CZM Rewind: The Rot-Com Bubble

which I was. I was wrong about that one. Nevertheless, this is an important piece because I think everything about the AI bubble comes back to the rock com bubble, which is the idea that the big companies they run out of hypergrowth ideas they don't have a new smartphone, they don't have a new cloud computing. And I think this episode is super educational, and yeah, I'm taking a week off, so enjoy this. Remember it's from like September

twenty twenty four. But nevertheless, it's very, very important that you listen to this as I think that this is going to be kind of formative to the future. Anyway. Enjoy, Hello, and welcome to Better Offline. I'm your Hoe stad Ze Tron. In the next two episodes, I want to present you with a theory about why the tech industry has felt so weird for the last few years, and why there are so many products that have popped up that don't seem to really do anything or be things that people

have actually asked for. And it comes down to a few simple questions, chief of them, what if the next big thing in tech is actually years or decades away? What if the era of hypergrowth in tech is over now? As I've mentioned before, I believe the rot economy is to blame for a lot of this. It's a growth at all cost mindset that sits at the core of

pretty much everything I've written or spoken about. It's this force that drives businesses to grow bigger rather than better, and make products to conquer markets and show growth to the public markets, rather than fixing a problem that you or I might have or a business might have, or provide a necessary service that was nevertheless popular and profitable. And the rot economy doesn't feel like any other economic

period I've seen. It's not like, say, I don't know the post two thousand and eight financial crisis or that stagnation that lingered afterwards. And what's different was there isn't really a single obvious event that started the decline of the services we're using all the companies that make them, and there's not really like a Layman Brothers crater we can point out and say, there you go, that's the thing.

The closest I can come is kind of FTX, which was the big crypto crash, the big massive Ponzi scheme that no one really saw coming other than many people who were looking behind the scenes. But other than that, that was kind of what crashed crypto. And maybe it was the end of the zero interest free era where interest rates went up and it was harder to get money. But it was no one thing you could point out.

But I do want to try, and I have one epoch I think for when the rot economy kind of took over, and I'd want to point to the latter point of the twenty tens. Think about it, like really think about it for a second. Sometime after twenty nineteen, the tech industry it cand of lost its sizzle. There were new gadgets, there were new apps, new services, but

tech started to feel iterative rather than innovative. Yet they were making more money than ever, and by twenty twenty one, even the pretense of any gradual improvement was really dropped. It felt like, I don't know, they were trying to sell us things that didn't really exist. We were told that NFTs would replace physical, tangible collectibles, and that cryptocurrency would replace regular money, while also emancipating customers for an

unstoppable market force like inflation or big tech. Because of course cryptocurrency came with it the idea and a mean idea of decentralized software, and this was all meant to get rid of rent seeking middle men that were taking parts of every purchase, despite the very same middle men investing in cryptocurrency. Yet the actual services that came out of these movements didn't really seem to do anything or

improve our lives in any meaningful way. And we were told at one point that our futures were in the meta US and we lived in this massive interconnected called New Internet. When we actually got there, it was just this really wonky VR virtual reality space that Mark Zuckerberg has somehow burned thirty six billion dollars on. It's all so weird. And today we're told that we have this

glorious AI powered future that's just imminent. Yet what we've actually got is this unprofitable, unsustainable generative AI that has this horrible unastainable problem of hallucination, where it spits out incorrect information authoritatively, which, worryingly, Google CEO Sander Pesha has said in an interview with The Verge is an inherent feature of a technology that he's now plugged into Google Search, which means it's generating these horrible answers to queries based

on the links of a search engine that Sandar Peshai has helped decay. It's all just very frustrating, and it's also quite useless. Kind of it logical too. And at the forefront of this AI boom is Sam Moltman and his eighty billion dollar Jugger or open AI, a company that claims it's going to build artificial general intelligence, one that experiences human like cognition, which is just not possible with generative AI. The tech he is selling today is not going to give us AGI. I just want to

be abundantly clear about that. Anytime you read Sam Mortman talking about AGI, he is talking about tech the Open AI does not have and is not building. They may claim they're building it behind the scenes, but they're only working on generative AI. And the frustration you hear in my voice, you might have felt yourself. You might not have, but it's this prevailing sense of you keep telling me the future is here, but when I look at what the future is, it isn't even close. And the products

you're selling me aren't actually useful. Let me give you another example. Windows laptops will soon integrate an AI high powered search feature called Recall that allows you to search everything you've ever done on your computer in the last three months. And it does so by recording everything, everything from the meetings you've been into to the things you've written. I should be clear, I don't think anybody actually asked for a feature like this, and it's also inherently invasive.

