Tech Market Saturation
If you work in tech, you many have already realized that the job market is saturating, especially for new grads. This is a drastic contrast even compared to just 3–4 years ago, when it was hardly difficult to find a job, with companies throwing signing bonuses and many startups still going through exponential growth. Moreover, the hiring bar for new grads has been constantly going up as there are more inflow of new computer science majors, while the job market for the new grads has been started to stall. Only the jobs for the experienced seem to still proliferate.
It also seems like people these days are less reluctant to start a startup or join a startup. It is a clear indication that all the low hanging fruits have been harvested and a growth momentum for the tech industry is slowing down.
If you look at YCombinator’s recent startup batches, almost half of them are in the b2b market. Ten years ago, consumer startups dominated YCombinator’s batches. This is a clear indication, that startups now need to penetrate deeper into the tech industry.
Also, it is very likely that the big tech companies (especially Google and Facebook) will not be able to go through the same drastic growth, where they constantly shattered analysts’ expectations and grew at an amazing pace.
As an example, while Google’s growth could have slowed down in mid 2000s, acquisition of Youtube, birth of mobile industry, and the boom of cloud services helped the company to accelerate its growth. Yet for the past 2–3 years, Google hasn’t made any significant acquisition nor has the company been able to enter a new market that can generate significant growth in the upcoming years. Thus, to me it seems quite obvious that Google’ growth rate will start to stall. (Though I admit, Google’s revenue may still grow modestly for a near future (2 ~ 3 years), as a company’s revenue is a trailing indicator of its innovation)
Now, some may argue that Google’s parent company Alphabet has many portfolios in different high growth markets (Waymo, Verily, Deepmind, and etc). However, it is my speculation that they won’t actually bring much meaningful revenue to Alphabet. In terms of Waymo and Verily, the pace at which they are moving seem to be too slow and they lack focus. To go into a bit more details, Waymo is significantly losing data war to Tesla. Moreover, I do not believe servicing out a self driving software and platform will be able to compete against Tesla, a company that is running an end to end business (actually building a product market fit cars and integrating its own self driving platform into those cars). Moreover Tesla is solely focused on manufacturing cars and battery related products while Waymo is just one part of Alphabet with the search being the main product. Verily still hasn’t figured out a major life science product that can provide a significant growth, while dabbling in many different areas. Deepmind, while I have my highest respect for their goal and admire their endeavor to push the fundamental research of artificial intelligence, Deepmind doesn’t seem to be following a path that will be able to create meaningful commercial products. Deepmind more or less reminds me of the AT & T Bell Labs, where so many scientific innovations happened (invention of transistors, lasers, C, C++, Unix, just to name a few), and yet now they are forgotten by so many people, as the company failed to properly commercialize those innovations.
Now, I find other big tech companies such as Facebook and Apple in similar manners (I wouldn’t go into full details as they would take up so much space).
All these seem to indicate that a giant tech pendulum that started to swing from the far left to the right 15 years ago, seem to have reached its end, and will start to swinging back to the left. We are thus currently at a moment, where we will start to see the big tech companies come down from its high prime. This is just like how Intel and IBM, which once seemed invincible, have come down from their peaks.
I believe such transition will create a gap in the tech industry. Currently, too many college students are majoring in computer science, with entry jobs becoming extremely competitive. The work force that used to go to Wall Street, medical schools, law schools have all been concentrated into tech. I believe such concentration will likely be redistributed in the near future. Moreover, the slowdown of the big tech companies may bringing significant pullback in the stock market. While tech companies are richly valued today, I personally do not see such growth momentum continuing for the tech giants, and I believe there will come a time, when people start to realize that their growths are actually slowing down. I don’t know whether it will be this year or next year or 2 years from now, but I believe not far from today, people will realize that the tech giants are going through their peak times, and will soon come down. This will provide rooms for the next generation tech companies to eclipse current tech giants and become the next tech giants.
While many people today focus on the Fed printing money, QE, low interest rates to predict the market outcome, I am a strong believer that the fundamentals drive the values, which ultimately predict the stock market. Stock market may stay irrational for a short time ( ~ 1 year), but at the end, they do converge to the right price and place. I am starting to notice a shift in those fundamentals. COVID may have accelerated the digital transformation, but I don’t perceive it as a long term growth catalyst. Moreover, for some companies, such as Google and Facebook, COVID is actually doing damage as its is affecting their advertisement revenues. Overall, COVID is more of a short impulse that brings high growth in a short period time probably for a year that will later plateau. Thus, I believe we are going through our peak market that will likely stall and come down.