What’s Next for Silicon Valley?

HBR | Maëlle Gavet | Sep 30, 2020

digital highway - What’s Next for Silicon Valley?Over the last 20 years, Silicon Valley has benefited from a once-in-a-lifetime alignment of advantages but that not might be true for much longer. 

American primacy, the ubiquity of cheap capital, the arrival of the smartphone (among other widely adopted tech innovations), and, perhaps most significantly, a benign regulatory environment have all conspired to create a historic concentration of wealth and power. The titans of the Valley and their heirs have been free to roam far ahead of lawmakers, watchdogs, and tax codes.

That might not be true for much longer, however. Despite the fact that many public tech companies saw their valuations skyrocket during the lockdown and that the Covid-19 pandemic has accelerated mass adoption in e-commerce, online payments, telemedicine, and video conferencing, there are signs that the gilded age for consumer internet businesses may be drawing to a close.

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There are four main driving forces behind this.

First, the near total dominance of the top tech giants — Facebook, Amazon, Alphabet (Google), Apple, and Microsoft — has become stifling. These companies not only hoover up top talent, but have grown to such a size and expanded into adjacent markets to such an extent that they are starving all but the best new tech businesses of oxygen. Smaller companies who compete in one of the markets that Big Tech considers as strategic — an ever-expanding list — risk becoming a target of full financial power of one of the giants, who aim to crush or buy possible contenders before they grows beyond a certain size. This hegemony impacts innovation and centralizes capital allocation.

Second, triggered in part by the poor post-IPO performances of Uber and Lyft — as well as smaller companies like Casper, SmileDirectClub, Super League Gaming, YayYo, and the WeWork/SoftBank debacle — investors, both private and institutional, are calibrating their approach. They are tightening requirements for additional financing to reflect the fact that a clear path to profitability, and not just exponential growth or “blitzscaling,” is now considered key. This, combined with the pandemic hitting certain sectors especially hard, has exposed some startups as having suspect business models. In the absence of easy access to funding, whether because of the pandemic or because of pre-crisis problems, a number of them have seen their investors withdraw and were forced to close.

Third, regulators, the media, and the public at large are now far more familiar with the downside of tech and the multiple ways the promises made to consumers have been broken. Mass privacy breaches, voter manipulation, disinformation, more precarious working arrangements, life-threatening products, or the outlandish behavior of certain founders were largely tolerated five years ago, mainly because of public ignorance and faith in tech bro mantras such as “Move fast and break things” and “We’re making the world a better place.” Today, the tech industry receives much more critical scrutiny, as the cost of the industry’s unfettered reach and toxic side-effects — such as how social media and personalized search results make us more skeptical about science and more hardened in our opinions, or how short-term rentals drive rent increases — becomes increasingly clear.

Fourth, similarly, the public mood has decidedly shifted and expectations for tech to be accountable for their impact on society have grown. As the tech giants have reached market caps equivalent to midsize national economies, expectations and moral obligations have grown, too. Facebook has a market cap of more than $700 billion, up from $240 billion just five years ago, while Apple, Amazon, Microsoft, and Alphabet are now trillion dollar-plus companies. Even the Business Roundtable, America’s most influential group of corporate bosses, has taken to cheerleading “capitalism with a conscience” with their 2019 statement on the purpose of a corporation asserting a “modern standard for corporate responsibility.”

All of these trends point to a reckoning on the horizon.

  • The micro-targeted advertising model will increasingly be under attack and will weaken
  • More rights for gig workers and the end of “zero hours” contracts
  • There will be big winners and many failures in the direct to consumer (D2C) and online product subscription model
  • Companies that focus on “conscious capitalism” and empathetic tech will have an advantage

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