It directly encroaches on your privacy and your security, and it takes screenshots of your machine every few seconds and stores them, along with AI generated inferences, in a locally held database. This isn't good, and the fact that they're not sending anywhere doesn't really make it better. It is, in essence, a pre installed screen recorder, the kind of thing that hacker might install on a victim's computer, and if an attack against access to it, it's obvious how

catastrophic the ramifications are. Or let's be honest, domestic abuses, people at work. There are people who can get on your computer, force access by forcing you or just getting your password, and they can now see everything you've done. Despite this being an inherently AI powered feature. It just it can't distinguish between your regular computer usage and say, sensitive information passwords, health information, trade secrets, the very obvious

stuff you would not want your computer recording. It treats, I don't know, like an email from your doctor with the same level of concern and copying as it would like YouTube or a chat conversation. It's just really bad and already white hat security researchers they've created a proof of concept malware applications that can pull sensitive data obtained or generated by Microsoft Recall from your computer and with pretty minimal effort, And now the UK's Information Commissioner's Office,

the nation's privacy watchdog. By the way, they can actually do quite steep fines. It's not great. They're now probing whether the tech actually presents an unacceptable risk to consumers, which as anyone who thinks about it for more than twelve seconds or even five can confirm it does. It's just very frustrating, and who asked for this, who actually asked for this? Now, every major tech company they're integrating

AI into their products and services. Yeah, underneath the hood, the AI they're integrating doesn't actually seem to do anything new, or generate a profit or solve anyone's actual needs. Even the companies themselves seem incapable of explaining why AI is such a big deal. To the point of the Microsoft Super Bowl commercial for its AI powered co pilot assistant featured multiple things that it cannot do, like generate the code

for an open world game. When you, by the way, you type in the prompt, which on the commercial is three D generate the code for an open world three D game, and you type that in and it will give you a list of things you should do to build an open world game. It's so strange, and it's so strange how so many of these companies just can't really explain why this is the next best thing. They just need you to be even And maybe that might

actually be the problem. For decades, the tech industry and its various venture capital funders, they've been remarkably good at coming up with both innovative new products and ways to turn them into huge new markets For hypergrowth, one hundred billion trillion dollar markets that they could then sell in to investing companies. Within actual industries, you had search engines, digital maps, smartphones and apps, social media, cloud computing, software

as a service, electro cars, streaming audio and video. And also another thing. In the period between like two thousand and five and twenty twenty four, we've tripled the amount of people on the Internet. It's now over five billion people who use it. And that's also another problem I'll get to in a little bit. There were obvious meaningful

markets to move into. Ways to connect people, ways to get people content, they wanted algorithms to present it to them, ways to sell people, Things that solve problems that they had or either for the first time or solving them faster, like the transition from physical to digital media, and problems

that were both important to solve and actually solvable. Teke has perpetually succeeded at building things, new things that neatly create these new markets, and they've been incentivized by both the public and private markets in growing these companies as fast and as big as possible to dominate these new markets, with the assumption that there would always be more of them.

More massive, multi billion and multi trillion dollar markets to conquer, and it must be clear you should never assume anything. Between twenty twenty two and twenty twenty three, only one hundred million additional people got online, which is the slowest rate of growth in the last eighteen years. And that's not because the need to bring connectivity to the masses is actually solved. Especially in the global South. It hasn't been.

And as of the most recent figures from the UN's International Telecoms Union shows thirty three percent of the world's population, or about two point six billion people, have never actually used the Internet. But I have more worrying stuff. I've received some data from similar Web that shows that the majority of the Internet's top one hundred web properties have

seen significant declines in traffic since twenty twenty one. In the years since the world slowly emerged from lockdown, Google dot com has seen the decline of five point three percent in web visits, as has YouTube, which lost three point eight percent of its traffic, Facebook, which lost a remarkable twenty seven point seven percent, Twitter which lost three point five percent, Amazon which lost eleven point six percent, Twitch dot tv seventeen point five percent lost there. They

are owned by Amazon. Sadly, Wikipedia, which lost twenty four point eight percent of its traffic. And here's the thing that really worried me. Porn sites like ex videos twenty seven point four percent loss and porn harp seventeen point one percent loss. When the pawns down, that's that's when you start worrying. Though you might be tempted to dismiss this all as a result of life returning to normal and the traditional office based environments aren't particularly conducive to

a crafty mid day wank, you shouldn't. The trend actually began earlier, with similar Web data showing the declines starting in twenty nineteen. My analysis focus is in twenty twenty one to twenty twenty four because that's the one I have the most detailed month by month and year by year breakdowns for. And by the way, I'm going to put in the episode notes links to things so that you can all see this. I want you to know this date is very worrying. But don't trust me. Trust

