There are two other trends that don’t attract quite the media attention that soaring profits do.
Is the decade-long tech bubble finally popping?
Tech bulls are overlooking the fundamental reality that the drivers of Big tech’s phenomenal growth–financialization and expansion into mobile telephony– are both losing momentum. A third dynamic–Big Tech monetizing privately owned assets such as vehicles and homes– has also reached saturation and is now facing regulatory barriers.
Let’s start with market saturation: of the 5.3 billion adults on earth over 15 years of age, 5 billion now have a mobile phone and 4 billion have a smartphone: The end of mobile (Benedict Evans). As for teens between 10 and 15, only the truly impoverished don’t have a mobile phone of some kind. As I discuss below, the primary dynamic of the past decade has been of web-based services into mobile telephony. By any measure, that cycle is now complete.
I recently explored technology’s ties to financialization and deflationary trends in prices and profits:
The basic idea here is that the tech bubble has been inflated by a unique set of circumstances: — financialization, one manifestation of which is unprofitable Unicorn companies going public at lofty valuations (see chart) — the establishment of quasi-monopolies that have become immensely profitable. These conditions are changing.
1. Many tech giants (Microsoft and Apple) are moving to monthly services, in effect becoming profitable utilities. These may be profitable but they are no longer fast-growing in terms of revenues or profit margins.
2. Calls for regulation of lightly regulated data-based corporations (Facebook and Google) are rising.
3. The weakness of Lyft and Uber stocks after their IPOs suggest a weakening appetite for betting on growth at any cost as a .
4. The profitable build-out of the past decade has been integrating web services with mobile telephony and data-mining social media and search. These have now been built out, so the tech cycle has reached stagnation in the S-Curve–a reality visible in Google’s recent earnings disappointment.
There are two other trends that don’t attract quite the media attention that soaring profits do:
1. Previous tech were founded on technologies that potential to greatly boost productivity. This cycle ( services with mobile telephony) is more about consumer distribution of services such as and Uber than productivity. To the degree that entertainment and the addictive distractions media are now at everyone’s fingertips, and people are phones hundreds of times a day, productivity has suffered increased.
2. The services that are now distributed to mobile telephony deflationary to revenues and profits. To note just of many, with a in hand, there’s no longer any buy a camera or portable music player. More pernicious is the deflationary impact on revenues and wages. of Uber drivers who earn the equivalent of what taxi drivers (no great sum in most cases) is small.
, Uber monetized an under-utilized asset–individuals’ autos– and stripped out the labor overhead that (and makes it expensive to employers). These moves transfer income to the owner of the distribution network (Uber, , etc.) while offering a slice of income to the owner asset being monetized (the privately owned auto or flat).
security exists in this distribution of income goes to the the distribution network (Uber, ) rather than the the asset that’s being monetized. The labor component of the service is poorly paid and stripped of and other standard benefits: Uber drivers don’t qualify , disability, healthcare . unless they pay those labor overhead expenses out of their own pocket.
This model is under pressure on multiple fronts. starting to push back against the monetization of housing for residential use only, and against the low wages and paid to “gig economy” workers. In other words, it isn’t just absurd IPO valuations that are tech bubble is about to burst–the fundamentals of the and the deflationary impact of technology are about to reduce flows and profits of tech companies.
As for the fantasy that AI and machine learning will generate trillions in profits: as I explained in Is the World Becoming Wealthier or Poorer? (March 27, 2019) there is nothing intrinsically profitable about , robotics or AI. Rather, each is extraordinarily profits as each is readily commoditized.
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