12 ms·

Attention Economy Is a Malthusian Trap

200 points by toufiqbarhamov 8y ago

bitreality 8y ago
"But if Netflix and Walt Disney both use technology to stream video, why is only Netflix trading at infinity-times earnings? And if Tesla and BMW “both use battery technology to power luxury cars,” Deluard writes, “why should the former trade at 42 times forward earnings when the latter fetches 5.6 times trailing earnings?” Good question." Incredibly flawed argument. BMW's earnings come from a huge variety of products and services. Not purely battery-powered electric cars. Tesla's entire business model is producing battery-powered vehicles. So to compare each company's P/E directly under the assumption that they are both making identical products would be wrong. Instead you would need to somehow isolate the P/E ratio of BMW's battery-powered car business in order to draw a meaningful comparison. In general, this article is trying to group all of tech into one basket and draw conclusions which apply universally. A company has a high P/E ratio for a very simple reason: investors believe its earnings growth will outpace the market. That will seemingly always be true for companies which are focusing on growth over profit.
- JackPoach 8y ago
  You are technically correct, but the author still gets the important point right. The premium in valuation between these companies should and will shrink (unless there is a reason to believe that Netflix will kill Disney or that Tesla will be dominating the automotive market at the expense of Fords and Toyotas.
  - mlthoughts2018 8y ago
    The high P/E values for these companies are usually giant signals they are overvalued. Probably the only company that can legitimately sustain a ridiculous P/E is Amazon, and it’s because Amazon is the only large company willing to try weird shit and actually take product risks. I’m not a big fan of Amazon’s company culture, but I have to hand it to them that at least they try to do shit and see what works. Most companies beyond a certain size fall victim to in-house risk aversion through manager ranks to such a high degree that all innovative ideas are killed and only incremental product changes are allowed.
    - Retric 8y ago
      P/E is a backward focusing metric, stock price is a forward looking metric. So, unless the company is static they don’t correlate that well. Look a BMW’s shrinking US / EU sales for the last several years and compare that with Tesla. You don’t want to pay a premium for a sinking ship do you? PS: The stock market may be irrational, but it’s rarely dumb.
      - mlthoughts2018 8y ago
        This sounds tone deaf to me. Having worked in quant finance myself for many years, I can safely assure you that investors look at price to intrinsic value metrics as a way to gauge overpriced stocks, not as a consensus metric of belief over future earnings.
        Retric 8y ago
        For underpriced stocks the correlation is more obvious. I’d you see a P/E of 5 that’s not a good sign.
        mlthoughts2018 8y ago
        Not true. For example, in low-beta investing, low P/E values for some sectors are super common, and seen as a sign of a deal on an undervalued stock.
        Retric 8y ago
        A P/E of ~10 is a value stock. Entravision Communication has a P/E of 2.11, that’s not a suggestion that it’s going to keep that ratio over time. Sure, ultra low P/E is a reason to investigate, but it’s not inherently a good sign. A common cause is a company splitting which makes the old P/E meaningless.
        mlthoughts2018 8y ago
        I agree nothing is inherently a good or bad sign, there’s no deterministic rule for where to find stock returns. I was just disagreeing that high P/E is commonly veiwed as a positive signal of future earnings.
- deleted 8y ago
  [deleted]
- rm_-rf_slash 8y ago
  Tesla is effectively a battery company with an automobile division. The applicability of Tesla’s batteries beyond automobiles (such as grid-level storage in South Australia) justifies the high valuation. Looking at Tesla purely as a car company misses much of the bigger picture.
JackPoach 8y ago
Yep, the article is dead on.
todipa 8y ago
Tech has been synonymous with growth. That is why it was trading at a premium and that is why high growth tech companies continue to be priced at a premium while non-growth tech companies do not. As a professional investor, I only care about three things: - Long-term stabilized return on capital - Pricing (P/E; EB/EBITDA) - Long-term growth. The list of companies that check all of those boxes are extremely small
- theosophist 8y ago
  Would you mind sharing the list of these companies?
  - apapli 8y ago
    I’m not OP, but Microsoft is one of a handful of stand out tech companies for me. They are paying a decent dividend (almost unheard of in tech) and have a very solid enterprise product lineup that has gained traction, with a huge amount of the market left. Furthermore they have a strong consumer and gaming footprint, and generally are positioned well across their entire portfolio.
  - icelancer 8y ago
    He is basically describing a large percentage of companies in the VYM ETF.
erikbe 8y ago