the data from similar Web. When you look at the trajectory of the web's most valuable properties on a year over year basis, things look quite bleak, with Google which lost about point nine percent, YouTube lost about four point four percent, Facebook seven point seven percent loss, Twitter six point two percent loss, Twitch eleven point nine percent loss, and Amazon two point seven one percent loss, all still

seeing significant de clients. Only a few sites like Reddit, which saw a thirty one point three percent growth, TikTok eleven point six percent growth, and Instagram nine point nine percent growth but trending down every year since twenty nineteen, and also LinkedIn up seventeen point nine percent. They're the only ones that are really seeing good year over year growth.

And while it's important to note that these are visits rather than active users, and in fairness, this data only covers visits made through a browser rather than an app, this is still a truly astounding trend that suggests, for the most part that the web's largest platforms are seeing

kind of a digital recession. While there might be revenue coming to these companies and they might still be acquiring no users, there's really no good way to spin the fact that traffic to platforms like Amazon and Google has plateaued, then declined, something shifting downwards, and it's been doing so

since twenty nineteen. Perhaps this explains why platforms like Google and Facebook have kept making changes to make each USERG journey, create more engagement and make it more profitable to sustain growth because fewer people than ever are actually visiting the platforms.

I believe her at the end of something I called the rockcom boom, the tech industry's hypergrowth cycle, where there were so many new lands to conquer, so many new ways to pile money into, so many new innovative, useful ideas, that it felt like every tech company could experience perpetual

growth just by throwing money at a problem. It also explains why so many tech products YouTube, Google, Search, Facebook, and so on feel like they're either trapped in amber or like they've got tangibly worse, because when you think about it, when there's no incentive to improve the things you've already built, why would you You should just be working on the next big thing or new ways to reduce the thing you have right now to keep people

coming back, Yeah, maybe, but to keep people on the platform, sometimes by monopolizing an industry so they have nowhere else to go. And that's the thing. All of these come companies, Facebook, Google, Amazon, I mean all of them. They've all built themselves on this very simple idea that they'd always be a next big thing. And I'm not even saying that they won't be, but they've assumed, and the problem that they're facing right now is that there would always be one around the corner.

This belief that exponential growth is not just a reasonable expectation but a requirement is central to the core of the rot in the tech industry. And as these rapacious demands run into reality, I'm sorry to say that the rockcom bubble is going to deflate. And as we speak, the tech industry they're grappling with somewhat of a midlife crisis, and they're desperately searching for that next hyper growth market, and they're eagerly pushing customers and businesses to adopt this

technology that nobody actually asked for. They must keep the rot economy alive because if they don't, they're gonna they're gonna have to face the fact that they've built pretty unsustainable businesses. Even though they're profitable, they keep growing. The only thing that grows forever is cancer. The raw economy

and takes growth lust. It isn't new, though venture capital has been incentivizing and monetizing rot for over a decade, and Mark andrew's An advocated in twenty eleven that we should look to expand the number of innovative new software

companies created rather than constantly questioning their valuations. Yet just a year earlier, in March twenty ten, his partner Ben Horowitz, he advocated for fat startups, and I'll link to that in the notes, saying that you can't save your way to winning the market, and that startup purgatory is when you don't go bankrupt, but you fail to build the number one product in this space and have zero chance of becoming a high growth company, which, by the way,

Horowitz described this as worse than startup hell because you are and I quote stuck with the small company, even if it's cash flow positive. At the time, this might have made sense to them because this mindset made them quite rich, even though there's something inherently abnormal about describing being a staple profitable company as being an estate that's

worse than hell. Anyway, I want you to take a step back in time with me, though, and think about how much has changed in the last ten years, fifteen years. Think about it for a second. In twenty ten, it felt like we were just making our first steps into the digital world. It was still pretty new twenty ten. There was no Instacart. There was no Zoom, no Snapchat, no Lyft, no Tinder, no Slack, no Snowflake, no door Dash, no TikTok, no Discord, no Coinbase, no Robinhood. And there

wasn't any Venmo or Zel either. Tesla, Facebook, LinkedIn, Airbnb, Uber, Square, Alassian, Octa, Mongo dB, work Day, Palo Alto networks, Asana, UiPath, Spotify. They hadn't even gone public. Instagram was still independent, it wasn't part of Facebook yet, and consumer drones they hadn't reached. Ubiquity,

voice assistance hadn't even been launched. Full gled networks they were brand new, and Amazon Web Services, one of the most profitable things in the world, as I'll get to, was on course to make six hundred million dollars in revenue in twenty ten, which is, by the way, two point five percent of the twenty four billion that AWS on its own made in the first quarter of twenty

