Is this the beginning of the next tech bubble bursting?

Original take found on another forum.

"I think we're seeing the beginning of the tech bubble bursting again.

You've got the successful companies that provide a case study in tech industry profitability(Google, Amazon, Apple, etc.) which is why you've got all these venture capital firms plowing so much money into startups, left and right, because they expect that one of them will be the next Google or Amazon. Now that low interest rates have gone bye-bye, the VC firms are demanding that these startups start showing a profit. However, almost all of these startups have one of the following problems:

1.) They were never profitable and can never be profitable because the fundamental concept of what they do is thoroughly flawed
2.) The service or good they provide could be profitable, but due to being formed during a time of easy money, their current business model is incapable of being profitable, and they are too over leveraged to be able to restructure themselves into a more profitable setup
3.) They are perfectly sustainable/profitable, but their financiers expect far more return on investment than they are capable of providing

The result is the trend of "enshittification" as VC investors force unwanted changes onto these startups in the hopes of increasing revenue. This is stuff like locking previously free features behind a paywall, clogging everything with ads, cutting costs somewhere (payrolls, server space, etc) that negatively affects the user experience, raising prices, or needlessly bolting on something that nobody asked for because it's one of the only things that VC firms might still blindly throwing money at(AI).

Even the actually profitable companies are doing this shit because they are just addicted to the ridiculous growth they've enjoyed in the past."

Milan,

"enshittication" is actually a term coined by Cory Doctorow in this article: https://pluralistic.net/2023/01/21/potemkin-ai/#hey-guys

It's a great read.

Jon-H558, (edited )

So this is why I am invested in this. Not really about the aps. I see this as stand against enshitifcation and showing that the precious ipo is not a given if you treat your users as cattle.

kitonthenet,

the stand against enshittification would be changing corporate governance to reduce the role capital plays in decision making, this is just fun. It's also, at least for a time, a return to a more interesting internet

variouslegumes,

Isn't choosing a platform not driven by capital basically fighting enshitification?

fuser,

it is whatever you want it to be.

CIWS-30,

Thanks for sharing it. I somehow made it all the way to an end, and the insights in this article are ingenious, and so very true. It's also eerie how these companies' behavior is so similar to a manipulative, narcissistic, controlling sociopath that tricks people into abusive, co-dependent relationships that become very difficult to leave.

I think it's because the people in charge of them are also narcissistic sociopaths, and that personality affects the company's culture and works its way down into the product.

I really wish the Sherman anti-trust act were enforced more frequently and harshly nowadays, and the companies weren't allowed to buy their competitors and become megacorps. I'm glad things like the Fediverse exist to help fight back, because we're probably already about halfway to becoming a Cyberpunk dystopia. We're just missing the Cyber, honestly.

spider, (edited )

I think it's because the people in charge of them are also narcissistic sociopaths

...which is probably an unspoken job requirement.

bquinlan,

The law requires the board and the top executives of any corporation to behave like sociopaths with regard to the business. They have a legal responsibility to their shareholders to maximize profits. That supersedes any responsibilities to their employees, their customers, or the general public.

In 1916 Henry Ford reduced Ford's dividend payments to shareholders so he could increase the salaries of his employees. Some shareholders successfully sued him for it and won. He was forced to eliminate the raises and pay the higher dividends.

And we have been stuck with the inhumane results of that court decision ever since. Corporations aren't bad by accident. They are bad by design. They are legally required to be bad. It isn't surprising that the people who are often the most successful at making sociopathic decisions are themselves sociopaths.

Talaraine,
Talaraine avatar

Only when they go public. I'm constantly astonished at this decision making.

beefcat,
beefcat avatar

They were never profitable and can never be profitable because the fundamental concept of what they do is thoroughly flawed

I actually don't believe this part. Reddit isn't profitable because they have 2,000 employees on their payroll when they could probably get by with < 500. They hired all these engineers, and then put them on go-nowhere projects like NFTs, rather than improving their core platform.

If Reddit actually put that effort into making their app comparable to something like Apollo, I have no doubt plenty of users wouldn't have minded shelling out for Premium instead of paying a similar price for a third party product. Hell, if they came out tomorrow and tied third party app API access to Reddit Premium membership, they might even turn profitable overnight.

ImFresh3x,

Yep. They just needed to make premium what people wanted. But they saw gta shark cards, CS skins, and shitty nft style monetization as the way to win big. They were greedy, and now they will fail at both.

Calcharger,
Calcharger avatar

Could you imagine if Reddit put in effort to make interactive shit like they did on April Fools more regularly? Throw in some ads, you might have yourself a sustainable business. I knew something was fucked when they didn't do anything this year.

TheDeadGuy,
TheDeadGuy avatar

Yep they're shitty people that are shitty businessmen with no sense. Surprisingly, they think they're geniuses and entrepreneurs

IllegallyBlonde,

They could make much more money if they only improved their current ad algorithm. I know a lot of people don't, but I actually click on ads and enjoy ads that are targeted to me, especially for clothing. I purchase things from ads on every social media site that I use, except for Reddit, because reddit does not show me ads for things that I like, and this despite me using Reddit more than any other site. For instance, Reddit show me ads for internet packages, instead of the latest book or or dress that I would like to buy.

I'm not sure why this is, Reddit should know my interests better than many of these other sites. If their ads are failing, and they aren't making money, it's their own fault.