Tech companies are valued based on future potential and as future becomes present, that potential is replaced by a reality that is often much less grand. Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners. Now, they have to offset investment into production with higher subscription fees which in turn reduces future potential. Netflix in 2015 is significantly more disruptive than that of 2019, which is just another HBO, and increasingly will be valued like HBO (Time Warner). "Tech" here is actually just infrastructure; it's table stakes and not interesting at all.
- notduncansmith 8y ago
  Tech is no longer a differentiator in many enterprises, but most small-medium businesses are still barely utilizing what the tech world has made. For example, smooth and useful tech integration is a major differentiator in industries like hospitality, healthcare, logistics, PDR, etc. Mobile/tablet point-of-sale has exploded and enabled a wave of lifestyle entrepreneurs to accept card payment. Smartphone ubiquity has made it much easier to transact with people in your area and abroad, and to help organizations collaborate internally. Still, many people scratch the surface of these capabilities, because their existing low-tech approach has been working for them. With this comes the opportunity to differentiate with solid tech.
  - erikbe 8y ago
    You're right. Many industries still haven't digitalized, and there, adopting "tech" gives a temporary advantage. But it's really just one infrastructure replacing another. It's a hurdle to get over, not a lasting advantage. Tech is commoditized just like it commoditizes other industries.
- autokad 8y ago
  I think content producers weren't going to give netflix a free lunch forever, so they had to start producing their own original content. I dont own netflix, but I do think it's a great idea and a smart investment by them. One thing netflix does with this disruption-wise is the way they think about content. companies like comcast (NBC) still got their heads in broadcast television style producing content, where-as netflix takes a lot of risks, and is ok if a show has a niche following, so long as they have something in their library for everyone. edit: its sad, if content producers thought like this in the past, we'd have more episodes of firefly.
Traster 8y ago
I'm a big fan of the argument that there is significantly less to differentiate companies like TSLA from their traditional competitors. Which is basically the take from the first half of the article (which I think the author is arguing is wrong), but using evidence like P/E change in the last two years is quite frankly bollocks. There has been a big dip in the stock market in the last few months and there's very likely a slow down in China occuring - Apple's stock alone is down 30% from peak. But moving on to the interesting second half: what this guy is describing - yet somehow not noticing - is a trend towards massive mergers to form monopolies. That's nothing to do with Tech. In fact what this article is suggesting is basically what we're going to do is re-create all these destructive monopolies and rather than protecting consumers like we used to, we're going to just label it 'tech' and bend over for it.
- SuoDuanDao 8y ago
  I'm not sure I agree - I think workforce is the ultimate differentiator in any case, and the tech companies - over the last decade at least - managed to be seen as the employers of choice. That could really create a strategic advantage, though perhaps not a long-lasting one.
netcan 8y ago
This article is using its terms in a specific way. By "tech sector," it sounds like he's talking about large technology companies that have been valued by the market at higher multiples than the older "blue chips," big stable companies. By Malthusian, he means "large and mature enough to be limited by the size of the market." The trigger for the thought seems to be that some newer "tech" companies are operationally more similar to traditional blue chips. Tesla is more like BMW and netflix is like hbo. So, anyway idk.... Tech is valued so highly for a bunch of reasons. But, those aside, there are factors unrelated to sector. Tesla, netflix and such are new companies. Coca Cola, GM & BMW are old. They run gradualist, conservative starters. Netflix and Tesla are far more likely to pull a rabbit out of a hat. It's in their culture. The whole company was in the hat 5 minutes ago. Assuming that Tesla and BMW have similar future potential is (perhaps) academic, because they'd never pursue them anyway. Netflix might attempt a pivot to being a game company, if the opportunity was attractive. HBO probably couldn't. Even IBM is a good example, the one tech company that's old-ish and has a "blue chip" persona. They managed to pivot into consulting. Would coca cola have successfully pivoted into fresh food delivery? There's a flexibility in tech that doesn't exist elsewhere. Also, I suspect, the way most large companies are growing is overly risk averse. Tech can't be derisked to that extent, so the companies pursue the higher value, higher risk strategies. The best example to sum this up is Amazon and their 2nd act Aws twist. You might compare amazon of 2016 to other retailers. Walmart never had the potential to launch an Aws. When tech is everywhere, the article thinks the tech sector doesn't exist. The opposite is possible too. When everything is tech, the tech sector owns everything. Ultimately, coca cola is a legacy company.
- pbhjpbhj 8y ago
