In 2001 tech ran almost exclusively on recycled VC/IPO money. A company got VC or IPO money, they spent money on ads, the ad company spent money on hardware, the hardware company spent money on ads, and around in a circle it went. When cheap capital disappeared, so did the whole industry.
In 2020 there's a lot more VC money, but there's also a lot more real money. A recession isn't going to stop people from buying diapers on Amazon.
So I don't think the next crash will be as bad for tech as 2002 was. It is going to be a lot worse than 2008, though.
Entertainment, even books, are the first things people start to slash though when their money gets tight. Diapers and other essentials on the other hand not so much. People might go for cheaper options but if you have a baby you need diapers!
Not OP, but my guess from their comment's direction is that if the crunch starts hitting real people, then the real money they're spending on online platforms will be pulled out of the market (since the % of free cash being spent on online-sourced products/services has increased, relative to the crunch in 2008 which affected other asset and purchasing classes).
The question should really be: why should the availability of cheap capital condition whether a tech business is viable or not?
That's not to say that coronavirus doesn't pose systemic risks by itself and can have significant effects on consumer behaviour regardless of the VC rumour mill and financial market sentiment; just that these are increasingly irrelevant since bootstrapping, crowdsourcing and lean startup provide better incubation for good tech business ideas than the more capital intensive planning that went on in the dot com boom/bust.
> why should the availability of cheap capital condition whether a tech business is viable or not?
Cost of capital, fundamentally, measures forward-looking risk. (Ideally, unavoidable risk.) A business that would succeed in a stable environment may not in a volatile one.
Set the rate too low and you waste resources. Set the rate too high and you pass on good opportunities. Hence society's interest in measuring this metric accurately.
From a microeconomic perspective, cutting lean when your competitors are buying market share is risky if the next few years will run smoothly. Likewise, burning cash while your competitors build balance sheet is risky if a recession is around the corner.
> A business that would succeed in a stable environment may not in a volatile one.
True, but specifically a good tech business would be one that ought to at least survive in a volatile and capital-starved environment. Treating "good" here in a self-confirmatory sense, which I accept is something of a True Scotsman argument.
> a good tech business would be one that ought to at least survive in a volatile and capital-starved environment
Good businesses should be able to survive a normal recession. Start-ups aren't good businesses.
They may aim to become good businesses. But if their first customer cohorts go bust, or their bank goes under in a country without deposit insurance, or their employees--who have to be on site to do their job--can't get to work because of transit strikes, et cetera, et cetera, they're not going to make it. Irrespective of how prudent they were.
But if they offer an equal or superior product at lower price, they would have a fundamental advantage: people/businesses would be more incentivized to switch to them when money gets tight, when previously it may not have been a priority.
While I agree with the general gist of what you're getting at, I think you're stating it much too strongly. In a sufficiently volatile and capital-starved environment, I think a straight majority of current businesses would be unviable. Stability, safety, and sustainability I think is not given nearly as much emphasis as it should but I wouldn't want to eg. condemn the entire restaurant industry (volatile economy => not a lot of disposable income => nobody can afford restaurants => restaurants go out of business).
Bootstrapping still means that I, as an entrepreneur, am willing to invest my time and money on an environment that might have a reduced consumption in the future. If I have the same risk assessment, I would be better keeping my day job before going full-time on my idea
Appealing to crowdsourcing you are just saying that you hope less sophisticated and seasoned investors (the crowd) is willing to give you money while professional investors that are paid to assess risk (the VC) are not.
Capital is cheap when business viability is high. If there is economic downturn and demand deceases, fewer businesses are viable in the new conditions.
If aggregate demand decreases ROI from ideas decreases.
> Capital is cheap when business viability is high.
While that may be true, might it not also be the case that the relationship is the reverse, or circular - ie. some businesses are viable only because capital is cheap. Again, I wouldn't consider a business sustainable, or 'good' in the sense I intended it, if it can only survive because of cheap capital.
