No tech burst.

It’s just a cold recession. No one is admitting it, including consumers who keep spending away savings.

But companies are aware of it enough they are tightening purses preparing for harder times ahead.

Of course, it’s a self-fulfilling prophecy.

If everyone makes their products worse chasing this quarter’s dollar, and people leave, those companies are going to have a harder time.

Especially as it becomes easier and easier to compete against them at scale.

Just wait until new feature requests and bug reports for something like Lemmy can be handled within moments by AI at dirt cheap pricing.

A very interesting future awaits around the bend.

free money has dried up, now they need to monetise your habits.

Interest rates and inflation is probably a significant source of panic for high growth tech companies with poor earnings.

When interest rates are low, there isn’t a lot of worry about future dollars being eroded by inflation, and investors tend to pay a premium for growth and future earnings. Money is easy to borrow in that kind of environment, so a company that has lots of growth, increasing daily active users, poor earnings, but the hope of finding ways to increase earnings, that kind of company will see their valuation skyrocket and they can use that valuation to secure funding.

When it flips around and interest rates are high, inflation is high, future earnings get eroded by inflation (a dollar in 2021 was stronger than a dollar in 2023), suddenly a company that has shit earnings and huge growth is a lot less desirable compared to a company that has consistent earnings and dividends. That growth stock with shit earnings used to rely on their valuation to generate funding to power that growth, suddenly that entire siphon gets broken, their valuation falls from the sky into reasonable territory, money is hard to borrow, and they’re stuck trying to stay afloat mostly with their shitty earnings.

After the great recession, tech was a very dirty word. We’re talking years after the great recession, 2012-2014 even. People didn’t want to invest in companies that didn’t make any money. 2020-2021, pandemic, lockdowns, historically low interest rates, all that, money was so easy to borrow and growth was so huge from people being stuck indoors that a lot of tech companies with shitty earnings had such insane growth metrics like daily active users that these companies went to the moon. Twilio, TWLO for example, quadrupled from pre-pandemic highs. 2022-2023, inflation becomes a very real thing and things are opening up again, all those metrics drop to normal levels, money is harder to borrow, future dollars getting eroded, growth tech gets crushed, TWLO is suddenly trading at levels lower than pre-pandemic (lost 80% of its value from pandemic highs).

We’re seeing a lot of ‘internet’ type tech companies go from boom to bust, and now they need to do whatever they can to drum up money the good old fashioned way - from generating income as opposed to securing funding through growth (debt).

Not only stuff like Twitter and Reddit, but Netflix cracking down on account sharing. A couple years back Netflix viewed account sharing less as a loss of revenue and more as an ‘unauthorized permanent trial’, hopefully some bandits eventually get their own account for the sake of convenience… But nowadays Netflix needs to think shorter-term and behave a bit more self-sufficiently, so they’re starting to take a more direct approach to compel people to obtain subscriptions.

Something like gfycat, when money is easy to borrow and inflation is low, investors will line up to pile in even if there is practically no revenue, because eventually they might monetize it and become wildly profitable… But in this environment nobody wants to touch something like that, so a zero revenue entity either scrambles for profitability or they simply dry out

Because usually the greed, money and power corrupts, no matter how good you are in the beginning.

Others have basically captured it, but my read is a massive change in the overall risk profile held by venture capital firms. The time of reckoning has come, and it’s time for everyone’s (or at least VCs’) favourite three letters: ARR (Annual Recurring Revenue).

The last twenty years, we’ve seen this sort of spray-and-pray model, where 99 bad investments could be offset by 1 “unicorn”. The risk appetite seems to have shifted largely because 1.) there’s a higher volume of early stage concepts (so there’s more bad ideas), and 2.) there’s either fewer unicorns, or the unicorns that mature are ultimately less valuable.

Crunchbase put out a good analysis of the current trend of global venture dollar flow:

The Party’s Still Over: The VC Downturn In 6 Charts

You can read news from various outlets - some say it’s a post-pandemic correction. Some say it’s because labour is too expensive. But the bottom line is that VCs aren’t willing to spend money on “users-in-lieu-of-revenue” like they once were, and I honestly don’t blame them. There were a lot of really, egregiously stupid ideas coming out of SV, and their wax wings melted. sad_trombone.mp4

Adam Kotsko summed this entire phenomena up nicely:

Companies expect infinite profit growth

i e read this mostly because of AI…

It’s called Enshittifiction

https://en.m.wiktionary.org/wiki/enshittification

Because investors are tired of the model where they dump a shit load of cash into something that has no good path for monetization. So they’re forcing them all to make money which hurts users.

I’m not sure YouTube ever wanted you using adblockers.

All of a sudden?

My dear, sweet summer child.

Not really “all of a sudden”, this has been a long process. The often repeated enshittification thing is fully valid. The short version is:

• start out
• grow and expand as much as possible
• bring in advertisers
• make everyone depend on your service
• abuse your powers, since everyone “needs” your service

Google, Amazon, Facebook, Twitter are the more obvious culprits, but every big tech company does something similar, one way or another, even hardware companies like Intel or Nvidia

We’re not people to them, just part of a product. Why do anything more than absolutely necessary to keep the money flowing in? Save a fraction of a penny on bandwidth, earn another fraction by selling more complete data and ad views. Multiply that by the number of users and if enough will tolerate it, somebody at the top can buy a shiny new yacht.

As discussed here:

Honestly they do it so consistently that i’m starting to wonder if they have a choice.

A common way to do things for tech startups is that they get venture capital funds, use them to run the business at a loss hoping to acquire market dominance, and then use market dominance to turn a profit. I think a lot of tech startups that we know are currently in phase 2, meaning they’ve thrown money out the window for years and are now trying to recoup their investments.

Also, Reddit wants to go public and Twitter already is. This is relevant because investors are animals, all they see is short-term profit, and they use their voting power to make the company behave that way.

There’s a common thread between both my theories: it’s shareholder capitalism. I say this as a lifelong shareholder myself, shareholders ruin everything.

I’m ok with the YouTube one. Twitter dumb. Reddit not that bad but should have just charged people.