I’ve been visiting companies in Silicon Valley for more than a quarter century. In that time, I’ve met with hundreds of entrepreneurs, executives and management teams there. To a person, they’ve all been bright and ambitious. The Valley has earned its reputation as a hotbed of creativity, innovation, and economic vitality. But let’s be frank, it’s also earned its reputation for building just as many manias and pipe dreams as viable products and services–and I think the time has come to rain on the region’s latest parade of groupthink, self-congratulation and irrational exuberance.
As I write about in my book, I had a front row seat for the dotcom debacle of the late-1990s. Back then, the Valley was awash with the almost cultish belief that the internet would magically make traditional metrics for valuing public companies obsolete. Investors turned away from quaint notions like earnings and talked themselves into trusting goofy new valuation measures like multiples of users for e-commerce websites with little or no chance of ever becoming profitable. We all know how that turned out. And yet, fast-forward fifteen years to the newest fad in social media and, like Charlie Brown running full steam towards Lucy and the football, investors have been doing it all over again.
Even after falling sharply this year, Twitter is still wildly overvalued and every time people try to explain to me how it will eventually make money, I flashback to conversations I had with investors in dotcom dogs like Pets.com. Online directories like Yelp are only slightly better. Their business models at least make sense, but while they present themselves as non-biased resources for user reviews of local businesses, they sell favorable spots to “sponsor” companies. That’s misleading at best and downright dishonest at worst, which brings me to the thing I hate the most about the Valley’s new mania: it’s terrible values.
During the original dotcom bubble, Silicon Valley was brimming with optimism. It might have been misguided, but it was at least positive. You can’t say that about the current bubble. It’s fueled by cynicism. Take everyone’s reverence for Steve Jobs and Apple (and contempt for Microsoft and Bill Gates, who has probably done more to help humanity than anyone else in the corporate world). Sure the iPad and iPhone have changed the way we all live our lives, mostly for the better. But Steve Jobs was by all accounts a monumental jerk who bullied people and gave none of his enormous wealth to charity. Meanwhile, can you really say the devices he created have benefited society when they tend to promote inane activity like watching cat videos or swapping “selfies” on worthless apps like Snapchat?
I was at the packed local Apple store the other day buying a new iPad. The salesman suggested one with 64- or even 128-gigabyte memory so that I could store all of my videos, music, and pictures. I told him that I have some pictures on my iPad but no videos or music. He was shocked that someone would primarily use their tablet for research and their phone to communicate—imagine that!—and continued to talk up the more expensive, higher memory models. I wound up buying the 32-gig version and strongly suspect that is more memory than I need or will ever use. The next day on CNBC an Apple analyst was touting the company’s stock because the incremental margin it earns on memory is well over 50 percent. I understood the salesman’s relentless push for me to buy a higher gig iPad after hearing that. Apple’s earnings growth depends on its users wasting more and more time with the media features of their devices. Given how crowded the Apple store is day-in and day-out, it’s obviously a winning strategy. But I don’t necessarily think that’s a good thing, or something other business leaders in Silicon Valley should be trying to emulate.