  Did you mean "compare Amazon of 2006", that was the year AWS was released.
  - netcan 8y ago
    yep :)
deleted 8y ago
[deleted]
buboard 8y ago
> Now it has to gnaw through the harder, crunchier parts of the global economy. Software eating life sciences? Software eating elderly care? Software eating household construction? Software eating money? Good luck. Wow, so much pessimism. Tech has still loong way to make inroads into these sectors, and i don't see anything stopping it. In some cases it is harsh regulation and established interests that prevent people from innovating (e.g. money), but it is happening. "Good luck"? this won't age well. Anyone who thinks that tech is just for "selling ads" is , hm, short-sighted. It is easy to cherrypick the high tech that has large p/e s such as tesla and netflix, but these are companies that disrupt existing markets, not create new ones. Apple (which does that often) has a tiny p/e. So maybe, it is a good thing that the fangs are being deinvested. Plus 2019 is the airbnb and uber IPO...
Emma_Goldman 8y ago
Strange title. The connection to Malthus is tenuous at best.
- CPLX 8y ago
  Seems pretty straightforward to me. The premise is that tech businessses have exhausted the extant food supply for opportunities and growth and are becoming constrained by hard natural limits. Seems like a spot on metaphor to Malthus.
  - Emma_Goldman 8y ago
    I suppose I object to complicated social and political thinkers being reduced to bowlderized metaphors for clickbait headlines. The author makes it clear that he does not think that there are 'hard natural limits' to the tech sector.
  - kaffeemitsahne 8y ago
    Sounds more like plain old market saturation to me, if you describe it that way.
- DennisP 8y ago
  I was expecting him to say that attention-based company valuations demand a high exponential growth rate, and there's only so much attention to go around.
- buboard 8y ago
  The original title was ‘is the age of tech over?’. It seemed too much even to the editors.
denniskane 8y ago
There is irony here. The notion of a tech sector is entirely an equal and opposite reaction against actual Malthusian Traps (exponential population growth vs linear food supply growth) that are caused by depleting resource bases. See "The Limits to Growth", a 1972 MIT study by Meadows et al., funded by The Club of Rome.
mark_l_watson 8y ago
I agree that tech companies depending on attention will devalue. However the value of companies is also based on expected future value and the FANG companies are well positioned to profit from advances in AI, new energy technologies, life extension tech, etc., etc. I think there is a lot of profit to be made in emerging tech.
- denniskane 8y ago
  "Energy technology" is a contradiction in terms. Energy (as we know it) comes from undifferentiated organic matter that is easy to burn while technology (as we know it) is based on the novel kinds of arrangements that can arise out of inorganic kinds of materials like metal and silicon. The point is that better technologies rely on the burning of lower amounts (calories or joules) of energy.
PaulHoule 8y ago
It will be tougher for Amazon to squash grocery stories than it was to squash Sears. Grocery stores are highly competitive because people go to the grocery store every week. For the grocery store it is a game much like "the iterated prisoner's dilemma". Every week they have a chance to uphold their brand image or make a quick profit. Every week they have a chance to lose big and make you switch to another grocery store. So they choose to uphold their brand images. Stores and brands in other areas where transactions are less frequent have more incentive to harvest. For instance, nearly all makers of major appliances have given up on upholding brand image and source their appliances from the same factories in the far east. They break down in a few years but they might not be in business again, or maybe they bought the brand that you're going to try next. Grocery stores, from ALDI to Wegmans, are excellent in their own way, unlike mall stores.
- saas_sam 8y ago
  Makes sense but it reminds me of the argument people made against Amazon usurping clothing stores: people want to feel and try on clothes before buying them. While I think it's true that this served as a buffer for a while, it seems to me that it was a temporary one and as long as there's money to be saved, consumers will eventually change their buying behaviors.
  - allenu 8y ago
    Clothes is still a tricky thing because sizing differs so much between clothing manufacturers that you really do need to try things on to see if they fit you well. If you have the extra cash to tailor all your clothing, then it's not so bad, especially if you are buying high-end clothing that you can't find in stores. That said, there is a company called ZOZO that is playing with the idea of having people wear a dotted suit to automatically detect their measurements with a camera: https://zozo.com/us/en/info/suit https://zozo.com/us/en/info/suit
  - Bartweiss 8y ago
