Every boom has its bust. But every bust looks different.
Thanks to the memories of the dot-com era, a lot of investors assume that the next bust will look the same—a bunch of overfunded, overvalued tech companies that are burning too much cash and not generating enough revenue will go up in smoke. All those unicorns will turn out to have been mere horses, or worse.
But as optimists including Andreessen Horowitz partner Benedict Evans have pointed out, some things are different this time. For example: In 2000, less than half a billion people were online, and there were no smartphones. Now, the online population is around 3 billion, with 2 billion smartphones, and both of those numbers will reach 4 billion by 2020.
So imagine that this week's stock market downturn becomes a broader recession. As consumers and businesses tighten their wallets, what will happen? Who will be hurt? Perhaps, instead of the tech startups vaporizing, the old inefficient businesses they've started to replace will finally topple over and die.
- Taxi rides are generally more expensive than hailing an Uber X. So as people look to save money, overall ride volume will go down. But the already ailing cab industry will then have an even harder time competing with cheaper, more efficient service from Uber.
- Hotels are generally more expensive than AirBnb. As price-conscious consumers look to save money on vacations, they're more likely to book an AirBnb than drop hundreds of dollars a night on a hotel.
- At least some goods in some retail stores—think consumer electronics—are more expensive than the same goods on Amazon and other e-commerce stores.
- Going to the movies is a lot more expensive than just staying home and renting via Netflix.
And so on.
On the B2B or enterprise side:
- It's generally a lot cheaper for companies to rent computing infrastructure and software delivered over the internet—think cloud services such as Amazon Web Services or Workday—than it is to buy and maintain the hardware and software yourself.
- There are lots of other new enterprise trends that help customers squeeze more cost out of their IT infrastructure—for example, by having in-house developers double up on operations. (DevOps.)
As companies look to cut costs, they're more likely to give these newfangled services a serious look. Sure, there are different break-even points depending on the size of the company and how much it has already dropped into its existing infrastructure. But for the typical mid-size business that never wanted to be in the technology business in the first place, running your own data center seldom makes sense over the long haul.
Yes, a serious recession will kill a lot of pretenders. Companies that are burning tons of cash and can't raise another round to cover their burn will definitely vaporize. Companies that are spending like mad on customer acquisition and hoping to make it up on lifetime value per customer may not get the chance to turn that corner.
But if you believe even for a second that some of the current tech darlings are actually disrupting older industries, why would that disruption suddenly stop just because the economy turns down?
Remember: Google and Salesforce emerged out of the dot-com bust. Facebook emerged out of the financial crisis of 2008. That same downturn helped kill Blockbuster, while Netflix grew stronger than ever.
There will be some big winners next time, too.
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