Is the age of the internet startup over?
We haven’t had a major new technology company in more than 10 years.
Silicon Valley is supposed to be a place where a couple of guys in a garage or a dorm room can start companies that change the world. It happened with Apple and Microsoft in the 1970s, AOL in the 1980s, Amazon, Yahoo, and Google in the 1990s, and Facebook in the 2000s.
But the 2010s seem to be suffering from a startup drought. People are still starting startups, of course. But the last really big tech startup success, Facebook, is 13 years old.
Until last year, Uber seemed destined to be Silicon Valley’s newest technology giant. But now Uber’s CEO has resigned in disgrace and the company’s future is in doubt. Other technology companies launched in the past 10 years don’t seem to be in the same league. Airbnb, the most valuable American tech startup after Uber, is worth $31 billion, about 7 percent of Facebook’s value. Others — like Snap, Square, and Slack — are worth much less.
So what’s going on? On a recent trip to Silicon Valley, I posed that question to several technology executives and startup investors.
“When I look at like Google and Amazon in the 1990s, I kind of feel like it’s Columbus and Vasco da Gama sailing out of Portugal the first time,” said Jay Zaveri, an investor at the Silicon Valley firm Social Capital.
The early internet pioneers grabbed the “low-hanging fruit,” Zaveri suggested, occupying lucrative niches like search, social networks, and e-commerce. By the time latecomers like Pinterest and Blue Apron came along, the pickings had gotten slimmer.
But others told me there was more to the story than that. Today’s technology giants have become a lot more savvy about anticipating and preempting threats to their dominance. They’ve done this by aggressively expanding into new markets and by acquiring potential rivals when they’re still relatively small. And, some critics say, they’ve gotten better at controlling and locking down key parts of the internet’s infrastructure, closing off paths that early internet companies used to reach a mass market.
As a result, an industry that used to be famous for its churn is starting to look like a conventional oligopoly — dominated by a handful of big companies whose perch atop the industry looks increasingly secure.
Also worth pondering (article from last October):
At the grass roots of the economy, venture capital investment has sought social media, apps and other “soft” investments with low capital and labor requirements and avoided “hard” investments in manufacturing, telecommunications and other fields with large capital and labor requirements.
During the 1980s and 1990s, America dominated technological progress through a group of disruptive new companies—Microsoft, Google, Cisco, Intel, Oracle and others. The former technological vanguard, though, has turned into a group of stable consumer monopolies. This is clear from the trading pattern of their stocks. We see that the technology subsector of the S&P 500 equity index traded with a volatility (standard deviation of returns calculated over a rolling six-month period) roughly double that of the overall index during the late 1990s and early 2000’s. That reflects the greater risk and reward attached to innovators as opposed to established companies. By the late 2000’s, the volatility of the tech sector was the same as that of the overall index. The risk (and also the prospective reward) had shrunk to the overall level of the economy as the great wave of innovation dissipated.