Quick thoughts on Tech Transformation

March 1, 2021

Software is the latest world-changing tech

Only a few technologies have truly transformed the world and massively accelerated growth and well-being: Spoken language, agriculture, money, metallurgy, time keeping, steam engine, electricity, etc.
Only since 2000 or so has software surpassed hardware improvement as the fuel on the fire
We’re only at the beginning of the inflection point — takes time for the rest of the economy to use software effectively, just as it took factories decades to reorganize around steam engine tech

Anyone with a laptop and an internet connection can create hugely scalable applications that impact other sectors of the global economy, and its easy with high-level programming languages and APIs connecting more and more services to each other in real-time, making the whole more valuable (network network effects)
All this is often not captured in GDP measurements at all
With software, capital cost is approaching zero — software labor Creates capital
Think of the second-order effects in digital music and ebooks enabling huge numbers of small producers

The smartphone-as-supercomputer-in-your-pocket enables the Millennial mindset of access over ownership (home/ridesharing), economic savviness (online shopping/price comparison), on-demand anything (groceries, laundry), etc.
This generation is both leading this revolution and driving the consumption of its outputs
Software used to be the accessory, now it’s the way of life, and is starting to impact the physical world in major ways (first smartphones granting access to physical services, then internet-of-things, then VR/AR impacting our actual perception of the physical world)
Cars are now the accessory — just a smartphone app, increasing utilization and efficiency and decreasing the need for ownership
Self-driving cars will have an even greater impact on things as fundamental as suburbanization

Software is the latest ‘soft’ transformative tech, after writing and money, and may even eat both of its predecessors in a sense
The hacker ethos drives a lot of this progress — act more than think, move fast and break things, done is better than good, embrace failure, iterate, agile, experiment, etc.
There’s always disruption and job displacement, but it’s a fallacy that new work will stop appearing and we’ll become a leisure society — new priorities will arise and labor freed up will be needed for new pursuits — once a threshold lifestyle and happiness is achieved (largely independent of wealth above a certain reasonable level), people will find new reason to want to work
Inequality is becoming a major issue as benefits accrue first to the elite, and redistribution should be part of limited government’s purview, but you can’t halt progress, the best way through it is through it

Mobile still has a ton of room to grow, and mobile ads are totally underused still — Facebook is crushing it on this front, and Apple and Google are obviously winning the OS battle
At first new tech is ‘magic,’ but once it’s adopted the ‘tech’ disappears — Amazon isn’t tech, it’s retail (and has a long way to grow — look out Wal-Mart), Airbnb isn’t tech, it’s real estate, Uber isn’t tech, it’s transportation/logistics
Flip side: Right now Tesla isn’t a car company, it’s a tech/software company

Earnings growing, not multiples
Tech IPOs are fewer/later
Way more people connected all the time than the last crash thanks to smartphones, spending way more time and money online, with more established backbone tech (so startup costs are lower, and demand is still growing)
Mobile tech is more advantageous to lower income populations
Random thought on the flip side: Lower income populations will be disproportionately impacted by climate change (mostly farmers) and they need our help
# of seed rounds increasing, but not aggregate amount too much (~flat round sizes)
Still, early stage valuations are too high
Mid stage seems reasonable
Late stage rounds aren’t always being led by VCs, but by non-traditionals with tons of downside protection, so it’s more like debt investing, not equity — may eventually correct when LPs realize VC isn’t really VC any more at that stage
Overall, if you really believe in tech and the U.S. economy over the long haul you shouldn’t care about beta so it shouldn’t matter, but it will take a long time for some tech to penetrate middle America and justify valuations

Virtual reality/augmented reality will eventually merge and be the third and possibly final platform, after the internet and mobile — the holodeck will be real, and will impact not only consumption but production (what will be the Arab Spring of the VR/AR era? Maybe The Matrix…)
Fun thought: The internet is self-healing/reinforcing, and views censorship as a disruption and tries to route around it

Hardware + software advances are opening the door for an Artificial Intelligence revolution, driven principally by 1) Huge increases in cheap processing power, 2) Better algorithms, and 3) Massive new datasets for training, etc.
We’re at the inflection point of the AI acceleration curve, so it’s impossible for us to see how exponentially steep it’s going to get — within 100 years we’ll like have an Artificial Superintelligence (ASI). The scary part will be how quickly we move from Artificial General Intelligence (human-level) to ASI — it may take months, not years, and we might not know it happened