Lessons From the Tech Bubble: The Brilliant, the Nerdy, and the Foolish

Nasdaq Composite, which consists of stocks like Apple, Amazon, and Alphabet, had its third consecutive day in the red on September 23. The decline shows a cumulative fall of 10% this month and 30% from the same time in 2021. If the tech bubble did indeed burst,  admittedly, it was less disruptive than the 2009 housing bubble. Nonetheless, the news did create quite a stir globally.

Even if the bubble didn’t burst, it certainly did puncture. Consequently, the economy will not remain the same from now on. The world economy is likely embarking on new trends, for example: 

1. End to the corporate culture
2. Rise in AI
3. Introduction of different approaches to services and media

In that scenario, certain prominent technologies in today’s landscape may fail to survive. Even the latest innovations, like blockchain and NFTs, which may still be viable in the future, will be repurposed. This repurposing of technology will likely affect the many existing app-based services.

Technological Development Is Non-Linear

It’s easy to imagine technology as progressing linearly. For example, in the not-too-distant past, we had analog technologies with their big, bulky machines. In contrast, we’ve got much smarter and lighter devices now. But it’d be wrong to presume that new is always better.

Technological progress doesn’t happen in a straight path from worse to better. Instead, during technology’s progress, those working with technologies reach dead ends and criss-cross down several paths before finally achieving what works.

Lastly, technology is here to serve our biological and social needs. If those needs change, as they did in 2020 with the pandemic, so does the interest in certain technologies.

For instance, the ride-hailing service Uber had to lay off employees and reduce hiring during the pandemic. It also lost $2.6 billion during the last 12 months despite a rise in stock value and a good business model. 

The reason for Uber’s decline during the pandemic is obvious to explain: when people moved to remote-working arrangements, they had little to no need to hail rides. 

Companies in the tech service industry, as well as those in housing, dining, and infrastructure, are seeing the old rules flip, which, in the past, brought them massive returns. 

Standing on the Shoulders of Giants

After the bursting of the dot com bubble at the turn of the millennia, most observers, guided by their hindsight, denounced niche websites with micro-influencers as disastrous investment ideas. Over the last two decades, however, major corporations have fashioned themselves into today’s tech giants and tech bubble.

But, from an exclusive sales standpoint, the sand is shifting. Micro-influencers have gained an envious following through social media, previously enjoyed only by celebrities. 

Generation Z, who grew up watching and listening to these influencers, are more willing to trust what their favorite reviewers say on TikTok, Instagram, YouTube, or their websites than what Amazon recommends.

Reportedly, sales through these influencer-dominated channels have already reached $958 billion in 2022. The numbers will grow exponentially once Generation Z occupies a bigger share of global wealth.

Get-Rich-Quick Schemes Are Here to Stay

The appeal of easy money makes investors pay more attention to their “gut feelings” than any rational metrics. The idea that anyone can start a $1 billion startup right out of the gate is tempting enough to invest.

Similarly, people buy into the idea that if they invest pennies into cryptocurrencies, they’ll make thousands in returns.

Unfortunately, both these situations rarely end up the way people expect. Most so-called unicorn startups are companies with heavy backing from either private or public entities. For instance, Tesla’s Elon Musk heavily promoted his company SpaceX through his connections and means.

That said, venture capital is still going strong, even in this economy. Alarmingly, though, investors take on massive risks for the huge payoff in the future.

Lessons for the Future

While it’s hard to predict the quickly changing tech landscape and bubble, some indicators clearly point to important future trends. Especially as giants like Mubadala are investing heavily in tech, we can be sure it’ll remain the highest-priority investment for the future. 

For one, AI will remain relevant to investors and venture capitalists. In February 2020, a deep-learning model identified a new possible antibiotic. Further, these models can end the scourge of drug-resistant bacteria, such as MRSA.

Moreover, technology has changed the way we view work as a whole. With the old guard, consisting of Baby Boomers and Gen-Xers, now retiring, the “Nerds” have officially taken over. Paul Graham made the same prediction in his 2004 essay dealing with the dot com bubble issue.

Interestingly, however, Graham’s prediction of the death of “tech Mecca” will not come to pass. Another Silicon Valley isn’t going to replace the current one. Rather, people will start working, producing, and cooperating from all over the world. US and EU immigrants are moving in to fill the growing demand for tech talent in Africa and Asia. The promise of a fatter paycheck isn’t guiding these new entrepreneurs. Instead, they’re seeking the best quality of life, which they might not be able to find in California or New York.