US Insights

Silicon Valley One Year On

Andrew Curry

Director, Kantar Consulting

Brands 03.05.2018 / 08:00

kt_com_Takeaway 1

Silicon Valley businesses have reached a difficult “winter” phase of life.

A look at the headlines from the last three months shows the scale of the change of mood about Silicon Valley and its largest companies. Google has been fined €2.4 billion by the E.U. for monopolistic behavior, while the Commission is also pursuing Luxembourg and Ireland for their alleged anti-competitive tax treatment of Amazon and Apple, respectively. Facebook is mired in a political advertising scandal that has the full attention of Congress. Uber, having lost most of its senior leadership in the wake of one of the most effective blog posts ever written, had its license to operate in London removed after serious compliance concerns were raised by the city’s police force.

The consumer mood has also changed. Uber’s traffic has been affected by the #deleteUber campaign in the U.S., while Apple launched new products that weren’t greeted by long queues of anticipatory customers stretching around the block. There is also a whole emerging story about the possible adverse effects of digital media use on wellbeing.

So, is this a series of blips, or is it a trend? It is more likely to be the latter.

As NYU professor Scott Galloway told the New York Times in October, “For 10 years, the arguments in tech were about which chief executive was more like Jesus … Now sentiments are shifting. The worm has turned.”

That article was headlined, “Tech Giants, Once Seen as Saviors, Are Now Viewed as Threats.” Another, published the following day, was balder: “Silicon Valley is not your friend.” The mood has also changed among publications that have been sympathetic to Silicon Valley. In September, for example, Fast Company argued, “Technology is growing increasingly complicated and powerful— and people aren’t happy about it … To use an old Facebook phrase, the public’s relationship status has officially and permanently changed from ‘friends’ to ‘it’s complicated’.” Or take tech venture capitalist and ex-Googler Bill Maris, who recently told a Wall Street Journal conference: “It wouldn’t surprise me if the sun is setting on the golden age of Silicon Valley.”

One of Kantar’s five principles of Future Thinking is about “taking the long view,” and there is some history here. Twenty years ago the digital activist and sometime Grateful Dead lyricist John Perry Barlow published a heartfelt declaration of independence on behalf of cyberspace, in response to the supposed reforms enacted by the Telecommunications Act of 1996.

“Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather … I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.” And much more in the same utopian vein.

Even at the time, his claim was contested. Despite everything, routers and servers remain tied to geography, and businesses always have a network of relationships with governments wherever they do business. But as an ideology, Barlow’s manifesto informed the way that Silicon Valley entrepreneurs saw themselves as their companies grew richer and more influential.

Should we be surprised that it has taken so long for the gap to close again? Probably not.

This has been described by the academic Carlota Perez, who analyzed the five big technology waves, or surges, that have taken place since the Industrial revolution. The current ICT (information and communications technology) wave is the fifth of these; the fourth was oil and auto.

Over 50 to 60 years, each technology wave has followed a familiar S-curve pattern. A deployment phase is paid for by investment capital to install infrastructure, at first slowly and then more quickly. The speed of takeup inevitably falls short of investor expectations, which leads to a crash.

Production capital, meaning companies with customers, pick up the pieces, and benefit from a decade or more of rapid growth as customer numbers accelerate. But then the market becomes saturated, growth opportunities tail off, margins fall, repurchase rates slow and people start to notice the external social and economic costs these businesses have dumped on society.

Silicon Valley tech businesses, then, aren’t special. They have just reached the difficult last “winter” phase of the S-curve. If we look back at the oil and auto tech wave, very similar things happened: seat-belt legislation, driving-under-the influence legislation, parking restrictions, pollution controls.

Winter businesses, so-called, are commoditized businesses that can no longer make easy profits from market growth. This is one of the reasons why the transition from rapid growth to commoditization always creates turbulence. Business models built on customer growth suddenly come face to face with the constraints of mature markets. The behaviors of the tech companies are those of companies cutting corners to try to maintain margins despite their changing market context. Once winter comes, the magic never comes back.

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Source: Kantar

Editor's Notes

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