The reason the 2008 recession didn’t impact Silicon Valley very much is because tech was still struggling to come back from the devastation of the dot com bust. In 2002, I recall there being 50% office vacancy in the valley in some areas. It was scorched earth.
As a former tech recruiter, I can say that March of 2009 was not a pretty time to be looking for work. A lot of people got the axe, and developer supply outstripped demand for a time. I remember posting one ad on craigslist for a Sr. Software Engineer for a seed stage startup in Mountain View and getting 66 applications within a very short period of time, and the candidates were mostly pretty good. Getting that many qualified candidates was very unusual at that time.
I'm not sure. I would expect that mature, older companies would be using less exotic tech on average: PHP, Java, C#, etc. Newer companies would be more likely to be using something more niche I think. It newer companies are more volatile, it may be that when funding dries up, the new company folks may have less tech overlap with the mature, older companies. I suspect this would have been more of an issue in 2009 and 2020. It felt like it was much more common to ask developers to be full stack specialists a decade ago. These days most jobs seems to expect one to know multiple languages regardless of what you're doing. Keep in mind 10 years ago I was a recruiter, and now I'm a developer, so my perspective then & now use different lenses.
I don’t know about SV/SF as a whole, but I work for a company that’s not trying to change the world, and our stack is primarily Python. There’s some Java and even some PHP floating around, but I’ve never had to touch anything that wasn’t Python.
Yeah, I was thinking about moving on around then and I held off for about another 9 months because it just didn't feel like a great time to play my best job leads. Maybe things would have been fine but it seemed like a good time to stay put until things stabilized a bit.
Late 90's, early 2000's were an insane time. I remember working at a startup that raised 25 mil, barely had a working product, no actual customers in production. They spent about 3 million upgrading office space, including fancy furniture like Aeron chairs. The company was valued at near 100 million. This was an early SaaS company, referred to then as an "application service provider" (ASP.) About 3 years later the company was "sold" for less than the cost of that office space renovation. Common stock holders got zero. Fortunately I only bought a small fraction of my options when I left.
Only the FAANG companies and some enterprise-focused businesses (Salesforce), all formed > 15 years ago, can be said to be 'booming'. The rest can't feasibly be profitable without ducking municipal and labor regulations (Uber, Airbnb), or requiring eye-watering sums of money to establish the monopoly position they need to take themselves into the the black (WeWork, Uber).
Is it still a 'boom' if valuations can collapse on the opinions of a single large investor (Softbank)? Or if Uber walks back its glittering visions of self-driving cars to focus on e-scooters and food delivery?
It’s really weird that tech is in a state where almost all of the stars even after being 10 or more years old still don’t have the slightest idea how they could make money. Things won’t be pretty once the investor money stops flowing.
Subscription is the opposite of what you want for a product that nobody wants 95% of the time but then everybody wants 5% of the time. As a supplier you would be locked in to selling at a given price while your costs skyrocket.
> Advertising and media: Marketing budgets are easy to cut fast, and media outfits dependent on those budgets feel the pain the fastest.
If a recession materializes, it will be interesting to see what happens to the advertising revenue-reliant companies stock prices of Google, Facebook and to some degree Amazon. It will also be interesting to see what happens to the home prices in the Bay Area if salaries paid in equity in these companies are no longer going up, but going down instead.
The implication that this is a down market after a few days of down movement is laughable. Could be a self fulfilling prophecy if the media keeps fear mongering this way.
"Yes, but: Two days of 3-percent-plus losses in the market don't constitute a downturn, or even, in technical terms, a market "correction" (which is defined as a 10 percent drop).
* Markets took a dive in late 2018 on recession fears, only to come roaring back.
* Today's financial world is still awash in cash, which could provide a calming buffer. The venture capital world is still looking to invest huge amounts: Per Pitchbook, funds raised a record $88.3 billion and $75.5 billion in 2018 and 2019, respectively.
* In some cases, smaller companies started laying people off even before this market drop, so they might be able to weather it more easily."
