I am wondering how much of the excessive (even to the point of lunacy) funding of stupid ideas in tech is due to a low-rate macro environment as opposed to a spray-and-pray gold rush that naturally gets triggered whenever someone hits gold in an area.
After all it is hard to argue that AdSense, iPhones and AWS are not hugely profitable paradigm-shift innovations that would thrive in even the harshest macro environments, and the excessive mad funding are just ill-informed speculators trying their best to win the power law game as often happen in gold rushes.
I will be interested to see how much of a hit AWWS/Azure/GCP takes during this downturn. Suddenly startups are not going to be spending millions per year on cloud stuff stuff that they don't really need (ex: massive redshift cluster for your "data collection"). Furthermore, a large number of startups will cease to exist.
I would guess large customers have account for a massive portion of cloud revenue; however, they also get much better pricing due to their scale. I would guess that the startups have to be where the gravy is since you are not getting a massive discount when you are small.
I would be very surprised how much of start-ups spending is driving AWS adoption (it's probably less than 5-10% of their revenue). In the UK alone a huge chunk of the public sector and FTSE100 corporate sector has migrated to AWS and Azure to the point where they are national security risk.
In a sense AWS/Azure/GCP are doing startup investing, giving out tens of thousands of credits to basically any startup that asks for them, in the hope that most of them stay on their platform and some of those become huge (=big spenders).
So if less startups are founded, startups fail earlier and startups build less-oversized architectures we might first see the effect in the beginning of the funnel, in terms of less free credits being spent. The hit to revenue would then take a couple years to fully materialize.
The thing is too... the spray and pray approach does work. The success of VCs is based very much on spray and pray at the end of the day.
The other thing people are forgetting is that many "unicorns" that are unprofitable do have a road to profitability. But the investor sentiment over the last 5-10 years has been to push companies to grow vs. try to become profitable fast at a smaller scale.
At the end of the day, one reason I suspect tech won't retreat in dominance is that the rate of return on capital is extremely high even when you factor in top end compensation for employees.
The change I do predict is that we'll return quickly to a "grow fast, fail fast" world where investors will be less willing to ride out investments that don't have a clear path to monetization in the future. Monetization will likely be emphasized from the get-go for founders. It won't be an after thought. In the past few years, some ridiculously dumb ideas were getting $5-10mm investments shortly after seed stage. I suspect that era is done for a while.
Low rates throw fuel on the fire by reducing the return on other viable options, and if in the presence of other asset inflation, helping to drive desperation for ‘positive’ returns.
If the safe option goes from ‘T-bills that don’t lose you money’ to ‘T-bills that defacto lose you 3-5% a year relative to price inflation in every asset you care about’, risk appetite increases.
Think of it like an investing Overton window.
They didn’t start the fire, but boy did they make it quite the bonfire.
After all it is hard to argue that AdSense, iPhones and AWS are not hugely profitable paradigm-shift innovations that would thrive in even the harshest macro environments, and the excessive mad funding are just ill-informed speculators trying their best to win the power law game as often happen in gold rushes.