It’s that time of year, time to look back and reflect on the most significant storylines in the tech, startup, and VC world. A comprehensive post on this topic could be 5,000+ words, but we do not do such things here. We kept detailed notes month by month and today, I tried to organize them by key sections, what you’ll see below. There’s a good chance I’ve missed something — if you feel that way, by all means, please share your point of view on Twitter (or email) and link to the post.
And, with that warning, I offer to you what I believe to be the big, consequential forces driving trends in the startup and investing ecosystem of 2019, written in ascending order of importance and magnitude…
4/ The Trillion-Dollar Network Effect
In 2018, both Apple & Amazon crossed the trillion-dollar market cap benchmark. In 2019, Microsoft hit that milestone, and Google isn’t far behind. And if you are long on Instagram, WhatsApp, and Facebook itself, it’s not entirely impossible for Facebook to get there one day as well. These companies exemplify the compounding network effects, lock-in, and lopsided economics that accrue to technologies generally and software specifically. These combined effects have helped open new markets, new geographies, and new economic opportunities for people worldwide; they’ve also drawn the ire of privacy advocates, aspiring politicians, and the airwaves on social media and the traditional media at-large. The genie is out of the bottle – technology is proliferating worldwide, relatively new web and mobile users could use Slack, or Zoom, or pick-any-service on a daily basis, often paying for it. Technology also levies a deflationary effect, which I’ll address more below. The result is more startups, more money and firms to fund it, and an increasing belief that access to technology-related equity (either as a founder, employee, or investor) must become increasingly democratized or rebalanced as a result of the compounding effects at scale we are now witnessing.
3/ The Streaming Media Effect
This past year marked the year that every single media content company put their chips on the “streaming media” block on the roulette board. Odds in roulette are 35-1 to hit, and in this analogy, roulette seems like a better game to play. Netflix is obviously the trend-setter here, with Spotify as the formidable upstart. Once the big companies realized this, Amazon has been stuffing more streaming content inside its offerings for Prime members; Apple has attempted to combine its iTunes library with a TV service that’s moving in this direction, perhaps with iTunes (honestly, I can’t quite follow what Apple is doing here, so if you know, please tell me!); Google has the juggernaut YouTube, which it could take in many directions; Facebook has Live but mainly InstagramTV, which has high upside potential depending on how it evolves; and there’s HBO, which is a smaller company but has an unreal track record of constantly creating hit shows and movies, to the point where they can command their own dedicated audience subscriptions.
Traditional media companies who have benefitted from predictable audience behavior began scrambling — putting company resources “all-in” on streaming, trying to emulate what the most interesting company in the mix is doing. Disney rolled out “Disney+” to showcase its incredible catalog of content, movies, and characters. I don’t know how many of these companies will be able to make streaming work — just getting the tech and streaming-from-server part is very hard. But, add to that asking customers for more money, fighting for content rights, and spending money to both acquire and retain users on mobile could be a recipe for burning cash quickly.(Podcasts are also growing in popularity, in minutes listened — but I still contend they’re difficult to monetize given current industry dynamics. This is a hill I may die on even though I love podcasts!) [Honorable mention for 2019 consumer behavior trends: Vaping, going meatless, making “green” choices.]
2/ The Global Culture Clash And Bull Markets Effect
Pick your economic term — Maybe it’s Quantitative Easing, which has made it too easy to borrow cash? Or, maybe the back-and-forth of the U.S. trade war with China, which has hurt domestic manufacturing and farmers? Or, the burgeoning private markets, which now fuel private companies with so much cash there’s been a new push to go for “Direct Listings” as companies become publicly-traded, allowing more shareholders to trade freely quicker without traditional lock-up periods? Or, it’s perhaps the conundrum of the U.S. economy, simultaneously booming at all-time highs with low unemployment yet with a sizable portion of the electorate unable to own a house, save properly, or cover basic expenses? Within the U.S., this has led the country to an unusual space, where a significant portion of the electorate would like to see its leader removed from office, and an equally significant portion who disagree strongly. On the corporate side, companies like Amazon encountered political resistance to building a second HQ. Facebook tried to build a crypto-alliance with Libra, but that seems to have fell flat out of the gate; at the same time, the Chinese government counter-intuitively signaled their interest in using blockchain technologies in a centralized manner for state operations. The NBA faced player and sponsor pressure for a team General Manager who showed solidarity for a political rival of China’s on social media, while the NBA makes a lot of money in China. That’s the politics. In terms of the economy, while it can always be improved, we will have to see how eager or hesitant voters or sponsors are to make a big change. By the time I write this post looking back on 2020, we will hopefully have a clearer picture of what direction the country is heading — but for now, this has all resulted in an easy-money environment for technology, startups, and the firms that fund them. The good times for tech and startups are rolling and many smart observers don’t see how or if it will ever revert back again.
1/ The WeWork + SoftBank Effect
Last year, I wrote about the shine potentially coming off the Softbank Effect. While larger VC funds have been raised because of this effect, 2019 was the year where the temperature changed dramatically — largely trigged by the near-collapse of WeWork. The collapse was so public, so discussed in social media, and so large that it is already in production for a film rendition. The WeWork story is rich for many reasons — the brand is ubiquitous within tech and startup circles, as many aspiring entrepreneurs and early employees have either camped out in one, taken a meeting in one, or rented space there. “Co-working Spaces” as a global phenomenon took off this decade in-step with the rise of tech startups themselves, and WeWork was on its way to becoming the landlord of record. Despite this opportunity, WeWork seemed to attract private investment which valued the business in highly questionable ways; didn’t exert strong enough board oversight; and enabled a founder who clearly exhibited exorbitant tendencies, lighting investment cash on fire for far-flung plans or personal comfort.
Before Labor Day, this company was barreling toward a fall IPO — eventually, it’s valuation was slashed over 70%, thousands of employees were shown the door, building owners wondered if they’d be holding defaulted leases, and the outgoing CEO walked away a multibillionaire. Whether fair or not, the company quickly came to embody what could go wrong with excessive capital and hubris, painting tech and startups with its dirty brush. I believe this event was wholly uncorrelated to any traditional technology company (Zoom and Slack went public and seem to be doing fine!), but perception is reality, and the reality now is that one, software-enabled companies will never fetch valuations like software driven companies do; and two, it will be hard for Softbank to get into the cap tables of the very best companies given the current situation. As SoftBank threw its weight around, many large VC firms have scaled up their assets and new growth firms have as well, so that when they have a winner, they can continue to back it and work to block out capital partners, too. It seems fitting that the most popular media events of the year — the new Star Wars movie, Game of Thrones ending, and Succession surging — all in some theatrical way tie in to the story of WeWork and SoftBank.
[I’d like thank my colleagues Ian and Aashay for keeping notes throughout the year to help me write this post over the break. It’s hard to remember all that happened in tech in one year, and recency bias is a real thing. If you’d like to read previous posts on Looking Back on 2018 or 2017, I’ve linked to them by clicking on the year.]