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Big crisis of Big Tech means innovation curve had plateaued

The Google and Facebook advertising duopoly is shifting to a market where Amazon.com and potentially Apple are big threats.
The Google and Facebook advertising duopoly is shifting to a market where Amazon.com and potentially Apple are big threats.

Summary

The layoffs and share-price drops that marked 2022, a painful year, have happened before and are typically followed by an upswing.

Joshua Browder, a 26-year-old UK entrepreneur, recently supercharged his main product in a way that he could hardly have imagined a few years ago. His startup DoNotPay developed a chatbot that could negotiate erroneous or excessive fines and fees on people’s behalf—think unfair parking tickets—by building a database of expertise based on its history of human interactions. The bot often needed manual intervention, but in December the bot “talked" to Comcast’s online customer service and managed to save someone $120 on a broadband bill. Browder said it was the first time any such bill had been negotiated purely by AI. How? Browder got access to GPT-3, OpenAI’s large language model that understands language and sounds human. Browder now plans an AI lawyer that can whisper to people through earphones when they’re in traffic court. His startup, valued at $210 million, is among a flurry of services being built on generative AI tools like GPT-3 and DALL-E. Others offer to draft emails, open marketplaces or replace Google search. They are coming at a time of broader changes in tech, a major industry that market and regulatory squeezes could turn more productive.

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The business models of Big Tech, which until recently churned out more than $1 trillion in revenue every year, is coming under strain. The Google and Facebook advertising duopoly is shifting to a market where Amazon.com and potentially Apple are big threats. A strict antitrust law on the horizon in Europe is already forcing changes at Amazon and Apple to make life easier for much-smaller competitors.

This confluence of circumstances might spark a familiar feeling for those who have worked in technology for a long time. The layoffs and share-price drops that marked 2022, a painful year, have happened before and are typically followed by an upswing. Boom and bust is part of tech’s history, and even amid the turmoil that has come to Elon Musk’s Twitter and the world of crypto, there is good reason to expect 2023 will mark the start of tech’s next boom.

For years, tech workers have had the upper hand in the industry’s labour market. Meta hired an astonishing 30,000 people during the pandemic, leading Mark Zuckerberg to cut 11,000 jobs in November. Stripe, Snap and Amazon made similar cutbacks recently, while Musk winnowed Twitter’s staff down to about 2,000 from 7,500 in less than six weeks. Some 150,000 tech workers lost jobs in 2022, according to Layoffs.fyi. This painful shake-up was necessary. For the last five to 10 years, the tech industry has offered precious few breakthroughs as it spun money off old business models. Our most important device is still a rectangular hand-held. Google is so terrified of disrupting its main revenue source, ad money, that it has barely changed search, and Amazon’s AWS is still printing money as the world’s biggest cloud provider. Meta, at least, has tried a radical venture into virtual reality. But the industry and its biggest players haven’t been very innovative.

They have also acted like a giant squids sucking up tech talent to the detriment of startups. It was virtually impossible for a new company to compete for senior engineers when a payments firm like Stripe offered more than $450,000 a year for the position. Want a principal engineer to oversee a new product line? Too bad, because Facebook has paid close to $1 million a year for the role, according to Levels.fyi.

Venture capital funding for low-margin tech startups—think firms that offer food delivery and telemedicine services instead of software—is declining after years of overindulging business ideas that should never have been funded. VC investors say they are now gravitating back to firms that build software and offer higher margins. The combined effect: Tech startups that are cash-rich enough to survive two years or more without fund-raising can scoop up the best engineers and managers. In other words, instead of talent being squandered on a broad array of businesses that won’t go anywhere, it’s heading to well-structured businesses and being put to good use.

Another factor will help move things along: a massive government bounty. In the early 1990s, when the internet was still called an “information superhighway", the US passed its High Performance Computing Act to help build out the country’s online infrastructure. It played a key role in stoking the web’s early growth. Some of its $600 million went to the University of Illinois, where a team of developers created the first graphical web browser known as Mosaic. Now some US tech firms could benefit from a $52.7 billion investment in chip research under the US Chips and Science Act.

For once, tech is having its feet held to the fire. After years of torrid growth and cushy perks, it may be the only way for the industry to get back to innovating and create more space for others.

Parmy Olson is a Bloomberg Opinion columnist covering technology.

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