twenty four. Google and Apples stock prices were worth less than a tenth of what they are today, and Nvidia, a stock now worth over one thousand dollars traded at under three dollars a share. Between two thousand and five and twenty eighteen, we saw this incredible surge of innovation and tech valuations, and this kind of seemingly unstoppable period of growth and big sexy ideas that created big, sexier

new markets. While applications existed in two thousand and eight, Apple's App Store and the perpetual nature of connection that we get from smartphones. It consumerized the concept of distinct service based apps, as well as the overall concept of software ecosystems, which has become a multi trillion dollar philosophical and economic force, and it's changed just about everything about

how we communicate and even do business. It's remarkable and also was a new market just sitting there waiting for the hardware and software to catch up with it, and for someone to come up with the idea, of course, connecting people digitally through social media, voice, video, and so on.

It's been central to the hypergrowth cycle, with innovations like connectivity and cloud infrastructure allowing multiple companies to carve out these one hundred billion and trillion dollar ecosystems on some level, big tech companies could put money through research and development, investment, or acquisitions wherever they needed to as a means of making the future a reality, and thanks to the fact that interest rates were rock bottom and there was a

lot of private money going into startups, they were never really short of cash to do so. One point, hype began to outpace innovation, and while there were new ideas, the actual fundamental technology required to actually innovate may not actually exist, making a lot of these ideas theoretical and so far behind the cart that you may as well

shoot the horse dead. When Mark Zuckerberg renamed Facebook to Meta, he told Casey Newton, who by the way, should feel nothing but shame for accepting this in good faith, that he believed the metaverse was an embodied Internet that was a persistent, synchronous environment that would resembles social media but also be an environment where you're embodied in it. That's

a real quote. By the way, This is of course total nonsense, a total word salad that will make you throw up, conjured up by somebody without any real ideas that knows that they won't receive any pushback on them anyway, not even from those whose job it is to scrutinize the tech industry and ask the difficult questions so that people don't buy stupid Anyway, what Zuckerberg had actually built, by which for the most part I mean acquired, was

a half fast virtual world accessed through niche virtual reality technology that nobody asked for, that already kind of existed, that made people sick, and that Meta couldn't actually build.

And what Mark Zuckerberg wanted to do was built the successor to the mobile Internet in the hopes that quote the metaverse would be another hypergrowth industry where people would buy land which they didn't, or hang out on mass which they didn't, or have meetings which they did not, all while sharing data and watching ads served by Meta

and other companies that Meta could sell ads too. In this cynical, horrible version of the future, the Internet, neutral standards based and controlled by no single company would be transformed into a platform, a feudal system where Meta would set the rules an exactor cut from each engagement, interaction and transaction. It was quite plainly a power grad the likes of which the Internet hasn't seen since the bleak days of Internet Explorer six and Active X if you

don't know what those are. Microsoft has some evil things in the past. The tech, however, it was never there. Mark Zuckerberg sold everybody on the concept of a Ready Player one Metaverus and putting aside for a second that Ready Player one is a poorly written dystopia. This vision hinges heavily on the idea of technology that completely immerses the user and their senses and makes them feel like they're actually in a world, which is just insane. It's

not possible, It's not even close to possible. We're talking about full sensory takeover and the ability to traverse the digital world somehow without moving. This would be a revolution, both in cloud computing because just the raw data would be insane, but also immersive technology. Just what was everyone doing accepting this idea, And let's be honest, the reality was just so much worse. You had these nausea inducing headsets that led you into this horrible, clunky, cartoon world.

It wasn't fun or practical or useful, and tens of billions of dollars of R and D costs developing headsets that lose money on every sale. It's just insane. By the way, Mark Zuckerberg has spent tens of billions of dollars, and I realized sometimes people don't like it when I get yelly, and I apologize. But where has the thirty billion dollars gone? What has Mark Zuckerberg done with it? Where is it going? I don't know. I'm not accusing anyone of anything, but the whole thing just feels like

a con. And Zuckerberg's glossy Metaverse video the first one he published when they rebranded Facebook to Meta. It was significant in quite a few ways. First of all, the most disgusting bullshit I've ever seen a tech company put out, just complete lies. But it was also a demonstration of the company's future ambitions and directions, and it showed exactly

what they hoped they could build. And had Zuckerberg actually done so, I would have said it would have been a success, But said success would have been predicated on a pace of innovation that we haven't had in for a decade or longer. I don't actually know how we get to anything close to what Mark Zuckerberg was selling, But forty billion dollars later, the Metaverse is just nowhere near close to existing. And yet he keeps burning cash in the hopes that he can get just one more

