knew they would be able to bundle and sell off the mortgages before they went bad.
Investors who know there is a bubble will not always sell right away -- they will wait until their investments grow even more, and then sell before the crash. Some will pull this off, and some won't.
So, knowledge that we are in a bubble won't always remove the incentives that created the bubble. That's why bubbles keep happening.
I do think the "shiny tech-hub" ecosystem is a little unsustainable, but it's not without historical precedent in finance and banking, and has little to do with the health of the tech economy.
No one's gut has magical predictive powers about the market, but humans are almost universally prone to the mistake of thinking theirs does, especially if they can find other people who share that impression. The illusion of understanding is made much stronger by proximity.
Look at Unicorn IPOs, starting on p. 7:
"Unicorns made a comeback this quarter with Nets A/S of Denmark and LINE Corp of Japan. Apart from these two, Unicorns have stayed away this year, indicating market uncertainties...The number of IPOs increased primarily due to the significant growth of low-value listings. The absence of large IPOs from major markets indicates that the technology IPO market, while ‘open’, is not very strong. Leaving out Q3’s two billion-dollar-plus IPOs, the average proceeds for the other 18 was just US$105 million. Also, NASDAQ remained the preferred exchange for smaller, cost-conscious technology companies.
In the last few quarters, the top technology IPOs have been launched in Europe and Asia instead of the US, which has historically been a favored option for big-ticket IPOs. In the last five quarters, two of the top three came from Europe. The distribution of the top three IPOs for each of the last five quarters (15 total) has been Europe with six, followed by Asia with four.
The larger tech IPOs from Europe tend to be from well established service companies with a long history of stable earnings. As a result, their IPOs are not negatively impacted by a difficult market."
So if you strip out established services tech companies, traditional liquidity events for unicorns are drying up somewhat. Doesn't sound like a bubble, unless all the hugely-valued private unicorns run out of cash around the same time and flood the public markets, looking to raise equity funding. Of course, this doesn't factor in other types of liquidity events such as acquisitions, which have also fallen off recently [1].
Seems more like a controlled deflation/devaluation than a bubble to me, but who knows. It's fun to watch if you're not too closely affiliated.
[1] https://webforms.ey.com/gl/en/industries/technology/ey-globa...
And yes, I understand pseudo-ipo round investors get protections such as a ratchet that make it reasonable for them to pay more than it would be worth in the open market, but this nonetheless is pretty bubbly.
This... just isn't true for Engineers. In silicon valley, you can still get a reasonable place for under $2500 a month, and even at SysAdmin wages, which are rather less than SWE wages, that's doable for one person, easy for two. It's still under the what, 33% of your salary you are supposed to spend on rent, and as that's a percentage, and as your toys cost just as much here as they do everywhere else, your toy (or retirement savings, depending on your temperament) budget is huge compared to someone who spends 1/3rd of their income on rent in a less-expensive and less-renumerative city.
Granted, for people outside of tech, it's gotta really suck; personally I find it shocking that food and services around here are so cheap. How do they find people willing to cook, drive, etc... at those prices? Are these all locals who bought in when it was cheap? but for people within the tech industry, it's a different deal than when I was growing up (in those days, being a nerd was social death.) - but the outcome is the same. If you are willing to forego kids, it's perfectly affordable to live here.
I mean, sure, you ain't staring a family unless you bought in a half decade back or you are really top-end skill-wise, or you are two Engineers who both plan on continuing to work, but that's what the locals want, and frankly, it's fine with me. I mean, I'll vote for more residental construction every time, but if locals what to prevent that, and present me with a child-free valley? I ain't complaining.
Food, cheap? By the cost of a beer index, the bay area is at NYC and DC level prices.
I was making a comment on how I thought silicon valley is affordable for engineers, I don't really understand how the service workers make it, and I was implying that the obvious solution would be to pay them more, and raise prices accordingly.
Compared to the multiplier on rent, yes, I think food and services are cheap.