The only true answer is “TBD”. By all indicators the coronavirus has the potential to have a huge impact on people’s lives and the ability for markets to function, but it’s not yet clear how much of that potential will become reality.
Articles like this make me think. There is most certainly a generation of tech workers that have not truly experienced a recession or bad times.
I came of age in 2000, but missed the worst of that crash as I was in school. When I graduated in 2004 things were starting to pick up where I lived (Toronto), but it was nowhere near like it has been for the past 5 years where simply updating your LinkedIn profile would cause a flurry of recruiters to inundate your inbox. The 2008 recession both didn't hammer Canada as bad (especially outside of traditional manufacturing) nor tech really much at all.
My generation of tech workers have simply not known hard times. Many of my college colleagues are obviously not saving and drive $90K Mercedes and live in very nice houses that would stretch tech salaries (Toronto is a bit insane with housing prices right now).
I have no idea if coronavirus, Trump, or what will cause the next recession nor do I know how bad it will be, but if it does impact tech workers, a lot of them are going to be unprepared, I think.
> My generation of tech workers have simply not known hard times. Many of my college colleagues are obviously not saving and drive $90K Mercedes and live in very nice houses that would stretch tech salaries (Toronto is a bit insane with housing prices right now).
Why should they save and live frugally? Canada is very socialist, their quality of life will be maintained by the government when things go south. The point of being rich is to live like a rock star. If you can already live like a rock star, you can skip the getting rich part.
But let's say they do save money. It's just going to get eaten away by inflation. If they buy property, it's going to get taxed.
You can either live now, or save lots of money and so stuff in old age. Of course, you'll never get to have the time back, and I'd much rather experience life in my 20's and 30's than in my 60's and 70's.
I think that there is a balance between blowing all of your money that you earn such that any decrease in salary would be catastrophic and driving a decrepit car, living in a cramped room with an hour+ commute, and not spending a dime more than you have to.
Surely you can still "experience life" in your 20s and 30s while saving something for a rainy day/when you can no longer work.
This is a terrible point of view, you must be really young and have very little understanding of investing. You can still experience life and invest/save money.
For example, if you have money saved up and excellent credit you sit on the cash and wait for a crash. During the crash you purchases houses, apartment buildings....this would actually allow you to build wealth. I know people who bought manufacturing equipment during 2008 crash for scrap value.
Plus, not everyone who is wealthy wants to be a rockstar. It is such an ignorant opinion, people may have much greater goals in life and money might just be a byproduct.
> if you have money saved up and excellent credit you sit on the cash and wait for a crash
Ah, market timing. You realize this is contrary to mainstream investing advice, right?
> During the crash you purchases houses, apartment buildings
I forgot, the American dream is to own someone else's house. The only way to get rich to be a land lord anymore. Plenty of people get burned playing this game as well, and the advice doesn't work in every market.
> I know people who bought manufacturing equipment during 2008 crash for scrap value.
Oh, so not you?
> such an ignorant opinion
Is it ignorant just because you disagree with it? Look around yourself. How many people are driving a Mercedes or BMW? How many people are wearing designer clothes and jewelry? How many people have an iPhone when a $150 android will do just fine?
Most people I know will never save money. They'll never have a new car, they'll never have a 4000sqft home. They're 100% going to be on government assistance in old age. They should enjoy themselves now, go bankrupt as often as legally possible.
In the Bay Area, mid career elite engineers make $300k - $800k. That's why you see a lot of spending. They might be saving, too, because they can afford it...
The Canada Pension Plan is not a proper pension plan, which is why in the 1970-2000 period, good employers offered good pension plans. Now everything is matched RRSP contributions if you're lucky. It's possible that housing costs will never come back down; now that the housing bubble has pushed way beyond the metros, "just sell your downtown house and move to the suburbs" is not a retirement strategy anymore, if it ever was. (Bloody London, ON is getting a fat influx of Torontonians seeking cheap housing! That's nuts!)