    > people want to feel and try on clothes before buying them The "Amazon showroom" concept isn't really a joke, and it hasn't really been resolved. Some nontrivial amount of shopping, especially for fitted products like clothes, takes the form of trying things on in a store then checking Amazon for a lower price. It seems possible that this is sustainable, with immediate-purchase customers sustaining 'showrooms' for price-sensitive customers. It also seems possible that it will crumble in one of several ways. Amazon might raises prices in pursuit of profit far enough to end this pattern. It might drive out (some) clothing stores, creating a vacuum where consumers rely on 'free' returns to make up for a lack of showrooms. Or it might even drive new business models and branding changes. Levis are already widely discussed as a "don't buy online" product because they're weirdly high-variance; we could see products designed to be desirable but ineffective to buy online. The "Amazon store" model could gain ground, with Amazon offering low-inventory showrooms or cutting affiliate deals with brick and mortar stores. Or brands could offer online-only discounts to reduce carrying costs, while using showroom access as a selling point to fight Amazon's economies of scale. None of these seems guaranteed, and I won't be surprised if Amazon and physical stores simply coexist in the clothing market. But I do think it's important to note that Amazon's current model is partly enabled by their physical competitors.
cs702 8y ago
I find these passages thought-provoking and persuasive. They ring True: > ...Tech died by conquering the world. Netflix is leading a global transition from linear to streaming television. Tesla accelerated an electric awakening among auto companies. But if Netflix and Walt Disney both use technology to stream video, why is only Netflix trading at infinity-times earnings? And if Tesla and BMW “both use battery technology to power luxury cars,” Deluard writes, “why should the former trade at 42 times forward earnings when the latter fetches 5.6 times trailing earnings?” Good question. > ...Some of the largest tech companies have exhausted their main markets. Apple and Samsung may have reached the smartphone plateau, as phone sales seem to have peaked. Facebook and Google have grown to dominate digital advertising. But in the U.S., overall ad spending has historically averaged no more than 3 percent of GDP. How do you grow [faster than the economy] in a sector that isn’t growing [faster]? That’s easy: You don’t. There may be a Malthusian trap in the attention economy. Eventually, revenue growth bumps up against the natural limitations of population and waking hours. > ...Tech stocks have fallen, because the media mountain has been scaled. Now the largest tech companies aren’t standing at a pinnacle; they’re plotting on a plateau. The challenge of owning the entire life cycle of our spending habits—that’s the real summit. And it’s just up ahead. The implication for investors is obvious. If "tech" is no longer really a separate fast-growing sector, but rather something that has become pervasive and cannot grow for much longer at a faster rate than the rest of the economy, then "tech" valuation multiples will converge with "non-tech" valuation multiples, and there will no longer be a clear-cut distinction between the two groups.
- mortenjorck 8y ago
  It’s a cycle. Everything begins as tech, and ends as just another part of the economy. Heavy industry was once high-tech: Ford was the biggest tech giant of its day. Even something as basic as steel manufacturing was once novel technology. Technology is only innovation which has yet to reach ubiquity.
taurath 8y ago
This is one of those articles that feels like it’d be unthinkable a few years ago - now there’s a lot to nod along to like this is almost common knowledge. It’s a big deal! This is the “crunch” in the tech sector - expect a fair amount of qualified engineers in the streets competing for work in the next few years. Not out of some downturn, but as investors demand cost cutting instead of investment to get their returns. The only good news is that the “surviving” companies from old industries will continue to need to grow their tech platforms.
RestlessMind 8y ago
I wonder why the author does not include Cloud services in his analysis. Cloud is just getting started, has massive potential (business IT spending), can be delivered online (duh) and can be shown to be done effectively. Which is why you see lots of big tech co's investing massively there. To borrow author's words, I believe for the next round, profitable tech companies will be Cloud providers (along with a Mall too), which will justify rich premiums.
- whorleater 8y ago
  One could argue cloud services is just a mall for computers (VMs), computing services (managed databases), or computing time (serverless offerings).
simplecomplex 8y ago
Malthus was wrong! Spectacularly so. Is the title a joke? > If technology is everywhere, the tech sector no longer exists Funny, because tech is everywhere and the tech sector is the biggest it has been in history.
tim333 8y ago
It's the way of innovation that the new sector if successful grows rapidly and then plateaus when everyone has the new whatever. The web/mobile tech companies are not the first. The early motor car tech boom in the early 1900s looked similar, then the electrical tech boom I think around the 1920s and so on. I imaging the early industrial revolution and textile companies in England went the same way and I guess maybe AI is next? I'm a bit of a skeptic on blockchain being the next big thing.

