Dana Blankenhorn

That 2002 Feeling

The last tech crash began in 2000 and I was in the center of it, a mid-career writer with a specialty called Internet Commerce.

That year saw denial and bargaining.

The next year saw anger and depression.

It was only in 2002 that acceptance came.

We know what followed. Talented programmers worked on open source projects and standards bodies created what became the Cloud. When proprietary advantage became worthless, and there seemed there was nothing to do, people worked together with technical goals in mind rather than just financial ones.

It was a slow build. In 2002 my gross income was zero dollars. In 2003 it was zero dollars. I got interested in what’s now the Machine Internet, which I christened the World of Always On, and in 2004 I finally made a few dollars. The next year I was asked to cover Open Source, and my career took off. For a time.

I’ve mentioned before how, in every photo of a stock market crash the people in it look similar. Similar age, similar backgrounds. They’re different people. Those who watched the 1987 crash were different from those who saw the 2000 crash, different from those who saw 2008, different from those who saw 2022.

Where Computing Happens

I met my first computer in 1976, in the basement of Herman Brown Hall, on the campus of Rice University in Houston.

The computing happened in a big room, separated from me by a window. I passed a stack of punch cards, tied with a rubber band, through the window. They came back along with my output. Which usually said the program had died on Line 3.

By the time I got out of journalism school, two years later, computing was moving to desktops. A neighbor bought a $20,000 Cromemco machine that could run 3 terminals. She hired friends to work at the terminals, transcribing court records. I think they got 50 cents a page. Computing had come home.

Failures of the Cloud Czars

The failures of “Big Tech” aren’t what you think.

Each of the five “Cloud Czars” – Apple, Microsoft, Google, Amazon, and Meta – grew complacent over several years and let a strength become a weakness. They each now face problems that will cost tens of billions of dollars to fix. They’re cutting workers in growth areas and denying the reality.

This will spell more trouble in 2023, and opportunities for smaller companies.

I can summarize each Czar’s big problem in one word:

 

Apple – China

Microsoft – Windows

Google – Gmail

Amazon – Alexa

Meta – Facebook

Let's take 'em one by one

Positives of a Tech Recession

Despite some stunning investment losses, I’m enjoying the latest tech recession.

No one likes a recession, but sometimes it’s like spring cleaning, necessary to clear the excess. There were a lot of zombie technologies, zombie companies and zombie assumptions that have been overrun since the Fed decided that money should cost money and there should be less of it around.

Web3, the metaverse, and crypto were all fake from the jump. Advocates for streaming and podcasting didn’t understand that the gating factor is time, not money. A lot of companies were selling themselves based solely on sales growth, ignoring the need for profit.

This means there’s now opportunity, in the form of talent, for new ideas that will power the economy forward. The main trends I described in 2019 – the end of oil, the Machine Internet, and DNA as a Programming Language – they’re still on. But there’s a lot more, too.

The Streaming Winners (And Losers)

This is something I saw coming years ago at Investorplace.

Streaming will be owned by the Cloud Czars.

All the entertainment companies with their lawyers, producers, and lobbyists are going to fade away. Together, they’re worth a fraction of what Amazon or Alphabet are. Amazon and Alphabet are, in turn, worth barely half what Apple is.

It’s game over.

The reason is simple. Think of the cloud as the operating system of our time. Control what’s beneath and you control what’s above. IBM understood this in the 1960s. Microsoft understood it better in the 1980s.

Metaverse From the Bottom Up

There’s an enormous amount of capital going into what’s called the metaverse today. An awful lot is being written about it. The vast majority is being wasted.

I know this because Moore’s Law has been around for almost 60 years. Two generations. We know how a change like this occurs.

It occurs from the bottom up.

It was start-ups that forced IBM into mini-computers and, later, into PCs. Digital software natives Microsoft and Apple eventually pushed IBM aside entirely and let its own bureaucracy devour it. The same was true with networking. If we waited for AT&T to build the Internet, we’d still be waiting. It was the government’s insistence on open standards, driven largely by the needs of national defense, that drove the model in the 1990s.

Beyond Even the Cloudless Cloud

The impending failure of the “Cloud Gaming” movement points toward the end of the cloud decade.

Google’s “Stadia” cloud gaming service is proving a technical failure. The company claimed it would reach hundreds of countries. It reached fewer than two dozen. The company claimed it would solve the game latency problem. It didn’t.

It turns out that for a low latency application like gaming to work, content must be cached close to every player. If it’s centralized, then some players have advantages that render the game worthless. Or you can create a delay, making the whole game worthless.

Forced delays happened over a decade ago, in stock trading. A trading platform found that, by putting their data center close to the Hudson River, it could act on orders from Wall Street before centers further away, based on the speed of light.

Saving Facebook (Uh, Meta)

Shares in Facebook, uh Meta Platforms, continued to fall on February 7.

The most recent price, about $230/share, is just 16 times last year’s earnings. Considering that the average stock in the S&P 500 now has a PE of over 25, and that Facebook is bringing a quarter of its revenue to the net income line, that’s absurdly cheap.

It’s cheap because analysts are reading a shortfall in growth as a harbinger of doom. The three main apps – Facebook, Instagram, and WhatsApp – are losing popularity because people don’t trust the company. A lot of its future gains are going into “metaverse” software that analysts don’t understand.

The TV Content Crash

Ever since the Web was spun, over a quarter century ago, TV content providers have been getting squeezed out of the advertising market.

That’s not how it’s reported. But fewer people have cable than can watch a broadcast. Fewer still have access to streaming. What’s left of broadcasting now are mostly one-set news shows, cheap reality and game shows, endless re-runs of movies and old TV, people sitting around tables talking, or sitting in chairs yelling. Cable is evolving into the same wasteland.

Streaming is where it’s at because of ARPU. That’s Average Revenue Per User. Broadcasting is free, cable brings in very little to most channels, but a streaming subscription costs $10-15/month and the programmer only shares that with the producer.

Wall Street is Wrong Again

Wall Street is wrong again. But then, it usually is.

Wall Street is a casino. If no one trades, there’s no action. It’s in the Street’s interest to keep the action going. The way to do that is to convince investors that they’re wrong and the grass is greener somewhere else.

The latest myth to be smashed is in the direction of the economy. Wall Street placed big bets on slowing growth, on money costing money and on tech’s cash flows being discounted.

Wrong again. Fourth quarter GDP was again very strong. There are already indications the inflation storm is abating. The reason is technology, which continues to cut costs from manufacturing to the final sale.

I’ve now spent a decade covering markets, after three decades covering tech. My tech stories focused on the lessons of business, and my business stories focus on lessons from tech. I’m not trying to sell you anything. I’m a reporter. I’m telling stories, most of which happen to be true because I’ve been at this a long, long time.