Recently, I heard Sam Altman, president of the start-up incubator Y Combinator, who had come over to the UK from Silicon Valley to preach to the tech faithful about the sunny uplands of the world of tech.
According to an article in The New Yorker in October 2016, “Like everyone in Silicon Valley, Altman professes to want to save the world; unlike almost everyone there, he has a plan to do it”.
He is also the co-founder with Elon Musk of OpenAI, a non-profit that the same article describes as “a hedged bet on the end of human predominance—a kind of strategic-defence initiative to protect us from our own creations”
In London, Altman’s followers converged on Shoreditch Town Hall, all of them having pre-registered for tickets to hear him. Many of them could not get into the hall, even though they had tickets. The queue was hundreds of yards long. It was a sell-out that had been over-sold
The message and why I see another tech bubble
Altman’s message was all about how Silicon Valley is the only place to be because they have the vision to change the world and have the solutions to the world’s problems. He predicted that within 10 years, 70% of the world’s jobs will be done by AI. But he also argued that the cleaver people in Silicon Valley were going to ensure that everyone in the world would have food, income and fulfilling jobs to sustain them so no one should worry.
The audience loved it, but all I could see was a bubble close to bursting. It is like the later stage of a cult at the point when it isolates itself from the world.
There is a precedent in the dot-com bubble that collapsed in the late 1990s, when the valuations of companies in the tech sector increased very rapidly thanks to a cult-like belief in its infallibility. The focus was on user numbers instead of profit. Over the period 1999-2001 many companies failed completely while the value of others, such as Cisco, plunged by more than 80%. Some, such as Amazon, Microsoft, Apple, Cisco and Google survived and eventually became some of the largest US corporations.
The bubble involves two elements, the belief that all entrepreneurs can participate, and the investors to sustain them. Like in the late 1990s it is obvious that only a very few entrepreneurial companies will survive. And picking the winners is difficult, only hindsight makes it easy.
In March this year the Guardian was the latest in a number of news media, including Zerohedge.com and Bloomberg, in October 2016, asking whether there was another tech bubble looming. The evidence cited included that the rental housing market in San Francisco had plateaued and there were signs that Venture Capitalists were making fewer investments, start-up valuations were falling, and recruitment was slowing.
However, with the examples of Google and Amazon there will be no shortage of believers. And while investors are willing to fund entrepreneurs then the tech bubble will continue.
Plainly there is no shortage of believers but eventually reality will kick in and the bubble will deflate if not burst. Investors will seek safer places for their money and entrepreneurs will find jobs or at least pursue more immediate profits. Very few companies will become the next Google or Amazon.