"But if Netflix and Walt Disney both use technology to stream video, why is only Netflix trading at infinity-times earnings? And if Tesla and BMW “both use battery technology to power luxury cars,” Deluard writes, “why should the former trade at 42 times forward earnings when the latter fetches 5.6 times trailing earnings?” Good question." Incredibly flawed argument. BMW's earnings come from a huge variety of products and services. Not purely battery-powered electric cars. Tesla's entire business model is producing battery-powered vehicles. So to compare each company's P/E directly under the assumption that they are both making identical products would be wrong. Instead you would need to somehow isolate the P/E ratio of BMW's battery-powered car business in order to draw a meaningful comparison. In general, this article is trying to group all of tech into one basket and draw conclusions which apply universally. A company has a high P/E ratio for a very simple reason: investors believe its earnings growth will outpace the market. That will seemingly always be true for companies which are focusing on growth over profit.

JackPoach 8y ago
You are technically correct, but the author still gets the important point right. The premium in valuation between these companies should and will shrink (unless there is a reason to believe that Netflix will kill Disney or that Tesla will be dominating the automotive market at the expense of Fords and Toyotas.
- mlthoughts2018 8y ago
  The high P/E values for these companies are usually giant signals they are overvalued. Probably the only company that can legitimately sustain a ridiculous P/E is Amazon, and it’s because Amazon is the only large company willing to try weird shit and actually take product risks. I’m not a big fan of Amazon’s company culture, but I have to hand it to them that at least they try to do shit and see what works. Most companies beyond a certain size fall victim to in-house risk aversion through manager ranks to such a high degree that all innovative ideas are killed and only incremental product changes are allowed.
  - Retric 8y ago
    P/E is a backward focusing metric, stock price is a forward looking metric. So, unless the company is static they don’t correlate that well. Look a BMW’s shrinking US / EU sales for the last several years and compare that with Tesla. You don’t want to pay a premium for a sinking ship do you? PS: The stock market may be irrational, but it’s rarely dumb.
    - mlthoughts2018 8y ago
      This sounds tone deaf to me. Having worked in quant finance myself for many years, I can safely assure you that investors look at price to intrinsic value metrics as a way to gauge overpriced stocks, not as a consensus metric of belief over future earnings.
      - Retric 8y ago
        For underpriced stocks the correlation is more obvious. I’d you see a P/E of 5 that’s not a good sign.
        mlthoughts2018 8y ago
        Not true. For example, in low-beta investing, low P/E values for some sectors are super common, and seen as a sign of a deal on an undervalued stock.
        Retric 8y ago
        A P/E of ~10 is a value stock. Entravision Communication has a P/E of 2.11, that’s not a suggestion that it’s going to keep that ratio over time. Sure, ultra low P/E is a reason to investigate, but it’s not inherently a good sign. A common cause is a company splitting which makes the old P/E meaningless.
        mlthoughts2018 8y ago
        I agree nothing is inherently a good or bad sign, there’s no deterministic rule for where to find stock returns. I was just disagreeing that high P/E is commonly veiwed as a positive signal of future earnings.
deleted 8y ago
[deleted]
rm_-rf_slash 8y ago
Tesla is effectively a battery company with an automobile division. The applicability of Tesla’s batteries beyond automobiles (such as grid-level storage in South Australia) justifies the high valuation. Looking at Tesla purely as a car company misses much of the bigger picture.

JackPoach 8y ago

Yep, the article is dead on.

todipa 8y ago

Tech has been synonymous with growth. That is why it was trading at a premium and that is why high growth tech companies continue to be priced at a premium while non-growth tech companies do not. As a professional investor, I only care about three things: - Long-term stabilized return on capital - Pricing (P/E; EB/EBITDA) - Long-term growth. The list of companies that check all of those boxes are extremely small

theosophist 8y ago
Would you mind sharing the list of these companies?
- apapli 8y ago
  I’m not OP, but Microsoft is one of a handful of stand out tech companies for me. They are paying a decent dividend (almost unheard of in tech) and have a very solid enterprise product lineup that has gained traction, with a huge amount of the market left. Furthermore they have a strong consumer and gaming footprint, and generally are positioned well across their entire portfolio.
- icelancer 8y ago
  He is basically describing a large percentage of companies in the VYM ETF.