So people should either be buying a house that they can afford not to lose in a downtown, and/or put some good money in their RRSP. The earlier, the smarter.
Owning things isn't the objective. It's the experience of having things to show off to others, to attract friends and mates, and to get likes on social media.
It's a lot like Skydiving. People do it so they can have the adoration of others. They want to be able to impress their friends that they did some super cool thing. It's why the iPhone has 17 cameras or whatever it is now. People need the latest, greatest thing to continually get adoration.
It's like people that win the lottery and go broke. They finally acquire and get to do whatever it is they always wanted. Maybe they just wanted to live richly for 8-24 months. What's the point of having all that money if you can't have fun?
Personally, I don't live this way, but many people do. I've just decided to stop looking down my nose at those people. They are optimizing for their own happiness.
Someone ought to tell all of the people in Toronto who are homeless or being priced out of the city that they're supposed to be living like rock stars.
> Canada is very socialist, their quality of life will be maintained by the government when things go south.
Canada has universal healthcare, but the "socialism" you think it has ends there. If you lose your job, you'll qualify for a few months of unemployment insurance and then you're on your own. There are no food stamps and welfare is about $800/month in Ontario and is incredibly difficult to qualify for.
That's the thing. When the bubble pops, the socialists will vote for wider-reaching welfare. I mean, people around here are already talking about universal basic income non-ironically. I think Canada will be the first to pass it large scale after the next major economic downturn.
Socialism does not mean that your standard of living is maintained if you lose your job. It mostly just means that you don't starve or that you don't have to live on the streets.
That's not socialism. That's just basic civilization. When we create a society, we agree that we will have a system where on the way to work we are not going to trip over the dead bodies of people who we let starve to death.
Folks, it's the flu. We don't have a cure for the flu either. You catch it, you feel awful, your immune system fights it, after a few days the virus runs its course, and then you're fine again. The people who are die from the flu are some combination of old and already infirmed. Same as coronavirus. And every year something like 10-15k people die from the flu but we manage to keep our cool. The disconnect here is really wide. I'm not worried about the coronavirus, I'm worried about all the alarmism and the overreaction it might cause.
18% of cases end up serious or critical. Out of cases with an outcome, for 8% the outcome is death. [1] It's not just the flue. I agree that there should be no overreaction and that that part might be more worrying but it's pretty serious.
18% of cases, where the infected person both sought treatment and was actually tested. It is very likely that there are far more asymptomatic and mildly symptomatic people out there.
The 18% number is mostly useless because it's a textbook example of selection bias.
We've had time to do large population studies and build models to somewhat correct for this. Most of the death rates you're seeing throw around for COVID-19 are just naive number_dead / confirmed cases.
Fair point, but WHO don't really seem to think that's the case. Dr Bruce Aylward (team lead of the WHO mission) noted that based on the large amount of disease screening that’s been done in China so far, there does not seem to be a huge number of mild cases that are going undetected. [1]
If you read more on that. After he said that someone else from the WHO immediately contradicted him.
"The claim was quickly challenged by an infectious diseases expert who serves on a committee that advises the WHO’s health emergencies program.
Gary Kobinger, director of the Infectious Disease Research Center at Laval University in Quebec, said it would be highly unusual for there not to be mild or symptom-free cases that are being missed. He pointed to the fact that outbreaks have popped up in countries far from China — including Iran and Italy — because people with mild infections were not detected and traveled to other places.
'There are mild cases that are undetected. This is why it’s spreading. Otherwise it would not be spreading because we would know where those cases are and they would be contained and that would be the end of it,' said Kobinger, who insisted that mild, undetected infections cannot be ruled out until people who haven’t been diagnosed with the illness can be tested for antibodies to the virus.
'As long as we do not have good serology data, I think that it is completely speculative to say that there are no undetected cases,' Kobinger said."
