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How long can you sell a dollar
for 70 cents before you run out?
A scathing indictment of
the startup culture in Silicon Valley -a culture that
is emulated faith fully in many `startup
cities' of the world, including some
in India such as Bengaluru -sent ripples
through Twitter last week.
Well-respected tech
writer Nick Bilton said it was all a bubble, comparing it
to the so-called dot-com boom that went
spectacularly bust and mocking
those who say it's
“different“ this time. He quoted prominent VC Bill Gurley
as saying, “Arguing we aren't in a bubble
because it's not as bad as 1999 is
like saying that Kim
Jong-un is fine because he's not as bad as Hitler.“
According to Bilton, the
signs of an imminent meltdown are everywhere:
in the crazy salaries being paid to coders,
in programmers who have their
own agents, much like Hollywood stars, in
interns being paid $84,000 a
year (the median
household income in the US is around $53,000), and in
companies like Snapchat
offering Stanford undergrads as much as
$500,000 a year to work
for the company .
He also argues that most
startups are not creating anything of value.
“All across the Valley , the majority of big
start-ups are actually glorified
distribution companies
that are trying, in some sense, to copy what
Domino's Pizza mastered
in the 1980s when it delivered a hot pie to your
door in 30 minutes or less... [they] are
really just using algorithms to deliver
things, or services, to places as quickly as
possible... As one technologist
overheard and posted on
Twitter, `SF tech culture is focused on solving one
problem: What is my mother no longer doing
for me?'“ Bilton points out
that even Uber, which is
valued at $51 billion, is reportedly operating at a
loss of almost half a billion. “How long can
these companies continue to
sell a dollar for 70
cents before you run out of dollars?“ a prominent author
asks Bilton.
Bilton talks of sky-high
valuations: “These are private companies, with
private balance sheets,
and the valuations they ascribe to themselves
aren't vetted in the
same way by the SEC or public markets. These
start-ups, in other
words, can command much higher, and at times
fabricated, valuations.“ He acknowledges
that the biggest tech
companies--Apple,
Amazon, Facebook, Google --are now part of
our social fabric, so perhaps this bust
won't be as cataclysmic as
the last one.“Instead, things could simply
slow down like a large
tractor with a small hole in its tire,“ he
writes. “But in whatever
form this pop happens,
some worry it could be worse than the last
time. When the dotcom bubble burst, the Web
was still in its infancy.
Now... internet-related consumption and
expenditure [has] exceeded
that of agriculture or energy . As Noah
Smith, the noted financial writer,
explained in July, the danger is not that
we're in a tech bubble but rather
that we're in an `everything bubble,' in
which any one of these events
could be the domino that
makes it all fall down.“
Bilton warns that
whenever the “kaboom“ happens, the people who are
most protected will be the VCs themselves
who have measures in place
to protect themselves from such a situation,
having learnt a lesson from
the last bubble. “This doesn't protect the
hundreds of thousands of people
who now rely on a paycheck from the
errand-running start-ups or taxi
disrupters. Nor does it
help the mom-and-pop businesses that have
bought into the hype of
Zynga, Yelp, or Twitter, and invested their
savings,“ says Bilton.
For more: vanityfair.com
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TOI6SEP15
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