erikbe 8y ago

Tech companies are valued based on future potential and as future becomes present, that potential is replaced by a reality that is often much less grand. Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners. Now, they have to offset investment into production with higher subscription fees which in turn reduces future potential. Netflix in 2015 is significantly more disruptive than that of 2019, which is just another HBO, and increasingly will be valued like HBO (Time Warner). "Tech" here is actually just infrastructure; it's table stakes and not interesting at all.

notduncansmith 8y ago
Tech is no longer a differentiator in many enterprises, but most small-medium businesses are still barely utilizing what the tech world has made. For example, smooth and useful tech integration is a major differentiator in industries like hospitality, healthcare, logistics, PDR, etc. Mobile/tablet point-of-sale has exploded and enabled a wave of lifestyle entrepreneurs to accept card payment. Smartphone ubiquity has made it much easier to transact with people in your area and abroad, and to help organizations collaborate internally. Still, many people scratch the surface of these capabilities, because their existing low-tech approach has been working for them. With this comes the opportunity to differentiate with solid tech.
- erikbe 8y ago
  You're right. Many industries still haven't digitalized, and there, adopting "tech" gives a temporary advantage. But it's really just one infrastructure replacing another. It's a hurdle to get over, not a lasting advantage. Tech is commoditized just like it commoditizes other industries.
autokad 8y ago
I think content producers weren't going to give netflix a free lunch forever, so they had to start producing their own original content. I dont own netflix, but I do think it's a great idea and a smart investment by them. One thing netflix does with this disruption-wise is the way they think about content. companies like comcast (NBC) still got their heads in broadcast television style producing content, where-as netflix takes a lot of risks, and is ok if a show has a niche following, so long as they have something in their library for everyone. edit: its sad, if content producers thought like this in the past, we'd have more episodes of firefly.

Traster 8y ago

I'm a big fan of the argument that there is significantly less to differentiate companies like TSLA from their traditional competitors. Which is basically the take from the first half of the article (which I think the author is arguing is wrong), but using evidence like P/E change in the last two years is quite frankly bollocks. There has been a big dip in the stock market in the last few months and there's very likely a slow down in China occuring - Apple's stock alone is down 30% from peak. But moving on to the interesting second half: what this guy is describing - yet somehow not noticing - is a trend towards massive mergers to form monopolies. That's nothing to do with Tech. In fact what this article is suggesting is basically what we're going to do is re-create all these destructive monopolies and rather than protecting consumers like we used to, we're going to just label it 'tech' and bend over for it.

SuoDuanDao 8y ago
I'm not sure I agree - I think workforce is the ultimate differentiator in any case, and the tech companies - over the last decade at least - managed to be seen as the employers of choice. That could really create a strategic advantage, though perhaps not a long-lasting one.

netcan 8y ago

This article is using its terms in a specific way. By "tech sector," it sounds like he's talking about large technology companies that have been valued by the market at higher multiples than the older "blue chips," big stable companies. By Malthusian, he means "large and mature enough to be limited by the size of the market." The trigger for the thought seems to be that some newer "tech" companies are operationally more similar to traditional blue chips. Tesla is more like BMW and netflix is like hbo. So, anyway idk.... Tech is valued so highly for a bunch of reasons. But, those aside, there are factors unrelated to sector. Tesla, netflix and such are new companies. Coca Cola, GM & BMW are old. They run gradualist, conservative starters. Netflix and Tesla are far more likely to pull a rabbit out of a hat. It's in their culture. The whole company was in the hat 5 minutes ago. Assuming that Tesla and BMW have similar future potential is (perhaps) academic, because they'd never pursue them anyway. Netflix might attempt a pivot to being a game company, if the opportunity was attractive. HBO probably couldn't. Even IBM is a good example, the one tech company that's old-ish and has a "blue chip" persona. They managed to pivot into consulting. Would coca cola have successfully pivoted into fresh food delivery? There's a flexibility in tech that doesn't exist elsewhere. Also, I suspect, the way most large companies are growing is overly risk averse. Tech can't be derisked to that extent, so the companies pursue the higher value, higher risk strategies. The best example to sum this up is Amazon and their 2nd act Aws twist. You might compare amazon of 2016 to other retailers. Walmart never had the potential to launch an Aws. When tech is everywhere, the article thinks the tech sector doesn't exist. The opposite is possible too. When everything is tech, the tech sector owns everything. Ultimately, coca cola is a legacy company.