hit of hypergrowth. Man, that's all Mark Zuckerberg needs. Just one more hit, brother, Just give me a little more growth. I'll be okay. I swear I won't need any in the future. Putting that aside, I really think this is why Zuckerberg is so full force on generative AI. He shoved it into every meta platform now, regardless of whether it does anything useful, whether it's doing anything weird, like commenting on a parenting group that it has a gifted

child and telling parents where to take their kids. It's just so weird. And it's the same reason that Sun Dhar Pashai and Liz Reader forcing generative AI into Google Search, even as it misinforms customers and it's recommending people put glue on their pizza and eat rocks, and it's claiming that Barack Obama is a muzzle, and it's regurgitating stories from the Onion as indisputable fact, and it's just it's

very frustrating. You can hear it in my voice. But it all comes down to a simple problem, which is the tech industry is getting withdrawal symptoms. They're realizing there might not be any massive new markets. They might not be another way to create another billion dollar arm of a trillion dollar enterprise. And on some level, I believe that the industry wide alignment around this unprofitable, unsustainable AI tool is just proof that they're getting desperate and that

some of them might be irredeemably washed. Why else would Sam Altman spend most of the time talking about what AI might do. Why else would Sam Altman talk so often about building artificial general intelligence, a thing that, as I have mentioned, is totally and utterly impossible to build with any of the generative AI tech his company makes, and likely requires kinds of computing that do not exist. Yet. It's really frustrating, and the rock com bubble bursting is

it's going to be nasty for bid Tech. It's going to wash out at least one of these companies, and it might take years to happen. But the growth trend is reversing. Every single one of these companies with a few exceptions, I realize, is seeing traffic declines and they're not improving. Perhaps they will find new ways, but where are they going to find them? What are the things they're going to do? What happens when none of this

stuff actually is the future. What happens when Google Search tells someone to actually do something that kills them how to clean up a chemical firing correctly, for example. There are very real ways that these things are going to hurt people. But putting that aside, even if they don't, they're not going to make them the kind of money and get them the kind of customers that they needed

to perpetually show perpetual growth. As I said last episode, two episodes ago, Facebook is dying and Facebook's dying because I actually believe Mark Zuckerberg is quite innovative about one thing, which is he can smell blood in the water, except now he can smell his I think Mark Zuckerberg realized that this was happening many years before everybody else, and that's why he pushed the metaverus in twenty twenty one. That's why he was talking about Web three and twenty

twenty one. That was a very very easy year to get money, and it was a year when people were aggressively buying things, so it was a great time to sell new ideas. Also, I think he read Ready Player one and they actually liked it, which is so strange. But either way, I do think Zuckerberg's an innovator because he's realized that the highpergrowth era is over and he's really trying to create the next best thing. Now, Notice

I didn't say something good or something useful. That's just not in Zuckerberg's DNA, and it's not in Sundhar Pashai or sam Or or satch In Adela's either Microsoft, Amazon, Meta. These companies are not innovative anymore because they're no longer engineered to be. When the living was free and easy, when there were tons of these markets to attack and grow and eat and shit out the other way and make money from, they just needed a management consultant mindset.

It was growth at all costs. It was growth all the time, because all they had to do was throw more money at the problem and they'd always keep growing. And to their credit, they have been. But mark my words, they're not going to grow forever. And they don't have a next trick. They don't have the next one billion user product, they don't have the next innovation, and I don't think they're going to have it for a long time. And this is why all of this stuff feels kind

of weird. It's why all of this stuff doesn't seem to be solving a need that you or I have, or that even a business has, And it's why so often it feels like they're pleading with us to believe that this is the future. Companies that build useful things that people need don't need to talk about what they're build in the future. You can see it in the things they're selling you today. You could see in the early days of cloud computing, how you bickered with storage

like Dropbox or Box might have existed. I was using FTT. Thank god for Dropbox, honestly, but seriously, you could see why these things were the future. And in the next episode, I'm going to walk you through how the tech industries promises no longer actually seem to match their ability to build things and how this desperation I've been discussing shows that were close to the rockcom bubble bursting. Thanks for listening, Thank you for listening to Better Offline. The editor and

composer of the Better Offline theme song is Matasowski. You can check out more of his music and audio projects at Matasowski dot com m Att w Ski dot com. You can email me at easy at Better Offline dot com or visit better Offline dot com to find more podcast links and of course my newsletter. I also really recommend you go to chat dot Where's Youreed dot at to visit the discord, and go to our slash Better Offline to check out our reddit. Thank you so much

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