M&Ms: The End of the Tech Moats
Why the tech industry may never be the same after 2022 on the 82nd edition.
Hey Team,
My old teams at Walmart are hiring great software engineers, but many tech-driven companies and Big Tech are firing.
In fact, almost 130k+ tech workers were laid off this year alone. Most of those employees are from tech-driven companies and, of course, Big Tech. With more layoffs on the way. And in the face of all this, I see many people ignoring what's happening to our industry. Including software engineers who could be taking action.
The era of high-margin tech moats is over, and it may reshape our entire industry going forward.
The TLDR of why Big Tech faces immense pressure:
Competition is more common than ever.
Scale and technical complexity are more commoditized than ever.
In earlier years of our industry, there was a fierce rivalry for digital book sales between Amazon and Apple. Amazon launched the Kindle, and Apple launched the iPad. Steve Jobs and Apple had fat margins with their iPad, which was not a cheap device for consumers to buy. It is at this point that Jeff Bezos is quoted as saying something along the lines of, "your margins are my opportunity." And, of course, the Kindle went on to dominate the digital book market in part because Jeff Bezos was willing to forgo some profits.
But somewhere along the line, the moats for Big Tech, even for Amazon, got so big and the margins so fat that our entire industry forgot that Bezos quote. And today, competitors in various niches are cropping up left and right for Big Tech. See TikTok stealing attention away from Meta Companies like Instagram. Also, see HBO and Disney stealing share from Netflix in streaming. Social media apps like Gas are growing at 30k users per hour.
The hard truth is that much of what made Big Tech untouchable before, like building things for scale, is available to many now. And those technical challenges are far cheaper to pull off and with far fewer people needed because we can build on the shoulders of giants. Of course, hiring software engineers that understand distributed systems still costs big bucks, but you can find them today; back in the early days of web 2.0, those people only existed in Big Tech. It took us two years at Jet to build an eCommerce system that supports 10 million plus customers and a billion a year in sales, it had taken others over a decade to do the same before us.
With those fat margins and good times, Big Tech handcuffed tons and tons of engineers and other incredibly smart people for well over a decade. In the process, it dulled the senses of those smart people with free food, massages, gyms, swimming pools, daily runs, and other great perks. It made us all believe this is all very normal.
When I first visited the Google office in 2016, the presenter, someone high up at Double Click, had to stop his presentation to us. He pointed out a cadre of tech workers on a daily run at 1 PM outside our window. He said, "this is the most Google thing you'll ever see. These people are out here on a multi-hour run every day through the campus."
The only thing wrong with the multi-hour runs, the plethora of food choices, or the many cafes with delightful and free desserts and espresso machines is that it was all used to trap smart people from going anywhere. Trap them to the office and trap them to the expensive California lifestyle. But more importantly, to make them so used to comfort that they would never dream of looking for a job elsewhere.
But now, pressure is mounting; investors are asking if Elon Musk can run Twitter with 25% of the workforce, why does Google need all those people? Of course, it remains to be seen if Elon Musk will succeed with Twitter; there is still a good chance he may fail. And even if Elon Musk succeeds at Twitter, which has a simpler domain complexity model than many other Big Tech firms, the rest of these Big Tech CEOs are not Elon Musk.
The irony, of course, is that if companies like Google do listen to these investors and continue to release smart people into the wild, Big Tech will be creating even more competition for itself. Bringing even more pressure onto itself. Someone will hire those smart people. And who knows, some may even start their own companies; it's never been easier than today.
Don’t think it can happen? It’s happened before. Wall Street Traders and Salespeople enjoyed many of the same crazy perks and incredibly high salaries in the 1980s that Big Tech enjoys today. Those firms never thought the end would come, either. Many of those firms enjoyed a near monopoly status on bundling up complex financial instruments and selling them for a hefty profit. But competitors salivating for their margins sprung up and poached away their expertise, niche by niche. Competition became fierce, and building and packaging complex financial instruments became commonplace.
But don't conflate Big Tech's problems with tech in general. Just like you cannot conflate Wall Street with the rest of the financial industry, which is still around and doing quite well.
As exemplified by my old teams at Walmart, tech is still hiring. Tech is our only way out of this global slump and into more efficiency. Many firms that couldn't afford these types of engineers before, largely because their margins could never support those salary and perk combos, have been desperate for talent. I am talking Banks, traditional retailers, and great traditional businesses of all sorts. Even startups. They still pay well, but they could never afford all those crazy perks.
But this is all to say that more software engineers should be positioning their careers for a world where Big Tech might have less of an influence in our industry. A world where business chops matter even more. And, of course, great communication and people skills are a must in this world. Smart engineers could trade what they have in tech chops today for goodwill to build up those other important skills before tech loses more of its luster.
And personally, I say good riddance to those perks if they do disappear; they've done more harm than good. They trapped some of our smartest people into optimizing Ad conversions and button color choices when the rest of our world needed more tech the entire time.
Three Tweets: Bezos on changing minds, Pomp on people, and Austin on realestate.
And speaking of Bezos, I loved this other quote Brian shared from him this week.
There is no question that he was great at business.
It is very much a modern phenomenon, but collapsing birthrates are causing issues for many nations and many economies. It will only get worse in the short term.
I wrote more about this in the 66th edition of this newsletter titled “People”
Some great answers to this tweet.
But as someone who invests in realestate, I can tell you intuitively that realestate has the highest success rate of any type of business.
A 90%+ success rate does not exist for any other type of business.
And realestate has the lowest chance of going to zero. And it is far more dependable than employees; even the best ones get sick or decide to leave companies. Realestate stays put.
Two Memes: Wake up, Programmers Credo
I’ve share this meme on this newsletter before but it’s surfaced again and it’s too good not to share again.
Especially since this has happened to me a few times.
Rings true for a lot of the things I’ve taken on.
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As always, thank you for reading.
-Louie
P.S. you can reply to this email; it will get to me, and I will read it even if I cant always reply to all of them.
Thanks for continually writing high-quality newsletters, Louie. I need to make M&Ms a weekly priority again.
" And personally, I say good riddance to those perks if they do disappear; they've done more harm than good. They trapped some of our smartest people into optimizing Ad conversions and button color choices when the rest of our world needed more tech the entire time. "
I agree with you here.
Personally I wouldn't say that i would enjoy my time working at Big Tech if I don't really see a good impact of the work i am doing on the world no matter the perks they give me. I can like the perks for the first month but after that it will become boring and i would even start thinking about leaving if the environment is not dynamic enough.