pbhjpbhj 8y ago
Did you mean "compare Amazon of 2006", that was the year AWS was released.
- netcan 8y ago
  yep :)

deleted 8y ago

[deleted]

buboard 8y ago

> Now it has to gnaw through the harder, crunchier parts of the global economy. Software eating life sciences? Software eating elderly care? Software eating household construction? Software eating money? Good luck. Wow, so much pessimism. Tech has still loong way to make inroads into these sectors, and i don't see anything stopping it. In some cases it is harsh regulation and established interests that prevent people from innovating (e.g. money), but it is happening. "Good luck"? this won't age well. Anyone who thinks that tech is just for "selling ads" is , hm, short-sighted. It is easy to cherrypick the high tech that has large p/e s such as tesla and netflix, but these are companies that disrupt existing markets, not create new ones. Apple (which does that often) has a tiny p/e. So maybe, it is a good thing that the fangs are being deinvested. Plus 2019 is the airbnb and uber IPO...

Emma_Goldman 8y ago

Strange title. The connection to Malthus is tenuous at best.

CPLX 8y ago
Seems pretty straightforward to me. The premise is that tech businessses have exhausted the extant food supply for opportunities and growth and are becoming constrained by hard natural limits. Seems like a spot on metaphor to Malthus.
- Emma_Goldman 8y ago
  I suppose I object to complicated social and political thinkers being reduced to bowlderized metaphors for clickbait headlines. The author makes it clear that he does not think that there are 'hard natural limits' to the tech sector.
- kaffeemitsahne 8y ago
  Sounds more like plain old market saturation to me, if you describe it that way.
DennisP 8y ago
I was expecting him to say that attention-based company valuations demand a high exponential growth rate, and there's only so much attention to go around.
buboard 8y ago
The original title was ‘is the age of tech over?’. It seemed too much even to the editors.

denniskane 8y ago

There is irony here. The notion of a tech sector is entirely an equal and opposite reaction against actual Malthusian Traps (exponential population growth vs linear food supply growth) that are caused by depleting resource bases. See "The Limits to Growth", a 1972 MIT study by Meadows et al., funded by The Club of Rome.

mark_l_watson 8y ago

I agree that tech companies depending on attention will devalue. However the value of companies is also based on expected future value and the FANG companies are well positioned to profit from advances in AI, new energy technologies, life extension tech, etc., etc. I think there is a lot of profit to be made in emerging tech.

denniskane 8y ago
"Energy technology" is a contradiction in terms. Energy (as we know it) comes from undifferentiated organic matter that is easy to burn while technology (as we know it) is based on the novel kinds of arrangements that can arise out of inorganic kinds of materials like metal and silicon. The point is that better technologies rely on the burning of lower amounts (calories or joules) of energy.

PaulHoule 8y ago

It will be tougher for Amazon to squash grocery stories than it was to squash Sears. Grocery stores are highly competitive because people go to the grocery store every week. For the grocery store it is a game much like "the iterated prisoner's dilemma". Every week they have a chance to uphold their brand image or make a quick profit. Every week they have a chance to lose big and make you switch to another grocery store. So they choose to uphold their brand images. Stores and brands in other areas where transactions are less frequent have more incentive to harvest. For instance, nearly all makers of major appliances have given up on upholding brand image and source their appliances from the same factories in the far east. They break down in a few years but they might not be in business again, or maybe they bought the brand that you're going to try next. Grocery stores, from ALDI to Wegmans, are excellent in their own way, unlike mall stores.