KoboldCoterie,
@KoboldCoterie@pawb.social avatar

The growth addiction is a major part of the problem, I think. It's no longer good enough to have a company that makes steady profits year over year, now you've got to be increasing that profit margin. You made $50 million last year, and only $45 million this year? Hell, even "only" $50 million this year? You're failing, investors are pulling out, you're getting bad mouthed in the business world, etc.

Realtrain,

It's even worse. Sometimes it's "oh, profits are only 120% of last year? SELL SELL SELL"

pbkoden,

This is a major pet peeve of mine. Constant growth is unsustainable and the pursuit of it ruins so many things.

someguy3,

Won't someone think of the shareholders?

SpezCanLigmaBalls,
@SpezCanLigmaBalls@lemmy.world avatar

It's ruining the entire tech sector right now. Once it hits the point it stabilizes for years shit is gonna drop

wave_walnut,
wave_walnut avatar

I want to control money in my lives, not have it control my lives, and Fediverse may be a way to protect my own identity in social networks from being turned into other people's money.

Kichae,

) They were never profitable and can never be profitable because the fundamental concept of what they do is thoroughly flawed

Honestly, I know what they're trying to say, but I kind of object to calling what they do "thoroughly flawed". Many of these big companies are starting to twist in the wind because they don't provide a service that provides business value, and they don't have a product that people will ever expect to pay for.

They provide community. And most people expect to belong to communities based on whether they can pay or not. Community isn't a commodity. It's just... Community.

And this is why Facebook is a cesspit. Because they had to break community bonds in order to actually sell things. Twitter's walking down that road, too, but they're too late, and anyone smart enough too make it woke is long gone. And now Reddit's having a go...

But there's nothing wrong with community. And there's nothing wrong with community not being profitable. It's not supposed to make money! That's not what it exists for.

But to people who make their living owning shit and, anything that isn't profitable isn't worthwhile.

someguy3,

Tech? No. Social Media? Maybe.

It's like how podcasts popped.

Hobovision,
Hobovision avatar

Podcast bubble popped? None of the podcasts I listen to mentioned that...

someguy3,

Valuations went nuts and crazy inflated deals were made. Whatever site paid Harry and Megan $20 million for a podcast, it was just cancelled.

wxboss,
wxboss avatar

I don't think this is a 'tech bubble burst', it's more of an awakening. Big tech will continue to be invested more and more in themselves and find new ways to harvest information and profit what they can from their user base.

People want to find a place to connect, share ideas/experiences without having corporate overlords breathing down their necks. This is one of those places, and it reminds me of the '80's when BBSs were the place to go.

BobQuasit,

God, I hope so. I don't see any way to stop the billionaires from killing off our species, at this point. But I want to at least see those psychotic monsters suffer before we all go!

thefloatingpoint,

I subscribe to this idea.

BobKerman3999,

"suffer"

nivenkos,

They were never profitable and can never be profitable

What does profitable even mean?

If they are reinvesting revenue is that profitable or not? You seem to think not but why not?

If they were instead just giving dividends to shareholders, or amassing cash, would that be more profitable?

Obviously now that it's more expensive to get loans and investment, it's better to have positive cash flow to be able to build up your own money for reinvestment and/or dividends, etc.

But saying they're not profitable as though they're failed businesses is silly, it's like when they say Donald Trump is poorer than a homeless man because he had debts, etc.

Anomander,
Anomander avatar

Profitable, from a VC stance, is a company that generates more money than it must spend on its operating expenses.

If they are reinvesting revenue is that profitable or not? You seem to think not but why not?

Yes. What you're choosing to do with your profit is a separate question, but you have generated funds above and beyond operating expenses that can be reinvested.

Depending on the scale and focus on the business, in some cases, some R&D or growth investment is necessary as part of "operating expenses" while in others it isn't.

If they were instead just giving dividends to shareholders, or amassing cash, would that be more profitable?

In this case profitable is "yes" or "no" - not a sliding scale of greys. If they are able to make dividends or stockpile cash, they are also profitable.

nivenkos,

But you can shift OpEx and CapEx relatively easily. Like now with the layoffs they reduce OpEx but in cash terms it costs more (termination payments) for a fair while.

So using that as the measure of health for a business isn't perfect. Especially big business with large workforces and customer bases, brand recognition, etc.

There are other metrics too like the change in OpEx per growth in revenue, etc.

derf82,

I think it already has begun. There were massive tech layoffs last year, and this year has seen even more. And as you said, the VC money is drying up and demanding returns on existing investments.

kitonthenet,

there were huge tech layoffs, but the market is still tight, and places are still hiring. I don't think this is so much a tech bubble as a tech capital bubble. Once rates go up and the money faucet turns off, capital gets sad

nickapos,

@derf82 the majority of layoffs were from big companies that wanted to fix their books, i don’t think google, or Microsoft are struggling

derf82,

Struggling, no, but certainly not expanding. It could well be indicative of the tech sector contracting overall. I am not saying Microsoft, Google, Apple, or such giants will go out of business. But could a more midsize firm be the next pets.com? I think so.

Rolldach,

What is still really popular with startups is: being bought by the big ones for an insane amount of money.

justhach,
@justhach@lemmy.world avatar

3.) They are perfectly sustainable/profitable, but their financiers expect far more return on investment than they are capable of providing

This is the part that pisses me off. Its not that they're not making money, its that they're not making enough money. So, they make short sighted moves to make $100,000 bucks in the short term instead of a stable return of $10,000 in perpetuity.

This mentality will literally kill us.

olrik,
olrik avatar

Yeah and then their employees have to work almost 24/7 and sleep under their desk or get evicted from their workplace.

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