What Dr. Aylward says makes no sense and reads more like a PR fluff piece designed to praise China to keep them happy, and as Kobinger points out he's probably wrong. From the same press conference he says this "If I had COVID-19, I’d want to be treated in China."
1. For most people symptoms are so minor that they don't go to the hospital at all and don't get counted in the reporting stats. This means that the 18% number is higher than reality. How much higher we don't know.
2. The disease disproportionately affects older people: If you're between 0-50 your chances of dying are ~0.2%. From what I can tell these mortality odds are better than if you have the regular flu.
Agree it it serious just as the flu is serious. We don't need to create a panic and literally bring the global economy to a halt is my point. Just reading the responses I sometimes think people are cheering for pandemic.
We have no idea if it's 20x as deadly as the flu because we have no idea how many asymptomatic and mildly symptomatic cases are out there where no one sought treatment. The mortality numbers are an extreme case of selection bias.
"We are not certain" is not equal to "we have no idea". It has killed a lot more people in China than a normal flu, which often also starts in China. It has killed more people than either H1N1 or SARS did at this point in their first year. That doesn't mean it's the apocalypse, but it's not quite "we have no idea". We have some idea. It's a bad one, at least.
Also, "the flu" covers a lot of ground, mortality-wise, as the history of 1918-1919 should remind us. Even in nations like Spain that were not in WW1, the flu of that season was a major deal, and if coronavirus turns out to be that bad (still an open question), it would be really, really bad.
How can you make this statement? A lot of papers claim mortality (accounted for asymptomatic patients) to be around 5% (100x worse than flu) and 1% (20x worse than flu). What evidence do you have that these papers don't?
"The resulting number, however, does not represent the true case fatality rate and might be off by orders of magnitude. "
"The true number of exposed cases affected in Wuhan may be vastly underestimated. With a focus on thousands of serious cases, mild or asymptomatic courses that possibly account for the bulk of the 2019-nCoV infections might remain largely unrecognized, in particular during the influenza season.
Under-detection of mild or asymptomatic cases may be further fueled after further growth of the outbreak, as healthcare-facilities and testing capacities in Wuhan have reached their limits."
Just look at Diamond Princess. 4 deaths out of 700 infected after testing everyone with many still not recovered. That's way deadlier than a regular flu.
Are you also aware that seasonal flu doesn't completely take out medical systems? (see Wuhan)
1. 4/700 is less than half the 1% lower end number that people are freaking about about when they say 20x more deadly than the flu.
2. All 4 people who died were in their 80s. Cruise ships skew much older than the general population, so there is limited information to learn from this.
3. If every single person who had cold or flu symptoms panicked and went to the ER, it most certainly would overwhelm medical systems.
4. I never said this wasn't worse than the flu, just that it seems likely that it's not 20x as deadly.
1. 4/700 is only the initial figure. Likely more people will die from cruise ship, COVID-19 takes about 2 weeks to develop severe pneumonia.
2. Since these patients are now not categorized as Diamond Princess, instead they're categorized under their countries' stats, likely we will never hear from them again in such an isolated fashion.
1. Yes it's the figure as of right now. There have been hundreds of people sick for over 2 weeks, and hundreds more who are coming up on the 2 week mark. There may very well be more deaths or there may not be. But my point is that the Diamond princess isn't currently good supporting evidence for a 1% mortality rate in the general population.
2. I'm sure all of their names are out there, and someone will eventually put together a study once it's been long enough to know their outcomes.
A flu with 20x reported mortality rate caused by a virus with a significantly higher infectivity than influenza virus is something you should be worried about.
Note: data is from current cases, may vary as more data is accumulated.
Apple reported supply chain disruptions. If the government overreacts to a virus and disrupts supply chains over it, that's still a material impact on the market independent of the actual severity of the virus.
In 2020 there's a lot more VC money, but there's also a lot more real money. A recession isn't going to stop people from buying diapers on Amazon.
So I don't think the next crash will be as bad for tech as 2002 was. It is going to be a lot worse than 2008, though.