saas_sam 8y ago
Makes sense but it reminds me of the argument people made against Amazon usurping clothing stores: people want to feel and try on clothes before buying them. While I think it's true that this served as a buffer for a while, it seems to me that it was a temporary one and as long as there's money to be saved, consumers will eventually change their buying behaviors.
- allenu 8y ago
  Clothes is still a tricky thing because sizing differs so much between clothing manufacturers that you really do need to try things on to see if they fit you well. If you have the extra cash to tailor all your clothing, then it's not so bad, especially if you are buying high-end clothing that you can't find in stores. That said, there is a company called ZOZO that is playing with the idea of having people wear a dotted suit to automatically detect their measurements with a camera: https://zozo.com/us/en/info/suit https://zozo.com/us/en/info/suit
- Bartweiss 8y ago
  > people want to feel and try on clothes before buying them The "Amazon showroom" concept isn't really a joke, and it hasn't really been resolved. Some nontrivial amount of shopping, especially for fitted products like clothes, takes the form of trying things on in a store then checking Amazon for a lower price. It seems possible that this is sustainable, with immediate-purchase customers sustaining 'showrooms' for price-sensitive customers. It also seems possible that it will crumble in one of several ways. Amazon might raises prices in pursuit of profit far enough to end this pattern. It might drive out (some) clothing stores, creating a vacuum where consumers rely on 'free' returns to make up for a lack of showrooms. Or it might even drive new business models and branding changes. Levis are already widely discussed as a "don't buy online" product because they're weirdly high-variance; we could see products designed to be desirable but ineffective to buy online. The "Amazon store" model could gain ground, with Amazon offering low-inventory showrooms or cutting affiliate deals with brick and mortar stores. Or brands could offer online-only discounts to reduce carrying costs, while using showroom access as a selling point to fight Amazon's economies of scale. None of these seems guaranteed, and I won't be surprised if Amazon and physical stores simply coexist in the clothing market. But I do think it's important to note that Amazon's current model is partly enabled by their physical competitors.

cs702 8y ago

I find these passages thought-provoking and persuasive. They ring True: > ...Tech died by conquering the world. Netflix is leading a global transition from linear to streaming television. Tesla accelerated an electric awakening among auto companies. But if Netflix and Walt Disney both use technology to stream video, why is only Netflix trading at infinity-times earnings? And if Tesla and BMW “both use battery technology to power luxury cars,” Deluard writes, “why should the former trade at 42 times forward earnings when the latter fetches 5.6 times trailing earnings?” Good question. > ...Some of the largest tech companies have exhausted their main markets. Apple and Samsung may have reached the smartphone plateau, as phone sales seem to have peaked. Facebook and Google have grown to dominate digital advertising. But in the U.S., overall ad spending has historically averaged no more than 3 percent of GDP. How do you grow [faster than the economy] in a sector that isn’t growing [faster]? That’s easy: You don’t. There may be a Malthusian trap in the attention economy. Eventually, revenue growth bumps up against the natural limitations of population and waking hours. > ...Tech stocks have fallen, because the media mountain has been scaled. Now the largest tech companies aren’t standing at a pinnacle; they’re plotting on a plateau. The challenge of owning the entire life cycle of our spending habits—that’s the real summit. And it’s just up ahead. The implication for investors is obvious. If "tech" is no longer really a separate fast-growing sector, but rather something that has become pervasive and cannot grow for much longer at a faster rate than the rest of the economy, then "tech" valuation multiples will converge with "non-tech" valuation multiples, and there will no longer be a clear-cut distinction between the two groups.

mortenjorck 8y ago
It’s a cycle. Everything begins as tech, and ends as just another part of the economy. Heavy industry was once high-tech: Ford was the biggest tech giant of its day. Even something as basic as steel manufacturing was once novel technology. Technology is only innovation which has yet to reach ubiquity.

taurath 8y ago

This is one of those articles that feels like it’d be unthinkable a few years ago - now there’s a lot to nod along to like this is almost common knowledge. It’s a big deal! This is the “crunch” in the tech sector - expect a fair amount of qualified engineers in the streets competing for work in the next few years. Not out of some downturn, but as investors demand cost cutting instead of investment to get their returns. The only good news is that the “surviving” companies from old industries will continue to need to grow their tech platforms.

RestlessMind 8y ago

I wonder why the author does not include Cloud services in his analysis. Cloud is just getting started, has massive potential (business IT spending), can be delivered online (duh) and can be shown to be done effectively. Which is why you see lots of big tech co's investing massively there. To borrow author's words, I believe for the next round, profitable tech companies will be Cloud providers (along with a Mall too), which will justify rich premiums.

whorleater 8y ago
One could argue cloud services is just a mall for computers (VMs), computing services (managed databases), or computing time (serverless offerings).

simplecomplex 8y ago

Malthus was wrong! Spectacularly so. Is the title a joke? > If technology is everywhere, the tech sector no longer exists Funny, because tech is everywhere and the tech sector is the biggest it has been in history.

tim333 8y ago

It's the way of innovation that the new sector if successful grows rapidly and then plateaus when everyone has the new whatever. The web/mobile tech companies are not the first. The early motor car tech boom in the early 1900s looked similar, then the electrical tech boom I think around the 1920s and so on. I imaging the early industrial revolution and textile companies in England went the same way and I guess maybe AI is next? I'm a bit of a skeptic on blockchain being the next big thing.