With all industries are converting to software and every person on the planet moving towards owning a smartphone it surprises me that there’s an ongoing narrative that tech is collapsing.
That generic software company was valued higher than entire industries that supply components that all hardware depends on. Tech isn’t collapsing. But valuations were and continue to be fuckin nuts for a lot of companies and are coming down to more reasonable numbers, which look like collapses.
But it’s still fueled by hype, so unless a strong enough crash comes, it’ll keep bubbling up.
When coupled with the fact that there are still a huge number of companies which haven’t yet converted to using these tools and purchasing the market leader for a premium makes total sense.
With regards to component supply - companies that are producing unique chips are worth plenty, where as those that are making COTS components aren’t.
- Google was the most popular search engine. Had a dominant position in adTech and YouTube was popular
- Apple became the most valuable company in the US and the iPhone was sucking up most industry profits.
- Amazon was by far the most dominant electric retailer and AWS was taking off (disclaimer: my current employer)
- Microsoft had been the dominant operating system for 15 years and Office the dominant office suite.
- Even Facebook was the dominant social network.
Not one startup has disrupted the industry in the past decade.
AirBnB is probably the only major tech company that has created a profitable large business in ten years.
And how would a search engine company buying out a non profitable video platform that had no means of making money have triggered anti trust action?
In order for these acquisitions to have high valuations, big companies must fear being replaced. It is in VC’s interest to stoke that fear. They do this by the threat of replacement at least as much as through funding for actual replacement.
VCs don’t have to care whether disruption happens, but they do have to care about their IRR, and will say or do anything they feel will with high probability increase their rates of return.
They are bought to be an accretive to an existing business or the acquiring company thinks they have scale advantage to multiply the value of the acquisition.
Another way to put it, that these are “sustaining innovations”.
The highest valuations are not paid for sustaining innovations, but for market access risks, which is what this thread was about. The two can be the same thing functionally, but “sustaining innovations” sounds much better in a shareholder meeting.
Neither LinkedIn or GitHub were going to disrupt Microsoft in anyway.
Post Jobs’ death they bought a black celebrity-driven entertainment company. This was absolutely a brand threat as Apple was now associated with Tim Cook, who is perhaps many amazing things but they do not include cool.
Fast forward a decade and Microsoft recognized the game that was being played, which is that a set of six murky quasi-monopolies attempt to acquire diverse revenue streams and not lose information sources or access to their markets. While LinkedIn or Github may not have been direct threats to any of Microsoft’s existing businesses, if someone else got ahold of them Microsoft would have zero social footprint, which would be a big problem for them, having essentially missed out on search as well.
NeXT was already a failure and was transitioning out of the hardware business. Apple couldn’t make a modern operating system to save its life and was getting crushed by Microsoft.
> Post Jobs’ death they bought a black celebrity-driven entertainment company. This was absolutely a brand threat as Apple was now associated with Tim Cook, who is perhaps many amazing things but they do not include cool.
People aren’t buying iPhones because of a producer that most outside of Hip Hop only knew because he was the producer behind a famous White rapper (Eminem).
> Microsoft’s existing businesses, if someone else got ahold of them Microsoft would have zero social footprint, which would be a big problem for them, having essentially missed out on search as well.
Under Satya, they moved away from Windows everywhere to cloud and Office everywhere.
Azure isn’t popular because of GitHub. It mostly targets stodgy old Enterprise customers that are already on the MS platform. That’s not meant to be an insult. I was a stodgy old enterprise MS dev until 2018 when I started moving toward AWS technologies (where I now work).
So for Telsa's valuation to mate with it's real world ambition, it has be aiming to have it's operations as big as Toyota's, great! Being as big as Toyota would put it's market cap at... oh. Less than it currently is.
Tesla is still valued higher than Toyota, Honda, GM, and Ford combined.
Something is broken.
Consumer-side, it's really more about tech maturing. If we take your example of owning a smartphone, it means that most people already have smartphones, and since the yearly upgrades are much more incremental now, people don't need to upgrade as often.
First and foremost, there's the Exceptions:
Google: P/E is more or less 20, decades already
Microsoft: P/E is more or less 20, for a very long time
There are not actually that high. Compare to BABA (P/E is >200), IBM (P/E >100), JD (P/E >600)
And the reverse exceptions, non-tech with absurd P/E:
Tesla: P/E is 40 (down from ~500 I might add)
Boston Scientific: P/E is >100
and let's just shut up about crypto, because ... there's is a theme. Overwhelmingly the ridiculous valuations are financial companies and "semi-"government companies (meaning protected by government, but not benefitting the people of the country that government governs. Like BABA for example, or before their downfall, Theranos). If Tech becomes the P/E champion instead of "almost-but-not-quite" corruption companies that tend to dominate that, I feel that's a very good thing indeed.
I guess that's the case for software-centric platforms. It was not my experience.
I worked for hardware-centric corporations, for most of my career, and became used to having software treated as a "nice to have, but not essential" part of the product. In many cases, my work (and myself) were treated with contempt. I got used to being sneered at.
In my experience, this was a disastrous attitude, because, despite lots of folks wishing it weren't so, hardware, these days, is software.
Software pervades everything, from the compiled silicon on peripheral ASICS and FPGAs, to the firmware that drives said chips.
In my experience, firmware was treated as hardware, and the same rigid, waterfall process was applied to firmware, that was done for the hardware.
Worked great.
Until it didn't.
Software is a drastically different beast from hardware. I won't bother going into the reasons. Anyone with a smattering of knowledge in the area, can list them.
In any case, the hardware folks would treat any attempt to leverage the flexibility that software allows as "cowboy, low-quality, laziness." It was Waterfall, or you were a "bad engineer," and "lazy and undisciplined."
I'm really big on Disciplined software development. That does not make me popular with this crowd. It also does not mean Waterfall.
In my opinion, there's no way to avoid the difficult parts of engineering, but it's also important to be adaptive, responsive, and, dare I say it, "agile."
When we increase the surface area of a definition like you are here it makes words meaningless.
My view of words like technology is they are more like sliding windows, covering what the zeitgeist is classifying. Somewhat like the word 'fashion' or 'fad' aren't limited to any one specific kind of dress or style.
The word 'technology' would be less useful if it always had to be qualified to exclude everything from fire and the wheel up to the transistor?
It seems that with software we’re hell bent on verifying Arthur Clarke’s aphorism wrt sufficiently advanced tech being indistinguishable from magic.
Think language models, for a contemporary example.
Reading and writing are "tech", if you insist on going down this pedantic road; but that's not what most people mean by that term in this context.
Cars have been tech in this finance and investment bubble. Tesla, obviously, but then lots and lots of electric vehicle and autonomous driving startups came in with the whole song and dance of “disrupting the incumbents” and “move fast and break things” and “let’s milk customers forever and ever with subscriptions for self-driving taxis as a service”.
Which is in the process of going poof. (Remember Nikola? No. Good.). Lots and lots of hype about startups and subscriptions, and we’ve ended up with GM having arguably the best autonomous driving tech, and Ford having arguably the most hyped recent EV with the F-150.
They are bought because of the software that runs on it.
Said another way, the dependency graph is bidirectional. Software requires hardware to run. Hardware is of no practical use without software. The fixed quantity is the "use case", NOT the software.
Also, software without hardware to run on, or to write n, is even more pointless than hardware alone. At least the latter can be touched.
From TFA: “But just as chip production bloomed, demand withered, thanks to falling sales of pcs and smartphones.”
The narrative is apparently backed by data. Where’s the data for your counternarrative